Document:

Exhibit 10.1

CONTRIBUTION AND PURCHASE AGREEMENT

THIS CONTRIBUTION AND PURCHASE AGREEMENT (this “Agreement”)
is entered into as of August     , 2006, by and between
Earth Ethanol, Inc., a Delaware corporation (“EE”), HPS Development,
L.L.C., a Louisiana limited liability company (“HPS”), and South
Louisiana Ethanol, L.L.C., a Louisiana limited liability company (“SLE”).  EE, HPS and SLE are referred to collectively
herein as the “Parties.”

RECITALS

A.    On June 15, 2006, HPS formed SLE by filing
the Articles of Organization attached hereto as Exhibit A with the
Secretary of State of the State of Louisiana.

B.    HPS desires to contribute to SLE certain
assets comprising approximately 50 acres of immovable property located in
Myrtle Grove, Plaquemines Parish, Louisiana, together with the assets
comprising the currently defunct ethanol plant formerly owned by the
Mississippi River Alcohol Company (collectively referred to as the “Assets”)in
return for the issuance to HPS of 810 units of SLE.

C.    EE desires to purchase from HPS three
hundred ten (310) of the units issued to HPS by SLE in return for the
consideration described in this Agreement.

D.    EE desires to simultaneously contribute $40
million to SLE in exchange for an additional one hundred ninety (190) units to bring
its total interest in SLE to fifty percent (50%), pursuant to terms and
conditions set forth in this Agreement.

E.     SLE shall exercise commercially reasonable
diligence in seeking financing up to $80 million, pursuant to commercially
reasonable terms and condition (the Morgan Keegan Financing), said
financing anticipated to be placed by Morgan, Keegan & Company (Morgan
Keegan) with third party lenders (the Morgan Keegan Finance Lenders),
the purpose of said financing to be as follows: 
(1) to fund up to $40 million in constructing a new ethanol plant with
salvage components from the Plant and (2) to fund up to $5 million for
capitalized interest, closing costs, and other miscellaneous reserve items
required by Morgan Keegan; and (3) to loan to EE the balance of the proceeds
received from the Morgan Keegan Financing in an amount not to exceed $35
million.

TERMS AND PROVISIONS

In consideration
of the premises and the mutual promises herein made, and in consideration of
the representations, warranties, and covenants herein contained, the Parties
agree as follows.

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1.                                  Contribution
of Assets; Issuance of Units.

a.               Contribution of
Assets.  Upon and subject to the
terms and conditions of this Agreement, at the Contribution Closing (as defined
below), HPS shall contribute to SLE the assets described on Exhibit B
(the “Assets”).

b.              Issuance of Units.  In return for the contribution of the Assets
to SLE by HPS, SLE shall issue, transfer and assign to HPS (i) six (6) of SLE’s
Class A Voting Units (“Class A Units”) and (ii) eight hundred and four
(804) of SLE’s Class B Non-Voting Units (“Class B Units”).

c.               Bill of Sale;
Act of Sale.  At the Contribution
Closing, HPS shall execute and deliver to SLE (i) an Act of Transfer of
Immovable Property as Capital Contribution in the form attached hereto as Exhibit
C (the “Act of Transfer of Immovable Property Agreement”), under the terms
of which HPS shall sell, grant, convey, assign, transfer and deliver the Plant
to SLE, (ii) an Act of Transfer of Movable Property as Capital Contribution in
the form attached hereto as Exhibit D (the “Act of Transfer of Movable
Property Agreement”); and (iii) such other bills of sale, deeds, instruments of
assignment and other appropriate documents as may be reasonably requested by
SLE or EE in order to carry out the intentions and purposes hereof.

d.              Assignments;
Further Assurances.  Nothing in this
Agreement shall be construed as an attempt or agreement to assign any contract,
agreement, license, lease, sales order, purchase order or other commitment that
is nonassignable without the consent of the other party or parties thereto
unless such consent shall have been given.

2.                                  Purchase
of Units from HPS.

a.               Basic
Transaction.  Upon and subject to the
terms and conditions of this Agreement, at the Purchase Closing (as defined
below), EE shall purchase from HPS, and HPS shall sell to EE, for the
consideration specified in Section 2(b), (i) three (3) Class A Units and
(ii) three hundred seven (307) Class B Units (collectively, the “Purchased
Units”).

b.              Purchase Price.  In consideration for the Purchased Units to
be purchased pursuant to Section 2(a), EE agrees to pay to HPS the
aggregate sum of $50,000,000.00 (the “Cash Consideration”) and an
aggregate of 5,829,005 shares of Earth Biofuels, Inc. common stock, par value
$0.001 per share (the “Stock Consideration” and, together with the Cash
Consideration, the “Purchase Price”). 
The Purchase Price has been, and shall be, paid as follows:

i.                  Prior to the
date hereof, pursuant to various prior letters of intent and agreements, 

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           EE has paid to HPS the aggregate sum of
Twenty Two Million Dollars ($22,000,000), receipt of which is acknowledged by
HPS

ii.               Five Million
Dollars ($5,000,000) shall be due by EE to HPS on or before August 31, 2006;

iii.            Four Million Dollars
($4,000,000) shall be due by EE to HPS on or before September 15, 2006;

iv.           Four Million Dollars
($4,000,000) shall be due by EE to HPS on or before September 30, 2006;

v.              On October 31, 2006,
EE shall disburse to HPS, by wire transfer, the aggregate sum of $15,000,000,
said payment to be subject to escrow unless the parties otherwise agree
pursuant to Section (9)(j)(iv), below ;

(1)          Should the above payment
be subject to escrow,  EE shall deposit
the aggregate sum of $7,500,000 (the “Cost Warranty Escrow Fund”) with
an escrow agent acceptable to EE and HPS (the “Escrow Agent”) to be held
and disposed of pursuant to the Escrow Agreement attached hereto as Exhibit
E (the “Escrow Agreement”);

(2)          Should the above payment
be subject to escrow, EE shall deposit the aggregate sum of $7,500,000 (the “Performance
Warranty Escrow Fund” and, together with the Cost Warranty Escrow Fund, the
“Escrow Fund”) with the Escrow Agent to be held and disposed of pursuant
to the Escrow Agreement; and

vi.           At the Purchase
Closing, EE shall deliver to HPS one or more stock certificates representing
the Stock Consideration.

