Exhibit 10.3


 


AGENCY
AGREEMENT


 


	
  December 20,
  2005

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Signet Energy Inc.

  	
   

  	
   

  
	
  1818, 144 - 4th Avenue S.W.

  	
   

  	
   

  
	
  Calgary, Alberta T2P 3N4

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Attention:

  	
  Mr. C.W.
  Leigh Cassidy

  
	
   

  	
  Executive
  Chairman and Chief Executive Officer

  
				



 


Dear Sirs:


 


RE:          PRIVATE PLACEMENT OF UP TO
1,600,000 FLOW-THROUGH SHARES AND UP TO $10,000,000 CAD PRINCIPAL AMOUNT OF 7%
SECURED CONVERTIBLE DEBENTURES OF SIGNET ENERGY INC.


 


MGI Securities
Inc. (the “Agent”) understands
that Signet Energy Inc. (the “Corporation”
or “Signet”) proposes to create, issue and
sell: (i) up to 1,600,000 common shares of the Corporation to be issued on
a “flow-through” basis pursuant to the Income Tax Act
(Canada) (the “Flow-Through Shares”) at a price
of $1.30 per Flow-Through Share for total gross proceeds of up to $2,080,000;
and (ii) up to $10,000,000 CAD aggregate principal amount of 7% secured
convertible debentures due November 15, 2007 (the “Debentures”).  Subject to the terms of the Indenture (as
defined below), each Debenture is, at the option of the holder thereof,
convertible into common shares of the Corporation (“Common
Shares”).  The private
placement of the Flow-Through Shares and the Debentures on the terms and
conditions provided for herein is hereinafter referred to as the “Offering” and the Flow-Through Shares and the Debentures are
hereinafter collectively referred to as the “Offered
Securities”.


 


Subject to the
terms and conditions hereof, the Agent agrees to act, and the Corporation
appoints the Agent, as the sole and exclusive agent of the Corporation to offer
the Flow-Through Shares and Debentures for sale on the Closing Date in the
Selling Jurisdictions on a private placement basis and to use its commercially
reasonable efforts to secure subscriptions therefore.  The Flow-Through Shares shall be issued in
minimum subscription amounts of $25,000 CAD and the Debentures shall be issued
in minimum denominations of $50,000 CAD and integral multiples of $1,000 CAD
thereafter.  The Corporation acknowledges
and agrees that the Agent may, but is not obligated to, purchase any of the
Offered Securities as principal.  The
Offered Securities may be issued and sold pursuant to exemptions under
Applicable Securities Laws in the Selling Jurisdictions (as hereinafter
defined).


 


The Agent shall
be entitled, in connection with the Offering, to retain as sub-agents other
registered securities dealers and may receive (for delivery to the Corporation
at the Closing Time) subscriptions for the Offered Securities from Subscribers
from other registered dealers.  Any fees
payable to such sub-agents shall be for the account of the Agent.  The Agent shall, however, be under no
obligation to engage any sub-agent.


 





















 


In consideration
for its services hereunder, including, but not limited to, the ancillary
service of acting as financial advisor to the Corporation in respect of the
issue of the Offered Securities and advising on the terms and conditions of the
Offering, the Agent shall be entitled to the fee and Agent’s Warrants (as
defined below) provided for in Section 7, and the reimbursement of its
expenses, which amounts shall be payable from the proceeds of the sale of the
Offered Securities hereunder at the time and manner as specified in Sections 7
and 8.


 


Section 1                                             Definitions


 


In
this Agreement, including the paragraphs prior to this definitional section and
any amendment hereto:


 


(a)                                  “ABCA” means the Business
Corporations Act (Alberta);


 


(b)                                 “Act” means the Income Tax
Act (Canada), together with any and all regulations promulgated
thereunder, as amended from time to time;


 


(c)                                  “affiliate” has the meaning ascribed thereto
in the Business Corporations Act (Alberta);


 


(d)                                 “Agent’s Counsel” means Davis &
Company LLP, or such other legal counsel as the Agent, with the consent of the
Corporation, may appoint;


 


(e)                                  “Agent’s Warrants” means the means the agent’s
compensation warrants to acquire Common Shares pursuant to Section 7
hereof;


 


(f)                                    “Agreement” means this agreement and not any
particular Article or Section or other portion except as may be
specified, and words such as “hereto”, “herein”, and “hereby” refer to this
Agreement as the context requires;


 


(g)                                 “Applicable Securities Laws” includes,
collectively and without limitation, all applicable Canadian securities and
corporate laws, rules, regulations, instruments, notices, blanket orders,
statements, circulars, procedures and policies in the Selling Jurisdictions;


 


(h)                                 “Business Day” means a day which is not a
Saturday or Sunday or a legal holiday in the City of Calgary, Alberta;


 


(i)                                     “Canadian Exploration Expense(s)” or “CEE” means Canadian exploration
expense described in paragraph (f) of the definition of “Canadian
exploration expense” in subsection 66.1(6) of the Act or that would
be described in paragraph (h) of such definition if the reference
therein to “paragraphs (a) to (d) and (f) to (g.1)” were a
reference to “paragraph (f)”, excluding amounts which are prescribed to
constitute “Canadian exploration and development overhead expense” under the
Act, the amount of any assistance described in paragraph 66(12.6)(a) of
the Act and any expense described in paragraph 66(12.6)(b.1) of the Act;


 


(j)                                     “Closing Date” means December 20, 2005,
or such other date or dates on or before December 31, 2005 as the Agent
and the Corporation may mutually agree upon in writing;


 


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(k)                                  “Closing Time” means 10:00 a.m.(Calgary
time) or such other time, on the Closing Date, as the Agent and the Corporation
may agree;


 


(l)                                     “Commitment Amount” means an amount equal to
$1.30 multiplied by the number of Flow-Through Shares subscribed and paid for
by Subscribers for Flow-Through Shares;


 


(m)                               “Common Shares” means the common shares in
the capital of the Corporation from time to time;


 


(n)                                 “Corporation’s Counsel” means Burnet,
Duckworth & Palmer LLP, or such other legal counsel as the
Corporation, with the consent of the Agent, may appoint;


 


(o)                                 “Debentures” means the 7% secured
convertible debentures having the rights and entitlements set forth in the
Indenture;


 


(p)                                 “Deep Alta” means Deep Well Oil &
Gas (Alberta) Ltd.;


 


(q)                                 “Deep Well” means Deep Well Oil &
Gas Inc.;


 


(r)                                    “Deep Well Shares” means collectively the
755,000 Common Shares issued to Deep Alta and the 6,795,000 Common Shares
issued to Northern;


 


(s)                                  “Dynamo Claim” means the potential legal
claim by Dynamo Energy Corporation against Surge U.S. and the Corporation
arising from letter agreements (which were not signed by Surge U.S.) wherein
Dynamo Energy Corporation requested Surge U.S. to pay a 2.5% cash finder’s fee
on the acquisition cost of the Farmout Lands and a 5% gross overriding royalty
on the Farmout Lands;


 


(t)                                    “Environmental Laws” has the meaning
ascribed to such term in Section 4(ll);


 


(u)                                 “Expenditure Period” means the period commencing
on the Closing Date and ending on the earlier of:


 


(i)                                     the date on which the Commitment Amount has been fully expended in
accordance with the terms hereof and the Subscription Agreements for
Flow-Through Shares; and


 


(ii)                                  December 31, 2006;


 


(v)                                 “Farmout Acknowledgment Agreement” means the
farmout acknowledgment agreement dated November 15, 2005 between Surge
U.S., the Corporation, Deep Well, Northern, Deep Alta and the Agent, whereby
the parties confirmed the validity, enforceability and continued existence of
the Farmout Agreement;


 


(w)                               “Farmout Agreement” means the farmout
agreement dated February 25, 2005 (as amended) between Surge U.S., the
Corporation, Deep Well and Northern, whereby the Corporation has a right to
earn a 40% working interest in the Farmout Lands;


 


(x)                                   “Farmout Lands” means the lands shown under
the heading “Farmout Lands” in Schedule ”A” to the Farmout Agreement,
provided that the “Farmout Lands” shall not


 


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include
the 6.5 Section Block (as defined in the Farmout Agreement) unless or
until Deep Well or Northern acquire a legal or beneficial interest in the Title
Documents (as defined in the Farmout Agreement) that comprise the 6.5 Section Block;


 


(y)                                 “Governmental Entity” means any (i) federal,
provincial, territorial, state, regional, municipal, local or other government,
governmental or public department, central bank, court, tribunal, arbitral
body, commission, board, bureau or agency, domestic or foreign, (ii) subdivision,
agent, commission, board, or authority of any of the foregoing, or (iii) quasi-governmental
or private body exercising any regulatory, expropriation or taxing authority
under, or for the account of, any of the foregoing;


 


(z)                                   “Indenture” means the trust indenture to be
dated on or about the Closing Date between the Corporation and the Trustee, as
trustee, governing the terms and conditions of the Debentures;


 


(aa)                            “Jurisdiction” means one of the
jurisdictions listed in Appendix B to NI 45-102;


 


