Exhibit 10.18


 


AGENCY AGREEMENT


 


November 15,
2005


 


 


Surge Global Energy (Canada), Ltd.

1818, 144 - 4th Avenue S.W.

Calgary, Alberta T2P 3N4


 


Surge Global Energy, Inc.

12220 El Camino Real

Suite 410

San Diego, California

92130


 


Attention:                                         Mr. David Perez, Chairman

Mr. Fred Kelly, Chief Executive Officer


 


Dear Sirs:


 


Re:                               Private Placement of up to
$10,000,000 CAD Principal Amount of 7% Secured Convertible Debentures of Surge
Global Energy (Canada), Ltd.


 


MGI Securities
Inc. (the “Agent”) understands
that Surge Global Energy (Canada), Ltd. (the “Corporation”
or “Surge”) proposes to create, issue and
sell 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”) or shares of common stock (“Surge U.S.
Shares”) of Surge Global Energy, Inc. (“Surge U.S.”).  The private placement of the Debentures on
the terms and conditions provided for herein is hereinafter referred to as the
“Offering”.


 


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 Debentures for sale on the Closing Date in the Selling Jurisdictions on a
private placement basis, in minimum denominations of $50,000 CAD and integral
multiples of $25,000 CAD thereafter, and to use its commercially reasonable
efforts to secure subscriptions therefore. 
The Corporation acknowledges and agrees that the Agent may, but is not
obligated to, purchase any of the Debentures as principal.  The Debentures 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 Debentures 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 Debentures and advising on the terms


 





















 


and conditions of
the Offering, the Agent shall be entitled to the fee and Agent’s Warrant (as
defined below) provided for in Section 9, and the reimbursement of its
expenses, which amounts shall be payable from the proceeds of the sale of the
Debentures hereunder at the time and manner as specified in Section 9.


 


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


 


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


 


(d)                                 “Agent’s Warrant” means the agent’s
compensation warrant to acquire Common Shares pursuant to Section 9
hereof;


 


(e)                                  “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;


 


(f)                                    “Applicable Canadian 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;


 


(g)                                 “Applicable U.S. Securities Laws” includes,
collectively and without limitation, all applicable U.S. securities and
corporate laws, rules, regulations, instruments, notices, blanket orders,
statements, circulars, procedures and policies;


 


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


 


(i)                                     “Closing Date” means November 15, 2005,
or such other date or dates as the Agent and the Corporation may mutually agree
upon in writing;


 


(j)                                     “Closing Time” means 4:00 p.m. (Calgary
time) or such other time, on the Closing Date, as the Agent and the Corporation
may agree;


 


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


 


(l)                                     “Corporation’s Counsel” means Burnet,
Duckworth & Palmer LLP (for Canadian legal matters) and Sichenzia Ross
Friedman Ference LLP (for U.S. legal matters), or such other legal counsel as
the Corporation, with the consent of the Agent, may appoint;


 


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


 


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


 


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


 


(p)                                 “Deep Well Shares” means an aggregate of
7,550,000 Common Shares to be issued to Deep Well, Deep Alta or Northern
immediately prior to the Closing Time;


 


(q)                                 “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;


 


(r)                                    “Environmental Laws” has the meaning
ascribed to such term in Section 5(nn);


 


(s)                                  “Farmout Acknowledgement Agreement” means
the farmout acknowledgement agreement dated effective the Closing Date 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;


 


(t)                                    “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;


 


(u)                                 “Farmout Agreement Legal Claims” means all
legal actions and claims involving Deep Well, Northern, Surge U.S. and the
Corporation which relate to the enforceability, validity or continuation of the
Farmout Agreement;


 


(v)                                 “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 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;


 


(w)                               “Financial Statements” means the audited
consolidated financial statements of Surge U.S. as at December 31, 2005
and the unaudited consolidated financial statements of Surge U.S. for the three
month periods ending March 31, 2005 and June 30, 2005;


 


(x)                                   “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;


 


(y)                                 “Indenture” means the trust indenture to be
dated on or about the Closing Date among the Corporation, Surge U.S. and the
Trustee, as trustee, governing the terms and conditions of the Debentures;


 


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


 


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(aa)                            “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;


 


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


 


(cc)                            “Management Shares” means an aggregate of
5,100,000 Common Shares to be issued to Messrs. Kelly and Cassidy (for
himself and in trust for issuance to others) at a price of $0.01 per share
immediately following the Closing Time;


 


(dd)                          “Material Adverse Effect”, when used in
connection with the Corporation or Surge U.S., 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 or Surge U.S., as the case may be, and their respective
subsidiaries taken as a whole;


 


(ee)                            “Minimum Subscription” means the
subscription for at least $50,000 principal amount of Debentures;


