Document:

Exhibit 10.1

 

CANADA

 

SUBSCRIPTION AGREEMENT FOR FLOW-THROUGH SHARES

 

	
  TO:

  	
  Signet Energy Inc. (the “Corporation”)

  
	
  AND TO:

  	
  MGI Securities Inc. (the “Agent”)

  

 

The undersigned (hereinafter referred to as the “Subscriber”) hereby irrevocably subscribes
for and agrees to purchase the number of common shares of the Corporation to be
issued on a “flow-through” basis pursuant to the Income Tax Act (Canada) (the “Flow-Through Shares”) set forth below for the aggregate
subscription price set forth below (the “Aggregate
Subscription Price”), representing a subscription price of $1.30 per
Flow-Through Share, upon and subject to the terms and conditions set forth in “Terms
and Conditions of Subscription for Flow-Through Shares of Signet Energy Inc.”
attached hereto (together with this page and the attached Exhibits, the “Subscription Agreement”).  In addition
to this face page, the Subscriber must also complete Exhibit 1 attached
hereto, if applicable.  The Corporation
is a “connected issuer” (as defined in Section 1.1 of National Instrument
33-105) of the Agent, as the Agent has an employee, being Tony Loria, who is a
director of the Corporation.

 

	
   

  	
   

  	
  Number of Flow-Through Shares:

  
	
  (Name of Subscriber - please print)

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  Aggregate Subscription Price:

  
	
   

  	
  (Authorized Signature)

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  If the Subscriber is signing as agent for a
  principal and is not deemed to be purchasing as principal pursuant to NI 45-106
  (as defined herein) by virtue of being either (i) a trust company or
  trust corporation acting on behalf of a fully managed account managed by the
  trust company or trust corporation as the case may be or, (ii) a person
  acting on behalf of a fully managed account managed by it, and in each case
  satisfying the criteria set forth in NI 45-106, complete the following and
  ensure that Exhibit 1 is completed in respect of such principal:

  
	
  (Official Capacity or Title - please print)

  
	
   

  
	
   

  
	
  (Please print name of individual whose signature
  appears above if different than the name of the subscriber printed above.)

  
	
   

  
	
   

  
	
  (Subscriber’s Address)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Name of Principal)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  (Telephone Number)

  	
  (E-Mail Address)

  	
   

  	
  (Principal’s Address)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  (Social Insurance Number, Federal Corporate Tax 

  	
   

  	
  (Telephone Number)

  	
  (E-Mail Address)

  	
   

  
	
  Account Number or Tax Shelter ID Number)

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  (Social Insurance Number, Federal Corporate Tax
  Account

  Number or Tax Shelter ID Number)

  
	
   

  	
   

  	
   

  
	
  Register the Flow-Through Shares as set forth
  below:

  	
   

  	
  Deliver the Flow-Through Shares as set forth
  below:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  (Name)

  	
   

  	
  (Name)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  (Account reference, if applicable)

  	
   

  	
  (Account reference, if applicable)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  (Address)

  	
   

  	
  (Contact Name)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Address)

  
	
   

  	
   

  	
   

  	
   

  
								

 

ACCEPTANCE: The Corporation
hereby accepts the subscription as set forth above on the terms and conditions
contained in this Subscription Agreement and the Corporation represents and
warrants to the Subscriber that the representations and warranties made by the
Corporation to the Agent in the Agency Agreement (as defined herein) are true
and correct in all material respects as of the Closing Date (as defined herein)
(save and except as waived by the Agent) and that the Subscriber is entitled to
rely thereon as though the Subscriber was a party thereto.

 

December                   ,
2005

	
  SIGNET ENERGY INC.

  	
  Subscription No:

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
				

 

This is the first page of an
agreement comprised of 10 pages (not including Exhibits 1 - 2).

 

 

TERMS AND CONDITIONS OF SUBSCRIPTION FOR

FLOW-THROUGH SHARES OF SIGNET ENERGY INC.

 

Terms
of the Offering

 

1.                                       The
Subscriber acknowledges (on its own behalf and, if applicable, on behalf of
each person on whose behalf the Subscriber is contracting) that this
subscription is subject to rejection or allotment by the Corporation in whole
or in part.  If this Subscription
Agreement is rejected in whole or in part by the Corporation, the Subscriber
acknowledges that the unused portion of the Aggregate Subscription Price will
be promptly returned to it without interest or deduction.

 

2.                                       The
Subscriber acknowledges (on its own behalf and, if applicable, on behalf of
each person on whose behalf the Subscriber is contracting) that the Flow-Through
Shares subscribed for by it hereunder form part of a larger issuance and sale
by the Corporation of up to 1,600,000 Flow-Through Shares at an issue price of
$1.30 per Flow-Through Share or such greater number of Flow-Through Shares as
may be agreed to by the Corporation and the Agent (the “Offering”).

 

Representations,
Warranties and Covenants by Subscriber

 

3.                                       The
Subscriber (on its own behalf and, if applicable, on behalf of each person on
whose behalf the Subscriber is contracting) represents, warrants and covenants
to the Corporation and the Agent and their respective counsel (and acknowledges
that the Corporation and the Agent, and their respective counsel, are relying
thereon) that both at the date hereof and at the Closing Time (as defined
herein) that:

 

(a)                                  it
has been independently advised as to restrictions with respect to trading in
the Flow-Through Shares imposed by applicable securities legislation in the
jurisdiction in which it resides; it confirms that no representation has been
made to it by or on behalf of the Corporation or the Agent with respect
thereto; it acknowledges that it is aware of the characteristics of the Flow-Through
Shares, the risks relating to an investment therein and of the fact that it may
not be able to resell the Flow-Through Shares except in accordance with limited
exemptions under applicable securities legislation and regulatory policy until
expiry of the applicable restricted period and compliance with the other
requirements of applicable law; and it agrees
that any certificates representing the Flow-Through Shares will bear a legend
indicating that the resale of such securities is restricted and it further
acknowledges that it should consult its own legal counsel in its jurisdiction
for full particulars of applicable resale restrictions; and

 

(b)                                 it
has not received or been provided with, nor has it requested, nor does it have
any need to receive, any offering memorandum, any prospectus, sales or
advertising literature, or any other document describing or purporting to
describe the business and affairs of the Corporation which has been prepared
for delivery to, and review by, prospective purchasers in order to assist it in
making an investment decision in respect of the Flow-Through Shares; and

 

(c)                                  it
has not become aware of any advertisement in printed media of general and
regular paid circulation (or other printed public media), radio, television or
telecommunications or other form of advertisement (including electronic
display, such as the Internet) with respect to the distribution of the Flow-Through
Shares; and

 

(d)                                 unless
it is purchasing under subparagraph 3(e), it is purchasing the Flow-Through
Shares as principal for its own account, not for the benefit of any other
person, for investment only and not with a view to the resale or distribution
of all or any of the Flow-Through Shares, it is resident in or otherwise
subject to applicable securities laws of the jurisdiction set out as the “Subscriber’s Address” on the face page hereof
and it fully complies with one or more of the criteria set forth below:

 

(i)                                     it
is a Person (as defined herein) and will have an aggregate acquisition cost of
purchasing the Flow-Through Shares of not less than $150,000 if resident in or
otherwise subject to applicable securities laws of a Province of Canada and such Person is not created or used solely to
purchase or hold securities in reliance of this exemption; or

 

(ii)                                  it
is resident in or otherwise subject to applicable securities laws of Alberta or
British Columbia and it is (please initial):

 

2

 

(A)                              a
director, executive officer or “control
person” (as defined in National Instrument 45-106 - “Prospectus and
Registration Exemptions” (“NI 45-106”)
of the Canadian Securities Administrators) of the Corporation, or of an
affiliate (as defined in NI 45-106) of the Corporation; or

 

(B)                                a
spouse, parent, grandparent, brother, sister or child of any person referred to
in subparagraph (A) above; or

 

(C)                                a
parent, grandparent, brother, sister or child of the spouse of any person
referred to in subparagraph (A) above; or

 

(D)                               a
“close personal friend” of any
person referred to in subparagraph (A) above, and it certifies to the
Corporation that it has reviewed and understands the guidance respecting the
meaning of the phrase “close personal friend” set forth in Exhibit 2 hereto; or

 

(E)                                 a
“close business associate” of any
person referred to in subparagraph (A) above, and it certifies to the
Corporation that it has reviewed and understands the guidance respecting the
meaning of the phrase “close business associate” set forth in Exhibit 2 hereto; or

 

(F)                                 an
individual, corporation, partnership, trust, fund, an association, syndicate,
organization or other organized group of persons, whether incorporated or not,
or an individual or other person in that person’s capacity as a trustee,
executor, administrator or personal or other legal representative (collectively,
“Persons”) who, acting alone, in
conjunction, or in concert with one or more other Persons, directly or
indirectly, takes the initiative in founding, organizing or substantially
reorganizing the business of the Corporation and, as of the Closing Date, is
actively involved in the business of the Corporation (a “Founder”) or a spouse, parent, grandparent,
brother, sister, child, close personal friend or close business associate of a
Founder of the Corporation; or

 

(G)                                a
parent, grandparent, brother, sister or child of a spouse of a Founder of the
Corporation; or

 

(H)                               a
Person of which a majority of the voting securities are beneficially owned by,
or a majority of directors are, persons described in subparagraphs (A) through
(G) above; or

 

(I)                                    a
trust or estate of which all of the beneficiaries or a majority of the trustees
or executors are person described in subparagraphs (A) through (G) above;
or

 

(iii)                               it is resident in or
otherwise subject to applicable securities laws of a Province of Canada, it is (i) an
employee, executive officer, director or consultant of the Corporation, (ii) an
employee, executive officer, director or consultant of a related entity of the
Corporation or (iii) a permitted assign of a person referred to in (i) or
(ii), as referred to in NI 45-106 provided that, in the case of an employee or
the employee’s permitted assign, the employee or the employee’s permitted
assign is not induced to participate in the trade by expectation of employment
or continued employment of the employee with the Corporation or a related
entity of the Corporation, in the case of an executive officer or the executive
officer’s permitted assign, the executive officer or the executive officer’s
permitted assign is not induced to participate in the trade by expectation of
appointment, employment, continued appointment or continued employment of the
executive officer with the Corporation or a related entity of the Corporation,
and in the case of a consultant or the consultant’s permitted assign, the
consultant or the consultant’s permitted assign is not induced to participate
in the trade by expectation of engagement of the consultant to provide services
or continued engagement of the consultant to provide services to the
Corporation or a related entity of the Corporation; or

 

(iv)                              is
resident in or otherwise subject to applicable securities laws of a Province of
Canada, it is an “accredited  investor”, as such term is defined in NI 45-106,
it is not a trust company or trust corporation registered under the laws of Prince
Edward Island that is not registered under the Trust
and Loan Companies Act (Canada) or under comparable legislation in
another jurisdiction of Canada, it was not created or used solely to purchase
or hold securities as an accredited investor as described in paragraph (m) of
the definition of “accredited investor” in NI 45-106 and it has concurrently
executed and delivered a Representation Letter in the form attached as

 

3

 

Exhibit 1 to this Subscription Agreement
and has initialled in Appendix ”A”
thereto indicating that the Subscriber satisfies one of the categories of “accredited
investor” set forth in such definition; and

 

(e)                                  if
it is not purchasing the Flow-Through Shares as a principal under subparagraph
3(d) hereof, it is duly authorized to enter into this Subscription
Agreement and to execute and deliver all documentation in connection with the
purchase on behalf of each beneficial purchaser, each of whom is purchasing as
principal for its own account, not for the benefit of any other person, for
investment only and not with a view to the resale or distribution of all or any
of the Flow-Through Shares, it acknowledges that the Corporation is required by
law to disclose to certain regulatory authorities the identity of each
beneficial purchaser of Flow-Through Shares for whom it may be acting, it and
each beneficial purchaser is resident in the jurisdiction set out as the “Subscriber’s
Address” on the face page hereof, and each beneficial purchaser complies
with subparagraph 3(d) hereof by virtue of its place of residence or
by virtue of the securities laws of such place being applicable to the
Subscriber; and

 

(f)                                    if
it is a resident of or otherwise subject to applicable securities laws of any jurisdiction referred to in the preceding
paragraph 3(d) or 3(e) but not purchasing thereunder,
it is purchasing pursuant to an exemption from prospectus and registration
requirements (particulars of which are enclosed herewith) available to it under
applicable securities legislation and shall deliver to the Corporation and the
Agent such further particulars of the exemption(s) and the Subscriber’s
qualifications thereunder as the Corporation or the Agent or their respective
counsel may request; and

 

(g)                                 if
it is a resident of or otherwise subject to applicable securities laws of any jurisdiction not referred to in the preceding paragraph 3(d) or
3(e) it, or any beneficial purchaser for whom it is acting,
complies with the requirements of all applicable securities legislation in the
jurisdiction of its residence and will provide such evidence of compliance with
all such matters as the Corporation or the Agent or their respective counsel
may request; and