(bb)                          “Laws” means all statutes, regulations,
statutory rules, orders, judgments, decrees and terms and conditions of any
grant of approval, permission, authority, permit or license of any court,
Governmental Entity, statutory body or self-regulatory authority;


 


(cc)                            “Management Group” means Messrs. Kelly
and Cassidy;


 


(dd)                          “Management Shares” means an aggregate of
5,100,000 Common Shares issued to Messrs. Kelly, Cassidy (for himself and
in trust for issuance to others) and Perez;


 


(ee)                            “Material Adverse Effect”, when used in
connection with the Corporation, means any change, effect, event or occurrence
with respect to its condition (financial or otherwise), properties, assets,
liabilities, obligations (whether absolute, accrued, conditional or otherwise),
businesses, prospects, operations or results of operations or those of its
subsidiaries, that is, or would be reasonably expected to be, material and
adverse to the current or future business, operations, regulatory status,
financial condition or results of operations of the Corporation, as the case
may be, and its subsidiaries taken as a whole;


 


(ff)                                “NI 45-102” means National Instrument 45 –
102 - Resale of Securities;


 


(gg)                          “Northern” means Northern Alberta Oil Ltd.;


 


(hh)                          “Principal Business Corporation” means a
principal-business corporation as defined in subsection 66(15) of the Act;


 


(ii)                                  “Public Record” means all information filed
by or on behalf of the Corporation with the Securities Commissions, including
without limitation, any information so filed with any Securities Commission in
compliance, or intended compliance, with any Applicable Securities Laws;


 


(jj)                                  “Qualifying Expenditures” means expenses
that are CEE at the date they are incurred;


 


(kk)                            “Release and Indemnification Agreement”
means the agreement dated November 15, 2005 between the Corporation and
Surge U.S. which provides for, among other things,


 


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the
fixing of the Corporation’s liabilities and an indemnity from Surge U.S. for
any additional liabilities above the thresholds set out therein;


 


(ll)                                  “Sawn Lake Project” means the proposed oil
and gas exploration project to be conducted on the Farmout Lands by the
Corporation;


 


(mm)                      “Securities Commissions” means the
securities commissions or similar regulatory authorities in the Selling
Jurisdictions and “Securities Commission”
means any one of them;


 


(nn)                          “Selling Jurisdictions” means the provinces
of Alberta and Ontario and such other provinces and foreign jurisdictions as
may be agreed by the Agent and the Corporation prior to the Closing Date, as evidenced
by the Corporation’s acceptance of a Subscription Agreement with respect
thereto;


 


(oo)                          “Series I  Agent’s Warrants” means the 684,000 common share purchase
warrants of the Corporation issued to the Agent entitling the Agent to purchase
up to 684,000 Common Shares at an exercise price of $1.00 per share until 4:30 p.m.
(Calgary time) on that date that is the earlier of: (i) 12 months
following the date on which the Corporation completes a Going Public
Transaction (as defined therein); and (ii) November 17, 2008;


 


(pp)                          “Series I  Debentures” means the aggregate principal amount of $8,550,000
of 7% secured convertible debentures issued on November 15, 2005 having
the rights and entitlements set forth in the Series I Indenture;


 


(qq)                          “Series I Indenture” means the trust
indenture dated November 15, 2005 among the Corporation, Surge U.S. and
the Trustee, as trustee, governing the terms and conditions of the Series I
Debentures;


 


(rr)                                “Shareholder Agreement” means the agreement
dated November 15, 2005 (as amended) among the Corporation, Surge U.S.,
Leigh Cassidy, Fred Kelly and David Perez which provides for certain voting
restrictions of the Common Shares;


 


(ss)                            “Subscriber” means a person who executes a
Subscription Agreement which is accepted by the Corporation in form and
substance satisfactory to the Corporation’s Counsel and the Agent’s Counsel,
acting reasonably;


 


(tt)                                “Subscription Agreement” means the agreement
entered into by each Subscriber for Offered Securities and accepted by the
Corporation at the Closing Time in respect of the Subscriber’s subscription for
Offered Securities pursuant to this Offering;


 


(uu)                          “subsidiary” has the meaning ascribed
thereto in the Securities Act (Alberta);


 


(vv)                          “Surge U.S.” means Surge Global Energy, Inc.;


 


(ww)                      “Tax Act” means the Income Tax
Act (Canada), together with any and all regulations, as amended from
time to time;


 


(xx)                              “to the knowledge” or “to the best of the knowledge” of the
Corporation (or words to like effect in this Agreement), means that the Corporation
shall be required, in addition


 


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to
making any other reasonable inquiries, to make inquiries of officers of the
Corporation;


 


(yy)                          “Trustee” means Valiant Trust Company, and
such successor trustee as may be appointed from time to time under the
Indenture and the Series I Indenture;


 


(zz)                              “U.S. Securities Act” means the United
States Securities Act of 1933, as amended; and


 


(aaa)                      “Voting Agreement” means the voting trust
agreement dated November 15, 2005 among Surge U.S., Northern and Deep Alta
which provides Surge U.S. with voting proxy over the Deep Well Shares until February 25,
2007.


 


“misrepresentation”, “material change” and “material fact” shall have the meanings
ascribed thereto under the Applicable Securities Laws of the Selling
Jurisdictions, “distribution”
means “distribution” or “distribution to the public”, as the case
may be, as defined under the Applicable Securities Laws of the Selling
Jurisdictions and “distribute” has
a corresponding meaning.  In this
Agreement, words importing the singular include the plural and words importing
gender include all genders.


 


Section 2                                             Corporation’s Covenants


 


The Corporation
covenants and agrees:


 


(a)                                  that
the Offered Securities will be duly and validly authorized and issued pursuant
to the terms of the Subscription Agreements;


 


(b)                                 the
Common Shares issuable upon the conversion of the Debentures will be reserved
for issuance at the Closing Time;


 


(c)                                  as
soon as reasonably possible, and in any event by the Closing Date, to take all
such steps as may reasonably be necessary to enable the Offered Securities to
be offered for sale and sold on a private placement basis to Subscribers in the
Selling Jurisdictions through the Agent or any other investment dealers or
brokers registered in any of the Selling Jurisdictions by way of the exemptions
under Applicable Securities Laws of each of the Selling Jurisdictions, and not
to take any action that would prevent the Corporation and the Agent from
relying on the exemptions from the prospectus requirements of Applicable
Securities Laws as contemplated by the Subscription Agreements;


 


(d)                                 to
duly, punctually and faithfully perform and comply with all the obligations to
be performed by it, and all of its covenants and agreements under and pursuant
to this Agreement, the Subscription Agreements and the Indenture;


 


(e)                                  it
will file all necessary forms and reports with the appropriate Securities
Commissions and other regulatory authorities in connection with the issuance of
the Offered Securities and the Agent’s Warrants;


 


(f)                                    the
Corporation will carry on its business in a prudent manner in accordance with
industry standards and good business practice and will keep or cause to be kept
proper books of accounts in accordance with applicable law;


 


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(g)                                 the
Corporation will not, from the date hereof until the earlier of the conversion
of all of the issued Debentures into Common Shares or the repayment of all of
the issued Debentures (including all interest payable thereon); approve,
implement, adopt or authorize any stock option plan, performance warrant plan
or other stock based compensation plan (collectively, the “Option Plan”) which allows for the issuance
of Common Shares in an aggregate amount greater than 5% of the issued and
outstanding Common Shares;


 


(h)                                 the
Corporation will not, from the date hereof until the earlier of: (i) the
conversion of all of the issued Debentures into Common Shares or the repayment
of all of the issued Debentures (including all interest payable thereon); or (ii) the
date on which the Corporation has completed an offering (or offerings) of
securities to the public for gross proceeds of at least an aggregate of
$10,000,000 (calculated from November 16, 2005), grant options or similar
convertible securities issuable pursuant to the Option Plan to the Management
Group or to any director nominated by Surge U.S. pursuant to the Shareholder
Agreement;


 


(i)                                     the
Corporation will not, from the date hereof until that date that is 90 days
following the Closing Date, directly or indirectly, sell, or offer to sell, or
announce the offering of, or enter into or make any agreement or understanding,
or announce the making or entry into of any agreement or understanding, to
issue, sell or exchange any Common Shares, securities exchangeable or
convertible into Common Shares without the prior written consent of the Agent,
not to be unreasonably withheld, provided that the foregoing will not restrict
the Corporation from granting options pursuant to a share option plan or
issuing Common Shares on the exercise of outstanding securities of the
Corporation;


 


(j)                                     to keep proper books,
records and accounts of all Qualifying Expenditures and all transactions
affecting the Commitment Amount and the Qualifying Expenditures and upon
reasonable notice and on a reasonable basis, to make such books, records and
accounts available for inspection and review by the Agent;


 


(k)                                  to incur, during the
Expenditure Period, Qualifying Expenditures in such amount as enables the
Corporation to renounce to the Subscribers for Flow-Through Shares, Qualifying
Expenditures in an amount equal to the Commitment Amount;


 


(l)                                     to renounce to the
Subscribers for Flow-Through Shares, pursuant to subsections 66(12.6) and
66(12.66) of the Act and effective on or before December 31, 2005,
Qualifying Expenditures incurred during the Expenditure Period in an amount
equal to the Commitment Amount;