 


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


 


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


 


(hh)                          “Registration Rights Agreement” has the
meaning ascribed to such term in Section 3(b), a copy of which is attached
hereto as Schedule ”A”;


 


(ii)                                  “Release and Indemnification Agreement”
means the agreement dated November 15, 2005 between the Corporation and
Surge U.S. which provides for, among other things, the fixing of the
Corporation’s liabilities and an indemnity from Surge U.S. for any additional
liabilities above the thresholds set out therein;


 


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


 


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


 


(ll)                                  “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;


 


(mm)                      “Shareholder Agreement” means the agreement
dated on the Closing Date among the Corporation, Surge U.S., Leigh Cassidy and
Fred Kelly which provides for certain voting restrictions of the Common Shares;


 


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(nn)                          “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;


 


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


 


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


 


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


 


(rr)                                “to the knowledge” or “to the best of the knowledge” of the
Corporation or Surge U.S. (or words to like effect in this Agreement), means
that the Corporation or Surge U.S. shall be required, in addition to making any
other reasonable inquiries, to make inquiries of officers of the Corporation or
Surge U.S.;


 


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


 


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


 


(uu)                          “Voting Agreement” means the voting trust
agreement dated on the Closing Date among the Corporation, Surge U.S., Deep
Well, 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 Canadian Securities Laws of the Selling
Jurisdictions, “distribution”
means “distribution” or “distribution to the public”, as the case
may be, as defined under the Applicable Canadian 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 Debentures will be duly and validly authorized and issued;


 


(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 Debentures 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 Canadian 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


 


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requirements
of Applicable Canadian Securities Laws as contemplated by the Subscription
Agreements;


 


(d)                                 as
soon as reasonably possible, and in any event by the Closing Date, to execute
the Shareholder Agreement and issue the Management Shares;


 


(e)                                  as
soon as reasonably possible, and in any event by the Closing Date, to execute
the Voting Agreement and issue the Deep Well Shares;


 


(f)                                    as
soon as reasonably possible, and in any event by the Closing Date, to cause the
following person to be appointed to the following offices:  Leigh Cassidy - Executive Chairman and Chief
Executive Officer;


 


(g)                                 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;


 


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


 


(i)                                     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;


 


(j)                                     the
Corporation will not, from the date hereof until the earlier of the conversion
of all of the issued Debentures into Common Shares or Surge U.S. 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;


 


(k)                                  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 Surge U.S.
Shares or the repayment of all of the issued Debentures (including all interest
payable thereon); or (ii) the date on which the Corporation completes an
offering (or offerings) of securities to the public for gross proceeds of at
least an aggregate of $10,000,000, 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;


 


(l)                                     immediately
following the Closing Time on the Closing Date, it will file such
discontinuances and undertakings, in such form as approved by Agent’s Counsel,
acting reasonably, to cause all of the Farmout Agreement Legal Claims to be
discontinued;


 


(m)                               except
for the issuance of the Management Shares, the Deep Well Shares, the grant of
options pursuant to the Option Plan and the anticipated flow-through share
financing, the Corporation will not, from the date hereof until that date that
is 120 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


 


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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.


 


Section 3                                             Surge U.S.’s Covenants


 


Surge U.S.
covenants and agrees:


 


(a)                                  the
Surge U.S. Shares issuable upon the conversion of the Debentures will be
reserved for issuance at the Closing Time;


 


(b)                                 to prepare and file,
in compliance with the terms of a registration rights agreement (the “Registration Rights Agreement”), in the
form attached hereto as Schedule ”A”, to be entered into by and among the
parties hereto, no later than forty five (45) days from the Closing Date, with
the Securities and Exchange Commission a registration statement on Form SB-2
under the U.S. Securities Act, for
the resale by the Subscribers of the Surge U.S. Shares.  Surge U.S. shall cause the registration
statement to remain effective until all of the Surge U.S. Shares have been
sold.  Surge U.S. shall use its best
efforts (i) to have the registration statement declared effective by the
Securities and Exchange Commission no later than ninety (90) days after the
date filed and (ii) to insure that the initial registration statement and
any subsequent registration statement remains in effect until all of the Surge
U.S. Shares have been sold;


 


(c)                                  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;


 


(d)                                 Surge
U.S. will 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;


 


(e)                                  Surge
U.S. will not, from the date hereof until that date that is 120 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 Surge U.S. Shares or securities exchangeable or
convertible into Surge U.S. Shares (except for the issuance of Surge U.S.
Shares in accordance with the terms of any exchangeable or convertible
securities of Surge U.S. which are outstanding as at the date hereof) without
the prior written consent of the Agent, not to be unreasonably withheld;


 


(f)                                    Surge
U.S. will comply at all times with applicable securities laws and with the rules and
regulations of any stock exchange or inter-dealer quotation system which it is
or may become subject to; and


 


(g)                                 if
required, to cause any Surge U.S. Shares to be issued pursuant to the Indenture
to be listed on any stock exchange or inter-dealer quotation system on which
the Surge U.S. Shares are listed.