vii.        The Purchase Closing shall
be the earlier of December 4, 2006 or the closing of the Morgan Keegan
Financing.

viii.     Performance Bonus.  As additional consideration (the Additional
Consideration) for the Purchased Units, for a period not to exceed 3 years
from the Purchase Closing, EE shall pay to HPS the following additional shares
of Earth Biofuels, Inc. if the Plant is able to achieve increased production
levels within certain cost parameters, said Additional Consideration to be
based on the following performance and cost levels:

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  Annual
  Production Rates

  Equals or Exceeds:

  	
   

  	
  Total Cumulative Costs to

  Achieve Production Rates

  Does Not Exceed:

  	
   

  	
  Additional Cumulative

  Shares of Earth Biofuels,

  Inc. to HPS

  
	
  80 Million Gallons

  	
   

  	
  $50 Million

  	
   

  	
  150,000

  
	
  90 Million Gallons

  	
   

  	
  $55 Million

  	
   

  	
  300,000

  
	
  100 Million Gallons

  	
   

  	
  $60 Million

  	
   

  	
  450,000

  
	
  110 Million Gallons

  	
   

  	
  $65 Million

  	
   

  	
  600,000

  
	
  120 Million Gallons

  	
   

  	
  $70 Million

  	
   

  	
  750,000

  
	
  130 Million Gallons

  	
   

  	
  $75 Million

  	
   

  	
  900,000

  
	
  140 Million Gallons

  	
   

  	
  $80 Million

  	
   

  	
  1,050,000

  
	
  150 Million Gallons

  	
   

  	
  $85 Million

  	
   

  	
  1,200,000

  

 

3.                                  Purchase
of Units from SLE.

a.               At the Purchase
Closing, EE shall purchase from SLE, and SLE shall issue to EE, One Hundred
Ninety (190) Class B Units (the “Issued Units”).  The purchase price for the Issued Units shall
be the sum of Forty Million Dollars ($40,000,000) (the “Base
Consideration).  As payment of the Base
Consideration, EE shall deliver to SLE a Promissory Note (Purchase Note),  Loan Agreement and Security Interest in the
form as set forth in Exhibit F.  The
Purchase Note shall be made payable to the order of SLE in the principal amount
of the Base Consideration,  bearing
interest in an amount sufficient to pay interest due by SLE on the Morgan
Keegan Financing.  SLE shall maintain a
first security interest in the Issued and Purchased Units as collateral for the
Purchase Note.

4.                                  Morgan
Keegan Financing and Repayment of Notes.

a.               HPS and EE agree that
SLE shall exercise commercially reasonable diligence in seeking and securing
the Morgan Keegan Financing of up to Eighty Million Dollars ($80,000,000.00) in
the name of SLE , of which up to Five Million Dollars ($5,000,000) will
constitute reserves (as required by the Morgan Keegan Finance Lenders), and
funds for capitalized interest and closing costs.  The Plant shall be used as collateral to
secure the Morgan Keegan Financing.  The
purpose of the Morgan Keegan Financing is to (1) fund the construction of the
Plant (the Construction Expenses)(up to $40 million) to produce not less
than 60 million gallons of ethanol, on average, per year; (2) to use an amount
not to exceed $5 million for capitalized interest, closing costs, and other
miscellaneous reserve items required by the Morgan 

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        Keegan Finance Lenders,  and (3) to loan to EE the balance of the
proceeds received from the Morgan Keegan Financing in an amount not to exceed
$35 million.  The loan to EE of the
balance of the proceeds received from the Morgan Keegan Financing will be
evidenced by a Promissory Note (the EE Note) and a Loan Agreement and
Security Interest in the form as set forth in Exhibit G.  To the extent the total Construction Expenses
are less than $40 million, then the excess of $40 million over the actual
Construction Expenses shall be used by SLE to improve the efficiency and/or
capacity of the Plant or as otherwise agreed by HPS and EE.  EE agrees that it shall be responsible in
procuring the Morgan Keegan Financing and complying with all due diligence
requirements imposed by the Morgan Keegan Finance Lenders (or other third party
lender),  provided that HPS shall not be
required to expend any additional sums or incur any additional liability (whether
direct or contingent), except as set forth in this and other ancillary
Agreements. Neither HPS nor EE shall be required to guarantee the Morgan Keegan
Financing (or any other current or future indebtedness of SLE).  It is the intent of the Parties that the
Purchase Note and the EE Note and their terms and conditions will be as
follows:

i.                  The payment
provisions of the Purchase Note and the EE Note will be structured so as to
mirror the payment provisions of the Morgan Keegan Financing, subject to the
exception set forth in 4(a)(ii), below.

ii.               EE agrees to make
accelerated payments on the Purchase Note and the EE Note equal to 75% of EE’s
share of quarterly Distributable Income from SLE. “Distributable Income” shall
mean all distributions required to be made to the members of SLE pursuant to
Section 4.02 of the Operating Agreement of SLE. 
Said accelerated payments will be applied pro-rata to the Purchase Note
and the EE Note.   Example: Distributable
Income of SLE is $24 million for the quarter. 
The Purchase Note and EE Note payment due by EE to HPS shall total $9
million (75% of $12 million), $4.5 million to be applied to the EE Note and
$4.5 Million to be applied to the Purchase Note; provided, however that in no
event shall the Purchase Note and EE Note Payment be less than the amount due
pursuant to the Morgan Keegan Financing. 
All payments made by EE on the Purchase Note and the EE Note, including
payments made via the offset mechanism set forth in Section 4(a)(iii) below,
shall be applied by SLE to the Morgan Keegan Financing.

iii.            SLE shall offset any
installment due by EE under the Purchase Note and the EE Note by any
Distributable Income otherwise distributable to EE pursuant to Section 4.02 of
the Operating Agreement.  For purposes of
financial and tax accounting, any such offset shall be deemed to be a
distribution from SLE to EE, followed by an immediate payment by EE to SLE on
the Purchase Note and the EE Note.

