Securities Law & Instruments


Rule61-501 - Related party transaction - Relief from valuation requirementsgranted in connection with: (i) proposed special warrant offeringwhere issuer's largest shareholder will purchase that numberof securities so as to maintain its pro rata interest; and (ii)replacement of a short-term debt instrument held by largestshareholder with a longer-term convertible debt instrument -special warrant offering price to be determined by underwritersand independent directors of issuer - conversion price of newdebt instrument will be at a premium to both special warrantoffering price and current market price - transactions willbe subject to minority shareholder approval.


Rule61-501 - Insider Bids, Issuer Bids, Going Private Transactionsand Related Party Transactions, ss. 5.5 and 9.1








UPONthe application of Northgate Exploration Limited ("Northgate")to the Director for a decision pursuant to section 9.1 of Rule61-501 that, in connection with certain special warrant offeringsand a conversion of certain indebtedness, all of which involveTrilon Financial Corporation and companies in which Trilon FinancialCorporation has a significant economic interest (collectively,"Trilon") and Northgate, Northgate be exempt from section 5.5of Rule 61-501 (the "Valuation Requirement");

ANDUPON considering the application and the recommendationof staff of the Commission;

ANDUPON Northgate having represented to the Director asfollows:

1.Northgate is a corporation incorporated under the laws of Ontarioby Letters Patent dated January 7, 1919.

2.Northgate is a reporting issuer in each of the provinces ofCanada and is not on the Commission's list of defaulting reportingissuers.

3.The authorized capital of Northgate consists of an unlimitednumber of Class A and Class B Preference Shares and an unlimitednumber of common shares. As at September 30, 2001, no preferenceshares and 30,231,156 common shares were issued and outstanding.

4.The common shares of Northgate are listed on The Toronto StockExchange (the "TSE") and are currently trading at approximately$1.35 per share.

5.Northgate is a mid-tier gold mining company with investmentsin North and South America. Northgate's primary asset is theKemess Mine located in British Columbia, which produces goldand copper.

6.Trilon Financial Corporation is a finance company that providesmerchant banking, asset management, corporate services, investmentbanking, brokerage services and commercial financing. The securitiesof Trilon are listed on the TSE. Trilon's principal shareholderis Brascan Corporation which owns 58% of Trilon's outstandingClass A common shares and 99.9% of its outstanding Class B commonshares.

7.Trilon indirectly holds approximately 34.7% of the outstandingNorthgate common shares. Consequently, Trilon is a related partyof Northgate for the purposes of Rule 61-501.

8.Northgate is currently indebted to Trilon in the approximateaggregate amount of $130 million, including accrued interest(the "Trilon Debt"). This indebtedness becomes due and payableon December 31, 2001. Certain terms of the Trilon Debt wererenegotiated when it initially fell due in 2000, pursuant towhich Northgate has the right (subject to regulatory approval)to pay interest and principal, when due, in common shares, ata price equal to 95% of the average trading price of the commonshares on the TSE for the 20 consecutive trading days priorto Northgate's notice of its intention to pay in shares. Thisoption can be exercised only with respect to all outstandingindebtedness and notice must be given at least 30 days beforematurity. As a result of the renegotiated terms, the TrilonDebt was reclassified as equity (the "Capital Securities") onNorthgate's balance sheet. Earnings per share and other pershare financial indicators are determined as if the CapitalSecurities had been converted into common shares by Northgate.

9.Northgate wishes to stabilize its capital by repaying part ofthe Capital Securities (between $70 and $100 million) and convertingthe remaining Capital Securities (between $30 and $60 million)into a convertible debenture or convertible preference shares(together, "Convertible Instrument"), convertible into commonshares of Northgate at a price equal to the price at which thecommon shares are valued for purposes of the unit offering describedbelow plus a standard market premium (and such price would inany case exceed the price at which the common shares of Northgatetrade on the TSE as of the date of issuance of the ConvertibleInstrument). The Convertible Instrument would bear a maturityof five years, being significantly longer than the maturityof the Capital Securities.