 


(m)                               to deliver to the
Subscribers for Flow-Through Shares within the time period required by the Act
and in any event, not later than March 31, 2006, a statement setting forth
the aggregate amounts of such Qualifying Expenditures renounced to the
Subscribers for Flow-Through Shares;


 


(n)                                 that all Qualifying
Expenditures renounced to the Subscribers for Flow-Through Shares pursuant to
the Flow-Through Share Subscription Agreements will be Qualifying Expenditures
incurred by the Corporation that, but for the renunciation to the Subscribers
for Flow-Through Shares, the Corporation would be entitled to deduct in
computing its income for the purposes of Part I of the Act;


 


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(o)                                 that the Corporation
will not reduce the amount to be renounced to the Subscribers for Flow-Through
Shares and, in the event the Minister of National Revenue reduces the amount
renounced to the Subscribers for Flow-Through Shares pursuant to subsection 66(12.73)
of the Act, the Corporation shall indemnify the Subscribers for Flow-Through
Shares as to, and pay in full settlement thereof to the Subscribers for
Flow-Through Shares, an amount equal to the amount of any tax payable under the
Act (and under any corresponding provincial legislation) by the Subscribers for
Flow-Through Shares as a consequence of such reduction;


 


(p)                                 that if the
Corporation does not renounce to the Subscribers for Flow-Through Shares
Qualifying Expenditures equal to the Commitment Amount effective on or before December 31,
2005, the Corporation shall indemnify the Subscribers for Flow-Through Shares
as to, and pay in full settlement thereof to the Subscribers for Flow-Through
Shares, an amount equal to the amount of any tax payable under the Act (and
under any corresponding provincial legislation) by the Subscribers for
Flow-Through Shares as a consequence of such failure;


 


(q)                                 that the Corporation
will maintain its status as a Principal Business Corporation throughout the
Expenditure Period;


 


(r)                                    to file all
prescribed forms required under the Act with respect to the issuance of the
Flow-Through Shares as “flow-through shares” as defined in subsection 66(15)
of the Act and that are necessary to renounce Qualifying Expenditures equal to
the Commitment Amount to the Subscribers for Flow-Through Shares effective on
or before December 31, 2005 and to provide the Subscribers for
Flow-Through Shares with a copy of all such forms as are required to be
provided thereto, all on a timely basis;


 


(s)                                  that the Corporation
will not be subject to the provisions of subsection 66(12.67) of the Act
in a manner which impairs its ability to renounce Qualifying Expenditures to
the Subscribers for Flow-Through Shares in an amount equal to the Commitment
Amount; and


 


(t)                                    that the Corporation
will refrain from entering into transactions or taking deductions which would
otherwise reduce its cumulative CEE to an extent it would preclude renunciation
of Qualifying Expenditures in an amount equal to the Commitment Amount as
contemplated herein and in the Subscription Agreements for Flow-Through Shares.


 


Section 3                                             Agent’s Covenants


 


The
Agent covenants and agrees with the Corporation that it will:


 


(a)                                  conduct
its activities in connection with the proposed offer and sale of the Offered
Securities in compliance with all Applicable Securities Laws in the Selling
Jurisdictions;


 


(b)                                 not
solicit subscriptions for Offered Securities, trade in Offered Securities or
otherwise do any act in furtherance of a trade of Offered Securities outside of
the Selling Jurisdictions, provided that the Agent may so solicit, trade or act
within such jurisdiction only if such solicitation, trade or act is in
compliance with Applicable Securities Laws in such jurisdiction and does not: (i) obligate
the Corporation to file a prospectus or registration statement or otherwise
take any action to qualify any of its securities or any


 


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trade
of any of its securities; (ii) obligate the Corporation to establish or
maintain any office or director or officer in such jurisdiction; or (iii) subject
the Corporation to any reporting or other requirement in such jurisdiction;


 


(c)                                  obtain
from each Subscriber an executed Subscription Agreement, and all applicable
undertakings, questionnaires and other forms required under Applicable
Securities Laws of the Selling Jurisdictions and supplied to the Agent by the
Corporation for completion in connection with the distribution of the Offered
Securities; and


 


(d)                                 not:
(i) advertise the proposed Offering or sale of the Offered Securities in
printed media of general and regular paid circulation or any similar medium,
radio, television or telecommunications, including electronic display; or (ii) provide
or make available to prospective purchasers of Offered Securities any document
or material which would constitute an offering memorandum as defined under
Applicable Securities Laws in the Selling Jurisdictions.


 


Section 4                                             Representations and Warranties of the
Corporation


 


The Corporation
represents and warrants to the Agent, and acknowledges that the Agent is
relying upon such representations and warranties, that:


 


(a)                                  the
Corporation has been duly incorporated and is a valid and subsisting
corporation under the provisions of the laws of its jurisdiction of
incorporation, has all requisite corporate power and authority to carry on its
business as now being carried on by it and to own or lease and operate its
properties and assets and is duly licensed or otherwise qualified to carry on
business in each jurisdiction in which the nature of the business conducted by
it or the ownership or leasing of its properties makes such qualification
necessary, except where, individually or in the aggregate, the failure to be so
licensed or qualified would not have a Material Adverse Effect on the
Corporation;


 


(b)                                 the
authorized share capital of the Corporation consists of an unlimited number of
the Common Shares.  As at December 20,
2005, 24,000,000 Common Shares are issued and outstanding as fully paid and
non-assessable shares.  All the Common
Shares were offered, issued and sold in compliance with Applicable Securities
Laws in distributions exempt from the prospectus and registration requirements
of such securities laws, and all notices and filings in respect of such
distributions have been made by the Corporation within the time and within the
manner required by the securities laws;


 


(c)                                  except
for the Series I Debentures and the Series I Agent’s Warrants, the
Corporation does not have any outstanding agreements, subscriptions, warrants,
options or commitments (pre-emptive, contingent or otherwise), nor has it
granted any rights or privileges capable of becoming an agreement,
subscription, warrant, option or commitment, obligating the Corporation to
offer, sell, repurchase or otherwise acquire, transfer, pledge or encumber any
shares in the capital of the Corporation, or other securities, nor are there
outstanding any securities or obligations of any kind convertible into or
exercisable or exchangeable for any capital stock of the Corporation.  Except as set out above, there are no
outstanding bonds, debentures or other evidences of indebtedness of the
Corporation having the right to vote or that are exchangeable or convertible
for or exercisable into securities having the right to vote with holders of
Common Shares on any matter as of the date hereof.  There are no outstanding securities


 


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of
the Corporation in addition to Common Shares having the right to vote with
holders of Common Shares on any matter;


 


(d)                                 the
Corporation has no subsidiaries;


 


(e)                                  the
Corporation has full corporate power, capacity and authority to issue the
Debentures, and at the Closing Time, all necessary corporate action will have
been taken by the Corporation to allot and authorize the issuance of the
Debentures and upon receipt of payment therefor, the Debentures will be validly
issued;


 


(f)                                    the
Corporation has full corporate power, capacity and authority to issue the
Common Shares issuable upon the conversion of the Debentures, and at the
Closing Time, all necessary corporate action will have been taken by the
Corporation to allot and authorize the issuance of the Common Shares issuable
upon the conversion of the Debentures and such Common Shares will be validly
issued as fully-paid and non-assessable Common Shares in the capital of the
Corporation;


 


(g)                                 the
Corporation has full corporate power, capacity and authority to issue the
Flow-Through Shares, and at the Closing Time, all necessary corporate action
will have been taken by the Corporation to allot and authorize the issuance of
the Flow-Through Shares and upon receipt of payment therefor, the Flow-Through
Shares will be validly issued as fully paid and non-assessable Common Shares in
the capital of the Corporation;


 


(h)                                 the
Corporation is not in default or breach of, and the execution and delivery of,
and the performance of and compliance with the terms of, this Agreement, the
Indenture and the Subscription Agreements by the Corporation or any of the
transactions contemplated thereby, do not and will not result in any breach of,
or constitute a default under, and do not and will not create a state of facts
which, after notice or lapse of time or both, will result in a breach of or
constitute a default under: (i) any applicable laws; (ii) any term or
provision of the articles, by-laws or resolutions of the directors (or
committee thereof) or shareholders of the Corporation; (iii) any mortgage,
note, indenture, contract, agreement (written or oral), instrument, lease or
other document to which the Corporation is a party or by which it is bound; or (iv) any
judgment, decree, order, statute, rule or regulation applicable to the
Corporation or its properties or assets, which default or breach might
reasonably be expected to materially adversely affect the business, operations,
capital or condition (financial or otherwise) of the Corporation or its
properties or assets (on a combined basis) or would impair the ability of the
Corporation to consummate the transaction contemplated hereby or to duly
observe and perform any of its covenants or obligations contained in this
Agreement, the Indenture and the Subscription Agreements;


 


