Document:

EX-10.5

    Exhibit
      10.10

     

    ROYALTY
      AGREEMENT

     

    THIS
      AGREEMENT made as of the 2nd day of March, 2007.

     

    BETWEEN:

     

    1304146
      ALBERTA LTD. a
      body
      corporate, having an office in the City of Calgary, in the Province of Alberta
      (the "Owner")

     

    -
      and
      -

     

    PEACE
      OIL CORP.,
      a body
      corporate, having an office in the City of Calgary, in the Province of Alberta
      (the "Grantor")

     

    WHEREAS
      pursuant to the terms of a stock purchase agreement dated November 30, 2006,
      as
      amended (the "Stock Purchase Agreement"), the shareholders of the Owner agreed
      to sell all of the issued and outstanding shares of the Grantor to Cold Flow
      Energy ULC ("Cold Flow");

     

    WHEREAS
      the shareholders of the Owner and Cold Flow have agreed to amend the terms
      of
      the Stock Purchase Agreement (the "Amendments") so as to permit the closing
      of
      the Stock Purchase Agreement;

     

    AND
      WHEREAS as part of the Amendments the Grantor hereby reserves unto the Owner
      the
      Overriding Royalty, as security for payment of the Purchase Price (as defined
      in
      the Stock Purchase Agreement), subject to the terms and conditions contained
      herein;

     

    NOW
      THEREFORE the parties enter into this Agreement in consideration of mutual
      covenants and other good and valuable consideration, which the parties
      acknowledge.

     

    
      	
              1.

            	
              DEFINITIONS

            

    

     

    In
      this
      Agreement including the recitals and this clause, unless the context otherwise
      requires, the following terms shall have the meanings hereinafter assigned
      thereto, namely: 

     

    
      	 	
              (a)

            	
              "Affiliate"
                means, with respect to the relationship between corporations, that
                one of
                them is controlled by the other or both of them are controlled by
                the same
                person, corporation or body politic; and for this purpose a corporation
                shall be deemed controlled by those persons, corporations or bodies
                politic who own or effectively control, other than by way of security
                only, sufficient voting shares of the corporation (whether directly
                through the ownership of shares of the corporation or indirectly
                through
                the ownership of shares of another corporation which owns shares
                of the
                corporation) to elect the majority of its board of
                directors;

            

    

     

    
      	 	
              (b)

            	
              "Assignment
                Procedure"
                means the 1993 CAPL Assignment Procedure attached as Schedule
                "B";

            

    

     

    
      	 	
              (c)

            	
              "Condensate"
                means a mixture mainly of pentanes and heavier hydrocarbons (whether
                or
                not contaminated with sulphur compounds) that is recovered or recoverable
                at a well from an underground reservoir and that may be gaseous in
                its
                virgin reservoir state but is liquid at the conditions under which
                its
                volume is measured or estimated;

            

    

     

     

    
      
        
        

      

      
        -1-

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (d)

            	
              "Crude
                Oil"
                means a mixture mainly of pentanes and heavier hydrocarbons (whether
                or
                not contaminated with sulphur compounds) that is recovered or recoverable
                at a well from an underground reservoir and that is liquid at the
                conditions under which its volume is measured or estimated and includes
                all other hydrocarbon mixtures so recovered except Natural Gas and
                Condensate;

            

    

     

    
      	 	
              (e)

            	
              "Current
                Market Value"
                means the price received by the Grantor at the Point of Measurement
                for
                its share of Petroleum Substances produced and marketed from, or
                pursuant
                to a scheme of pooling or unitization allocated to, the Lands which
                price
                shall not be less than that which the Grantor would have received
                at the
                point of sale in an arm's length transaction if acting as a reasonably
                prudent operator having regard to the current market prices, availability
                to market and economic conditions of the petroleum industry
                generally;

            

    

     

    
      	 	
              (f)

            	
              "Lands"
                means the lands set out in Schedule “A” under the heading
                “Lands”;

            

    

     

    
      	 	
              (g)

            	
              "Leases"
                means the leases set out in Schedule “A” under the heading “Leases”,
                including any extensions, renewals, variations or replacements of
                such
                leases insofar as they relate to the
                Lands;

            

    

     

    
      	 	
              (h)

            	
              "Natural
                Gas"
                means Raw Gas or marketable gas as the context so requires, and as
                those
                terms are defined in the Oil
                and Gas Conservation Act,
                R.S.A. 2000, C. O-6, as amended;

            

    

     

    
      	 	
              (i)

            	
              "Overriding
                Royalty"
                means the percentage gross overriding royalty as reserved in this
                Agreement in favour of the Owner, more particularly described in
                the
                clause entitled "Overriding Royalty" in this
                Agreement;

            

    

     

    
      	 	
              (j)

            	
              "Petroleum
                Substances"
                means any of Crude Oil, Condensate, crude bitumen and products derived
                therefrom, synthetic crude oil, petroleum, Natural Gas, natural gas
                liquids, and any and all other substances related to any of the foregoing,
                whether liquid, solid or gaseous, and whether hydrocarbons or not,
                including without limitation
                sulphur;

            

    

     

    
      	 	
              (k)

            	
              "Point
                of Measurement"
                means the point of sale in the case of all Petroleum
                Substances;

            

    

     

    
      	 	
              (l)

            	
              "Raw
                Gas"
                shall have the meaning ascribed to such term in the Oil
                and Gas Conservation Act,
                R.S.A. 2000, C. O-6, as amended;

            

    

     

    
      	 	
              (m)

            	
              "Regulations"
                means all statutes, laws, rules, orders and regulations in effect
                from
                time to time and made by governments or governmental boards or agencies
                having jurisdiction over the Lands and over the operations to be
                conducted
                thereon.

            

    

    
      
        
        

      

      
        -2-

        
          

        

      

      
        
        

         

      

    

    
      	2.	 	
              SCHEDULES

            

    

     

    The
      following Schedules are attached hereto and made part of this
      Agreement:

     

    
      	 	
              (a)

            	
              Schedule
                "A" which describes the Leases and the Lands;
                and

            

    

     

    
      	 	
              (b)

            	
              Schedule
                "B" which is the Assignment
                Procedure.

            

    

     

    
      	
              3.

            	
              OVERRIDING
                ROYALTY

            

    

     

    
      	 	
              (a)

            	
              Quantification
                Of Overriding Royalty

            

    

     

    The
      Grantor hereby grants to the Owner a non-convertible absolutely gross overriding
      royalty, which shall comprise an interest in the Petroleum Substances within,
      upon and under the Lands. The gross volume of Petroleum Substances comprising
      the Overriding Royalty shall be quantified as follows:

     

    
      	 	
              (i)

            	
              for
                Crude Oil:
                fifty percent (50%) of the gross monthly production of Crude Oil
                produced
                from each well on the Lands classified by the appropriate regulatory
                authority as an oil well (excluding basic sediment and water);
                and

            

    

     

    
      	 	
              (ii)

            	
              for
                Natural Gas:
                fifty percent (50%) of the gross monthly production of Natural Gas
                produced from each well on the Lands classified by the appropriate
                regulatory authority as a gas well;
                and

            

    

     

    
      	 	
              (iii)

            	
              for
                all other Petroleum Substances:
                fifty percent (50%) of the gross monthly production thereof produced
                from
                each well on the Lands.

            

    

     

    For
      the
      purpose of determining the Overriding Royalty payable to the Owner, the
      percentages in paragraphs (a), (b) and (c) of this clause, as the case may
      be,
      shall be multiplied by the percentage working interest in the Petroleum
      Substances held by the Grantor immediately before this Agreement came into
      effect. 

     

    The
      Grantor hereby charges its interest in the Lands and the Leases with payment
      of
      the Overriding Royalty which shall be a covenant running with and binding the
      Grantor’s interest in the Lands and the Leases.

