Securities Law & Instruments


Mutual Reliance Review System for ExemptiveRelief Applications -- relief from registration and prospectusrequirements for trades of warrants to a limited partnershipand first trades of those warrants by the limited partnershipto its limited partners -- first trade of securities acquireddeemed a distribution unless certain conditions in MultilateralInstrument 45-102 are satisfied -- previous decision revokedand replaced.

Applicable Ontario Statutory Provisions

Securities Act, R.S.O. 1990, c. S.5, as am.,ss. 25, 53 and 74(1).














WHEREAS the local securities regulatoryauthority or regulator (the "Decision Maker") in eachof British Columbia, Alberta, Saskatchewan, Manitoba and Ontario(the "Jurisdictions") has received an applicationfrom Qwest Energy RSP/Flow-Through Limited Partnership ("Qwest")for a decision under the securities legislation of the Jurisdictions(the "Legislation") that the registration requirementand prospectus requirement in the Legislation (the "Registrationand Prospectus Requirements") do not apply, in BritishColumbia, Alberta, Saskatchewan and Manitoba, to the acquisitionof Warrants (defined below) by Qwest (the "Warrant Acquisitions")or, in each of the Jurisdictions, to the first trade of Warrantsby Qwest to the limited partners (the "Limited Partners")of Qwest (the "Non-Exempt Trades");

AND WHEREAS Qwest previously receivedrelief from the Registration and Prospectus Requirements forthe Warrant Acquisitions and the first trade of Warrants ina decision document dated June 20, 2003 (the "PreviousDecision"), granted by the Decision Makers in British Columbia,Alberta, Manitoba and Ontario under the Mutual Reliance ReviewSystem for Exemptive Relief Applications (the "System");

AND WHEREAS Qwest has also applied fora decision under the Legislation revoking the Previous Decision;

AND WHEREAS under the System, the BritishColumbia Securities Commission is the principal regulator forthis application;

AND WHEREAS, unless otherwise defined,the terms herein have the meaning set out in National Instrument14-101 Definitions;

AND WHEREAS Qwest has represented tothe Decision Makers that:

1. Qwest is a limited partnership formed underthe laws of British Columbia on December 30, 2002 under thePartnership Act (British Columbia) to achieve capitalappreciation for its Limited Partners primarily by investingin a diversified portfolio of options, warrants or similarrights to purchase flow-through shares issued by resourceissuers whose principal business is oil and gas/mineral exploration,development and/or production or energy generation;

2. Qwest's head office is located in BritishColumbia;

3. Qwest is authorized to issue an unlimitednumber of limited partnership units (the "Units"),of which one Unit is currently issued and outstanding;

4. Qwest is not currently a reporting issueror the equivalent in any jurisdiction in Canada;

5. Qwest Energy RSP/Flow-Through ManagementCorp. (the "General Partner") is the general partnerof Qwest and manages the business and affairs of Qwest;

6. Qwest wishes to conduct a financing inthe Jurisdictions by way of private placement using an offeringmemorandum;

7. in traditional flow-through limited partnershipunit offerings ("Traditional Flow-Through Offerings"),a limited partnership is organized to invest in flow-throughshares issued by resource issuers which are listed on a Canadianstock exchange and whose principal business is oil and gas/mineralexploration, development and/or production or energy generation;such Traditional Flow-Through Offerings are usually blindpool offerings;

8. following the first closing of a TraditionalFlow-Through Offering, the limited partnership will enterinto agreements to subscribe for common shares from the treasuryof one or more resource issuers ("Resource Cos")under flow-through investment subscription agreements (the"Flow-Through Agreements"); under the Flow-ThroughAgreements, each Resource Co in question will typically incurand renounce Canadian Exploration Expense ("CEE")or Canadian Development Expense ("CDE") to the partnershipin an amount equal to the subscription price of the ResourceCo's common shares; that CEE and CDE is then flowed throughthe partnership to the limited partner investors;