 

(h)                                 it
(and any beneficial purchaser for whom it is acting) acknowledges that:

 

(i)                                     no
securities commission or similar regulatory authority has reviewed or passed on
the merits of the Flow-Through Shares; and

 

(ii)                                  there
is no government or other insurance covering the Flow-Through Shares; and

 

(iii)                               there are risks
associated with the purchase of the Flow-Through Shares; and

 

(iv)                              there
are restrictions on the Subscriber’s ability to resell the Flow-Through Shares
and it is the responsibility of the Subscriber to find out what those
restrictions are and to comply with them before selling the Flow-Through
Shares; and

 

(v)                                 the Corporation is not a “reporting
issuer” (or equivalent thereof) in any jurisdiction, that the Flow-Through
Shares are subject to an indefinite restriction on resale (i.e., a “hold period”)
under applicable securities laws and that it will not be able to resell any of
the Flow-Through Shares until expiration of the applicable hold period (which
hold period will not commence to run until the Corporation has become a “reporting
issuer” in a jurisdiction of Canada (which the Corporation has no obligation to
become)); and

 

(vi)                              it acknowledges that the Corporation
may complete additional financings in the future in order to develop the
proposed business of the Corporation and to fund its ongoing development.  There is no assurance that such financings
will be available and if available, on reasonable terms.  Any such future financings may have a
dilutive effect on current shareholders, including the Subscriber.  If such future financings are not available,
the Corporation may be unable to fund its ongoing development and the lack of
capital resources may result in the failure of its business venture; and

 

(vii)                           the Corporation has advised
the Subscriber that the Corporation is relying on an exemption from the
requirements to provide the Subscriber with a prospectus and to sell securities
through a person or company registered to sell securities under the Securities Act (Alberta) and other applicable securities
laws and, as a consequence of acquiring Flow-Through Shares pursuant to this
exemption, certain protections, rights and remedies provided by the Securities Act (Alberta) and other applicable securities
laws, including statutory rights of rescission or damages, will not be
available to the Subscriber; and

 

4

 

(viii)                        the Flow-Through Shares shall not be
resold until after the expiry of the applicable “hold” or “restricted” period
attaching to such Flow-Through Shares under applicable securities laws unless sold
pursuant to an exemption under all applicable securities laws, and the
certificates evidencing the Flow-Through Shares which it shall receive will
bear a legend referring to such restrictions on resale and neither the
Corporation nor any transfer agent of the Corporation will register any
transfers of such Flow-Through Shares not made in compliance with such
restrictions on resale; and

 

(i)                                     it
is aware that the Flow-Through Shares have not been and will not be registered
under the United States Securities Act of 1933,
as amended (“U.S. Securities Act”)
or the securities laws of any state of the United States and that these
securities may not be offered or sold, directly or indirectly, in the United
States without registration under the U.S. Securities Act or compliance with
requirements of an exemption from registration and the applicable laws of all
applicable states and acknowledges that the Corporation has no present
intention of filing a registration statement under the U.S. Securities Act in
respect of the Flow-Through Shares; and

 

(j)                                     the
Flow-Through Shares have not been offered to the Subscriber in the United
States, and the individuals making the order to purchase the Flow-Through
Shares and executing and delivering this Subscription Agreement on behalf of
the Subscriber were not in the United States when the order was placed and this
Subscription Agreement was executed and delivered; and

 

(k)                                  it
is not a U.S. Person (as defined in Regulation S under the U.S. Securities Act,
which definition includes, but is not limited to, an individual resident in the
United States, an estate or trust of which any executor or administrator or
trustee, respectively, is a U.S. Person and any partnership or corporation
organized or incorporated under the laws of the United States) and is not
purchasing the Flow-Through Shares on behalf of, or for the account or benefit
of, a person in the United States or a U.S. Person; and

 

(l)                                     it
undertakes and agrees that it will not resell the Flow-Through Shares, except
in accordance with the provisions of applicable securities legislation,
regulations, rules, policies and orders and stock exchange rules; and

 

(m)                               if
a corporation, partnership, unincorporated association or other entity, it has
the legal capacity to enter into and be bound by this Subscription Agreement
and further certifies that all necessary approvals of directors, shareholders
or otherwise have been given and obtained; and

 

(n)                                 if
an individual, it is of the full age of majority and is legally competent to
execute this Subscription Agreement and take all action pursuant hereto; and

 

(o)                                 this
Subscription Agreement has been duly and validly authorized, executed and
delivered by and constitutes a legal, valid, binding and enforceable obligation
of the Subscriber; and

 

(p)                                 in
the case of a subscription by it for Flow-Through Shares acting as agent for a
disclosed principal, it is duly authorized to execute and deliver this
Subscription Agreement and all other necessary documentation in connection with
such subscription on behalf of such principal and this Subscription Agreement
has been duly authorized, executed and delivered by or on behalf of, and
constitutes a legal, valid, binding and enforceable agreement of, such
principal which is purchasing
for its own account, not for the benefit of any other person and not with a
view to resale or distribution of any of the securities; and

 

(q)                                 it
has such knowledge in financial and business affairs as to be capable of
evaluating the merits and risks of its investment and is able to bear the
economic risk of loss of its investments or, where it is not purchasing as
principal, each beneficial purchaser is able to bear the economic risk of loss
of its investment; and

 

(r)                                    it
is aware that there is no market and may never be a market for the Flow-Through Shares and that
none is expected to develop, and acknowledges and confirms that no
representation has been made to it with respect to the future value or price of
the Flow-Through Shares or that the Flow-Through Shares will be listed on any stock exchange or that
application has been or will be made for such listing; and

 

(s)                                  except
for the representations and warranties made by the Corporation to the Agent in
the Agency Agreement, it has not relied upon any verbal or written representation
as to fact or otherwise made by or on behalf of the Corporation or the

 

5

 

Agent,
and it acknowledges that the Corporation’s counsel and the Agent’s counsel are
acting as counsel to the Corporation and the Agent, respectively, and not as
counsel to the Subscriber; and

 

(t)                                    it
understands, acknowledges and is aware that the Flow-Through Shares are being
offered for sale only on a “private placement” basis and that the sale and
delivery of the Flow-Through Shares is conditional upon such sale being exempt
from the requirements under applicable securities legislation as to the filing
of a prospectus or delivery of an offering memorandum or upon the issuance of
such orders, consents or approvals as may be required to permit such sale
without the filing of a prospectus or delivering an offering memorandum and, as
a consequence (i) it is restricted from using most of the civil remedies
available under securities legislation; (ii) it may not receive information
that would otherwise be required to be provided to it under securities
legislation; and (iii) the Corporation is relieved from certain
obligations that would otherwise apply under securities legislation; and

 

(u)                                 if
required by applicable securities legislation, regulations, rules, policies or
orders or by any securities commission, stock exchange or other regulatory
authority, the Subscriber will execute, deliver, file and otherwise assist the
Corporation in filing, such reports, undertakings and other documents with
respect to the issue of the Flow-Through Shares, including, without limitation:
(i) in the case of an accredited investor a Representation Letter in the
form attached as Exhibit 1;
and (ii) such other reports, undertakings and other documents as the
Corporation may request; and

 

(v)                                 it
will not resell the Flow-Through Shares except in accordance with the
provisions of applicable securities legislation and stock exchange rules, if
applicable; and

 

(w)                               it
deals at arm’s length with the Corporation within the meaning of the Income Tax Act (Canada) and will continue to deal at arm’s
length with the Corporation at all material times; and

 

(x)                                   the
acquisition of the Flow-Through Shares hereunder by the Subscriber will not
result in the Subscriber becoming a “control person”, as defined under
applicable securities laws; and

 

(y)                                 the
entering into of this Subscription Agreement and the completion of the
transactions contemplated hereby do not and will not result in a violation of
any of the terms or provisions of any law applicable to the Subscriber, or if
the Subscriber is not a natural person, any of the Subscriber’s constating
documents, or any agreement to which the Subscriber is a party or by which it
is bound; and

 

(z)                                   the
Subscriber acknowledges that it has been encouraged to obtain independent
legal, income tax and investment advice with respect to its subscription for
the Flow-Through Shares and accordingly, has had the opportunity to acquire an
understanding of the meanings of all terms contained herein relevant to the
Subscriber for purposes of giving representations, warranties and covenants
under this Subscription Agreement.

 

Matters
Relating to the Flow-Through Shares

 

4.                                       In
addition to other terms defined herein, for the purposes of Sections 4, 5, 6
and 7 hereof, the following words and phrases have the following meanings:

 

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

 

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

 

(c)                                  “Commitment Amount” means an amount equal to
$1.30 multiplied by the number of Flow-Through Shares subscribed and paid for
pursuant to this Subscription Agreement;

 

(d)                                 “Expenditure Period” means the period
commencing on the date of acceptance by the Corporation of this Subscription
Agreement and ending on the earlier of:

 

6

 

(i)                                     the
date on which the Commitment Amount has been fully expended in accordance with
the terms hereof; and

 

(ii)                                  December 31,
2006;

 

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

 

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

 

5.                                       The
Corporation hereby represents and warrants to the Subscriber (on its own behalf
and, if applicable, on behalf of each person on whose behalf the Subscriber is
contracting) and acknowledges that the Subscriber is relying thereon that:

 

(a)                                  the
Corporation has the full corporate right, power and authority to incur and
renounce to the Subscriber, Qualifying Expenditures in an amount equal to the
Commitment Amount; and

 

(b)                                 the
incurring and renouncing of Qualifying Expenditures to the Subscriber pursuant
hereto, does not and will not constitute a breach of or default under the
constating documents of the Corporation or any law, regulation, order or ruling
applicable to the Corporation or any agreement, contract or indenture to which
the Corporation is a party or by which it is bound; and

 

(c)                                  the
Corporation is, and at all material times will be, a Principal Business
Corporation; and

 

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

 

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

 

6.                                       The
Corporation covenants and agrees with the Subscriber (on its own behalf and, if
applicable, on behalf of each person on whose behalf the Subscriber is
contracting):

 

(a)                                  to
keep proper books, records and accounts of all Qualifying Expenditures and all
transactions affecting the Commitment Amount and the Qualifying Expenditures
and upon reasonable notice and on a reasonable basis, to make such books,
records and accounts available for inspection and review by or on behalf of the
Subscriber at the Subscriber’s expense; and

 

(b)                                 to
incur, during the Expenditure Period, Qualifying Expenditures in such amount as
enables the Corporation to renounce to the Subscriber, Qualifying Expenditures
in an amount equal to the Commitment Amount; and

 

(c)                                  to
renounce to the Subscriber, pursuant to subsections 66(12.6) and 66(12.66) of
the Act and effective on or before December 31, 2005, Qualifying
Expenditures incurred during the Expenditure Period in an amount equal to the
Commitment Amount; and

 

(d)                                 to
deliver to the Subscriber within the time period required by the Act and in any
event, not later than March 31, 2006, a statement setting forth the
aggregate amounts of such Qualifying Expenditures renounced to the Subscriber;
and

 

(e)                                  that
all Qualifying Expenditures renounced to the Subscriber pursuant to this
Subscription Agreement will be Qualifying Expenditures incurred by the
Corporation that, but for the renunciation to the Subscriber, the Corporation
would be entitled to deduct in computing its income for the purposes of Part I
of the Act; and

 

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

 

7

 

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

 

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

 

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

 

(j)                                     that
the Corporation will not be subject to the provisions of subsection 66(12.67)
of the Act in a manner which impairs its ability to renounce Qualifying Expenditures
to the Subscriber in an amount equal to the Commitment Amount; and

 

(k)                                  that
the Corporation will refrain from entering into transactions or taking
deductions which would otherwise reduce its cumulative CEE to an extent it
would preclude renunciation of Qualifying Expenditures hereunder in an amount
equal to the Commitment Amount as contemplated herein.

 

7.                                       The
Subscriber covenants, agrees and represents and warrants to the Corporation
that neither the Subscriber, nor the beneficial purchaser, as the case may be,
has or will knowingly enter into any agreement or arrangement to which the
Corporation is not a party which will cause the Flow-Through Shares to be or
become “prescribed shares” for purposes of the Act.

 

Closing

 

8.                                       The
Subscriber agrees to deliver to MGI Securities Inc. not later than 4:00 p.m.
(Calgary time) on the day that is two business days before the Closing Date: (a) this
duly completed and executed Subscription Agreement; (b) if the Subscriber
is an “accredited investor” a fully executed and completed Representation
Letter in the form of Exhibit 1;
(c) such other reports, undertakings and other documents as the
Corporation may request; and (d) a certified cheque or bank draft payable
to MGI Securities Inc. for the Aggregate Subscription Price or payment of the
same amount in such other manner as is acceptable to the Agent.

