RE:Convertible DebentureGood Morning... It's quite the read but here you go.......Each Debenture will be convertible into common shares of the Corporation (“Common Shares”) at the option of the holder of the Debenture at any time prior to the close of business on the earlier of (i) the business day immediately preceding the Maturity Date and (ii) the business day immediately preceding the date specified by the Corporation for redemption of the Debentures, at a conversion price of $1.40 per Common Share (the “Conversion Price”), being a conversion rate of approximately 714.2857 Common Shares per $1,000 principal amount of Debentures, subject to adjustment in certain events as described in the Indenture (as defined herein). In the event that the conversion privilege is not exercised by any holders of Debentures, the Corporation may elect to satisfy its obligation to repay the principal amount of such Debentures which are to be redeemed or the principal amount of the Debentures which are due on the Maturity Date, as the case may be, in whole or in part, by issuing Common Shares to the holders of the Debentures. Lake Shore Gold’s outstanding Common Shares are listed for trading on the Toronto Stock Exchange (the “TSX”) under the symbol “LSG” and on the NYSE MKT, LLC (the “NYSE MKT”) under the symbol “LSG”. On August 29, 2012, the last trading day prior to the date of this short form prospectus, the closing price of the Common Shares on the NYSE MKT and the TSX was US$1.02 and $1.00 per Common Share, respectively. There is currently no market through which the Debentures may be sold and purchasers may not be able to resell the Debentures purchased under this short form prospectus. This may affect the pricing of the Debentures in the secondary market, the transparency and availability of trading prices, the liquidity of the securities, and the extent of issuer regulation. See “Risk Factors”. The TSX has conditionally approved the listing of the Debentures to be distributed under this short form prospectus on the TSX under the symbol “LSG.DB” and the Common Shares issuable on conversion, redemption or maturity of the Debentures on the TSX and the NYSE MKT. Listing is subject to the Corporation fulfilling all of the requirements of the TSX and the NYSE MKT. The Debentures may not be redeemed by the Corporation prior to September 30, 2015 except they may be repurchased upon satisfaction of certain conditions after a Change of Control (as defined under “Details of the Offering - Change of Control of the Corporation”) has occurred. On and after September 30, 2015 and prior to the Maturity Date, the Debentures may be redeemed, in whole at any time or in part from time to time, by the Corporation on not more than 60 days and not less than 30 days prior notice at a price equal to their principal amount plus accrued and unpaid interest to, but excluding, the date of redemption, provided that the volume-weighted average trading price of the Common Shares on the TSX for the 20 consecutive trading days ending five trading days prior to the date on which notice of redemption is given is not less than 130% of the Conversion Price. Subject to regulatory approvals and provided that no default or event of default has occurred and is continuing under the Indenture, the Corporation may, at its option, on not more than 60 days and not less than 40 days prior notice, elect to satisfy its obligation to repay the principal amount of the Debentures which are to be redeemed or the principal amount of the Debentures which are due on the Maturity Date, as the case may be, in whole or in part, by issuing freely tradable (in Canada) Common Shares to the holders of the Debentures. Any accrued and unpaid interest thereon will be paid in cash. The number of Common Shares to be issued will be determined by dividing the aggregate principal amount of the outstanding Debentures which are to be redeemed or which have matured, as the case may be, by 95% of the Current Market Price (as defined herein). Further particulars concerning the interest, redemption and maturity provisions of the Debentures are set out under “Details of the Offering”. DETAILS OF THE OFFERING The following is a summary of the material attributes and characteristics of the Debentures and is subject to, and qualified in its entirety by, reference to the terms of the Indenture (as defined below). The Indenture will be available for inspection at the offices of the Debenture Trustee (defined below) and will be filed on SEDAR at www.sedar.com. General The Debentures will be issued under a trust indenture (the “Indenture”) dated the Closing Date between the Corporation and Computershare Trust Company of Canada, as trustee (the “Debenture Trustee”). The aggregate principal amount of the Debentures authorized for issue immediately will be limited to the aggregate principal amount of $90,000,000 (up to $103,500,000 if the Over-Allotment Option is exercised in full). However, 19 the Corporation may, from time to time, without the consent of holders of Debentures, issue additional Debentures of the same series or of a different series under the Indenture. References in this section to “debentures” is a reference to all debentures outstanding from time to time under the Indenture, as it may be further supplemented from time to time. The Debentures will be dated as at the Closing Date and will be issuable only in denominations of $1,000 and integral multiples thereof. The Maturity Date for the Debentures will be September 30, 2017. The Debentures will bear interest from the date of issue at 6.25% per annum, which will be payable semi annually in arrears on March 31 and September 30 in each year, commencing on March 31, 2013. The first interest payment will include interest accrued from the closing of this Offering to, but excluding, March 31, 2013. The principal amount of the Debentures will be payable in lawful money of Canada or, at the option of the Corporation and subject to applicable regulatory approval, by payment of Common Shares as further described under “Details of the Offering — Payment upon Redemption or Maturity” and “Details of the Offering — Redemption and Purchase”. The interest on the Debentures will be payable in lawful money of Canada. The Debentures will be direct obligations of the Corporation and will not be secured by any mortgage, pledge, hypothec or other charge and will be subordinated to other liabilities of the Corporation as described under “Details of the Offering — Subordination”. The Indenture will provide that Secured Indebtedness of the Corporation and any material holding companies of the Corporations and any future material subsidiaries of the Corporation (such holding companies and subsidiaries being the “Guarantors”) shall not exceed the Specified Limit. The “Specified Limit” means (i) the indebtedness owing to the lenders pursuant to the Sprott Credit Agreement including any replacements, refinancing and refunding of such indebtedness up to the maximum principal amount of $70 million plus (ii) the Secured Indebtedness contemplated under the Sprott