 


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Section 4                                             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 Debentures
in compliance with all Applicable Canadian Securities Laws in the Selling
Jurisdictions;


 


(b)                                 not
solicit subscriptions for Debentures, trade in Debentures or otherwise do any
act in furtherance of a trade of Debentures 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 Canadian 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 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 Canadian
Securities Laws of the Selling Jurisdictions and supplied to the Agent by the
Corporation for completion in connection with the distribution of the
Debentures; and


 


(d)                                 not:
(i) advertise the proposed Offering or sale of the Debentures 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 Debentures any document or
material which would constitute an offering memorandum as defined under
Applicable Canadian Securities Laws in the Selling Jurisdictions.


 


Section 5                                             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 of the Closing
Time, 24,000,000 Common Shares will be issued and outstanding as fully paid and
non-assessable shares (including the Management Shares and Deep Well Shares to
be issued immediately prior to the Closing Time).  All the Common Shares were offered, issued
and sold in compliance with Applicable Canadian Securities Laws in
distributions exempt from the prospectus and registration requirements of such
securities laws, and all notices and filings in respect of such


 


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distributions
have been made by the Corporation within the time and within the manner
required by the securities laws;


 


(c)                                  except
for the Debentures and Agent’s Warrant to be issued pursuant to this Agreement
and the Management Shares and Deep Well Shares to be issued immediately prior
to the Closing Time, 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.  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 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 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;


 


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(h)                                 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:


 


(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;


 


(i)                                     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;


 


(j)                                     the
information and statements set forth in the Financial Statements as they relate
to the Corporation are presented fairly and did not contain any material
misrepresentation, as of the date of such information or statement;


 


(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;


 


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(l)                                     except
as disclosed to the Agent in the due diligence session on November 10,
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)                               no
shareholder (including Surge U.S.), 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;


 


(n)                                 the
Corporation is not a “reporting issuer”, within the meaning of the Applicable
Canadian 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 Debentures, 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 Canadian Securities Laws of the
Selling Jurisdictions and the Corporation is entitled to avail itself of the
applicable prospectus exemptions available under such Applicable Canadian
Securities Laws in respect of the trades in the Debentures 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 Canadian
Securities Laws such that the Debentures may, in accordance with Applicable
Canadian 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 Canadian Securities Laws by way of the exemptions
to the prospectus requirements;


 


(t)                                    to
the knowledge of the Corporation, none of its directors or officers (or
proposed directors or officers, to be appointed immediately prior to the
Closing Time) 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;


 


11





















 


(u)                                 the
Corporation acts as its own registrar and transfer agent for the Corporation’s
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
responses given by the Corporation and its directors and officers (including
the proposed directors and officers to be appointed immediately prior to the
Closing Time) in the due diligence session held on November 10, 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 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 Farmout Agreement
Legal Claims (which will be discontinued immediately following the Closing
Time), 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
respective assets and properties, is subject to any outstanding material
judgment, order, writ, injunction or decree;


 


(aa)                            each
contract or agreement (including the 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;


 


12





















 


(bb)                          other
than the obligation to issue the Deep Well Shares immediately prior to the
Closing Time, the Corporation does not have any commitment, obligation or
responsibility to issue Deep Well, Northern Alberta, Deep Alta or any other
party any shares, options, warrants or other securities pursuant to the terms
of the Farmout Agreement or otherwise;


 


(cc)                            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;


 


(dd)                          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 (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;


 


(ee)                            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 respects all tax
withholding, deposit and remittance requirements imposed on or with respect to
the Corporation, and the Financial Statements contain an adequate provision in
accordance with generally accepted accounting principles for all material
amounts of taxes payable in respect of each period covered by such financial
statements to the extent such taxes have not been paid, whether or not due and
whether or not shown as being due on any tax returns.  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 ending subsequent to the period covered by
such Financial Statements;


 


(ff)                                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;


 


(gg)                          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


 


13





















 


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;


 


(hh)                          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;


 


(ii)                                  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
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;


 


(jj)                                  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;


 


(kk)                            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;


 


(ll)                                  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


 


14





















 


violations
which could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Corporation;


 


(mm)                      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;


 


(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;


 


(nn)                          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;


 


15





















 


(oo)                          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;


 


(pp)                          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;


 


(qq)                          to the best of
management of the Corporation’s knowledge, the Corporation does not have any
reason to believe that the representations and warranties of 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 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;


 


(rr)                                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;


 


(ss)                            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;


 


16





















 


(tt)                                pursuant
to the terms of the Shareholder Agreement, the board of directors of the
Corporation will consist of David Perez, Tony Loria and Leigh Cassidy immediately
prior to the Closing Time on the Closing Date;


 


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


 


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


 


Section 6                                             Representations and Warranties of Surge U.S.