 

9.                                       The
sale of the Flow-Through Shares pursuant to this Subscription Agreement will be
completed at the offices of Burnet, Duckworth & Palmer LLP, the
Corporation’s counsel, in Calgary, Alberta at 9:00 a.m. or such other time
as the Corporation and the Agent may agree (the “Closing Time”) on December 15, 2005 or such other date as
the Corporation and the Agent may agree (the “Closing
Date”).  At the Closing Time,
subject to the terms of the Agency Agreement, the Agent shall deliver to the
Corporation all completed subscription agreements, including this Subscription
Agreement, and the aggregate subscription amount against delivery by the
Corporation of the certificates representing the Flow-Through Shares.

 

10.                                 The
Corporation and the Agent shall be entitled to rely on delivery of a facsimile
copy of executed Subscription Agreements, and acceptance by the Corporation of
such facsimile subscriptions shall be legally effective to create a valid and
binding agreement between the Subscriber and the Corporation in accordance with
the terms hereof.  Notwithstanding the
foregoing, the Subscriber shall deliver originally executed copies of the
documents listed in Section 8 to the Corporation within two business days
of the Closing Date.  In addition, this
Subscription Agreement may be executed in counterparts, each of which shall be
deemed to be an original and all of which shall constitute one and the same
document.

 

General

 

11.                                 The
Subscriber agrees that the representations, warranties and covenants of the
Subscriber herein will be true and correct both as of the execution of this
Subscription Agreement and as of the Closing Time and will survive the
completion of the issuance of the Flow-Through Shares.  The representations, warranties and covenants
of the Subscriber herein are made with the intent that they be relied upon by
the Corporation and the Agent and their respective counsel in determining the
eligibility of a purchaser of Flow-Through Shares and the Subscriber agrees to
indemnify and hold harmless the Corporation and the Agent and their respective
affiliates, shareholders, directors, officers, partners, employees and agents,
from and against all losses, claims, costs, expenses and damages or liabilities
whatsoever which any of them may suffer or incur which are caused or arise from
a breach thereof.  The Subscriber
undertakes to immediately notify the Corporation at Signet Energy Inc., Suite 1818,
144 – 4th Avenue S.W., Calgary, Alberta T2P 3N4, Attention: C.W. Leigh Cassidy,
Executive Chairman and Chief Executive Officer (Fax

 

8

 

Number: (403) 440-1114) and the Agent c/o MGI
Securities Inc., Suite 1420, 333 – 5th Avenue S.W., Calgary, Alberta T2P
3B6, Attention: Tony P. Loria (Fax Number: (403) 705-4971), of any change in
any statement or other information relating to the Subscriber set forth herein
which takes place prior to the Closing Time.

 

12.                                 The
Subscriber acknowledges that the Agent has agreed to offer the Flow-Through
Shares on a “private placement” basis and, in connection therewith, the
Corporation and the Agent have entered into, or will enter into prior to the
Closing Date, an agreement (the “Agency
Agreement”) pursuant to which the Agent, in connection with the
issue and sale of the Flow-Through Shares, will receive a fee from the
Corporation.  The Subscriber hereby
irrevocably authorizes the Agent: (a) to act as its representative at the
closing and to execute in its name and on its behalf all closing receipts and
documents required; (b) to complete or correct any errors or omissions in
any form or document, including this Subscription Agreement, provided by the
Subscriber; (c) to receive on its behalf certificates representing the
Flow-Through Shares purchased under this Subscription Agreement; (d) to
approve any opinions, certificates or other documents addressed to the
Subscriber; (e) to waive, in whole or in part, any representations,
warranties, covenants or conditions for the benefit of the Subscriber and
contained in the Agency Agreement; and (f) to exercise any rights of
termination contained in the Agency Agreement.

 

13.                                 The
Subscriber acknowledges that Tony Loria, an employee of the Agent, is a
director of the Corporation.

 

14.                                 The
Subscriber acknowledges that the decision to distribute the Flow-Through Shares
under this Offering, including the terms of this Offering, have been determined
through negotiations between the Corporation and the Agent and, based on the
relationship described in Section 13 hereof, the Corporation is a “connected
issuer” (as defined in section 1.1 of National Instrument 33-105 Underwriting Conflicts) of the
Agent.  Pursuant to the terms of the
Agency Agreement, the Agent is entitled to receive a fee from the Corporation
(See Section 12 above).

 

15.                                 The
Subscriber acknowledges that this Subscription Agreement and the Exhibits
hereto require the Subscriber to provide certain personal information to the
Corporation.  Such information is being
collected by the Corporation for the purposes of completing the Offering, which
includes, without limitation, determining the Subscriber’s eligibility to
purchase the Flow-Through Shares under applicable securities legislation,
preparing and registering certificates representing Flow-Through Shares to be
issued to the Subscriber and completing filings required by any stock exchange
or securities regulatory authority.  The
Subscriber’s personal information may be disclosed by the Corporation to: (a) stock
exchanges or securities regulatory authorities, (b)  the Corporation’s
registrar and transfer agent, (c) Canada Revenue Agency; and (d) any
of the other parties involved in the Offering, including legal counsel and may
be included in record books in connection with the Offering.  By executing this Subscription Agreement, the
Subscriber is deemed to be consenting to the foregoing collection, use and
disclosure of the Subscriber’s personal information.  The Subscriber also consents to the filing of
copies or originals of any of the Subscriber’s documents described in Section 8
hereof as may be required to be filed with any stock exchange or securities
regulatory authority in connection with the transactions contemplated hereby.

 

16.                                 The
Subscriber represents and warrants that the funds representing the Aggregate
Subscription Price which will be advanced by the Subscriber to the Corporation
hereunder will not represent proceeds of crime for the purposes of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act
(Canada) (the “PCMLTFA”) and the
Subscriber acknowledges that the Corporation may in the future be required by
law to disclose the Subscriber’s name and other information relating to this
Subscription Agreement and the Subscriber’s subscription hereunder, on a
confidential basis, pursuant to the PCMLTFA. 
To the best of its knowledge (a) none of the subscription funds to
be provided by the Subscriber (i) have been or will be derived from or
related to any activity that is deemed criminal under the law of Canada, the
United States of America, or any other jurisdiction, or (ii) are being
tendered on behalf of a person or entity who has not been identified to the
Subscriber, and (b) it shall promptly notify the Corporation if the
Subscriber discovers that any of such representations ceases to be true, and to
provide the Corporation with appropriate information in connection therewith.

 

17.                                 For
Subscribers resident in the Province of Ontario, the Corporation is required to
file with the Ontario Securities Commission an Authorization of Indirect
Collection of Personal Information for Distributions in Ontario, which contains
personal information of the Subscriber and details of the sale of Units to the
Subscriber.  You are hereby notified: (i) of
the delivery to the Ontario Securities Commission of your full name,
residential address and telephone number; (ii) that this information is
being collected indirectly by the Ontario Securities Commission under the
authority granted to it in securities legislation; (iii) that this
information is being collected for the purposes of the administration and
enforcement of the securities legislation of Ontario; and (iv) that the
public official set out below can answer questions about the Ontario Securities
Commission’s indirect collection of the information.

 

9

 

Ontario Securities
Commission

Suite 1903, Box 5520
Queen Street West

Toronto, Ontario M5H 3S8

Telephone: (416) 593-3682

Facsimile: (416) 593-8252

Public official contact
regarding indirect collection of information:

Administrative Assistant
to the Director of Corporate Finance

Telephone: (416) 593-8086

 

By signing this
Subscription Agreement, you hereby authorize the indirect collection of the
information by the Ontario Securities Commission.

 

18.                                 The
obligations of the parties hereunder are subject to acceptance of the terms of
the Offering by all other required regulatory authorities.

 

19.                                 The
Subscriber acknowledges and agrees that all costs incurred by the Subscriber
(including any fees and disbursements of any special counsel retained by the
Subscriber) relating to the sale of the Flow-Through Shares to the Subscriber
shall be borne by the Subscriber.

 

20.                                 The
contract arising out of this Subscription Agreement and all documents relating
thereto shall be governed by and construed in accordance with the laws of the
Province of Alberta and the federal laws of Canada applicable therein.  The parties irrevocably attorn to the
exclusive jurisdiction of the courts of the Province of Alberta.  Time shall be of the essence hereof.

 

21.                                 This
Subscription Agreement represents the entire agreement of the parties hereto
relating to the subject matter hereof and there are no representations,
covenants or other agreements relating to the subject matter hereof except as
stated or referred to herein.

 

22.                                 The
terms and provisions of this Subscription Agreement shall be binding upon and
enure to the benefit of the Subscriber and the Corporation and their respective
heirs, executors, administrators, successors and assigns; provided that, except
for the assignment by a Subscriber who is acting as nominee or agent for the
beneficial owner and as otherwise herein provided, this Subscription Agreement
shall not be assignable by any party without prior written consent of the other
parties.

 

23.                                 The
Subscriber, on its own behalf and, if applicable, on behalf of others for whom
it is contracting hereunder, agrees that this subscription is made for valuable
consideration and may not be withdrawn, cancelled, terminated or revoked by the
Subscriber, on its own behalf and, if applicable, on behalf of others for whom
it is contracting hereunder.

 

24.                                 Subject
to Section 12, neither this Subscription Agreement nor any provision
hereof shall be modified, changed, discharged or terminated except by an
instrument in writing signed by the party against whom any waiver, change,
discharge or termination is sought.

 

25.                                 The
invalidity, illegality or unenforceability of any provision of this Subscription
Agreement shall not affect the validity, legality or enforceability of any
other provision hereof.

 

26.                                 The
headings used in this Subscription Agreement have been inserted for convenience
of reference only and shall not affect the meaning or interpretation of this
Subscription Agreement or any provision hereof. 
In this Subscription Agreement, all references to money amounts are to
Canadian dollars.

 

27.                                 The
covenants, representations and warranties contained herein shall survive the
closing of the transactions contemplated hereby.

 

28.                                 In
this Subscription Agreement (including Exhibits), references to “$” are to Canadian dollars.

 

29.                                 The
parties hereto acknowledge and confirm that they have requested that this
Subscription Agreement as well as all notices and other documents contemplated
hereby be drawn up in the English language.  Les parties aux présentes
reconnaissent et confirment qu’elles ont convenu que la présente convention de
souscription ainsi que tous les avis et documents qui s’y rattachent soient
rédigés dans la langue anglaise.

 

10

 

EXHIBIT 1

 

REPRESENTATION LETTER

 

(FOR ACCREDITED INVESTORS)

 

	
  TO:

  	
  Signet Energy Inc. (the “Corporation”)

  
	
   

  	
   

  
	
  AND TO:

  	
  MGI Securities Inc. (the “Agent”)

  

 

In connection
with the purchase of common shares of the Corporation issued on a “flow-through”
basis (the “Flow-Through Shares”)
by the undersigned subscriber or, if applicable, the principal on whose behalf
the undersigned is purchasing as agent (the “Subscriber”
for the purposes of this Exhibit 1), the Subscriber hereby represents,
warrants, covenants and certifies to the Corporation and the Agent that:

 

1.                                       The
Subscriber is resident in a Province of Canada or is otherwise subject to
applicable securities laws of a Province of Canada;

 

2.                                       The
Subscriber is purchasing the Flow-Through Shares as principal for its own
account or complies with the provisions of paragraph 3(e) of the
Subscription Agreement;

 

3.                                       The
Subscriber is an “accredited investor” within the meaning of National
Instrument 45-106 entitled “Prospectus and Registration Exemptions” (“NI 45-106”) by virtue of satisfying the
indicated criterion as set out in Appendix “A” to this Representation Letter;

 

4.                                       The
Subscriber was not created or used solely to purchase or hold securities as an
accredited investor as described in paragraph (m) of the definition of “accredited
investor” in NI 45-106; and

 

5.                                       Upon
execution of this Exhibit 1 by the Subscriber, this Exhibit 1 shall
be incorporated into and form a part of the Subscription Agreement.

 

Dated:                             ,
2005

 

	
   

  	
   

  	
   

  
	
   

  	
  Print name of Subscriber

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Signature

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Print name of Signatory (if different from
  Subscriber)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title

  	
   

  

 

 

IMPORTANT: PLEASE INITIAL THE APPLICABLE
PROVISION IN

APPENDIX “A” ON THE NEXT PAGES

 

 

APPENDIX “A”

 

TO
EXHIBIT 1

 

NOTE: THE INVESTOR MUST INITIAL
BESIDE THE APPLICABLE PORTION OF THE DEFINITION BELOW.

