Document:

Exhibit
10.2

CANADIAN
SUPERIOR ENERGY INC.

PREFERRED
SHARE UNIT PURCHASE AGREEMENT

TABLE OF
CONTENTS

	
  Article 1 Purchase and Sale of Units

  	
  1

  
	
  1.1

  	
  Sale and Issuance of Preferred Shares and Warrants

  	
  1

  
	
  1.2

  	
  Closing; Delivery

  	
  1

  
	
  Article 2 Representations and Warranties of the
  Corporation

  	
  2

  
	
  2.1

  	
  Organization, Good Standing and Qualification

  	
  2

  
	
  2.2

  	
  Capitalization

  	
  2

  
	
  2.3

  	
  Subsidiaries

  	
  3

  
	
  2.4

  	
  Authorization

  	
  3

  
	
  2.5

  	
  Valid Issuance of Securities

  	
  3

  
	
  2.6

  	
  Governmental Consents

  	
  3

  
	
  2.7

  	
  Litigation

  	
  4

  
	
  2.8

  	
  US Securities Documents

  	
  4

  
	
  2.9

  	
  Canadian Securities Documents

  	
  4

  
	
  2.10

  	
  No Integrated Offering

  	
  5

  
	
  2.11

  	
  Material Contracts & Commitments

  	
  5

  
	
  2.12

  	
  Certain Practices

  	
  5

  
	
  2.13

  	
  Sarbanes-Oxley

  	
  6

  
	
  2.14

  	
  Compliance with Other Instruments

  	
  6

  
	
  2.15

  	
  Agreements; Action

  	
  6

  
	
  2.16

  	
  No Conflict of Interest

  	
  6

  
	
  2.17

  	
  Rights of Registration and Voting Rights

  	
  7

  
	
  2.18

  	
  Title to Property and Assets

  	
  7

  
	
  2.19

  	
  Financial Statements

  	
  7

  
	
  2.20

  	
  Changes

  	
  7

  
	
  2.21

  	
  Employee Benefit Plans

  	
  8

  
	
  2.22

  	
  Tax Returns and Payments

  	
  9

  
	
  2.23

  	
  Other Names

  	
  9

  
	
  2.24

  	
  Insurance Coverage

  	
  9

  
	
  2.25

  	
  Labour Agreements and Actions

  	
  10

  
	
  2.26

  	
  Permits

  	
  10

  
	
  2.27

  	
  Real Property Holding Corporation

  	
  10

  
	
  2.28

  	
  Environmental and Safety Laws

  	
  10

  
	
  2.29

  	
  Canadian Securities Trades

  	
  10

  
	
  2.30

  	
  2.30 Intellectual Property.

  	
  11

  
	
  2.31

  	
  “Corporation’s Knowledge” Defined

  	
  11

  
	
  Article 3 Representations and Warranties of the
  Purchaser

  	
  11

  
	
  3.1

  	
  Authorization

  	
  11

  
	
  3.2

  	
  Purchase Entirely for Own Account

  	
  11

  
	
  3.3

  	
  Source of Funds

  	
  12

  
	
  3.4

  	
  Restricted Securities

  	
  12

  
	
  3.5

  	
  Legends

  	
  12

  
	
  3.6

  	
  Accredited Investor

  	
  13

  
	
  3.7

  	
  Exempt Distribution

  	
  13

  
	
  3.8

  	
  Tax Consequences

  	
  13

  
	
  3.9

  	
  Compliance With Applicable Law

  	
  13

  
	
  3.10

  	
  No Securities Commission Review

  	
  13

  

 

	
  3.11

  	
  Delivery of Documents

  	
  14

  
	
  3.12

  	
  Purchase Funds

  	
  14

  
	
  Article 4 Conditions of the Purchaser’s Obligations
  at Closing

  	
  14

  
	
  4.1

  	
  Representations and Warranties

  	
  14

  
	
  4.2

  	
  Performance

  	
  14

  
	
  4.3

  	
  Compliance Certificate

  	
  14

  
	
  4.4

  	
  Qualifications

  	
  15

  
	
  4.5

  	
  Opinion of Corporation Counsel

  	
  15

  
	
  4.6

  	
  Registration Rights Agreement

  	
  15

  
	
  4.7

  	
  Material Adverse Effect

  	
  15

  
	
  4.8

  	
  Delivery of Share Certificates

  	
  15

  
	
  4.9

  	
  Filings; Authorizations

  	
  15

  
	
  4.10

  	
  No Injunctions

  	
  15

  
	
  4.11

  	
  Legal Investment

  	
  16

  
	
  4.12

  	
  Articles

  	
  16

  
	
  4.13

  	
  Secretary’s Certificate

  	
  16

  
	
  4.14

  	
  Proceedings and Documents

  	
  16

  
	
  4.15

  	
  Stock Exchange Approvals re: Common Shares

  	
  16

  
	
  Article 5 Conditions of the Corporation’s
  Obligations at Closing

  	
  16

  
	
  5.1

  	
  Representations and Warranties

  	
  16

  
	
  5.2

  	
  Performance

  	
  16

  
	
  5.3

  	
  Compliance Certificate

  	
  17

  
	
  5.4

  	
  Qualifications

  	
  17

  
	
  5.5

  	
  No Injunctions

  	
  17

  
	
  5.6

  	
  Legal Investment

  	
  17

  
	
  Article 6 Indemnification

  	
  17

  
	
  6.1

  	
  Indemnification by the Corporation

  	
  17

  
	
  6.2

  	
  Indemnity by Purchaser

  	
  17

  
	
  6.3

  	
  Procedures for Indemnification

  	
  18

  
	
  Article 7 Miscellaneous

  	
  18

  
	
  7.1

  	
  Survival

  	
  18

  
	
  7.2

  	
  Governing Law

  	
  19

  
	
  7.3

  	
  Counterparts

  	
  19

  
	
  7.4

  	
  Construction

  	
  19

  
	
  7.5

  	
  Notices

  	
  19

  
	
  7.6

  	
  Finder’s Fee

  	
  20

  
	
  7.7

  	
  Currency

  	
  20

  
	
  7.8

  	
  Amendments and Waivers

  	
  20

  
	
  7.9

  	
  Severability

  	
  20

  
	
  7.10

  	
  Delays or Omissions

  	
  20

  
	
  7.11

  	
  Dispute Resolution

  	
  20

  
	
  7.12

  	
  Entire Agreement

  	
  21

  

 

 ii

CANADIAN
SUPERIOR ENERGY INC.

PREFERRED
SHARE UNIT PURCHASE AGREEMENT

This
Preferred Share Unit Purchase Agreement (the “Agreement”) is made as of the 31st day of January, 2006, by and between Canadian
Superior Energy Inc., a corporation incorporated under the laws of the Province
of Alberta, Canada (the “Corporation”) and West
Coast Opportunity Fund, LLC (the “Purchaser”).

The
parties hereby agree as follows:

ARTICLE 1

PURCHASE AND SALE OF UNITS

1.1                               Sale and Issuance of Preferred
Shares and Warrants

(a)                                  Subject to the
terms and conditions of this Agreement, the Purchaser agrees to purchase at the
Closing (as defined below) and the Corporation agrees to sell and issue to the
Purchaser at the Closing that number of Units set forth opposite the Purchaser’s
name on Exhibit A attached hereto at a purchase price of US $1,000 per
Unit.  Each Unit consists of ten (10) 5%
US $100 Cumulative Convertible Redeemable Preferred Shares (“Preferred
Shares”) and eighty (80) common share purchase warrants (“Warrants”) (the
Preferred Shares and Warrants collectively referred to as the “Securities”).  There shall be no security certificates
representing Units.  The Units shall
immediately upon Closing separate into the Preferred Shares and Warrants
represented by security certificates for each.

(b)                                 The Corporation
shall adopt and file with the Registrar of Corporations for the Province of Alberta
on or before the Closing the Articles of Amendment (“Articles of Amendment”)
creating and authorizing up to 150,000 Preferred Shares, each Preferred Share
to have the rights, preferences and privileges as set forth in the share
provisions attached hereto as Exhibit B (the “Share Provisions”).  The Corporation shall also adopt a security
certificate representing the Warrants in the form attached hereto as
Exhibit C.

1.2                               Closing; Delivery

(a)                                  Subject to the
conditions to closing set forth in Sections 4 and 5 hereof having been
satisfied, the purchase and sale of the Units shall take place at the offices
of Burnet, Duckworth & Palmer LLP, 1400, 350 — 7th Avenue S.W., Calgary,
Alberta T2P 3N9 at 10:00 a.m., on January 31, 2006, (“Closing”) or at such
other times and places as the Corporation and the Purchaser mutually agree
upon, orally or in writing (which time and place are designated as the “Closing
Date”).  In the event there is more than
one closing, the term “Closing” shall apply to each such Closing unless
otherwise specified herein.

(b)                                 At the Closing,
the Corporation shall deliver to the Purchaser certificates representing the
Preferred Shares and Warrants comprising the Units being purchased hereunder
against payment of the purchase price (“Purchase Price”) by certified check,
bank draft or trust check payable to the Corporation or by wire transfer to a
bank account designated by the Corporation.

ARTICLE 2

REPRESENTATIONS AND WARRANTIES OF THE CORPORATION

The
Corporation hereby represents and warrants to the Purchaser that, except as set
forth on a Disclosure Schedule (the “Disclosure Schedule”) delivered separately
by the Corporation to the Purchaser, specifically identifying the relevant
subsection hereof, which exceptions shall be deemed to be representations and
warranties as if made hereunder:

2.1                               Organization, Good Standing
and Qualification

The
Corporation is a corporation duly organized, validly existing and in good
standing under the laws of the Province of Alberta, Canada, and has all requisite
corporate power and authority to carry on its business as presently conducted
and as proposed to be conducted.  The
Corporation is duly qualified to transact business and is in good standing in
each jurisdiction in which the failure so to qualify would have a Material
Adverse Effect (as defined in Section 4.7).

2.2                               Capitalization

The
authorized capital of the Corporation consists, or will consist, immediately
prior to the Closing, of:

(a)                                  an unlimited
number of preferred shares, issuable in series, of which the first series
consists of up to 150,000 Preferred Shares, none of which are issued and
outstanding immediately prior to the Closing. 
The rights, privileges and preferences of the Preferred Shares are as
stated in the Share Provisions.

(b)                                 an unlimited
number of common shares, 119,135,361 shares of which are issued and
outstanding as at the date hereof, and there will be no change to the number of
issued and outstanding common shares of the Corporation prior to the Closing
Date, other than common shares issued on exercise of currently outstanding
convertible securities.  All of the
outstanding common shares have been duly authorized, are fully paid and
non-assessable and were issued in compliance with all applicable Canadian and
U.S. federal, provincial and state securities laws.

(c)                                  the Corporation
has reserved 10,450,875 common shares for issuance to officers, directors,
employees and consultants of the Corporation pursuant to its Stock Option Plan
(the “Stock Plan”).  Of such reserved
common shares, options to purchase 9,488,389 common shares have been
granted and are currently outstanding to officers, directors, employees and
consultants pursuant to the Stock Plan.

(d)                                 there are no
outstanding options, warrants, rights (including conversion or pre-emptive
rights and rights of first refusal or similar rights) or agreements, orally or
in writing, for the purchase or acquisition from the Corporation of any common
shares of its capital stock except for (i) conversion privileges of the
Preferred Shares; (ii) exercise of the Warrants; (iii) outstanding options
issued pursuant to the Stock Plan at exercise prices ranging from $0.80 to
$3.00 per share; (iv) 2,750,000 common share purchase warrants held by
various subscribers, each entitling the holder thereof to acquire one common
share at an exercise price of $2.50 per common share at any time on or prior to
June 30, 2006; and (v) as specifically listed on the Disclosure
Schedule. None of the Corporation’s share purchase agreements or stock option
documents contains a provision for accelerated vesting (or lapse of a
repurchase right) upon the occurrence of any event, other than the existing
stock option agreements for the Corporation, which provide for accelerated
vesting in certain circumstances, including in the event of a bona fide offer
being made to acquire in excess of 51% of the issued and outstanding voting
securities of the

 2
 

Corporation,
with such transaction subsequently being consummated.  The Corporation is not a party or subject to
any agreement or understanding, and, to the best of the Corporation’s
knowledge, there is no agreement or understanding between any persons and/or
entities, which affects or relates to the voting or giving of written consents
with respect to any securities of the Corporation.

2.3                               Subsidiaries

The
Corporation does not currently own or control, directly or indirectly, any
interest in any other corporation, association, or other business entity other
than Marquis Exploration Ltd., Mariner Exploration Inc., Canadian Frontier
Energy Corp., Canadian Superior Trinidad & Tobago Ltd., 3885062 Vanada
Inc., Canadian 88 Energy International Inc. and Canadian 88 International Inc.

2.4                               Authorization

All
corporate action on the part of the Corporation, its officers, directors and
shareholders necessary for the authorization, execution and delivery of this
Agreement, the Registration Rights Agreement in the form attached hereto as
Exhibit C (the “Registration Rights Agreement”) (the Registration Rights
Agreement and this Agreement are referred to as the “Agreements”), the
performance of all obligations of the Corporation hereunder and thereunder and
the authorization, issuance and delivery of the Securities have been taken or
will be taken prior to the Closing, and the Agreements, when executed and
delivered by the Corporation, shall constitute valid and legally binding
obligations of the Corporation, enforceable against the Corporation in
accordance with their respective terms except; (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and
other laws of general application affecting enforcement of creditors’ rights
generally; or (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies.

2.5                               Valid Issuance of Securities

The
Securities that are being issued to the Purchaser hereunder, when issued, sold
and delivered in accordance with the terms hereof for the consideration
expressed herein, will be duly and validly issued, fully paid and
non-assessable and free of restrictions on transfer other than restrictions on
transfer under this Agreement, the Registration Rights Agreement, applicable
securities laws, or liens or encumbrances created or imposed by a Purchaser.  Based in part upon the representations of the
Purchaser in this Agreement and subject to the provisions of Section 2.6 below,
the Securities will be issued in compliance with all applicable securities
laws.  The Corporation covenants that
neither it nor any authorized agent acting on its behalf will take any action
hereafter that would cause the failure of such compliance.  The common shares issuable upon conversion or
exercise of the Securities have been duly and validly reserved for issuance,
and upon issuance in accordance with the terms of the Preferred Shares or
Warrants, shall be duly and validly issued, fully paid and non-assessable and
free of restrictions on transfer other than restrictions on transfer under this
Agreement, the Registration Rights Agreement, applicable securities laws, and
liens or encumbrances created by or imposed by a Purchaser, and will be issued
in compliance with all applicable securities laws.

2.6                               Governmental Consents

No
consent, approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any Canadian, federal, state or local
governmental authority on the part of the Corporation is required in connection
with the consummation of the transactions contemplated by this Agreement,
except for filings (i) pursuant to Regulation D of the Securities Act of 1933,
as amended (the “Securities Act”), and applicable state securities laws; (ii)
pursuant to the Securities Act (Alberta) (the “Alberta

 3
 

Securities
Act”) and National Instrument 45-106, and (iii) with the American Stock
Exchange (“AMEX”) and the Toronto Stock Exchange (“TSX”) in order to obtain the
conditional listing approval of the exchanges for the transactions contemplated
hereby.

2.7                               Litigation

There
is no action, suit, proceeding or investigation pending or, to the Corporation’s
knowledge, currently threatened against the Corporation or any of its
subsidiaries that questions the validity of the Agreements or the right of the
Corporation to enter into them, or to consummate the transactions contemplated
hereby or thereby, or that might result, either individually or in the
aggregate, in any Material Adverse Effect, or any change in the current equity
ownership of the Corporation, nor is the Corporation aware of any basis for the
foregoing.  Neither the Corporation nor
any of its subsidiaries is a party or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or government agency or
instrumentality.  There is no action,
suit, proceeding or investigation by the Corporation or any of its subsidiaries
currently pending or which the Corporation or any of its subsidiaries intends
to initiate.  The foregoing includes,
without limitation, actions, suits, proceedings or investigations pending or
threatened in writing (or any basis therefor known to the Corporation)
involving the prior employment of any of the Corporation’s employees, their use
in connection with the Corporation’s business, or any information or techniques
allegedly proprietary to any of their former employers, or their obligations
under any agreements with prior employers.

2.8                               US Securities Documents

The
Corporation has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the Securities and Exchange Commission
(the “Commission”) and the AMEX pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder (the “Exchange Act”) and the bylaws, rules and
regulations of the AMEX (all of the foregoing filed prior to or on the date
hereof and all exhibits included therein and financial statements and schedules
thereto and documents incorporated by reference therein being hereinafter
referred to as the “US Securities Documents”). 
As of the date of filing of such US Securities Documents, each such US
Securities Document, as it may have been subsequently amended by filings made
by the Corporation with the Commission prior to the date hereof, complied in
all material respects with the requirements of the Exchange Act and the rules
and regulations of the Commission promulgated thereunder applicable to such US
Securities Document.  None of the US
Securities Documents, as of the date filed and as they may have been
subsequently amended by filings made by the Corporation with the Commission or
the AMEX prior to the date hereof, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.  Except for the issuance of the Securities
contemplated by this Agreement, no event, liability, development or
circumstance has occurred or exists, or is currently contemplated to occur,
with respect to the Corporation or its subsidiaries or their respective
business, properties, prospects, operations or financial condition, that would
be required to be disclosed by the Corporation under applicable securities laws
and which has not been publicly disclosed.

2.9                               Canadian Securities Documents

The
Corporation is a “reporting issuer” not in default under the securities laws of
all provinces of Canada.  The Corporation
has filed all reports, schedules, forms, statements and other documents required
to be filed by it with the securities commission of each province of Canada and
the TSX pursuant to the reporting requirements of applicable Canadian
provincial securities laws, the rules and regulations promulgated thereunder,
and the bylaws, rules and regulations of the TSX (all of the foregoing filed
prior

 4
 

to
or on the date hereof and all exhibits included therein and financial
statements and schedules thereto and documents incorporated by reference
therein being hereinafter referred to as the “Canadian Securities Documents”
and together with the US Securities Documents, the “Public Securities Documents”).  As of the date of filing of such Canadian
Securities Documents, each such Canadian Securities Document, as it may have
been subsequently amended in accordance with applicable provincial securities
legislation and/or the bylaws, rules and regulations of the TSX prior to the
date hereof, complied as to form in all material respects with the requirements
of applicable Canadian provincial securities law, the rules and regulations
promulgated thereunder, and the rules and regulations of the TSX applicable to
such Canadian Securities Documents.  None
of the Canadian Securities Documents, as of the date filed and as they may have
been subsequently amended in accordance with applicable Canadian provincial
securities legislation and/or the bylaws, rules and regulations of the TSX
prior to the date hereof, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.

2.10                        No Integrated Offering

Neither
the Corporation, nor any of its affiliates, nor any person acting on its or
their behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, under circumstances that
would cause this offering of the Securities to be integrated with prior
offerings by the Corporation for purposes of the securities laws or any
applicable shareholder approval provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation system
on which any of the securities of the Corporation are listed or designated, nor
will the Corporation or any of its subsidiaries take any action or steps that
would cause the offering of the Securities to be integrated with other
offerings.

2.11                        Material Contracts &
Commitments

Each
of the contracts of the Corporation (“Contracts”) is a valid and binding
obligation of the Corporation or its subsidiaries that are parties thereto and,
to the Corporation’s knowledge, the other parties thereto, enforceable in
accordance with their terms, and are in full force and effect in all material
respects.  The Corporation is not in
default under, or otherwise in violation of the terms of, any of the Contracts
in any material respect.  To the best of
the Corporation’s knowledge, no other party to any of the Contracts is in
default thereunder or otherwise in violation of the material terms
thereof.  To the Corporation’s knowledge,
the performance of any such Contract would not result in a Material Adverse
Effect and all were entered into in the ordinary course of business in arms-length
transactions.

2.12                        Certain Practices

Neither
the Corporation nor any of its subsidiaries nor, to the Corporation’s
knowledge, any of their respective current or former shareholders, directors,
officers, employees, agents or other persons or entities acting on behalf of
the Corporation or any subsidiary thereof, has on behalf of the Corporation or
any subsidiary thereof or in connection with their respective businesses: (a)
used any corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity; (b) made any direct or
indirect unlawful payments to any governmental officials or employees from
corporate funds; (c) established or maintained any unlawful or unrecorded fund
of corporate monies or other assets; (d) made any false or fictitious entries
on the books and records of the Corporation or any subsidiary thereof; or (e)
made any unlawful bribe, rebate, payoff, influence payment, kickback or other
unlawful payment of any nature.

 5
 

2.13                        Sarbanes-Oxley

The
Corporation has complied in all material respects with all provisions of the
Sarbanes-Oxley Act of 2002 applicable to it.

2.14                        Compliance with Other
Instruments

(a)                                  The Corporation
is not in violation or default of any provisions of its constituting documents
or Bylaws or of any instrument, judgment, order, writ, decree or contract to
which it is a party or by which it is bound or of any provision of Canadian,
provincial, federal or state statute, rule or regulation applicable to the
Corporation.  The execution, delivery and
performance of the Agreements and the consummation of the transactions
contemplated hereby or thereby will not result in any such violation or be in
conflict with or constitute, with or without the passage of time and giving of notice,
either a default under any such provision, instrument, judgment, order, writ,
decree or contract or an event which results in the creation of any lien,
charge or encumbrance upon any assets of the Corporation.

(b)                                 The Corporation
has avoided every condition, and has not performed any act, the occurrence of
which would result in the Corporation’s loss of any right granted under any
material license, distribution agreement or other agreement.

2.15                        Agreements; Action

(a)                                  Other than (i)
standard employee benefits generally made available to all employees, (ii)
standard director and officer indemnification agreements approved by the Board
of Directors, and (iii) the purchase of shares of the Corporation’s capital
stock and the issuance of options to purchase shares of the Corporation’s
common shares, in each instance, approved by the Board of Directors, there are
no agreements, understandings or proposed transactions between the Corporation
and any of its officers, directors, affiliates, or any affiliate thereof.

(b)                                 Other than as set
forth in the Disclosure Schedule, neither the Corporation nor any of its
subsidiaries has (i) declared or paid any dividends, or authorized or made any
distribution upon or with respect to any class or series of its capital stock,
(ii) incurred any indebtedness for money borrowed or incurred any other
liabilities individually in excess of $100,000 or in excess of $500,000 in the
aggregate, which is presently outstanding, (iii) made any loans or advances to
any officer, director or employee other than ordinary advances for travel
expenses.

2.16                        No Conflict of Interest

Other
than as set forth in the Public Securities Documents, the Corporation is not
indebted, directly or indirectly, to any of its officers or to their respective
spouses or children, in any amount whatsoever other than in connection with
expenses or advances of expenses incurred in the ordinary course of
business.  None of the Corporation’s
officers or directors, or any members of their immediate families, are, directly
or indirectly, indebted to the Corporation or, to the Corporation’s knowledge,
have any direct or indirect ownership interest in any firm or corporation with
which the Corporation is affiliated or with which the Corporation has a
business relationship, or any firm or corporation which competes with the
Corporation except that officers, directors and/or shareholders of the
Corporation may own stock in, but not exceeding two percent of the outstanding
capital stock of, any publicly traded company that may compete with the
Corporation.  To the Corporation’s
knowledge, other than employment agreements and stock option agreements entered
into in the ordinary course of business, none of the Corporation’s officers or
directors or any members of their immediate families are, directly or
indirectly, interested in any contract with the

 6
 

Corporation.  The Corporation is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation other
than wholly-owned subsidiaries.

2.17                        Rights of Registration and
Voting Rights

Except
as contemplated in the Registration Rights Agreement, the Corporation has not
granted or agreed to grant any registration rights, including piggyback rights,
to any person or entity.  To the
knowledge of the Corporation, no stockholder of the Corporation has entered
into any agreements with respect to the voting of capital shares of the
Corporation.

2.18                        Title to Property and Assets

The
Corporation owns its property and assets free and clear of all mortgages,
liens, loans and encumbrances, except such encumbrances and liens which arise
in the ordinary course of business and do not materially impair the Corporation’s
ownership or use of such property or assets. 
With respect to the property and assets it leases, the Corporation is in
compliance with such leases and holds a valid leasehold interest free of any
liens, claims or encumbrances.

2.19                        Financial Statements

The
Corporation’s audited financial statements contained in the Public Securities
Documents as at December 31, 2004 and December 31, 2003, and for the fiscal
years then ended, (collectively, the “Annual Financial Statements”) and
unaudited financial statements as at September 30, 2005 and for the
9-month period then ended (the “Interim Financial Statements” collectively,
with the Annual Financial Statements, the “Financial Statements”) have been
prepared in accordance with generally accepted accounting principles of Canada
applied on a consistent basis throughout the periods indicated, provided that
the Interim Financial Statements do not contain all footnotes required by
generally accepted accounting principles and may omit certain year end
adjustments.  The Corporation’s annual
report on Form 40-F filed with the Commission that contains the
Annual Financial Statements contains supplemental information in accordance
with the requirements of the Commission that reconciles the information in the
Annual Financial Statements with United States generally accepted accounting
principles.  The Financial Statements
fairly present the financial condition and operating results of the Corporation
as of the dates and for the periods indicated therein, subject, in the case of
the Interim Financial Statements, to normal year-end audit adjustments.