10.Northgate is proposing to raise approximately $25 to $45 millionby way of a unit offering (each unit consisting of one commonshare and one-half of a common share purchase warrant exercisableinto one-half of a common share) by way of a special warrantoffering or on a fully-marketed prospectus basis (the "UnitOffering"). Northgate is also contemplating making a $5 millionoffering of flow-through shares by way of a special warrantoffering or a fully-marketed prospectus offering (the "Flow-throughOffering"). The aggregate proceeds of the Unit Offering andFlow-through Offering will be used to partially repay the CapitalSecurities.

11.Northgate further contemplates effecting an offering of rights(the "Rights Offering") to purchase common shares to commonshareholders of record on a date prior to the conversion ofthe special warrants or closing of the fully-marketed prospectusofferings (i.e. special warrant holders and/or unitholders andflow-through shareholders will not participate in the RightsOffering) at the same price as that attributed to the commonshares under the Unit Offering. The Rights Offering will bemade by way of a prospectus. The Rights Offering is currentlyestimated at between $30 and $60 million. Northgate intendsto adjust the size of the Rights Offering based upon the levelof response to the Unit Offering and Flow-through Offering suchthat in the aggregate, between $70 and $100 million will beraised. Trilon will exercise its rights to the extent of itsproportionate interest in Northgate. Trilon will also providea standby commitment to take up unexercised rights. The standbycommitment will comply with applicable securities laws relatingto rights offerings.

12.Northgate anticipates that the Unit Offering and Flow-throughOffering will be conditional upon:

(i) Northgate and Trilon agreeing to convert the unpaid portionof the Capital Securities into a Convertible Instrument witha maturity date of five years from the date of issuance;

(ii) in connection with the Unit Offering, Trilon agreeing topurchase that number of units necessary in order to maintainits indirect interest in Northgate prior to including the CapitalSecurities (being 34% of the outstanding common shares);

(iii) Northgate committing to conduct the Rights Offering; and

(iv) Trilon providing a standby commitment for the Rights Offering.

13.As part of the Unit Offering, Trilon will purchase units tothe extent of its interest in Northgate. Trilon will not participatein the Flow-through Offering. Trilon may act as underwriterin respect of the offerings (with an anticipated position ofbetween 2.5 and 10% of the offerings), which will comply withapplicable securities laws regarding conflict of interest.

14.The fair market value of the Convertible Instrument and Trilon'sinvolvement in the Unit Offering could be more than 25% of Northgate'scurrent market capitalization.

15.Trilon's involvement in the Rights Offering is exempt from theValuation Requirement by virtue of Section 5.6(5) of Rule 61-501.However, no exemption from the Valuation Requirement is availablein respect of:

(i) the issuance of unit special warrants or units to Trilonin connection with the Unit Offering pursuant to Trilon's commitmentto purchase that number of unit special warrants or units necessaryin order to maintain its indirect interest in Northgate (withoutincluding the Capital Securities) and the issuance of units,common shares and common share purchase warrants to Trilon uponexercise of the special warrants, units and common share purchasewarrants by Trilon; and

(ii) the issuance of the Convertible Instrument to Trilon andthe common shares issuable upon conversion of the ConvertibleInstrument.

The transactions described in this paragraph are collectivelyreferred to as the "Related Party Transactions".

16.Northgate will hold a meeting of its shareholders in order toseek approval of the minority shareholders of Northgate in accordancewith Rule 61-501 (i.e. excluding Trilon and any relatedparty of Trilon and any person or company acting jointly orin concert with such persons or companies) in respect of theRelated Party Transactions.

17.The proceeds raised pursuant to the Unit Offering and Flow-throughOffering will not be released to Northgate until it obtainsapproval of the Related Party Transactions by Northgate's minorityshareholders.

18.The terms of the Unit Offering (which will determine the conversionprice of the Convertible Instrument), Flow-through Offeringand Rights Offering will be determined by the underwriters ofsuch offerings and will be supervised by independent directorsof Northgate.

19.A formal valuation will create additional expense which willoutweigh the benefit of the information it provides, since thedisclosure of the terms of the Related Party Transactions willprovide the Northgate minority shareholders with the informationthey need to make a reasonably informed voting decision.

ANDUPON the Director being satisfied that to do so wouldnot be prejudicial to the public interest;

ITIS DECIDED pursuant to Section 9.1 of Rule 61-501 that,in connection with the Related Party Transactions, Northgateshall not be subject to the Valuation Requirement, providedthat Northgate complies with the other applicable provisionsof Rule 61-501.

October23, 2001.