(i)                                     the
Corporation has full corporate power, capacity and authority to enter into this
Agreement, the Indenture and the Subscription Agreements, and to perform its
obligations set out herein and therein, and this Agreement is, and the
Indenture and the Subscription Agreements will on the Closing Date be, duly
authorized, executed and delivered by the Corporation, and this Agreement is,
and the Indenture and the Subscription Agreements will on the Closing Date be,
legal, valid and binding obligations of the Corporation enforceable against the
Corporation in accordance with their respective terms, subject to the general
qualifications that:


 


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(i)                                     enforceability may be limited by
bankruptcy, insolvency, moratorium, reorganization or other similar laws of
general application affecting creditors’ rights generally;


 


(ii)                                  equitable remedies, including the
remedies of specific performance and injunctive relief, are available only in
the discretion of the applicable court;


 


(iii)                               the enforceability of any
provision exculpating a party from liability or duty otherwise owed by it may
be limited under applicable law;


 


(iv)                              the enforceability of any
provision may be limited by and subject to applicable laws regarding
limitations of actions;


 


(v)                                 the enforceability of provisions
which purport to sever any provision which is prohibited or unenforceable under
applicable law without affecting the enforceability or validity of the
remainder of such document would be determined only in the discretion of the
court;


 


(vi)                              enforceability may be limited by
the equitable or statutory powers of the courts in Canada having jurisdiction
to stay proceedings before them and the execution of judgments; and


 


(vii)                           rights to indemnity and
contribution hereunder may be limited under applicable law;


 


(j)                                     the
Corporation has not received any communications alleging that the Corporation
has violated or, by conducting its business as proposed, would violate any of
the patents, trademarks, service marks, trade names, copyrights or trade
secrets or other proprietary rights of any other person or entity and the
Corporation is not aware of any potential basis for such an allegation or of
any reason to believe that such an allegation may be forthcoming;


 


(k)                                  the
Corporation is not a party to or bound by any agreement of guarantee,
indemnification (other than an indemnification of directors and officers in accordance
with the by-laws of the Corporation and applicable laws, and the
indemnification provided for herein) or any other like commitment of the
obligations, liabilities (contingent or otherwise) or indebtedness of any other
person;


 


(l)                                     except
as disclosed to the Agent in the due diligence session on December 19,
2005, the Corporation does not have any loans or other indebtedness outstanding
which have been made to or from any of its shareholders, officers, directors or
employees or any other person not dealing at arm’s length with it that are
currently outstanding;


 


(m)                               except
as disclosed to the Agent in the due diligence session on December 19,
2005, no shareholder, officer, director, employee or any other person not
dealing at arm’s length with the Corporation or, to the knowledge of the
Corporation, any associate or affiliate of any such person, owns, has or is
entitled to any royalty, net profits interest, carried interest or any other
encumbrances or claims of any nature whatsoever which are based on the Sawn
Lake Project, the Farmout Agreement, the Farmout Acknowledgement Agreement or
any revenue or rights attributed thereto;


 


11





















 


(n)                                 the
Corporation is not a “reporting issuer”, within the meaning of the Applicable
Securities Laws, of any jurisdiction and the Common Shares are not currently
listed for trading on any stock exchange;


 


(o)                                 the
form and terms of definitive certificates representing the Common Shares of the
Corporation have been duly approved and adopted by the Corporation and comply
with all legal requirements relating thereto;


 


(p)                                 the
form and terms of definitive certificates representing the Debentures have been
duly approved and adopted by the Corporation;


 


(q)                                 no
authorization, approval or consent of any court, governmental authority or
regulatory agency is required to be obtained by the Corporation in connection
with the issuance, sale and delivery of the Offered Securities, except as
contemplated hereby;


 


(r)                                    no
Securities Commission or any other securities commission or similar regulatory
authority has issued any order preventing or suspending trading of any
securities of the Corporation, no such proceeding is, to the knowledge of the
Corporation, pending, contemplated or threatened, the Corporation is not in
default of any requirement of Applicable Securities Laws of the Selling
Jurisdictions which would have a Material Adverse Effect on the Corporation and
the Corporation is entitled to avail itself of the applicable prospectus exemptions
available under such Applicable Securities Laws in respect of the trades in the
Offered Securities to Subscribers as contemplated by this Agreement and the
Subscription Agreements;


 


(s)                                  the
Corporation has taken or will take prior to the Closing Date all such steps as
may be necessary to comply with such requirements of Applicable Securities Laws
such that the Offered Securities may, in accordance with Applicable Securities
Laws, be offered for sale and sold on a private placement basis to the public in
the Selling Jurisdictions through the Agent or any other investment dealers or
brokers registered in any of the Selling Jurisdictions and complying with
Applicable Securities Laws by way of the exemptions to the prospectus
requirements;


 


(t)                                    to
the knowledge of the Corporation, none of its directors or officers are subject
to an order or ruling of any securities regulatory authority or stock exchange
prohibiting such individual from acting as a director or officer of a public
company or of a company listed on a particular stock exchange;


 


(u)                                 the
Corporation acts as its own registrar and transfer agent for the Common Shares;


 


(v)                                 to
its knowledge, other than the Shareholder Agreement and the Voting Agreement,
neither the Corporation nor any of its shareholders is a party to any unanimous
shareholder agreement, pooling agreement, voting trust or similar type of
arrangements in respect of outstanding securities of the Corporation;


 


(w)                               the
written responses given by the Corporation and its directors and officers in
the due diligence session held on December 19, 2005 were made in good
faith, and to the knowledge of such parties, were true and correct where they
relate to matters of fact.  Where the
responses reflect the opinion or view of the Corporation or its directors or
officers, such opinions or views were honestly held at the time they were
given.  Where


 


12





















 


any
responses incorporate forward looking information, such information is
inherently subject to risks and uncertainties which cannot be warranted;


 


(x)                                   other
than the Farmout Agreement, the Corporation is not a party to any agreement or
arrangement to acquire any shares or other interests in any other companies or
persons and is not a party to any agreement or arrangement to acquire or lease
any other business operations;


 


(y)                                 except
for the Surge Canada Liabilities (as defined in the Release and Indemnification
Agreement), the Corporation does not have any liability or obligation
including, without limitation, liabilities for taxes, whether accrued,
absolute, contingent or otherwise, not reflected in the Financial Statements,
except liabilities and obligations incurred in the ordinary course of business,
which liabilities and obligations are not material in the aggregate;


 


(z)                                   other
than Dynamo Claim, the claim made by Gary Vandergrift and the claim made by
Stephen Sharp, there are no material actions, suits, proceedings,
investigations or outstanding claims or demands, whether or not purportedly on
behalf of the Corporation or, instituted, pending, or, to the knowledge of the
Corporation, threatened against or affecting the Corporation (or its assets or
properties) at law or in equity or before or by any Governmental Entity, nor is
there any material judgment, order, decree or award of any Governmental Entity
having jurisdiction, obtained, pending or, to the knowledge of the Corporation,
threatened against the Corporation, and neither the Corporation nor its assets
and properties, is subject to any outstanding material judgment, order, writ,
injunction or decree;


 


(aa)                            each
contract or agreement (including the Series I Indenture, Farmout Agreement
and Farmout Acknowledgement Agreement) between the Corporation and any other
person which is material to the ownership, use or operation of a material
portion of the business, properties or assets of the Corporation, is in full
force and effect and, to the best of the knowledge and belief of the
Corporation is valid, binding and enforceable against each of the parties
thereto in accordance with its terms and no material breach or default exists
in respect thereof on the part of any party thereto and no event has occurred
which, with the giving of notice or the lapse of time or both, would constitute
such a material breach or default;


 


(bb)                          the
Corporation has received all necessary agreements and documents, including
without limitation, duly executed notices of assignment, to validly appoint the
Corporation as the operator of the Farmout Lands;


 


(cc)                            since
incorporation, the Corporation has not: (i) declared or paid any dividends
or made any distribution of its properties or assets to its shareholders and
the Corporation has not disposed of any of its properties or assets or incurred
any material indebtedness other than the Surge Canada Liabilities or the Series I
Debentures; or (ii) made or suffered any change or changes in its
financial condition, assets, liabilities or business which, singularly or in
the aggregate, have a Material Adverse Effect or could have a Material Adverse
Effect on its financial condition, assets, liabilities or business as currently
or proposed to be conducted;


 


13





















 


(dd)                          the
Corporation has timely filed, or caused to be filed, all material income tax
returns required to be filed by it (all of which returns were correct and
complete in all material respects), has timely paid, or caused to be paid, all
taxes due and payable, and has satisfied in full in all material respects all
tax withholding, deposit and remittance requirements imposed on or with respect
to the Corporation.  The Corporation has
made adequate provision in accordance with generally accepted accounting
principles in its books and records for any amount of taxes material to the
Corporation and accruing in respect of any accounting period for which tax
returns are not yet required;


 


(ee)                            the
Corporation has not received any written notification that any issue involving
an amount of taxes has been raised and is currently pending by the Canada
Revenue Agency, the United States Internal Revenue Service or any other taxing
authority, including any sales tax authority, and no waivers of statutes of
limitations or objections to any assessments or reassessments involving an
amount of taxes have been given, filed or requested with respect to the
Corporation.  The Corporation has not
received any notice from any taxing authority to the effect that any tax return
is being examined, and the Corporation has no knowledge of any tax audit or
issue.  There are no proposed (but
unassessed) additional taxes applicable by the Corporation and none has been
asserted against the Corporation.  There
are no tax liens on, or statutory trusts in respect of, any assets of the Corporation
except for taxes not yet due and payable. 
The Corporation has not received a refund of any taxes to which to the
knowledge of the Corporation, it was not entitled;