2.20                        Changes

Since
December 31, 2004, there has not been:

(a)                                  any change in the
assets, liabilities, financial condition or operating results of the
Corporation from that reflected in the US Securities Documents and the Canadian
Securities Documents, except changes in the ordinary course of business that
have not been, in the aggregate, materially adverse;

(b)                                 any damage,
destruction or loss, whether or not covered by insurance, materially and
adversely affecting the business, properties, prospects, or financial condition
of the Corporation;

(c)                                  any waiver or
compromise by the Corporation of a valuable right or of a material debt owed to
it;

 7
 

(d)                                 any satisfaction
or discharge of any lien, claim, or encumbrance or payment of any obligation by
the Corporation, except in the ordinary course of business and that is not
material to the business, properties, prospects or financial condition of the
Corporation;

(e)                                  any material
change to a material contract or agreement by which the Corporation or any of
its assets is bound or subject;

(f)                                    any material
change in any compensation arrangement or agreement with any employee, officer,
director or stockholder;

(g)                                 any resignation
or termination of employment of any officer or key employee of the Corporation;
and the Corporation is not aware of any impending resignation or termination of
employment of any such officer or key employee;

(h)                                 any mortgage,
pledge, transfer of a security interest in, or lien, created by the
Corporation, with respect to any of its material properties or assets, except
liens for taxes not yet due or payable;

(i)                                     any loans or
guarantees made by the Corporation to or for the benefit of its employees,
officers or directors, or any members of their immediate families, other than
travel advances and other advances made in the ordinary course of its business;

(j)                                     any declaration,
setting aside or payment or other distribution in respect to any of the
Corporation’s capital stock, or any direct or indirect redemption, purchase, or
other acquisition of any of such stock by the Corporation;

(k)                                  to the
Corporation’s knowledge, any other event or condition of any character that
might materially and adversely affect the assets, properties, condition
(financial  or otherwise), operating
results, business, or prospects of the Corporation; or

(l)                                     any arrangement
or commitment by the Corporation to do any of the things described in this
Section 2.20;

other
than as disclosed in the US Securities Documents or the Canadian Securities
Documents.

2.21                        Employee Benefit Plans

(a)                                  The following
definitions will apply to this Section 2.21:

(i)                                     “Code” shall mean
the Internal Revenue Code of 1986, as amended;

(ii)                                  “Corporation
Employee Plan” shall mean any plan, program, policy, practice, contract,
agreement or other arrangement providing for compensation, severance,
termination pay, deferred compensation, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether written or unwritten or otherwise, funded or
unfunded, including without limitation, each “employee benefit plan,” within
the meaning of section 3(3) of ERISA which is or has been maintained,
contributed to, or required to be contributed to, by the Corporation or any
Affiliate for the benefit of any Employee, or with respect to which the
Corporation or any Affiliate has or may have any liability or obligation;

 8
 

(iii)                               “ERISA” shall
mean the Employee Retirement Income Security Act of 1974, as amended;

(iv)                              “ERISA Affiliate”
shall mean any other person or entity under common control with the Corporation
within the meaning of section 414(b), (c), (m) or (o) of the Code and the
regulations issued thereunder;

(v)                                 “Multiemployer
Plan” shall mean any “Pension Plan” (as defined below) which is a “multiemployer
plan,” as defined in section 3(37) of ERISA;

(vi)                              “Pension Plan”
shall mean each Corporation Employee Plan which is an “employee pension benefit
plan,” within the meaning of section 3(2) of ERISA;

(b)                                 Neither the
Corporation nor any ERISA Affiliate contributes to or has any contingent
obligations to any Multiemployer Plan. 
Neither  the Corporation nor any
ERISA Affiliate has incurred any liability (including secondary liability) to
any Multiemployer Plan as a result of a complete or partial withdrawal from
such Multiemployer Plan under section 4201 of ERISA or as a result of a sale of
assets described in section 4204 of ERISA.

(c)                                  Neither the
Corporation nor any ERISA Affiliate has ever maintained, established,
sponsored, participated in, or contributed to, any Pension Plan which is
subject to Title IV of ERISA or Section 412 of the Code.  Neither the Corporation nor any ERISA
Affiliate has any liability with respect to any post-retirement benefit under
any Corporation Employee Plan which is a welfare plan (as defined in section
3(l) of ERISA), other than liability for health plan continuation coverage
described in Part 6 of Title I(B) of ERISA.

(d)                                 Each Corporation
Employee Plan complies, in both form and operation, in all material respects,
with its terms, ERISA and the Code, and no condition exists or event has
occurred with respect to any such plan which would result in the incurrence by
the Corporation or any ERISA Affiliate of any material liability, fine or
penalty.  No Corporation Employee Plan is
being audited or investigated by any government agency or is subject to any
pending or threatened claim or suit.  
Neither the Corporation nor any ERISA Affiliate nor any fiduciary of any
Corporation Employee Plan has engaged in a prohibited transaction under section
406 of ERISA or section 4975 of the Code.

2.22                        Tax Returns and Payments

The
Corporation has filed all tax returns and reports as required by law.  These returns and reports are true and
correct in all material respects.  The
Corporation has paid all taxes and other assessments due.

2.23                        Other Names

The
business conducted by the Corporation prior to the date hereof has not been
conducted under any corporate, trade or fictitious name other than “Prize
Energy Inc.” from November 16, 1993 to August 25, 2000, “Kapalua Gold
Mines Ltd.” from April 27, 1993 to November 16, 1993 and prior thereto “297272
Alberta Ltd.”.

2.24                        Insurance Coverage

There
is in full force and effect one or more policies of insurance issued by
insurers of recognized responsibility insuring the Corporation and its subsidiaries
and their properties and business against such

 9
 

losses
and risks, and in such amounts as are customary in the case of corporations
engaged in the same or similar business and similarly situated.  The Corporation and its subsidiaries have not
been refused any insurance coverage sought or applied for, and the Corporation
has no reason to believe that it will be unable to renew its existing insurance
coverage as and when the same will expire upon terms at least as favourable as
those presently in effect, other than possible increases in premiums that do
not result from any act or omission of the Corporation.  The Corporation has directors’ and officers’
liability insurance coverage protecting the directors in an amount not less
than $5 million.

2.25                        Labour Agreements and Actions

The
Corporation is not bound by or subject to (and none of its assets or properties
is bound by or subject to) any written or oral, express or implied, contract,
commitment or arrangement with any labour union, and no labour union has
requested or, to the knowledge of the Corporation, has sought to represent any
of the employees, representatives or agents of the Corporation.  There is no strike or other labour dispute
involving the Corporation pending, or to the knowledge of the Corporation
threatened, which could have a Material Adverse Effect on the assets,
properties, condition (financial or otherwise), operating results, business, or
prospects of the Corporation, nor is the Corporation aware of any labour
organization activity involving its employees. 
The Corporation has complied in all material respects with all
applicable Canadian and United States federal, provincial and state equal
employment opportunity laws and with other laws related to employment.

2.26                        Permits

The
Corporation and each of its subsidiaries has all material franchises, permits,
licenses and any similar authorities necessary for the conduct of its
business.  The Corporation is not in
default in any material respect under any of such franchises, permits, licenses
or other similar authorities.

2.27                        Real Property Holding
Corporation

The
Corporation is not a “United States real property holding corporation” within
the meaning of the Code and any regulations promulgated thereunder.

2.28                        Environmental and Safety Laws

To
the Corporation’s knowledge, it has complied in all material respects with
applicable statutes, laws or regulations relating to the environment or
occupational health and safety and to its knowledge, no material expenditures
are or will be required in order to comply with any such existing statute, law
or regulation which are not otherwise accounted for in the financial statements
of the Corporation.  No Hazardous
Materials (as defined below) are used or have been used, stored, or disposed of
by the Corporation or, to the Corporation’s knowledge, after reasonable
investigation by any other person or entity on any property owned, leased or
used by the Corporation.  For the
purposes of the preceding sentence, “Hazardous Materials” shall mean (a)
materials which are listed or otherwise defined as “hazardous” or “toxic” under
any applicable local, state, federal and/or foreign laws and regulations that
govern the existence and/or remedy of contamination on property, the protection
of the environment from contamination, the control of hazardous wastes, or
other activities involving hazardous substances, including building materials
or (b) any petroleum products or nuclear materials.

2.29                        Canadian Securities Trades

The
Securities and the common shares issuable upon conversion or exercise of the
Securities will generally be subject to a four month “hold period”, commencing
on the Closing Date, under applicable

 10
 

Canadian
securities legislation, after which time they will generally be freely tradable
without restriction through the TSX, subject to restrictions imposed on trades
which constitute “control distributions” under applicable securities
legislation at the Closing Date.

2.30                        2.30        Intellectual Property.

The
Corporation owns or possesses sufficient legal rights to all patents,
trademarks, service marks, trade names, copyrights, domain names, trade
secrets, licenses, information and proprietary rights and processes necessary
for its business as now conducted and as presently proposed to be conducted
without any conflict with, or infringement of, the rights of others.  The Corporation has not received any
communications alleging that the Corporation has violated or, by conducting its
business, would violate any of the patents, trademarks, service marks, trade
names, copyrights, domain names, trade secrets or other proprietary rights or
processes of any other person or entity. 
The Corporation is not aware that any of its employees or consultants is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of such
employee’s or consultant’s best efforts to promote the interest of the
Corporation or that would conflict with the Corporation’s business.  Neither the execution or delivery of the
Agreements, nor the carrying on of the Corporation’s business by the employees
or consultants of the Corporation, nor the conduct of the Corporation’s
business as proposed, will, to the Corporation’s knowledge, conflict with or
result in a breach of the terms, conditions, or provisions of, or constitute a
default under, any contract, covenant or instrument under which any such
employee or consultant is now obligated. 
The Corporation does not believe it is or will be necessary to use any
inventions of any of its employees (or persons it currently intends to hire) or
consultants made prior to their employment by, or execution of a consulting
agreement with, the Corporation.

2.31                        “Corporation’s Knowledge”
Defined

As
used in this Section 2, the terms “to the Corporation’s knowledge”, “known to
the Corporation” or similar phrases shall mean to the actual knowledge of the
officers and directors of the Corporation, after careful consideration of the
matters set forth in the representation that is so qualified and a prudent
review of all files, documents, agreements and other material in such person’s
possession or subject to his or her control.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

The
Purchaser hereby represents and warrants to the Corporation that:

3.1                               Authorization

The
Purchaser has full power and authority to enter into the Agreements. The
Agreements, when executed and delivered by the Purchaser, will constitute valid
and legally binding obligations of the Purchaser, enforceable in accordance
with their terms, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, and any other laws of
general application affecting enforcement of creditors’ rights generally, and
as limited by laws relating to the availability of a specific performance,
injunctive relief, or other equitable remedies.

3.2                               Purchase Entirely for Own
Account

This
Agreement is made with the Purchaser in reliance upon the Purchaser’s
representation to the Corporation, which by the Purchaser’s execution of this
Agreement, the Purchaser hereby confirms, that

 11
 

the
Securities to be acquired by the Purchaser will be acquired for investment for
the Purchaser’s own account, not as a nominee or agent, and not with a view to
the resale or distribution of any part thereof in violation of applicable
securities laws.  The Purchaser has not
been formed for the specific purpose of acquiring the Securities.  The Purchaser does not act jointly or in
concert with any other Purchaser for Securities for the purpose of the
acquisition of the Securities.

3.3                               Source of Funds

The
funds representing the Purchase Price which will be paid by the Purchaser to
the Corporation hereunder will not represent proceeds of crime for the purposes
of the Proceeds of Crime (Money Laundering) Act
(Canada) (the “PCMLA”) and the Purchaser acknowledges that the Corporation may
in the future be required by law to disclose the Purchaser’s name and other
information relating to this Agreement and the Purchaser’s subscription
hereunder, on a confidential basis, pursuant to the PCMLA.  To the best of its knowledge (a) none of
the subscription funds to be provided by the Purchaser (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 Purchaser, and (b) it shall promptly notify the
Corporation if the Purchaser discovers that any of such representations ceases
to be true, and to provide the Corporation with appropriate information in
connection therewith.

3.4                               Restricted Securities

The
Purchaser understands that the Securities and the common shares underlying them
(collectively the “Investment Securities”) have not been, and will not be
(other than pursuant to the Registration Rights Agreement), registered under
the Securities Act, by reason of a specific exemption from the registration
provisions of the Securities Act which depends upon, among other things, the
bona fide nature of the investment intent and the accuracy of the Purchaser’s
representations as expressed herein.  The
Purchaser understands that the Investment Securities are “restricted securities”
under applicable U.S. federal and state securities laws and that, pursuant to
these laws, the Purchaser must hold the Investment Securities indefinitely
unless they are registered with the Securities and Exchange Commission and
qualified by state authorities, or an exemption from such registration and
qualification requirements is available, or the Investment Securities are sold
on the TSX.  The Purchaser acknowledges
that the Corporation has no obligation to register or qualify the Investment
Securities for resale in the United States except as set forth in the
Registration Rights Agreement.  The
Purchaser further acknowledges that if an exemption from U.S. registration or
qualification is available, it may be conditioned on various requirements
including, but not limited to, the time and manner of sale, the holding period
for the Investment Securities, and on requirements relating to the Corporation
which are outside of the Purchaser’s control, and which the Corporation is
under no obligation and may not be able to satisfy.

3.5                               Legends

The
Purchaser understands that the Securities, and any securities issued in respect
thereof or exchange therefor, may bear one or all of the following legends securities
law purposes:

(a)                                  “THE SECURITIES
REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR
IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.  NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED
IN THE UNITED STATES WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO OR AN OPINION OF COUNSEL IN A FORM

 12
 

SATISFACTORY
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT
OF 1933.”;

(b)                                 Any legend set
forth in the other Agreements;

(c)                                  Any legend
required by the Blue Sky laws of any state to the extent such laws are
applicable to the shares represented by the certificate so legended; and

(d)                                 “Unless permitted
under securities legislation, the holder of the security shall not trade the
securities before the date that is four months and a day after the distribution
date.”.

3.6                               Accredited Investor

The
Purchaser is an accredited investor as defined in Rule 501(a) of Regulation D
promulgated under the Securities Act, and as defined in National Instrument 45-106.

3.7                               Exempt Distribution

Purchaser
acknowledges that because its subscription under this Agreement is being made
pursuant to exemptions from the prospectus and registration requirements of
applicable securities law:

(a)                                  its ability to
enforce civil liabilities under the United States federal securities laws may
be affected adversely by, among other things: (1) the fact that the Corporation
is organized under the laws of Canada; (2) some or all of its directors and its
officers may be residents of Canada, and (3) a substantial portion of the
assets of the Corporation and said persons may be located outside the United
States; and

(b)                                 the Corporation
is relieved from certain obligations that would otherwise apply under the
applicable securities laws if the exemptions were not being used.

3.8                               Tax Consequences

The
Purchaser understands that the investment in the Investment Securities may have
tax consequences under the laws of the United States and of Canada and that it
is the sole responsibility of the Purchaser to determine and assess such tax
consequences as may apply to its particular circumstances.

3.9                               Compliance With Applicable Law

Subject
to the Corporation’s compliance with its representations, warranties and
covenants hereunder, the entering into of the Agreements by the Purchaser and
the completion of the transactions contemplated hereby will not result in a
violation of any of the terms and provisions of any law applicable to it, or
any of its constating documents, or of any agreement to which the Purchaser is
a party or by which it is bound.

3.10                        No Securities Commission
Review

The
Purchaser is aware that: (a) no securities commission or similar
regulatory authority has reviewed or passed on the merits of the Investment
Securities; (b) there is no government or other insurance covering the
Investment Securities; (c) there is: (i) a four month restriction on
the Purchaser’s ability to resell the Investment Securities; and (ii) a
filing requirement for control persons, and it is the responsibility of the
Purchaser to comply with such restrictions for selling the Investment
Securities before such sale; (d) the

 13
 

Corporation
is relying on an exemption under Canadian securities laws from the requirements
as to the filing of a prospectus, to provide the Purchaser with a prospectus
and as to the delivery of an offering memorandum, as well as to sell securities
through a person or company registered to sell securities under the Securities
Act (Alberta) and, as a consequence of acquiring securities pursuant to this
exemption, certain protections, rights and remedies provided by the Securities
Act (Alberta), including statutory rights of rescission or damages, will not be
available to the Purchaser; and (e) the Corporation is relieved from
certain obligations that would otherwise apply under the applicable securities
laws if the exemption were not being used.

3.11                        Delivery of Documents

If
required by applicable securities legislation, regulations, rules, instruments,
policies or orders or by any securities commission, stock exchange or other
regulatory authority, the Purchaser will execute, deliver, file and otherwise
assist the Corporation in filing, such reports, undertakings and other documents
with respect to the issue of the Securities as may be required.

3.12                        Purchase Funds

None
of the funds the Purchaser is or will be using to purchase the Investment
Securities are or will be, to the knowledge of the Purchaser, proceeds obtained
or derived, directly or indirectly, as a result of illegal activities.

ARTICLE 4

CONDITIONS OF THE PURCHASER’S OBLIGATIONS AT CLOSING

The
obligations of the Purchaser to the Corporation under this Agreement are
subject to the fulfillment, on or before the Closing, of each of the following
conditions, unless otherwise waived by the Purchaser, which conditions are for
the Purchaser’s sole benefit and may be waived at any time in its sole
discretion by providing the Corporation prior written notice thereto:

4.1                               Representations and Warranties

The
representations and warranties of the Corporation contained in Section 2 shall
be true and correct in all material respects on and as of the Closing with the
same effect as though such representations and warranties had been made on and
as of the Closing Date.

4.2                               Performance

The
Corporation shall have performed and complied in all material respect with all
covenants, agreements, obligations and conditions contained in the Agreements
that are required to be performed or complied with by it on or before the
Closing Date.

4.3                               Compliance Certificate

The
CEO of the Corporation shall deliver to the Purchaser at the Closing a
certificate certifying that the conditions specified in Sections 4.1 and 4.2
have been fulfilled.

 14
 

4.4                               Qualifications

All
authorizations, approvals or permits, if any, of any governmental authority or
regulatory body of the Canada or United States or of any state that are
required in connection with the lawful issuance and sale of the Securities
pursuant to this Agreement shall be obtained and effective as of the Closing.

4.5                               Opinion of Corporation Counsel

The
Purchaser shall have received from Burnet, Duckworth & Palmer LLP (as to
matters relating to Canadian and Alberta law) and Preston Gates & Ellis LLP
(as to matters relating to United States law), an opinion dated as of the
Closing Date, in substantially the form of Exhibit E-1 and Exhibit E-2, as
applicable.

4.6                               Registration Rights Agreement

The
Corporation and the Purchaser shall have executed and delivered the
Registration Rights Agreement in substantially the form attached as Exhibit D.

4.7                               Material Adverse Effect

Between
the time of the execution of this Agreement and the Closing Date, (i) no
Material Adverse Effect shall occur or become known (whether or not arising in
the ordinary course of business), and (ii) no transaction which is material and
unfavorable to the Corporation shall have been entered into by the
Corporation.  As used in this Agreement, “Material
Adverse Effect” means any material adverse effect or a change to the business,
properties, assets, operations, results of operations, prospects, or condition
(financial or otherwise) of the Corporation and its subsidiaries, or on the
transactions contemplated hereby by the agreements and instruments to be
entered into in connection herewith, or on the authority or ability of the
Corporation to perform its obligations under the Agreements; provided, however,
that a Material Adverse Effect will not be deemed to have occurred unless such
effect or change or changes in aggregate relates to one or more adverse changes
from a financial point of view of at least $1,000,000 or if such effect or
change could have a material adverse effect or material adverse change to the
business of the Corporation.

4.8                               Delivery of Share Certificates

The
Corporation shall have executed and delivered certificates for the Securities
purchased by the Purchaser at the Closing.

4.9                               Filings; Authorizations

The
Corporation shall have made all filings under all applicable Canadian and
United States federal, provincial and state securities laws and the bylaws,
rules and regulations of the TSX and AMEX necessary to consummate the issuance
of the Securities pursuant to this Agreement in compliance with such laws, and
shall have obtained all authorizations, approvals and permits necessary to
consummate the transactions contemplated by the Agreements and such
authorizations, approvals and permits shall be effective as of the Closing
Date.

4.10                        No Injunctions

No
temporary restraining order, preliminary or permanent injunction or other order
or decree, and no other legal restraint or prohibition shall exist which
prevents or arguably prevents the consummation of

 15
 

the
transactions contemplated by the Agreements, nor shall any proceeding have been
commenced or threatened with respect to the foregoing.

4.11                        Legal Investment

At
the time of the Closing, the purchase of the Securities by the Purchaser
hereunder shall be legally permitted by all laws and regulations to which the
Purchaser and the Corporation are subject.

4.12                        Articles

The
Corporation shall have filed the Articles of Amendment with the Registrar of
Corporations of the Province of Alberta, Canada, in accordance with Section
1.1(b), on or prior to the Closing Date, which shall continue to be in full
force and effect as of the Closing Date.

4.13                        Secretary’s Certificate

The
Secretary of the Corporation shall deliver to the Purchaser at the Closing a
certificate certifying (i) the constating documents of the company, (ii) the
Bylaws of the Corporation, and (iii) resolutions of the Board of Directors
approving the Agreements and the transactions contemplated hereby and thereby.

4.14                        Proceedings and Documents

All
corporate and other proceedings in connection with the transactions
contemplated at the Closing and all documents incident thereto shall be
reasonably satisfactory in form and substance to the Purchaser, and Purchaser
(or their counsel) shall have received all such counterpart original and
certified or other copies of such documents as reasonably requested.  Such documents may include good standing
certificates.

4.15                        Stock Exchange Approvals re:
Common Shares

The
common shares underlying the Securities (the “Subject Securities”) shall have
been conditionally approved for listing on the TSX and AMEX and the TSX and
American Stock Exchange shall have confirmed in writing that the Subject
Securities will be posted or listed for trading on the TSX and American Stock
Exchange as of the Closing Date, subject to satisfaction of usual conditions.

ARTICLE 5

CONDITIONS OF THE CORPORATION’S OBLIGATIONS AT CLOSING

The
obligations of the Corporation to the Purchaser under this Agreement are
subject to the fulfillment, on or before the Closing, of each of the following
conditions, unless otherwise waived:

5.1                               Representations and Warranties

The
representations and warranties of the Purchaser contained in Article 3
shall be true and correct in all material respects on and as of the Closing
Date with the same effect as though such representations and warranties had
been made on and as of the Closing Date.

5.2                               Performance

All
covenants, agreements and conditions contained in this Agreement to be
performed by the Purchaser on or prior to the Closing Date shall have been
performed or complied with in all material respects.

 16
 

5.3                               Compliance Certificate

The
CEO of the Purchaser shall deliver to the Corporation at the Closing a
certificate certifying that the conditions specified in Sections 5.1 and 5.2
have been fulfilled.

5.4                               Qualifications

All
authorizations, approvals or permits, if any, of any governmental authority or
regulatory body of the Canada, United States or of any province or state that
are required in connection with the lawful issuance and sale of the Securities
pursuant to this Agreement shall be obtained and effective as of the Closing.

5.5                               No Injunctions

No
temporary restraining order, preliminary or permanent injunction or other order
or decree, and no other legal restraint or prohibition shall exist which
prevents the consummation of the transactions contemplated by the Agreements.

5.6                               Legal Investment

At
the time of the Closing, the purchase of the Securities by the Purchaser
hereunder shall be legally permitted by all laws and regulations to which the
Purchaser and the Corporation are subject.

ARTICLE 6

INDEMNIFICATION

6.1                               Indemnification by the
Corporation

Subject
to section 7.1 hereof, in consideration of the Purchaser’s execution and
delivery of this Agreement and acquiring the Securities hereunder and in
addition to all of the Corporation’s other obligations under the Agreements,
the Corporation shall defend, protect, indemnify and hold harmless the
Purchaser and all of its officers, directors, employees and any of the
foregoing persons’ representatives (including, without limitation, those retained
in connection with the transactions contemplated by this Agreement)
(collectively, the “Purchaser Indemnitees”) from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith, and including
reasonable fees of legal counsel and disbursements (collectively, “Claims”),
incurred by any Purchaser Indemnitee as a result of, or arising out of, or
relating to (a) any misrepresentation or breach of any representation or
warranty made by the Corporation herein, (b) any breach of any covenant,
agreement or obligation of the Corporation herein (other than due to the
material breach hereof by the Purchaser), and (c) any cause of action, suit or
claim brought or made against such Purchaser Indemnitee and arising out of or
resulting from the execution, delivery, performance or enforcement of any of
the Agreements or any other certificate, instrument or document contemplated
hereby or thereby.  To the extent that
the foregoing undertaking by the Corporation may be unenforceable for any
reason, the Corporation shall make the maximum contribution to the payment and
satisfaction of each of the Claims which is permissible under applicable law.

6.2                               Indemnity by Purchaser

Subject
to Section 7.1, the Purchaser agrees to indemnify and hold harmless the
Corporation and its directors, officers, employees, agents and advisers (“Corporate
Indemnitees”) (the Purchaser Indemnitees and Corporate Indemnitees each an “Indemnitee”)
from and against any and all loss, liability, claim, damage and expense
whatsoever (including, but not limited to, any and all fees, costs and expenses

 17
 

whatsoever
reasonably incurred in investigating, preparing or defending against any claim,
law suit, administrative proceeding or investigation whether commenced or
threatened) arising out of or based upon any representation or warranty of the
Purchaser contained herein or in any document furnished by the Purchaser to the
Corporation in connection herewith being untrue in any material respect or any
breach or failure by the Purchaser to comply with any covenant or agreement
made by the Purchaser herein or in any document furnished by the Purchaser to
the Corporation in connection herewith.

6.3                               Procedures for Indemnification

Promptly
after an Indemnitee has knowledge of any Claim as to which such Indemnitee
reasonably believes indemnity may be sought or promptly after such Indemnitee
receives notice of the commencement of any action or proceeding (including any
governmental action or proceeding) involving a Claim, such Indemnitee shall, if
a Claim in respect thereof is to be made against a party providing an indemnity
(“Indemnitor”) under this Article 6 deliver to the Indemnitor a written
notice of such Claim, and the Indemnitor shall have the right to participate
in, and, to the extent the Indemnitor so desires, to assume control of the
defense thereof with counsel mutually satisfactory to the Indemnitor and the
Indemnitee; provided, however, that an Indemnitee shall have the right to
retain its own counsel if, in the reasonable opinion of counsel retained by the
Indemnitor, the representation by such counsel of the Indemnitee and the
Indemnitor would be inappropriate due to actual or potential differing
interests between such Indemnitee and the Indemnitor; provided, further, that
the Indemnitor shall not be responsible for the reasonable fees and expense of
more than one (1) separate legal counsel for such Indemnitee.  The Indemnitee shall cooperate fully with the
Indemnitor in connection with any negotiation or defense of any such action or
Claim by the Indemnitor and shall furnish to the Indemnitor all information
reasonably available to the Indemnitee which relates to such action or Claim.  The Indemnitor shall keep the Indemnitee
fully apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto.  The
Indemnitor shall not be liable for any settlement of any Claim effected without
its prior written consent; provided, however, that the Indemnitor shall not
unreasonably withhold, delay or condition its consent.  The Indemnitor shall not, without the prior
written consent of the Indemnitee, consent to entry of any judgment or enter
into any settlement or other compromise which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnitee of a full release from all liability in respect to such Claim and
action and proceeding.  After
indemnification as provided for under this Agreement, the rights of the
Indemnitor shall be subrogated to all rights of the Indemnitee with respect to
all third parties, firms or corporations relating to the matter for which
indemnification has been made.  The
failure to deliver written notice to the Indemnitor as provided in this
Agreement shall not relieve the Indemnitor of any liability to the Indemnitee
under this Article 6 except to the extent that the Indemnitor is
prejudiced in its ability to defend such action.