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iv.           The Construction
Expenses shall not include:

(1)          interest or other
expenses related to the Morgan Keegan Financing;

(2)          Compensation for
services rendered by any of the individual members of HPS;

(3)          Compensation for
services rendered by Howard Wheeler; and

(4)          Compensation for
services rendered designated representative(s) of EE.

v.              Payment of the
Purchase Note and EE Note shall be an absolute obligation of EE and shall be
payable in a minimum amount necessary to pay the Morgan Keegan Financing.  The parties acknowledge that EE’s obligation
to make accelerated payments is solely based on the Distributable Income of SLE.   The parties agree that to the extent
available, and to the extent allowed by Morgan Keegan Finance Lenders, the $5
million reserve may be used to pay minimum amounts on the Morgan Keegan
Financing, and EE’s obligation under the Purchase Note and EE Note will be
deemed satisfied to the extent of such payments.

b.              Obligation of EE
To Obtain Morgan Keegan Financing. 
SLE shall be primarily responsible for obtaining the Morgan Keegan
Financing in the minimum amount of $40 million on or before December 4,
2006.  As provided in section 4(a), each
of HPS and EE agrees that it shall use its best efforts to assist SLE in
procuring the Morgan Keegan Financing. 
In the event that SLE is unable to obtain the Morgan Keegan Financing in
the minimum amount of $40 million by that date, this Agreement shall terminate
and the terms and conditions of Section 12 below shall apply.  Notwithstanding the foregoing, the parties
agree that EE may obtain bridge loan financing prior to obtaining the Morgan
Keegan Financing, which shall extend the time frame within which to obtain the
Morgan Keegan Financing.  EE acknowledges
and agrees that full disclosure will be made to Morgan Keegan and the Morgan
Keegan Finance Lenders of the uses of Morgan Keegan Financing, and that HPS
shall be fully released from any obligation to the Morgan Keegan Finance
Lenders to return all or part of the Purchase Price paid to HPS as set forth in
Section 2.

5.                                  Advances
by HPS to SLE.  EE acknowledges and
agrees that HPS has advanced $5 million to SLE (for the purpose of preliminary
construction expenses and paying deposits on necessary equipment) as of the
date of this Agreement and may advance additional funds to SLE on or before the
Purchase Closing (the HPS Advances), with the HPS Advances to constitute
permitted liabilities of SLE.  The HPS
Advances shall bear simple interest at 10% (said interest to be charged to EE)
and shall be repaid to HPS upon closing of the Morgan Keegan Financing from the
Morgan Keegan Financing proceeds.  To the

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                                           extent
that advances by HPS are required after October 31, 2006, and if an escrow has
been established pursuant to Section 2(b)(v), EE and HPS agree that funds will
be released to SLE from the Cost Warranty Escrow Fund and/or the Performance
Warranty Escrow Fund on an as needed basis so as not to delay the Construction
of the Plant.  The parties further agree
that they will work in good faith to allocate all such expenses to Construction
Expenses, joint SLE expenses, and expenses to be borne solely either by EE or HPS.

6.                                  Operating
Capital Line, Sharing of Costs of Capital Expenditures for Expansion and
Improvements.   EE shall use its best efforts to procure an
SLE line of credit, secured by SLE collateral acceptable to lender, or other
such similar credit facility to fund the initial working capital requirements
of SLE.  HPS agrees to cooperate with EE
in seeking such credit facility on behalf of SLE, provided that unless
otherwise agreed, no party shall be obligated to guarantee any such credit
facility.  To the extent SLE makes any
capital expenditures beyond the Maximum Cost (as defined in Section 9(j)(ii)
that materially increase production beyond the Minimum Rate (as defined in
Section 9(j)(i), EE will contribute 60% of the first $20 million of such
capital expenditures to SLE and HPS will contribute 40% to SLE.   Capital Expenditures above $20 million will
be borne pursuant to the parties ownership interest in SLE (50/50).  Capital Accounts will be maintained in equal
proportions.

7.                                  The
Closings.  The closing of the
transactions contemplated by Section 1 of this Agreement (the “Contribution
Closing”) and the closing of the transactions contemplated by Section 2
of this Agreement (the “Purchase Closing”)  shall take place on or before December 4,
2006, at such location, date and time as is acceptable to the parties.  Should the Morgan Keegan Financing closing
occur before December 1, 2006, the closings shall take place within three
business days of the Morgan Keegan Closing. 
Should the Contribution Closing occur simultaneously with the Purchase
Closing, the Purchase Closing shall be deemed to occur immediately after the
completion of the Contribution Closing.

8.                                  Representations
and Warranties of EE.  EE represents
and warrants to HPS that the statements contained in this Section 8 are
correct and complete as of the date hereof and will be correct and complete as
of the Closing Date:

a.               Organization.  EE is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware.

b.              Authorization.  EE has full power and authority to execute
and deliver this Agreement and to perform its obligations hereunder, and this
Agreement constitutes the valid and legally binding obligation of EE,
enforceable in accordance with its terms. 
EE does not need to give any notice to, make any filing with, or obtain
any authorization, consent, or approval of any government or governmental
agency in order to 

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           consummate the transactions contemplated
by this Agreement.

c.               Non-contravention.  Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
violate any statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which EE is subject or any governing, constituent or organizational
document to which it is subject.

d.              Brokers’ Fees.  EE has not incurred and will not incur,
directly or indirectly, any liability for brokerage or finders’ fees or agents’
commission or any similar charges in connection with this Agreement or any
transaction contemplated hereby.

9.                              Representations
and Warranties of HPS.  HPS
represents and warrants to EE that the statements contained in this Section
9 are correct and complete as of the date hereof and will be correct and
complete as of the Closing Date.

a.         Organization.  HPS is a limited liability company duly
organized, validly existing, and in good standing under the laws of the State
of Louisiana.

b.              Authorization.
 HPS has full power and authority to
execute and deliver this Agreement and to perform its obligations hereunder,
and this Agreement constitutes the valid and legally binding obligation of HPS,
enforceable in accordance with its terms. 
HPS does not need to give any notice to, make any filing with, or obtain
any authorization, consent, or approval of any government or governmental
agency in order to consummate the transactions contemplated by this Agreement.

c.               Non-contravention.  Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government, governmental
agency, or court to which HPS is subject or any governing, constituent or
organizational document to which it is subject, or (ii) conflict with, result
in a breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel, or
require any notice or consent under any agreement, contract, lease, license,
instrument, or other arrangement to which HPS is a party or by which it is
bound or to which any of its assets is subject.

d.              Brokers’ Fees.  HPS has not incurred, and will not incur,
directly or indirectly, any liability for brokerage or finders’ fees or agents’
commission or any similar charges in connection with this Agreement or any
transaction contemplated hereby that could become the liability of EE.