     

    
      	 	
              (b)

            	
              Petroleum
                Substances Used For Operations

            

    

     

    Petroleum
      Substances that the Grantor may reasonably consider to be necessary for the
      Grantor's operations on the Lands for the production, treating, processing
      and
      storing of Petroleum Substances shall be exempt from the payment of the
      Overriding Royalty. Any Overriding Royalty exemption as aforesaid shall be
      restricted to that portion of production used as fuel for heaters, treaters,
      compressors, separators, instruments and similar equipment required to produce
      Petroleum Substances. The Petroleum Substances so used may be deducted from
      gross monthly production by the Grantor in quantifying the Overriding Royalty
      payable to the Owner under the preceding subclause. The Grantor shall not be
      granted any Overriding Royalty exemption from the production of Petroleum
      Substances used for reservoir injection or pressure maintenance, secondary
      and
      heavy oil recovery or upgrading schemes, or fuel and/or feedstock for any gas
      plant, refinery, satellite or multi-well battery.

     

     

    
      
        
        

      

      
        -3-

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (c)

            	
              Separate
                Quantification For Crude Oil

            

    

     

    If
      the
      Grantor completes any well on the Lands in more than one zone producing Crude
      Oil and production therefrom is segregated and accounted for separately in
      accordance with the appropriate regulations, the Overriding Royalty shall be
      quantified separately for each producing zone rather than for the total
      production from such well, less only those charges permitted
      herein.

     

    
      	
              4.

            	
              OVERRIDING
                ROYALTY NOT TAKEN IN KIND

            

    

     

    
      	 	
              (a)

            	
              Payments
                Made to Owner Monthly

            

    

     

    When
      and
      to the extent that the Owner is not taking its share of Petroleum Substances
      in
      kind, every sale of Petroleum Substances produced from the Lands by the Grantor
      shall include the Owner's Overriding Royalty share thereof. The Grantor shall
      remit to the Owner all monies accruing to the Owner on account of the Overriding
      Royalty on or before the twenty-fifth (25th) working day following the calendar
      month next following the calendar month in which such Petroleum Substances
      were
      sold. 

     

    
      	 	
              (b)

            	
              Monthly
                Statements Provided to Owner

            

    

     

    The
      Grantor shall enclose with each monthly payment to the Owner the following
      information:

     

    
      	 	
              (i)

            	
              a
                statement showing the quantity and kind of the Petroleum Substances
                produced, saved and sold from the Lands in the immediately preceding
                calendar month and the Current Market Value thereof, together with
                a
                calculation of the Overriding Royalty for such immediately preceding
                calendar month; and

            

    

     

    
      	 	
              (ii)

            	
              if
                requested, a copy of the Grantor's governmental production statement
                for
                the month for which the Overriding Royalty is calculated and, with
                respect
                to Crown leases, a copy of the Crown royalty statement. Any information
                contained in such governmental production statement or Crown royalty
                statement need not be repeated in the Grantor's statement to the
                Owner.

            

    

     

    
      	 	
              (c)

            	
              Permitted
                Deductions

            

    

     

    To
      the
      extent that the Owner does not take its Overriding Royalty share of Petroleum
      Substances in kind, as hereinafter provided, the Overriding Royalty shall be
      paid on the Current Market Value of the Petroleum Substances without any
      deductions whatsoever.

     

    
      	 	
              (d)

            	
              Petroleum
                Substances Sold at Less Than Current Market
                Value

            

    

     

    If
      any
      Petroleum Substances are sold at less than Current Market Value in any
      transactions (including those transactions which are not at arm's length or
      any
      transactions involving any arrangement from which the Grantor obtains a
      collateral advantage in consideration of the reduced price), the gross proceeds
      of the sale of such Petroleum Substances shall, for the purposes of calculating
      the Overriding Royalty share thereof, not be less than the Current Market Value
      of those Petroleum Substances when produced from the Lands.

     

     

    
      
        
        

      

      
        -4-

        
          

        

      

      
        
        

      

    

     

    
      	
              5.

            	
              OVERRIDING
                ROYALTY TAKEN IN KIND

            

    

     

    
      	 	
              (a)

            	
              Notice
                to Grantor

            

    

     

    The
      Owner
      shall have the right to take in kind the Owner's share of Petroleum Substances.
      Such right may be exercised separately with respect to Crude Oil, Raw Gas,
      individual Natural Gas liquids, Condensate, marketable gas or any other
      individual Petroleum Substance. In the case of Crude Oil and Condensate, such
      right shall only be exercised on a minimum of forty-five (45) days notice to
      the
      Grantor. In the case of all other Petroleum Substances such right shall only
      be
      exercised on two (2) months notice to the Grantor. If the Owner, however,
      signifies in writing its consent to the sale of any of the Owner's share of
      Petroleum Substances under a contract made by the Grantor providing for a
      minimum term in excess of the said respective notice periods, the Owner's right
      to take in kind any Petroleum Substances subject to such contract shall be
      suspended during the term of such contract. The Owner may cease to take in
      kind
      any Petroleum Substances upon giving the Grantor the same minimum notice as
      required in order to permit the Owner to take such Petroleum Substances in
      kind
      as aforesaid. The right to take in kind or to cease to take in kind may be
      exercised from time to time subject only to the foregoing provisions of this
      subclause.

     

    
      	 	
              (b)

            	
              Grantor's
                Responsibilities

            

    

     

    When
      the
      Owner is taking in kind any of the Owner's share of Petroleum Substances other
      than Raw Gas, the Grantor shall in respect to Crude Oil and at no cost to the
      Owner, remove basic sediment and water therefrom in accordance with good
      oilfield practice so that pipeline specifications in that regard will be met,
      and the Owner shall also have the right to use free of charge a proportionate
      share of the Grantor's lease tankage and storage facilities to store a maximum
      of ten (10) days accumulation of the Owner's share of such Petroleum Substances.
      In respect to Crude Oil and Condensate the Grantor shall deliver the same to
      the
      Owner, or its nominee, at the tank outlets in accordance with usual and
      customary pipeline and shipping practice, free and clear of all charges
      whatsoever. Grantor shall deliver Owner's share of Raw Gas to the Owner or
      its
      nominee at the Point of Measurement. In any event, the Owner shall not be
      responsible for any
      costs
      whatsoever, including without limitation the costs of gathering, compressing,
      transporting, treating and processing such Raw Gas whether or not the Grantor
      or
      an Affiliate owns such facilities.

     

    
      	
              6.

            	
              RIGHT
                TO AUDIT

            

    

     

    
      	 	
              (a)

            	
              Examination
                Of Records

            

    

     

    The
      Owner
      shall have the right to audit the records of the Grantor insofar as they relate
      to any matter or items required to determine the accuracy of any statements
      or
      payments with respect to the Overriding Royalty. The books, records, vouchers
      and accounts maintained by the Grantor shall be open to inspection at all
      reasonable times during business hours by an officer, agent, employee or other
      person appointed or authorized by the Owner, in writing, to examine the
      same.

     

     

    
      
        
        

      

      
        -5-

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (b)

            	
              Discrepancies

            

    

     

    Any
      payment made or statement rendered by the Grantor hereunder which is not
      disputed by the Owner on or before the last day of the twenty-sixth (26th)
      month
      following the end of the calendar year of the month for which such statement
      or
      payment was rendered shall be deemed to have been correct.

     

    
      	 	
              (c)

            	
              Right
                To View Operations

            

    

     

    The
      Owner
      shall also have the right (which may be exercised through servants or agents)
      to
      enter at its sole cost, risk and expense upon the Lands at all reasonable times
      to gauge tanks, check the quantities of Petroleum Substances in storage, witness
      tests and otherwise view operations on the Lands.

     

    
      	
              7.

            	
              RATEABLE
                PRODUCTION

            

    

     

    The
      Grantor shall, subject to the clause entitled "Overriding Royalty Taken In
      Kind", make every reasonable endeavour within its legal authority to market
      any
      of the Petroleum Substances produced or capable of being produced from the
      Lands
      rateably with any other similar substances produced from any lands within the
      same pool in which the Grantor or any Affiliate has an interest and further
      the
      Grantor covenants that it will not discriminate against the Petroleum Substances
      produced or capable of being produced from the Lands in the production and
      marketing of the same.

     

    
      	
              8.