 


(ff)                                the
Corporation has withheld from each payment made to any present or former
employees, officers, and directors and to all persons who are non-residents of
Canada for the purposes of the Tax Act all amounts required by Law and has
remitted such withheld amounts within the prescribed periods to the appropriate
federal or provincial taxing authority. 
The Corporation has remitted all Canada pension plan contributions,
employment insurance premiums, employer health taxes and other taxes payable by
it and has or will have remitted such amounts to the proper taxing authority
within the time required by applicable Law. 
The Corporation charged, collected and remitted on a timely basis all
taxes required by applicable Law (including, without limitation, Part IX
of the Excise Tax Act (Canada) or the retail sales tax legislation of any
province of Canada) on any sale, supply or delivery whatsoever, made by the
Corporation;


 


(gg)                          except
for the employment agreements with Leigh Cassidy and Fred Kelly dated November 15,
2005, the Corporation is not a party to written or oral employment agreements
or consulting agreements other than as has been disclosed to the Agent in
writing;


 


(hh)                          there
are no complaints against the Corporation before any employment standards
branch or tribunal or human rights tribunal, nor, to the knowledge of the
Corporation, any complaints or any occurrence which might lead to a complaint
under any human rights legislation or employment standards legislation. There
are no outstanding decisions or settlements or pending settlements under
applicable employment standards legislation which place any obligation upon the
Corporation to do or refrain from doing any act. Except for non-compliance that
is not or would not result in a Material Adverse Effect on the Corporation, the
Corporation is currently in full compliance with all workers’ compensation,
occupational health and safety and similar legislation, including payment in
full of all amounts owing thereunder, and there are no pending claims or
outstanding


 


14





















 


orders
against either of them under applicable workers’ compensation legislation,
occupational health and safety or similar legislation nor has any event
occurred which may give rise to any such claim;


 


(ii)                                  the
corporate records and minute books of the Corporation as required to be
maintained by it under the Laws of its jurisdiction of incorporation are
up-to-date, in all material respects, and contain complete and accurate minutes
of all meetings of shareholders and the board of directors and any committees
thereof and all resolutions consented to in writing;


 


(jj)                                  the
Corporation is in compliance, and at all times has complied, with all
applicable laws other than non-compliance which would not, individually or in
the aggregate, have a Material Adverse Effect on the Corporation.  No investigation or review by any
Governmental Entity with respect to the Corporation is pending or, to the
knowledge of the Corporation, is threatened, nor has any Governmental Entity
indicated in writing an intention to conduct the same, other than those the
outcome of which could not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on the Corporation;


 


(kk)                            the
Corporation is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and to
lawfully carry on its businesses as they are now being conducted (collectively,
the “Corporation Permits”), except
where the failure to be in possession of such Corporation Permits would not,
individually or in the aggregate, have a Material Adverse Effect on the
Corporation, and there is no action, proceeding or investigation pending or, to
the knowledge of the Corporation, threatened regarding any of the Corporation
Permits which would have a Material Adverse Effect on the Corporation.  The Corporation is not in conflict with, or
in default or violation of any of the Corporation Permits, except for any such
conflicts, defaults or violations which could not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on the
Corporation;


 


(ll)                                  except
to the extent that in violation or other matter referred to in this
subparagraph does not have a Material Adverse Effect on the business, financial
condition, assets, properties, liabilities or operations of the Corporation:


 


(i)                                     the Corporation is not in violation of any applicable federal,
provincial, state, municipal or local laws, regulations, orders, government
decrees or ordinances with respect to environmental, health or safety matters
(collectively, “Environmental Laws”);


 


(ii)                                  the Corporation has operated its business at all times and has
received, handled, used, stored, treated, shipped and disposed of all
contaminants without violation of Environmental Laws;


 


(iii)                               except as have been disclosed in writing to the Agent, there have
been no spills, releases, deposits or discharges of hazardous or toxic
substances, contaminants or wastes into the earth, air or into any body of
water or any municipal or other sewer or drain water system by the Corporation
that have not been remedied;


 


15





















 


(iv)                              no orders, directions or notices have been issued and remain
outstanding pursuant to any Environmental Laws relating to the business or
assets of the Corporation;


 


(v)                                 the Corporation has not failed to report to the proper Governmental
Entity the occurrence of any event which is required to be so reported by any
Environmental Law; and


 


(vi)                              the Corporation holds all licenses, permits and approvals required
under any Environmental Laws in connection with the operation of its business
and the ownership and use of its assets, all such licenses, permits and
approvals are in full force and effect, and except for (A) notifications
and conditions of general application to assets of a type owned by the
Corporation, and (B) notifications relating to the reclamation obligations
under the Environmental Protection and Enhancement Act
(Alberta), the Corporation has not received any notification pursuant to any
Environmental Laws that any work, repairs, construction or capital expenditures
are required to be made by it as a condition of continued compliance with any
Environmental Laws, or any license, permit or approval issued pursuant thereto,
or that any license, permit or approval referred to above is about to be
reviewed, made subject to limitation or conditions, revoked, withdrawn or
terminated;


 


(mm)                      any and all
operations of the Corporation and, to the knowledge of the Corporation, any and
all operations by third parties, on or in respect of the assets and properties
of the Corporation, have been conducted in accordance with good oil and gas
industry practices and in material compliance with applicable laws, rules,
regulations, orders and directions of governmental and other competent
authorities;


 


(nn)                          in respect of the
assets and properties of the Corporation that are operated by it, if any, the
Corporation holds all valid licences, permits and similar rights and privileges
that are required and necessary under applicable law to operate the assets and
properties of the Corporation as presently operated;


 


(oo)                          although it does not
warrant title, the Corporation does not have reason to believe that the
Corporation does not have title to or the right to produce and sell its
petroleum, natural gas and related hydrocarbons (for the purpose of this
clause, the foregoing are referred to as the “Interest”)
and does represent and warrant that the Interest is free and clear of adverse
claims created by, through or under the Corporation except pursuant to those
arising in the ordinary course of business and those of First Nation groups
asserting traditional land claims over a broad portion of the Province of
Alberta which may include the area of the Sawn Lake Project, and that, to its
knowledge, the Corporation holds its Interest under valid and subsisting
leases, licenses, permits, concessions, concession agreements, contracts,
subleases, reservations or other agreements except where the failure to so hold
its Interest would not have a material adverse effect on the Corporation;


 


(pp)                          to the best of the
knowledge of management of the Corporation, the Corporation does not have any
reason to believe that the representations and warranties of Surge U.S., Deep
Well, Northern and Deep Alta, respectively, in the Farmout Agreement and
Farmout Acknowledgement Agreement are not true and correct as of the date
hereof or that Surge


 


16





















 


U.S., Deep Well, Northern or Deep Alta,
respectively, is in breach of any covenants in the Farmout Agreement or Farmout
Acknowledgement Agreement, except such as would not have a material adverse
effect on the business, operations, capital, properties, assets, liabilities
(absolute, accrued, contingent or otherwise) or results of operations of the
Corporation;


 


(qq)                          other than oil and
gas industry standard “permitted encumbrances”, the Corporation is not aware of
any defects, failures or impairments in the title of Deep Well, Northern or
Deep Alta in the Farmout Lands, whether or not an action, suit, proceeding or
inquiry is pending or threatened or whether or not discovered by any third
party which in aggregate could have a material adverse effect on: (A) the
quantity and pre-tax present worth values of the Farmout Lands; (B) the
future production volumes derived from the Farmout Lands; or (C) the
future cash flow of the Farmout Lands;


 


(rr)                                the Corporation
is insured by insurers of recognized financial responsibility against such
losses and risks and in such amounts that are customary in the business in
which it is engaged; to the best of the Corporation’s knowledge, all policies
of insurance and fidelity or surety bonds insuring the Corporation or its business, assets,
employees, officers and directors are in full force and effect, the Corporation
is in compliance with the terms of such policies and instruments in all
material respects and there are no material claims by the Corporation
under any such policy or instrument as to which any insurance company is
denying liability or defending under a reservation of rights clause; the Corporation
has no reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business at
a cost that would not have a material adverse effect on the condition
(financial or otherwise) prospects, earnings, business or properties of the Corporation;


 


(ss)                            pursuant
to the terms of the Voting Agreement, the Deep Well Shares shall be voted by
Surge U.S. until February 25, 2007;


 


(tt)                                the Corporation has
the full corporate right, power and authority to incur and renounce to the
Subscribers for Flow-Through Shares, Qualifying Expenditures in an amount equal
to the Commitment Amount;


 


(uu)                          the incurring and
renouncing of Qualifying Expenditures to the Subscribers for Flow-Through
Shares does not and will not constitute a breach of or default under the constating
documents of the Corporation or any law, regulation, order or ruling applicable
to the Corporation or any agreement, contract or indenture to which the
Corporation is a party or by which it is bound;


 


(vv)                          the Corporation is,
and at all material times will be, a Principal Business Corporation throughout
the Expenditure Period;


 


(ww)                      subject to any
agreement respecting the Flow-Through Shares to which the Corporation is not a
party, upon issuance pursuant to the provisions hereof, the Flow-Through Shares
will be “flow-through shares” as defined in subsection 66(15) of the Act
and will not constitute “prescribed shares” for the purpose of
Regulation 6202.1 to the Act;


 


17





















 


(xx)                              neither the
Corporation nor any corporation associated with it (as defined in the Act) is
party to any other agreement for the issuance of flow-through shares for which
the required expenditures have not been renounced; and


 


(yy)                          the
representations and warranties of the Corporation in the Subscription
Agreements are, or will on the Closing Date be, true and correct.