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e.               No Liabilities
or Obligations of SLE.  No material
liability or obligation has been incurred by SLE or on SLE’s behalf, except for
(1) the Firm Contracts (as defined in Section 10(h) below), (2) the HPS
Advances defined in Section 5, and (3) any other liability attributable to the
construction of the Plant.

f.                 Stock
Consideration.

i.            HPS will acquire and
hold the shares representing the Stock Consideration (the “Shares”) for
investment purposes, for its account only and not with a view to, or for resale
in connection with, any “distribution” thereof within the meaning of the
Securities Act of 1933, as amended (the “Securities Act”).

ii.         HPS understands that the
Shares will not be registered under the Securities Act by reason of a specific
exemption therefrom and that the Shares must be held indefinitely, unless they
are subsequently registered under the Securities Act or HPS obtains an opinion
of counsel, in form and substance satisfactory to EE and its counsel, that such
registration is not required.  HPS
further acknowledges and understands that EE is under no obligation to register
the Shares.

iii.      HPS is aware of Rule 144 by
the Securities and Exchange Commission under the Securities Act, which permits
limited public resales of securities acquired in a non-public offering, subject
to the satisfaction of certain conditions.

iv.     HPS will not sell, transfer
or otherwise dispose of the Shares in violation of the Securities Act, the
Securities Exchange Act of 1934, as amended, or the rules promulgated
thereunder, including Rule 144 under the Securities Act.

v.        HPS has been furnished
with, and has had access to, such information as it considers necessary or
appropriate for deciding whether to invest in the Shares, and HPS has had an
opportunity to ask questions of and receive answers from EE regarding the terms
and conditions of the issuance of the Shares.

vi.     Each of HPS and its members
is an “accredited investor” (as that term is defined in Regulation D under the
Securities Act).

g.              Title to Assets;
No Encumbrances.  HPS has good, valid
and, in the case of real properties, merchantable title to all of the Assets,
in each case free and clear of all options, mortgages, restrictions, liens,
charges, assessments, pledges, security interests, leases, adverse claims,
equities, limitations or other encumbrances (collectively “Encumbrances”),
except for any Encumbrance reflected in Schedule 5(g).

h.              Real Property.

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i.            Schedule 9(h)(i)
identifies the real property owned, either in whole or in part, by HPS and to
be transferred to SLE.  Neither SLE nor
HPS lease any property necessary for the operation of the Plant.

ii.         Insurance.  Schedule 9(h)(ii) sets forth the
following information with respect to each insurance policy (including policies
providing property, casualty, liability, and workers’ compensation coverage and
bond and surety arrangements) to which HPS has been a party, a named insured,
or otherwise the beneficiary of coverage at any time within the past 5 years:

iii.      The name, address, and telephone
number of the agent;

iv.     The name of the insurer, the
name of the policyholder, and the name of each covered insured;

v.        The policy number and the
period of coverage;

vi.     The scope (including an
indication of whether the coverage was on a claims made, occurrence, or other
basis) and amount (including a description of how deductibles and ceilings are
calculated and operate) of coverage; and

vii.  A description of any retroactive
premium adjustments or other loss-sharing arrangements.

With respect to each
such insurance policy (except for policies HPS has intentionally cancelled or
allowed to expire): (A) the policy is legal, valid, binding, enforceable, and
in full force and effect; (B) the policy will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms following
the consummation of the transactions contemplated hereby; (C) neither HPS nor
any other party to the policy is in breach or default (including with respect
to the payment of premiums or the giving of notices), and no event has occurred
that, with notice or the lapse of time, would constitute such a breach or
default, or permit termination, modification, or acceleration, under the
policy; and (D) no party to the policy has repudiated any provision thereof.

i.                  Litigation.  Schedule 9(i) sets forth each instance
in which HPS (i) is subject to any outstanding injunction, judgment, order,
decree, ruling, or charge or (ii) is a party or is threatened to be made a
party to any action, suit, proceeding, hearing, or investigation of, in, or
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator.  None of the actions, suits, proceedings, hearings,
and investigations set forth in Schedule 9(i) could result in any
adverse change in the business, financial condition, operations, results of
operations, or future prospects of HPS.

 

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j.                  Limited
Warranties.

i.                        Performance Warranty.  The
Assets include salvage components of a closed fuel ethanol distillery built by
SPECHUM in 1988 that is located adjacent to the Mississippi River near New
Orleans, Louisiana and that is described in further detail on Exhibit B
(the “Assets”).  The Parties
intend to construct the Plant (the “Construction “) to an annualized
rate of production of 60,000,000 gallons per year (the “Minimum Rate”).  The Construction shall be deemed complete on
the date on which the EPC Contract and all Construction is accepted and
released by SLE (the “Construction Completion Date”).  The actual rate of production (“Rate”) shall
be determined in the same manner as set forth in the EPC Contract.  HPS warrants that the Plant will produce the
Minimum Rate.  Should the Rate exceed the
Minimum Rate, EE shall immediately consent to the release of the funds held in
escrow by the Escrow Agent.  To the
extent that the Rate is less than the Minimum Rate, the Purchase Price for the
Units purchased by EE from HPS shall be reduced $1.00 for every gallon the Rate
is less than the Minimum Rate, said reduction not to exceed $7.5 million, and
EE shall immediately consent to the release of the funds held in escrow,
reduced by the applicable amount.   The
reduction in the Purchase Price under this Section 9(j)(i) shall be allocated
between the Cash Consideration and the Stock Consideration on a pro-rata basis
(assuming the Shares are valued at $2.31 per share).

ii.                     Construction Expenses. 
The expenses necessary to cause the Plant to produce marketable ethanol
at the Minimum Rate will not exceed $40,000,000 (the “Maximum Cost”).  To the extent that the Construction Expenses
exceed the Maximum Cost, the Purchase Price for the Units of SLE purchased from
HPS shall be reduced dollar for dollar, said reduction not to exceed $7.5
million.  Should the Construction
Expenses be $40 million or less, EE shall immediately consent to a release of
the funds held in escrow by the Escrow Agent. 
Should the Construction Expenses be more than $40 million, but less than
$47.5 million, EE shall immediately consent to a release of the funds held in
escrow by the Escrow Agent, reduced by the applicable amount.  To the extent that HPS obtains an EPC
Contract with a turn key price of $40 million or less, and because of delay
that is not the fault of HPS in the start date of the contract, the turn key
price increases, HPS shall be relieved of its limited warranty under this
Section 9(j)(ii).   The reduction in the
Purchase Price under this Section 9(j)(i) shall be allocated between the Cash
Consideration and the Stock Consideration on a pro-rata basis (assuming the
Shares are valued at $2.31 per share).