            	
              RIGHT
                TO COMMINGLE

            

    

     

    The
      Grantor shall have the right to commingle Petroleum Substances produced from
      the
      Lands with Petroleum Substances produced from other lands, provided methods
      acceptable to the Owner are used to determine the proper measurement of
      individual well production. Where governmental regulations or orders require
      segregated production tests of individual wells at intervals not greater than
      two months, such tests will be deemed acceptable to the Owner under this clause
      and no further tests will be required.

     

    
      	
              9.

            	
              POOLING

            

    

     

    The
      Grantor shall have the right to pool any portion of the Lands forming less
      than
      a spacing unit for the production of Petroleum Substances with lands other
      than
      the Lands in order to form a complete spacing unit for the production of
      Petroleum Substances. Unless otherwise agreed to in writing by the Owner or
      ordered by governmental authority, such pooling will be on a surface acreage
      basis; that is, the production of Petroleum Substances from the well on the
      pooled lands comprising the spacing unit shall be divided between the Lands
      and
      the other lands in such spacing unit in the proportion that the number of acres
      of the Lands in such spacing unit is to the number of acres of the other lands
      in such spacing unit. 

     

     

    
      
        
        

      

      
        -6-

        
          

        

      

      
        
        

      

    

    
       

    

    
       

      
        	
                10.

              	
                UNITIZATION

              

      

    

     

    The
      Grantor shall not include the Lands or any part thereof in any voluntary plan
      of
      unitization comprising more than one spacing unit without the written consent
      of
      the Owner. The execution by the Owner of the applicable unit agreement shall
      be
      deemed to be consent to such unitization under this clause.

     

    
      	
              11.

            	
              SURRENDER

            

    

     

    
      	 	
              (a)

            	
              Grantor
                to Keep Leases in Good Standing

            

    

     

    The
      Grantor shall pay all rentals, royalties, taxes and charges payable under the
      provisions of the Leases or with respect to the Lands and the production
      therefrom, either directly or by reimbursing the Owner, and shall keep the
      Leases in good standing until surrender thereof as herein provided for and
      shall
      not allow the Leases to terminate or become subject to forfeiture.

     

    
      	 	
              (b)

            	
              Notice
                Obligations On Surrender

            

    

     

    The
      Grantor shall not surrender any portion of the Lands without giving notice
      of
      such proposed surrender in writing (hereinafter called "the Surrender Notice")
      to the Owner at least sixty (60) days before the next ensuing anniversary date
      of the lease covering the lands or interest therein which it proposes to
      surrender. Within thirty (30) days after receipt of the Surrender Notice, the
      Owner may elect in writing to acquire such interest and if it does so the
      Grantor shall, without warranty, forthwith transfer or assign such interest
      to
      the Owner. The Overriding Royalty shall thereafter cease to be payable with
      respect to the interest so assigned to the Owner. If the Owner fails to make
      the
      election as provided for herein, the Grantor may surrender the lands specified
      in the Surrender Notice.

     

    
      	 	
              (c)

            	
              Surrender
                Subject To Forfeiture

            

    

     

    If
      the
      Grantor proposes to surrender any portion of the Lands to avoid an obligation
      to
      drill a well, the provision for notice and assignment in the preceding subclause
      shall apply, mutatis mutandis, provided that the assignment, if requested by
      the
      Owner, shall be of the entire interest which is subject to forfeiture by reason
      of the failure to drill such well and the surrender notice shall be given not
      less than sixty (60) days before the well must be commenced to meet the
      obligation.

     

    
      	 	
              (d)

            	
              Owner
                to Assume Rights and
                Obligations

            

    

     

    Upon
      the
      Owner electing to acquire the interest to be surrendered as set forth herein,
      the Owner shall assume all rights and obligations of the Grantor with respect
      to
      the interest assigned, including indemnification of the Grantor, which rights,
      obligations and indemnification accrue from and after the effective date of
      such
      assignment. The effective date of such assignment shall be the date upon which
      Owner elected to acquire the subject interest as provided herein.

     

    
      
        
        

      

      
        -7-

        
          

        

      

      
        
        

         

      

    

    

     

    
      	
              12.

            	
              ASSIGNMENT 

            

    

     

    
      	 	
              (a)

            	
              Assignment
                Procedure

            

    

     

    The
      CAPL
      1993 Assignment Procedure (the "Assignment Procedure"), attached hereto as
      Schedule "B", is made part of this Agreement and the Agreement is amended to
      the
      extent necessary to give effect to the Assignment Procedure. Effective from
      and
      after the date hereof, the Assignment Procedure shall govern and replace any
      requirement for the use of, or entitlement of a party to request, an Assignment
      and Novation Agreement (as defined in the Assignment Procedure). If there is
      a
      conflict between the Assignment Procedure and the provisions of this Agreement
      or any other schedule to this Agreement, the Assignment Procedure shall prevail.
      The Assignment Procedure shall apply with respect to any assignment of an
      interest in the Agreement. Notwithstanding clause 2.02 of the Assignment
      Procedure, no provision of the Assignment Procedure shall be construed so as
      to
      make the Assignee responsible for any obligation or liability which has arisen
      or accrued prior to the Transfer Date (as defined in the Assignment
      Procedure).

     

    
      	 	
              (b)

            	
              Nomination
                Of Assignee

            

    

     

    If
      the
      Owner transfers, assigns or otherwise disposes of any part of its interest
      hereunder to more than one party, it shall ensure that one of the parties to
      whom such disposition is made shall be nominated to receive the payment of
      the
      Overriding Royalty on behalf of all such parties and until written notice of
      such nomination is received by the Grantor, the Grantor shall be entitled to
      continue to make payments of the Overriding Royalty to the Owner.

     

    
      	 	
              (c)

            	
              Assignment
                by Grantor

            

    

     

    If
      the
      Grantor disposes, in any manner whatsoever, of its interest in this Agreement,
      the Lands, the Leases or any portion or portions thereof, it shall at all times
      continue to be bound by the provisions of this Agreement as if there had been
      no
      assignment, until such time as the Owner shall have been served with a document
      reflecting the assignment. Such assignment document shall be accompanied by
      a
      written undertaking by the Assignee, directly enforceable by the Owner, to
      perform and be bound thereafter by all of the provisions of this Agreement
      to
      the same extent and degree, with respect to the interest which has been assigned
      to it, as it would have been had it been a party to this Agreement in the place
      of the Grantor.

     

    
      	
              13.

            	
              LIABILITY
                AND INDEMNITY

            

    

     

    
      	 	
              (a)

            	
              Grantor's
                Responsibility

            

    

     

    The
      Grantor shall:

     

    
      	 	
              (i)

            	
              be
                liable to the Owner for all losses, costs, damages and expenses whatsoever
                (whether contractual or tortious) which the Owner may suffer, sustain,
                pay
                or incur; and in addition,

            

    

     

     

    
      
        
        

      

      
        -8-

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (ii)

            	
              indemnify
                and hold harmless the Owner and its directors, officers, agents and
                employees against all actions, causes of action, proceedings, claims,
                demands, losses, costs, damages and expenses whatsoever which may
                be
                brought against or suffered by the Owner, its directors, officers,
                agents
                and employees or which they may sustain, pay or
                incur;

            

    

     

    insofar
      as they are either a direct result of or directly attributable to any act or
      omission (whether negligent or otherwise) of the Grantor with respect to
      operations or activities conducted by it or on behalf of it.

     

    
      	
              14.

            	
              CONFIDENTIAL
                INFORMATION

            

    

     

    
      	 	
              (a)

            	
              Confidentiality
                Requirement

            

    

     

    Except
      as
      provided herein, all data and information of any nature acquired by the parties
      from any operations pursuant to this Agreement, or supplied by one party to
      the
      other pursuant hereto, shall be for the sole and exclusive use and benefit
      of
      the parties hereto unless the parties agree to the dissemination of such
      information or unless a party hereto is required to give such information to
      any
      governmental department, body or agency, or any recognized association within
      the petroleum industry, of which it is a member, that engages in the exchange
      of
      factual information relating to the type of operations contemplated by this
      Agreement. In no event shall information of any type or character relating
      to
      wells drilled on a confidential basis to the parties be disclosed.

     

    
      	 	
              (b)

            	
              Disclosure
                To Affiliates

            

    

     

    The
      provisions of this clause shall not apply to disclosures to Affiliates provided
      that such Affiliates agree to be bound by the terms of this clause.