9. Traditional Flow-Through Offerings commonlyprovide that the general partner will propose a liquiditymechanism to the limited partners, at a special meeting tobe held approximately 24 months after closing of an initialpublic offering; such liquidity mechanisms typically involveterminating the partnership after exchanging partnership assetsfor securities of a mutual fund corporation or other investmentvehicle on a tax-deferred basis;

10. if the limited partners do not pass anextraordinary resolution to exchange the partnership's assetsfor the securities of a mutual fund corporation or other investmentvehicle on a tax-deferred basis, the limited partners receivea pro rata share of the net assets of the partnership,including the common shares of Resource Cos held by the partnership;

11. in the flow-through offering structureproposed by Qwest (the "Proposed Flow-Through Offering"),an additional investment in a single-purpose financing vehiclewill be added to the Traditional Flow-Through Offering structure,and the limited partnership will be dissolved sooner thanis the case with Traditional Flow-Through Offerings;

12. investors who have passed a credit evaluationwill have the opportunity to first make an RRSP or RRIF-eligibleinvestment in bonds issued by a single-purpose financing entity,Qwest Energy RSP/Flow-Through Financial Corp. ("FinancialCorp."), a wholly-owned subsidiary of a TSX Venture Exchangelisted company, Knightswood Financial Corp.;

13. accordingly, an investor, his or her registeredretirement savings plan ("RRSP"), his or her registeredretirement income fund ("RRIF") or the RRSP or RRIFof the investor's spouse or child, as applicable, will purchasebonds of Financial Corp. maturing on December 31, 2012 whichbear cumulative interest at a rate of approximately 5% perannum (the "Bonds"); the Bonds will initially besold by way of private placement using an offering memorandumin each of the Jurisdictions;

14. Financial Corp. will then loan (a "Loan")the net proceeds from each investor's or RRSP's or RRIF'spurchase of Bonds to that investor (an "RRSP Investor");each Loan will bear interest at a fixed cumulative interestrate of approximately 7.5% per annum and repayment of principalwill be due on December 31, 2012; each Loan will be securedby a pledge of Units of Qwest acquired by the RRSP Investor(with proceeds from the Loan) and any Warrants, Flow-ThroughShares or Mutual Fund Shares (as defined below) registeredin the name of the RRSP Investor along with the RRSP Investor'sinterest in the Investment Portfolio (as defined below) atany time before or after Qwest's dissolution;

15. RRSP Investors will be required by theterms of the Loan to purchase Units of Qwest;

16. the Units will be sold by way of privateplacement using an offering memorandum; in addition to beingsold to RRSP Investors, Units will also be sold to conventionalpurchasers of Flow-Through Shares, other than RRSP Investors,although these purchasers will not receive the same overalltax benefit as an RRSP Investor who has invested in Bondsor whose beneficially-owned RRSP or RRIF or whose spouse'sor child's beneficially-owned RRSP or RRIF, as applicable,has invested in Bonds; the net proceeds of the offering ofUnits (the "Funds") will be deposited in a bankaccount of the General Partner;

17. the limited partnership agreement (the"Partnership Agreement") governing Qwest will:

(a) include standard provisions governingthe formation of Qwest; capital; investment objectives,strategy and guidelines; liabilities of partners; and functionand powers of the partners;

(b) require Qwest to be dissolved, withoutany approval or other action by the Limited Partners onDecember 31, 2003, or such earlier date on which Qwest disposesof all of its assets, or a date authorized by an extraordinaryresolution of the Limited Partners;

(c) provide that on dissolution of Qwest,any Warrants (as defined below) to purchase flow-throughshares of Resource Cos registered in the name of Qwest willbe distributed among the former Limited Partners of Qwestpro rata;

(d) grant to the General Partner an irrevocablepower of attorney, which will survive the dissolution ofQwest, to exercise Warrants to purchase flow-through sharesof Resource Cos on behalf of the former holders of Unitsand enter into Investment Agreements (as defined below)with Resource Cos; and