ARTICLE 7

MISCELLANEOUS

7.1                               Survival

The
representations, warranties, covenants and agreements made herein shall survive
the execution of this Agreement and the Closing of the transactions
contemplated hereby, notwithstanding any investigation made by the Purchaser.  No claim against the party making any
representations and warranties under Article 2 or Article 3 in
respect of a breach of any such representations and warranties shall be made or
be enforceable, whether by legal proceeding or otherwise, unless written notice
of such claim is given to such party by the party for whose benefit such
representations and warranties were given within one (1) year from the Closing
Date, except for the representations set forth in Sections 2.1 through and
including Section 2.6, which shall survive indefinitely.  All statements as to factual matters
contained in any certificate, exhibit or other instrument delivered by or on
behalf of the Corporation pursuant hereto or in

 18
 

connection
with the transactions contemplated hereby shall be deemed to be the representations
and warranties of the Corporation, as of the date of such certificate or
instrument.

7.2                               Governing Law

This
Agreement and all acts and transactions pursuant hereto and the rights and
obligations of the parties hereto shall be governed, construed and interpreted
in accordance with the laws of the Province of Alberta, and federal laws of
Canada without giving effect to principles of conflicts of law.

7.3                               Counterparts

This
Agreement may be executed in two or more counterparts, each of which shall be deemed
an original and all of which together shall constitute one instrument.  A signed counterpart provided by way of
facsimile transmission shall be as binding upon the parties as an originally
signed counterpart.

7.4                               Construction

The
titles and subtitles of this Agreement are intended for reference only and
shall not by themselves determine the construction or interpretation of this
Agreement.  This Agreement and the
provisions contained herein and the exhibits hereto shall not be construed or
interpreted for or against any party to this Agreement because said party
drafted or caused the party’s legal representative to draft any of its
provisions.  The Corporation has been
represented by legal counsel in connection with the drafting and negotiation of
this Agreement.  The language of this
Agreement shall be construed as to its fair meaning.

7.5                               Notices

Any
notice required or permitted by this Agreement shall be in writing and shall be
deemed sufficient upon delivery, when delivered personally or by overnight
courier or sent by fax (upon customary confirmation of receipt), or 3 business
days after being deposited in the mail, as certified or registered mail, with
postage prepaid, addressed to the party to be notified at such party’s address
as set forth below:

(a)                                  if to the
Corporation:

Canadian
Superior Energy Inc.

3300, 400 – 3rd Avenue
SW

Calgary, Alberta

Canada  T2P 4H2

Attention:      Gregory S. Noval

Fax:               (403)
216-2374

(b)                                 if to the
Purchaser:

West
Coast Opportunity Fund, LLC.

c/o West Coast Asset Management, Inc.

295, Alessandra Drive, Suite 100

Ventura, California

USA 93001

Attention:      Atticus Lowe

Fax:               (805)
648-6466

 19

 

A
party may from time to time change its address for notice by giving written
notice in accordance with the foregoing provision.

7.6                               Finder’s Fee

Each
party represents that it neither is nor will be obligated for any finder’s fee
or commission in connection with this transaction.  The Purchaser agrees to indemnify and to hold
harmless the Corporation from any liability for any commission or compensation
in the nature of a finder’s fee (and the costs and expenses of defending
against such liability or asserted liability) for which the Purchaser or any of
its officers, employees, or representatives is responsible.  The Corporation agrees to indemnify and hold
harmless the Purchaser from any liability for any commission or compensation in
the nature of a finder’s fee (and the costs and expenses of defending against
such liability or asserted liability) for which the Corporation or any of its
officers, employees or representatives is responsible.

7.7                               Currency

Unless
otherwise specifically indicated herein, all references to dollar amounts are
to Canadian dollars.

7.8                               Amendments and Waivers

Any
term of this Agreement may be amended or waived only with the written agreement
of the Corporation and the Purchaser.

7.9                               Severability

If
one or more provisions of this Agreement are held to be invalid, illegal or
unenforceable under applicable law in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any
way be affected or impaired thereby.

7.10                        Delays or Omissions

No
delay or omission to exercise any right, power or remedy accruing to any party
under this Agreement, upon any breach or default of any other party under this
Agreement, shall impair any such right, power or remedy of such non-breaching
or non-defaulting party nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach
or default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring.  Any waiver,
permit, consent or approval of any kind or character on the part of any party
of any breach or default under this Agreement, or any waiver on the part of any
party of any provisions or conditions of this Agreement, must be in writing and
shall be effective only to the extent specifically set forth in such
writing.  All remedies, either under this
Agreement or by law or otherwise afforded to any party, shall be cumulative and
not alternative.

7.11                        Dispute Resolution

Any
matter upon which the parties do not agree may be referred by either party to
arbitration pursuant to the terms hereof, and the arbitration shall be before a
single arbitrator.  Any such arbitration,
including the selection of the arbitrator, shall be governed by the Arbitration Act (Alberta).  The decision of the arbitrator shall be final
and binding on the parties and the costs and fees relating thereto shall be
borne by the parties in the manner the arbitrator determines to be equitable.

 20
 

 

7.12                        Entire Agreement

This
Agreement, and the documents referred to herein constitute the entire agreement
between the parties hereto pertaining to the subject matter hereof, and any and
all other written or oral agreements relating to the subject matter hereof
existing between the parties hereto are expressly cancelled.

The
parties have executed this Preferred Share Unit Purchase Agreement as of the
date first written above.

	
  CANADIAN SUPERIOR ENERGY INC.

  	
   

  	
  WEST COAST OPPORTUNITY FUND, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By   West
  Coast Asset Management, Inc.,

  managing member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Per:

  	
  /s/ Gregory S.
  Noval

  	
   

  	
   

  	
  Per:

  	
  /s/ Atticus Lowe

  	
   

  
	
   

  	
  Gregory S. Noval

  President and Chief Executive Officer

  	
   

  	
   

  	
  Atticus Lowe

  Vice President

  
							

 

 21

 

DISCLOSURE
SCHEDULE

This Disclosure Schedule is given pursuant to Article 2 of the Unit
Purchase Agreement attached hereto (the “Agreement).  The schedule numbers in this Disclosure
Schedule correspond to the section numbers in the Agreement.  Any information disclosed under any section
number in this Disclosure Schedule shall not be deemed disclosed under and
incorporated into any other section number unless specifically cross referenced
to such section under the Agreement where such disclosure would be appropriate.  Terms defined in the Agreement have the same
meaning when used in the Disclosure Schedule unless the context otherwise
requires.

 

EXHIBITS

	
  Exhibit A -

  	
  Schedule of Purchaser

  
	
   

  	
   

  
	
  Exhibit B -

  	
  Form of Amended and Restated Articles of Amalgamation

  
	
   

  	
   

  
	
  Exhibit C -

  	
  Form of Warrant

  
	
   

  	
   

  
	
  Exhibit D -

  	
  Form of Registration Rights Agreement

  
	
   

  	
   

  
	
  Exhibit E - 1

  	
  Form of Legal Opinion of with respect to Alberta law

  
	
   

  	
   

  
	
  Exhibit E - 2

  	
  Form of Legal Opinion of U.S. Corporate Counsel

  

 

 

EXHIBIT A

SCHEDULE
OF PURCHASER

	
  Purchaser

  	
   

  	
  Total Number of Units

  to be Purchased

  	
   

  	
  Purchase Price 

  (US Dollars)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  West Coast Opportunity Fund, LLC

  	
   

  	
  15,000

  	
   

  	
  $15,000,000

  	
   

  

 

 

EXHIBIT B

ARTICLES OF AMENDMENT

Business
Corporations Act

(Alberta)

Section 29 or 177

	
  1.

  	
  Name of
  Corporation:

  	
  2.

  	
  Corporate Access Number:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Canadian
  Superior Energy Inc.

  	
   

  	
  202972725

  
	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  THE ARTICLES OF THE ABOVE-NAMED CORPORATION ARE
  AMENDED AS FOLLOWS:

  
	
   

  	
   

  
	
   

  	
  Pursuant to Section 29 of the Business Corporations
  Act (Alberta), the Corporation shall issue a series of First Preferred Shares
  being Series A, having attached thereto the rights, privileges, restrictions
  and conditions as set out in the Shares in Series Schedule attached hereto.

  

 

	
  Michael Coolen

  	
   

  	
   

  
	
  Name of Person Authorizing (please print)

  	
   

  	
  Signature

  
	
   

  	
   

  	
   

  
	
  Vice President, East Coast Operations

  	
   

  	
  January 31, 2006

  
	
  Title (please print)

  	
   

  	
  Date

  

 

This information
is being collected for purposes of corporate registry records in accordance
with the Business Corporations Act. 
Questions about the collection of this information can be directed to
the Freedom of Information and Protection of Privacy Co-ordinator for Alberta
Registries, Research and Program Support, 3rd Floor, Commerce Place, 10155 – 102 Street,
Edmonton, Alberta T5J 4L4, (780) 422-7330.

 

SECTION 29 SCHEDULE

The
US $100.00 5% Cumulative Redeemable Convertible Preferred Shares of the
Corporation shall consist of One Hundred and Fifty Thousand (150,000) shares,
shall be designated as First Preferred Shares, Series A (the “First
Preferred Shares, Series A”) and, in addition to the rights, privileges,
restrictions and conditions attached to the First Preferred Shares as a class,
shall have attached thereto the following rights, privileges, restrictions and
conditions:

1.00                        INTERPRETATION

1.01        In these provisions, unless the context otherwise
requires:

(a)           “accrued and unpaid dividends” means, at any
particular date, dividends accrued to and including such date pursuant to
Article 2.00 which have not then been paid, whether or not declared by the
Board of Directors;

(b)           “applicable law” means the law applicable to the
Corporation, including the Business
Corporations Act (Alberta) and any successor statute, as the same
may from time to time be in force;

(c)           “Business Day” means a day other than a Saturday, a
Sunday or any other day that is treated as a statutory holiday in the
jurisdiction in which the Corporation’s registered office is located;

(d)           “Certificate” means a certificate of the Corporation signed
by any two of the President, a Vice-President or the Secretary of the
Corporation and may consist of one or more instruments so executed;

(e)           “Common Shares” means common shares of the Corporation
as such shares were constituted on December 29, 2005 or as subsequently
consolidated or subdivided and any other shares resulting from the
reclassification or change of such Common Shares or other capital
reorganization or amalgamation, consolidation, merger or sale, all as referred
to in Sections 5.04 and 5.10;

(f)            “Current Conversion Basis” means the number of Common
Shares into which each First Preferred Share, Series A is convertible,
which number at any particular time is equal to the result obtained (expressed
to the second decimal place rounded upwards) by dividing US $100.00 by the
Current Conversion Price;

(g)           “Current Conversion Price” means US $2.50 per
Common Share subject to adjustment as hereinafter provided, regardless of the
Common Share price in effect at the time of such adjustment provided that such
price shall always be expressed to one-tenth of one cent, rounded
upwards;

(h)           “Current Market Price” means, as at any date when the
Current Market Price is to be determined, the weighted average price per Common
Share at which board lots of the Common Shares have been traded on the Exchange
for at least 20 trading days in any consecutive 30 day period,
ending  three trading days prior to such
date.  In the event the Common Shares are
not listed on the Exchange but are listed on another stock exchange or stock
exchanges in Canada, any references to such other stock exchange,

 B-2
 

 

or, if more than one, is to such one as shall be
designated by the Board of Directors.  In
the event Common Shares are not so traded on any stock exchange in Canada, the
Current Market Price thereof shall be determined by the Board of Directors;

(i)                                     “Dividend Payment Date” means the last day of March,
June, September and December in each year commencing on the Initial Payment
Date;

(j)                                     “Exchange” means the American Stock Exchange;

(k)                                  “Initial Dividend Rate” means 5%, multiplied by the
number of days from the date of issue to the Initial Payment Date, divided by
365;

(l)                                     “Initial Payment Date” means March 31, 2006;

(m)                               “Quarterly Dividend Rate” means, in respect of any
Dividend Payment Date, 1.25%; and

(n)                                 “Stated Value” means US $100.00 provided that for
the purposes of Article 2.00 in the event that any amount of dividends accrued
on a First Preferred Shares, Series A to a particular Dividend Payment
Date is not paid on such date, for the purpose of calculating the amount of
dividends accruing after such Dividend Payment Date, Stated Value shall be the
aggregate of US $100.00 and the amount of accrued and unpaid dividends on
such Dividend Payment Date until such accrued and unpaid dividends are paid.

1.02        In the event that any day on which any dividend on
First Preferred Shares, Series A is payable by the Corporation, or on or
by which any other action is required to be taken by the Corporation hereunder,
is not a Business Day, then such dividend shall be payable, or such other
actions shall be required to be taken, on or by the next succeeding day that is
a Business Day.

2.00                        DIVIDENDS

2.01        The holders of First Preferred Shares, Series A
shall be entitled to receive, and the Corporation shall pay on each First
Preferred Shares, Series A as and when declared by the Board of Directors
out of the assets of the Corporation properly applicable to the payment of
dividends, cumulative preferential cash dividends on:

(i)                                     the Initial Payment Date in an amount per share equal
to the Initial Dividend Rate multiplied by the Stated Value; and

(ii)                                  each of the Dividend Payment Dates in an amount per
share equal to the Quarterly Dividend Rate multiplied by the Stated Value;

provided
that for and restricted to the 150 day period after December 30,
2010, the dividend rate on outstanding First Preferred Shares, Series A
shall be increased by 1/30 of 1% per day.

In
any case where dividends are to be calculated for a period (the “Dividend
Payment Period”) that ends on a date other than the Initial Payment Date or a
Dividend Payment Date, the daily rate at which such dividends shall accrue
shall be an amount per share equal to (i) 5% multiplied by the Stated Value; multiplied by
(ii) the result obtained when the number of days in such Dividend Payment
Period is divided by 365 and adjusted with respect to the immediately preceding
proviso.

 B-3
 

 

2.02        If on any date on which dividends are to be paid the
dividends payable on such date are not paid in full on the First Preferred
Shares, Series A then issued and outstanding, such dividends, or the
unpaid part thereof, shall be paid on a subsequent date or dates determined by
the Board of Directors on which the Corporation shall have sufficient monies
properly applicable to the payment of such dividends and in priority to
dividends on the Common Shares and on all other shares ranking junior to the
First Preferred Shares, Series A with respect to the payment of
dividends.  The holders of First
Preferred Shares, Series A shall not be entitled to any dividend other
than or in excess of the cumulative preferential cash dividends herein provided
for.

2.03        Subject to Section 2.04, dividends (less any tax
required to be withheld by the Corporation) on the First Preferred Shares,
Series A shall be paid by cheque payable in lawful money of the United
States at par or by any other reasonable means that the Corporation deems
desirable.  The mailing of such cheque
from the Corporation’s registered office, or the payment by such other
reasonable means as may herein be permitted or which the Corporation deems
desirable, on or before the date on which such dividend is to be paid to a
holder of First Preferred Shares, Series A shall be deemed to be payment
of the dividends represented thereby and payable on such date unless the cheque is not paid upon presentation
or payment by such other means is
not received.  Dividends which are
represented by a cheque which has not been presented to the Corporation’s
bankers for payment or that otherwise remain unclaimed within six years after
the date on which they were declared to be payable shall be forfeited to the
Corporation.

2.04        The Corporation may elect from time to time, to
satisfy its dividend payment obligation on any Dividend Payment Date entirely
or in part by delivering Common Shares to the holders of First Preferred
Shares, Series A within five days of the Dividend Payment Date.  The number of Common Shares issuable, if and
when so determined by the Board of Directors of the Corporation, shall be equal
to 115% of the Quarterly Dividend Rate multiplied by the Stated Value divided
by the Current Market Price, less any amount to be paid in cash, calculated on
a per share basis.  In the event that the
aggregate dividend payable to any holder shall result in a fraction of a Common
Share, the Corporation shall adjust such fractional interest by rounding up
such fraction to the next whole number of Common Shares.  Any Common Shares issued by way of dividends
shall be approved for listing on the Exchange.

3.00                        REDEMPTION

3.01        Subject to applicable law and Article 8.00, the
Corporation may redeem during the time periods specified below, provided the
Corporation has, or has caused drilling operations to be completed on at least
one well on Block C in Trinidad and Tobago, or such later date as drilling
operations have been completed on at least one well in Block C in Trinidad and
Tobago, the whole or any part of the First Preferred Shares, Series A if
the Corporation shall have filed with the transfer agent for the First
Preferred Shares, Series A if any, or if there is no transfer agent for
such shares at any such time, shall have given to the holders of First
Preferred Shares, Series A, on the day that the requisite notice of
redemption is given, a Certificate certifying that the Current Market Price
prior to the date on which notice of redemption is given hereunder, was not
less than the percentage specified below of the Current Conversion Price in
effect on the date of filing or giving of such Certificate, on payment of the
Stated Value per First Preferred Shares, Series A to be redeemed, together
with an amount equal to all accrued and unpaid dividends to the date fixed for
redemption (the whole amount being herein referred to as the “redemption price”):

 B-4
 

 

 

	
  Period

  	
   

  	
  Percentage of Current

  Conversion Price

  Premium

  	
   

  	
  Redemption

  	
   

  
	
  December 30, 2007 to December 30, 2010

  	
   

  	
  125

  	
  %

  	
  US $100.00

  	
   

  

Subject to applicable law, on
and after December 30, 2010, the Corporation must redeem, at any time or
from time to time, the whole or any part of the First Preferred Shares,
Series A on payment for each such share to be redeemed of the Stated Value
together with an amount equal to all accrued and unpaid dividends to the date
fixed for redemption (the whole amount being herein referred to as the “redemption
price”).

In case only a part of the then outstanding First Preferred Shares,
Series A are at any time to be redeemed, the shares so to be redeemed
shall be redeemed pro rata, excluding fractions, from the holdings of all shareholders of First Preferred
Shares, Series A or in such other manner as the Board of Directors deems
reasonable.

3.02        On any redemption of First Preferred Shares,
Series A under this Article 3.00, the Corporation shall give, in the
manner provided in Article 13.00 and at least 30 days and not more than 60 days
before the date fixed for redemption, a notice in writing of the intention of
the Corporation to redeem First Preferred Shares, Series A to each person
who at the date of giving of such notice is a registered holder of First
Preferred Shares, Series A to be redeemed. 
Such notice shall set out the calculation of the redemption price, the
date fixed for redemption and, unless all the First Preferred Shares,
Series A held by the holder to whom it is addressed are to be redeemed,
the number of such shares so held which are to be redeemed.

3.03        The redemption price (less any tax required to be
withheld by the Corporation) shall be paid by cheque payable in lawful money of
the United States or by such other reasonable means as the Corporation deems
desirable.  The mailing of such cheque
from the Corporation’s registered office, or the payment by such other
reasonable means as the Corporation deems desirable, on or before the date
fixed for redemption shall be deemed to be payment of the redemption price
represented thereby on such date fixed for redemption unless the cheque is not
paid upon presentation or payment by such other means is not received.  Notwithstanding the foregoing, the
Corporation shall be entitled to require at any time, and from time to time,
that the redemption price be paid to holders of First Preferred Shares,
Series A only upon presentation and surrender at the head office of the
Corporation or at any other place or places within Canada designated by the
notice of redemption of the certificate or certificates for such First
Preferred Shares, Series A to be redeemed.

3.04        If a part only of the First Preferred Shares,
Series A represented by any certificate are to be redeemed, a new certificate
for the balance shall be issued at the expense of the Corporation.

3.05        At any time after notice of redemption is given, the
Corporation shall have the right to irrevocably deposit the redemption price of
any or all First Preferred Shares, Series A to be redeemed with any
chartered bank or banks or with any trust company or trust companies in Canada
named for such purpose in the notice of redemption to the credit of a special
account or accounts in trust for the respective holders of such shares, to be
paid to them respectively upon surrender to such bank or banks or trust company
or trust companies of the certificate or certificates representing the First
Preferred Shares, Series A to be redeemed. 
Upon such deposit or deposits being made or upon the date fixed for
redemption, whichever is later, the

 B-5
 

 

shares in respect of which such deposit has been made
shall be and be deemed to be redeemed and the rights of the holders of such
shares shall be limited to receiving, without interest, the proportion of the
amount so deposited applicable to their respective shares.  Any interest allowed on such deposit or
deposits shall accrue to the Corporation.

3.06        Any cheque representing payment of redemption price
not presented to the Corporation’s bankers for payment, or any money so set
aside and not claimed by or paid to the holders of First Preferred Shares,
Series A entitled thereto, within six years after the date fixed for
redemption shall be forfeited to the Corporation

3.07        From and after the date fixed for redemption, the
First Preferred Shares, Series A called for redemption shall cease to be
entitled to dividends and the holders thereof shall not be entitled to exercise
any of the rights of shareholders in respect thereof unless payment of the redemption
price shall not be duly made by the Corporation.

3.08        First Preferred Shares, Series A which are
redeemed or deemed to be redeemed in accordance with this Article 3.00 shall,
subject to applicable law, be and be deemed to be cancelled and shall not be
reissued.

4.00                        RETRACTION

4.01        Subject to applicable law, on the earlier of (i)
December 30, 2010, or (ii) upon the occurrence of a takeover of the
Corporation resulting in the Common Shares no longer being publicly-traded,
each registered holder of First Preferred Shares, Series A shall be
entitled to require the Corporation to retract any First Preferred Shares,
Series A tendered as hereinafter provided at a price per share equal to
the Stated Value, together with all accrued and unpaid dividends thereon up to
the retraction date, (the whole amount being herein referred to as the “retraction
price”) the whole subject to the provisions which follow.  A holder of First Preferred Shares,
Series A wishing to exercise the retraction privilege must complete and
duly execute the retraction form on the certificate(s) representing the First
Preferred Shares, Series A which the holder elects to have so purchased
and deposit such certificate(s) representing
First Preferred Shares, Series A which the holder elects to have so
purchased not later than 30 days immediately before the date on which the
holder wishes to exercise the retraction privilege (being herein referred to as
the “retraction date”) with the Secretary of the Corporation, the
registrar of the First Preferred Shares, Series A or any other place
designated by the Corporation in the retraction form, whereupon the deposit
will be irrevocable except in the event that the Corporation otherwise agrees or to the extent that the Corporation
fails to retract the shares in respect of which the deposit was made on or
before the retraction date.

If at any time more First Preferred Shares, Series A are tendered
pursuant hereto for retraction than the Corporation is obligated pursuant
hereto to retract or than are permitted to be retracted pursuant to the terms
of any instruments of indebtedness of the Corporation or applicable law, the
Corporation shall retract the maximum number of First Preferred Shares,
Series A it may retract within such limitations and the shares so to be
retracted shall be retracted pro rata, excluding fractions, from the holdings
of all shareholders of First Preferred Shares, Series A who have tendered
shares for retraction or in such other manner as the Board of Directors deems
reasonable.  Thereafter, the Corporation
shall retract, on each succeeding Dividend Payment Date, on the same basis, the
maximum number of First Preferred Shares, Series A as it is then permitted
to retract (disregarding fractions) until all First Preferred Shares, Series A
tendered for retraction and not withdrawn therefrom shall have been retracted.

 B-6
 

 

4.02        The retraction price (less any tax required to be
withheld by the Corporation) shall be paid by cheque payable in lawful money of
the United States at par.  The mailing of
such cheque from the Corporation’s registered office, or the payment by such
other reasonable means as the Corporation deems desirable, on or before the
retraction date, shall be deemed to be payment of the retraction price on the
retraction date unless the cheque is not paid upon presentation or payment by
such other means is not received.

4.03        If part only of the First Preferred Shares,
Series A represented by any certificate are to be retracted, a new
certificate for the balance shall be issued at the expense of the Corporation.

4.04        Any cheque representing payment of the retraction
price not presented to the Corporation’s bankers for payment or otherwise not
claimed within the six years after the retraction date shall be forfeited to
the Corporation.

4.05        From and after the retraction date, the First
Preferred Shares, Series A retracted shall cease to be entitled to
dividends and the holders thereof shall not be entitled to exercise any of the
rights of shareholders in respect thereof unless payment of the retraction
price shall not be duly made by the Corporation.

4.06        First Preferred Shares, Series A which are
retracted or deemed to be retracted in accordance with this Article 4.00 shall,
subject to applicable law, be and be deemed to be cancelled and shall not be
reissued.

5.00                        CONVERSION PRIVILEGE

5.01        A holder of First Preferred Shares, Series A has
the right, at the holder’s option, at any time, or, in the case such shares are
called for redemption, on or prior to 4:30 p.m. (Calgary time) on the third business
day prior to the date fixed for redemption, if any, to convert, subject to the
terms and provisions hereof, such First Preferred Shares, Series A into
fully paid and non-assessable Common Shares at the Current Conversion
Basis.  Should payment of the redemption
price of First Preferred Shares, Series A which have been called for
redemption not be paid on surrender of the certificate for such First Preferred
Shares, Series A, the right of conversion shall revive and continue from
the time of the failure to pay as if such First Preferred Shares, Series A
had not been called for redemption.

