Sahelian Goldfields Inc. - ss. 74(1)

le 14 mai 2002

Ruling

Headnote

Subsection 74(1) - exemption from prospectusand registration requirements for issuance of securities tocreditors of issuer pursuant to proposal made under Bankruptcyand Insolvency Act (Canada), subject to certain conditions -first trades by arm's length creditors subject to conditionssimilar to conditions in subsections (3) or (4) of section 2.6of Multilateral Instrument 45-102: Resale of Securities - firsttrades by non-arm's length creditors subject to conditions similarto conditions in subsections (2) or (3) of section 2.5 of MultilateralInstrument 45-102: Resale of Securities.

Statutes Cited

Securities Act, R.S.O. 1990, c. S.5, as amended,ss. 25, 53, 72(4), 72(5) and 74(1).
Business Corporations Act, R.S.O. 1990, c. B.16.

Rules Cited

Multilateral Instrument 45-102: Resale of Securities.

IN THE MATTER OF
THE SECURITIES ACT,
R.S.O 1990, CHAPTER S.5, AS AMENDED

AND

IN THE MATTER OF
SAHELIAN GOLDFIELDS INC.

RULING
(Subsection 74(1))

UPON the application (the "Application")of Sahelian Goldfields Inc. (the "Applicant"), a reportingissuer in the Provinces of Ontario and British Columbia, tothe Ontario Securities Commission (the "Commission")for a ruling pursuant to subsection 74(1) of the SecuritiesAct (Ontario) (the "OSA") that the proposed issuanceof a maximum of 51,075,745 common shares (the "Common Shares")to the creditors of the Applicant under the Proposal (as hereinafterdefined) is not subject to section 25 and section 53 of theOSA;

AND UPON considering the Applicationand the recommendation of the staff of the Commission;

AND UPON the Applicant having representedto the Commission that:

1. The Applicant was created on October 1, 1997by Articles of Amalgamation under the Business CorporationsAct (Ontario), by the amalgamation of Sahelian Goldfields Inc.and Sahelian Goldfields Ltd.

2. The Applicant is a reporting issuer underthe securities legislation (the "Legislation") ofthe Provinces of Ontario and British Columbia.

3. The Applicant is a mineral exploration anddevelopment company.

4. The securities of the Applicant were quotedon the Canadian Dealing Network and no securities of the Applicantare currently listed or quoted on any exchange or market.

5. The Applicant's authorized capital consistsof an unlimited number of Common Shares of which approximately20,000,000 were issued and outstanding as at the date of theProposal (as hereunder defined).

6. On July 20, 2001, the Applicant, acting throughits trustee, KPMG Inc., Toronto (the "Trustee"), fileda proposal (the "Proposal") to its creditors underthe Bankruptcy and Insolvency Act (Canada) (the "BIA").The Proposal, the Trustee's report and overview of the Proposaldescribing the financial circumstances of the Applicant's financialdifficulties was sent to the Applicant's creditors in accordancewith the provisions of the BIA. As of the date of filing ofthe Proposal, the Applicant's creditors have been stayed fromtaking action against the Applicant. The Applicant has not beenplaced into receivership or bankruptcy.

7. The Proposal was approved by the majorityof the Applicant's creditors at a meeting duly convened andheld for such purpose, on August 8, 2001.

8. The Trustee submitted the Proposal to theSuperior Court of Ontario (the "Court") which issuedan Order dated September 6, 2001, approving the Proposal unconditionally(the "Court Order").

9. The Proposal also provided that, creditors'acceptance of same notwithstanding, additional approvals wouldbe required from the Court, the Applicant's shareholders andthe relevant regulatory authorities.

10. Under the Proposal, creditors will receiveCommon Shares (the "Proposal Shares"), upon reorganization,at a price of $0.02 per share and in a number equal to the ratioof $0.10 for each dollar in proven claims. Proven claims willbe converted to Canadian dollars, where required, based on foreignexchange rates in effect at the end of the day on July 20, 2001.It is further provided that the distribution of the ProposalShares will be made by the Trustee pursuant to section 60(3)of the BIA.

11. As a consequence of the Proposal and theproposed issuance of the Proposal Shares, all of the Applicant'sdebts to its creditors would be either compromised or settled.

12. The securities of the Applicant are subjectto a cease trade order (the "OSC Cease Trade Order")issued by the Commission on June 14, 2000, which extended atemporary cease trade order issued on June 1, 2000, and a ceasetrade order (the "BCSC Cease Trade Order) issued by theBritish Columbia Securities Commission (the "BCSC")on May 29, 1999 (the OSC Cease Trade Order and the BCSC CeaseTrade Order hereinafter collectively referred to as the "CeaseTrade Orders").