     

    
      	
              15.

            	
              LIEN

            

    

     

    
      	 	
              (a)

            	
              Owner's
                Lien

            

    

     

    The
      Owner
      shall be entitled to and shall have a first and paramount lien upon the
      Grantor's share of all Petroleum Substances from time to time produced from
      the
      Lands to secure the payment of the Overriding Royalty. Such lien shall not
      operate to release the Grantor from personal liability for monies due to the
      Owner. Such lien shall not attach to the Grantor's share of Petroleum Substances
      sold or otherwise disposed of from the Lands, but immediately upon default
      occurring in payment by the Grantor of monies payable to the Owner such lien
      shall operate as an assignment to the Owner of the consideration thereafter
      payable to the Owner for the Petroleum Substances sold, up to the amount owed
      to
      the Owner and not so paid by the Grantor.

     

    
      	 	
              (b)

            	
              Service
                of Agreement to Constitute
                Authority

            

    

     

    Service
      of a copy of this agreement upon any purchaser of Petroleum Substances together
      with written notice from the Owner shall constitute written authorization on
      the
      part of the Grantor for such purchaser to pay the Owner the proceeds from any
      sale or sales of the Grantor's share of Petroleum Substances, up to the amount
      owed to the Owner by the Grantor, and such purchaser is authorized to rely
      solely upon the statement of the Owner as to the amount owed to the Owner by
      the
      Grantor.

     

     

    
      
        
        

      

      
        -9-

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (c)

            	
              Proof
                Of Default

            

    

     

    The
      books
      and records kept by the Owner shall constitute written proof of the existence
      of
      such default, although no purchaser shall be obliged to examine the same before
      acting upon such notice of default.

     

    
      	
              16.

            	
              WELL
                INFORMATION

            

    

     

    
      	 	
              (a)

            	
              Information
                To Owner

            

    

     

    The
      Grantor shall, with respect to each well drilled or being drilled (or reworked,
      deepened or plugged back) on the Lands:

     

    
      	 	
              (i)

            	
              give
                the Owner notice, not later than forty-eight (48) hours before the
                date of
                spudding the well, that the Grantor proposes to drill the well, and
                promptly give the Owner notice when actual drilling operations have
                commenced on the well;

            

    

     

    
      	 	
              (ii)

            	
              during
                the drilling of the well, furnish the Owner with daily drilling and
                geological reports, access to all cores taken, immediate advice of
                any
                porous zones with showings of Petroleum Substances encountered and,
                if
                requested, a complete set of washed samples of the cuttings of the
                formations penetrated, if available;

            

    

     

    
      	 	
              (iii)

            	
              permit
                the Owner to have a representative present to witness and observe
                the test
                of all such porous zones and, at the Owner's risk, give derrick floor
                privileges to the Owner's designated agent or employee;
                and

            

    

     

    
      	 	
              (iv)

            	
              provide
                the Owner promptly with all information relative to mud samples and
                drill
                stem test fluid samples, copies of all drill stem tests and service
                reports thereon, copies of pressure charts and copies of all logs
                run in
                the well, together with a copy of the completion report including
                the
                details and results of all production tests carried out with respect
                to
                the well.

            

    

     

    
      	 	
              (b)

            	
              Suspension
                Of Information

            

    

     

    The
      provisions of the preceding subclause shall not apply where the Grantor is
      drilling a well to obtain information to assist it in bidding for lands posted
      for sale by any governmental authority. In such case, it shall not be necessary
      to deliver the information to the Owner until fourteen (14) days after the
      sale
      has been held.

     

    
      	
              17.

            	
              RELEASE

            

    

     

    In
      the
      event that the Cold Flow Energy ULC (“Cold Flow”) satisfies its
      obligations under those certain promissory notes delivered by Cold Flow to
      the
      Grantor on the date hereof in the original purchase amounts of $1,500,00,
      $1,000,000 and $1,500,000 and respectively expiring on June 30, July 30 and
      August 30, 2007, this Agreement, all rights granted to the Owner hereunder,
      and
      the Overriding Royalty shall terminate and have no further force and effect.
      In
      addition, the Owner covenants to discharge all security registrations against
      the Grantor and its assets, including without limitation any such registrations
      relating the Overriding Royalty.

     

     

    
      
        
        

      

      
        -10-

        
          

        

      

      
        
        

      

    

    
 

    
      	
              18.

            	
              NOTICES

            

    

     

    
      	 	
              (a)

            	
              Service
                of Notices

            

    

     

    Whether
      or not so stipulated herein all notices, communications and statements (herein
      called "notices") required or permitted hereunder shall be in writing. Any
      notice to be given hereunder shall be deemed to be served properly if served
      in
      any of the following modes:

     

    
      	 	
              (i)

            	
              personally,
                by delivering the notice to the party on whom it is to be served
                at that
                party's address for service, which notice shall be deemed received
                by the
                addressee when actually delivered as aforesaid, if such delivery
                is during
                normal business hours; provided that if a notice is not delivered
                during
                the addressee's normal business hours, such notice shall be deemed
                to have
                been received by such party at the commencement of the next ensuing
                business day following the date of
                delivery;

            

    

     

    
      	 	
              (ii)

            	
              by
                telefascimile (or by any other like method by which a written and
                recorded
                message may be sent) directed to the party on whom it is to be served
                at
                that party's address for service, which notice shall be deemed received
                by
                the respective addressees thereof: (i) when actually received by
                them, if
                received within normal business hours; or (ii) at the commencement
                of the
                next ensuing business day following transmission thereof, if such
                notice
                is not received during such normal business hours;
                or

            

    

     

    
      	 	
              (iii)

            	
              by
                mailing it first class (air mail if to or from a location outside
                Canada)
                double registered post, postage prepaid, directed to the party on
                whom it
                is to be served at that party's address for service, which notice
                shall be
                deemed to be received by the addressee at noon, local time, on the
                earlier
                of the actual date of receipt or the fourth (4th) day (excluding
                Saturdays, Sundays and statutory holidays) following the mailing
                thereof;
                provided that, if postal service is interrupted or operating with
                unusual
                or imminent delay, notice shall not be served by such means during
                such
                interruption or period of delay.

            

    

     

    For
      notice periods of forty-eight (48) hours or less, the applicable notice shall
      be
      given in accordance with paragraph (a) or (b) of this subclause.

     

    
      	 	
              (b)

            	
              Addresses
                For Notices

            

    

     

    The
      address for service of notices hereunder of each of the parties shall be as
      follows:

    

      
        	
                The
                  Grantor:

              	 	 
	 	 	
                Peace
                  Oil Corp.

              
	 	 	
                c/o
                  Cold Flow Energy, ULC

              
	 	 	
                12220
                  El Camino Real, Suite 410

              
	 	 	
                San
                  Diego, CA

              
	 	 	
                92130

              
	 	 	
                Fax:
                  (858)
                  704-5011

              
	 	 	 

      

       

      
        
          
          

        

        
          -11-

          
            

          

        

        
          
          

        

      

       

      
        	
                The
                  Owner:

              	 	 
	 	 	
                [Newco]

              
	
                 

              	 	
                c/o
                  Burstall Winger LLP

              
	 	 	
                1600,
                  333 - 7th
                  Avenue S.W.

              
	 	 	
                Calgary,
                  Alberta

              
	 	 	
                T2P
                  2Z1

              
	 	 	
                Fax:
                  (403) 233-2131

              

      

    

     

    
      	 	
              (c)

            	
              Right
                To Change Address

            

    

     

    Any
      party
      may change its address for service by notice to the other parties.

     

    
      	
              19.

            	
              MISCELLANEOUS

            

    

     

    
      	 	
              (a)

            	
              Development
                of Lands

            

    

     

    Nothing
      in this Agreement is to be construed as an express or implied covenant by the
      Grantor to develop the Lands.

    

    
      	 	
              (b)

            	
              Perpetuities

            

    

     

    Notwithstanding
      anything contained in this Agreement, any right under this Agreement of a party
      to acquire any interest from another party shall terminate not later than the
      expiration of twenty-one (21) years after the death of the last surviving
      descendant now living of Her Majesty Queen Elizabeth II.