 


Surge U.S.
represents and warrants to the Agent, and acknowledges that the Agent is
relying upon such representations and warranties:


 


(a)                                  Surge
U.S. 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 Surge U.S.;


 


(b)                                 the
authorized share capital of Surge U.S. consists of 75,000,000 Surge U.S. Shares
and 10,000,000 preferred shares.  As of
the Closing Time, 33,464,463 Surge U.S. Shares (including 7,822,366 Surge U.S.
Shares issued to Deep Well which will be returned to treasury) will be issued
and outstanding as fully paid and non-assessable shares.  All the Surge U.S. Shares were offered,
issued and sold in compliance with Applicable U.S. Securities Laws;


 


(c)                                  except
for options to purchase 6,706,406 Surge U.S. Shares and warrants to purchase
1,505,000 Surge U.S. Shares, Surge U.S. 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
Surge U.S. to offer, sell, repurchase or otherwise acquire, transfer, pledge or
encumber any shares in the capital of Surge U.S., 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 Surge U.S..  There are no outstanding bonds, debentures or
other evidences of indebtedness of Surge U.S. having the right to vote or that
are exchangeable or convertible for or exercisable into securities having the
right to vote with holders of Surge U.S. Shares on any matter as of the date
hereof.  There are no outstanding
securities of Surge U.S. in addition to Surge U.S. Shares having the right to
vote with holders of Surge U.S. Shares on any matter;


 


(d)                                 Surge
U.S. has no subsidiaries other than the Corporation;


 


(e)                                  Surge
U.S. has full corporate power, capacity and authority to issue the Surge U.S.
Shares issuable upon the conversion of the Debentures, and at the Closing Time,
all


 


17





















 


necessary
corporate action will have been taken by Surge U.S. to allot and authorize the
issuance of the Surge U.S. Shares issuable upon the conversion of the
Debentures and such Surge U.S. Shares will be validly issued as fully-paid and
non-assessable Surge U.S. Shares in the capital of Surge U.S.;


 


(f)                                    Surge
U.S. 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 Surge U.S. 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 Surge U.S.; (iii) any mortgage,
note, indenture, contract, agreement (written or oral), instrument, lease or
other document to which Surge U.S. is a party or by which it is bound; or (iv) any
judgment, decree, order, statute, rule or regulation applicable to Surge
U.S. 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 Surge U.S. or its properties or assets
(on a combined basis) or would impair the ability of Surge U.S. 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;


 


(g)                                 Surge
U.S. 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 Surge U.S., and this Agreement is, and
the Indenture and the Subscription Agreements will on the Closing Date be,
legal, valid and binding obligations of Surge U.S. enforceable against Surge
U.S. in accordance with their respective terms, subject to the general
qualifications that:


 


(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;


 


18





















 


(vi)                              enforceability may be limited by the
equitable or statutory powers of the courts in Canada and the United States
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;


 


(h)                                 Surge
U.S. has not received any communications alleging that Surge U.S. 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 Surge U.S. is not aware of
any potential basis for such an allegation or of any reason to believe that
such an allegation may be forthcoming;


 


(i)                                     the
information and statements set forth in the Financial Statements are presented
fairly and did not contain any material misrepresentation, as of the date of
such information or statement;


 


(j)                                     Surge
U.S. 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 Surge U.S. 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;


 


(k)                                  except
as disclosed to the Agent in the due diligence session on November 10,
2005, Surge U.S. does not have any loans or other indebtedness outstanding
which have been made to or from any of its subsidiaries, shareholders,
officers, directors or employees or any other person not dealing at arm’s
length with it that are currently outstanding;


 


(l)                                     no
officer, director, employee or any other person not dealing at arm’s length
with Surge U.S. or, to the knowledge of Surge U.S., 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 or
any revenue or rights attributed thereto;


 


(m)                               other
than through its shareholdings in the Corporation, Surge U.S. does not have any
right, title, interest, claim to the working interests earned by the
Corporation pursuant to the Farmout Agreement, and Surge U.S. is not 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 or any revenue or rights attributed
thereto;


 


(n)                                 Surge
U.S. has fulfilled all conditions precedent set out in the Farmout Agreement
within its control;