 

Accredited Investor
- (defined in National Instrument 45-106) means:

 

(a)                                  a
Canadian financial institution, or a Schedule III bank; or

 

(b)                                 the
Business Development Bank of Canada incorporated under the Business
Development Bank of Canada Act (Canada); or

 

(c)                                  a
subsidiary of any person referred to in paragraphs (a) or (b), if the
person owns all of the voting securities of the subsidiary, except the voting
securities required by law to be owned by directors of that subsidiary; or

 

(d)                                 a
person registered under the securities legislation of a jurisdiction of Canada,
as an adviser or dealer, other than a person registered solely as a limited
market dealer under one or both of the Securities Act
(Ontario) or the Securities Act (Newfoundland and
Labrador); or

 

(e)                                  an
individual registered or formerly registered under the securities legislation
of a jurisdiction of Canada as a representative of a person referred to in
paragraph (d); or

 

(f)                                    the
Government of Canada or a jurisdiction of Canada, or any crown corporation,
agency or wholly-owned entity of the Government of Canada or a jurisdiction of
Canada; or

 

(g)                                 a
municipality, public board or commission in Canada and a metropolitan
community, school board, the Comité de gestion de la taxe scolaire de l’île de
Montréal or an intermunicipal management board in Québec; or

 

(h)                                 any
national, federal, state, provincial, territorial or municipal government of or
in any foreign jurisdiction, or any agency of that government; or

 

(i)                                     a
pension fund that is regulated by either the Office of the Superintendent of
Financial Institutions (Canada) or a pension commission or similar regulatory
authority of a jurisdiction of Canada; or

 

(j)                                     an
individual who, either alone or with a spouse, beneficially owns, directly or
indirectly, financial assets having an aggregate realizable value that before
taxes, but net of any related liabilities, exceeds $1,000,000(1); or

 

(k)                                  an
individual whose net income before taxes exceeded $200,000 in each of the two
most recent calendar years or whose net income before taxes combined with that
of a spouse exceeded $300,000 in each of the two most recent calendar years and
who, in either case, reasonably expects to exceed that net income level in the
current calendar year; or

 

(Note:
if individual accredited investors wish to purchase through wholly-owned
holding companies or similar entities, such purchasing entities must qualify
under section (t) below, which must be initialled.)

 

 

(l)                                     an
individual who, either alone or with a spouse, has net assets of at least
$5,000,000; or 

 

(m)                               a
person, other than an individual or investment fund, that has net assets of at
least $5,000,000 as shown on its most recently prepared financial statements;
or 

 

(n)                                 an
investment fund that distributes or has distributed its securities only to

 

(i)                                     a
person that is or was an accredited investor at the time of the distribution,

 

(ii)                                  a
person that acquires or acquired securities in the circumstances referred to in
sections 2.10 and 2.19 of National Instrument 45-106, or

 

(iii)                               a person described in
paragraph (i) or (ii) that acquires or acquired securities under section 2.18
of National Instrument 45-106; or 

 

(o)                                 an
investment fund that distributes or has distributed securities under a
prospectus in a jurisdiction of Canada for which the regulator or, in Québec,
the securities regulatory authority, has issued a receipt; or 

 

(p)                                 a
trust company or trust corporation registered or authorized to carry on
business under the Trust and Loan Companies
Act (Canada) or under comparable legislation in a jurisdiction of
Canada or a foreign jurisdiction, acting on behalf of a fully managed account
managed by the trust company or trust corporation, as the case may be; or

 

(q)                                 a
person acting on behalf of a fully managed account managed by that person, if
that person

 

(i)                                     is
registered or authorized to carry on business as an adviser or the equivalent
under the securities legislation of a jurisdiction of Canada or a foreign
jurisdiction, and

 

(ii)                                  in
Ontario, is purchasing a security that is not a security of an investment fund;
or

 

(r)                                    a
registered charity under the Income Tax Act
(Canada) that, in regard to the trade, has obtained advice from an eligibility
adviser or an adviser registered under the securities legislation of the
jurisdiction of the registered charity to give advice on the securities being
traded; or

 

(s)                                  an
entity organized in a foreign jurisdiction that is analogous to any of the
entities referred to in paragraphs (a) to (d) or paragraph (i) in
form and function; or

 

(t)                                    a
person in respect of which all of the owners of interests, direct, indirect or beneficial,
except the voting securities required by law to be owned by directors, are
persons that are accredited investors (as defined in National Instrument 45-106);
or

 

(u)                                 an
investment fund that is advised by a person registered as an adviser or a person
that is exempt from registration as an adviser; or

 

(v)                                 a
person that is recognized or designated by the securities regulatory authority
or, except in Ontario and Québec, the regulator as

 

(i)                                     an
accredited investor, or

 

(ii)                                  an
exempt purchaser in Alberta or British Columbia after National Instrument 45-106
comes into force.

 

For the purposes hereof:

 

(a)                                  “Canadian financial institution” means

 

2

 

(i)                                     an
association governed by the Cooperative
Credit Associations Act (Canada) or a central cooperative credit
society for which an order has been made under section 473(1) of that
Act, or

 

(ii)                                  a
bank, loan corporation, trust company, trust corporation, insurance company,
treasury branch, credit union, caisse populaire, financial services
cooperative, or league that, in each case, is authorized by an enactment of
Canada or a jurisdiction of Canada to carry on business in Canada or a
jurisdiction of Canada;

 

(b)                                 “control person” has the same meaning as in
securities legislation except in Manitoba, Newfoundland and Labrador, Northwest
Territories, Nova Scotia, Nunavut, Ontario, Prince Edward Island and Québec
where control person means any person that holds or is one of a combination of
persons that holds

 

(i)                                     a
sufficient number of any of the securities of an issuer so as to affect
materially the control of the issuer, or

 

(ii)                                  more
than 20% of the outstanding voting securities of an issuer except where there
is evidence showing that the holding of those securities does not affect
materially the control of the issuer;

 

(c)                                  “director” means:

 

(i)                                     a
member of the board of directors of a company or an individual who performs
similar functions for a company, and

 

(ii)                                  with
respect to a person that is not a company, an individual who performs functions
similar to those of a director of a company;

 

(d)                                 “eligibility adviser” means

 

(i)                                     a
person that is registered as an investment dealer or in an equivalent category
of registration under the securities legislation of the jurisdiction of a
purchaser and authorized to give advice with respect to the type of security
being distributed, and

 

(ii)                                  in
Saskatchewan or Manitoba, also means a lawyer who is a practicing member in
good standing with a law society of a jurisdiction of Canada or a public
accountant who is a member in good standing of an institute or association of
chartered accountants, certified general accountants or certified management
accountants in a jurisdiction of Canada provided that the lawyer or public accountant
must not

 

(A)                              have
a professional, business or personal relationship with the issuer, or any of
its directors, executive officer, founders, or control persons, and

 

(B)                                have
acted for or been retained personally or otherwise as an employee, executive
officer, director, associate or partner of a person that has acted for or been
retained by the issuer or any of its directors, executive officers, founders or
control persons within the previous 12 months;

 

(e)                                  “executive officer” means, for an issuer, an
individual who is

 

(i)                                     a
chair, vice-chair or president,

 

(ii)                                  a
vice-president in charge of a principal business unit, division or function
including sales, finance or production,

 

(iii)                               an officer of the issuer
or any of its subsidiaries and who performs a policy-making function in respect
of the issuer, or

 

(iv)                              performing
a policy-making function in respect of the issuer;

 

(f)                                    “financial assets” means

 

(i)                                     cash,

 

3

 

(ii)                                  securities,
or

 

(iii)                               a contract of insurance,
a deposit or an evidence of a deposit that is not a security for the purposes
of securities legislation;

 

(g)                                 “founder” means, in respect of an issuer, a
person who,

 

(i)                                     acting
alone, in conjunction, or in concert with one or more persons, directly or
indirectly, takes the initiative in founding, organizing or substantially
reorganizing the business of the issuer, and

 

(ii)                                  at
the time of the trade is actively involved in the business of the issuer;

 

(h)                                 “foreign jurisdiction” means a country other
than Canada or a political subdivision of a country other than Canada;

 

(i)                                     “fully managed account” means an account of a client for
which a person makes the investment decisions if that person has full
discretion to trade in securities for the account without requiring the client’s
express consent to a transaction;

 

(j)                                     “investment fund” has the same meaning as in
National Instrument 81-106 Investment Fund
Continuous Disclosure;

 

(k)                                  “jurisdiction” means a province or territory
of Canada except when used in the term foreign jurisdiction;

 

(l)                                     “local jurisdiction” means the jurisdiction
in which the Canadian securities regulatory authority is situate;

 

(m)                               “non-redeemable investment fund” has the
same meaning as in National Instrument 81-106 Investment
Fund Continuous Disclosure;

 

(n)                                 “person” includes

 

(i)                                     an
individual,

 

(ii)                                  a
corporation,

 

(iii)                               a partnership, trust,
fund and an association, syndicate, organization or other organized group of
persons, whether incorporated or not, and

 

(iv)                              an
individual or other person in that person’s capacity as a trustee, executor,
administrator or personal or other legal representative;

 

(o)                                 “regulator” means, for the local
jurisdiction, the person referred to in Appendix D of National Instrument 14-101
Definitions opposite the name of
the local jurisdiction;

 

(p)                                 “related liabilities” means

 

(i)                                     liabilities
incurred or assumed for the purpose of financing the acquisition or ownership
of financial assets, or

 

(ii)                                  liabilities
that are secured by financial assets;

 

(q)                                 “Schedule III bank” means an authorized foreign bank named in Schedule III
of the Bank Act (Canada);

 

(r)                                    “spouse” means, an individual who,

 

(i)                                     is
married to another individual and is not living separate and apart within the
meaning of the Divorce Act (Canada),
from the other individual,

 

(ii)                                  is
living with another individual in a marriage-like relationship, including a
marriage-like relationship between individuals of the same gender, or

 

4

 

(iii)                               in Alberta, is an
individual referred to in paragraph (i) or (ii) above, or is an adult
interdependent partner within the meaning of the Adult Interdependent Relationships Act (Alberta); and

 

(s)                                  “subsidiary” means an issuer that is
controlled directly or indirectly by another issuer and includes a subsidiary
of that subsidiary.

 

All monetary references
are in Canadian Dollars.

 

Note: 

 

(1) The following
is an excerpt from National Instrument 45-106 which provides guidance as to the
meaning of beneficial ownership of financial assets: 

 

“Paragraph (j) of the “accredited
investor” definition refers to an individual who, either alone or with a
spouse, beneficially owns financial assets having an aggregate realizable value
that, before taxes but net of any related liabilities, exceeds $1,000,000. As a
general matter, it should not be difficult to determine whether financial
assets are beneficially owned by an individual, an individual’s spouse, or
both, in any particular instance. However, financial assets held in a trust or
in other types of investment vehicles for the benefit of an individual may
raise questions as to whether the individual beneficially owns the financial
assets in the circumstances. The following factors are indicative of beneficial
ownership of financial assets:

 

(a)                                  Physical
or constructive possession of evidence of ownership of the financial asset;

 

(b)                                 Entitlement
to receipt of any income generated by the financial asset;

 

(c)                                  Risk
of loss of the value of the financial asset; and

 

(d)                                 The
ability to dispose of the financial asset or otherwise deal with it as the
individual sees fit.

 

For example, securities
held in a self-directed RRSP, for the sole benefit of an individual are
beneficially owned by that individual. In general, financial assets in a
spousal RRSP would also be included for the purposes of the threshold test
because paragraph (j) takes into account financial assets owned beneficially by
a spouse. However, financial assets held in a group RRSP under which the
individual would not have the ability to acquire the financial assets and deal
with them directly would not meet these beneficial ownership requirements.”

 

5

 

EXHIBIT 2

 

MEANING OF “CLOSE PERSONAL FRIEND” AND “CLOSE BUSINESS ASSOCIATE”

AS DESCRIBED IN COMPANION POLICY 45-106CP 

TO NATIONAL INSTRUMENT 45-106 PROSPECTUS AND REGISTRATION EXEMPTIONS

 

Meaning
of “close personal friend”

 

A “close personal friend” of a director, executive officer, founder or
control person of an issuer is an individual who knows the director, executive
officer, founder or control person well enough and has known them for a
sufficient period of time to be in a position to assess their capabilities and
trustworthiness. The term “close personal friend” can include a family member
who is not already specifically identified in the exemptions if the family
member satisfies the criteria described above.

 

The relationship between the individual and the director, executive
officer, founder or control person must be direct. For example the exemption is
not available to a close personal friend of a close personal friend of a
director of the issuer.

 

An individual is not a close personal friend solely because the
individual is:

 

(a)                                  a relative,

 

(b)                                 a member of the same organization,
association or religious group, or

 

(c)                                  a client, customer, former client or
former customer.

 

Meaning
of “close business associate”

 

A “close business associate” is an individual who has had sufficient
prior business dealings with a director, executive officer, founder or control
person of the issuer to be in a position to assess their capabilities and
trustworthiness. An individual is not a close business associate solely because
the individual is a client, customer, former client or former customer of the
issuer.