     

    
      	 	
              (c)

            	
              Parties
                To Do All Further Acts

            

    

     

    The
      parties hereto shall from time to time and at all times do all such further
      acts
      and execute and deliver all such further deeds and documents as shall be
      reasonably required in order fully to perform and carry out the terms of this
      Agreement.

     

    
      	 	
              (d)

            	
              No
                Waiver Except In Writing

            

    

     

    No
      waiver
      by any party hereto of any breach of any of the covenants, conditions or
      provisos herein contained shall be effective or be binding upon another party
      unless the same be expressed in writing, and any waiver so expressed shall
      not
      limit or affect its right with respect to any other or future
      breach.

     

    
      	 	
              (e)

            	
              Time
                Of Essence

            

    

     

    Time
      is
      of the essence of this Agreement.

     

    
      	 	
              (f)

            	
              Headings

            

    

     

    The
      headings of the clauses of this Agreement are inserted for convenience of
      reference only and shall not affect the construction or interpretation of this
      Agreement.

     

    
      	 	
              (g)

            	
              Counterpart
                Execution

            

    

     

     

    
      
        
        

      

      
        -12-

        
          

        

      

      
        
        

      

    

     

    This
      Agreement may be executed in counterpart and all executed counterparts together
      all constitute one agreement.

     

    IN
      WITNESS WHEREOF the parties have executed this Royalty Agreement as of the
      year
      and date first above written.

    

    

    
      	
              1304146
                ALBERTA LTD.

            	 	
              PEACE
                OIL CORP.

            
	 	 	 
	
              Per:

            	 /s/
              signature 
              

            	 	
              Per:

            	 /s/
              David Perez 

              

            

    

    

    

    
      
        
        

      

      
        -13-

        
          

        

      

      
        
        

      

    

     

    This
      is
      Schedule "A" attached to and forming part of a Royalty Agreement made as of
      the
      ___ day of February, 2007 between 1304146 Alberta Ltd. and
      Peace
      Oil Corp. 
      
        

      

    

    

    

    
      	
              LEASES

            	
              LANDS

            	
              GRANTORS
                INTEREST

            
	
              OS7405120334

               

            	
              Twp
                89, Rge 8 W5

              Sections
                1-3, 10-15

               

            	
              30.0%

               

            
	
              OS7405120335

               

            	
              Twp
                89, Rge 8 W5

              Sections
                4-9, 16-18

               

            	
              30.0%

               

            
	
              OS7405120336

               

            	
              Twp
                89, Rge 8 W5

              Sections
                19-21, 28-33

               

            	
              30.0%

               

            
	
              OS7405120337

               

            	
              Twp
                89, Rge 8 W5

              Sections
                22-27, 34-36

               

            	
              30.0%

               

            
	
              OS7405120339

               

            	
              Twp
                89, Rge 10 W5

              Sections
                1-3, 10-15

               

            	
              30.0%

               

            
	
              OS7405120340

               

            	
              Twp
                89, Rge 10 W5

              Sections
                22-27, 34-36

               

            	
              30.0%

               

            
	
              OS7406020462

               

            	
              Twp
                88, Rge 08 W5

               

              Sections
                04-09, 16-18

               

            	
              30.0%

               

            
	
              OS7406020463

               

            	
              Twp
                88, Rge 08, W5

              Sections
                19-21, 28-33

               

            	
              30.0%

               

            
	
              OS7406020464

               

            	
              Twp
                88, Rge 09 W5

              Sections
                01-03, 10-15

               

            	
              30.0%

               

            
	
              OS7406020467

               

            	
              Twp
                88, Rge 09 W5

              Sections
                22-27, 34-36

               

            	
              30.0%

               

            
	
              OS7406020465

               

            	
              Twp
                88, Rge 09 W5

              Sections
                04-09, 16-18

               

            	
              30.0%

               

            
	
              OS7406030666

               

            	
              Twp
                88, Rge 07 W5

              Sections
                22-27, 34-36

               

            	
              30.0%

               

            
	
              OS7406030667

               

            	
              Twp
                89, Rge 07 W5

              Sections
                01-03, 10-15

               

            	
              30.0%

               

            
	
              OS7406030668

               

            	
              Twp
                89, Rge 07 W5

              Sections
                04-09, 16-18

               

            	
              30.0%

               

            
	
              OS7406060674

               

            	
              Twp
                87, Rge 11 W5

              Sections
                19-21, 28-33

               

            	
              30.0%

               

            

    

    

    

    
      
        
        

      

      
        -14-

        
          

        

      

      
        
        

      

    

     

    This
      is
      Schedule "B" attached to and forming part of a Royalty Agreement made as of
      the
      ___ day of February, 2007 between 1304146 Alberta Ltd and Peace Oil
      Corp.

    
      
        

      

    1993
      CAPL Assignment Procedure

     

     

     

    -15-EX-10.4

    Exhibit
      10.11

    

    THIS
      WARRANT AND THE SECURITIES TO BE ISSUED UPON ITS EXERCISE HAVE NOT BEEN
      REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”),
      AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXCLUSION FROM THE REGISTRATION
      REQUIREMENTS OF THE SECURITIES ACT PROVIDED BY REGULATION S (“REGULATION S”)
      PROMULGATED UNDER THE SECURITIES ACT. THIS WARRANT AND THE UNDERLYING SECURITIES
      MAY NOT BE REOFFERED FOR SALE OR RESOLD OR OTHERWISE TRANSFERRED EXCEPT IN
      ACCORDANCE WITH THE PROVISIONS OF REGULATION S, PURSUANT TO AN EFFECTIVE
      REGISTRATION UNDER THE SECURITIES ACT, OR PURSUANT TO AN AVAILABLE EXEMPTION
      FROM REGISTRATION UNDER THE SECURITIES ACT. THIS WARRANT MAY NOT BE EXERCISED
      IN
      THE UNITED STATES OR BY OR ON BEHALF OF ANY PERSON IN THE UNITED STATES OR
      BY OR
      ON BEHALF OF ANY U.S. PERSON UNLESS THIS WARRANT AND THE UNDERLYING SECURITIES
      HAVE BEEN REGISTERED UNDER THE SECURITIES ACT AND THE APPLICABLE SECURITIES
      LEGISLATION OF ANY SUCH STATE OR AN EXEMPTION FROM SUCH REGISTRATION
      REQUIREMENTS IS AVAILABLE. HEDGING TRANSACTIONS INVOLVING THIS WARRANT AND
      THE
      UNDERLYING SECURITIES MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE
      SECURITIES ACT. “UNITED STATES” AND “U.S. PERSON” ARE AS DEFINED BY REGULATION S
      UNDER THE SECURITIES ACT.

    

     

    Void
      after

    March
      2,
      2010

     

    SURGE
      GLOBAL ENERGY, INC.

    WARRANT
      TO PURCHASE SHARES

     

    This
      Warrant is issued to 1304146 Alberta Ltd, a corporation organized under the
      law
      of Alberta, Canada (the “Holder”),
      by
      Surge Global Energy, Inc., a Delaware corporation (the “Company”),
      in
      connection with that certain promissory note made by the Company in favor of
      the
      Holder, on even date herewith, in the principal amount of CDN$1.5 Million due
      and payable on August 30, 2007 (“Note
      #3”).
      Notwithstanding anything to the contrary in this Warrant, this Warrant shall
      become effective only on that date upon which the Company has paid the entire
      outstanding balance of Note #3 in full pursuant to the provisions of Note #3
      (the “Effective
      Date”).
      If
      the Company fails to pay the Note in full, this Warrant shall be void
ab
      initio
      and be
      of no force or effect.

    

    1. Purchase
      of Shares.
      Subject
      to the terms and conditions hereinafter set forth, the Holder is entitled,
      upon
      surrender of this Warrant at the principal office of the Company (or at such
      other place as the Company shall notify the Holder in writing), to purchase
      from
      the Company up to the number of fully paid and nonassessable Warrant Shares
      (as
      defined below), that equals the quotient obtained by dividing (a) 1,000,000
      by (b) the Exercise Price (as defined below).