Credit Agreement as permitted indebtedness, which includes indebtedness under capital leases and purchase-money obligations. The Guarantors, if any, will fully and unconditionally guarantee the Debentures on a senior unsecured basis. The Corporation does not expect there to be any Guarantors at the Closing Date. Conversion Privilege Holders may convert their Debentures into Common Shares at any time prior to 5:00 p.m. (Toronto time) on the earlier of (i) the business day immediately preceding the Maturity Date and (ii) the business day immediately preceding the date specified by the Corporation for redemption of the Debentures, at a Conversion Price of $1.40 per Common Share, being a conversion rate of approximately 714.2857 Common Shares per $1,000 principal amount of Debentures, subject to adjustment in certain events as described in the Indenture. Holders converting their Debentures will receive all accrued and unpaid interest thereon to, but excluding, the date of conversion (less any taxes required to be deducted), and such holders shall become holders of record of Common Shares on the business day immediately after the date of conversion. Notwithstanding the foregoing, no Debentures may be converted on the day interest is payable under the Indenture (the “Interest Payment Date”) or during the five preceding business days. Holders of Debentures surrendered for conversion on an Interest Payment Date or during the five preceding business days shall not become the holders of record of Common Shares until the business day following such Interest Payment Date. A Debenture which has been tendered for purchase by its holder pursuant to a Debenture Offer (as described below) or in respect of which a holder has accepted a notice in respect of a Debenture Offer requiring the Corporation to purchase the Debenture may be surrendered for conversion only if such Debenture Offer or notice, as applicable, is withdrawn in accordance with the Indenture. A holder may convert fewer than all of such holder’s Debentures so long as the Debentures converted are an integral multiple of $1,000 principal amount of Debentures. Subject to the terms of the Corporation’s existing and future credit agreements and other agreements, including the Sprott Credit Agreement, a holder of a Debenture otherwise entitled to a fractional Common Share will receive cash equal to the fraction of the Common Share multiplied by the Current Market Price as at the date of conversion. No adjustment to the Conversion Price for the Debentures will be made for distributions or dividends (except as set forth below) on Common Shares issuable upon conversion or for interest accrued on Debentures surrendered for conversion; however, holders converting their Debentures shall be entitled to receive, in addition to the applicable number of Common Shares, accrued and unpaid interest payable in cash (less any taxes required to be deducted) in respect thereof for the period up to, but excluding, the date of conversion from, and including, the most recent Interest Payment Date. For clarity, payment of such interest, in cash, may, at the option of the Corporation, be paid on the next regularly scheduled Interest Payment Date following the date of conversion. Holders of Debentures surrendered for conversion during the period from the close of business on any regular record date to the opening of business on the next succeeding Interest Payment Date will receive the semi annual interest payable on such Debentures on the corresponding Interest Payment Date notwithstanding the conversion (less any taxes required to be deducted). In the event that a holder of Debentures exercises their conversion right following a notice of redemption by the Corporation (as further described under “Details of the Offering — Redemption and Purchase”) and during the period from the close of business on any regular record date to the opening of business on the next succeeding Interest Payment Date, such holder will be entitled to receive accrued and unpaid interest in cash, in addition to the applicable number of Common Shares to be received on conversion (less any taxes required to be deducted) for the period from the last Interest Payment Date to but excluding the date of conversion. The conversion ratio will not be adjusted for accrued interest. Subject to the provisions thereof, the Indenture will provide for the adjustment of the conversion rate in certain events including: (a) the subdivision or consolidation of the outstanding Common Shares; (b) the issuance of Common Shares or securities convertible into Common Shares by way of stock dividend or other distribution; (c) the issuance of options, rights or warrants to all or substantially all holders of Common Shares entitling them to acquire Common Shares or other securities convertible into Common Shares at less than 95% of the then Current Market Price of the Common Shares; (d) the distribution to all or substantially all holders of Common Shares of any securities (other than Common Shares) or other assets; (e) the payment to all or substantially all holders of Common Shares of cash or any other consideration in respect of an issuer bid for Common Shares by the Corporation or any of the Corporation’s subsidiaries to the extent that the cash and fair market value of any other consideration included in the payment per Common Share exceeds the Current Market Price of the Common Shares on the date of expiry of such issuer bid; and (f) the payment of cash dividends to holders of the Common Shares. There will be no adjustment of the Conversion Price in respect of any event described in (b), (c), (d), (e) or (f) above if the Corporation allows holders of the Debentures to participate as though they had converted their Debentures prior to the applicable record date or effective date. The Corporation will not be required to make adjustments in the Conversion Price unless the cumulative effect of such adjustments would change the Conversion Price by at least 1%. However, the Corporation will carry forward any adjustments that are less than 1% of the Conversion Price and take them into account when determining subsequent adjustments. In the event that the Corporation pays a special dividend or makes a special distribution to all or substantially all holders of Common Shares consisting of common shares of, or similar equity interests in, a subsidiary or other business unit of the Corporation, the conversion rate will be adjusted based on the market value of the securities so distributed relative to the market value of Common Shares, in each case based on the volume weighted average trading price of those securities for the 20 consecutive trading days commencing on and including the fifth trading day after the date on which “ex-dividend trading” commences for such dividend or distribution on the TSX, or if not traded on the TSX, on such other exchange or market on which the securities are then listed or quoted. No conversion rate adjustment will be made to the extent that the Corporation makes an equivalent distribution to holders of Debentures.