5.02        The conversion of First Preferred Shares,
Series A may be effected by the surrender of the certificate or
certificates representing the same at any time during usual business hours at
any office of any transfer agent of the Corporation at which the First
Preferred Shares, Series A are transferable, accompanied by a written
instrument of surrender duly executed by the registered holder, or the holder’s
attorney duly authorized in writing, in which instrument such holder may also
elect to convert:

(a)                                  part only of the First Preferred Shares, Series A
represented by such certificate or certificates, in which event such holder
shall be entitled to receive, at the expense of the Corporation, a new
certificate representing the First Preferred Shares, Series A represented
by such certificate or certificates which have not yet been converted; or

(b)                                 the First Preferred Shares, Series A, or part
thereof, represented by such certificate or certificates theretofore called for
redemption, in which event on the date specified for the redemption of such
First Preferred Shares, Series A such holder shall be entitled to payment
of the redemption price of the First Preferred Shares, Series A
represented by

 B-7
 

 

such certificate or certificates which have been
called for redemption and which have not been converted, and to receive, at the
expense of the Corporation, a certificate representing First Preferred Shares,
Series A represented by such certificate or certificates which have been
neither converted nor redeemed.

Upon
the surrender of any First Preferred Shares, Series A for conversion, the
Corporation shall issue and deliver, or cause to be delivered to, within five
days thereof, upon the written order of the holder of the First Preferred
Shares, Series A so surrendered, a certificate or certificates issued in
the name of, or in such name or names as may be directed by, such holder
representing the number of Common Shares to which such holder is entitled
together with a payment by cheque in respect of any fraction of a Common Share
otherwise issuable on such conversion as provided in Section 5.08.  Such conversion shall be deemed to have been
made at the close of business on the date such First Preferred Shares,
Series A shall have been surrendered for conversion, so that the rights of
the holder of such First Preferred Shares, Series A, as the holder
thereof, shall cease at such time and the person or persons entitled to receive
Common Shares upon such conversion shall be treated for all purposes as having
become the holder or holders of record of such Common Shares at such time and
such conversion shall be on the Current Conversion Basis as at such time.

5.03        The registered holder of any First Preferred Shares,
Series A on the record date for any dividend declared payable on such
shares shall be entitled to such dividend notwithstanding that such shares are
converted after such record date and before the payment date of such dividend
and the registered holder of any Common Share resulting from any conversion
shall be entitled to rank equally with the registered holders of all other
Common Shares in respect of all dividends declared payable to holders of Common
Shares of record on any date after the date of conversion.  Subject to the foregoing and to the
provisions hereof, upon the conversion of First Preferred Shares, Series A
the Corporation shall make no other payment or other adjustment on account of
any dividends on the First Preferred Shares, Series A so converted or on
account of the dividends on the Common Shares issuable upon such conversion.

5.04        The Current Conversion Price shall be subject to
adjustment from time to time as follows:

(a)                                  If, at any time after the issuance of the First
Preferred Shares, Series A, the Corporation shall:

(i)                                     subdivide, redivide or change its outstanding Common
Shares into a greater number of shares;

(ii)                                  reduce, combine or consolidate its outstanding Common
Shares into a smaller number of shares; or

(iii)                               issue Common Shares (or securities convertible or
exchangeable into Common Shares) to the holders of any of its outstanding
Common Shares by way of a stock dividend (other than an issue of Common Shares
to holders of Common Shares who exercise an option to receive stock dividends
in lieu of cash dividends);

the Current Conversion Price in effect immediately after such
subdivision, redivision, change, reduction, combination or consolidation or
such issue of Common Shares (or securities convertible or exchangeable into
Common Shares) by way of a stock dividend

 B-8
 

 

becomes effective or is paid, as the case may be, shall, in the case of
the events referred to in (i) and (iii), be decreased in the same proportion to
the increase in the number of outstanding Common Shares resulting from such
subdivision, redivision or change or such dividend (including, in the case
where securities convertible or exchangeable into Common Shares, are issued,
the number of Common Shares that would have been outstanding had such securities
been converted or exchanged into Common Shares on such date of issuance
thereof), or, in the case of (ii), shall be increased in the same proportion to
the decrease in the number of outstanding Common Shares resulting from such
combination or consolidation; such adjustment shall be made successively
whenever any event referred to in this paragraph 5.04(a) shall occur, any
such issue of Common Shares (or securities convertible or exchangeable into
Common Shares) by way of stock dividend referred to in (iii) above shall be
deemed to have been made on the date the stock dividend is paid for the purpose
of calculating the number of outstanding Common Shares under this Section 5.04
and to the extent that any such securities convertible or exchangeable into
Common Shares are not converted into Common Shares prior to the expiration of
the conversion right contained in such securities, the Conversion Price shall
be re-adjusted, effective as of the date of such expiration, to the
Conversion Price which would then be in effect based upon the number of Common
Shares actually issued on the exercise of such conversion right;

(b)                                 If, at any time after the issuance of the First
Preferred Shares, Series A, the Corporation shall fix a record date for
the issuance of rights, options or warrants to all or substantially all of the
holders of its outstanding Common Shares entitling them to subscribe for or
purchase Common Shares (or securities convertible or exchangeable into Common
Shares) at a price per share (or having a conversion or exchange price per
share) less than 90% of the Current Market Price on such record date the Current Conversion Price shall be
adjusted immediately after such record date so that it shall equal a price
determined by multiplying the Current Conversion Price in effect immediately
before such record date by a fraction, of which the numerator shall be the
total number of Common Shares outstanding on such record date plus a number of
Common Shares equal to the number arrived at by dividing the aggregate price of
the total number of additional Common Shares offered for subscription or
purchase (or the aggregate conversion or exchange price of the convertible or
exchangeable securities so offered) by the Current Market Price, and of which
the denominator shall be the total number of Common Shares outstanding on such
record date or date of entering into such agreement plus the total number of
additional Common Shares offered for subscription or purchase (or into which
the convertible or exchangeable securities so offered are convertible or
exchangeable); any Common Shares owned by or held for the account of the
Corporation shall be deemed not to be outstanding for the purpose of any such
computation; such adjustment shall be made successively whenever such record
date is fixed or agreement entered into; if all such rights, options, warrants
or rights, to acquire Common Shares or convertible or exchangeable securities
are not exercised prior to the expiration thereof, the Current Conversion Price
shall be readjusted, effective as of the date of such expiration, to the
Current Conversion Price which would then be in effect based upon the number of
Common Shares (or securities convertible or exchangeable into Common Shares)
actually delivered upon the exercise of such rights, options, warrants or
rights as the case may be;

(c)                                  If, at any time after the issuance of the First
Preferred Shares, Series A, the Corporation shall fix a record date for
the making of a distribution to all or substantially all the holders of its
outstanding Common Shares of:

 B-9
 

 

(i)                                     shares of any class other than Common Shares;

(ii)                                  rights, options or warrants (excluding those referred
to in paragraph 5.04(b) and rights, options or warrants to subscribe for or
purchase Common Shares (or securities convertible or exchangeable into Common
Shares) at a price per Common Share (or having a conversion or exchange price
per Common Share) not less than 90% of the Current Market Price on such record
date);

(iii)                               evidences of its indebtedness; or

(iv)                              assets;

then in each such case the Current Conversion Price shall be adjusted
immediately after such record date so that it shall equal the price determined
by multiplying the Current Conversion Price in effect on such record date by a
fraction, of which the numerator shall be the: 
(A) total number of Common Shares outstanding on such record date
multiplied by the Current Market Price on such record date; less (B) the fair
market value (as determined by the Board of Directors) of such shares or
rights, options or warrants or evidences of indebtedness or assets so
distributed, and of which the denominator shall be the total number of Common
Shares outstanding on such record date multiplied by such Current Market Price;
any Common Shares owned by or held for the account of the Corporation shall be
deemed not to be outstanding for the purpose of any such computation; such
adjustment shall be made successively whenever such a record date is fixed; to
the extent that such distribution of shares, evidences of indebtedness or
assets is not so made or to the extent that any rights, options or warrants so
distributed are not exercised, the Current Conversion Price shall be readjusted
to the Current Conversion Price which would then be in effect based upon such
shares, evidences of indebtedness or assets actually distributed or based upon
the number of Common Shares (or securities convertible or exchangeable into
Common Shares) actually delivered upon the exercise of such rights, options or
warrants, as the case may be.

In the event the Corporation contemplates making any distribution under
the provisions of this paragraph 5.04(c), the Corporation shall give written
notice of such event to all holders First Preferred Shares, Series A.  The Corporation shall not make a distribution
under this paragraph 5.04(c) where the fair market value (as determined by the
Board of Directors), of the shares or rights, options or warrants or evidences
of indebtedness or assets so distributed exceeds the product of the Current
Market Price on the record date for such distribution multiplied by the total
number of Common Shares outstanding on such record date unless the holders of
First Preferred Shares, Series A are permitted and such holders have
elected, or have waived in writing or are deemed to have waived their right, to
participate in such distribution as though and to the same extent as if they
had converted their First Preferred Shares, Series A into Common Shares
immediately prior to such distribution even though in fact they have not
converted their First Preferred Shares, Series A.  A holder of First Preferred Shares,
Series A shall be deemed to have waived its right to so participate under
this paragraph 5.04(c) where such holder has not elected in writing to
participate by delivery of such election to the Corporation within fourteen
(14) days of the date on which notice of the event was given by the
Corporation.

5.05        No adjustments of the Current Conversion Price shall
be made pursuant to paragraphs (b) or (c) of Section 5.04 if the holders of the
First Preferred Shares, Series A were permitted

 B-10
 

 

and all such holders have elected or have waived or
are deemed to have waived their right to participate in the issue of such
rights, options or warrants or such distribution, as the case may be, as though
and to the same extent as if they had converted their First Preferred Shares,
Series A into Common Shares prior to the issue of such rights, options or
warrants or such distribution, as the case may be.  Any such participation shall be subject to
approval of the stock exchanges upon which the securities of the Corporation
are then listed.

5.06        No adjustment of the Current Conversion Price shall be
made in any case in which the resulting increase or decrease in the Current
Conversion Price would be less than 1% of the then Current Conversion Price,
but in such case any adjustment that would otherwise have been required then to
be made shall be carried forward and made at the time of, and together with,
the next subsequent adjustment to the Current Conversion Price which, together
with any and all such adjustments so carried forward, shall result in an
increase or decrease in the Current Conversion Price by not less than 1%.

5.07        When, after the date of issuance of the First
Preferred Shares, Series A, any action is taken which requires an increase
or decrease of the Current Conversion Price under Section 5.04, the Corporation
shall forthwith file with its transfer agent for the First Preferred Shares,
Series A, and deliver a copy to each registered holder of First Preferred
Shares, Series A, a Certificate setting forth the details of the action
taken and, as the case may be, the increased or decreased Current Conversion
Price, the details of the computation of the adjusted Current Conversion Price
and the resulting adjusted Current Conversion Basis.  The transfer agent shall be under no duty to
make any investigation or inquiry as to the statements obtained in any such
Certificate of the Corporation or the manner in which any computation was made,
but the transfer agent may accept such certificate as conclusive evidence of
the statements therein contained and shall be fully protected with respect to
any and all acts done or action taken or suffered by it in reliance thereon.  The Corporation shall exhibit a copy of such
Certificate of the Corporation, from time to time, to any holder of First
Preferred Shares, Series A desiring to inspect the same, and shall give
notice of any such adjustment of the Current Conversion Price and the resulting
adjustment of the Current Conversion Basis to the holders of First Preferred
Shares, Series A in the manner provided in Article 13.00.  The Corporation may, and shall upon the
written request of holders of not less than 25% of the then issued and
outstanding First Preferred Shares, Series A, retain a firm of independent
chartered accountants (who may be the auditors of the Corporation) to make any
computation required under Section 5.04, and any computation so made shall be
final and binding on the Corporation, the transfer agent for the First
Preferred Shares, Series A and the holders of the First Preferred Shares,
Series A.  Such computation shall be
contained in a certificate of such independent chartered accountants addressed
to the holders of First Preferred Shares, Series A, the transfer agent for
such shares and to the Corporation.  Such
firm of independent chartered accountants may, as to questions of law, request
and rely upon an opinion of independent counsel (who may be counsel for the
Corporation).

5.08        Upon the surrender of any First Preferred Shares,
Series A for conversion, the number of full Common Shares issuable upon
conversion thereof shall be computed on the basis of the aggregate number of
such First Preferred Shares, Series A to be converted, and in any case
where a fraction of a Common Share is involved the Corporation shall adjust
such fractional interest by rounding up such fraction to the next whole number
of Common Shares.

5.09        The issuance of certificates for Common Shares upon
the conversion of First Preferred Shares, Series A shall be made without
charge to the holders of the First Preferred Shares,

 B-11
 

 

Series A so converted for any fee or tax (other
than tax on the income of the holders) in respect of the issuance on such
certificates or the Common Shares represented thereby.

5.10        In case of any reclassification or change (other than
a change referred in paragraph 5.04(a)) of the Common Shares or capital
reorganization of the Corporation other than as referred to in Section 5.04, or
in the case of any amalgamation, consolidation or merger of the Corporation
with or into any other corporation, trust, partnership or other entity, or in
the case of any sale of the properties and assets of the Corporation as, or
substantially as, an entirety to any other corporation, trust, partnership or
other entity each First Preferred Shares, Series A shall, after such
reclassification, change, amalgamation, consolidation, merger or sale, be
convertible into the number of shares or other securities or property of the
Corporation, or such continuing, successor, purchasing corporation, trust,
partnership or other entity, as the case may be, to which a holder of the
number of Common Shares as would have been issued if such First Preferred
Shares, Series A had been converted immediately prior to such
reclassification, change, amalgamation, consolidation, merger or sale would
have been entitled upon such reclassification, change, amalgamation,
consolidation, merger or sale.  The Board
of Directors may, and upon the written request of the holders of not less than
25% of the then issued and outstanding First Preferred Shares, Series A,
shall retain a firm of independent chartered accountants (who may be the
auditors of the Corporation) to make the foregoing calculation, and the Board
of Directors shall determine such entitlement on the basis of the certificate
of such firm which shall be addressed to the holders of First Preferred Shares,
Series A, the transfer agent for such shares and the Corporation.  Any such determination shall be conclusive
and binding on the Corporation, the transfer agent for the First Preferred
Shares, Series A, and the holders of the First Preferred Shares,
Series A.  No such reclassification,
change, amalgamation, consolidation, merger or sale shall be carried into
effect unless, in the opinion of the Board of Directors, all necessary steps
shall have been taken to ensure that the holders of the First Preferred Shares,
Series A shall thereafter be entitled to receive such number of shares or other
securities or property of the Corporation, or such continuing, successor or
purchasing corporation, as the case may be, subject to adjustment thereafter in
accordance with provisions similar, as nearly as may be, to those contained in
this Article 5.00.  No such
reclassification, change, amalgamation, consolidation, merger or sale shall be
implemented by the Corporation unless, in addition to any other requirement of
applicable law, the Corporation has obtained a certificate of a firm of
independent chartered accountants referred to above and such certificate also
states that as a result of the implementation of any such reclassification,
change, amalgamation, consolidation, merger or sale, there will be no class or
series of shares (or other equity securities or interest) in the Corporation,
or such continuing successor, purchasing corporation, trust, partnership or
entity, as the case may be, that would, or could, rank prior to or on a parity
with the First Preferred Shares, Series A as to payment of dividends or
the distribution of assets in the event of the liquidation, dissolution or
winding-up of the Corporation or other continuing entity.

5.11        So long as any First Preferred Shares, Series A
remain outstanding the Corporation shall give to the holders of First Preferred
Shares, Series A at least 14 days’ prior notice of the record date for the
payment of any cash dividend, stock dividend or other distribution on its
Common Shares and prompt public notice of the issue to any of its shareholders
of rights to subscribe for Common Shares or other securities and shall give at
least 30 days’ prior notice before making any repayment of capital on its
Common Shares.  Any such notice shall be
sufficiently given if given individually to the holders of First Preferred
Shares, Series A.  The accidental
failure or omission to give the notice required by this Section 5.11 or any
defect therein shall not affect the legality or validity of any such payment,
distribution or issue.

 B-12
 

 

5.12        The Corporation covenants and agrees that it shall
not, during the periods of notice aforesaid, close its share transfer book,
other than after normal business hours, or take any other corporate action
which might deprive a holder of First Preferred Shares, Series A from the
opportunity of exercising any rights herein provided.

5.13        If in the opinion of the Board of Directors the
provisions of this Article 5.00 are not strictly applicable, or if strictly
applicable would not fairly protect the rights of the holders of the First
Preferred Shares, Series A in accordance with the intent and purposes
hereof, the Board of Directors shall make any adjustment in such provisions as
the Board of Directors deems appropriate.

5.14        So long as any of the First Preferred Shares,
Series A are outstanding the Corporation shall use its best efforts to
maintain a listing and posting for trading of its outstanding Common Shares on
one or more stock exchanges, including the Exchange.

5.15        The Corporation will not, by amendment of this
certificate or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation, but
will at all times in good faith assist in the carrying out of all the
provisions hereof and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holders of First Preferred Shares,
Series A against impairment.

6.00                        PURCHASE FOR CANCELLATION

6.01        In addition to its right to redeem First Preferred
Shares, Series A as provided in Article 3.00, the Corporation may at any
time or times purchase for cancellation the whole or any part of the
outstanding First Preferred Shares, Series A in the open market (including
purchases through or from an investment dealer or firm holding membership on a
stock exchange) reasonably available to all holders or, at the option of the
Corporation, by invitation for tenders addressed to all holders of record of
the outstanding First Preferred Shares, Series A, at the lowest price or
prices at which, in the opinion of the Board of Directors, such shares are
obtainable.  In the event that, upon any
request for tenders, the Corporation shall receive two or more tenders of First
Preferred Shares, Series A at the same price and which shares, when added
to any shares tendered at a lower price or prices, aggregate more than the
amount for which the Corporation is prepared to accept tenders, if any of the
First Preferred Shares, Series A so tendered at the same price are
purchased by the Corporation, they shall be purchased pro rata from such
holders tendering at the same price, disregarding fractions.

6.02        First Preferred Shares, Series A purchased in
accordance with this Article 6.00 shall be and be deemed to be cancelled and
shall not be reissued.

7.00                        LIQUIDATION

7.01        In the event of the liquidation, dissolution or
winding-up of the Corporation or other distribution of the assets of the
Corporation among its shareholders for the purpose of winding up its affairs,
the holders of First Preferred Shares, Series A shall be entitled to
receive an amount per First Preferred Shares, Series A equal to the Stated
Value per share, together with any accrued and unpaid dividends to the date of
commencement of any such liquidation, dissolution, winding-up or other
distribution of the assets of the Corporation, to be paid all such money before
any money shall be paid or property or assets distributed to the holders of any

 B-13
 

 

Common Shares or other shares of the capital of the
Corporation ranking junior to the First Preferred Shares, Series A with
respect to return of capital.

7.02        After payment to the holders of the First Preferred
Shares, Series A of the amounts so payable to them, they shall not be
entitled to share in any further distribution of the property or assets of the
Corporation.

8.00                        RESTRICTIONS

8.01        So long as any First Preferred Shares, Series A
are outstanding the Corporation shall not, without the approval of the holders
of the First Preferred Shares, Series A given in the manner provided under
Section 12.01:

(a)                                  issue any shares ranking prior to or on a parity with
the First Preferred Shares, Series A as to the payment of dividends or the
distribution of assets in the event of liquidation, dissolution or winding-up
of the Corporation, whether voluntary or involuntary, or other distribution of
the assets of the Corporation among its shareholders for the purpose of winding-up
its affairs;

(b)                                 declare, pay, or set aside for payment, any dividends
on the Common Shares or on any other shares of the Corporation ranking junior
to the First Preferred Shares, Series A as to the payment of dividends
(other than stock dividends in any such shares of the Corporation, provided
that any such stock dividend is made in accordance with the provisions hereof)
unless all dividends up to, and including, the Dividend Payment Date for the
last completed period for which dividends shall be payable shall have been
declared and paid or set apart for payment in respect of the First Preferred
Shares, Series A and all other shares ranking senior to or on a parity
with the First Preferred Shares, Series A in respect of the payment of
dividends;

(c)                                  set aside any money or make any payments for any
sinking fund or other retirement fund applicable to any shares of the
Corporation ranking junior to the First Preferred Shares, Series A;

(d)                                 redeem, purchase or make any capital distribution in
respect of less than all of the First Preferred Shares, Series A:

(e)                                  (except out of net cash proceeds of a substantially
concurrent issue of shares of the Corporation ranking junior to the First
Preferred Shares, Series A) redeem, purchase or make any capital distribution
in respect of the Common Shares or any other shares of the Corporation ranking
junior to the First Preferred Shares, Series A; or

(f)                                    redeem, purchase or make any capital distribution in
respect of (except in connection with any purchase obligation, sinking fund,
retraction privilege or mandatory redemption requirement) any shares of the
Corporation ranking on a parity with the First Preferred Shares, Series A.

8.02        Nothing in Section 8.01 shall apply to hinder or
prevent, and authorization is hereby given for, any of the actions referred to
in such Section if consented to, or approved by, the holders of the First
Preferred Shares, Series A in the manner hereinafter specified or if all
the outstanding First Preferred Shares, Series A have been duly called for
redemption and the

 B-14
 

 

redemption price paid in full or the amount required
to pay the redemption price in full has been set aside for payment on or before
the date fixed for redemption.

9.00                        VOTING RIGHTS

9.01        Subject to applicable law, the holders of the First
Preferred Shares, Series A shall not be entitled as such (except as
hereinafter specifically provided) to any voting rights or to receive notice of
or to attend any meeting of the shareholders of the Corporation or to vote at
any such meeting unless and until the Corporation from time to time shall fail
to pay, in the aggregate, four quarterly dividends on the First Preferred
Shares, Series A on the dates on which the same should be paid according
to the terms hereof, whether or not consecutive and whether or not such
dividends have been declared and whether or not there are moneys of the
Corporation properly applicable to the payment of dividends; thereafter but
only so long as any dividends on the First Preferred Shares, Series A are
not declared and actually paid, the holders of First Preferred Shares,
Series A shall be entitled to receive notice of and to attend all meetings
of shareholders of the Corporation and shall be entitled to 40 votes in
respect of each First Preferred Shares, Series A held at all shareholders’
meetings (other than meetings of holders of another class or series of shares
required by law to be held separately).

10.00                 MISCELLANEOUS

10.01      The First Preferred Shares, Series A shall be
convertible at the option of the holder thereof into shares of one or more
other series of First Preferred Shares (the “New Shares”) into which the First
Preferred Shares, Series A are made convertible by resolution of the Board
of Directors upon the amendment of the constating documents of the Corporation
or the enactment of a resolution by the Board of Directors setting out the
terms and conditions of such conversion and the time or times during which such
conversion may be effected.  If at any
time or from time to time such right of conversion shall become applicable, the
Corporation shall as soon as practicable give notice in writing thereof to the
registered holders of the First Preferred Shares, Series A, which notice
shall set forth, in reasonable detail, a summary of the rights, conditions,
restrictions and limitations attaching or to be attached to the New Shares.

10.02      Holders of First Preferred Shares, Series A shall
not be entitled, as of right, to subscribe for or purchase or receive any
shares, bonds, debentures, or other securities of the Corporation now or
hereafter authorized.

11.00                 AMENDMENTS

11.01      The rights, privileges, restrictions and conditions
attached to the First Preferred Shares, Series A may be amended, modified,
suspended, altered or repealed but only if consented to, or approved by, the
holders of the First Preferred Shares, Series A in the manner hereinafter
specified and in accordance with any requirements of applicable law.

12.00                 APPROVAL BY HOLDERS OF FIRST
PREFERRED SHARES, SERIES A

12.01      For the purpose of Section 11.01, any consent or
approval given by the holders of First Preferred Shares, Series A shall be
deemed to have been sufficiently given if it shall have been given in writing
by all the holders of the outstanding First Preferred Shares, Series A or
by a resolution passed at a meeting of holders of First Preferred Shares,
Series A duly called and held upon not less than 21 days’ notice in
writing to the holders at which the holders of at least 25% of the outstanding
First Preferred Shares, Series A are present or are represented by

 B-15
 

 

proxy and carried by the affirmative vote of not less
than two-thirds of the votes cast at such meeting.  If at any such meeting the holders of at
least 25% of the outstanding First Preferred Shares, Series A are not
present or represented by proxy within one-half hour after the time
appointed for such meeting then the meeting shall be adjourned to such date not
less than 15 days thereafter and to such time and place as may be designated by
the chairman.  At such adjourned meeting
the holders of First Preferred Shares, Series A present or represented by
proxy may transact the business for which the meeting was originally convened
and a resolution passed thereat by the affirmative vote of not less than two-thirds
of the votes cast at such meeting shall constitute the consent or approval of
the holders of First Preferred Shares, Series A.  On every ballot cast at every meeting every
holder of a First Preferred Shares, Series A shall be entitled to one vote
in respect of each First Preferred Shares, Series A held.  Subject to the foregoing, the formalities to
be observed in respect of the giving or waiving of notice of any such meeting
or adjourned meeting and the conduct thereof shall be those from time to time
prescribed in the by-laws of the Corporation.

13.00                 NOTICES

13.01      Any notice, except as provided in Section 5.11,
required to be given under the provisions attaching to the First Preferred
Shares, Series A to holders thereof shall be given by posting the same in
a postage paid envelope addressed to each holder at the last address of such
holder as it appears on the books of the Corporation or, in the event of the
address of any such holder not so appearing, then to the address of such holder
last known to the Corporation provided that accidental failure or omission to
give any such notice to one or more shareholders or any defect therein shall
not affect the legality or validity of any action or proceeding founded thereon
but upon such failure or omission being discovered notice shall be given
forthwith to such holder or holders and shall have the same force and effect as
if given in due time.

 B-16

EXHIBIT C

UNLESS PERMITTED UNDER APPLICABLE SECURITIES LEGISLATION, THE HOLDER OF
THIS SECURITY  MUST NOT TRADE THE
SECURITY BEFORE JUNE 1, 2006.