 


Section 5                                             Conditions


 


The obligations
of the Agent hereunder shall be conditional upon the Agent receiving, and the
Agent shall have the right on the Closing Date on behalf of Subscribers to
withdraw all Subscription Agreements delivered and not previously withdrawn by
Subscribers unless the Agent receives, on the Closing Date:


 


(a)                                  legal
opinions of the Corporation’s Counsel addressed to the Agent and the
Subscribers in form and substance satisfactory to the Agent, and the Agent’s
Counsel, acting reasonably, relating to the Corporation, the Offering, the
issuance and sale of the Flow-Through Shares, the Debentures, the Agent’s
Warrants and the underlying securities, including, without limitation,
compliance with Applicable Securities Laws of the Selling Jurisdictions in
which Offered Securities were sold, in any way connected with the Offering,
issuance, sale and delivery of the Offered Securities and the Agent’s Warrants
as the Agent may reasonably request.  It
is understood that the respective counsel may rely on, or arrange for separate
deliveries of, the opinions of local counsel acceptable to them as to matters
governed by the laws of jurisdictions other than Alberta and on certificates of
officers of the Corporation, and the auditors of the Corporation as to relevant
matters of fact;


 


(b)                                 a
certificate of the Corporation dated the Closing Date, addressed to the Agent
and the Subscribers and signed on the Corporation’s behalf by its Executive
Chairman and Chief Executive Officer or the Chief Operating Officer of the
Corporation, or such other officer of the Corporation satisfactory to the
Agent, acting reasonably, certifying that:


 


(i)                                     the Corporation has complied with
and satisfied all terms and conditions of this Agreement on its part to be
complied with or satisfied at or prior to the Closing Time, other than those
which have been waived by the Agent in writing;


 


(ii)                                  the representations and warranties
of the Corporation set forth in this Agreement and the Subscription Agreements
are true and correct at the Closing Time, as if made at such time;


 


(iii)                               no event of a nature referred to
in Section 10(a), (b), (d) or (e) has occurred or to the
knowledge of such officer is pending, contemplated or threatened (excluding any
requirement of the Agent to make a determination as to whether or not any event
or change has, in the Agent’s opinion, had or would have the effect specified
therein);


 


(iv)                              the Corporation has made and/or
obtained, on or prior to the Closing Time, all necessary filings, approvals,
consents and acceptances of applicable regulatory authorities and under any
applicable agreement or document to which the Corporation is a party or by
which it is bound, required for the execution and


 


18





















 


delivery of this Agreement
and the Offering in the Selling Jurisdictions (subject to completion of filings
with certain regulatory authorities following the Closing Date); and


 


(v)                                 such other matters as may be
reasonably requested by the Agent or the Agent’s Counsel;


 


and the Agent shall have no
knowledge to the contrary;


 


(c)                                  evidence
satisfactory to the Agent that the Corporation has obtained all necessary
approvals, if any, for the issuance of the Flow-Through Shares and the
Debentures (and the issuance of the Common Shares on conversion of the
Debentures), subject only to the filing of required documents which are in the
possession of the Corporation, on the Closing Date and payment of applicable
fees;


 


(d)                                 definitive
certificates issued on the Closing Date representing, in the aggregate, all of
the Flow-Through Shares and Debentures subscribed for registered in such name
or names as the Agent shall notify the Corporation in writing not less than two
Business Days prior to the Closing Date, provided such certificates registered
in such names may be delivered in advance of the Closing Date to the Agent or
such other parties in such locations as the Agent may direct and the Agent and
the Corporation may agree;


 


(e)                                  executed
copies of this Agreement, the Indenture and the Subscription Agreements, each
in form and substance reasonably satisfactory to the Agent and the Agent’s
Counsel; and


 


(f)                                    such
other certificates and documents as may be reasonably requested by the Agent or
the Agent’s counsel.


 


The
foregoing conditions are for the sole benefit of the Agent and may be waived in
whole or in part by the Agent at any time and, without limitation, the Agent
shall have the right, on behalf of potential subscribers, to withdraw all
Subscription Agreements delivered and not previously withdrawn or rescinded by
such persons. If any of the foregoing conditions are not met, the Agent may
terminate its obligations under this Agreement without prejudice to any other
remedies it may have.


 


Section 6                                             Closing


 


The issue and
sale of the Offered Securities shall be completed at the Closing Time at the
offices of Burnet, Duckworth & Palmer LLP or at such other place as
the Corporation and the Agent may agree. 
Subject to the conditions set forth in Section 5, the Agent, on the
applicable Closing Date, shall deliver to the Corporation:


 


(a)                                  all
completed Subscription Agreements executed by the Subscribers (including all
applicable schedules thereto), in form and substance reasonably satisfactory to
the Corporation and the Agent and their respective counsel; and


 


(b)                                 a
certified cheque made payable to the Corporation in an amount equal to the
aggregate gross proceeds of the Offering less the Agent’s fees and expenses set
out herein;


 


19





















 


against delivery
by the Corporation of:


 


(a)                                  the
certificates referred to in Section 5(d), to be delivered at the Closing
Time;


 


(b)                                 the
certificate representing the Agent’s Warrants; and


 


(c)                                  such
further documentation as may be contemplated by this Agreement or that may
reasonably be requested by the Agent’s Counsel.


 


In the event that
there is more than one closing, the conditions to closing shall apply to all of
such closings and the documents contemplated by Section 5 and Section 6
to be delivered at the closing shall be delivered at the first closing and at
any subsequent closings to the extent applicable.


 


The Corporation
may not reject any properly completed Subscription Agreement which is in
compliance with Applicable Securities Laws, unless: (i) the number of
Offered Securities subscribed for or purchased pursuant to all Subscription
Agreements tendered by the Agent exceeds the maximum number of Offered
Securities to be sold under this Agreement, in which case Subscription
Agreements representing the over-allotment shall, in consultation with the
Agent, be rejected; or (ii) unless the acceptance of such Subscription
Agreement may breach or violate any Applicable Securities Laws.


 


Section 7                                             Fees


 


In
consideration for the Agent’s services, the Corporation shall pay to the Agent
at the Closing Time a cash commission in the amount of 5% of the aggregate
gross proceeds raised pursuant to the sale of the Flow-Through Shares and a
cash commission in the amount of 8% of the aggregate gross proceeds raised
pursuant to the sale of the Debentures.


 


In
addition to the cash commission set out above, the Corporation will issue to
the Agent at the Closing Time an irrevocable warrant to purchase that number of
Common Shares equal to 8% of the Common Shares issuable on conversion of all of
the Debentures issued pursuant to the Offering, at an exercise price of $1.00
per share, which option shall be exercisable by the Agent for a period of the
earlier of: twelve (12) months following the date on which the Corporation
completes a Going Public Transaction (as defined in the Agent’s Warrant
certificate) and November 17, 2008 (the “Agent’s
Warrants”).


 


Section 8                                             Expenses


 


Whether or not
the transactions contemplated herein shall be completed, all costs and expenses
of or incidental to the creation, issue, sale or distribution of the Offered
Securities shall be borne by the Corporation, including, without limitation,
all costs and expenses of or incidental to the private placement of the Offered
Securities, the fees and expenses of the Corporation’s counsel, agent’s counsel
retained by the Corporation’s counsel, the Corporation’s auditors, the
Corporation’s engineers, the reasonable out-of-pocket expenses of the Agent,
including, but not limited to, travel and road show expenses and the Agent’s
legal fees and expenses, and all other costs and expenses relating to the
transactions contemplated herein.  All
fees and expenses incurred by the Agent which are reimbursable hereunder shall
be payable by the Corporation immediately upon receiving an invoice therefore
from the Agent or the Agent shall be authorized to deduct such fees and
expenses from the gross proceeds of the Offering.  The Agent’s legal fees excluding
disbursements and taxes will be a maximum of $30,000, unless the Corporation
otherwise consents.


 


20





















 


Section 9                                             Waiver


 


The Agent may, in
respect of the Corporation, waive in whole or in part any breach of, default
under or non-compliance with any representation, warranty, covenant, term or
condition hereof on the part of the Corporation, or extend the time for
compliance therewith, without prejudice to any of its rights in respect of any
other representation, warranty, covenant, term or condition hereof or any other
breach of, default under or non-compliance with any other representation,
warranty, covenant, term or condition hereof, provided that any such waiver or
extension shall be binding on the Agent only if the same is in writing.