(e) grant the General Partner the authority,which will survive the dissolution of Qwest, as agent foreach Limited Partner, to direct payment of the Funds toResource Cos upon exercise of Warrants to purchase flow-throughshares of Resource Cos by the Limited Partners;

18. certificates representing the Units issuedand registered in the name of an RRSP Investor will be deliveredto and held by or on behalf of Financial Corp. as securityfor that RRSP Investor's Loan under the terms of a pledgecontained in the Loan documentation;

19. from time to time throughout 2003, Qwest,as principal, will then enter into agreements to subscribefor warrants, rights or options (the "Warrants")issued by Resource Cos to purchase their flow-through shares(and possibly other incidental securities, such as share purchasewarrants that are comprised in a unit with a flow-throughshare) (collectively, the "Flow-Through Shares")from treasury; Qwest will pay nominal consideration to eachResource Co in consideration for the issuance of these Warrants;

20. Qwest anticipates that the Warrants willbe issued under the registration and prospectus exemptionscontained in the Legislation applicable to purchases of securitiesmade by "accredited investors" in Ontario;

21. as a "non-redeemable investment fund",Qwest cannot rely on the accredited investor exemption inMultilateral Instrument 45-103 Capital Raising Exemptionsin British Columbia, Alberta, Saskatchewan or Manitoba toacquire the Warrants;

22. the Warrants will:

(a) set the exercise price to purchase theFlow-Through Shares, based on negotiation between the GeneralPartner and the Resource Cos;

(b) be exercisable for a brief period oftime (not to exceed 30 days);

(c) be transferable to the Limited Partnersof Qwest at any time during their term;

(d) be distributable on the dissolutionof Qwest among the former Limited Partners of Qwest;

(e) in the case of Warrants distributedto RRSP Investors, be pledged to Financial Corp. as securityfor Loans and documentation evidencing these Warrants willbe held by Financial Corp.;

(f) require the execution of an InvestmentAgreement (defined below) by the Resource Cos and the GeneralPartner, as attorney for each of the Limited Partners, atthe time of exercise of the Warrants and before the issuanceof the Flow-Through Shares to the Limited Partners;

23. the Investment Agreement and the Warrantswill require that the Resource Cos use not less than 70% ofthe proceeds received by them on the purchase of the Flow-ThroughShares following the exercise of the Warrants to incur CEEor qualifying CDE, and to use the remainder of the proceedsto incur non-qualifying CDE, which will be renounced to theholders of the Flow-Through Shares effective on December 31,2003;

24. the Loan documentation between FinancialCorp. and each RRSP Investor will require each RRSP Investor'sWarrants (and any Flow-Through Shares received on exercisethereof or Mutual Fund Shares (as defined below) registeredin the name of the RRSP Investor along with the RRSP Investor'sinterest in the Investment Portfolio (as defined below)) tobe pledged as security for his or her Loan; the documentsevidencing the Warrants will be held by Financial Corp. assecurity for each RRSP Investor's Loan; the share certificatesrepresenting the Flow-Through Shares or any other interestin the Investment Portfolio (as defined below) will be heldby an escrow agent (the "Escrow Agent"), which willbe a Trust Company, for the benefit of the Limited Partners;the escrow agreement governing the conduct of the Escrow Agentwill provide that if an RRSP Investor defaults on his or herLoan and fails to rectify the default within 15 days of receivingnotice of such default, the Escrow Agent will release suchRRSP Investor's Flow-Through Shares and other interest inthe Investment Portfolio to Financial Corp. to allow for executionagainst such pledged security;

25. throughout 2003, the Resource Cos whogrant Warrants to Qwest will require funding; accordingly,it will become appropriate for the Warrants to be exercisedand Flow-Through Shares purchased with some of the Funds;Qwest will distribute from the Funds the exercise price ofthe Warrants to the Limited Partners pro rata; suchFunds will be held by the General Partner as agent on behalfof the Limited Partners;