 

The relationship between the individual and the director, executive
officer, founder or control person must be direct. For example, the exemption
is not available for a close business associate of a close business associate
of a director of the issuer.Exhibit 10.2

 

CANADA

 

SUBSCRIPTION AGREEMENT
FOR

7% SECURED CONVERTIBLE
DEBENTURES

 

	
  TO:

  	
  Signet Energy Inc. (the “Corporation”)

  
	
  AND TO:

  	
  MGI Securities Inc. (the “Agent”)

  

 

The undersigned (hereinafter referred to as the “Subscriber”) hereby irrevocably subscribes
for and agrees to purchase the principal amount (the “Principal Amount”) of 7% secured
convertible debentures (the “Debentures”)
of the Corporation set forth below, at an aggregate subscription price that is
equivalent to the Principal Amount of Debentures subscribed for, upon and
subject to the terms and conditions set forth in “Terms and Conditions of
Subscription for 7% Secured Convertible Debentures of Signet Energy Inc.”
attached hereto (together with this page and the attached Exhibits, the “Subscription Agreement”).  In addition
to this face page, the Subscriber must also complete Exhibit 1 attached
hereto, if applicable.  The Corporation
is a “connected issuer” (as defined in Section 1.1 of National Instrument
33-105) of the Agent, as the Agent has an employee, being Tony Loria, who is a
director of the Corporation.

 

	
   

  	
   

  	
  Principal Amount of Debentures Subscribed for:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
   

  
	
  (Name of Subscriber - please print)

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
  (Authorized Signature)

  	
   

  	
  If the
  Subscriber is signing as agent for a principal and is not deemed to be
  purchasing as principal pursuant to NI 45-106 (as defined herein) by virtue
  of being either (i) a trust company or trust corporation acting on
  behalf of a fully managed account managed by the trust company or trust corporation
  as the case may be or, (ii) a person acting on behalf of a fully managed
  account managed by it, and in each case satisfying the criteria set forth in
  NI 45-106, complete the following and ensure that Exhibit 1 is completed
  in respect of such principal:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
  (Official Capacity or Title - please print)

  
	
   

  
	
   

  
	
  (Please print name of individual whose signature
  appears above if different than the name of the subscriber printed above.)

  
	
   

  
	
   

  	
   

  	
   

  
	
  (Subscriber’s Address)

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Name of Principal)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Principal’s Address)

  
	
   

  	
   

  	
   

  
	
  (Telephone Number)

  	
  (E-Mail Address)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Principal’s Telephone Number)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Principal’s E-Mail Address)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Register the Debentures as set forth below:

  	
   

  	
  Deliver the Debentures as set forth below:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  (Name)

  	
   

  	
  (Name)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  (Account reference, if applicable)

  	
   

  	
  (Account reference, if applicable)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  (Address)

  	
   

  	
  (Contact Name)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Address)

  
	
   

  	
   

  	
   

  	
   

  
								

 

This is the first page of an
agreement comprised of 11 pages (not including Exhibit 1).

 

 

ACCEPTANCE:  The Corporation hereby accepts the
subscription as set forth above on the terms and conditions contained in this
Subscription Agreement and the Corporation represents and warrants to the
Subscriber that the representations and warranties made by the Corporation to
the Agent in the Agency Agreement (as defined herein) are true and correct in
all material respects as of the Closing Date (as defined herein) (save and
except as waived by the Agent) and that the Subscriber is entitled to rely thereon
as though the Subscriber was a party thereto.

 

December                 , 2005

 

 

	
  SIGNET ENERGY INC.

  	
  Subscription No:

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
				

 

2

 

TERMS
AND CONDITIONS OF SUBSCRIPTION FOR

7% SECURED CONVERTIBLE DEBENTURES

OF SIGNET ENERGY INC.

 

Terms
of the Offering

 

1.                                       The
Subscriber acknowledges (on its own behalf and, if applicable, on behalf of
each person on whose behalf the Subscriber is contracting) that this
subscription is subject to rejection or allotment by the Corporation in whole
or in part.  If this Subscription Agreement is rejected in
whole or in part by the Corporation, the Subscriber acknowledges that the
unused portion of the Principal Amount will be promptly returned to it by the
Corporation, without interest or deduction.

 

2.                                       The
Subscriber acknowledges (on its own behalf and, if applicable, on behalf of
each person on whose behalf the Subscriber is contracting) that:

 

(a)                                  the
Debentures subscribed for by it hereunder form part of a larger issuance and
sale by the Corporation of up to $10,000,000 principal amount of Debentures or
such greater number of Debentures as may be agreed to by the Corporation and
the Agent on a commercially reasonable efforts marketed offering basis through
the Agent (the “Offering”); and

 

(b)                                 the
Offering is not subject to any minimum subscription level, and therefore, any
funds invested are available to the Corporation and will be paid to the
Corporation on the Closing Date; and

 

(c)                                  the
Debentures will be duly and validly created and issued pursuant to, and the
conversion thereof shall be governed by, the terms and conditions of a trust
indenture (the “Indenture”) to be
dated the Closing Date (as defined below) between the Corporation and Valiant
Trust Company, as trustee, which Indenture shall include the following terms:

 

(i)                                     the
Debentures will be limited in the aggregate principal amount to
$10,000,000.  The Corporation may,
however, from time to time, without the consent of the holders of Debentures,
incur additional indebtedness of $15,000,000 (of which a maximum of $10,000,000
may rank in priority to the Debentures (the “Senior
Bank Debt”) and the remainder of such amount may consist of secured
convertible debentures which will rank equally in terms of priority with the
Debentures (the “Subsequent Offering”)).  For greater certainty, in the event that the
Corporation completes a Subsequent Offering in excess of $5,000,000, the
maximum allowable Senior Bank Debt of $10,000,000 will be reduced by an amount
equal to the amount that the Subsequent Offering exceeds $5,000,000, whereby
the maximum additional indebtedness will be limited to $15,000,000 in total;

 

(ii)                                  the
Debentures will be issuable only in minimum denominations of $50,000 and
integral multiples of $1,000 thereafter. 
At the closing of the Offering, the Debentures will be available for
delivery in certificated form;

 

(iii)                               the
Debentures will bear interest from the date of issue at 7% per annum, which
will be payable in cash on a quarterly basis in arrears on February 28, May 31,
August 31 and November 30 in each year, commencing with February 28,
2006.  The first payment will include
accrued and unpaid interest for the period from the Closing Date to February 28,
2006.  The interest on the Debentures
will be payable in lawful money of Canada. 
The principal amount of the Debentures will also be payable in lawful
money of Canada on November 15, 2007 (the “Maturity Date”);

 

(iv)                              the
Debentures will be direct obligations of the Corporation, will be secured
pursuant to the terms of the Indenture and will rank equally in terms of
priority with $8.55 million principal amount of secured convertible debentures
previously issued by the Corporation on November 15, 2005 and the secured
convertible debentures which may be issued pursuant to the Subsequent Offering
and will rank subordinate to any Senior Bank Debt;

 

(v)                                 the
Debentures will be convertible at the option of the holder (hereinafter
referred to as the “Conversion Right”)
into fully paid and non-assessable common shares of the Corporation (the “Common Shares”) at any time prior to 5:00 p.m.
(Calgary time) on the business day prior to the Maturity Date, at a conversion
price of $1.00 per Common Share (the “Share
Conversion Price”), being a conversion rate of 50,000 Common Shares
per $50,000 principal amount of Debentures. 
The Share Conversion Price shall be adjusted in accordance with
specified anti-dilution clauses relating to changes in the Corporation’s share
capital (including share splits,

 

3

 

dividends, share
consolidations, share dividends and similar recapitalizations) and other
distributions of Common Shares, all as more particularly set forth in the
Indenture.  Holders converting their
Debentures shall be entitled to receive, in addition to the applicable number
of Common Shares, accrued and unpaid interest in respect of the Debentures;

 

(vi)                              the
Conversion Right shall be and shall be deemed to be exercised (without any
further action on the part of the holder) on the date the Corporation completes
a Going Public Transaction.  For the
purposes hereof, “Going Pubic Transaction”
means: (i) a final receipt for a prospectus of the Corporation filed in at
least one “jurisdiction” (as listed in Appendix B to Multilateral Instrument 45-102)
has been obtained and the Common Shares are listed and posted for trading on
the Toronto Stock Exchange (the “TSX”)
or the TSX Venture Exchange (the “TSXV”)
(or any successor exchange thereof); or (ii) the sale, exchange,
reorganization or arrangement of all of the Common Shares for, or the sale of
all or substantially all of the assets of the Corporation in a transaction that
results in the holders of Common Shares receiving for their Common Shares
consideration consisting of: (A) cash; and/or (B) securities which
are not subject to resale restrictions (except for those applicable to “control
persons”) in Alberta and Ontario and are listed and posted for trading on the
TSX or the TSXV (or any successor exchange thereof).  Furthermore, the Indenture shall contain
anti-dilution provisions that will adjust the Share Conversion Price in the
event a Going Public Transaction is completed at a price below $1.15 per Common
Share.  In the event of the deemed
exercise of the Conversion Right, holders of Debentures shall be entitled to
receive, in addition to the applicable number of Common Shares or other
securities which are not subject to resale restrictions, accrued and unpaid
interest in respect of the Debentures;

 

(vii)                           in the
event of a sale, assignment or transfer or series of sales, assignments or
transfers by Surge Global Energy, Inc. (“Surge
U.S.”) of Common Shares to a person not affiliated with the
Corporation or Surge U.S. resulting in a change of control of the Corporation
(except for a change of control resulting from a Going Public Transaction) at
any time while the Debentures are outstanding the Corporation shall immediately
offer to purchase the Debentures then outstanding at a purchase price equal to:
(A) 115% of the principal amount thereof plus accrued and unpaid interest
if the transaction occurs on or prior to September 30, 2006; or (B) 120%
of the principal amount thereof plus accrued and unpaid interest if the
transaction occurs after September 30, 2006.  For the purposes of this provision, the term “change
of control” shall mean the sale, assignment or transfer of Common Shares owned
by Surge U.S. to a person not affiliated with the Corporation or Surge U.S.
resulting in more than 50% of the outstanding Common Shares being owned by a
person not affiliated with the Corporation or Surge U.S.; and

 

(viii)                        the
Indenture will contain provisions making binding, upon all holders of
Debentures outstanding thereunder, resolutions passed at meetings of such
holders held in accordance with such provisions and instruments in writing
signed by the holders of a specified percentage of the principal amount of
Debentures outstanding;

 

(d)                                 the
Indenture shall otherwise be in such form and contain such terms as shall be
approved by the Corporation and the Agent; and

 

(e)                                  in
the event the Corporation or its agent is required to deduct or withhold any
tax from payments due under the Debentures to the Subscriber, the Corporation
shall so deduct or withhold and pay over to the taxing authority imposing such
tax the amount required to be deducted or withheld and the amounts otherwise
payable to the Subscriber will be reduced accordingly.

 

Representations,
Warranties and Covenants by Subscriber

 

3.                                       The
Subscriber (on its own behalf and, if applicable, on behalf of each person on
whose behalf the Subscriber is contracting) represents, warrants and covenants
to the Corporation and the Agent and their respective counsel (and acknowledges
that the Corporation and the Agent, and their respective counsel, are relying
thereon) that both at the date hereof and at the Closing Time (as defined
herein) that:

 

(a)                                  it
has been independently advised as to the restrictions with respect to trading
in the Debentures and the Common Shares (collectively, the “Securities”) (the Common Shares are
referred to herein as the “Underlying Shares”)
imposed by applicable securities legislation in the jurisdiction in which it
resides; it confirms that no representation has been made to it by or on behalf
of the Corporation or the Agent with respect thereto; it acknowledges that it
is aware of the characteristics of the Securities, the risks relating to an
investment therein, that there is no market for the Debentures or

 

4

 

the Common Shares and of
the fact that it may not be able to resell the Securities except in accordance
with limited exemptions under applicable securities legislation and regulatory
policy until expiry of the applicable restricted period and compliance with the
other requirements of applicable law; it
agrees that the certificates representing the Debentures will, and the
Underlying Shares may (if required), bear a legend indicating that the resale
of such securities is restricted; and it further
acknowledges that it should consult its own legal counsel in its jurisdiction
for full particulars of applicable resale restrictions; and

 

(b)                                 it acknowledges that the Corporation
is not a “reporting issuer” in any jurisdiction and that the applicable “hold
period” under applicable securities laws will not even commence to run until
the Corporation becomes a reporting issuer in the applicable jurisdiction and
that it will only be able to resell the Securities in accordance with limited
exemptions under applicable securities legislation and regulatory policy; and

 

(c)                                  it
has not received or been provided with, nor has it requested, nor does it have
any need to receive, any offering memorandum, any prospectus, sales or
advertising literature, or any other document describing or purporting to
describe the business and affairs of the Corporation which has been prepared
for delivery to, and review by, prospective purchasers in order to assist it in
making an investment decision in respect of the Securities and that the decision to enter into the
Subscription Agreement and purchase the Debentures has not been based upon any
verbal or written representations as to fact or otherwise made by or on behalf
of the Corporation; and

 