     

    2. Definitions.

     

    (a) CDN.
      The
      term “CDN” means dollars in lawful currency of Canada.

     

    (b) Change
      of Control.
      The
      term “Change
      of Control”
shall
      mean (i) any consolidation or merger involving the Company pursuant to
      which the Company’s stockholders own less than fifty percent (50%) of the voting
      securities of the surviving entity or (ii) the sale of all or substantially
      all of the assets of the Company.

     

    
      
         

      

      
        -1-

        
          

        

      

      
         

      

    

     

    

    (c) Exercise
      Price.
      The
      exercise price for the Warrant Shares shall be USD$1.00 per share (such price,
      as adjusted from time to time, is herein referred to as the “Exercise
      Price”).

     

    (d) Exercise
      Period.
      This
      Warrant shall be exercisable, in whole or in part, during the term commencing
      the Effective Date and ending on the expiration of this Warrant pursuant to
      Section 14 hereof.

     

    (e) Regulation S.
      The
      term “Regulation
      S”
means
      Regulation S under the Securities Act.

     

    (f) Securities
      Act.
      The
      term “Securities
      Act”
means
      the United States Securities Act of 1933, as amended.

     

    (g) Shares.
      The
      term “Shares”
means
      shares of the Company’s Common Stock.

     

    (h) USD.
      The
      term “USD” means dollars in lawful currency of the United States.

     

    (i) U.S.
      Person.
      The
      term “U.S.
      Person”
means
      a
“U.S. person” as such term is defined in Rule 902(k) of Regulation S promulgated
      under the Securities Act, as presently in effect.

     

    (j) United
      States.
      The
      term “United
      States”
means
      United States of America, its territories and possessions, any state of the
      United States and the District of Columbia.

     

    (k) Warrant
      Shares.
      The
      term “Warrant
      Shares”
means
      the Shares issuable upon exercise of the Warrants.

     

    3. Method
      of Exercise.
      While
      this Warrant remains outstanding and exercisable in accordance with
      Section 2 above, the Holder may exercise, in whole or in part, the purchase
      rights evidenced hereby. Such exercise shall be effected by:

     

    (i) the
      surrender of the Warrant, together with a notice of exercise to the Secretary
      of
      the Company (provided, however, the Warrant may not be exercised within the
      United States or by a U.S. Person, and the Warrant Shares may not be delivered
      within the United States upon exercise, unless registered under the Securities
      Act or an exemption from such registration is available); and

     

    (ii) the
      payment to the Company of an amount equal to the aggregate Exercise Price for
      the number of Warrant Shares being purchased.

     

    4. Net
      Exercise.
      In lieu
      of cash exercising this Warrant, the Holder may elect to receive shares equal
      to
      the value of this Warrant (or the portion thereof being canceled) by surrender
      of this Warrant to the Secretary of the Company together with notice of such
      election (subject, however, to the limitations set forth in the parenthetical
      language in Section 3(i) above), in which event the Company shall issue to
      the
      Holder a number of Warrant Shares computed using the following
      formula:

     

    
      	 	
              Y
                (A-B)

            
	
              X
                =

            	
              A

            

    

    Where

     

    X
      — The
      number of Shares to be issued to the Holder.

     

     

    
      
         

      

      
        -2-

        
          

        

      

      
         

      

    

     

    Y
      — The
      number of Shares purchasable under this Warrant.

     

    A
      — The
      fair
      market value of one Share.

     

    B
      — The
      Exercise Price (as adjusted to the date of such calculations).

     

    For
      purposes of this Section 4, the fair market value of a Share shall mean the
      average of the closing bid and asked prices of Shares quoted in the
      over-the-counter market in which the Shares are traded or the closing price
      quoted on any exchange on which the Shares are listed, whichever is applicable,
      as published in the Western Edition of The
      Wall Street Journal
      for the
      ten (10) trading days prior to the date of determination of fair market
      value (or such shorter period of time during which such stock was traded
      over-the-counter or on such exchange). If the Shares are not traded on the
      over-the-counter market or on an exchange, the fair market value shall be the
      price per Share that the Company could obtain from a willing buyer for Shares
      sold by the Company from authorized but unissued Shares, as such prices shall
      be
      determined in good faith by the Company’s Board of Directors.

     

    5. Certificates
      for Warrant Shares.
      Upon
      the exercise of the purchase rights evidenced by this Warrant, one or more
      certificates for the number of Warrant Shares so purchased shall be issued
      as
      soon as practicable thereafter, and in any event within ten (10) days of the
      delivery of the subscription notice.

     

    6. Issuance
      of Warrant Shares.
      The
      Company covenants that the Warrant Shares, when issued pursuant to the exercise
      of this Warrant, will be duly and validly issued, fully paid and nonassessable
      and free from all taxes, liens, and charges with respect to the issuance
      thereof.

     

    7. Adjustment
      of Exercise Price and Number of Shares.
      The
      number of and kind of securities purchasable upon exercise of this Warrant
      and
      the Exercise Price shall be subject to adjustment from time to time as
      follows:

     

    (a) Subdivisions,
      Combinations and Other Issuances.
      If the
      Company shall at any time prior to the expiration of this Warrant subdivide
      the
      Shares, by split up or otherwise, or combine its Shares, or issue additional
      shares of its Shares as a dividend, the number of Warrant Shares shall forthwith
      be proportionately increased in the case of a subdivision or stock dividend,
      or
      proportionately decreased in the case of a combination. Appropriate adjustments
      shall also be made to the purchase price payable per share, but the aggregate
      purchase price payable for the total number of Warrant Shares (as adjusted)
      shall remain the same. Any adjustment under this Section 7(a) shall
      become effective at the close of business on the date the subdivision or
      combination becomes effective, or as of the record date of such dividend, or
      in
      the event that no record date is fixed, upon the making of such
      dividend.

     

    (b) Reclassification,
      Reorganization and Consolidation.
      In case
      of any reclassification, capital reorganization, or change in the capital stock
      of the Company (other than as a result of a subdivision, combination, or stock
      dividend provided for in Section 7(a) above), then the Company shall
      make appropriate provision so that the Holder shall have the right at any time
      prior to the expiration of this Warrant to purchase, at a total price equal
      to
      that payable upon the exercise of this Warrant, the kind and amount of shares
      of
      stock and other securities and property receivable in connection with such
      reclassification, reorganization, or change by a Holder of the same number
      of
      Shares as were purchasable by the Holder immediately prior to such
      reclassification, reorganization, or change. In any such case appropriate
      provisions shall be made with respect to the rights and interest of the Holder
      so that the provisions hereof shall thereafter be applicable with respect to
      any
      shares of stock or other securities and property deliverable upon exercise
      hereof, and appropriate adjustments shall be made to the purchase price per
      share payable hereunder, provided the aggregate purchase price shall remain
      the
      same.

     

    
      
         

      

      
        -3-

        
          

        

      

      
         

      

    

     

    (c) Notice
      of Adjustment.
      When
      any adjustment is required to be made in the number or kind of shares
      purchasable upon exercise of the Warrant, or in the Exercise Price, the Company
      shall promptly notify the Holder of such event and of the number of Shares
      or
      other securities or property thereafter purchasable upon exercise of this
      Warrant.

     

    8. No
      Fractional Shares or Scrip.
      No
      fractional shares or scrip representing fractional shares shall be issued upon
      the exercise of this Warrant, but in lieu of such fractional shares the Company
      shall make a cash payment therefor on the basis of the Exercise Price then
      in
      effect. 

     

    9. Representations
      of the Company.
      The
      Company represents and warrants to the Holder that all corporate actions on
      the
      part of the Company, its officers, directors and stockholders necessary for
      the
      sale and issuance of this Warrant have been taken.