 


(o)                                 Surge
U.S. is a “registrant” within the meaning of the Applicable U.S. Securities
Laws and the Surge U.S. Shares are currently listed for trading on the OTC
Bulletin Board and has filed with the United States Securities and Exchange
Commission all required filings in a timely manner since the date Surge U.S.
first became a “registrant”;


 


19





















 


(p)                                 the
form and terms of definitive certificates representing the Surge U.S. Shares
have been duly approved and adopted by Surge U.S. and comply with all legal
requirements relating thereto;


 


(q)                                 no
authorization, approval or consent of any court, governmental authority or
regulatory agency (including any stock exchange) is required to be obtained by
Surge U.S. in connection with the issuance and delivery of the Surge U.S.
Shares on the conversion of the Debentures;


 


(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 Surge U.S., no such proceeding is, to the knowledge of Surge
U.S., pending, contemplated or threatened, Surge U.S. is not in default of any
requirement of Applicable U.S. Securities Laws and Surge U.S. is entitled to
avail itself of the applicable exemptions available under such Applicable U.S.
Securities Laws in respect of the trades in the Surge U.S. Shares to
Subscribers as contemplated by this Agreement, the Indenture and the Subscription
Agreements;


 


(s)                                  to
the knowledge of Surge U.S., 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;


 


(t)                                    American
Stock Transfer and Trust Co. is duly appointed as the registrar and transfer
agent for Surge U.S. Shares;


 


(u)                                 neither
Surge U.S. nor, to the best of Surge U.S.’s knowledge, 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
Surge U.S.;


 


(v)                                 the
responses given by Surge U.S. and its directors and officers in the due
diligence session held on November 10, 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 Surge U.S. or its directors or officers, such
opinions or views were honestly held at the time they were given.  Where any responses incorporate forward
looking information, such information is inherently subject to risks and
uncertainties which cannot be warranted;


 


(w)                               Surge
U.S. 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;


 


(x)                                   the
Financial Statements (including any related notes thereto) (i) have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the period involved, (ii) complied in all
material respects with the requirements of applicable Applicable U.S.
Securities Laws, and (iii) fairly present the consolidated financial
position, results of operations and cash flows of Surge U.S. as of the date
thereof and for the period covered thereby;


 


20





















 


(y)                                 from
December 31, 2004 to the date of this Agreement, there has been no
material change by Surge U.S. in its accounting policies, methods, practices or
principles;


 


(z)                                   except
for liabilities or obligations as otherwise disclosed to the Agent in writing
or as set forth in any filing with the United States Securities and Exchange
Commission, Surge U.S. 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;


 


(aa)                            except
for the Dynamo Claim, the claim made by Gary Vandergrift, the Farmout Agreement
Legal Claims (which will be discontinued immediately following the Closing
Time) and such other claims as disclosed to the Agent at the due diligence
session on November 10, 2005, there are no material actions, suits,
proceedings, investigations or outstanding claims or demands, whether or not
purportedly on behalf of Surge U.S. or, instituted, pending, or, to the
knowledge of Surge U.S., threatened against or affecting Surge U.S. 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 Surge U.S., threatened
against Surge U.S., and neither Surge U.S. nor its respective assets and properties,
is subject to any outstanding material judgment, order, writ, injunction or
decree;


 


(bb)                          each
contract or agreement between Surge U.S. and any other person which is material
to the ownership, use or operation of a material portion of the business,
properties or assets of Surge U.S., is in full force and effect and, to the
best of the knowledge and belief of Surge U.S. 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;


 


(cc)                            since
December 31, 2004, Surge U.S. has not: (i) declared or paid any
dividends or made any distribution of its properties or assets to its
shareholders and Surge U.S. has not disposed of any of its properties or assets
or incurred any material indebtedness; 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;


 


(dd)                          Surge
U.S. 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 respects all tax withholding,
deposit and remittance requirements imposed on or with respect to Surge U.S.,
and the Financial Statements contain an adequate provision in accordance with
generally accepted accounting principles for all material amounts of taxes
payable in respect of each period covered by such financial statements to the
extent such taxes have not been paid, whether or not due and whether or not
shown as being due on any tax returns. 
Surge U.S. has made adequate provision in accordance with generally
accepted accounting principles in its books and records for any amount of taxes
material to Surge U.S. and accruing in respect of any accounting period ending
subsequent to the period covered by such Financial Statements;


 


21





















 