(d)                                 it
has not become aware of any advertisement in printed media of general and
regular paid circulation (or other printed public media), radio, television or
telecommunications or other form of advertisement (including electronic display
such as the Internet) with respect to the distribution of the Debentures; and

 

(e)                                  it
acknowledges and agrees that the offer to purchase the Debentures was not made
to it when it was in the United States or when it was a U.S. Person, as defined
below, and at the time this Subscription Agreement was executed and delivered
to the Corporation, it was outside the United States and was not a U.S. Person,
and it is not purchasing the
Debentures on behalf of, or for the account or benefit of, a person in the
United States or a U.S. Person. 
For the purposes of this Subscription Agreement, a U.S. Person shall
mean (i) any natural person resident in the United States, (ii) any
partnership or corporation organized under the laws of the United States, (iii) any
estate of which any executor or administrator is a U.S. person, (iv) any
trust of which any trustee is a U.S. person, (v) any non-discretionary
account or similar account (other than an estate or trust) held by a dealer or
other fiduciary for the benefit or account of a U.S. person, (vi) any
non-discretionary account or similar account (other than an estate or trust)
held by a dealer or other fiduciary organized, incorporated, or (if an
individual) resident in the United States, and (vii) any partnership or
corporation organized under the laws of a non-U.S. jurisdiction that is formed
by U.S. persons solely for the purpose of investing in restricted securities,
unless it is organized and owned solely by Accredited Investors as such term is
defined under Rule 501(a) of the United States Securities Act of 1933, as amended (the “U.S. Securities Act”); and

 

(f)                                    unless
it is purchasing under subparagraph 3(g), it is purchasing the Debentures as
principal for its own account, not for the benefit of any other person, for
investment only and not with a view to the resale or distribution of all or any
of the Debentures or the Underlying Shares, it is resident in or otherwise
subject to applicable securities laws of the jurisdiction set out as the “Subscriber’s
Address” on the face page hereof and it is resident in or otherwise
subject to applicable securities laws of a Province of Canada, it is an “accredited  investor”, as such term is defined in National Instrument 45-106
- “Prospectus and Registration Exemptions” (“NI
45-106”) of the Canadian Securities Administrators, it is not a
trust company or trust corporation registered under the laws of Prince Edward
Island that is not registered under the Trust
and Loan Companies Act (Canada) or under comparable legislation in
another jurisdiction of Canada, it was not created or used solely to purchase
or hold securities as an accredited investor as described in paragraph (m) of
the definition of “accredited investor” in NI 45-106, and it has concurrently
executed and delivered a Representation Letter in the form attached as Exhibit 1 to this Subscription
Agreement and has initialled in Appendix ”A”
thereto indicating that the Subscriber satisfies one of the categories of “accredited
investor” set forth in such definition; and

 

(g)                                 if
it is not purchasing the Debentures as a principal under subparagraph 3(f) hereof,
it is duly authorized to enter into this Subscription Agreement and to execute
and deliver all documentation in connection with the purchase on behalf of each
beneficial purchaser, each of whom is purchasing as principal for its own
account, not for the benefit of any other person, for investment only and not
with a view to the resale or distribution of all or any of the Debentures or
the Underlying Shares, it acknowledges that the Corporation is required by law
to disclose to certain regulatory authorities the identity of each beneficial
purchaser of Debentures for whom it may be acting, it and each beneficial
purchaser is resident in the jurisdiction set out as the “Subscriber’s Address”
on the face page hereof, and each beneficial purchaser complies with

 

5

 

subparagraph 3(f) hereof
by virtue of its place of residence or by virtue of the securities laws of such
place being applicable to the Subscriber; and

 

(h)                                 if
it is a resident of or otherwise subject to applicable securities laws of any jurisdiction referred to in the preceding
subparagraph 3(f) but not purchasing thereunder, it is
purchasing pursuant to an exemption from prospectus and registration
requirements (particulars of which are enclosed herewith) available to it under
applicable securities legislation and shall deliver to the Corporation and the
Agent such further particulars of the exemption(s) and the Subscriber’s
qualifications thereunder as the Corporation or the Agent or their respective
counsel may request; and

 

(i)                                     if
it is a resident of or otherwise subject to applicable securities laws of any jurisdiction not referred to in the preceding subparagraph 3(f) it,
or any beneficial purchaser for whom it is acting, complies with paragraph 3(f) hereof
as if it was a resident in or otherwise subject to applicable securities laws
of a Province of Canada, has concurrently executed and delivered a
Representation Letter in the form attached as Exhibit 1
to this Subscription Agreement and has initialed in Appendix “A” thereto indicating that the Subscriber satisfies
one of the categories of “accredited investor” set forth in such definition,
and complies with the requirements of all applicable securities legislation in
the jurisdiction of its residence and will provide such evidence of compliance
with all such matters as the Corporation or the Agent or their respective
counsel may request including, but not limited to, that the delivery of this
Subscription Agreement, the acceptance hereof by the Corporation and the
issuance of the Debentures to the Subscriber complies with all applicable laws
of the Subscriber’s jurisdiction of residence and domicile and will not cause
the Corporation or any of its officers or directors to become subject to or
require any disclosure, prospectus or other reporting requirements; and

 

(j)                                     it
(and any beneficial purchaser for whom it is acting) acknowledges that:

 

(i)                                     no
securities commission or similar regulatory authority has reviewed or passed on
the merits of the Debentures or the Underlying Shares; and

 

(ii)                                  there
is no government or other insurance covering the Debentures or the Underlying
Shares; and

 

(iii)                               it has been offered the opportunity
to ask questions and receive answers concerning the terms and conditions of the
Offering and to obtain any information the undersigned deems necessary to
verify the accuracy of any information regarding the Corporation; and

 

(iv)                              there
are risks associated with the purchase of the Securities, which Securities are a speculative investment
that involves a high degree of risk of loss of entire investment; and

 

(v)                                 there
are restrictions on the Subscriber’s ability to resell the Securities, which Securities are a speculative
investment that involves a high degree of risk of loss of entire investment and
it is the responsibility of the Subscriber to find out what those restrictions
are and to comply with them before selling the Debentures or the Underlying
Shares; and

 

(vi)                              the Corporation is not a “reporting
issuer” (or equivalent thereof) in any jurisdiction, that the Debentures or
Common Shares are subject to an indefinite restriction on resale (i.e., a “hold
period”) under applicable securities laws and that it will not be able to
resell any of the Debentures or Common Shares until expiration of the
applicable hold period (which hold period will not commence to run until the
Corporation has become a “reporting issuer” in a jurisdiction of Canada (which
the Corporation has no obligation to become)); and

 

(vii)                           it is aware that there is no market
for any of the Debentures or Common Shares and none is expected to develop and
acknowledges and confirms that no representation has been made to it with
respect to the future value or price of any of the Securities or that any of
the Debentures or the Underlying Shares will be listed on any exchange or that
application has been or will be made for such listing; and

 

(viii)                        it acknowledges that the Corporation
may complete additional financings in the future in order to develop the
proposed business of the Corporation and to fund its ongoing development.  There is no assurance that such financings
will be available and if available, on reasonable terms.  Any such future financings may have a
dilutive effect on current shareholders, including the Subscriber.  If such future financings are not available,
the Corporation may be unable to fund its ongoing development and the lack of
capital resources may result in the failure of its business venture; and

 

6

 

(ix)                                the
Corporation has advised the Subscriber that the Corporation is relying on an
exemption from the requirements to provide the Subscriber with a prospectus and
to sell securities through a person or company registered to sell securities
under the Securities Act (Alberta) and other
applicable securities laws and, as a consequence of acquiring Securities
pursuant to this exemption, certain protections, rights and remedies provided
by the Securities Act (Alberta) and other
applicable securities laws, including statutory rights of rescission or
damages, will not be available to the Subscriber; and

 

(x)                                   the Securities shall not be resold
until after the expiry of the applicable “hold” or “restricted” period
attaching to such Securities under applicable securities laws unless sold
pursuant to an exemption under all applicable securities laws, and the
certificates evidencing the Debentures or Common Shares which it shall receive
will bear a legend referring to such restrictions on resale and neither the Corporation
nor any transfer agent of the Corporation will register any transfers of such
Securities not made in compliance with such restrictions on resale; and

 

(k)                                  it is aware that the Securities have
not been and will not be registered under the U.S. Securities Act or the
securities laws of any state of the United States and that these securities may
not be offered or sold, directly or indirectly, in the United States without
registration under the U.S. Securities Act or compliance with requirements of
an exemption from registration and the applicable laws of all applicable states
and acknowledges that the Corporation has no present intention of filing a
registration statement under the U.S. Securities Act in respect of the
Securities; and

 

(l)                                     the
Debentures have not been offered to the Subscriber in the United States, and
the individuals making the order to purchase the Debentures and executing and
delivering this Subscription Agreement on behalf of the Subscriber were not in
the United States when the order was placed and this Subscription Agreement was
executed and delivered; and

 

(m)                               it
undertakes and agrees that it will not resell the Debentures or the Underlying
Shares, except in accordance with the provisions of applicable securities
legislation, regulations, rules, policies and orders and stock exchange rules;
and

 

(n)                                 if
a corporation, partnership, unincorporated association or other entity, it has
the legal capacity to enter into and be bound by this Subscription Agreement
and further certifies that all necessary approvals of directors, shareholders
or otherwise have been given and obtained; and

 

(o)                                 if
an individual, it is of the full age of majority and is legally competent to
execute this Subscription Agreement and take all action pursuant hereto; and

 

(p)                                 this
Subscription Agreement has been duly and validly authorized, executed and
delivered by and constitutes a legal, valid, binding and enforceable obligation
of the Subscriber; and

 

(q)                                 in
the case of a subscription by it for Debentures acting as agent for a disclosed
principal, it is duly authorized to execute and deliver this Subscription
Agreement and all other necessary documentation in connection with such
subscription on behalf of such principal and this Subscription Agreement has
been duly authorized, executed and delivered by or on behalf of, and
constitutes a legal, valid, binding and enforceable agreement of, such
principal which is purchasing
for its own account, not for the benefit of any other person and not with a
view to resale or distribution of any of the securities; and

 

(r)                                    it
has such knowledge in financial and business affairs as to be capable of
evaluating the merits and risks of its investment and is able to bear the
economic risk of loss of its investments or, where it is not purchasing as
principal, each beneficial purchaser is able to bear the economic risk of loss
of its investment; and

 

(s)                                  it
is aware that there is no market and may never be a market for the Debentures or Common Shares
and that none is expected to develop, and acknowledges and confirms that no
representation has been made to it with respect to the future value or price of
the Securities or that the Debentures
or Common Shares will be listed on any stock exchange or that
application has been or will be made for such listing; and

 

(t)                                    except
for the representations and warranties made by the Corporation to the Agent in
the Agency Agreement, it has not relied upon any verbal or written
representation as to fact or otherwise made by or on behalf of the Corporation
or the Agent, and agrees that the Agent and the Agent’s counsel assume no
responsibility or liability of any nature whatsoever for the accuracy, adequacy
or completeness of available information or as to whether all information
concerning the

 

7

 

Corporation required to
be disclosed by the Corporation has been generally disclosed and acknowledges
that no person in the employment of, or acting as agent of, the Agent has any
authority to make any representation or warranty in respect of the Corporation
and any such statements made by any such person is given or made without
liability or responsibility and the Subscriber hereby releases the Agent, the
Corporation and their respective directors, officers, employees, agents,
advisors and shareholders from any claims that may arise in respect of such
statements; and

 

(u)                                 it
acknowledges that the Corporation’s counsel and the Agent’s counsel are acting
as counsel to the Corporation and the Agent, respectively, and not as counsel
to the Subscriber; and

 

(v)                                 it
understands, acknowledges and is aware that the Debentures are being offered
for sale only on a “private placement” basis and that the sale and delivery of
the Debentures is conditional upon such sale being exempt from the requirements
under applicable securities legislation as to the filing of a prospectus or
delivery of an offering memorandum or upon the issuance of such orders,
consents or approvals as may be required to permit such sale without the
requirement of filing a prospectus or delivering an offering memorandum and, as
a consequence: (i) it is restricted from using most of the civil remedies
available under securities legislation; (ii) it may not receive
information that would otherwise be required to be provided to it under
securities legislation; and (iii) the Corporation is relieved from certain
obligations that would otherwise apply under securities legislation; and

 

(w)                               if
required by applicable securities legislation, regulations, rules, policies or
orders or by any securities commission, stock exchange or other regulatory
authority, the Subscriber will execute, deliver, file and otherwise assist the
Corporation in filing, such reports, undertakings and other documents with
respect to the issue of the Debentures, including, without limitation:  (i) in the case of an accredited
investor, a Representation Letter in the form attached as Exhibit 1; and (ii) such other
reports, undertakings and other documents as the Corporation or the Agent may
request; and

 

(x)                                   it has not been created solely or
primarily to use exemptions from the registration and prospectus requirements
under applicable securities laws and has a pre-existing purpose other than the
use of such exemptions; and

 

(y)                                 the
entering into of this Subscription Agreement and the completion of the
transactions contemplated hereby do not and will not result in a violation of
any of the terms or provisions of any law applicable to the Subscriber, or if
the Subscriber is not a natural person, any of the Subscriber’s constating
documents, or any agreement to which the Subscriber is a party or by which it
is bound; and

 

(z)                                   the
Subscriber acknowledges that it has been encouraged to obtain independent
legal, income tax and investment advice with respect to its subscription for
the Debentures and accordingly, has had the opportunity to acquire an
understanding of the meanings of all terms contained herein relevant to the
Subscriber for purposes of giving representations, warranties and covenants
under this Subscription Agreement; and

 

(aa)                            it has been independently advised as
to or acknowledges that it is aware of the potential tax consequences to the
Subscriber with respect to the acquisition of the Securities, and confirms that
no representation has been made to it by or on behalf of the Corporation or the
Agent with respect thereto; and

 

(bb)                          it has not relied upon any verbal or
written representation as to fact or otherwise made by or on behalf of the
Corporation.