13. On April 9, 2002, the Commission granteda partial revocation of the OSC Cease Trade Order (the "OSCPartial Revocation Order") to permit the following tradesor acts in furtherance of trades:

a. to obtain shareholder approval (the "ShareholderApproval") for the Share-for-Debt Exchange (as definedbelow) and the Private Placements (as defined below);

b. to issue the number of Common Shares permittedunder the Proposal to the creditors who will have filed proofsof claims, at a price of CDN $0.02 per share and in a numberequal to the ratio of CDN $0.10 for each Canadian dollar inproven claims, in full settlements of the debts owed to them(the "Share-for-Debt Exchange");

c. to issue Common Shares or other form of securitieswhich could include without limitation convertible promissorynotes, to persons (the "Purchasers") in order to raisetotal proceeds of up to $300,000 by way of one or more privateplacements (the "Private Placements").

14. The Proposal Shares will be subject to theOSC Cease Trade Order following the Share-for-Debt Exchange.Following the completion of the Shareholder Approval, the Share-for-DebtExchange and the Private Placements, the Applicant intends tomake a further application for a full revocation of the OSCCease Trade Order so as to permit trading of the securitiesgenerally. At the time of such application, the Applicant willfile with the Commission and provide to its shareholders prospectuslevel disclosure about the Applicant, its business, affairsand future prospects (including disclosure relating to any reversetake-over, merger, amalgamation or other form of combinationor transactions similar to any of the foregoing) in the formof a Material Change Report.

15. The Applicant wishes to resume trading activitiesas a mineral exploration and development company.

16. Pursuant to the Proposal as approved bythe Court, the Applicant must complete the Share-for-Debt Exchangeno later than June 6, 2002, failing which the Applicant willautomatically be put in bankruptcy.

17. The Share-for-Debt Exchange is exempt fromthe prospectus requirements and the registration requirementsunder the Securities Act (British Columbia); however no suchexemptions exist under the OSA. As at April 22, 2002, approximatelyten (10) of the Applicant's creditors who have filed proofsof claims with the Trustee are residents in, or otherwise subjectto the securities laws of the Province of Ontario (the "CurrentOntario Creditors"), and as such are governed by the provisionsof the OSA. For the purposes hereof, on the date of issuanceof the Proposal Shares, any additional creditors who will havefiled proof of claims with the Trustee and who are residentsin, or otherwise subject to the securities laws of the Provinceof Ontario (the "Subsequent Ontario Creditors") (theCurrent Ontario Creditors and the Subsequent Ontario Creditorshereinafter collectively referred to as the "Ontario Creditors")will be subject to the provisions herein contained.

18. As at April 22, 2002, the Proposal Sharesto be issued to the Ontario Creditors would represent 14,001,100Common Shares or approximately 27% of the issued and outstandingCommon Shares following the issuance of such shares, assumingall liabilities of the Applicant would be reflected by dulyfiled proofs of claims and assuming such liabilities would resultin an issuance of 51,075,745 Common Shares.

19. All of the Current Ontario Creditors areat arm's length to the Applicant. The amounts owing to the OntarioCreditors are bona fide debts of the Applicant.

20. The Applicant and all of the Applicant'screditors, including the Ontario Creditors, are bound by theprovisions of the Proposal as approved by the Court. The Applicantdoes not have available cash to satisfy the claims of its creditors.The issuance of the Proposal Shares is the only means availableto the Applicant to accommodate the claims of the Applicant'screditors, including the claims of the Ontario Creditors.

21. The shareholders will be fully informedof the current status of the Applicant and have the opportunityto approve the Share-for-Debt Exchange at a meeting scheduledfor May 21, 2002.

AND UPON the Commission being satisfiedthat to do so would not be prejudicial to the public interest.

IT IS RULED pursuant to subsection 74(1)of the OSA that the issuance by the Applicant of the ProposalShares to the Ontario Creditors is not subject to section 25and section 53 of the OSA, provided that:

(a) concurrently with the issuance of the ProposalShares to the Ontario Creditors, the Applicant provides to eachof the Ontario Creditors:

(i) a copy of this Ruling;

(ii) a copy of the OSC Cease Trade Order;

(iii) a copy of the OSC Partial Revocation Order;

(iv) a statement to the effect that all of theApplicant's securities, including any and all Proposal Sharesissued to them pursuant to this Ruling, will remain subjectto the OSC Cease Trade Order following the Share-for-Debt Exchange;and

(v) a statement to the effect that as a consequenceof this Ruling, certain protections, rights and remedies providedby the OSA, including statutory rights of rescission and/ordamages, will not be available in respect of the Proposal Sharesissued to them pursuant to this Ruling and that certain restrictionsare imposed on the disposition of the Proposal Shares.

(b) the first trade in the Proposal Shares acquiredpursuant to this Ruling by an Ontario Creditor, other than anon-arm's length Ontario Creditor, will be a distribution unlesssuch first trade is made in accordance with the provisions ofsubsections (3) or (4) of section 2.6 of Multilateral Instrument45-102: Resale of Securities; and

(c) the first trade in the Proposal Shares made by a non-arm'slength Ontario Creditor shall be a distribution unless suchfirst trade is made in accordance with the provisions of subsections(2) or (3) of section 2.5 of Multilateral Instrument 45-102:Resale of Securities.

May 14, 2002.

"H. Lorne Morpy, Q.C." "Robert L. Shirriff, Q.C."