(ee)                            Surge
U.S. 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 Surge
U.S.  Surge U.S. has not received any
notice from any taxing authority to the effect that any tax return is being
examined, and Surge U.S. has no knowledge of any tax audit or issue.  There are no proposed (but unassessed) additional
taxes applicable by Surge U.S. and none has been asserted against Surge
U.S..  There are no tax liens on, or
statutory trusts in respect of, any assets of Surge U.S. except for taxes not
yet due and payable.  Surge U.S. has not
received a refund of any taxes to which to the knowledge of Surge U.S., it was
not entitled;


 


(ff)                                Surge
U.S. 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.  Surge U.S.
has remitted all 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.  Surge U.S. charged,
collected and remitted on a timely basis all taxes required by applicable law
on any sale, supply or delivery whatsoever, made by Surge U.S.;


 


(gg)                          Surge
U.S. is not a party to written or oral employment agreements or consulting
agreements other than as has been disclosed to the Agent in writing or as set
forth in any filing with the United States Securities and Exchange Commission;


 


(hh)                          there
are no complaints against Surge U.S. before any employment standards branch or
tribunal or human rights tribunal, nor, to the knowledge of Surge U.S., 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 Surge U.S. 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 Surge U.S., Surge U.S. 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 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 Surge U.S. 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)                                  Surge
U.S. is in compliance, and at all times has complied, with all applicable laws,
including all United States federal and state securities laws, other than
non-compliance which would not, individually or in the aggregate, have a
Material Adverse Effect on Surge U.S..  No
investigation or review by any Governmental Entity with respect to


 


22





















 


Surge U.S. is
pending or, to the knowledge of Surge U.S., 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 Surge U.S.;


 


(kk)                            Surge
U.S. 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 “Surge U.S. Permits”), except where the
failure to be in possession of such Surge U.S. Permits would not, individually
or in the aggregate, have a Material Adverse Effect on Surge U.S., and there is
no action, proceeding or investigation pending or, to the knowledge of Surge
U.S., threatened regarding any of Surge U.S. Permits which would have a
Material Adverse Effect on Surge U.S.. 
Surge U.S. is not in conflict with, or in default or violation of any of
Surge U.S. 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 Surge U.S.;


 


(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 Surge U.S.:


 


(i)                                     Surge U.S. is not in
violation of any applicable Environmental Laws;


 


(ii)                                  Surge U.S. 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 Surge U.S. that have not been remedied;


 


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


 


(v)                                 Surge U.S. 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)                              Surge U.S. 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 Surge U.S., and (B) notifications relating to
the reclamation obligations under the Environmental Protection
and Enhancement Act (Alberta), Surge U.S. 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


 


23





















 


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 Surge U.S. and, to the knowledge of Surge
U.S.,
any and all operations by third parties, owned or in respect of the assets and
properties of Surge U.S., 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; and


 


(nn)                          the
representations and warranties of Surge U.S. in the Subscription Agreements
are, or will on the Closing Date be, true and correct.


 


Section 7                                             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, Surge U.S., the
Offering, the issuance and sale of the Debentures, the Agent’s Warrant and
underlying securities, including, without limitation, compliance with
Applicable U.S. Securities Laws, compliance with Applicable Canadian Securities
Laws of the Selling Jurisdictions in which Debentures were sold, in any way
connected with the Offering, issuance, sale and delivery of the Debentures and
Agent’s Warrant 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 President and
Chief Executive Officer or the Chairman 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 12(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


 


24





















 


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 delivery of this Agreement, the Offering
in the Selling Jurisdictions and the consummation of the other transactions
contemplated hereby (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)                                  a
certificate of Surge U.S. dated the Closing Date, addressed to the Agent and
the Subscribers and signed on Surge U.S.’s behalf by its President and Chief
Executive Officer or the Chief Financial Officer of Surge U.S., or such other
officer of Surge U.S. satisfactory to the Agent, acting reasonably, certifying
that:


 


(i)                                     Surge U.S. 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 Surge
U.S. 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 12(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)                              Surge U.S. 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 Surge U.S. is a party or by which it is bound,
required for the execution and delivery of this Agreement and the consummation of
the other transactions contemplated hereby; 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;


 


(d)                                 evidence
satisfactory to the Agent that the Corporation has obtained all necessary
approvals, if any, for the issuance of the Debentures (and the issuance of the
Common


 


25





















 


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;


 


(e)                                  evidence
satisfactory to the Agent that Surge U.S. has obtained all necessary approvals,
if any, for the issuance of the Surge U.S. Shares on conversion of the
Debentures;


 


(f)                                    definitive
certificates issued on the Closing Date representing, in the aggregate, all of
the 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;


 


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


 


(h)                                 duly
executed discontinuances and undertakings, in such form as approved by Agent’s
Counsel, acting reasonably, to cause all of the Farmout Agreement Legal Claims
to be discontinued;


 


(i)                                     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 8                                             Closing


 


The issue and
sale of the Debentures 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 7, 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;


 


against delivery
by the Corporation of:


 


(a)                                  the
certificates referred to in Section 7(f), to be delivered at the Closing
Time;


 


26





















 


(b)                                 the
certificate representing the Agent’s Warrant; 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 7 and Section 8
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 Canadian Securities Laws, unless: (i) the
principal amount of Debentures subscribed for or purchased pursuant to all
Subscription Agreements tendered by the Agent exceeds the maximum principal
amount of Debentures 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 Canadian Securities
Laws.