 

Closing

 

4.                                       The
Subscriber agrees to deliver to the Agent, not later than 4:00 p.m.
(Calgary time) on the day that is two business days before the Closing Date: (a) this
duly completed and executed Subscription Agreement; (b) if the Subscriber
is purchasing as an “accredited investor”, a fully executed and completed
Representation Letter in the form of Exhibit 1;
(c) such other reports, undertakings and other documents as the
Corporation or the Agent may request; and (d) a certified cheque or bank
draft payable to MGI Securities Inc. for the Principal Amount or payment of the
same amount in such other manner as is acceptable to the Agent.

 

5.                                       The
sale of the Debentures pursuant to this Subscription Agreement will be
completed at the offices of Burnet, Duckworth & Palmer LLP, the
Corporation’s counsel, in Calgary, Alberta at 10:00 a.m. (Calgary time) or
such other time as the Corporation and the Agent may agree (the “Closing Time”) on December 20, 2005 or
such other date as the Corporation and the

 

8

 

Agent may agree
(the “Closing Date”).  At the Closing Time, subject to the terms of
the Agency Agreement, the Agent shall deliver to the Corporation all completed
subscription agreements, including this Subscription Agreement, and the
Principal Amount against delivery by the Corporation of the certificates
representing the Debentures.

 

6.                                       The
Corporation and the Agent shall be entitled to rely on delivery of a facsimile
copy of executed Subscription Agreements, and acceptance by the Corporation of
such facsimile subscriptions shall be legally effective to create a valid and
binding agreement between the Subscriber and the Corporation in accordance with
the terms hereof.  Notwithstanding the foregoing, the Subscriber
shall deliver originally executed copies of the documents listed in Section 4
to the Agent within two business days of the Closing Date.  In addition, this Subscription
Agreement may be executed in counterparts, each of which shall be deemed to be
an original and all of which shall constitute one and the same document.

 

General

 

7.                                       The
Subscriber agrees (on its own behalf and, if applicable, on behalf of each
person or whose behalf the Subscriber is contracting) that the representations,
warranties and covenants of the Subscriber herein will be true and correct both
as of the execution of this Subscription Agreement and as of the Closing Time
and will survive the completion of the issuance of the Debentures.  The representations, warranties and covenants
of the Subscriber herein are made with the intent that they be relied upon by
the Corporation and the Agent and their respective counsel in determining the
eligibility of a purchaser of Debentures and the Subscriber agrees to indemnify
and hold harmless the Corporation and the Agent and their respective
affiliates, shareholders, directors, officers, partners, employees and agents,
from and against all losses, claims, costs, expenses and damages or liabilities
whatsoever which any of them may suffer or incur which are caused or arise from
a breach thereof.   The Subscriber
undertakes to immediately notify the Corporation at Signet Energy Inc., Suite 1818,
144 — 4th Avenue S.W., Calgary,
Alberta T2P 3N4, Attention:  C.W. Leigh
Cassidy, Executive Chairman and Chief Executive Officer, (Fax Number: (403) 440-1114)
and the Agent c/o MGI Securities Inc., Suite 1420, 333 — 5th Avenue S.W., Calgary, Alberta T2P 3B6, Attention: Tony
P. Loria (Fax Number: (403) 705-4971),
of any change in any statement or other information relating to the Subscriber
set forth herein which takes place prior to the Closing Time.

 

8.                                       The
Subscriber acknowledges that the Agent has agreed to offer the Debentures on a
commercially reasonable efforts marketed “private placement” basis and, in
connection therewith, the Corporation and the Agent have entered into, or will
enter into prior to the Closing Date, an agreement (the “Agency Agreement”) pursuant to which the
Agent, in connection with the issue and sale of the Debentures, will receive a
fee from the Corporation.  The Subscriber
hereby irrevocably authorizes the Agent: (a) to act as its representative
at the closing and to execute in its name and on its behalf all closing
receipts and documents required; (b) to complete or correct any errors or
omissions in any form or document, including this Subscription Agreement,
provided by the Subscriber; (c) to receive on its behalf certificates
representing the Debentures purchased under this Subscription Agreement; (d) to
approve any opinions, certificates or other documents addressed to the Subscriber;
(e) to waive, in whole or in part, any representations, warranties,
covenants or conditions for the benefit of the Subscriber and contained in the
Agency Agreement; and (f) to exercise any rights of termination contained
in the Agency Agreement.

 

9.                                       The
Subscriber acknowledges that Tony Loria, an employee of the Agent, is a
director of the Corporation.

 

10.                                 The
Subscriber acknowledges that the decision to distribute the Securities under
this Offering, including the terms of this Offering, have been determined
through negotiations between the Corporation and the Agent and, based on the
relationship described in Section 9 hereof, the Corporation is a “connected
issuer” (as defined in section 1.1 of National Instrument 33-105 Underwriting Conflicts) of the
Agent.  Pursuant to the terms of the
Agency Agreement, the Agent is entitled to receive a fee from the Corporation
(See Section 8 above).

 

11.                                 The
Subscriber acknowledges that this Subscription Agreement and the Exhibits
hereto require the Subscriber to provide certain personal information to the
Corporation.  Such information is being
collected by the Corporation for the purposes of completing the Offering, which
includes, without limitation, determining the Subscriber’s eligibility to
purchase the Debentures under applicable securities legislation, preparing and
registering certificates representing Securities to be issued to the Subscriber
and completing filings required by any stock exchange or securities regulatory
authority.  The Subscriber’s personal
information may be disclosed by the Corporation to: (a) stock exchanges or
securities regulatory authorities; (b) the Corporation’s registrar and
transfer agent; (c) Canada Revenue Agency; and (d) any of the other
parties involved in the Offering, including legal counsel, and may be included
in record books in connection with the Offering.  By executing this Subscription Agreement, the
Subscriber is deemed to be consenting to the foregoing collection, use and disclosure
of the Subscriber’s personal information. 
The Subscriber also consents to the filing of copies or originals of any
of the Subscriber’s documents described in Section 4 hereof as may be

 

9

 

required to be
filed with any stock exchange or securities regulatory authority in connection
with the transactions contemplated hereby.

 

12.                                 The
Subscriber represents and warrants that the funds representing the Principal
Amount which will be advanced by the Subscriber to the Corporation hereunder
will not represent proceeds of crime for the purposes of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act
(Canada) (the “PCMLTFA”) and the
Subscriber acknowledges that the Corporation may in the future be required by
law to disclose the Subscriber’s name and other information relating to this
Subscription Agreement and the Subscriber’s subscription hereunder, on a
confidential basis, pursuant to the PCMLTFA. 
To the best of its knowledge (a) none of the subscription funds to
be provided by the Subscriber (i) have been or will be derived from or
related to any activity that is deemed criminal under the law of Canada, the
United States of America, or any other jurisdiction, or (ii) are being
tendered on behalf of a person or entity who has not been identified to the
Subscriber, and (b) it shall promptly notify the Corporation if the
Subscriber discovers that any of such representations ceases to be true, and to
provide the Corporation with appropriate information in connection therewith.

 

13.                                 For
Subscribers resident in the Province of Ontario, the Corporation is required to
file with the Ontario Securities Commission an Authorization of Indirect
Collection of Personal Information for Distributions in Ontario, which contains
personal information of the Subscriber and details of the sale of Units to the
Subscriber.  You are hereby notified: (i) of
the delivery to the Ontario Securities Commission of your full name,
residential address and telephone number; (ii) that this information is
being collected indirectly by the Ontario Securities Commission under the
authority granted to it in securities legislation; (iii) that this
information is being collected for the purposes of the administration and
enforcement of the securities legislation of Ontario; and (iv) that the
public official set out below can answer questions about the Ontario Securities
Commission’s indirect collection of the information.

 

Ontario Securities Commission

Suite 1903, Box 5520 Queen Street West

Toronto, Ontario M5H 3S8

Telephone: (416) 593-3682

Facsimile: (416) 593-8252

Public official contact regarding indirect collection
of information:

Administrative Assistant to the Director of Corporate
Finance

Telephone: 
(416) 593-8086

 

By signing this
Subscription Agreement, you hereby authorize the indirect collection of the
information by the Ontario Securities Commission.

 

14.                                 The
Subscriber acknowledges and agrees that all costs incurred by the Subscriber
(including any fees and disbursements of any special counsel retained by the
Subscriber) relating to the sale of the Debentures to the Subscriber shall be
borne by the Subscriber.

 

15.                                 The parties irrevocably attorn to
the exclusive jurisdiction of the courts of the Province of Alberta.

 

16.                                 Time shall be of the essence hereof.

 

17.                                 The
contract arising out of this Subscription Agreement and all documents relating
thereto, which by common accord has been or will be drafted in English, shall
be governed by and construed in accordance with the laws of the Province of
Alberta and the federal laws of Canada applicable therein.

 

18.                                 This
Subscription Agreement represents the entire agreement of the parties hereto
relating to the subject matter hereof and there are no representations,
covenants or other agreements relating to the subject matter hereof except as
stated or referred to herein.

 

19.                                 The
terms and provisions of this Subscription Agreement shall be binding upon and
enure to the benefit of the Subscriber and the Corporation and their respective
heirs, executors, administrators, successors and assigns; provided that, except
for the assignment by a Subscriber who is acting as nominee or agent for the
beneficial owner and as otherwise herein provided, this Subscription Agreement
shall not be assignable by any party without prior written consent of the other
parties.

 

10

 

20.                                 The
Subscriber, on its own behalf and, if applicable, on behalf of others for whom
it is contracting hereunder, agrees that this subscription is made for valuable
consideration and may not be withdrawn, cancelled, terminated or revoked by the
Subscriber, on its own behalf and, if applicable, on behalf of others for whom
it is contracting hereunder.

 

21.                                 Subject
to Section 8, neither this Subscription Agreement nor any provision hereof
shall be modified, changed, discharged or terminated except by an instrument in
writing signed by the party against whom any waiver, change, discharge or
termination is sought.

 

22.                                 The
invalidity, illegality or unenforceability of any provision of this
Subscription Agreement shall not affect the validity, legality or
enforceability of any other provision hereof.

 

23.                                 The
headings used in this Subscription Agreement have been inserted for convenience
of reference only and shall not affect the meaning or interpretation of this
Subscription Agreement or any provision hereof.

 

24.                                 The
covenants, representations and warranties contained herein shall survive the
closing of the transactions contemplated hereby.

 

25.                                 In
this Subscription Agreement (including the Exhibits hereto) all references to
dollar amounts are to Canadian dollars, unless otherwise indicated.

 

26.                                 The parties hereto acknowledge and confirm
that they have requested that this Subscription Agreement as well as all notices and other documents contemplated
hereby be drawn up in the English language.  Les
parties aux présentes reconnaissent et confirment qu’elles ont convenu que la
présente convention de souscription ainsi que tous les avis et documents qui s’y
rattachent soient rédigés dans la langue anglaise.

 

11

 

EXHIBIT 1

 

REPRESENTATION LETTER

 

(FOR ACCREDITED
INVESTORS)

 

	
  TO:

  	
  Signet Energy Inc. (the “Corporation”)

  
	
   

  	
   

  
	
  AND TO:

  	
  MGI Securities Inc. (the “Agent”)

  

 

In connection with the purchase of 7%
secured convertible debentures of the Corporation (the “Debentures”) by the undersigned subscriber
or, if applicable, the principal on whose behalf the undersigned is purchasing
as agent (the “Subscriber” for the purposes of
this Exhibit 1), the Subscriber hereby represents, warrants, covenants and
certifies to the Corporation and the Agent that:

 

1.                                       The
Subscriber is resident in a Province of Canada or is otherwise subject to
applicable securities laws of a Province of Canada or complies with the
provisions of paragraph 3(h) of the Subscription Agreement;

 

2.                                       The
Subscriber is purchasing the Debentures as principal for its own account or
complies with the provisions of paragraph 3(g) of the Subscription
Agreement;

 

3.                                       The
Subscriber is an “accredited investor” within the meaning of National
Instrument 45-106 entitled “Prospectus and Registration Exemptions” (“NI 45-106”) by virtue of satisfying the
indicated criterion as set out in Appendix “A” to this Representation Letter;

 

4.                                       The
Subscriber was not created or used solely to purchase or hold securities as an
accredited investor as described in paragraph (m) of the definition of “accredited
investor” in NI 45-106; and

 

5.                                       Upon
execution of this Exhibit 1 by the Subscriber, this Exhibit 1 shall
be incorporated into and form a part of the Subscription Agreement.