 


Section 10                                      Termination Events


 


The Agent may
terminate its obligations hereunder, without any liability on the Agent’s part,
by written notice to the Corporation, in the event that at or prior to the
Closing Time:


 


(a)                                  any
order to cease or suspend trading in any securities of the Corporation, or
prohibiting or restricting the distribution of the Offered Securities, is made,
or proceedings are announced, commenced or threatened for the making of any
such order, by any securities commission or similar regulatory authority, or by
any other competent authority, and the same has not been rescinded, revoked or
withdrawn;


 


(b)                                 any
inquiry, investigation (whether formal or informal) or other proceeding in
relation to the Corporation or any of its directors or officers is announced or
commenced by any securities commission or similar regulatory authority, or by
any other competent authority, or any order is issued under or pursuant to any
statute of Canada or of any of the provinces of Canada, or any other applicable
law or regulatory authority (unless based on the activities or alleged
activities of the Agent), or there is any change of law, regulation or policy
or the interpretation or administration thereof, which, in the sole opinion of
the Agent, acting reasonably, may materially adversely affect the Corporation
or the trading or distribution of the Offered Securities;


 


(c)                                  there
should develop, occur or come into effect or existence any event, action,
state, condition (including, without limitation, terrorism or accident) or
major financial occurrence of national or international consequence or any
action by government, law or regulation, or any other such occurrence of any
nature whatsoever, which, in the sole opinion of the Agent, acting reasonably,
seriously adversely affects, or involves, or will seriously adversely affect or
involve, or might seriously adversely affect or involve the financial markets
or the business, operations or affairs of the Corporation;


 


(d)                                 there
should occur any change, event, fact or circumstance (actual, contemplated or
threatened) or any development that could result in such a change, event, fact
or circumstance, which, in the sole opinion of the Agent as determined by the
Agent in its sole discretion, could reasonably be expected to have a material
adverse effect on the business, operations or affairs of the Corporation, the
value or the marketability of the Offered Securities;


 


(e)                                  the
Corporation shall not be in breach of, default under or non-compliance in any
material respect with any representation, warranty, term or condition of this
Agreement, the Indenture or the Subscription Agreements; or


 


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(f)                                    the
Agent shall become aware, as a result of its due diligence review (including,
without limitation, the due diligence session) or otherwise, of any adverse
material information, fact or change (in the sole opinion of the Agent, acting
reasonably) with respect to the Corporation which had not been publicly
disclosed or disclosed in writing to the Agent, prior to the date hereof;


 


in
any of which cases, the Agent shall be entitled, at its option, to terminate
and cancel its obligations to the Corporation under this Agreement and the
obligations of any Subscriber under any Subscription Agreement by written
notice to that effect given to the Corporation prior to the Closing Date.


 


Section 11                                      Continuation of Termination Right


 


The Agent may
exercise any or all of the rights provided for in Section 5, Section 9
or Section 10 notwithstanding any material change, change, event or state
of facts and notwithstanding any act or thing taken or done by the Agent or any
inaction by the Agent, whether before or after the occurrence of any material
change, change, event or state of facts including, without limitation, any act
of the Agent related to the Offering or continued offering of the Offered
Securities for sale, and the Agent shall only be considered to have waived or
be estopped from exercising or relying upon any of its rights under or pursuant
to in Section 5, Section 9 or Section 10 if such waiver or
estoppel is in writing and specifically waives or estops such exercise or
reliance.


 


Section 12                                      Exercise of Termination Right


 


Any termination
pursuant to the terms of this Agreement shall be effected by notice in writing
delivered to the Corporation prior to the Closing Date, provided that no
termination shall discharge or otherwise affect any obligation of the
Corporation under Section 8 and Section 14 through Section 17
inclusive. The rights of the Agent to terminate its obligations hereunder are
in addition to, and without prejudice to, any other remedies it may have.


 


Section 13                                      Survival


 


It is understood
that all representations, warranties, covenants, terms and conditions herein or
contained in certificates or documents submitted pursuant to or in connection
with the transactions contemplated herein shall survive the payment by the
Agent for the Offered Securities and shall continue in full force and effect
for the benefit of the Agent and the Subscribers for a period of two years
regardless of any investigation by or on behalf of the Agent with respect
thereto.


 


Section 14                                      Indemnity


 


The Corporation
(the “Indemnitor”) shall indemnify
and save harmless each of the Agent and its affiliates, shareholders,
directors, officers, partners, employees and agents (collectively the “Indemnified Parties”) from and against all
actual or threatened claims, actions, suits, investigations and proceedings
(collectively “Proceedings”) and
all losses (other than loss of profits), expenses, fees, damages, obligations,
payments and liabilities (collectively “Liabilities”)
(including without limitation all statutory duties and obligations, and,
subject to Section 16, all amounts paid to investigate, defend and settle
any action or to satisfy any judgment or award and all legal fees and
disbursements actually incurred) which now or any time hereafter are suffered
or incurred by reason of any event, act or omission in any way caused by, or
arising directly or indirectly from or in consequence of:


 


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(a)                                  any
information or statement contained in this Agreement, the Subscription
Agreements, the Indenture or any certificate or other document provided by or
on behalf of the Corporation to the Agent or a Subscriber in connection with
the Offering (other than any information or statement relating solely to the
Agent and furnished to the Corporation by the Agent expressly for inclusion therein
or forward looking information and materials prepared by third parties), which
is or is alleged to be untrue or any omission or alleged omission to provide
any information or state any fact the omission of which makes or is alleged to
make any such information or statement untrue or misleading in light of the
circumstances in which it was made;


 


(b)                                 any
misrepresentation or alleged misrepresentation (except a misrepresentation
which is based upon information relating solely to the Agent and furnished to
the Corporation by the Agent expressly for inclusion in this Agreement or the
Subscription Agreements) contained in any part of this Agreement, the Indenture
or the Subscription Agreements;


 


(c)                                  any
prohibition or restriction of trading in the securities of the Corporation or
any prohibition or restriction affecting the distribution of the Offered
Securities (not based solely upon the activities or alleged activities of the
Agent or its banking or selling group members, if any), imposed by any
competent authority if such prohibition or restriction is based on any
misrepresentation or alleged misrepresentation of a kind referred to in Section 14(b);


 


(d)                                 any
order made or any inquiry, investigation (whether formal or informal) or other
proceeding commenced or threatened by any securities commission or by any one
or more competent authorities (not based solely upon the activities or the
alleged activities of the Agent or its banking or selling group members, if
any) relating to or affecting the trading or distribution of the Debentures,
Common Shares or Flow-Through Shares; or


 


(e)                                  any
material breach of, default under or non-compliance by the Corporation with any
representation, warranty, term or condition of this Agreement, or any
certificate or other document delivered by or on behalf of the Corporation
hereunder or any requirement of Applicable Securities Laws,


 


provided that in
the event and to the extent that a court of competent jurisdiction in a final
judgment from which no appeal can be made or a regulatory authority in a final
ruling from which no appeal can be made shall determine that any matter in
respect of which indemnity may be sought hereunder resulted solely from the
gross negligence, dishonesty, fraud or wilful misconduct of any Indemnified Party
claiming indemnity, this indemnity shall not apply.


 


The Corporation
hereby waives its right to recover contribution from the Agent with respect to
any liability of the Corporation by reason of or arising out of any
misrepresentation in the Public Record provided, however, that such waiver
shall not apply in respect of liability caused or incurred by reason of or
arising out of: (i) any misrepresentation which is based solely upon
information relating solely to the Agent contained in such document and furnished
to the Corporation by the Agent expressly for inclusion in such document; or (ii) any
failure by the Agent to provide to prospective purchasers of Offered Securities
any document which the Corporation is required to provide to such prospective
purchasers and which the Corporation has provided to the Agent to forward to
such prospective purchasers.


 


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Section 15                                      Notice of Indemnity Claim


 


If any Proceeding
is brought, instituted or threatened against any Indemnified Party which may
result in a claim for indemnification under this Agreement, such Indemnified
Party shall notify the Corporation as soon as possible of the nature of such
claim, and the Corporation shall be entitled (but not required) to assume
conduct of the defence thereof and retain counsel on behalf of the Indemnified
Party who is satisfactory to the Indemnified Party, acting reasonably, to
represent the Indemnified Party in such Proceeding and the Corporation shall
pay the fees and disbursements of such counsel and all other expenses of the
Indemnified Party relating to such Proceeding as incurred.  Failure to so notify the Corporation shall
not relieve the Corporation from liability except and only to the extent that
the failure materially prejudices the Corporation.  If the Corporation assumes conduct of the
defence for an Indemnified Party, the Indemnified Party shall fully cooperate
in the defence including, without limitation, the provision of documents,
appropriate officers and employees to give witness statements, attend
examinations for discovery, make affidavits, meet with counsel, testify and
divulge all information reasonably required to defend or prosecute the
Proceedings.