THE WARRANTS REPRESENTED HEREBY AND THE COMMON SHARES ISSUABLE UPON
EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES
ACT OF 1933, AS AMENDED (THE “1933 ACT”). 
THE HOLDER HEREOF, BY PURCHASING SUCH WARRANTS, AGREES FOR THE BENEFIT
OF THE CORPORATION THAT SUCH WARRANTS MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, AND THAT THE UNDERLYING COMMON SHARES MAY BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED ONLY (A) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE 1933 ACT AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES
LAWS, (B) TO THE CORPORATION, (C) OUTSIDE THE UNITED STATES IN ACCORDANCE
WITH RULE 904 OF REGULATION S UNDER THE 1933 ACT, OR (D) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT AND ANY APPLICABLE STATE
SECURITY LAWS, PROVIDED THAT IN THE CASE OF AN OFFER, SALE OR TRANSFER REFERRED
TO IN CLAUSE (D), THE CORPORATION HAS RECEIVED A WRITTEN OPINION OF LEGAL
COUNSEL REASONABLY SATISFACTORY TO IT TO THE EFFECT THAT THE PROPOSED TRANSFER
MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE 1933 ACT.

THIS
WARRANT CERTIFICATE IS VOID IF NOT EXERCISED ON OR BEFORE

4:30 P.M. (CALGARY TIME) ON JANUARY 31, 2009.

WARRANT
CERTIFICATE

CANADIAN SUPERIOR ENERGY INC.

(Incorporated under the laws of the Province
of Alberta)

	
  WARRANT 

  

  CERTIFICATE
  NO.           

  	
                           WARRANTS
  entitling the holder to acquire, subject to adjustment, one Common Share for
  each Warrant represented hereby.

  

 

THIS
IS TO CERTIFY
THAT                      

(hereinafter referred to as the “holder” or the “Warrantholder”) is
entitled to acquire for each Warrant represented hereby, in the manner and
subject to the restrictions and adjustments set forth herein, at any time and
from time to time until 4:30 p.m. (Calgary time) (the “Expiry Time”) on
January 31, 2009, one fully paid and non-assessable common share (“Common
Share”) in the capital of Canadian Superior Energy Inc. (the “Corporation”).

This Warrant may only be exercised at the head office of the Corporation
at 3300, 400 — 3rd Avenue S.W., Calgary, Alberta  T2P 4H2, Attention: Chief Financial
Officer.  This Warrant is issued subject
to the terms and conditions appended hereto as Schedule “A”.

IN WITNESS WHEREOF, the Corporation has caused this Warrant to be
executed by a duly authorized officer.

DATED for reference this 31st day of January, 2006.

	
   

  	
   

  	
  CANADIAN
  SUPERIOR ENERGY INC.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Per:

  	
   

  

 

(See terms and conditions attached
hereto)

 

SCHEDULE
“A”

TERMS AND
CONDITIONS FOR WARRANT

Terms and Conditions attached to the Warrant issued by Canadian Superior
Energy Inc. and dated for reference January 31, 2006.

ARTICLE 8

INTERPRETATION

8.1                               Definitions

In
these Terms and Conditions, unless there is something in the subject matter or
context inconsistent therewith:

(a)                                  “Common
Shares” means the common shares in the capital of the Corporation to be issued
pursuant to the exercise of Warrants;

(b)                                 “Corporation” means Canadian
Superior Energy Inc. unless and until a successor corporation shall have become
such in the manner prescribed in Article 6, and thereafter “Corporation” shall
mean such successor corporation;

(c)                                  “Corporation’s
Auditors” means Myers Norris Penny LLP, independent chartered
accountants or another independent firm of accountants duly appointed as
auditors of the Corporation;

(d)                                 “Exchange” means the
American Stock Exchange or, if not listed thereon, such other stock exchange on
which the Corporation’s common shares are listed and posted for trading;

(e)                                  “Exercise
Price” means the price of U.S.$3.00 per share on or before the Expiry Time,
expressed in lawful money of Canada subject to adjustment as provided herein;

(f)                                    “Expiry
Time” means 4:30 p.m. (Calgary time) on January 31, 2009;

(g)                                 “herein”, “hereby” and similar expressions refer to
these Terms and Conditions as the same may be amended or modified from time to
time; and the expression “Article” and “Section” followed by a number refer to
the specified Article or Section of these Terms and Conditions;

(h)                                 “Issue
Date” means the issue date of the Warrant shown on the face page of the
Warrant Certificate;

(i)                                     “person” means an
individual, corporation, partnership, trustee or any unincorporated
organization and words importing persons have a similar meaning;

(j)                                     “Warrant” means the
warrant to acquire Common Shares evidenced by the Warrant Certificate;

(k)                                  “Warrant
Certificate” means the certificate to which these Terms and
Conditions are attached; and

(l)                                     words importing
the singular number include the plural and vice versa and words importing the
masculine gender include the feminine and neuter genders.

 C-1
 

8.2                               Interpretation Not Affected by
Headings

The
division of these Terms and Conditions into Articles and Sections, and the
insertion of headings are for convenience of reference only and shall not
affect the construction or interpretation thereof.

8.3                               Applicable Law

The
terms hereof and of the Warrant shall be construed in accordance with the laws
of the Province of Alberta and the federal laws of Canada applicable thereto.

ARTICLE 9

ISSUE OF WARRANT

9.1                               Issue of Warrants

That
number of Warrants set out on the Warrant Certificate are hereby created and
authorized to be issued.

9.2                               Additional
Warrants

Subject
to any other written agreement between the Corporation and the Warrantholder,
the Corporation may at any time and from time to time undertake further equity
or debt financing and may issue additional Common Shares, warrants or grant
options or similar rights to purchase Common Shares to any person; provided,
however, that the Exercise Price and the number of Common Shares issuable upon
exercise of a Warrant may be subject to adjustment as a result of such issuance
as further provided herein.

9.3                               Issue in
Substitution for Lost Warrants

If
the Warrant Certificate becomes mutilated, lost, destroyed or stolen:

(a)                                  the Corporation
shall issue and deliver a new Warrant Certificate of like date and tenor as the
one mutilated, lost, destroyed or stolen, in exchange for and in place of and
upon cancellation of such mutilated, lost, destroyed or stolen Warrant
Certificate; and

(b)                                 the holder shall
bear the cost of the issue of a new Warrant Certificate hereunder and in the
case of the loss, destruction or theft of the Warrant Certificate, shall
furnish to the Corporation such evidence of loss, destruction, or theft as
shall be satisfactory to the Corporation in its discretion and the Corporation
may also require the holder to furnish indemnity in an amount and form
satisfactory to the Corporation in its discretion, and shall pay the reasonable
charges of the Corporation in connection therewith.

9.4                               Warrantholder Not
a Shareholder

The
Warrant shall not constitute the holder a shareholder of the Corporation, nor
entitle it to any right or interest in respect thereof except as may be
expressly provided in the Warrant.

 C-2
 

9.5                               Transfer of Warrants

The
Warrant may not be offered, sold or otherwise transferred unless (i) pursuant
to an effective registration statement under the Securities Act of 1933, as amended (the “1933 Act”), and
applicable state securities laws, (ii) to the Corporation, (iii) outside the
United States in accordance with the Rule 904 of Regulation S under the 1933
Act, or (iv) pursuant to an exemption from registration under the 1933 Act and
applicable state securities laws, provided, however that in the case of an
offer, sale or transfer referred to in clause (iv) the Corporation has received
a written opinion of legal counsel reasonably satisfactory to it to the effect
that the proposed transfer may be effected without registration under the 1933
Act.  Subject to the restrictions on
transfer set forth above, the Warrant shall be transferable on the warrant
register of the Corporation upon delivery of the Warrant Certificate therefor
duly endorsed by the Warrantholder or by the Warrantholder’s duly authorized
attorney or representative, or accompanied by proper evidence of succession,
assignment or authority to transfer. 
Upon any registration of transfer, the Corporation shall deliver a new
Warrant Certificate to the person entitled thereto.

9.6                               Specific
Notification to Warrantholder

If
at any time prior to the expiration of the Warrants and prior to their
exercise, any of the following events occur:

(a)                                  the Corporation
shall declare any dividend payable in any securities upon its shares of Common
Stock or make any distribution (other than a cash dividend) to the holders of
its shares of Common Stock; or

(b)                                 the Corporation
shall offer to the holders of its shares of Common Stock any additional shares
of Common Stock or securities convertible into or exchangeable for shares of
Common Stock or any right to subscribe to or purchase any thereof; or

(c)                                  a dissolution,
liquidation or winding up of the Corporation (other than in connection with a
consolidation, merger, sale, transfer or lease of all or substantially all of
its property, assets and business as an entirety) shall be proposed,

then
in any one or more of said events the Corporation shall give notice in writing
of such event to the Warrantholders at least 20 days prior to the date fixed as
a record date or the date of closing the transfer books for the determination
of the stockholders entitled to such dividend, distribution or subscription
rights, or for the determination of stockholders entitled to vote on such
proposed dissolution, liquidation or winding up.  Such notice shall specify such record date or
the date of closing the transfer books, as the case may be.  Failure to mail or receive such notice or any
defect therein or mailing thereof shall not affect the validity of any action
taken in connection with such dividend, distribution or subscription rights, or
such proposed dissolution, liquidation or winding up.

ARTICLE 10

EXERCISE OF THE WARRANT

10.1                        Method of
Exercise of the Warrant

(a)                                  The right to
purchase Common Shares conferred by the Warrant Certificate may be exercised,
prior to the Expiry Time, by the holder surrendering it, with a duly completed
and executed exercise form substantially in the form attached hereto as Schedule “B” and a certified cheque or bank
draft payable to or to the order of the Corporation, at par in Calgary,
Alberta, for the 

 C-3
 

purchase
price applicable at the time of surrender in respect of the Common Shares
subscribed for in lawful money of the United States, to the head office of the
Corporation.

(b)                                 The Warrants may
not be exercised within the United States, or on behalf of, or for the account
or benefit of, any person located in the United States, nor will certificates
representing Common Shares issuable upon exercise of the Warrants be delivered
in the United States, except pursuant to an exemption from the registration
requirements of the 1933 Act and exemptions from applicable state securities
laws.  Any person who proposes to
exercise a Warrant shall provide to the Corporation, as contemplated in
Schedule “B”, either (i) written certification that the Warrant is not being
exercised within the United States or on behalf of, or for the account or
benefit of, a person in the United States, or (ii) a written opinion of counsel
or other evidence satisfactory to the Corporation to the effect that the
issuance of Common Shares upon exercise of such Warrant is not required to be
registered under the 1933 Act and applicable state securities laws.  Common Shares issuable upon exercise of
Warrants by or on behalf of, or for the account or benefit of, a person in the
United States may, if so determined by the Corporation in its sole discretion,
bear a legend restricting transfer.

10.2                        Effect of
Exercise of the Warrant

(a)                                  Upon surrender
and payment as aforesaid, the Common Shares so subscribed for shall be issued
as fully paid and non-assessable shares of the Corporation and the holder shall
become the holder of record of such Common Shares on the date of such surrender
and payment.

(b)                                 Within five
business days after surrender and payment as aforesaid, the Corporation shall
forthwith cause the issuance to the holder a certificate for the Common Shares
purchased as aforesaid.

10.3                        Subscription for
Less than Entitlement

The
holder may subscribe for and purchase a number of Common Shares less than the
number which it is entitled to purchase pursuant to the surrendered Warrant
Certificate.  In the event of any
purchase of a number of Common Shares less than the number which can be
purchased pursuant to the Warrant Certificate, the holder shall be entitled to
the return of the Warrant Certificate with a notation on the Grid attached hereto
as Schedule “C” showing the
balance of the Common Shares which it is entitled to purchase pursuant to the
Warrant Certificate which were not then purchased.

10.4                        Expiration of the
Warrant

After
the Expiry Time all rights hereunder shall wholly cease and terminate and the
Warrant shall be void and of no effect.

ARTICLE 11

ADJUSTMENTS

11.1                        Adjustments

The
number of Common Shares purchasable upon the exercise of each Warrant and the
Exercise Price shall be subject to adjustment as follows:

(a)                                  in the event the
Corporation shall:

 C-4
 

(i)                                     pay a dividend in Common
Shares or make a distribution in Common Shares;

(ii)                                  subdivide its
outstanding Common Shares into a larger number of Common Shares;

(iii)                               combine its
outstanding Common Shares into a smaller number of Common Shares; or

(iv)                              issue by
reclassification of its Common Shares other securities of the Corporation
(including any such reclassification in connection with a consolidation,
merger, amalgamation or other combination in which the Corporation is the surviving
corporation);

the
number of Common Shares (or other securities) purchasable upon exercise of each
Warrant immediately prior thereto shall be adjusted so that the Warrantholder
shall be entitled to receive the kind and number of Common Shares or other
securities of the Corporation which it would have owned or have been entitled
to receive after the happening of any of the events described above, had such
Warrant been exercised immediately prior to the happening of such event or any
record date with respect thereto.  An
adjustment made pursuant to this subsection (a) shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event.

(b)                                 In case the
Corporation shall issue rights, options or warrants to all or substantially all
holders of its outstanding Common Shares, without any charge to such holders,
entitling them  to subscribe for or
purchase Common Shares at a price per share which is lower than 90% of the
current market price at the record date mentioned below than the then current
market price per Common Share (as determined in accordance with subsection (d)
below), the number of Common Shares thereafter purchasable upon the exercise of
each Warrant shall be determined by multiplying the number of Common Shares
theretofore purchasable upon exercise of each Warrant by a fraction, of which
the numerator shall be the number of Common Shares outstanding on the date of
issuance of such rights, options or warrants plus the number of additional
Common Shares offered for subscription or purchase, and of which the
denominator shall be the number of Common Shares outstanding on the date of
issuance of such rights, options or warrants plus the number of shares which
the aggregate offering price of the total number of Common Shares so offered
would purchase at the current market price per Common Share at such record
date.  Such adjustment shall be made
whenever such rights, options or warrants are issued, and shall become
effective immediately after the record date for the determination of
shareholders entitled to receive such rights, options or warrants.

(c)                                  In case the
Corporation shall distribute to all or substantially all holders of its Common
Shares evidences of its indebtedness or assets (excluding cash dividends or
distributions payable out of consolidated earnings or earned surplus and
dividends or distributions referred to in subsection (a) above or rights,
options or warrants, or convertible or exchangeable securities containing the
right to subscribe for or purchase Common Shares (excluding those referred to
in subsection (b) above)), then in each case the number of Common Shares
thereafter purchasable upon the exercise of each Warrant shall be determined by
multiplying the number of Common Shares theretofore purchasable upon the
exercise of each Warrant by a fraction, of which the numerator shall be the
then current market price per Common Share (as determined in accordance with
subsection (d) below) on the date of such distribution, and of which the
denominator shall be the then current market price per Common Share less the
then fair value (as determined by the board of directors of the Corporation,
acting reasonably) of the portion of the assets or evidences of indebtedness so
distributed or of such subscription rights, options or warrants, or of such 

 C-5
 

convertible
or exchangeable securities applicable to one Common Share.  Such adjustment shall be made whenever any
such distribution is made, and shall become effective on the date of distribution
retroactive to the record date for the determination of shareholders entitled
to receive such distribution.

In
the event of the distribution by the Corporation to all or substantially all of
the holders of its Common Shares of shares of a subsidiary or securities
convertible or exercisable for such shares, then in lieu of an adjustment in
the number of Common Shares purchasable upon the exercise of each Warrant, the
Warrantholder of each Warrant, upon the exercise thereof, shall receive from
the Corporation, such subsidiary or both, as the Corporation shall reasonably
determine, the shares or other securities to which such Warrantholder would
have been entitled if such Warrantholder had exercised such Warrant immediately
prior thereto, all subject to further adjustment as provided in this section
4.1 provided, however, that no adjustment in respect of dividends or interest
on such shares or other securities shall be made during the term of a Warrant
or upon the exercise of a Warrant.

(d)                                 For the purpose
of any computation under subsections (b) and (c) of this section 4.1, the
current market price per Common Share at any date shall be the weighted average
price per Common Share for ten (10) consecutive trading days, commencing not
more than three (3) trading days before such date on the Exchange, or if not
then traded on the American Stock Exchange and if the Common Shares are then
traded on more than one stock exchange, then on the stock exchange on which the
largest volume of Common Shares were traded during such ten (10) consecutive
trading day period.  The weighted average
price per Common Share shall be determined by dividing the aggregate sale price
of all Common Shares sold on such exchange or market, as the case may be,
during the said ten (10) consecutive trading days by the total number of shares
so sold.  For purposes of this subsection
(d), trading day means, with respect to a stock exchange, a day on which such
exchange is open for the transaction of business.  Should the Common Shares not be listed on any
stock exchange the current market price per Common Share at any date shall be
determined by the board of directors of the Corporation, acting reasonably.

(e)                                  In any case in
which this Article 4 shall require that any adjustment in the Exercise Price be
made effective immediately after a record date for a specified event, the
Corporation may elect to defer until the occurrence of the event the issuance,
to the holder of any Warrant exercised after that record date, of the Common
Shares and other shares of the Corporation, if any, issuable upon the exercise
of the Warrant over and above the Common Shares and other shares of the
Corporation; provided, however, that the Corporation shall deliver to the
holder an appropriate instrument evidencing the holder’s right to receive such
additional shares upon the occurrence of the event requiring such adjustment.

(f)                                    No adjustment in
the number of Common Shares purchasable hereunder shall be required unless such
adjustment would require an increase or decrease of at least one percent (1%)
in the number of Common Shares purchasable upon the exercise of each Warrant;
provided, however, that any adjustments which by reason of this subsection (f)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment.  All
calculations shall be made to the nearest one-hundredth of a share.

(g)                                 Wherever the
number of Common Shares purchasable upon the exercise of each Warrant is
adjusted, as herein provided, the Exercise Price payable upon exercise of each
Warrant shall be adjusted by multiplying such Exercise Price immediately prior
to such adjustment by a fraction, of which the numerator shall be the number of
Common Shares purchasable upon the exercise of 

 C-6
 

such
Warrant immediately prior to such adjustment, and of which the denominator
shall be the number of Common Shares purchasable immediately thereafter.

(h)                                 No adjustment in
the number of Common Shares purchasable upon the exercise of each Warrant need
be made under subsections (b) and (c) if, the Corporation issues or distributes
to the Warrantholder the rights, options, warrants, or convertible or
exchangeable securities, or evidences of indebtedness or assets referred to in
those subsections which the Warrantholder would have been entitled to receive
had the Warrants been exercised prior to the happening of such event or the
record date with respect thereto.  Any
such participation shall be subject to approval of the stock exchanges upon
which the securities of the Corporation are then listed.

(i)                                     In the event that
at any time, as a result of an adjustment made pursuant to subsection (a)
above, the Warrantholder shall become entitled to purchase any securities of
the Corporation other than Common Shares, thereafter the number of such other
shares so purchasable upon exercise of each Warrant and the Exercise Price of
such shares shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Shares contained in subsections (a) through (h), inclusive, above, and
the provisions of sections 4.2 through 4.4, inclusive, of this Article 4 with
respect to the Common Shares, shall apply on like terms to any such other
securities.

(j)                                     Upon the expiration
of any rights, options, warrants or conversion or exchange privileges, if any
thereof shall not have been exercised, the Exercise Price and the number of
Common Shares purchasable upon the exercise of each Warrant shall, upon such
expiration, be readjusted and shall thereafter be such as it would have been
had it been originally adjusted (or had the original adjustment not been
required, as the case may be) as if:

(i)                                     the only Common
Shares so issued were the Common Shares, if any, actually issued or sold upon
the exercise of such rights, options, warrants or conversion or exchange
rights; and

(ii)                                  such Common
Shares, if any, were issued or sold for the consideration actually received by
the Corporation upon such exercise plus the aggregate consideration, if any,
actually received by the Corporation for the issuance, sale or grant of all
such rights, options, warrants or conversion or exchange rights whether or not
exercised;

provided
further, that no such readjustment shall have the effect of increasing the
Exercise Price or decreasing the number of Common Shares purchasable upon the
exercise of each Warrant by an amount in excess of the amount of the adjustment
initially made with respect to the issuance, sale or grant of such rights,
options, warrants or conversion or exchange rights.

11.2                        Voluntary
Adjustment by the Corporation

Subject
to requisite Exchange approval, the Corporation may, at its option, at any time
during the term of the Warrants, reduce the then current Exercise Price to any
amount deemed appropriate by the Board of Directors of the Corporation.

11.3                        Notice of
Adjustment

Whenever
the number of Common Shares purchasable upon the exercise of each Warrant or
the Exercise Price of such Warrant is adjusted, as herein provided, the
Corporation shall promptly send to the Warrantholder by first class mail,
postage prepaid, notice of such adjustment or adjustments.

 C-7
 

11.4                        No Adjustment for Dividends

Except
as provided in section 4.1 of this Article 4, no adjustment in respect of any
dividends shall be made during the term of a Warrant or upon the exercise of a
Warrant.

11.5                        Preservation of
Purchase Rights Upon Merger, Consolidation, etc.

In
connection with any consolidation of the Corporation with, or amalgamation,
arrangement or merger of the Corporation with or into, another corporation or
trust (including, without limitation, pursuant to a “takeover bid”, “tender
offer” or other acquisition of all or substantially all of the outstanding
Common Shares) or in case of any sale, transfer or lease to another corporation
or trust of all or substantially all the property of the Corporation, the
Corporation or such successor or purchasing corporation or trust, as the case
may be, shall execute with the Warrantholder an agreement or issue an
instrument providing a right such that the Warrantholder shall have the right
thereafter, upon payment of the Exercise Price in effect immediately prior to
such action, to purchase upon exercise of each Warrant the kind and amount of
shares and other securities and property which it would have owned or have been
entitled to receive after the happening of such consolidation, amalgamation,
arrangement, merger, sale, transfer or lease had such Warrant been exercised
immediately prior to such action, and the Warrantholder shall be bound to
accept such shares and other securities and property in lieu of the Common
Shares to which it was previously entitled; provided, however, that no
adjustment in respect of dividends, interest or other income on or from such
shares or other securities and property shall be made during the term of a
Warrant or upon the exercise of a Warrant. 
Any such agreement or instrument shall provide for adjustments, which
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Schedule “A”.  The provisions
of this section 4 shall similarly apply to successive consolidations, mergers,
amalgamations, arrangements, sales, transfers or leases.

11.6                        Determination of
Adjustments

If
at any time prior to the Expiry Time the Corporation takes any action affecting
the Common Shares of the Corporation, other than an action or an event
otherwise described in this Article 4, which in the opinion of the Board of
Directors of the Corporation would have a material adverse effect upon the
rights of the holder, the Exercise Price and/or the number of Common Shares
purchasable under this Warrant Certificate will be adjusted in such manner and
at such time as the directors may determine to be equitable in the
circumstances.  If any questions shall at
any time arise with respect to the Exercise Price or the number of Common
Shares or other securities issuable pursuant to this Warrant Certificate, such
question shall be conclusively determined by the Corporation’s Auditors, or, if
they decline to so act, any other firm of Chartered Accountants, in Calgary,
Alberta, that the Corporation may designate and the Warrantholder, acting
reasonably, may approve, and who shall have access to all appropriate records
and such determination shall be binding upon the Corporation and the holder.

ARTICLE 12

COVENANTS BY THE CORPORATION

12.1                        Reservation of
Common Shares

The
Corporation will reserve and there will remain unissued out of its authorized
capital a sufficient number of Common Shares to satisfy the rights of
acquisition provided for in the Warrant Certificate.

 C-8
 

12.2                        Binding Agreement

The
Corporation hereby represents and warrants that this Warrant Certificate is a
valid and enforceable obligation of the Corporation, enforceable in accordance
with the provisions of this Warrant Certificate.

ARTICLE 13

MERGER AND SUCCESSORS

13.1                        Corporation May
Consolidate, etc. on Certain Terms

Nothing
herein contained shall prevent any consolidation, amalgamation, arrangement or
merger of the Corporation with or into any other corporation, trust or
corporations or trusts, or a conveyance or transfer of all or substantially all
the properties and estates of the Corporation as an entirety to any corporation
or trust lawfully entitled to acquire and operate same, provided, however, that
the corporation or trust formed by such consolidation, amalgamation,
arrangement or merger or which acquires by conveyance or transfer all or
substantially all the properties and estates of the Corporation as an entirety
shall, simultaneously with such amalgamation, arrangement, merger, conveyance
or transfer, assume the due and punctual performance and observance of all the
covenants and conditions hereof to be performed or observed by the Corporation.

13.2                        Successor
Corporation Substituted

In
case the Corporation, pursuant to section 6.1 shall be consolidated,
amalgamated, arranged or merged with or into any other corporation, trust or
corporations or trusts or shall convey or transfer all or substantially all of
its properties and estates as an entirety to any other corporation or trust,
the successor corporation or trust formed by such consolidation, amalgamation
or arrangement, or into which the Corporation shall have been consolidated,
amalgamated, arranged or merged or which shall have received a conveyance or
transfer as aforesaid, shall succeed to and be substituted for the Corporation
hereunder and such changes in phraseology and form (but not in substance) may
be made in the Warrant Certificate and herein as may be appropriate in view of
such amalgamation, arrangement, merger or transfer.

ARTICLE 14

AMENDMENTS

14.1                        Amendment, etc.

This
Warrant Certificate may only be amended by a written instrument signed by the
Corporation and the holder.

 C-9
 

SCHEDULE “B”

EXERCISE
FORM

TO:         Canadian Superior
Energy Inc.

Terms which are not otherwise defined herein shall have the meanings
ascribed to such terms in the Warrant Certificate held by the undersigned and
issued by Canadian Superior Energy Inc. (the “Corporation”).

The undersigned hereby exercises the right to acquire                     Common
Shares of the Corporation in accordance with and subject to the provisions of
such Warrant Certificate and herewith makes payment of the purchase price in
full for the said number of Common Shares.

The Common Shares are to be issued as follows:

	
  Name:

  	
   

  
	
   

  	
   

  
	
  Address in full:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Social Insurance
  Number:

  	
   

  
	
   

  	
   

  
			

Note:  If further nominees are
intended, please attach (and initial) a schedule giving these particulars.

The undersigned certifies that each of the representations and
warranties made by the undersigned to the Corporation in connection with the
undersigned’s acquisition of the Warrants remains true and correct on the date
hereof as though made on the date hereof with respect to the acquisition of
Common Shares pursuant to the exercise of Warrants contemplated hereby.