 


Section 9                                             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 8% of the aggregate gross proceeds raised pursuant
to the Offering.


 


In addition to the cash
commission, 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 three (3) years
from the Closing Time (the “Agent’s Warrant”).


 


For the purposes of this
Section 9, the parties agree that 1/8th of the cash
commission payable to the Agent shall be allocated for the advisory services
provided by the Agent while 7/8ths shall be allocated for the financing services.  Furthermore, 3/8ths of the Agent’s Warrants payable to the Agent shall be
allocated for the advisory services provided by the Agent while 5/8ths shall be allocated for the
financing services.


 


Section 10                                      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 Debentures
shall be borne by the Corporation, including, without limitation, all costs and
expenses of or incidental to the private placement of the Debentures, 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 Trustee, 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 (for both Canadian and U.S. legal counsel), 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.


 


27





















 


Section 11                                      Waiver


 


The Agent may, in
respect of the Corporation or Surge U.S., 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 Surge U.S., 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 12                                      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 Surge
U.S., or prohibiting or restricting the distribution of the Debentures, 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, Surge U.S. or any of their 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, Surge U.S. or the trading or distribution of the Debentures or the
trading of the Surge U.S. Shares;


 


(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 or Surge U.S.;


 


(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, Surge
U.S., the value or the marketability of the Debentures or the market price or
value or the marketability of the Surge U.S. Shares;


 


28





















 


(e)                                  neither
the Corporation or Surge U.S. shall 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


 


(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 or Surge U.S. 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 and Surge U.S. 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 13                                      Continuation of Termination Right


 


The Agent may
exercise any or all of the rights provided for in Section 7, Section 11
or Section 12 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 Debentures
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 7,
Section 11 or Section 12 if such waiver or estoppel is in writing and
specifically waives or estops such exercise or reliance.


 


Section 14                                      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 10 and Section 16 through Section 19
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 15                                      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 Debentures 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 16                                      Indemnity


 


The Corporation
and Surge U.S. (collectively, the “Indemnitor”)
shall jointly and severally indemnify and save harmless each of the Agent and
their respective 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


 


29





















 


to Section 18,
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:


 


(a)                                  any
information or statement contained in this Agreement, the Subscription
Agreements, the Indenture, the Financial Statements or any certificate or other
document provided by or on behalf of the Corporation or Surge U.S. 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
Surge U.S. or any prohibition or restriction affecting the distribution of the
Debentures (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 16(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,
the Common Shares or the Surge U.S. Shares; or


 


(e)                                  any
material breach of, default under or non-compliance by the Corporation or Surge
U.S. with any representation, warranty, term or condition of this Agreement, or
any certificate or other document delivered by or on behalf of the Corporation
or Surge U.S. hereunder or any requirement of Applicable Canadian Securities
Laws or Applicable U.S. 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
and Surge U.S. hereby waive their right to recover contribution from the Agent
with respect to any liability of the Corporation or Surge U.S. by reason of or
arising out of any misrepresentation in the Financial Statements 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


 


30





















 


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 Debentures 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.


 


Section 17                                      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 and Surge U.S. as soon as possible of the
nature of such claim, and the Corporation and Surge U.S. 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 and Surge U.S. 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 and Surge U.S. shall not relieve the Corporation or
Surge U.S. from liability except and only to the extent that the failure
materially prejudices the Corporation or Surge U.S.  If the Corporation or Surge U.S. 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 and Surge U.S. or that
a conflict of interest exists which makes representation by counsel chosen by
the Corporation and Surge U.S. 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 or Surge U.S.;


 


in which event,
the fees and disbursements of such counsel (on a solicitor and his client
basis) shall be paid by the Corporation and Surge U.S.; it being understood,
however, that the Corporation and Surge U.S. 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 18                                      Admission of Liability


 


No admission of
liability and no settlement of any Proceeding shall be made by the Corporation
or Surge U.S. 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


 


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an Indemnified
Party without the prior written consent of the Corporation or Surge U.S. and
the other Indemnified Parties affected, such consent not to be unreasonably
withheld.