     

    10. Representations
      and Warranties of the Holder.
      The
      Holder represents, warrants, acknowledges and agrees that:

     

    (a) Holder
      (i) is not located in the United States, (ii) is not a U.S. Person,
      (iii) is not acquiring the Warrant and will not acquire the Warrant Shares
      for the account or benefit of a U.S. Person or a person in the United States,
      (iv) did not execute or deliver this Warrant in the United States; and (v)
      will not engage in any hedging transactions with regard to this Warrant or
      the
      Warrant Shares unless in compliance with the Securities Act;

     

    (b) If
      Holder
      decides to offer, sell, pledge or otherwise transfer any of the Warrants or
      Warrant Shares, the Holder will not offer, sell, pledge or otherwise transfer
      any of such securities, directly or indirectly, unless such securities are
      registered for resale under the Securities Act and under any applicable state
      securities laws, if required, or: (i) the transfer is to the Company;
      (ii) the transfer is made outside the United States in accordance with the
      provisions of Regulation S and in compliance with applicable local laws and
      regulations; (iii) the transfer is made in compliance with an exemption
      from registration under the Securities Act provided by Rule 144 thereunder,
      if available, and in accordance with applicable state securities laws; or
      (iv) the transfer is made in another transaction that does not require
      registration under the Securities Act or any applicable state securities laws
      after the seller furnishes to the Company an opinion of outside counsel in
      form
      and substance reasonably satisfactory to the Company or other evidence
      reasonably satisfactory to the Company to such effect;

     

    (c) This
      Warrant and the Warrant Shares have not been registered under the Securities
      Act
      or the securities laws of any state of the United States and that the issuance
      of this Warrant and the Warrant Shares will be made in reliance upon an
      exclusion from such registration requirements availaible under Regulation S,
      and
      this Warrant and the Warrant Shares will be “restricted securities” within the
      meaning of Rule 144 under the Securities Act. Holder is familiar with Rule
      144
      promulgated under the Securities Act, as presently in effect, and understands
      the resale limitations imposed thereby and by the Securities Act. ADDITIONALLY,
      HOLDER UNDERSTANDS AND ACKNOWLEDGES THAT AN INVESTMENT IN THIS WARRANT AND
      THE
      WARRANT SHARES INVOLVES AN EXTREMELY HIGH DEGREE OF RISK AND MAY RESULT IN
      A
      COMPLETE LOSS OF HOLDER’S INVESTMENT. Holder has no immediate need for liquidity
      in connection with this investment, and does not anticipate that such Holder
      will be required to sell this Warrant or Warrant Shares in the foreseeable
      future;

     

    
      
         

      

      
        -4-

        
          

        

      

      
         

      

    

     

    (d) This
      Warrant and the Warrant Shares are being acquired for the Holder’s own account,
      for investment and not with a view to, or for resale in connection with, any
      distribution or public offering thereof within the meaning of the Securities
      Act;

     

    (e) The
      Warrant and the Warrant Shares have not been registered under the Securities
      Act
      by reason of their issuance in a transaction excluded from the registration
      and
      prospectus delivery requirements of the Securities Act pursuant to Regulation
      S
      and that they must be held by the Holder indefinitely, and that the Holder
      must
      therefore bear the economic risk of such investment indefinitely, unless a
      subsequent disposition thereof is registered under the Securities Act or is
      exempted from such registration;

     

    (f) Holder
      has such knowledge and experience in financial and business matters that Holder
      is capable of evaluating the merits and risks of the purchase of this Warrant
      and the Warrant Shares and of protecting Holder’s interests in connection
      therewith;

     

    (g) Holder
      is
      able to bear the economic risk of the purchase of the Warrant Shares pursuant
      to
      the terms of this Warrant;

     

    (h) Holder
      will sell the Warrants and the Warrant Shares only in accordance with the
      provisions of Regulation S, pursuant to registration under the Securities Act,
      or pursuant to an available exemption from registration pursuant to the
      Securities Act;

     

    (i) Company
      will refuse to register any transfer of the Warrants and the Warrant Shares
      not
      made in accordance with the provisions of Regulation S, pursuant to registration
      under the Securities Act, or pursuant to an available exemption from
      registration; and

     

    (j) Holder
      acknowledges that the Warrants are being issued pursuant to certain prospectus
      and registration exemptions under Canadian securities laws and that each of
      the
      Warrants and the Warrant Shares may be subject to a statutory hold period which
      may be of indefinite duration.

     

    11. Restrictive
      Legend.

     

    (a) All
      certificates representing the Warrant Shares will be endorsed with the following
      legend:

     

    “THE
      SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND HAVE BEEN ISSUED
      IN RELIANCE UPON AN EXCLUSION FROM THE REGISTRATION REQUIREMENTS OF THE
      SECURITIES ACT PROVIDED BY REGULATION S (“REGULATION S”) PROMULGATED UNDER THE
      SECURITIES ACT. SUCH SECURITIES MAY NOT BE REOFFERED FOR SALE OR RESOLD OR
      OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION
      S,
      PURSUANT TO AN EFFECTIVE REGISTRATION UNDER THE SECURITIES ACT, OR PURSUANT
      TO
      AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT. HEDGING
      TRANSACTIONS INVOLVING THESE SECURITIES MAY NOT BE CONDUCTED UNLESS IN
      COMPLIANCE WITH THE SECURITIES ACT.”

     

    
      
         

      

      
        -5-

        
          

        

      

      
         

      

    

    
 

    (b) Holder
      will comply with all other applicable securities legislation in addition to
      the
      Securities Act to which the Holder is subject in selling or transferring any
      Warrants or Warrant Shares and the Company may refuse to register any sale
      or
      transfer not in compliance with such other securities legislation.

     

    12. Payment
      of Taxes.
      The
      Company shall not be required to pay any tax or other charge imposed in
      connection with the exercise of this Warrant or a permissible transfer involved
      in the issuance of any certificate for shares issuable under this Warrant in
      the
      name other than that of the Holder, and in any such case, the Company shall
      not
      be required to issue or deliver any stock certificate until such tax or other
      charge has been paid or it has been established to the Company’s satisfaction
      that no such tax or other charge is due.

     

    13. Rights
      of Stockholders.
      No
      Holder shall be entitled, as a Warrant holder, to vote or receive dividends
      or
      be deemed the Holder of the Warrant Shares or any other securities of the
      Company which may at any time be issuable on the exercise hereof for any
      purpose, nor shall anything contained herein be construed to confer upon the
      Holder, as such, any of the rights of a stockholder of the Company or any right
      to vote for the election of directors or upon any matter submitted to
      stockholders at any meeting thereof, or to give or withhold consent to any
      corporate action (whether upon any recapitalization, issuance of stock,
      reclassification of stock, change of par value, consolidation, merger,
      conveyance, or otherwise) or to receive notice of meetings, or to receive
      dividends or subscription rights or otherwise until the Warrant shall have
      been
      exercised and the Warrant Shares purchasable upon the exercise hereof shall
      have
      become deliverable, as provided herein.

     

    14. Expiration
      of Warrant; Notice of Certain Events Terminating This Warrant.
      

     

    (a) This
      Warrant shall expire and shall no longer be exercisable upon the earlier to
      occur of:

     

    (i) 5:00
      p.m., California local time, on March 2, 2010; or

     

    (ii) Any
      Change of Control.

     

    (b) The
      Company shall provide at least ten (10) calendar days prior written notice
      of
      any Change of Control).

     

    15. Notices.
      All
      notices and other communications required or permitted hereunder shall be in
      writing, shall be effective when given, and shall in any event be deemed to
      be
      given upon receipt or, if earlier, (a) five (5) days after deposit
      with the U.S. Postal Service or other applicable postal service, if delivered
      by
      first class mail, postage prepaid, (b) upon delivery, if delivered by hand,
      (c) one business day after the business day of deposit with Federal Express
      or similar overnight courier, freight prepaid or (d) one business day after
      the business day of facsimile transmission, if delivered by facsimile
      transmission with copy by first class mail, postage prepaid, and shall be
      addressed (i) if to the Holder, at the Holder’s address as set forth on the
      Schedule of Warrant Shareholders to the Purchase Agreement, and (ii) if to
      the Company, at the address of its principal corporate offices (attention:
      President), with a copy to Steven T. Anapoell, Esq., Greenberg Traurig, LLP,
      650
      Town Center Drive, Suite 1700, Costa Mesa, California 92626 or at such other
      address as a party may designate by ten days advance written notice to the
      other
      party pursuant to the provisions above.