26. the General Partner, acting on behalfof the Limited Partners, will notify the Resource Cos thatthe Limited Partners have elected to exercise their Warrantsto purchase Flow-Through Shares and, as attorney on behalfof each Limited Partner, will enter into subscription agreements(the "Investment Agreements") with Resource Cos,under which each Limited Partner, in his or her personal capacityand not in his or her capacity as Limited Partner, will exerciseand subscribe for Flow-Through Shares issued by the ResourceCos under the terms of each Limited Partner's Warrants; theInvestment Agreements will contain the same terms as are includedin conventional flow-through share subscription agreements,including the requirement for the Resource Cos to use notless than 70% of the proceeds received by them from the purchaseof the Flow-Through Shares to incur CEE or qualifying CDEand to use the remainder of the proceeds to incur non-qualifyingCDE, which will be renounced to the holders of the Flow-ThroughShares effective on December 31, 2003;

27. concurrently with the execution of theInvestment Agreements, the General Partner, as agent for eachLimited Partner, will direct payment to the Resource Cos ofthe exercise price for the Flow-Through Shares from the Funds;certificates representing Flow-Through Shares will be issuedand registered in the names of the Limited Partners (or inthe name of the Escrow Agent for the benefit of the LimitedPartners) and the General Partner will pay to each ResourceCo the exercise price for these Flow-Through Shares from theFunds on behalf of the Limited Partners;

28. the Flow-Through Shares issued and registeredin the name of each RRSP Investor (or in the name of the EscrowAgent for the benefit of each RRSP Investor) will be heldby the Escrow Agent under an escrow agreement until the earlierof a Liquidity Transaction (as defined below) and December31, 2005; thereafter, any Flow-Through Shares, any portionof the Investment Portfolio or any Mutual Fund Shares registeredin the name of each RRSP Investor (or in the name of the EscrowAgent for the benefit of each RRSP Investor) will be releasedby the Escrow Agent to Financial Corp. and held by FinancialCorp. as security for that RRSP Investor's Loan under theterms of a pledge contained in the Loan documentation;

29. Flow-Through Shares issued and registeredin the names of Limited Partners other than RRSP Investorswill be delivered to and physically held by the Escrow Agentfor the benefit of each such Limited Partner, under an escrowagreement, until the earlier of a Liquidity Transaction (asdefined below) and December 31, 2005; thereafter, certificatesand funds in the non-RRSP Investor's Investment Portfoliowill be released by the Escrow Agent to the non-RRSP Investors;

30. some of the Flow-Through Shares will bequalified by a prospectus and, therefore will be freely tradeable;however, some of the Flow-Through Shares (the "RestrictedFlow-Through Shares") may be issued on a private placementbasis and accordingly subject to hold periods;

31. shortly before December 31, 2003, Qwestwill be dissolved; it is anticipated that all Warrants willhave been transferred to the Limited Partners and exercisedand the vast majority of the Funds will have been expendedto purchase Flow-Through Shares before the dissolution ofQwest;

32. immediately before the dissolution, anyremaining Funds will be distributed by Qwest to the LimitedPartners pro rata in proportion to the number of Unitsheld by each Limited Partner;

33. the portfolio of Flow-Through Shares issuedand registered in the name of each former Limited Partner(or in the name of the Escrow Agent for the benefit of suchformer Limited Partner) and any other securities or cash obtainedwith any proceeds from the sale of such Flow-Through Sharesor such other securities (the "Investment Portfolio")will be held by the Escrow Agent and will be managed on anongoing basis by a registered portfolio manager;