 


Section 19                                      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 or Surge U.S. on grounds of policy or
otherwise, each of the Corporation and Surge U.S. 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 and Surge U.S. 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 and Surge U.S., 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 19 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 16, 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 and Surge U.S. to constitute the Agent as trustee
for the Indemnified Parties for the purposes of Section 16 to Section 19
inclusive and the Agent shall be entitled, as trustee, to enforce such
covenants on behalf of any other Indemnified Parties.


 


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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 and Surge U.S.
as they are incurred.


 


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 20                                      Future Financings


 


Subject
to the terms hereinafter provided, the Corporation hereby grants a right to the
Agent to participate with a significant title in the Corporation’s future
equity financings on such terms as the Corporation and the Agent may mutually
agree upon, in each of the offerings. 
For the purposes of this agreement, “equity financings” shall include
all offerings of Common Shares or securities convertible into or exchangeable
for Common Shares.  The Corporation
covenants and agrees that it will give not less than five (5 ) Business Days
notice in writing to the Agent of any decision made by the Corporation to
effect, complete, or enter into any agreement to effect or complete an equity
financing, and to provide the Agent the right, during the five (5) Business
Days, to agree with the Corporation on the terms of the Agent’s engagement to
participate in such equity financing.  If
the Agent does not exercise its rights hereunder, or if the Corporation and the
Agent are unable to agree upon the terms of the proposed equity financing
within such five (5) Business Days, then the Corporation may, for a period
of 60 days, proceed with the equity financing through any other agent or
underwriter, as the case may be, without the Agent’s participation, provided
that the terms and conditions of such equity financing are not more favourable
to any such agent or underwriter and/or more favourable to any investor or
subscriber of the securities to be offered pursuant to the proposed equity
financing, as the case may be, than the terms and conditions proposed in
writing by the Corporation to the Agent or offered by the agent to the
Corporation.  The right of participation
granted by the Corporation to the Agent in this Section 20 shall terminate
on the earliest of: (i) November 15, 2006; (ii) the date that
the Corporation completes a Going Public Transaction (as defined in the Agent’s
Warrant certificate); (iii) in the event that the Agent fails to exercise
its right of participation hereunder or if the Corporation and the Agent are
unable to agree upon the terms and conditions of the proposed equity financing
and, in either case, the Corporation completes such proposed equity financing
with another agent or underwriter, as applicable; and (iv) the date on
which Tony P. Loria ceases to be employed with the Agent.


 


Section 21                                      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:


 


Surge Global Energy (Canada),
Ltd.


1818, 144 - 4th Avenue S.W.


Calgary, Alberta


T2P 3N4


	
  Attention:

  	
   

  	
  C.W. Leigh Cassidy

  
	
  Telecopy No.:

  	
   

  	
  (403)238-5339

  



 


33





















 


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 Surge U.S., be addressed to:


 


Surge Global Energy, Inc.


12220 El Camino Real, Suite 410


San Diego, California 92130


 


	
  Attention:

  	
   

  	
  David Perez

  
	
  Telecopy No.:

  	
   

  	
  (858)704-5011

  



 


and a copy to:


 


Sichenzia Ross Friedman Ference LLP


1065 Avenue of the Americas


New York, New York


10018


	
  Attention:

  	
   

  	
  Darrin Ocasio

  
	
  Telecopy No.:

  	
   

  	
  (212)930-9725

  



 


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:


 


34





















 


(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 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 22                                      Acknowledgement and Consent


 


The Corporation
and Surge U.S. each: (a) acknowledges and agrees that the Agent has
certain statutory obligations as a registrant under the Applicable Canadian
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 Canadian 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 Canadian 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 Canadian Securities Laws or to act as a
fiduciary of its clients.


 


Section 23                                      Trust


 


The Corporation
and Surge U.S. acknowledge and agree that it is the intention of the parties
hereto and the Corporation and Surge U.S. 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 and
Surge U.S. 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 24                                      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 25                                      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 26                                      Time of the Essence


 


Time shall be of
the essence of this Agreement.


 


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Section 27                                      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.


 


Section 28                                      Entire Agreement


 


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


 


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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 P. Loria

  	
   

  



 


 


	
  ACCEPTED AND
  AGREED to as of the

  
	
  15th day of
  November, 2005.

  
	
   

  
	
  SURGE GLOBAL ENERGY (CANADA), LTD.

  
	
   

  
	
  Per:

  	
   /s/ Fred W. Kelly

  	
   

  



 


 


ACCEPTED AND
AGREED to as of the

15th day of November, 2005.


 


SURGE
GLOBAL ENERGY, INC.


 


	
  Per:

  	
   /s/ David Perez

  	
   

  



 


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SCHEDULE ”A”


 


REGISTRATION
RIGHTS AGREEMENT