iii.                  To the extent
the purchase price has been reduced by reason of HPS’s breach of its limited
warranties under this Section 9(j), HPS shall be entitled to reimbursement from
SLE to the extent SLE is successful in (1) bringing a claim 

 11
 

 

                              or
action under the Firm Contracts or for breach of contract; and/or (2) seeking
payment due under any Performance Bond supplied by the Firms or to guaranty the
EPC Contract; and/or (3) bringing a claim or action against any third party who
may be at fault in causing HPS’s breach of its limited warranty obligations
under this Section 9(j).

iv.                 If HPS and EE
agree to an EPC Contract that provides for a rate of production in excess of 60
million gallons annually, the Cost and Performance Warranty shall be
eliminated, and no escrow of any amount will be required.  It is anticipated that the EPC Contract will
be agreed upon before the Purchase Closing.

k.               Organization of
SLE.  SLE is a limited liability
company duly organized, validly existing, and in good standing under the laws
of the State of Louisiana.

l.                  Authorization
of SLE.  SLE has full power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder, and this Agreement constitutes the valid and legally binding
obligation of SLE, enforceable in accordance with its terms.  SLE does not need to give any notice to, make
any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order to consummate the transactions
contemplated by this Agreement.

m.            Non-contravention
of SLE.  Neither the execution and
the delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (i) violate any statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of
any government, governmental agency, or court to which SLE is subject or any
governing, constituent or organizational document to which it is subject, or
(ii) conflict with, result in a breach of, constitute a default under, result
in the acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice or consent under any agreement,
contract, lease, license, instrument, or other arrangement to which SLE is a
party or by which it is bound or to which any of its assets is subject.

n.              Legal Compliance
of SLE.  SLE has complied with all
applicable laws (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings, and charges thereunder) of federal, state,
local, and foreign governments (and all agencies thereof), and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand, or notice
has been filed or commenced against any of them alleging any failure so to
comply.

o.              SLE Litigation.  Schedule 9(o) sets forth each instance
in which SLE (i) is subject to any outstanding injunction, judgment, order,
decree, ruling, or charge or (ii) is a party or is threatened to be made a
party to any action, suit, proceeding, hearing, or investigation of, in, or
before any court or quasi-judicial or administrative agency of 

 12
 

 

                        any
federal, state, local, or foreign jurisdiction or before any arbitrator.  None of the actions, suits, proceedings,
hearings, and investigations set forth in Schedule 9(o) could result in
any adverse change in the business, financial condition, operations, results of
operations, or future prospects of SLE.

p.              Representations
Complete.  None of the
representations or warranties made herein by HPS, nor any statement made in any
schedule or certificate furnished by HPS pursuant to this Agreement, contains
or will contain on the Closing Date, any untrue statement of a material fact,
or omits or will omit on the Closing Date to state any material fact necessary
in order to make the statements contained herein or therein, in the light of
the circumstances under which they were made, not misleading.

q.              No Further
Representations.  EE acknowledges
that (1) neither SLE or HPS has ever operated the Assets as an ethanol plant or
in any other capacity, (2)  the Assets do
not comprise an operating business or other going concern; and (3) the Assets
are in substantial need of further work and modification in order to be placed
into service.   As such, EE or their
representatives have fully examined and inspected, or will be given the
opportunity to fully examine and inspect, 
the Assets which comprise the ethanol facility, including, but not
limited to, the environmental condition of the Assets, and that upon acceptance
of the Assets, the contribution of the Assets to SLE and the acquisition of the
Units of SLE by EE will be acceptable to EE “AS IS”, with no warranty whatever
given as to the condition of the Assets except the warranty of title, and that
Buyer is not relying upon any representation, statements or warranties that
have at any time been made by HPS or SLE, or their respective employees,
agents, attorneys, or officers as to the physical condition or state of repair
of the premises in any respect, except as specifically provided in this
Agreement.

Furthermore, EE
has performed its independent investigation of the projected financial
performance of SLE and the Plant and is entering into the acquisitions and
transactions described herein as a result of its own independent
investigations, and no warranty is made as the value of the SLE Units and the
future profitability of the Plant and SLE. 
Other than the representations and warranties set forth in this
Agreement, no other representations or warranties are made in connection with
the acquisitions and transactions contemplated herein.

10.                                 Other
Covenants and Agreements.  The
Parties agree as follows.

a.               Confidentiality.  Each of the Parties hereby agrees to keep
confidential such information or knowledge obtained pursuant to the negotiation
and execution of this Agreement or the transactions contemplated hereby (“Confidential
Information”).  The receiving Party
may disclose Confidential Information to the extent such disclosure is required
by applicable law or government regulation, or by order of court or government
agency with subpoena powers, provided that such receiving Party shall give the
disclosing Party prior notice of such requirement to disclose and a 

 13
 

 

                        reasonable
opportunity to object or take other available action, including the seeking of
a protective order.  The receiving Party
shall cooperate with the reasonable requests of the disclosing Party in
connection with any such objection, action or protective order.

b.              Public Disclosure.  Unless otherwise required by law, the Parties
agree that they shall not make any public disclosure, by means of the issuance
of any reports, statements, releases or other public disclosure, or any other
third party public disclosure, relating to the terms and conditions of this
Agreement and the transactions contemplated hereby, except  for
(i) after the Closings, an announcement by EE that the Parties have effected
the transactions contemplated herein, (ii) such disclosures as may be required
by applicable law and public listing and disclosure requirements, and (iii)
such other disclosures as the Parties shall mutually agree.

c.               Further
Assurances.  Each of the Parties
shall use all commercially reasonable efforts to effectuate the transactions
contemplated hereby.  Each Party hereto,
at the request of another Party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary
or desirable for effecting completely the consummation of this Agreement and
the transactions contemplated hereby.