34. the Escrow Agent will be granted the contractualdiscretion by the former Limited Partners to sell Flow-ThroughShares (respecting any seasoning periods attached thereto)and other securities comprising the former Limited Partner'sInvestment Portfolio and to reinvest the net proceeds fromsuch dispositions in securities of resource issuers whoseprincipal business is oil and gas, mining, certain energyproduction, pulp and paper, forestry, or a related resourcebusiness, such as a pipeline or service company or utilityon the directions of a registered portfolio manager;

35. on or about February 28, 2005, the GeneralPartner may make a proposal to former Limited Partners toprovide for liquidity and long-term growth of capital, whichmay involve exchanging each former Limited Partner's InvestmentPortfolio for shares ("Mutual Fund Shares") of amutual fund corporation or other investment vehicle on a tax-deferredbasis (a "Liquidity Transaction"); any such liquidityrollover will be subject to obtaining all necessary regulatoryapprovals and must occur on or before June 30, 2005; eachformer Limited Partner may elect whether or not to exchangetheir Investment Portfolio for such Mutual Fund Shares;

36. on December 31, 2012, the Loans will becomedue; the Loans, however, may also be repaid in full on thelast day of each month beginning on June 30, 2005 and endingon November 30, 2012 upon written notice given no later thanthe 15th day of such month and no earlier than60 days prior to the last day of such month; upon repaymentin full of each Loan, the certificates and Funds in the RRSPInvestors' Investment Portfolio or Mutual Fund Shares heldby or on behalf of Financial Corp. as security for the Loanwill be released to the appropriate RRSP Investor; for RRSPInvestors who have repaid the Loan in full but who did notelect to participate in a Liquidity Transaction, the earliestdate that the release will occur will be December 31, 2005;

37. the principal received by Financial Corp.from repayment of the Loans will be distributed to ownersof Bonds as a repayment of principal and it is anticipatedthat Financial Corp. will wind-up within the six months afterrepayment of the Bonds;

38. for tax purposes, in order to allow thefull amount of the renounced CEE and qualifying CDE to beavailable to the RRSP Investors, the Limited Partners mustbe the persons who exercise the Warrants and acquire the Flow-ThroughShares, rather than Qwest itself; accordingly, for tax purposes,the Warrants must be transferred to the RRSP Investors beforethey are exercised;

39. Qwest cannot rely on the registrationand prospectus exemptions in the Legislation relating to thedistribution of securities as part of a winding-up to distributeall of the Warrants to the Limited Partners because the formalwinding-up of Qwest is not scheduled to occur until the endof December of 2003; Qwest could structure the Proposed Flow-ThroughOffering to include multiple limited partnerships that couldbe wound-up whenever Warrants had to be distributed; however,this would increase administrative time, expense and complexityand the likelihood of investor confusion;

40. due to the structure of the Proposed Flow-ThroughOffering, the Flow-Through Shares will be subject to contractualrestrictions on transfer by the Limited Partners until atleast June 30, 2005, restrictions that are similar to thosethat would typically occur in Traditional Flow-Through Offerings;

AND WHEREAS under the System, this MRRSDecision Document evidences the decision of each Decision Maker(collectively, the "Decision");

AND WHEREAS each of the Decision Makersis satisfied that the test contained in the Legislation thatprovides the Decision Maker with the jurisdiction to make theDecision has been met;

THE DECISION of the Decision Makers underthe Legislation is that the Registration and Prospectus Requirementsdo not apply:

(a) in British Columbia, Alberta, Saskatchewanand Manitoba, to the Warrant Acquisitions, and

(b) to the Non-Exempt Trades

provided that the first trade in a Warrant (otherthan a Non-Exempt Trade) or a Restricted Flow-Through Shareissued upon exercise of a Warrant is deemed to be a distributionunless the conditions in sections 2.5(2) and (3) of MI 45-102Resale of Securities are satisfied.

THE FURTHER DECISION of the DecisionMakers in British Columbia, Alberta, Manitoba and Ontario isthat the Previous Decision is revoked.

September 15, 2003.

"Derek E. Patterson"