The undersigned represents that it: [check one only]

o                                   A             is not in the United States and is not exercising
Warrants on behalf of, or for the account or benefit of, a person in the United
States.

o                                   B             is an institutional accredited
investor meeting the requirements set forth in Rule 501(a)(1),(2),(3) or (7) of
Regulation D under the U.S. Securities Act that purchased Warrants from the
Corporation and is exercising Warrants for its own account or for one or more
investor accounts for which it is acting as fiduciary or agent and each such
investor account is an institutional accredited investor.

o                                  C             has enclosed herewith a written
opinion of counsel or other satisfactory evidence to the effect that the
issuance of Common Shares upon exercise of Warrants is not required to be
registered under the U.S. Securities Act and applicable state securities
laws.  The undersigned understands that
such opinion or other evidence must be acceptable to the Corporation.

DATED this           day
of                     ,
200     .

 

	
   

  	
   

  	
   

  
	
  Signature Guaranteed

  	
   

  	
  (Signature of
  Warrantholder)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Print full name

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Print full address

  

 

Instructions:

1.                                       The registered
holder may exercise its right to receive Common Shares by completing this form
and surrendering this form and the Warrant Certificate representing the
Warrants being exercised to the registered office of the Corporation.

 C-10
 

2.                                       If the Exercise
Form indicates that Common Shares are to be issued to a person or persons other
than the registered holder of the Warrant Certificate, the signature of such
holder of the Exercise Form must be guaranteed by an authorized officer of a
chartered bank, trust company or an investment dealer who is a member of a
recognized stock exchange.

3.                                       If the Exercise
Form is signed by a trustee, exercise, administrator, curator, guardian,
attorney, officer of a corporation or any person acting in a judiciary or
representative capacity, the certificate must be accompanied by evidence of
authority to sign satisfactory to the Corporation.

 C-11
 

SCHEDULE “C”

WARRANT
EXERCISE GRID

	
  Common Shares Issued

  	
   

  	
  Common Shares Available

  	
   

  	
  Initials of Authorized Officer

  
	
               

  	
   

  	
   

  	
   

  	
   

  
	
               

  	
   

  	
   

  	
   

  	
   

  
	
              

  	
   

  	
   

  	
   

  	
   

  
	
               

  	
   

  	
   

  	
   

  	
   

  
	
               

  	
   

  	
   

  	
   

  	
   

  

 C-12

EXHIBIT D

REGISTRATION
RIGHTS AGREEMENT

This
Registration Rights Agreement (this “Agreement”) is
made and entered into as of January 31, 2006, by and among Canadian Superior
Energy Inc., a corporation incorporated under the laws of the Province of
Alberta, Canada (the “Company”), and
West Coast Asset Opportunity Fund, LLC Inc., a Delaware limited liability
company (“Purchaser” and collectively with any
permitted transferees hereunder, the “Purchasers”).

This
Agreement is made pursuant to the Preferred Share Unit Purchase Agreement,
dated as of the date hereof among the Company and the Purchaser (the “Purchase Agreement”).

The
Company and the Purchaser hereby agree as follows:

1.                             Definitions.  Capitalized terms used and not otherwise
defined herein that are defined in the Purchase Agreement will have the
meanings given such terms in the Purchase Agreement.  As used in this Agreement, the following
terms have the respective meanings set forth in this Section 1:

“Advice” has the meaning set forth in Section 6(c).

“Commission”
means the U.S. Securities and Exchange Commission.

“Common Stock” means the Common Shares of the Company.

“Effective
Date” means the date that the Registration Statement filed pursuant
to Section 2(a) or 2(b) is first declared effective by the Commission.

“Effectiveness
Date” means (a) with respect to the initial Registration Statement
required to be filed under Section 2(a), the earlier of: (a)(i) the 180th day following
the Closing Date, and (ii) the fifth Trading Day following the date on which
the Company is notified by the Commission that the initial Registration
Statement will not be reviewed or is no longer subject to further review and
comments, and (b) with respect to any additional Registration Statements that
may be required pursuant to Section 2(b), the earlier of (i) the 180th day following
(x) if such Registration Statement is required because the Commission shall
have notified the Company in writing that certain Registrable Securities were
not eligible for inclusion on a previously filed Registration Statement, the
date or time on which the Commission shall indicate as being the first date or
time that such Registrable Securities may then be included in a Registration
Statement, or (y) if such Registration Statement is required for a reason other
than as described in clause (x) above, the date on which the Company first
knows, or reasonably should have known, that such additional Registration
Statement(s) is required, and (ii) the fifth Trading Day following the date on
which the Company is notified by the Commission that such additional
Registration Statement will not be reviewed or is no longer subject to further
review and comments.

“Effectiveness Period” has the meaning set forth in Section
2(a).

“Exchange Act”
means the Securities Exchange Act of 1934, as amended.

“Filing Date”
means (a) with respect to the initial Registration Statement required to be
filed under Section 2(a), the 30th day following the Closing Date, and (b) with
respect to any additional Registration Statements that may be required pursuant
to Section 2(b), the 45th day
following (x) if such Registration Statement is required because the Commission
shall have notified the Company in writing 

that certain Registrable Securities were not eligible for inclusion on a
previously filed Registration Statement, the date or time on which the
Commission shall indicate as being the first date or time that such Registrable
Securities may then be included in a Registration Statement, or (y) if such
Registration Statement is required for a reason other than as described in (x)
above, the date on which the Company first knows, or reasonably should have
known, that such additional Registration Statement(s) is required.

“Holder” or “Holders” means
the holder or holders, as the case may be, from time to time of Registrable
Securities.

“Indemnified Party”
has the meaning set forth in Section 5(c).

“Indemnifying Party”
has the meaning set forth in Section 5(c).

“Losses” has the
meaning set forth in Section 5(a).

“Preferred Shares” means the Cumulative Convertible
Redeemable Preferred Shares issued or issuable to the Purchasers pursuant to
the Purchase Agreement.

“Proceeding” means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.

“Prospectus” means the prospectus included in a Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by a Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and
all material incorporated by reference or deemed to be incorporated by
reference in such Prospectus.

“Registrable Securities” means: (i) the Shares, (ii) the
Warrant Shares and (iii) any securities issued or issuable upon any stock
split, dividend or other distribution, recapitalization or similar event, or
any adjustment with respect to any of the securities referenced in (i) or (ii)
above.

“Registration Statement” means the initial registration
statement required to be filed in accordance with Section 2(a) and any additional
registration statement(s) required to be filed under Section 2(b), including
(in each case) the Prospectus, amendments and supplements to such registration
statements or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference or
deemed to be incorporated by reference therein.

“Rule 144” means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.

“Rule 415” means Rule 415 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.

“Rule 424” means Rule 424 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.

 D-2
 

“Securities Act” means the Securities Act of 1933, as
amended.

“Shares” means the shares of Common Stock issued or issuable
to the Purchasers upon conversion of the Preferred Shares or as payment of a
dividend on the Preferred Shares or the Common Stock issued or issuable upon
conversion of the Preferred Shares.

“Trading Day” shall mean a day on which the Trading Market is
open for the transaction of business or, if the Common Stock is not listed or
admitted to trading on any national securities exchange or included in the
Nasdaq National Market System, a business day.

“Trading
Market” means the American Stock Exchange, Inc. or such other stock
exchange or electronic trading market which represents the highest volume
market (measured over the prior monthly period at the time of determination) in
the United States on which the Common Stock trades.

“Units” means the Preferred Shares and Warrants issued or issuable
to the Purchasers pursuant to the Purchase Agreement.

“Warrants” means the Common Stock purchase warrants issued or issuable
to the Purchasers pursuant to the Purchase Agreement.

“Warrant
Shares” means the
shares of Common Stock issued or issuable upon exercise of the Warrants or as
payment of a dividend on the Common Stock issued or issuable upon exercise of
the Warrants.

2.                             Registration.

(a)           On or prior to each Filing Date, the Company shall prepare
and file with the Commission a Registration Statement covering the resale of
all Registrable Securities not already covered by an existing and effective
Registration Statement for an offering to be made on a continuous basis
pursuant to Rule 415, on Form F-1 (or on such other form appropriate for such
purpose).  Such Registration Statement
shall contain (except if otherwise required pursuant to written comments
received from the Commission upon a review of such Registration Statement) the “Plan
of Distribution” substantially in the form attached hereto as Annex A.  The Company
shall use all commercially reasonable efforts to cause such Registration
Statement to be declared effective under the Securities Act as soon as
practicable but, in any event, no later than its Effectiveness Date, and shall
use all commercially reasonable efforts to keep the Registration Statement
continuously effective under the Securities Act until the date which is the
earlier of (i) two years after the date of this Agreement, (ii) such time
as all of the Registrable Securities covered by such Registration Statement
have been publicly sold by the Holders, or (iii) such time as all of the
Registrable Securities covered by such Registration Statement may be sold by
the Holders pursuant to Rule 144(k) as determined by the counsel to the Company
pursuant to a written opinion letter to such effect, addressed and acceptable
to the Company’s transfer agent and the affected Holders (the “Effectiveness Period”).

(b)           If for any reason the Commission does not permit all of
the Registrable Securities to be included in the Registration Statement filed
pursuant to Section 2(a), or for any other reason any outstanding Registrable
Securities are not then covered by an effective Registration Statement, then
the Company shall prepare and file by the Filing Date for such Registration
Statement, an additional Registration Statement covering the resale of all
Registrable Securities not already covered by an existing and effective
Registration Statement for an offering to be 

 D-3
 

made on a continuous basis pursuant to Rule 415, on
Form F-1 (or on such other form appropriate for such purpose).  Each such Registration Statement shall
contain (except if otherwise required pursuant to written comments received
from the Commission upon a review of such Registration Statement) the “Plan of
Distribution” substantially in the form attached hereto as Annex A.  The Company shall use all commercially
reasonable efforts to cause each such Registration Statement to be declared
effective under the Securities Act as soon as practicable but, in any event, by
its Effectiveness Date, and shall use all commercially reasonable best efforts
to keep such Registration Statement continuously effective under the Securities
Act during the entire Effectiveness Period.

(c)           Promptly following any date on which the Company becomes
eligible to use a registration statement on Form F-3 (or similar form that
permits incorporation of subsequently filed documents by reference) to register
the Registrable Securities for resale, the Company shall file a registration
statement on such Form covering the Registrable Securities (or a post-effective
amendment on such Form to the then effective Registration Statement) and shall
use all commercially reasonable efforts to cause such Registration
Statement to be declared effective as soon as practicable thereafter, but in
any event prior to the Effectiveness Date therefor. Such Registration Statement
shall contain (except if otherwise required pursuant to written comments
received from the Commission upon a review of such Registration Statement) the “Plan
of Distribution” substantially in the form attached hereto as Annex A.  The Company
shall use all commercially reasonable efforts to keep such Registration
Statement continuously effective under the Securities Act during the entire
Effectiveness Period.

(d)           If:  (i) a
Registration Statement is not filed on or prior to its Filing Date (if the
Company files a Registration Statement without affording the Holders the
opportunity to review and comment on the same as required by Section 3(a)
hereof, the Company shall not be deemed to have satisfied this clause (i)), or
(ii) a Registration Statement is not declared effective by the Commission on or
prior to its required Effectiveness Date, or (iii) after its Effective Date,
without regard for the reason thereunder or efforts therefore, such
Registration Statement ceases for any reason to be effective and available to
the Holders as to all Registrable Securities to which it is required to cover
at any time prior to the expiration of its Effectiveness Period for more than
an aggregate of 35 Trading Days (which need not be consecutive) (any such
failure or breach being referred to as an “Event,” and for
purposes of clauses (i) or (ii) the date on which such Event occurs, or for
purposes of clause (iii) the date which such 35 Trading Day-period is exceeded,
being referred to as “Event Date”),
then in addition to any other rights the Holders may have hereunder or under
applicable law:  on each such Event Date
until the applicable Event is cured, the Company shall pay to each Holder an
amount in cash, as partial liquidated damages and not as a penalty, equal to
1/30th of 1.0% of the aggregate Purchase
Price paid by such Holder for Units pursuant to the Purchase Agreement;
provided that in no event shall the aggregate amount payable to any such Holder
exceed 6.0% of the aggregate Purchase Price paid by such Holder for the
Units.  All such amounts shall be
pro-rated with respect to any Holder in the case the Company has not breached
the requirements of this Section 2(d) with respect to a portion of the
Registrable Securities issued or issuable to such Holder based on the relative
number of Registrable Securities which are not so registered compared to the
total number of Registrable Securities issued or issuable to such Holder.  The Company shall be obligated to pay any
such partial liquidated damages pursuant to this Section 2(d) in arrears on a
weekly basis on the last business day of each such week.  If the Company fails to pay any partial liquidated
damages pursuant to this Section 2(d) in full within seven days after the date
payable, the Company will pay interest thereon at a rate of 10% per annum (or
such lesser maximum amount that is 

 D-4
 

permitted to be paid by applicable law) to the Holder,
accruing daily from the date such partial liquidated damages are due until such
amounts, plus all such interest thereon, are paid in full.

(e)           Each Holder agrees to furnish to the Company a completed
Questionnaire in the form attached to this Agreement as Annex B
(a “Selling Holder Questionnaire”).  The Company shall not be required to include
the Registrable Securities of a Holder in a Registration Statement and shall
not be required to pay any liquidated or other damages under Section 2(d) to
any Holder who fails to furnish to the Company a fully completed Selling Holder
Questionnaire at least two Trading Days prior to the Filing Date (subject to
the requirements set forth in Section 3(a)).

3.                             Registration
Procedures.

In
connection with the Company’s registration obligations hereunder, the Company
shall:

(a)           Not less than six Trading Days prior to the filing of a
Registration Statement or any related Prospectus or any amendment or supplement
thereto unless a shorter time is agreed to in writing by the Holder, the
Company shall furnish to each Holder for review copies of the “Selling
Shareholders” and “Plan of Distribution” sections of such document, as proposed
to be filed with such documents.  The
Company shall not file a Registration Statement, any Prospectus or any
amendments or supplements thereto in which the disclosure in the “Selling
Shareholder” section thereof differs from the information received from a
Holder in its Selling Holder Questionnaire (as amended or supplemented).

(b)           (i)  Prepare and
file with the Commission such amendments, including post-effective
amendments, to each Registration Statement and the Prospectus used in
connection therewith as may be necessary to keep such Registration Statement
continuously effective as to the applicable Registrable Securities for the
applicable Effectiveness Period and prepare and file with the Commission such
additional Registration Statements in order to register for resale under the
Securities Act all of the Registrable Securities; (ii) cause the related
Prospectus to be amended or supplemented by any required Prospectus supplement,
and as so supplemented or amended to be filed pursuant to Rule 424; (iii)
respond as promptly as reasonably practicable to any comments received from the
Commission with respect to each Registration Statement or any amendment thereto
and, as promptly as reasonably practicable provide the Holders copies of all
correspondence from and to the Commission relating to such Registration
Statement that would not result in the disclosure to the Holders of material
and non-public information concerning the Company; and (iv) comply in all
material respects with the provisions of the Securities Act and the Exchange
Act with respect to the Registration Statements and the disposition of all Registrable
Securities covered by each Registration Statement.

(c)           Notify the Holders as promptly as reasonably practicable
(and, in the case of (i)(A) below, not less than three Trading Days prior to
such filing) and, if requested by any such Person, confirm such notice in
writing no later than one Trading Day following the day (i)(A) when a
Prospectus or any Prospectus supplement or post-effective amendment to a
Registration Statement is proposed to be filed; (B) when the Commission
notifies the Company whether there will be a “review” of such Registration
Statement and whenever the Commission comments in writing on such Registration
Statement (the Company shall provide copies thereof and all written responses
thereto to each of the Holders that pertain to the Holders as a selling
shareholder or to the “Plan of Distribution” section, but not information which
the Company believes would constitute material and non-public information); and
(C) with respect to each Registration 

 D-5
 

Statement or any post-effective amendment, when
the same has become effective; (ii) of any request by the Commission for
amendments or supplements to a Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of a Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) of the receipt by the Company of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction, or the initiation or
threatening of any Proceeding for such purpose; and (v) of the occurrence of
any event or passage of time that makes the financial statements included in a
Registration Statement ineligible for inclusion therein or any statement made
in such Registration Statement or Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect
or that requires any revisions to such Registration Statement, Prospectus or
other documents so that, in the case of such Registration Statement or the
Prospectus, as the case may be, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.

(d)           Use all commercially reasonable efforts to avoid the
issuance of, or, if issued, obtain the withdrawal of (i) any order suspending
the effectiveness of a Registration Statement, or (ii) any suspension of the
qualification (or exemption from qualification) of any of the Registrable
Securities for sale in any jurisdiction, at the earliest practicable moment.

(e)           Furnish to each Holder, without charge, at least one
conformed copy of each Registration Statement and each amendment thereto and
all exhibits to the extent requested by such Person (including those previously
furnished) promptly after the filing of such documents with the Commission.

(f)            Promptly deliver to each Holder, without charge, as many
copies of each Prospectus or Prospectuses (including each form of prospectus)
and each amendment or supplement thereto as such Persons may reasonably
request.  The Company hereby consents to
the use of such Prospectus and each amendment or supplement thereto by each of
the selling Holders in connection with the offering and sale of the Registrable
Securities covered by such Prospectus and any amendment or supplement thereto.

(g)           Prior to any public offering of Registrable Securities, to
use all commercially reasonable efforts to register or qualify or cooperate
with the selling Holders in connection with the registration or qualification
(or exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or Blue Sky laws of all
jurisdictions within the United States, to keep each such registration or
qualification (or exemption therefrom) effective during the Effectiveness
Period and to do any and all other acts or things necessary or advisable to
enable the disposition in such jurisdictions of the Registrable Securities
covered by the Registration Statements.

(h)           Cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be delivered to a transferee pursuant to the Registration Statements, which
certificates shall be free, to the extent permitted by the Purchase Agreement,
of all restrictive legends, and to enable such Registrable Securities to be in
such denominations and registered in such names as any such Holders may
request.

 D-6

(i)                                     Cause all such
Registrable Securities registered pursuant hereunder to be listed on each
securities exchange on which similar securities issued by the Company are then
listed.

(j)                                     Provide a
transfer agent and registrar for all Registrable Securities registered pursuant
hereunder and a CUSIP number for all such Registrable Securities, in each case
not later than the effective date of such registration.

(k)                                  Upon the
occurrence of any event contemplated by Section 3(c)(v), as promptly as
reasonably practicable, prepare a supplement or amendment, including a post-effective
amendment, to the affected Registration Statements or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, no Registration Statement nor any Prospectus will contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.

4.                                                                                       Registration
Expenses.  All fees and
expenses incident to the performance of or compliance with this Agreement by
the Company shall be borne by the Company whether or not any Registrable
Securities are sold pursuant to a Registration Statement.  The fees and expenses referred to in the
foregoing sentence shall include, without limitation, (i) all registration and
filing fees (including, without limitation, fees and expenses (A) with respect
to filings required to be made with the Trading Market on which the Common
Stock is then listed for trading, and (B) in compliance with applicable state
securities or Blue Sky laws), (ii) printing expenses (including, without
limitation, expenses of printing certificates for Registrable Securities and of
printing prospectuses if the printing of prospectuses is reasonably requested
by the holders of a majority of the Registrable Securities included in the
Registration Statement), (iii) fees and disbursements of counsel for the
Company and the reasonable fees and disbursements of one counsel for the
selling Holders not to exceed $15,000 in the aggregate, (iv) Securities Act
liability insurance, if the Company so desires such insurance, and (v) fees and
expenses of all other Persons retained by the Company in connection with the
consummation of the transactions contemplated by this Agreement.  Such fees and expenses shall not include fees
and disbursements of counsel for the selling shareholders.  In addition, the Company shall be responsible
for all of its internal expenses incurred in connection with the consummation
of the transactions contemplated by this Agreement (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), the expense of any annual audit and the fees and
expenses incurred in connection with the listing of the Registrable Securities
on any securities exchange as required hereunder.

5.                                                                                       Indemnification.

(a)                                  Indemnification
by the Company.  The Company
shall, notwithstanding any termination of this Agreement, indemnify and hold
harmless each Holder, the officers, directors, agents, investment advisors,
partners, members and employees of each of them, each Person who controls any
such Holder (within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act) and the officers, directors, agents and employees of
each such controlling Person, to the fullest extent permitted by applicable
law, from and against any and all losses, claims, damages, liabilities, costs
(including, without limitation, reasonable costs of preparation and reasonable
attorneys’ fees) and expenses (collectively, “Losses”),
as incurred, arising out of or relating to any untrue or alleged untrue
statement of a material fact contained in any Registration Statement, any
Prospectus or any form of prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, or arising out of or relating to any omission

 D-7
 

or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein (in the case of any Prospectus or form of
prospectus or supplement thereto, in light of the circumstances under which
they were made) not misleading or any violation or alleged violation by the
Company of the Securities Act, the Exchange Act, any state securities laws or
any rule or regulation promulgated under the Securities Act, the Exchange Act
or any state securities laws, except to the extent, but only to the extent,
that (1) such untrue statements or omissions are based solely upon information
regarding such Holder furnished in writing to the Company by such Holder
expressly for use therein, or to the extent that such information relates to such
Holder or such Holder’s proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in the Registration Statement, such Prospectus or such form
of Prospectus or in any amendment or supplement thereto (it being understood
that the Holder has approved Annex A hereto
for this purpose) or (2) in the case of an occurrence of an event of the type
specified in Section 3(c)(ii)-(v), the use by such Holder of an outdated or
defective Prospectus after the Company has notified such Holder in writing that
the Prospectus is outdated or defective and prior to the receipt by such Holder
of Advice or an amended or supplemented Prospectus, but only if and to the
extent that following the receipt of the Advice or the amended or supplemented
Prospectus the misstatement or omission giving rise to such Loss would have
been corrected.  The Company shall notify
the Holders promptly of the institution, threat or assertion of any Proceeding
of which the Company is aware in connection with the transactions contemplated
by this Agreement.

(b)                                 Indemnification
by Holders. Each Holder shall, severally and not jointly,
indemnify and hold harmless the Company, its directors, officers, agents and
employees, each Person who controls the Company (within the meaning of Section
15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses, as
incurred, arising solely out of or based solely upon: (x) such Holder’s failure
to comply with the prospectus delivery requirements of the Securities Act or
(y) any untrue statement of a material fact contained in any Registration
Statement, any Prospectus, or any form of prospectus, or in any amendment or
supplement thereto, or arising solely out of or based solely upon any omission
of a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in light of the circumstances under which they were made)
not misleading to the extent, but only to the extent that, (1) such untrue
statements or omissions are based solely upon information regarding such Holder
furnished in writing to the Company by such Holder expressly for use therein,
or to the extent that such information relates to such Holder or such Holder’s
proposed method of distribution of Registrable Securities and was reviewed and
expressly approved in writing by such Holder expressly for use in the
Registration Statement (it being understood that the Holder has approved Annex A hereto for this purpose), such Prospectus or such
form of prospectus or in any amendment or supplement thereto or (2) in the case
of an occurrence of an event of the type specified in Section 3(c)(ii)-(v), the
use by such Holder of an outdated or defective Prospectus after the Company has
notified such Holder in writing that the Prospectus is outdated or  defective and prior to the receipt by such
Holder of Advice or an amended or supplemented Prospectus, but only if and to
the extent that following the receipt of the Advice or the amended or
supplemented Prospectus the misstatement or omission giving rise to such Loss
would have been corrected.  In no event
shall the liability of any selling Holder hereunder be greater in amount than
the dollar amount of the net proceeds received by such Holder upon the sale of
the Registrable Securities giving rise to such indemnification obligation.

 D-8
 

(c)                                  Conduct of
Indemnification Proceedings. If any Proceeding shall be
brought or asserted against any Person entitled to indemnity hereunder (an “Indemnified Party”), such Indemnified Party shall promptly
notify the Person from whom indemnity is sought (the “Indemnifying
Party”) in writing, and the Indemnifying Party shall assume the
defense thereof, including the employment of counsel reasonably satisfactory to
the Indemnified Party and the payment of all fees and expenses incurred in
connection with defense thereof; provided, that the failure of any Indemnified
Party to give such notice shall not relieve the Indemnifying Party of its
obligations or liabilities pursuant to this Agreement, except to the extent,
and only to the extent, that it shall be finally determined by a court of
competent jurisdiction (which determination is not subject to appeal or further
review) that such failure shall have proximately and materially adversely
prejudiced the Indemnifying Party.

An Indemnified Party shall
have the right to employ separate counsel in any such Proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party or Parties unless:  (1) the Indemnifying Party has agreed in
writing to pay such fees and expenses; (2) the Indemnifying Party shall have
failed promptly to assume the defense of such Proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Proceeding; or
(3) representation of such Indemnified Party by the counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential differing
interests between such Indemnified Party and any other party represented by
such counsel in such proceeding, in which case, if such Indemnified Party
notifies the Indemnifying Party in writing that it elects to employ separate
counsel at the expense of the Indemnifying Party, the Indemnifying Party shall
not have the right to assume the defense thereof and such counsel shall be at
the expense of the Indemnifying Party. 
The Indemnifying Party shall not be liable for any settlement of any
such Proceeding effected without its written consent, which consent shall not
be unreasonably withheld.  No Indemnifying
Party shall, without the prior written consent of the Indemnified Party, effect
any settlement of any pending Proceeding in respect of which any Indemnified
Party is a party, unless such settlement includes an unconditional release of
such Indemnified Party from all liability on claims that are the subject matter
of such Proceeding.

All fees and expenses of the
Indemnified Party (including reasonable fees and expenses to the extent
incurred in connection with investigating or preparing to defend such
Proceeding in a manner not inconsistent with this Section) shall be paid to the
Indemnified Party, as incurred, within ten Trading Days of written notice
thereof to the Indemnifying Party (regardless of whether it is ultimately
determined that an Indemnified Party is not entitled to indemnification
hereunder; provided, that the Indemnifying Party may require such Indemnified
Party to undertake to reimburse all such fees and expenses to the extent it is
finally judicially determined that such Indemnified Party is not entitled to
indemnification hereunder).