d.              Notification of
Certain Matters.  HPS shall give
prompt notice to EE, and EE shall give prompt notice to HPS, of (i) the
occurrence, or failure to occur, of any event which occurrence or failure would
be likely to cause any representation or warranty of such Party contained
herein to be untrue or inaccurate in any material respect at any time from the
date hereof to the Closing Date; and (ii) any material failure of HPS or of EE,
as the case may be, or of any officer, director, manager, employee or agent
thereof, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder.

e.               Best Efforts.  Each of EE and HPS agrees to use its best
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, all things reasonably necessary, proper or advisable to consummate the
transactions contemplated hereby.

f.                 Limitation of
Liability.  Notwithstanding any other
provision hereof, no stockholder, officer, director, employee, agent, attorney,
affiliate, servant, successor, assign or representative of EE,  HPS or SLE, or any affiliate thereof, shall
have any personal, partnership, corporate or other liability or obligation
whatsoever in respect of or relating to the covenants, obligations,
indemnities, representations or warranties under this Agreement or in respect
of any certificate or other document delivered with respect hereto, it being
understood that the Parties may look only to the assets and properties of HPS,
EE and/or SLE to enforce such covenants, obligations, indemnities,
representations or warranties under or by reason hereof or in respect of 

 14
 

 

                        any
certificate or other document delivered with respect hereto.

g.              No SLE Contracts.  Except as otherwise allowed by this
Agreement, neither EE nor HPS shall enter into any contract or incur any
liability in the name or on behalf of SLE without the prior written consent of
the other Party.

h.              Engagement.  HPS will engage, on SLE’s behalf, Benchmark
Design USA and EnGlobal Engineering Inc. (the “Firms”) for the
Construction,  pursuant to which the
Firms shall deliver an Engineering, Procurement and Construction Contract (the EPC
Contract) regarding the time line and budgetary parameters of the
Construction.   EE will engage Luminate
(or another firm acceptable to Morgan Keegan) (“Luminate”) to deliver a
preliminary report (the “Preliminary Report”) regarding whether the Firm
Reports are within the budgetary and time line parameters agreed upon by EE and
HPS for the Construction.  The contracts
regarding the engagements of the Firms and Luminate are referred to herein as
the “Firm Contracts.”  HPS
initially shall be responsible for the costs of the engagements of the Firms
but shall be reimbursed from the proceeds of the Morgan Keegan Financing
pursuant to Section 5 above.  EE shall be
responsible for the costs of the engagement of Luminate as part of the Morgan
Keegan closing costs.  HPS will provide
EE and Morgan Keegan with full access to the documentation, communications and
other reporting of the Firms, including, but not limited to, the Firm Reports
and the Preliminary Reports.

11.                                 Conditions
of Closing.

a.               Conditions of
Closing of EE.  The obligation of EE
to purchase and pay for the Units of SLE pursuant to Sections 2 and 3 of this
Agreement shall be subject to and conditioned upon, at the option of EE, the
satisfaction at the Purchase Closing of each of the following conditions:

i.                        HPS shall
have executed and delivered to EE the Operating Agreement of SLE attached
hereto as Exhibit H (the “Operating Agreement”).

ii.                     The
Contribution Closing shall have occurred.

iii.                  HPS shall have
duly adopted and approved this Agreement and all transactions contemplated
hereby in accordance with the requirements of Louisiana law and the articles of
organization and the operating agreement, each as amended to the date hereof,
of HPS.

iv.                 All
representations and warranties of HPS contained herein shall be true and
correct at and as of the Closing Date, and HPS shall have performed all
agreements and covenants and satisfied all conditions on its part to be
performed or satisfied by the Closing Date pursuant to the terms hereof, and EE
shall have received a certificate to both such effects of HPS, signed by its
manager and 

 15
 

 

                              dated
the Closing Date.

v.                    HPS shall have
delivered to EE a certificate of the Secretary of State of the State of Louisiana
certifying, as of a date reasonably close to the Closing Date, that HPS has
filed all required reports, paid all required fees and taxes, and is, as of
such date, in good standing and authorized to transact business.

vi.                 HPS shall have
obtained all authorizations, consents, waivers and approvals as may be required
in connection with the consummation of the transactions contemplated by this
Agreement.

vii.              HPS shall have
delivered to EE a certificate, dated the Closing Date, of its manager
certifying:

(1)         Copies of its articles of
organization and operating agreement, each as amended to date.

(2)         Resolutions of its
managers and members approving and adopting this Agreement and all transactions
contemplated hereby and authorizing execution of this Agreement and the
execution, performance and delivery of all agreements, documents and
transactions contemplated hereby; and

(3)         The incumbency of its
officers executing this Agreement and all agreements and documents contemplated
hereby.

viii.           All approvals and consents
from third parties and governmental agencies required to consummate the
transactions contemplated hereby shall have been obtained.

ix.                   No suit,
action, investigation, inquiry or other proceeding by any governmental body or
other person or legal or administrative proceeding shall have been instituted
or threatened that questions the validity or legality of the transactions
contemplated hereby.

x.                      There shall
be no effective injunction, writ, preliminary restraining order or any order of
any nature issued by a court of competent jurisdiction directing that the
transactions provided for herein or any of them not be consummated as so
provided or imposing any conditions on the consummation of the transactions
contemplated hereby, which is unduly burdensome on EE.

xi.                   The Board of
Directors of HPS shall have approved the transaction.

xii.                HPS shall have
executed and delivered such other documents, instruments and certificates as EE
may reasonably request to effect the transactions contemplated 

 16
 

 

                              hereby.

xiii.             HPS and the Escrow
Agent shall have executed and delivered the Escrow Agreement.

xiv.            HPS shall have
assigned the Firm Contracts to SLE.

xv.               SLE shall have
obtained title insurance on the real property included in the Assets in form
and substance satisfactory to EE, at EE’s expense.

xvi.            HPS shall have
executed and delivered to SLE and EE the Act of Transfer of Immovable Property
Agreement.

xvii.         HPS shall have executed
and delivered to SLE and EE the Act of Transfer of Movable Property Agreement.

b.              Conditions of
Closing of HPS.  The obligation of
HPS to contribute the Assets to SLE pursuant to Section 1 of this
Agreement and to sell the Purchased Units to EE pursuant to Section 2
and the obligation of SLE to issue additional units pursuant to Section 3
of this Agreement shall be subject to and conditioned upon, at the option of
HPS, the satisfaction at the Contribution Closing of each of the following
conditions:

i.                        EE shall
have executed and delivered to HPS the Operating Agreement.