 

Dated:                              ,
2005

 

	
   

  	
   

  	
   

  
	
   

  	
  Print name of Subscriber

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Signature

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Print name of Signatory (if different from
  Subscriber)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title

  	
   

  

 

 

IMPORTANT: PLEASE INITIAL THE
APPLICABLE PROVISION IN

APPENDIX “A” ON THE NEXT PAGES

 

 

APPENDIX “A”

 

TO EXHIBIT 1

 

NOTE: THE INVESTOR MUST INITIAL BESIDE THE
APPLICABLE PORTION OF THE DEFINITION BELOW.

 

Accredited Investor - (defined
in National Instrument 45-106) means:

 

(a)                                 a
Canadian financial institution, or a Schedule III bank; or

 

(b)                                the
Business Development Bank of Canada incorporated under the Business
Development Bank of Canada Act (Canada); or

 

(c)                                 a
subsidiary of any person referred to in paragraphs (a) or (b), if the
person owns all of the voting securities of the subsidiary, except the voting
securities required by law to be owned by directors of that subsidiary; or

 

(d)                                a
person registered under the securities legislation of a jurisdiction of Canada,
as an adviser or dealer, other than a person registered solely as a limited
market dealer under one or both of the Securities Act
(Ontario) or the Securities Act (Newfoundland and
Labrador); or

 

(e)                                 an
individual registered or formerly registered under the securities legislation
of a jurisdiction of Canada as a representative of a person referred to in
paragraph (d); or

 

(f)                                   the
Government of Canada or a jurisdiction of Canada, or any crown corporation,
agency or wholly-owned entity of the Government of Canada or a jurisdiction of
Canada; or

 

(g)                                a
municipality, public board or commission in Canada and a metropolitan
community, school board, the Comité de
gestion de la taxe scolaire de l’île de Montréal or an intermunicipal
management board in Québec; or

 

(h)                                any
national, federal, state, provincial, territorial or municipal government of or
in any foreign jurisdiction, or any agency of that government; or

 

(i)                                    a
pension fund that is regulated by either the Office of the Superintendent of
Financial Institutions (Canada) or a pension commission or similar regulatory
authority of a jurisdiction of Canada; or

 

(j)                                    an
individual who, either alone or with a spouse, beneficially owns, directly or
indirectly, financial assets having an aggregate realizable value that before
taxes, but net of any related liabilities, exceeds $1,000,000(1); or

 

(k)                                 an
individual whose net income before taxes exceeded $200,000 in each of the two
most recent calendar years or whose net income before taxes combined with that
of a spouse exceeded $300,000 in each of the two most recent calendar years and
who, in either case, reasonably expects to exceed that net income level in the
current calendar year; or

 

(Note: if individual accredited
investors wish to purchase through wholly-owned holding companies or similar
entities, such purchasing entities must qualify under section (t) below,
which must be initialled.)

 

 

(l)                                    an
individual who, either alone or with a spouse, has net assets of at least
$5,000,000; or 

 

(m)                              a
person, other than an individual or investment fund, that has net assets of at
least $5,000,000 as shown on its most recently prepared financial statements;
or 

 

(n)                                an
investment fund that distributes or has distributed its securities only to

 

(i)                                     a
person that is or was an accredited investor at the time of the distribution,

 

(ii)                                  a
person that acquires or acquired securities in the circumstances referred to in
sections 2.10 and 2.19 of National Instrument 45-106, or

 

(iii)                               a
person described in paragraph (i) or (ii) that acquires or acquired
securities under section 2.18 of National Instrument 45-106; or 

 

(o)                                an
investment fund that distributes or has distributed securities under a
prospectus in a jurisdiction of Canada for which the regulator or, in Québec,
the securities regulatory authority, has issued a receipt; or 

 

(p)                                a
trust company or trust corporation registered or authorized to carry on
business under the Trust and Loan Companies
Act (Canada) or under comparable legislation in a jurisdiction of
Canada or a foreign jurisdiction, acting on behalf of a fully managed account
managed by the trust company or trust corporation, as the case may be; or

 

(q)                                a
person acting on behalf of a fully managed account managed by that person, if
that person

 

(i)                                     is
registered or authorized to carry on business as an adviser or the equivalent
under the securities legislation of a jurisdiction of Canada or a foreign
jurisdiction, and

 

(ii)                                  in
Ontario, is purchasing a security that is not a security of an investment fund;
or

 

(r)                                   a
registered charity under the Income Tax Act
(Canada) that, in regard to the trade, has obtained advice from an eligibility
adviser or an adviser registered under the securities legislation of the
jurisdiction of the registered charity to give advice on the securities being
traded; or

 

(s)                                 an
entity organized in a foreign jurisdiction that is analogous to any of the
entities referred to in paragraphs (a) to (d) or paragraph (i) in
form and function; or

 

(t)                                   a
person in respect of which all of the owners of interests, direct, indirect or
beneficial, except the voting securities required by law to be owned by
directors, are persons that are accredited investors (as defined in National
Instrument 45-106); or

 

(u)                                an
investment fund that is advised by a person registered as an adviser or a
person that is exempt from registration as an adviser; or

 

(v)                                a
person that is recognized or designated by the securities regulatory authority
or, except in Ontario and Québec, the regulator as

 

(i)                                     an
accredited investor, or

 

(ii)                                  an
exempt purchaser in Alberta or British Columbia after National Instrument 45-106
comes into force.

 

2

 

For the purposes hereof:

 

(w)                               “Canadian financial institution” means

 

(i)                                     an
association governed by the Cooperative
Credit Associations Act (Canada) or a central cooperative credit
society for which an order has been made under section 473(1) of that
Act, or

 

(ii)                                  a
bank, loan corporation, trust company, trust corporation, insurance company,
treasury branch, credit union, caisse populaire, financial services
cooperative, or league that, in each case, is authorized by an enactment of
Canada or a jurisdiction of Canada to carry on business in Canada or a
jurisdiction of Canada;

 

(x)                                   “control person” has the same meaning as in
securities legislation except in Manitoba, Newfoundland and Labrador, Northwest
Territories, Nova Scotia, Nunavut, Ontario, Prince Edward Island and Québec
where control person means any person that holds or is one of a combination of
persons that holds

 

(i)                                     a
sufficient number of any of the securities of an issuer so as to affect
materially the control of the issuer, or

 

(ii)                                  more
than 20% of the outstanding voting securities of an issuer except where there
is evidence showing that the holding of those securities does not affect
materially the control of the issuer;

 

(y)                                 “director” means:

 

(i)                                     a
member of the board of directors of a company or an individual who performs
similar functions for a company, and

 

(ii)                                  with
respect to a person that is not a company, an individual who performs functions
similar to those of a director of a company;

 

(z)                                   “eligibility adviser” means

 

(i)                                     a
person that is registered as an investment dealer or in an equivalent category
of registration under the securities legislation of the jurisdiction of a
purchaser and authorized to give advice with respect to the type of security
being distributed, and

 

(ii)                                  in
Saskatchewan or Manitoba, also means a lawyer who is a practicing member in
good standing with a law society of a jurisdiction of Canada or a public
accountant who is a member in good standing of an institute or association of
chartered accountants, certified general accountants or certified management
accountants in a jurisdiction of Canada provided that the lawyer or public
accountant must not

 

(A)                              have
a professional, business or personal relationship with the issuer, or any of
its directors, executive officer, founders, or control persons, and

 

(B)                                have
acted for or been retained personally or otherwise as an employee, executive
officer, director, associate or partner of a person that has acted for or been
retained by the issuer or any of its directors, executive officers, founders or
control persons within the previous 12 months;

 

(aa)                            “executive officer” means, for an issuer, an
individual who is

 

(i)                                     a
chair, vice-chair or president,

 

(ii)                                  a
vice-president in charge of a principal business unit, division or function
including sales, finance or production,

 

(iii)                               an
officer of the issuer or any of its subsidiaries and who performs a
policy-making function in respect of the issuer, or

 

3

 

(iv)                              performing
a policy-making function in respect of the issuer;

 

(bb)                          “financial assets” means

 

(i)                                     cash,

 

(ii)                                  securities,
or

 

(iii)                               a
contract of insurance, a deposit or an evidence of a deposit that is not a
security for the purposes of securities legislation;

 

(cc)                            “founder” means, in respect of an issuer, a
person who,

 

(i)                                     acting
alone, in conjunction, or in concert with one or more persons, directly or
indirectly, takes the initiative in founding, organizing or substantially
reorganizing the business of the issuer, and

 

(ii)                                  at
the time of the trade is actively involved in the business of the issuer;

 

(dd)                          “foreign jurisdiction” means a country other
than Canada or a political subdivision of a country other than Canada;

 

(ee)                            “fully managed account” means an account of a client for
which a person makes the investment decisions if that person has full
discretion to trade in securities for the account without requiring the client’s
express consent to a transaction;

 

(ff)                                “investment fund” has the same meaning as in
National Instrument 81-106 Investment Fund
Continuous Disclosure;

 

(gg)                          “jurisdiction” means a province or territory
of Canada except when used in the term foreign jurisdiction;

 

(hh)                          “local jurisdiction” means the jurisdiction
in which the Canadian securities regulatory authority is situate;

 

(ii)                                  “non-redeemable investment fund” has the
same meaning as in National Instrument 81-106 Investment
Fund Continuous Disclosure;

 

(jj)                                  “person” includes

 

(i)                                     an
individual,

 

(ii)                                  a
corporation,

 

(iii)                               a
partnership, trust, fund and an association, syndicate, organization or other
organized group of persons, whether incorporated or not, and

 

(iv)                              an
individual or other person in that person’s capacity as a trustee, executor,
administrator or personal or other legal representative;

 

(kk)                            “regulator” means, for the local
jurisdiction, the person referred to in Appendix D of National Instrument 14-101
Definitions opposite the name of
the local jurisdiction;

 

(ll)                                  “related liabilities” means

 

(i)                                     liabilities
incurred or assumed for the purpose of financing the acquisition or ownership
of financial assets, or

 

(ii)                                  liabilities
that are secured by financial assets;

 

(mm)                      “Schedule III bank” means an authorized foreign bank named in Schedule III
of the Bank Act (Canada);

 

4

 

(nn)                          “spouse” means, an individual who,

 

(i)                                     is
married to another individual and is not living separate and apart within the
meaning of the Divorce Act (Canada),
from the other individual,

 

(ii)                                  is
living with another individual in a marriage-like relationship, including a
marriage-like relationship between individuals of the same gender, or

 

(iii)                               in
Alberta, is an individual referred to in paragraph (i) or (ii) above,
or is an adult interdependent partner within the meaning of the Adult Interdependent Relationships Act (Alberta);
and

 

(oo)                          “subsidiary” means an issuer that is
controlled directly or indirectly by another issuer and includes a subsidiary
of that subsidiary.

 

All monetary references
are in Canadian Dollars.

 

Note:

 

(1) The following is an excerpt from National
Instrument 45-106 which provides guidance as to the meaning of beneficial
ownership of financial assets:

 

“Paragraph (j) of the “accredited investor” definition
refers to an individual who, either alone or with a spouse, beneficially owns
financial assets having an aggregate realizable value that, before taxes but
net of any related liabilities, exceeds $1,000,000. As a general matter, it
should not be difficult to determine whether financial assets are beneficially
owned by an individual, an individual’s spouse, or both, in any particular
instance. However, financial assets held in a trust or in other types of
investment vehicles for the benefit of an individual may raise questions as to
whether the individual beneficially owns the financial assets in the
circumstances. The following factors are indicative of beneficial ownership of
financial assets:

 

(a)                                  Physical
or constructive possession of evidence of ownership of the financial asset;

 

(b)                                 Entitlement
to receipt of any income generated by the financial asset;

 

(c)                                  Risk
of loss of the value of the financial asset; and

 

(d)                                 The
ability to dispose of the financial asset or otherwise deal with it as the
individual sees fit.

 

For example, securities held in a self-directed RRSP,
for the sole benefit of an individual are beneficially owned by that
individual. In general, financial assets in a spousal RRSP would also be
included for the purposes of the threshold test because paragraph (j) takes
into account financial assets owned beneficially by a spouse. However,
financial assets held in a group RRSP under which the individual would not have
the ability to acquire the financial assets and deal with them directly would
not meet these beneficial ownership requirements.”

 

5

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