(d)                                 Contribution.  If a claim for indemnification under Section
5(a) or 5(b) is unavailable to an Indemnified Party (by reason of public policy
or otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable
considerations.  The relative fault of
such Indemnifying Party and Indemnified Party shall be determined by reference
to, among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission of
a material fact, has been taken or made by, or relates to information supplied
by, such Indemnifying Party or Indemnified Party, and the parties’ relative
intent, knowledge, access to information and opportunity to correct or prevent
such action, statement or omission.

 D-9
 

The
amount paid or payable by a party as a result of any Losses shall be deemed to
include, subject to the limitations set forth in Section 5(c), any reasonable
attorneys’ or other reasonable fees or expenses incurred by such party in
connection with any Proceeding to the extent such party would have been
indemnified for such fees or expenses if the indemnification provided for in
this Section was available to such party in accordance with its terms.

The parties hereto agree that
it would not be just and equitable if contribution pursuant to this Section
5(d) were determined by pro rata allocation or by any other method of
allocation that does not take into account the equitable considerations
referred to in the immediately preceding paragraph.  Notwithstanding the provisions of this
Section 5(d), no Holder shall be required to contribute, in the aggregate, any
amount in excess of the amount by which the proceeds actually received by such
Holder from the sale of the Registrable Securities subject to the Proceeding
exceeds the amount of any damages that such Holder has otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission.

The indemnity and contribution
agreements contained in this Section are in addition to any liability that the
Indemnifying Parties may have to the Indemnified Parties.

6.                                                                                       Miscellaneous.

(a)                                  No Piggyback on
Registrations.  Without the
prior written consent of Holders of a majority in interest of the then
outstanding Registrable Securities (i) neither the Company nor any of its
security holders (other than the Holders in such capacity pursuant hereto) may
include securities of the Company in a Registration Statement other than the
Registrable Securities, and (ii) the Company shall not during the Registration
Period enter into any agreement providing any such right to any of its security
holders.

(b)                                 Compliance.  Each Holder covenants and agrees that it will
comply with the prospectus delivery requirements of the Securities Act as
applicable to it in connection with sales of Registrable Securities pursuant to
the Registration Statement.

(c)                                  Discontinued
Disposition.  Each Holder
agrees by its acquisition of such Registrable Securities that, upon receipt of
a notice from the Company of the occurrence of any event of the kind described
in Section 3(c), such Holder will forthwith discontinue disposition of such
Registrable Securities under the Registration Statement until such Holder’s
receipt of the copies of the supplemented Prospectus and/or amended
Registration Statement or until it is advised in writing (the “Advice”) by the Company that the use of the applicable
Prospectus may be resumed, and, in either case, has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus or Registration Statement.  The Company may provide appropriate stop
orders to enforce the provisions of this paragraph.

(d)                                 Amendments and
Waivers.  The provisions of this
Agreement, including the provisions of this Section 6(d), may not be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the same shall be in writing and
signed by the Company and the Holders of no less than a majority in interest of
the then outstanding Registrable Securities. 
Notwithstanding the foregoing, a waiver or consent to depart from the
provisions hereof with respect to a matter that relates exclusively to the
rights of certain Holders and that does not directly or indirectly affect the
rights of other Holders may be given by Holders of at least a majority of the
Registrable Securities to which such waiver or consent relates.

 D-10
 

(e)                                  Notices.  Any and all notices or other communications
or deliveries required or permitted to be provided hereunder shall be in
writing and shall be deemed given and effective on the earliest of (a) the date
of transmission, if such notice or communication is delivered via facsimile
(provided the sender receives a machine-generated confirmation of successful
transmission) at the facsimile number specified in this Section prior to 6:30
p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the
date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number specified in this Section on a day that is
not a Trading Day or later than 5:00 p.m. (Calgary time) on any Trading Day,
(c) the Trading Day following the date of mailing, if sent by U.S. nationally
recognized overnight courier service, or (d) upon actual receipt by the party
to whom such notice is required to be given. 
The address for such notices and communications shall be as follows:

	
  If to the Company:

  	
  Canadian Superior Energy Inc.

  
	
   

  	
  3300, 400 – 3rd Avenue SW

  
	
   

  	
  Calgary, Alberta

  
	
   

  	
  Canada T2P 4H2

  
	
   

  	
  Attn: Greg S.
  Noval

  
	
   

  	
  Facsimile: (403)
  216-2374

  
	
   

  	
   

  
	
  With a copy to:

  	
  Preston Gates & Ellis LLP

  
	
   

  	
  925 Fourth
  Avenue, Suite 2900

  
	
   

  	
  Seattle, WA
  98104

  
	
   

  	
  Attn.: Gary J.
  Kocher

  
	
   

  	
  Facsimile: (206)
  370-6105

  

 

If to a Purchaser:                                                    To
the address of such Purchaser as set forth under Section 7.5 of the Purchase
Agreement.

If to any other Person who is then the registered Holder:

To the address of such
Holder as it appears in the stock transfer books of the Company

or such other address as may
be designated in writing hereafter, in the same manner, by such Person

(f)                                    Successors and
Assigns.  This Agreement shall inure to
the benefit of and be binding upon the successors and permitted assigns of each
of the parties and shall inure to the benefit of each Holder.  The rights to cause the Company to register
Registrable Securities may be assigned (but only with all related obligations)
by a Holder to a transferee or assignee of such securities that (i) is a
subsidiary, parent, partner, limited partner, member, retired partner or shareholder
of a Holder, (ii) is a Holder’s family member or trust for the benefit of an
individual Holder, or (iii) after such assignment or transfer, holds at least
100,000 shares of Registrable Securities (subject to appropriate adjustment for
stock splits, stock dividends, combinations and other recapitalizations);
provided, that in the case of any such transfer, the Holder or Holders of a
majority in interest of the Registrable Securities shall be entitled to act for
and bind the other Holders in the case of any matter hereunder that requires
the consent or action of the Holders.

(g)                                 Execution and
Counterparts.  This
Agreement may be executed in any number of counterparts, each of which when so
executed shall be deemed to be an original and, all of which taken together
shall constitute one and the same Agreement. 
In the event that any signature is delivered by facsimile transmission,
such signature shall create a valid binding obligation of the

 D-11
 

party
executing (or on whose behalf such signature is executed) the same with the
same force and effect as if such facsimile signature were the original thereof.

(h)                                 Governing Law.  All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the
State of New York, without regard to the principles of conflicts of law
thereof.

(i)                                              Cumulative Remedies.  The remedies provided herein are cumulative
and not exclusive of any remedies provided by law.

(j)                                             Severability. If any term,
provision, covenant or restriction of this Agreement is held by a court
of competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their reasonable efforts to
find and employ an alternative means to achieve the same or substantially the
same result as that contemplated by such term, provision, covenant or
restriction.  It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any
of such that may be hereafter declared invalid, illegal, void or unenforceable.

(k)                                  Headings.  The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.

[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGES TO FOLLOW]

 D-12
 

[Signature
Page to Registration Rights Agreement]

IN WITNESS
WHEREOF, the parties have executed this Registration Rights Agreement as of the
date first written above.

 

	
   

  	
  CANADIAN SUPERIOR ENERGY INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  WEST COAST OPPORTUNITY FUND, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  By: West Coast Asset Management, Inc, managing
  member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name: Atticus Lowe

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:  Vice
  President

  	
   

  
					

 

 D-13
 

Annex A

Plan of
Distribution

The Selling Shareholders and any of their pledgees,
donees, transferees, assignees and successors-in-interest may, from time to
time, sell any or all of their shares of Common Stock on any stock exchange,
market or trading facility on which the shares are traded or in private
transactions.  These sales may be at
fixed or negotiated prices.  The Selling
Shareholders may use any one or more of the following methods when selling
shares:

·                                          ordinary
brokerage transactions and transactions in which the broker-dealer
solicits Purchasers;

·                                          block
trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;

·                                          purchases
by a broker-dealer as principal and resale by the broker-dealer for
its account;

·                                          an
exchange distribution in accordance with the rules of the applicable exchange;

·                                          privately
negotiated transactions;

·                                          to
cover short sales made after the date that this Registration Statement is declared
effective by the Commission;

·                                          broker-dealers
may agree with the Selling Shareholders to sell a specified number of such
shares at a stipulated price per share;

·                                          a
combination of any such methods of sale; and

·                                          any
other method permitted pursuant to applicable law.

The Selling Shareholders may also sell shares under
Rule 144 under the Securities Act, if available, rather than under this
prospectus.

Broker-dealers engaged by the Selling
Shareholders may arrange for other brokers-dealers to participate in
sales.  Broker-dealers may receive
commissions or discounts from the Selling Shareholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated.  The Selling Shareholders do
not expect these commissions and discounts to exceed what is customary in the
types of transactions involved.

The Selling Shareholders may from time to time pledge
or grant a security interest in some or all of the Shares owned by them and, if
they default in the performance of their secured obligations, the pledgees or
secured parties may offer and sell shares of Common Stock from time to time
under this prospectus, or under an amendment to this prospectus under Rule
424(b)(3) or other applicable provision of the Securities Act of 1933 amending
the list of Selling Shareholders to include the pledgee, transferee or other
successors in interest as Selling Shareholders under this prospectus.

 D-14
 

Upon the Company being notified in writing by a
Selling Shareholder that any material arrangement has been entered into with a
broker-dealer for the sale of Common Stock through a block trade, special
offering, exchange distribution or secondary distribution or a purchase by a
broker or dealer, a supplement to this prospectus will be filed, if required,
pursuant to Rule 424(b) under the Securities Act, disclosing (i) the name of
each such Selling Shareholder and of the participating broker-dealer(s), (ii)
the number of shares involved, (iii) the price at which such the shares of
Common Stock were sold, (iv) the commissions paid or discounts or concessions
allowed to such broker-dealer(s), where applicable, (v) that such
broker-dealer(s) did not conduct any investigation to verify the information
set out or incorporated by reference in this prospectus, and (vi) other facts
material to the transaction.  In
addition, upon the Company being notified in writing by a Selling Shareholder
that a donee or pledgee intends to sell more than 500 shares of Common Stock, a
supplement to this prospectus will be filed if then required in accordance with
applicable securities law.

The Selling Shareholders also may transfer the shares
of Common Stock in other circumstances, in which case the transferees, pledgees
or other successors in interest will be the selling beneficial owners for
purposes of this prospectus.

The Selling Shareholders and any broker-dealers
or agents that are involved in selling the shares may be deemed to be “underwriters”
within the meaning of the Securities Act in connection with such sales.  In such event, any commissions received by
such broker-dealers or agents and any profit on the resale of the shares
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act.  Discounts,
concessions, commissions and similar selling expenses, if any, that can be
attributed to the sale of Securities will be paid by the Selling Shareholder
and/or the purchasers.  Each Selling
Shareholder has represented and warranted to the Company that it acquired the
securities subject to this registration statement in the ordinary course of
such Selling Shareholder’s business and, at the time of its purchase of such
securities such Selling Shareholder had no agreements or understandings,
directly or indirectly, with any person to distribute any such securities.

The Company has advised each Selling Shareholder that
it may not use shares registered on this Registration Statement to cover short
sales of Common Stock made prior to the date on which this Registration
Statement shall have been declared effective by the Commission.  If a Selling Shareholder uses this prospectus
for any sale of the Common Stock, it will be subject to the prospectus delivery
requirements of the Securities Act.  The
Selling Shareholders will be responsible to comply with the applicable
provisions of the Securities Act and Exchange Act, and the rules and
regulations thereunder promulgated, including, without limitation, Regulation
M, as applicable to such Selling Shareholders in connection with resales of their
respective shares under this Registration Statement.

The Company is required to pay all fees and expenses
incident to the registration of the shares, but the Company will not receive
any proceeds from the sale of the Common Stock. 
The Company has agreed to indemnify the Selling Shareholders against
certain losses, claims, damages and liabilities, including liabilities under
the Securities Act.

 D-15
 

Annex B

CANADIAN
SUPERIOR ENERGY INC.

Selling
Securityholder Notice and Questionnaire

The undersigned beneficial
owner of common stock (the “Common Stock”),
of Canadian Superior Energy Inc. (the “Company”) or
rights to acquire Common Stock understands that the Company has filed or
intends to file with the Securities and Exchange Commission (the “Commission”) a Registration Statement for the registration
and resale of the Registrable Securities, in accordance with the terms of the
Registration Rights Agreement, dated as of January       ,
2006 (the “Registration Rights Agreement”), among
the Company and the Purchasers named therein. 
A copy of the Registration Rights Agreement is available from the
Company upon request at the address set forth below.  All capitalized terms used and not otherwise
defined herein shall have the meanings ascribed thereto in the Registration
Rights Agreement.

The undersigned hereby
provides the following information to the Company and represents and warrants
that such information is accurate:

QUESTIONNAIRE

1.                                      Name.

(a)                                  Full Legal Name of Selling Securityholder

 

(b)                                 Full Legal Name of Registered Holder (if
not the same as (a) above) through which Registrable Securities Listed in Item
3 below are held:

 

(c)                                  Full Legal Name of Natural Control Person
(which means a natural person who directly or indirectly alone or with others
has power to vote or dispose of the securities covered by the questionnaire):

2.  Address for Notices to Selling
Securityholder:

 

 D-16
 

 

 

	
  Telephone:

  
	
   

  
	
  Fax:

  
	
   

  
	
  Contact Person:

  

 

3. 
Beneficial Ownership of Registrable Securities:

Type and Principal Amount
of Registrable Securities beneficially owned:

 

 

4. 
Broker-Dealer Status:

(a)                                  Are you a broker-dealer?

Yes   o              No   o

Note:                   If yes, the Commission’s staff has
indicated that you should be identified as an underwriter in the Registration
Statement.

(b)                                 Are you an affiliate of a broker-dealer?

Yes   o              No   o

(c)                                  If you are an affiliate of a
broker-dealer, do you certify that you bought the Registrable Securities in the
ordinary course of business, and at the time of the purchase of the Registrable
Securities to be resold, you had no agreements or understandings, directly or
indirectly, with any person to distribute the Registrable Securities?

Yes   o              No   o

Note:                   If no, the Commission’s staff has
indicated that you should be identified as an underwriter in the Registration
Statement.

5. 
Beneficial Ownership of Other Securities of the Company Owned by the
Selling Securityholder.

Except as set forth below in this Item 5, the undersigned is
not the beneficial or registered owner of any securities of the Company other
than the Registrable Securities listed above in Item 3.

Type
and Amount of Other Securities beneficially owned by the Selling
Securityholder:

 D-17
 

6.  Relationships with the Company:

Except as set forth below, neither the undersigned nor any
of its affiliates, officers, directors or principal equity holders (owners of
5% of more of the equity securities of the undersigned) has held any position
or office or has had any other material relationship with the Company (or its
predecessors or affiliates) during the past three years.

State
any exceptions here:

 

 

The undersigned agrees to
promptly notify the Company of any inaccuracies or changes in the information
provided herein that may occur subsequent to the date hereof and prior to the
Effective Date for the Registration Statement.

By
signing below, the undersigned consents to the disclosure of the information
contained herein in its answers to Items 1 through 6 and the inclusion of such
information in the Registration Statement and the related prospectus.  The undersigned understands that such
information will be relied upon by the Company in connection with the
preparation or amendment of the Registration Statement and the related
prospectus.

IN
WITNESS WHEREOF the undersigned, by authority duly given, has caused this
Notice and Questionnaire to be executed and delivered either in person or by
its duly authorized agent.

	
  Dated:

  	
   

  	
   

  	
  Beneficial Owner:

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
						

 

PLEASE
FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN
THE ORIGINAL BY OVERNIGHT MAIL, TO:

Devin Stockfish

Preston Gates & Ellis
LLP

925 Fourth Avenue

Suite 2900

Seattle, WA 98104

Fax:  (206)
623-7022

 D-18

EXHIBIT E-1

January
31, 2006

	
  West Coast Opportunity Fund,
  LLC

  c/o West Coast Asset
  Management, Inc.

  2151 Alessandra Drive, Suite
  100

  Ventura, California

  USA 9300

   

  Attention:  Mr. Atticus Lowe

  	
  Jeffer, Mangels, Butler and
  Marmaro LLP

  1900 Avenue of the Stars, 7th Floor

  Los Angeles, California

  USA 90067

   

   

  Attention:  Mr. Frank Schwertfeger

  

 

Dear Sirs:

Re:                             Canadian
Superior Energy Inc.  - Issuance of
15,000 Units

We have acted as counsel to
Canadian Superior Energy Inc. (“CanSup” or the “Corporation”) in connection
with the sale, by way of private placement by the Corporation, of 15,000 units
(the “Units”), each Unit consisting of ten (10) 5% US  $100 Cumulative Convertible Redeemable
preferred shares of the Corporation (the “Preferred Shares”) and 80 common
share purchase warrants (the “Warrants”) at a price of US $10,000 per
Unit.  Each Preferred Share is
convertible, in certain circumstances and subject to adjustment in certain
events, into forty (40) common shares of the Corporation (“Common Share”)
at no additional cost.  Each Warrant is
exercisable, subject to adjustment in certain events, for the purchase of one
Common Share at a cost of US $3.00. 
We understand that the Units are being issued and sold pursuant to the
terms and subject to the conditions of an agreement (the “Purchase Agreement”)
dated as of January 31, 2006 between CanSup and West Coast Opportunity
Fund, LLC (the “Purchaser”).  This
opinion is being delivered pursuant to Section 4.5 of the Purchase Agreement.

We have participated in the
preparation of and have reviewed: (i) the Purchase Agreement; and
(ii) the Registration Rights Agreement entered into between the
Corporation and the Purchaser (collectively, the “Agreements”).

We have examined such
documents and have considered such questions of law as we have considered
relevant and necessary as a basis for the opinions hereinafter set forth.  As to various questions of fact material to
such opinions and which were not independently established, we have relied upon
certificates of public officials and officers of the Corporation, copies of
which have been delivered to you today, and on the minute books of the
Corporation.  In such examination we have
assumed the genuineness of all signatures and the authenticity of all documents
submitted to us as originals and the conformity to authentic originals of all
documents submitted to us as certified, notarial or true copies or facsimiles.

For the purposes of the
opinions expressed in paragraph 1 we have relied upon a Certificate of
Status electronically retrieved from the official records of Corporate Registry
as maintained by the Registrar of Corporations under the Business Corporations Act (Alberta).  For the purposes of the opinions expressed in
paragraph 8, we have relied upon a certificate issued by the Alberta
Securities Commission pursuant to section 141 of the Securities Act (Alberta), a copy of which
has been provided to you and our opinion is subject to the limitations and
qualifications set out therein and which we have assumed continues to be

accurate on the date
hereof.  For the purpose of the opinions
expressed in paragraphs 5 and
6, in connection with certain factual matters, we have relied upon a
certificate of an officer of the Corporation (the “Officer’s Certificate”), a
copy of which has been provided to you today. 
We have also assumed, for the purposes of the opinions expressed herein,
that all agreements and other documents have been duly authorized, executed and
delivered by all of the parties thereto other than the Corporation and that
such agreements and other documents constitute legal, valid and binding
obligations of the parties thereto other than the Corporation, enforceable
against each of them in accordance with their respective terms.

For the purpose of the
opinions expressed herein, we have also assumed that:

1.                                       the
representations, warranties and acknowledgments of the Purchaser and the
Corporation set forth in the Purchase Agreement are true, correct and accurate
in all respects at all applicable times up to and including the date hereof,
all of the covenants of the Purchaser set out therein have been performed and
that the distribution of the Preferred Shares and Warrants constituting the
Units was effected in accordance with the terms thereof;

2.                                       the issue and
sale of the Preferred Shares and Warrants constituting the Units has been
effected without the preparation, use or delivery of an “offering memorandum”
(as defined in the Securities Act
(Alberta)) and there has been no advertisement in printed media of general and
regular paid circulation, printed, public media or on radio, television or
telecommunications, including electronic display, in connection with the issue
and sale of the Preferred Shares;

3.                                       the Purchaser is
not a “promoter” or “insider” (each as defined in the Applicable Securities
Laws, as defined below) of the Corporation;

4.                                       the first trade
by a holder of Common Shares will not be a “control distribution” as such term
is defined in National Instrument 45-102 (“NI 45-102”); and

5.                                       at any relevant
time, no order, ruling or decision is in effect that restricts any trades in
Preferred Shares, Warrants or Common Shares or that affects any person or
company who engages in such trade.

Whenever our opinion with
respect to the existence or absence of facts or circumstances is qualified by
the phrase “to our knowledge” or “of which counsel is aware”, it is intended to
indicate that during the course of our representation of the Corporation no
information has come to our attention which would give us actual knowledge of
the existence of such facts or circumstances. 
However, other than the review of the Officer’s Certificate, the
Purchase Agreement, our current files for the Corporation and the Corporation’s
minute book, we have not undertaken any special or independent investigation to
determine the existence or absence of any facts or circumstances relating to
the Corporation.  No inference as to our
knowledge as to such facts and circumstances should be drawn merely from our
representation of the Corporation.

We are qualified to practice
law only in the Province of Alberta and our opinions herein are restricted to
the laws of the Province of Alberta and the federal laws of Canada applicable
therein.

For the purposes of this
opinion, the term “Alberta Securities Laws” means the Securities Act (Alberta) (the “ASA”), the
rules and regulations thereunder and the rules and policies of the Alberta
Securities Commission (“ASC”).

We
express no opinion with respect to any filings, proceedings, permits, consents,
orders or authorizations, which may be required in connection with any
transaction involving a party having the

 E-1-2
 

status
of an insider of the Corporation under Applicable Securities Laws.

Based
upon the foregoing and subject to the qualifications herein expressed, we are
of the opinion that:

1.                                       The Corporation
has been duly incorporated and is validly subsisting as a corporation in good
standing under the laws of the Province of Alberta and has all requisite
corporate power and authority to carry on its business as now conducted by it
and to own its property and assets in the Province of Alberta.

2.                                       The Corporation
has full corporate power and authority to enter into the Agreements, and to
perform its obligations set out in the Agreements, including to sell and issue
the Preferred Shares and Warrants constituting the Units, to issue the Common
Shares issuable upon conversion of the Preferred Shares or exercise of the
Warrants and to carry out and perform its other obligations under the terms of
the Agreements, and the Agreements have been duly authorized, executed and
delivered by the Corporation and constitute legal, valid and binding
obligations of the Corporation enforceable against the Corporation in
accordance with their respective terms, except that the validity, binding
effect and enforceability of the terms of the Agreements are subject to the
qualification that such validity, binding effect and enforceability may be
limited by:

(a)                                  applicable
bankruptcy, insolvency, moratorium, reorganization or other laws affecting
creditors’ rights generally;

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

(c)                                  the statutory and
inherent powers of a court to grant relief from forfeiture, to stay execution
of proceedings before it and to stay executions on judgments;

(d)                                 the applicable
laws regarding limitations of actions;

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

(f)                                    enforceability of
the provisions exculpating a party from liability or duty otherwise owed by it
may be limited under applicable law.

3.                                       The 15,000
Preferred Shares issued to the Purchaser are validly issued as fully paid and
non-assessable shares.  The Common Shares
issuable upon the conversion of the Preferred Shares have been reserved and
allotted for issuance and when issued will be legally and validly issued as
fully paid and non-assessable shares.

4.                                       The Toronto Stock
Exchange (the “TSX”) has conditionally accepted the filing documentation with
respect to the issuance of the 15,000 Preferred Shares and 1,200,000 Warrants
and the listing on the TSX, as the case may be, of the 6,000,000 Common Shares
issuable upon conversion of the Preferred Shares and 1,200,000 Common Shares
issuable upon exercise of the Warrants subject to the Corporation fulfilling
the requirements set forth in the TSX letter dated January 30, 2006.

5.                                       The authorized
share capital of the Corporation consists of an unlimited number of Common
Shares and 15,000 Preferred Shares, of which, on the date hereof (and prior to
giving effect to the

 E-1-3
 

issuance
of the Preferred Shares pursuant to the Purchase Agreement), 119,135,361 Common
Shares are issued and outstanding as fully paid and non-assessable shares and
no Preferred Shares are issued and outstanding. 
As of the date hereof, the Corporation has reserved for issuance
(i) 6,000,000 Common Shares issuable upon conversion of the Preferred
Shares; (ii) 1,200,000 Common Shares reserved for issuance upon the
exercise of Warrants; (iii) 2,750,000 Common Shares reserved for issuance
upon the exercise of warrants which expire on or prior to June 30, 2006; and
(iv) 10,450,875 Common Shares reserved for issuance upon the exercise of
outstanding options to purchase Common Shares (“Options”).  Other than the foregoing, to our knowledge, there are no outstanding
options, warrants, rights (including conversion or pre-emptive rights and
rights of first refusal or similar rights) or other conversion privileges or
rights presently outstanding to purchase any shares of the Corporation’s
authorized but unissued capital.

6.                                       The execution and
delivery of the Agreements, and the fulfilment of the terms thereof by the
Corporation, and the performance of and compliance with the terms of the
Agreements by the Corporation do not and will not result in a breach of, or
constitute a default under, and do not and will not create a state of facts
which, after notice or lapse of time or both, will result in a breach of or
constitute a default under: (i) any applicable laws of the Province of Alberta
or the laws of Canada applicable therein; (ii) any term or provision of the
articles or by-laws of the Corporation, (iii) of which counsel is aware, any
resolutions of the directors or shareholders of the Corporation; or (iv) of
which counsel is aware, any indenture, mortgage, note, contract, agreement
(written or oral), instrument, lease or other document to which the Corporation
is a party or by which it is bound on the date hereof, which might reasonably
be expected to materially adversely affect the business, operations, capital or
condition (financial or otherwise) of the Corporation or its properties or
assets.

7.                                       To our knowledge,
there are no actions, proceedings or governmental investigations pending or
threatened against the Corporation that questions the validity of the
Agreements, or the right of the Corporation to enter into the Agreements or to
perform its obligations thereunder.

8.                                       The Corporation
is a reporting issuer under the ASA and is not included in a list of defaulting
reporting issuers maintained pursuant to the ASA.

