Northhampton Group Inc. - MRRS Decision

Headnote

Mutual Reliance Review Systemfor Exemptive Relief Applications - application for relief fromregistration and prospectus requirements in connection withproposed issuance of warrants by issuer to holders of unsecuredconvertible debentures of the issuer in connection with proposedrenegotiation of the terms of the debentures - debentures willshortly become due - issuer wishes to propose a renewal of thedebentures for a further five-year term, with certain amendments,including the elimination of the current conversion featureand a separate issuance of warrants - issuance of stand-alonewarrants in effect substitutes the form of conversion feature,but not the substance of the initial conversion right - debentureholderswho do not wish to receive the amended debentures will be paidthe principal amount plus interest on maturity date - reliefgranted subject to conditions.

Applicable Ontario Statutes

Securities Act, R.S.O. 1990,c. S.5, as am., ss. 25, 53 and 74.

IN THE MATTER OF

THE SECURITIES LEGISLATIONOF

BRITISH COLUMBIA, ALBERTAAND

ONTARIO

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEWSYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

NORTHAMPTON GROUP INC.

MRRS DECISION DOCUMENT

WHEREAS the Canadiansecurities regulatory authority or regulator (the "DecisionMaker") in each of British Columbia, Alberta and Ontario(collectively, the "Jurisdictions") has received anapplication (the "Application") from Northampton GroupInc. ("Northampton") for a decision pursuant to thesecurities legislation of the Jurisdictions (the "Legislation")that the registration requirement and the prospectus requirementin the Legislation shall not apply to the proposed issuanceby Northampton of warrants (the"Warrants") to purchaseup to 2,656,500 common shares in the capital of Northampton(the "Common Shares") to holders (the "Debentureholders")of unsecured debentures of Northampton (the "Debentures")in connection with a proposed renegotiation of the terms ofthe Debentures (the "Refinancing");

AND WHEREAS pursuantto the Mutual Reliance Review System for Exemptive Relief Applications(the "System"), the Ontario Securities Commissionis the principal regulator for the Application;

AND WHEREAS Northamptonhas represented to the Decision Makers that:

1. Northampton is a corporationincorporated under the Business Corporations Act (Ontario),and is engaged with its subsidiaries, associates and affiliatesin the business of hotel ownership, management, developmentand construction in the mid-market hotel sector.

2. The authorized capitalof Northampton consists of an unlimited number of Common Sharesand an unlimited number of voting preference shares (8% non-cumulative,non-participating, redeemable and retractable at the paidup amount). As at March 31, 2002 a total of 20,830,559 CommonShares and 5,500,000 preference shares were issued and outstanding.

3. Northampton has $3,450,000aggregate principal amount of Debentures outstanding. TheDebentures were issued on July 22, 1997 pursuant to a prospectusfiled in Ontario on July 11, 1997. The Debentures mature onJuly 22, 2002, bear interest at 9% and are convertible intocommon shares at a rate of $0.80 per common share. The Debenturesare held by more than 100 Debentureholders, excluding thoseheld by persons related to Northampton's management or majorshareholder.

4. Shihasi Financial Corporation,a private company incorporated under the Business CorporationsAct (Ontario), of which the four directors also constitutea majority of directors of Northampton, beneficially own orexercise control or direction over approximately 70.32% ofthe outstanding Common Shares on a non-diluted basis.

5. Northampton is a reportingissuer in each of the Jurisdictions and is not on the listof defaulting reporting issuers established pursuant to theLegislation.

6. Northampton's Common Sharesand Debentures are listed on TSX Venture Exchange and tradeunder the symbols "YNH" and "YNH.DB",respectively. The Common Shares last traded on the TSX VentureExchange on June 11, 2002 at $0.52 (other than an odd lottrade on June 20, 2002 at $0.49). The Debentures last tradedon June 26, 2002 on the TSX Venture Exchange at $98. The Debenturesare in good standing.

7. Northampton filed its initialAIF on March 6, 2002. Northampton has applied to the TSX VentureExchange to amend its current "Tier Three" tradingstatus to "Tier One" or "Tier Two" onthe TSX Venture Exchange, and upon receipt of approval forsuch amendment will be a "qualifying issuer" assuch term is defined in Multilateral Instrument 45-102 Resaleof Securities ("MI 45-102").

8. Although Northampton hasenjoyed over five years of profitable growth since the issuanceof the Debentures, Northampton has reinvested its cash flowinto its business and, as a result, is not in a position torepay all of the Debentures on their due date of July 22,2002 without a new financing. In addition, Northampton wouldlike to preserve its existing capital structure and maintainits public Debentureholder base.

9. Accordingly, Northamptonproposes to amend the terms of the Debentures to provide fori) a renewal of the term for a further five years, ii) theelimination of the current conversion feature; (iii) an increasein the interest rate from 9% to 10% per annum, (iv) a modificationof its leverage ratio covenant, and (v) the issuance to theDebentureholders of certain Warrants, as described below.

10. Subject to the reliefrequested in this Application being granted, Northampton proposesto issue to the Debentureholders 770 Warrants per $1,000 principalamount of Debentures held, or 2,656,500 Warrants in total.Each Warrant represents the right to purchase one Common Shareof Northampton at prices as follows:

$0.65 from July 22, 2002to January 22, 2004;

$0.75 from January 22,2004 to July 22, 2005; and

$0.90 from July 22, 2005to July 22, 2007.

11. Northampton proposes tolist the Warrants on the TSX Venture Exchange.

12. Northampton estimatesthat the initial trading value of the Warrants will be approximately$0.01 per Warrant, and that the aggregate value of the Warrantsto be issued upon their initial distribution is approximately$25,000 or less than one per cent of the $3.45 million outstandingDebentures.

13. The issuance of Warrantsis intended to replace the existing conversion feature ofthe Debentures. Consequently, the amended Debentures willnot carry a conversion feature.

14. Under the terms of therestructuring, Jones, Gable & Co., a registered dealer,will receive an advisory fee equal to 4.75% of the principalamount of non-insider Debentures which are extended for afurther term.

15. Debentureholders wishingto participate in the restructuring will be required to electto receive the amended Debenture plus Warrant. Debentureholderswho do not wish to receive the amended Debentures will bepaid the principal amount plus interest on the Debenturesto which they are entitled as of the Maturity Date.

AND WHEREAS pursuantto the System this MRRS Decision Document evidences the decisionof each of the Decision Makers (collectively, the "Decision");

AND WHEREAS each of theDecision Makers is satisfied that the test contained in theLegislation that provides the Decision Maker with the jurisdictionto make the Decision has been met;

THE DECISION of the DecisionMakers under the Legislation is that the registration requirementand the prospectus requirement shall not apply to the issuanceof Warrants to the Debentureholders in connection with the Refinancingprovided that the first trade in Warrants acquired pursuantto this Decision in a Jurisdiction shall be deemed to be a distributionunder the Legislation of such Jurisdiction unless

(i) if Northampton was a qualifyingissuer, as defined in MI 45-102, at the distribution date,the conditions in subsection (3) of section 2.6 of MI 45-102Resale of Securities are satisfied; or

(ii) if Northampton was nota qualifying issuer at the distribution date, the conditionsin subsection (4) of section 2.6 of MI 45-102 are satisfied.

July 12, 2002.

"Paul Moore"                    "RobertW. Korthals"