 


In any such
Proceeding the Indemnified Party shall have the right to employ separate
counsel and to participate in the defence thereof if:


 


(a)                                  the
Indemnified Party has been advised in writing by counsel that there may be a
reasonable legal defence available to the Indemnified Party that is different
from or in addition to those available to the Corporation or that a conflict of
interest exists which makes representation by counsel chosen by the Corporation
not advisable;


 


(b)                                 the
Indemnitor has not assumed the defence of the Proceeding and employed counsel therefor
satisfactory to the Indemnified Party within ten (10) days after receiving
notice thereof; or


 


(c)                                  employment
of such other counsel has been authorized by the Corporation;


 


in which event,
the fees and disbursements of such counsel (on a solicitor and his client
basis) shall be paid by the Corporation; it being understood, however, that the
Corporation shall not, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out
of the same general allegations or circumstances, be liable for the reasonable
fees and expenses of more than one separate law firm in each jurisdiction (in
addition to any local counsel) for all such Indemnified Parties.


 


Section 16                                      Admission of Liability


 


No admission of
liability and no settlement of any Proceeding shall be made by the Corporation
without the prior written consent of the Indemnified Parties affected, such
consent not to be unreasonably withheld. 
No admission of liability and no settlement of any Proceeding shall be
made by an Indemnified Party without the prior written consent of the
Corporation and the other Indemnified Parties affected, such consent not to be
unreasonably withheld.


 


Section 17                                      Right of Contribution


 


In order to
provide for just and equitable contribution in circumstances in which the
indemnification provided for in this Agreement is due in accordance with its
terms but is (in whole or in part), for any reason, held by a court to be
unavailable from the Corporation on grounds of policy or otherwise, each of


 


24





















 


the Corporation
and the party or parties seeking indemnification shall contribute to the
aggregate Liabilities (or Proceedings in respect thereof) to which they may be
subject or which they may suffer or incur:


 


(a)                                  in
such proportion as is appropriate to reflect the relative benefit received by
the Corporation on the one hand and by the Agent on the other hand from the
Offering; or


 


(b)                                 if
the allocation provided by subparagraph (a) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in subparagraph (a) above but also to
reflect the relative fault of the party or parties seeking indemnity, on the
one hand, and the parties from whom indemnity is sought, on the other hand, in
connection with the statement, omission, misrepresentation or alleged
misrepresentation, order, inquiry, investigation or other matter or thing which
resulted in such Liabilities, as well as any other relevant equitable
considerations.


 


The relative
benefits received by the Corporation, on the one hand, and the Agent, on the
other hand, shall be deemed to be in the same proportion that the total
proceeds of the Offering received by the Corporation (net of fees but before
deducting expenses) bear to the fees received by the Agent.


 


The amount paid
or payable by the Indemnitor as a result of any Proceedings or Liabilities
shall, without limitation, include any legal or other expenses reasonably
incurred by the Indemnified Person in connection with investigating or
defending such Liabilities (or Proceedings in respect thereof), whether or not
resulting in any action, suit, proceeding or claim.


 


Any liability of
the Agent under this Section 17 shall be limited to the amount of the
Agent’s fee paid to the Agent pursuant to Section 7 hereof.


 


The Corporation
agrees that it would not be just and equitable if contributions pursuant to
this Agreement were determined by pro rata allocation
or by any other method of allocation which does not take into account the
equitable considerations referred to in the immediately preceding sections.


 


The rights to
indemnity and right of contribution provided in the foregoing paragraphs shall
be in addition to, and not in derogation of, any other right to contribution
which the Indemnified Parties may have by statute or otherwise at law or in
equity.  Subject to Section 14, the
Indemnitor waives all rights of contribution that it may have against any Indemnified
Party relating to any Liability in respect of which the Indemnitor has agreed
to indemnify the Indemnified Parties hereunder.


 


It is the
intention of the Corporation to constitute the Agent as trustee for the
Indemnified Parties for the purposes of Section 14 to Section 17
inclusive and the Agent shall be entitled, as trustee, to enforce such
covenants on behalf of any other Indemnified Parties.


 


If any Proceeding
is brought in connection with the transactions contemplated by this Agreement
and the Agent or representative of the Agent is required to testify in
connection therewith or is required to respond to procedures designed to
discover information relating thereto, the Agent will have the right to employ
their own counsel in connection therewith, and the reasonable fees and
disbursements of such counsel in connection therewith as well as its reasonable
fees at the normal per diem rate for its directors, officers, employees and
agents involved in preparation for and attendance at such Proceeding or in so
responding, and any other reasonable costs and out-of-pocket expenses incurred
by it in connection therewith, will be paid by the Corporation as they are
incurred.


 


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The obligations
under the indemnity and right of contribution provided herein shall apply
whether or not the transactions contemplated by this Agreement are completed
and shall survive the completion of the transactions contemplated under this
Agreement and the termination of this Agreement.


 


Section 18                                      Notices


 


Any notice or
other communication to be given hereunder shall, in the case of notice to be
given to the Corporation, be addressed to:


 


Signet Energy Inc.


1818, 144 - 4th Avenue S.W.


Calgary, Alberta


T2P 3N4


Attention:                                         C.W. Leigh Cassidy


Telecopy No.:                     (403) 440-1114


 


and a copy to:


 


Burnet, Duckworth & Palmer LLP


1400, 350 - 7th Avenue S.W.


Calgary, Alberta


T2P 3N9


Attention:                                         Fred Davidson


Telecopy No.:                     (403) 260-0337


 


and, in the case
of notice to be given to the Agent, be addressed to:


 


MGI Securities Inc.


Suite 1420, 333 - 5th Avenue SW


Calgary, AB


T2P 3B6

Attention:                                         Tony Loria


Telecopy No.:                     (403) 705-4971


 


and a copy to:


 


Davis & Company LLP


3000 Shell Centre


400 – 4th Avenue SW


Calgary, Alberta


T2P 0J4

Attention:                                         James Bell


Telecopy No.:                     (403) 296-4474


 


or to such other
address as the party may designate by notice given to the others.  Each communication shall be personally
delivered to the addressee or sent by facsimile transmission to the addressee,
and:


 


(a)                                  a
communication which is personally delivered shall, if delivered before 4:30 p.m.
(local time) on a Business Day, be deemed to be given and received on that day
and, in any


 


26





















 


other
case be deemed to be given and received on the first Business Day following the
day on which it is delivered; and


 


(b)                                 a
communication which is sent by facsimile transmission shall, if sent on a
Business Day before 4:30 p.m. (local time), be deemed to be given and
received on that day and, in any other case, be deemed to be given and received
on the first Business Day following the day on which it is sent.


 


Section 19                                      Acknowledgement and Consent


 


The Corporation: (a) acknowledges
and agrees that the Agent has certain statutory obligations as a registrant
under the Applicable Securities Laws and has fiduciary relationships with its
clients; and (b) consents to the Agent acting hereunder while continuing
to act for its clients.  To the extent
that the Agent’s statutory obligations as a registrant under Applicable
Securities Laws or fiduciary relationships with its clients conflicts with its
obligations hereunder, the Agent shall be entitled to fulfil its statutory
obligations as a registrant under Applicable Securities Laws and its duties to
its clients.  Nothing in this Agreement
shall be interpreted to prevent the Agent from fulfilling its statutory
obligations as a registrant under Applicable Securities Laws or to act as a
fiduciary of its clients.


 


Section 20                                      Trust


 


The Corporation
acknowledges and agrees that it is the intention of the parties hereto and the
Corporation hereby constitutes the Agent as trustee for each of the Subscribers
in respect of each of the respective covenants, agreements and representations
and warranties of the Corporation contained herein and the Agent shall be
entitled, as trustee, in addition to any rights of the Subscribers, to enforce
such covenants, agreements and representations and warranties on behalf of the
Subscribers.


 


Section 21                                      Severance


 


If one or more of
the provisions contained herein shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement, but
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision or provisions had never been contained herein.


 


Section 22                                      Governing Law


 


This Agreement
shall be governed by and construed in accordance with the laws of the Province
of Alberta and the laws of Canada applicable therein.


 


Section 23                                      Time of the Essence


 


Time shall be of
the essence of this Agreement.


 


Section 24                                      Counterpart Execution


 


This Agreement
may be executed in one or more counterparts and by telecopier each of which so
executed shall constitute an original and all of which together shall
constitute one and the same agreement.


 


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Section 25                                      Entire Agreement


 


It is understood
that the terms and conditions of this Agreement supersede any previous verbal
or written agreement between the Agent and the Corporation in respect of the
offer for sale by the Corporation of the Offered Securities.


 


If the foregoing
is in accordance with your understanding and is agreed to by you, please
confirm your acceptance by signing the enclosed copies of this Agreement at the
place indicated and returning same to the Agent.


 


 


	
  MGI SECURITIES INC.

  
	
   

  
	
  Per:

  	
  /s/ Tony Loria

  	
   

  
	
   

  
	
   

  
	
  ACCEPTED AND
  AGREED to as of the

  
	
  20th
  day of December, 2005.

  
	
   

  
	
  SIGNET
  ENERGY INC.

  
	
   

  
	
  Per:

  	
  /s/ C.W. Leigh Cassidy

  	
   

  



 


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