ii.                     EE shall have
duly adopted and approved this Agreement and all transactions contemplated
hereby in accordance with the requirements of Delaware law and the certificate
of incorporation and the bylaws, each as amended to the date hereof, of EE.

iii.                  All
representations and warranties of EE contained herein shall be true and correct
at and as of the Closing Date, and EE shall have performed all agreements and
covenants and satisfied all conditions on its part to be performed or satisfied
by the Closing Date pursuant to the terms hereof, and HPS shall have received a
certificate to both such effects of EE, signed by its President and dated the
Closing Date.

iv.                 EE shall have
delivered to HPS a certificate of the Secretary of State of the State of
Delaware certifying, as of a date reasonably close to the Closing Date, that EE
has filed all required reports, paid all required fees and taxes, and is, as of
such date, in good standing and authorized to transact business.

v.                    EE shall have
obtained all authorizations, consents, waivers and approvals as may be required
in connection with the consummation of the transactions contemplated by this
Agreement.

 17
 

 

 

vi.                 EE shall have
delivered to HPS a certificate, dated the Closing Date, of its Secretary
certifying:

(1)         Copies of its certificate
of incorporation and bylaws, each as amended to date.

(2)         Resolutions of its
directors approving and adopting this Agreement and all transactions
contemplated hereby and authorizing execution of this Agreement and the
execution, performance and delivery of all agreements, documents and
transactions contemplated hereby; and

(3)         The incumbency of its
officers executing this Agreement and all agreements and documents contemplated
hereby.

vii.              All approvals and
consents from third parties and governmental agencies required to consummate
the transactions contemplated hereby shall have been obtained.

viii.           No suit, action,
investigation, inquiry or other proceeding by any governmental body or other
person or legal or administrative proceeding shall have been instituted or
threatened that questions the validity or legality of the transactions
contemplated hereby.

ix.                   There shall be
no effective injunction, writ, preliminary restraining order or any order of
any nature issued by a court of competent jurisdiction directing that the
transactions provided for herein or any of them not be consummated as so
provided or imposing any conditions on the consummation of the transactions
contemplated hereby, which is unduly burdensome on HPS.

x.                      The Board of
Directors of EE shall have approved the transaction.

xi.                   EE shall have executed
and delivered such other documents, instruments and certificates as HPS may
reasonably request to effect the transactions contemplated hereby.

xii.                EE shall have
delivered to HPS one or more stock certificates representing the Stock
Consideration.

xiii.             EE shall have
delivered to HPS the Purchase Price, credit to be given for prior payments.

xiv.            If applicable, EE and
the Escrow Agent shall have executed and delivered the Escrow Agreement.

 18
 

 

 

xv.               If applicable, EE
shall have tendered the Escrow Fund to the Escrow Agent to hold and dispose of
pursuant to the Escrow Agreement.

xvi.            The Morgan Keegan
Financing shall have closed.

xvii.         EE shall have delivered
to SLE the Purchase Note and the EE Note and related Loan Agreements and
Security Agreements.

12.                                 Termination.

a.               Reasons for
Termination.  Anything herein or
elsewhere to the contrary notwithstanding, this Agreement may be terminated at
any time after the date hereof but not later than the Closing:

i.                        by the
mutual consent of HPS and EE;

ii.                     at the
election of EE if the Closing has not occurred by December 4, 2006 because of
the failure of HPS to materially comply with its obligations under this
Agreement;

iii.                  at the election
of HPS if the Closing has not occurred by December 4, 2006;

iv.                 at the election
of HPS if EE fails to meet any of the payment deadlines in Section 2(b)  above; or

v.                    At the
election of HPS if EE fails to obtain the Morgan Keegan Financing in accordance
with Section 4 above.

b.              In the event of any
termination pursuant to Section 12(a) hereof, written notice thereof
shall forthwith be given to the other Parties and the transactions contemplated
hereby shall thereupon be terminated, without further action by the Parties.

c.               Procedure Upon
and Effect of Termination.

i.                        In the
event of any termination pursuant to Section 12(a)(i), as mutually agreed by
the Parties.

ii.                     In the event
of any termination pursuant to Sections 12(a)(iii), (iv), or (v), the effect of
such termination shall be as set forth in Section 12(c)(iv), below.

iii.                  In the event of
any termination pursuant to Section 12(a)(ii), HPS shall return all previous
payments made by EE to HPS.  HPS shall
have 90 days from the date of termination to return such payments.

iv.                 In the event of a
termination described in Section 12(a)(iii), 
(iv), or (v), the 

 19
 

 

                              following
terms and provisions apply:

(1)         HPS shall be entitled to
retain $5 million as a termination fee;

(2)         HPS shall deliver to EE a
promissory note, in the form as set forth in Exhibit I, in the principal amount
of all payments made by EE to HPS, less the $5 million termination fee, payable
quarterly over seven years, said payments to begin the first full month nine
months after beginning operations at the Plant, bearing no interest except in
the case of default by HPS.

(3)         HPS shall use its best
efforts to secure third party financing, with commercially reasonable terms and
conditions, as early as reasonably possible, in an amount sufficient to pay EE
the remaining principal on the note described in Section 12(c)(iv) (2) above,
or in such amount as HPS can reasonably borrow pursuant to commercially
reasonable terms and conditions.

v.                    The remedies
set forth in this Section 5 shall be the exclusive remedies available to the
Parties in the event of termination.

13.                                 Indemnification.

a.               Survival of
Representations and Warranties.  All
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Closings.

b.              Indemnification
by HPS.  Subject to Sections 10(f)
and 13(j), in the event HPS materially breaches any of its representations,
warranties, covenants or agreements contained herein or in any exhibit,
certificate, instrument or agreement delivered by HPS pursuant hereto (other
than the representations in Section 7), then HPS shall indemnify EE and its
subsidiaries, directors, officers, employees, affiliates, agents and assigns
(each, an “EE Indemnified Party”) from and against any Losses (as
defined below) incurred by an EE Indemnified Party in connection with, arising
out of, resulting from or incident to such breach.

c.               Indemnification
by EE.  Subject to Section 11(j),
in the event EE materially breaches any of its representations, warranties,
covenants or agreements contained herein or in any exhibit, certificate,
instrument or agreement delivered by EE pursuant hereto, then EE shall
indemnify HPS and its subsidiaries, managers, officers, employees, affiliates,
agents and assigns (each, an “HPS Indemnified Party”) from and against
any Losses incurred by an HPS Indemnified Party in connection with, arising out
of, resulting from or incident to such breach.