     

    
      
         

      

      
        -6-

        
          

        

      

      
         

      

    

     

    16. Registration
      Statement.

     

    (a) Within
      45
      days following March 2, 2007, the Company covenants to prepare and file with
      the
      Securities and Exchange Commission (the “SEC”)
      a
      registration statement on Form SB-2 (“SB-2
      Registration Statement”)
      registering the Warrant Shares with any other securities of the Holder for
      resale by the Holder. The Company covenants to keep the SB-2 Registration
      Statement effective for up to two years following the date the SB-2 Registration
      Statement becomes effective or, if earlier, until the Holder has completed
      the
      distribution related thereto. Holder shall prepare and file with the SEC such
      amendments and supplements to the SB-2 Registration Statement and the prospectus
      used in connection with such SB-2 Registration Statement as may be necessary
      to
      comply with the provisions of the Securities Act with respect to the disposition
      of all securities covered by the SB-2 Registration Statement. The Company shall
      furnish to the Holder such number of copies of a prospectus in conformity with
      the requirements of the Securities Act, and such other documents as they may
      reasonably request in order to facilitate the disposition of the Warrant Shares
      owned by them. The Company shall notify the Holder by written notice to the
      address set forth on the books of the Company (unless the Company is notified
      in
      writing of a different address for the Holder) at any time when a prospectus
      relating thereto is required to be delivered under the of the happening of
      any
      event as a result of which the prospectus included in the SB-2 Registration
      Statement as then in effect, includes an untrue statement of a material fact
      or
      omits to state a material fact required to be stated therein or necessary to
      make the statements therein not misleading in the light of the circumstances
      then existing.

     

    (b) Notwithstanding
      anything to the contrary in Section 16(a) above, if the Company becomes
      eligible to register the Warrant Shares on Form S-3, Company will
      (i) prepare and file with the SEC a registration statement on Form S-3
      (“S-3
      Registration Statement”)
      registering the Warrant Shares for resale by the Holder; and (ii) the
      Company shall keep the S-3 Registration Statement effective for a period of
      up
      to three years following the date the SB-2 Registration Statement (as opposed
      to
      the S-3 Registration Statement) became effective or, if earlier, until the
      Holder has completed the distribution related thereto. At such time as the
      SEC
      declares the S-3 Registration Statement effective, the Company shall no longer
      have any obligations under Section 16(a) above. The Company shall furnish
      to the Holder such number of copies of a prospectus in conformity with the
      requirements of the Securities Act, and such other documents as they may
      reasonably request in order to facilitate the disposition of the Warrant Shares
      owned by Holder. The Company shall notify the Holder by written notice to the
      address set forth on the books of the Company (unless the Company is notified
      in
      writing of a different address for the Holder) at any time when a prospectus
      relating thereto is required to be delivered under the Securities Act of the
      happening of any event as a result of which the prospectus included in the
      S-3
      Registration Statement as then in effect, includes an untrue statement of a
      material fact or omits to state a material fact required to be stated therein
      or
      necessary to make the statements therein not misleading in the light of the
      circumstances then existing.

     

    (c) It
      shall
      be a condition precedent to the obligations of Surge to take any action under
      this Section 16 that the Holder shall furnish to the Company such
      information regarding Holder, the Warrant Shares held by Holder and the intended
      method of disposition of such securities as may be reasonably requested by
      the
      Company and as shall be required to effect the registration of the Warrant
      Shares.

     

    17. Restrictions
      on Transfer.
      The
      Holder shall refuse to register any sale or transfer of the Warrant or Warrant
      Shares not made in accordance with the provisions of Regulation S, pursuant
      to
      registration under the Securities Act, or pursuant to an available exemption
      from registration; provided, however, if foreign law prevents the Company from
      refusing to register such securities transfers, the Company shall implement
      procedures to prevent any transfer not made in accordance with the provisions
      of
      Regulation S.

     

    
      
         

      

      
        -7-

        
          

        

      

      
         

      

    

     

    18. Governing
      Law.
      This
      Warrant and all actions arising out of or in connection with this Agreement
      shall be governed by and construed in accordance with the laws of the State
      of
      California, without regard to the conflicts of law provisions of the State
      of
      California or of any other state.

    19. Rights
      and Obligations Survive Exercise of Warrant.
      Unless
      otherwise provided herein, the rights and obligations of the Company, of the
      Holder and of the holder of the Warrant Shares issued upon exercise of this
      Warrant, shall survive the exercise of this Warrant.

     

    Issued
      this March 2, 2007.

     

    
      	 	 	 
	 	COMPANY
	 	 
	 	
              Surge
                Global Energy, Inc.,

              a Delaware corporation

            
	 
 	 
 	 
 
	 	By:  	
               
                

              
                

              

               

            
	 	Title:	  

              

            

    

    
      
        
        

         

      

      
        -8-

        
          

        

      

      
         

        
        

      

    

    

    EXHIBIT A

     

    NOTICE
      OF EXERCISE

    

      
        	
                TO:

              	
                Surge
                  Global Energy, Inc.

              
	 	
                12220
                  El Camino Real

              
	 	
                Suite
                  410

              
	 	
                San
                  Diego, CA 92130

              
	 	
                Attention:
                  President

              

      

    

     

    1. The
      undersigned hereby elects to purchase __________ shares of Common Stock (the
      “Shares”) Surge Global Energy, Inc., a Delaware corporation (the “Company”),
      pursuant to the terms of the attached Warrant.

     

    2. Method
      of
      Exercise (Please initial the applicable blank):

     

    
      	 	
              ___

            	
              The
                undersigned elects to exercise the attached Warrant by means of a
                cash
                payment, and tenders herewith payment in full for the purchase price
                of
                the shares being purchased, together with all applicable transfer
                taxes,
                if any.

            

    

     

    
      	 	
              ___

            	
              The
                undersigned elects to exercise the attached Warrant by means of the
                net
                exercise provisions of Section 4 of the
                Warrant.

            

    

     

    3. Please
      issue a certificate or certificates representing such Shares in the name of
      the
      undersigned or in such other name as is specified below:

     

    _________________________________

     

    (Name)

     

    

     

    _________________________________

     

    _________________________________

     

    (Address)

     

    

    4. The
      undersigned represents, warrants, certifies and agrees as follows (only one
      of
      the following must be checked):

     

    
      	 	
              A.
                 ̈

            	
              The
                undersigned holder (a) at the time of exercise of these Warrants
                is not in
                the United States, (b) is not a “U.S. person” (a “U.S. Person”), as such
                term is defined in Regulation S under the United States Securities
                Act of
                1933, as amended (the “U.S. Securities Act”), and is not exercising such
                securities on behalf of a U.S. Person or a person in the United States,
                (c) did not execute or deliver this Notice of Exercise in the United
                States, and (d) agrees not to engage in any hedging transactions
                related
                to the Shares unless in compliance with the U.S. Securities Act;
                or

            

    

     

     

    
      
         

      

      
        -9-

        
          

        

      

      
         

      

    

     

    
      	 	
              B.
                 ̈

            	
              The
                undersigned holder has delivered to the Company a written opinion
                of
                counsel reasonably satisfactory to the Company to the effect that
                an
                exemption from the registration requirements of the U.S. Securities
                Act
                and applicable state securities laws is available for the issuance
                of the
                Shares.

            

    

     

     

    The
      undersigned holder understands that the certificate representing the Shares
      will
      bear a legend restricting transfer without registration under the U.S.
      Securities Act and applicable state securities laws unless an exclusion or
      exemption from registration is available. Unless Box B above is checked,
      certificates representing Warrant Shares will not be registered or delivered
      to
      an address in the United States.

     

    If
      Box B
      is checked, any opinion tendered must be reasonably satisfactory to the Company.
      Holders planning to deliver an opinion of counsel in connection with the
      exercise of Warrants should contact the Company in advance to determine whether
      any opinions to be tendered will be satisfactory to the Company.

     

     

    
       

      
        	 	 

                
(Signature)
	 	
                 

              
	 	
                
                  
 (Name)

                 

              
	 	
                
                  
 (Title)

                 

              
	 	
                
                  
 (Date)

                 

              

      

      
 

       

      -10-

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