9.                                       The offering,
sale, issuance and delivery of the Preferred Shares and Warrants constituting
the Units, by the Corporation to the Purchaser is exempt from the prospectus
and registration requirements of the ASA and the only filing, proceeding,
approval, consent or authorization required to be made, taken or obtained
pursuant to Alberta Securities Laws to permit the distribution of the Preferred
Shares and Warrants constituting the Units to the Purchaser is the filing,
within ten days from the date of such issue and sale, of a report of the
distribution prepared on Form 45-106 F1 prepared and executed in
accordance with National Instrument 45-106.

10.                                 The first trade
by a Purchaser of the Preferred Shares or Warrants, or the securities into
which either are convertible, other than a trade which is otherwise exempted
under the Alberta Securities Laws, will be a distribution and subject to the
prospectus requirements of the Alberta Securities Laws, unless:

(a)                                  the Corporation
is and has been a reporting issuer for at least the four months immediately
preceding the trade in the province of Alberta;

(b)                                 at the time of
the trade, at least four months have elapsed from the distribution date (as
defined in NI 45-102);

 E-1-4
 

(c)                                  certificates
representing the Preferred Shares and the Warrants were issued with a legend
stating: “Unless permitted under securities legislation, the holder of the
securities shall not trade the securities before June 1, 2006”.

(d)                                 no unusual effort
is made to prepare the market or to create a demand for the Preferred Shares;

(e)                                  no extraordinary
commission or consideration is paid to a person or a company in respect of the
trade; and

(f)                                    the selling
securityholder has no reasonable grounds to believe that the Corporation is in
default of “securities legislation”, as defined in National Instrument 14-101.

11.                                 No filing,
proceeding, approval, consent or authorization is required to be made, taken or
obtained pursuant to the Alberta Securities Laws to permit the issuance by the
Corporation, at no additional cost of Common Shares upon the conversion of the
Preferred Shares, or the exercise of the Warrants, provided that no commission
or other remuneration is paid or given in respect of such distribution except
for administrative or professional services or for service performed by a
registered dealer.

12.                                 The first trade
by a holder of Common Shares received upon the conversion of Preferred Shares
or exercise of the Warrants will be a distribution and, other than a trade
which is otherwise exempted by the Alberta Securities Laws, subject to the
prospectus requirements of the Alberta Securities Laws unless:

(a)                                  the Corporation
is and has been a reporting issuer for at least the four months immediately
preceding the trade in the province of Alberta;

(b)                                 the selling security
holder has held the Preferred Shares or Warrants, as the case may be, or Common
Shares after conversion of the Preferred Shares or exercise of the Warrants,
for an aggregate of at least four months;

(c)                                  certificates
representing the Common Shares were issued with a legend stating: “Unless
permitted under securities legislation, the holder of the securities shall not
trade the securities before June 1, 2006”;

(d)                                 no unusual effort
is made to prepare the market or to create a demand for the Common Shares
underlying the Preferred Shares or Warrants;

(e)                                  no extraordinary
commission or consideration is paid to a person or a company in respect of the
trade; and

(f)                                    the selling
securityholder has no reasonable grounds to believe that the Corporation is in
default of “securities legislation”, as defined in National Instrument 14-101.

 E-1-5
 

This
opinion is being furnished for the sole benefit of the addressees hereof for
the purposes provided herein and may not be relied upon or distributed to any
other person or entity or for any other purpose without our prior written
consent.

Yours
truly,

 E-1-6

EXHIBIT
E-2

January 31, 2006

West Coast Asset
Opportunity Fund, LLC

295, Alessandra Drive, Suite 100

Ventura, California

USA 9300

Re:                               Canadian
Superior Energy Inc.

Ladies and Gentlemen:

We are
acting as special U.S. securities counsel to Canadian Superior Energy Inc., a
corporation incorporated under the laws of the Province of Alberta, Canada (the
“Company”), in connection with the offer and sale of Units by the Company.  At the request of the Company, we provide
this Opinion Letter to you pursuant to Section 4.5 of that certain Preferred
Share Unit Purchase Agreement dated as of January 31, 2006 (the “Purchase
Agreement”) by and among the Company and West Coast Asset Opportunity Fund, LLC
(the “Purchaser”).

This
Opinion Letter is subject to a number of assumptions, qualifications,
exceptions, definitions, limitations on coverage and other limitations, all as
set forth herein.  Except as otherwise
indicated herein, capitalized terms used in this Opinion Letter not otherwise
defined herein shall have the meanings specified in the Purchase Agreement.

In
connection with rendering this Opinion Letter, we have examined and relied upon
executed copies of the following documents or instruments:

1.                                       the
Purchase Agreement;

2.                                       the
warrant certificate representing the Warrants; and

3.                                       the
Registration Rights Agreement (the Registration Rights Agreement together with
the Purchase Agreement and the Warrants are referred to herein as the “Transaction
Documents”).

We have made no other
independent investigation or review of any other documents or agreements. As to
factual matters material to our Opinion Letter, we have relied upon and assumed
the accuracy of the representations, warranties and covenants of the various
parties contained in the Transaction Documents, and a certificate in which a
principal officer of the Company certifies certain factual matters relating to
the opinions expressed herein (the “Officer Certificate”), a copy of which is
attached to this Opinion Letter.

The law covered by
the opinions expressed herein is limited to the Law (as defined below) of the
State of Washington and the U.S. Securities Act of 1933, as amended (the “U.S.
Securities Act”), in each case as limited by the assumptions, qualifications,
limitations and exceptions set forth herein (collectively, the “Covered Law”).  “Law” means the statutes of the State of
Washington, the judicial decisions of the State of Washington and the U.S.
Federal courts located in the Ninth Circuit of the U.S. Court of Appeals
interpreting such statutes, in each case which are known to us to be applicable
to the transactions contemplated by the Transaction Documents.  To the extent that any of the documents or
actions covered by the opinions herein are governed by or interpreted under any
laws other than the Covered Law, we have assumed, with your permission, that
such documents and actions are governed by the Law of the

State of Washington
notwithstanding the parties’ selection of such other laws as the governing laws
for such documents or actions.  We
express no opinion except as expressly set forth herein and no opinions shall
be implied.

The opinions
expressed herein are qualified in their entirety by and subject to the
following assumptions, qualifications, limitations and exceptions set forth
herein and below:

A.                                   Each
natural person who has executed a document submitted to us for review has
sufficient legal capacity to execute and deliver such document and to enter
into and perform his or her obligations set forth therein or to carry out their
role in it, if any.

B.                                     Each
document submitted to us for review in connection with this Opinion Letter is
accurate and complete, each such document that is an original is authentic,
each such document that is a copy conforms to an authentic original, and all
signatures on each such document are genuine.

C.                                     We
express no opinion on any fact in any representation or warranty or the
accuracy of any calculations, descriptions or facts in the Transaction
Documents, in any exhibit or schedule to the Transaction Documents, or in any
document referenced in or related to any of the foregoing.

D.                                    We
express no opinion concerning any U.S. federal or state securities laws, rules
or regulations, except for the opinions specifically expressed herein.

E.                                      Our
opinions herein are subject to and assume that the Company will timely file any
post-sale notification required pursuant to Regulation D of the U.S. Securities
Act, and that the representations of the Company and the Purchaser in the
Transaction Documents are correct and that the Company and the Purchaser and
all affiliates and sub-agents of any of the foregoing have complied and will
comply with covenants made in the Transaction Documents.

F.                                      We
express no opinion with respect to the indemnification and contribution
obligations of the Company contained in the Registration Rights Agreement and
our opinion expressed in paragraph (1) below excludes the enforceability and
performance of such obligations.

G.                                     Our opinion
expressed in paragraph (1) below is subject to (i) the effect of applicable
state or federal bankruptcy, insolvency, conservatorship, receivership,
seizure, liquidation, reorganization, moratorium, fraudulent conveyance or
transfer, forfeiture, or similar laws affecting the rights of creditors
generally, (ii) the effect of rules of law or principles of equity, including,
without limitation, concepts of materiality, good faith and fair dealing,
commercial reasonableness, course of dealing and usage in trade,
unconscionability, specific performance, injunctive relief, appointment of a
receiver and other equitable remedies, and the discretion of the court before
which proceedings may be brought to enforce or interpret the Registration
Rights Agreement or any documents or instruments contemplated thereby, and
(iii) the context rule of interpretation of contracts under the laws of the
State of Washington, pursuant to which courts will admit extrinsic evidence to
interpret a contract even though terms of a contract may be unambiguous.

H.                                    We have assumed
the facts and law governing the future performance of obligations under the
Transaction Documents will be identical to the facts and law governing such
performance on the date of this opinion.

Based upon and subject
to the foregoing, we are of the opinion that:

 E-2-2
 

(1)                                  The Registration
Rights Agreement constitutes a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms.

(2)                                  The
offer, sale and issuance by the Company to the Purchaser of the Preferred
Shares and Warrants that constitute the Units in accordance with the terms of
the Purchase Agreement are, and the issuance by the Company of the common
shares upon conversion of the Preferred Shares and upon exercise of the
Warrants in accordance with the respective terms thereof, in each case, will
be, exempt from the registration requirements of the U.S. Securities Act.

(3)                                The
issuance by the Company to the Purchaser of common shares as a dividend on the
Preferred Shares in accordance with Section 2.04 of the Share Provisions does
not require registration under the U.S. Securities Act.

This Opinion Letter is limited to the matters stated herein and, other
than by West Coast Asset Opportunity Fund, LLC, may not be used or relied upon
by any other person for any purpose whatsoever without in each instance our
prior written consent.  This Opinion
Letter shall not be published or reproduced in any manner or distributed or circulated
to any person or entity whatsoever, other than to your professional advisors or
as may be required by applicable law, without our express written consent.

This Opinion Letter speaks as to matters that exist on the date
hereof.  We assume no obligation to
advise you of any changes in the opinions expressed herein from matters that
might arise or be brought to our attention subsequent to the date of this
letter.

Very truly yours,

PRESTON
GATES & ELLIS LLP

 E-2-3Exhibit 10.3

June 18, 2006

Canadian Superior Energy Inc.

3300, 400 — 3rd Avenue SW

Calgary, Alberta T2P 4H2

Attention:  Greg Noval

Dear Sirs:

Re:          Proposed Acquisition of Canada
Southern Petroleum Ltd.

You have provided us with certain information
regarding your proposed acquisition of Canada Southern Petroleum Ltd. (the “Target”) by way of an unsolicited offer to
acquire any or all of the issued and outstanding shares of the Target (the “Transaction”).  Based on our review of the information which
you have provided to us and our discussions with you, West Coast Opportunity
Fund, LLC (the “Lender”) is
pleased to advise Canadian Superior Energy Inc. (the “Borrower”) of our commitment to provide
you, upon no less than 10 business days’ prior written notice, with immediately
available funds in the aggregate principal amount of US$15 million (the “Credit Facility”) upon the terms and
subject to the limited conditions set forth or referred to in this commitment
letter, including the term sheet attached hereto (the “Term Sheet”) containing a summary of terms
and conditions (collectively, the “Commitment
Letter”).

1.                                       In
consideration of the Lender’s commitment contained herein, the Borrower agrees
to pay to the Lender the following consideration:

(a)                                  a
flat fee of US$125,000, payable on execution of this commitment letter, plus an
additional US$100,000 (for an aggregate of US$225,000) payable on the earlier
of: (i) the receipt by the Lender from the Borrower of notice of the
requirement for funds under the Credit Facility; (ii) the confirmation by
the Borrower that it is not proceeding with the offer; and (iii) August
31, 2006;

(b)                                 a
fee equal to 5% per annum on the aggregate maximum principal amount of the
Credit Facility (in consideration of the Lender committing such funds to the
Target), commencing on the execution date of this Commitment Letter and
calculated to and including the date of repayment of this Credit Facility,
payable monthly on the last business day of each month that this Commitment
Letter or the Credit Facility is outstanding;

(c)                                  payable
immediately upon execution of this Commitment Letter, subject only to receipt
of any requisite regulatory approvals (which the Borrower undertakes in good
faith to obtain), 500,000 common share purchase warrants (the “Warrants”), each exercisable at a price of
US$2.50 per share for a period of 18 

 

months from the
date of issuance, payable in cash or by cashless exercise at the election of
Lender, with a commitment by Borrower to register the shares underlying such
Warrants (the “Warrant Shares”)
for public resale in the United States, such registration to be effective
commencing as of the date of the Borrower’s notice of the requirement for funds
under the Credit Agreement and continuing until the date that such Warrant
Shares are freely tradable without restrictions under SEC Regulation 144(k),
with a penalty of one thirtieth (1/30th) of 1% of the face value of the
Warrants for each day that the Warrant Shares are not registered as required.

2.                                       The
Lender’s commitment hereunder is subject to:

(a)                                  the
prior draw down by Borrower of not less than US$15,000,000 of funds through its
existing credit facilities with the Canadian Western Bank (the “Bank”) and the funding of not less than
$5,000,000 by Borrower from other sources for purposes of funding a portion of
the cash proceeds for the outstanding shares of the Target, prior to drawdown
of the funds under the Credit Facility;

(b)                                 the
receipt of by Borrower of at least 66-2/3rds of the total outstanding shares of
the Target prior to drawdown of the funds under the Credit Facility;

(c)                                  the
negotiation, execution and delivery on or before the date of the notice from
the Borrower of the requirement for funds under the Credit Facility of
definitive documentation with respect to the Credit Facility satisfactory to
the Lender and its counsel and the initial drawdown thereunder occurring;

(d)                                 the
review and approval by Lender in its discretion of all agreements and
amendments entered into between Borrower and the Bank, and the negotiation and
acceptance by Lender in its discretion of the Subordination and Postponement
Agreement to be entered into between Lender and the Bank, which shall not in
any event prohibit or postpone the repayment of funds owed by Borrower to
Lender in accordance with the terms of the Credit Agreement;

(e)                                  the
negotiation and acceptance by Lender in its sole discretion of a definitive
agreement with respect to the Credit Facility; and

(f)                                    the
other conditions set forth or referred to in the Term Sheet.

3.                                       The
Lender confirms that the funds (and/or assets from which such funds will be
derived) to be advanced by the Lender under the Credit Facility shall be
available within 10 business days of written notice from Borrower.  The Lender has sufficient funds and/or assets
to make all funds available as required under the Credit Facility, but the
Lender shall have the right, in its discretion, to seek participation by one or
more third parties in providing the financing to the Borrower, and all
definitive documentation related to the Credit Agreement shall provide that all
rights and obligations of the Lender shall apply to any third parties who
participate in providing funds to the Borrower pursuant to the Credit Facility.

 2
 

 

4.                                       The
Borrower agrees:

(a)                                  to
indemnify and hold harmless the Lender, its affiliates and their respective
officers, directors, employees, advisors, and agents (each, an “indemnified person”) from and against any and all losses,
claims, damages and liabilities to which any such indemnified person may become
subject arising out of or in connection with this Commitment Letter, the Credit
Facility, the use of the proceeds thereof, or any claim, litigation,
investigation or proceeding relating to any of the foregoing, regardless of
whether any indemnified person is a party thereto, and to reimburse each
indemnified person upon demand for any legal or other expenses incurred in
connection with investigating or defending any of the foregoing, provided that
the foregoing indemnity will not, as to an indemnified person, apply to losses,
claims, damages, liabilities or related expenses to the extent they are found
by a final, non-appealable judgment of a court to arise from the willful
misconduct or gross negligence of such indemnified person; and

(b)                                 that
no indemnified person shall be liable for any damages arising from the use by
unauthorized persons of information or other materials sent through electronic,
telecommunications or other information transmission systems that are
intercepted by such persons or for any special, indirect, consequential or
punitive damages in connection with the Credit Facility.

5.                                       The
Borrower acknowledges that the Lender and its affiliates may be providing debt
financing, equity capital or other services (including financial advisory
services) to other companies.  The Lender
will not use confidential information obtained from the Borrower by virtue of
the Credit Facility or its other relationships with the Borrower in connection
with the performance by the Lender of services for other parties, and the
Lender will not furnish any such information to other companies.  The Borrower also acknowledges that the
Lender has no obligation to furnish to the Borrower confidential information
obtained from other companies.

6.                                       This
Commitment Letter shall not be assignable by the Borrower without the prior
written consent of the Lender (and any purported assignment without such
consent shall be null and void), is intended to be solely for the benefit of
the Borrower and is not intended to confer any benefits upon, or create any
rights in favour of, any person other than the parties hereto and the
indemnified persons; provided the Borrower shall be entitled to assign the same
to a wholly-owned subsidiary whose obligations under the Credit Facility are
guaranteed by the Borrower.  This
Commitment Letter may not be amended nor waived except by an instrument in
writing signed by both the Borrower and the Lender.  This Commitment Letter may be executed in
counterparts, both of which shall be an original, and both of which, when taken
together, shall constitute one agreement. 
Delivery of an executed signature page of this Commitment Letter by
facsimile transmission shall be effective as delivery of a manually executed
counterpart hereof.  This Commitment Letter
is the only agreement that has been entered into between us with respect to the
Credit Facility and sets forth the entire understanding of the parties with
respect thereto.  This Commitment Letter
shall be governed by, and construed in accordance with, the laws of the State
of California.

 3
 

 

7.                                       This
Commitment Letter is delivered to the Borrower on the understanding that
neither this Commitment Letter (including, for greater certainty, the Term
Sheet) nor any of its terms or substance shall be disclosed, directly or
indirectly, to any other person except:

(a)                                  to
the Borrower’s officers, agents and advisors who are directly involved in the
consideration of this matter;

(b)                                 as
may be compelled in a judicial or administrative proceeding or as otherwise required
by law (in which case the Borrower agrees to inform the Lender promptly
thereof); or

(c)                                  as
may be required pursuant to applicable securities laws;

provided that the foregoing restrictions, other than
with respect to the fees set out in paragraph 1, shall cease after this
Commitment Letter has been accepted by the Borrower.

8.                                       The
compensation, reimbursement, indemnification and confidentiality provisions
contained herein shall remain in full force and effect regardless of whether
definitive financing documentation shall be executed and delivered and
notwithstanding the termination of this Commitment Letter or the Lender’s
commitments hereunder.

9.                                       If
this Commitment Letter, including the attached Term Sheet, is acceptable to
you, please indicate your acceptance of same by returning to the Lender an
executed counterpart hereof, not later than 5:00 p.m. (Pacific Standard Time)
June 18, 2006.  The Lender’s
commitments hereunder will expire at such time in the event the Lender has not
received such executed counterpart in accordance with paragraph 1(a)(i)
above.

We are pleased to have been given the opportunity to
assist you in connection with this financing.

Yours very truly,

	
  

  	
  WEST COAST OPPORTUNITY FUND, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Per:

  	
  /s/ Lance
  Helfert

  	
   

  
	
   

  	
  Name:

  	
  Lance Helfert

  
	
   

  	
  Title:

  	
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Accepted and
  Agreed to this 18 day of June, 2006

  
	
   

  	
   

  
	
   

  	
  CANADIAN
  SUPERIOR ENERGY INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Per:

  	
  /s/ Greg Noval

  	
   

  
	
   

  	
  Name:

  	
  Greg Noval

  
	
   

  	
  Title:

  	
  Chairman and Chief Executive Officer

  
						

 

 4
 

 

 

	
  

  	
  Per:

  	
  /s/ M.E. Coolen

  	
   

  
	
   

  	
  Name:

  	
  M.E. Coolen

  
	
   

  	
  Title:

  	
  President and Chief Operating Officer

  
					

 5
 

 

TERM SHEET

 

	
  Borrower:

  	
  Canadian Superior Energy Inc. (the “Borrower”)

  
	
   

  	
   

  
	
  Lender:

  	
  West Coast Opportunity Fund, LLC (the “Lender”)

  
	
   

  	
   

  
	
  Credit
  Facility:

  	
  An unsecured credit facility in the aggregate
  principal amount of US$15 million (the “Credit
  Facility”).

  
	
   

  	
   

  
	
  Defined
  Terms:

  	
  Capitalized terms used herein and defined in the
  Commitment Letter to which this Term Sheet is attached and forms part of,
  have the meaning ascribed to them in the Commitment Letter.

  
	
   

  	
   

  
	
  Purpose:

  	
  The Credit Facility shall be used solely to acquire
  shares of the Target in accordance with the Share Acquisition offer.

  
	
   

  	
   

  
	
  Priority
  of Use of Funds:

  	
  The Credit Facility shall only be utilized after
  Borrower has: (i) drawn down and utilized US$15,000,000 of funds under
  the Borrower’s existing credit facility (the “Senior
  Facility”) with the Canadian Western Bank (the “Bank”) to fund the acquisition of Target Shares pursuant
  to the Share Acquisition; (ii) obtained and utilized at least
  US$5,000,000 of funds from other sources, to fund the acquisition of Target
  Shares pursuant to the Share Acquisition; and (iii) received acceptances
  of tender of shares of Target for at least 66-2/3rds of the total outstanding shares of Target
  pursuant to the Share Acquisition.

  
	
   

  	
   

  
	
  Non-Revolvement:

  	
  The Credit Facility shall be a non-revolving credit
  facility available by way of one or more drawdowns to the Borrower to fund
  the acquisition of Target Shares pursuant to the Share Acquisition. Any
  amount of the Credit Facility not drawn by August 31, 2006 shall be
  permanently cancelled.

  
	
   

  	
   

  
	
  Priority:

  	
  The Credit Facility shall be secured by: (i) a
  perfected security interest over all shares of Target acquired by Borrower,
  subordinate only to any security interest of the Bank, and (ii) if 100%
  of the outstanding shares of the Target are acquired, a perfected security
  interest in all of the assets of Target, subordinate only to any security interest
  of the Bank, which security interest(s) shall be discharged upon repayment of
  the Credit Facility.

  
	
   

  	
   

  
	
  Maturity:

  	
  The Credit Facility shall mature and shall be repaid
  in full by Borrower not later than (i) if the Borrower takes up and pays
  for in excess of 90% of the outstanding shares of the Target, 25 calendar days following the first date that Borrower
  draws down funds on the Credit Facility; and (ii) if the Borrower takes
  up and pays for less than 90% of the outstanding shares of the Target, 60 calendar days 

  

 

 6
 

 

 

	
  

  	
  following the first date that the Borrower draws
  down funds on the Credit Facility. If Borrower fails to repay the Credit
  Facility when due, Borrower shall pay to Lender an additional fee, which the
  parties agree shall constitute liquidated damages, of US$50,000 per day past
  the applicable repayment date.

  
	
   

  	
   

  
	
  Credit
  Documentation:

  	
  Monies will be advanced under the Credit Facility
  only upon negotiation and completion of credit and related documentation and
  related security which is acceptable in form and substance to the Lender,
  including: (a) a loan agreement drafted by Lender’s legal counsel (the “Loan Agreement”), which will, among other things, contain
  the usual terms and conditions for a bridge credit facility, and the terms
  set out herein in addition to other terms, positive covenants, negative
  covenants (including a negative pledge), financial maintenance covenants,
  conditions precedent, representations, warranties, events of default
  (including without limitation cross default to the existing Senior Facility),
  indemnifications in respect of tax, judgment currency and environmental
  matters, environmental compliance, capital adequacy provisions and other
  provisions as the Lender may require. The Loan Agreement shall further
  contain an affirmative covenant that Borrower will take all corporate actions
  as are necessary to obtain adequate financing to repay the amounts due to
  Lender in accordance with terms provided by the Loan Agreement.

  
	
   

  	
   

  
	
  Termination
  of Lender’s Commitment:

  	
  The Lender’s obligations under the Commitment Letter
  will terminate if the Loan Agreement and related documentation (which,
  together with the Loan Agreement, are collectively referred to herein as the
  “Credit Documentation”) satisfactory
  to the Lender and its counsel are not executed and the initial advance under
  the Credit Facility has not occurred by July 31, 2006, unless such
  termination date is extended in writing by the Lender.

  
	
   

  	
   

  
	
  Conditions
  Precedent to Close:

  	
  The obligation of the Lender to make the initial
  advance of the Credit Facility is subject to and conditional upon:

  
	
   

  	
   

  
	
   

  	
  1.

  	
  Receipt by the
  Lender in form and substance satisfactory to it of all Credit Documentation
  reasonably required by the Lender in respect of the Credit Facilities on
  terms and conditions satisfactory to the Lender;

  
	
   

  	
   

  	
   

  
	
   

  	
  2.

  	
  The Borrower having provided the Lender with ten
  (10) business days’ prior written notice of the anticipated requirement of
  funds under the Credit Facility;

  

 

 7
 

 

 

	
  

  	
  3.

  	
  The Lender, acting reasonably, being satisfied with
  all terms of the Borrower’s offer for shares of Target, provided the Lender
  shall be deemed to be satisfied with the terms of the offer to the extent it
  is in substantially the form of the draft offer dated June 12, 2006, a copy
  of which has been provided to the Lender;

  
	
   

  	
   

  	
   

  
	
   

  	
  4.

  	
  All conditions of the Borrower’s offer have either
  been satisfied or have been waived, provided the Borrower will not have
  waived any of the conditions in the draft offer referred to in paragraph 3
  above without the consent of the Lender, such consent not to be unreasonably
  withheld, and Lender shall have confirmed (within two business days of
  receipt of confirmation from Borrower) that all outstanding conditions have
  met prior to the take up and pay of the Target shares;

  
	
   

  	
   

  	
   

  
	
   

  	
  5.

  	
  Accuracy of all representations and warranties of
  the Borrower contained in the Loan Agreement;

  
	
   

  	
   

  	
   

  
	
   

  	
  6.

  	
  There being no event of default, or fact or
  circumstance, which, with notification or with lapse of time or otherwise,
  would constitute an event of default under the Loan Agreement;

  
	
   

  	
   

  	
   

  
	
   

  	
  7.

  	
  Payment of all required consideration to the Lender;

  
	
   

  	
   

  	
   

  
	
   

  	
  8.

  	
  As at the date hereof, there being no material
  adverse change in the financial condition of the Borrower since the date of
  the last audited financial statements of the Borrower; and

  
	
   

  	
   

  	
   

  
	
   

  	
  9.

  	
  Borrower keeping the Lender informed of all material
  developments with respect to the Share Acquisition, and no material changes
  to the terms and conditions of the Share Acquisition being made by Borrower
  without the Lender’s prior written consent.

  

 

 8

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