 

 20

 

 

d.              Definition.  “Losses” means all actions, suits,
proceedings, hearings, investigations, charges, complaints, claims, demands,
injunctions, judgments, orders, decrees, rulings, damages, dues, penalties,
fines, costs, amounts paid in settlement, liabilities, obligations, taxes,
liens, losses, expenses, and fees, including court costs and reasonable
attorneys’ fees and expenses.  Losses are
not limited to matters asserted by third parties against any Indemnified Party
(as defined below), but include Losses incurred or sustained by an Indemnified
Party in the absence of third party claims.

e.               Notification;
Payment Not Precedent to Recovery. 
Each EE Indemnified Party and each HPS Indemnified Party agrees to
notify HPS or EE, as applicable, of any Losses, claims, misrepresentations,
breaches or other matters covered by this Section 13 upon discovery or
receipt of notice thereof.  Payments by
any EE Indemnified Party or any HPS Indemnified Party of amounts for which such
EE Indemnified Party or HPS Indemnified Party is indemnified hereunder shall
not be a condition precedent to recovery.

f.                 Indemnification
Procedure.

i.                        Defense
of Claim.  If a claim for Losses is
to be made by an EE Indemnified Party or an HPS Indemnified Party entitled to
indemnification hereunder (the “Indemnified Party”) against EE or HPS,
as the case may be (the “Indemnifying Party”), the Indemnified Party
shall give written notice (a “Claim Notice”) to the Indemnifying Party
as soon as practicable after such Indemnified Party becomes aware of any fact,
condition or event that may give rise to Losses for which indemnification may
be sought under this Section 13. 
If any lawsuit or enforcement action is filed against any Indemnified
Party, a Claim Notice thereof shall be given to the Indemnifying Party as
promptly as practicable (and in any event within fifteen (15) calendar days
after the service of the citation or summons). 
The failure of any Indemnified Party to give timely notice hereunder for
any purpose shall not affect rights to indemnification hereunder, except to the
extent that the Indemnifying Party have been damaged by such failure.  After such notice, except as provided in the
following sentence, if the Indemnifying Party shall acknowledge in writing to
the Indemnified Party that the Indemnifying Party shall be obligated under the
terms of this Section 13 in connection with such lawsuit or action, then
the Indemnifying Party shall be entitled, if it so elects at its own cost, risk
and expense, (A) to take control of the defense and investigation of such
lawsuit or action, (B) to employ and engage attorneys of its own choice but, in
any event, reasonably acceptable to the Indemnified Party, to handle and defend
the same unless the named parties to such action or proceeding (including any
impleaded parties) include both the Indemnifying Party and the Indemnified
Party and the Indemnified Party has been advised in writing by counsel that
there may be one or more legal defenses available to such Indemnified Party
that are different from or additional to those 

 21
 

 

                              available
to the Indemnifying Party, in which event the Indemnified Party shall be
entitled, at the Indemnifying Party’s cost, risk and expense, to separate
counsel of its own choosing (provided, however, in no event shall
the Indemnifying Party be obligated to engage more than one (1) additional
counsel) and (C) to compromise or settle such lawsuit or action, which
compromise or settlement shall be made only with the written consent of the
Indemnified Party, such consent not to be unreasonably withheld.

ii.                     Cooperation.  With respect to any lawsuit or action for
which indemnity is sought under Section 13(f)(i), the Indemnified Party
shall cooperate in all reasonable respects with the Indemnifying Party and its
representatives (including, without limitation, its attorneys) in the
investigation, trial and defense of such lawsuit or action and any appeal
arising therefrom; provided, however, that the Indemnified Party
may, at its own cost, participate in negotiations, arbitrations and the
investigation, trial and defense of such lawsuit or action and any appeal
arising therefrom.  The Parties shall
cooperate with each other in any notifications to insurers.

If the
Indemnifying Party fail to assume the defense of such lawsuit or action within
fifteen (15) calendar days after receipt of the Claim Notice, the Indemnified
Party against which such lawsuit or action has been asserted will (upon
delivering notice to such effect to the Indemnifying Party) have the right to
undertake, at the Indemnifying Party’ cost and expense, the defense, compromise
or settlement of such lawsuit or action on behalf of and for the account and
risk of the Indemnifying Party; provided, however, that such
lawsuit or action shall not be compromised or settled without the written
consent of the Indemnifying Party, which consent shall not be unreasonably
withheld or delayed.

In the event the
Indemnified Party assumes the defense of the lawsuit or action, the Indemnified
Party will keep the Indemnifying Party reasonably informed of the progress of
any such defense, compromise or settlement. 
The Indemnifying Party shall be liable for any settlement of any action
effected pursuant to and in accordance with this Section 9 and for any
final judgment (subject to any right of appeal) and the Indemnifying Party
agrees to indemnify and hold harmless an Indemnified Party from and against any
Losses by reason of such settlement or judgment.

g.              Determination of
Losses.  Notwithstanding any
provision of this Agreement to the contrary, no party shall be liable for, and
the definition of Losses shall not include, any consequential, incidental or
indirect damages, or special or punitive damages, relating to the breach of
this Agreement.

h.              Performance
Warranty Escrow Fund.

 22
 

 

 

i.                        The
Performance Warranty Escrow Fund shall be held by the Escrow Agent to pay the
limited warranty obligations of HPS under Section 9(j)(i) only.  If the Plant does not produce marketable
ethanol at the Minimum Rate, EE shall be entitled to receive a portion of the Performance
Warranty Escrow Fund as determined in accordance with Section 9(j)(i)
(the “Performance Claim Amount”), and EE shall provide a Claim Notice
(the “Performance Claim Notice”) simultaneously to HPS and to the Escrow
Agent.  The Escrow Agreement shall
provide that the Escrow Agent shall release the Performance Claim Amount to EE
immediately upon its receipt of the Performance Claim Notice.

ii.                     Except for
any amount with respect to which EE shall have previously provided a
Performance Claim Notice (the “Outstanding Performance Claim”), title
and all rights to the Performance Warranty Escrow Fund shall automatically
transfer to HPS immediately upon determination of the Rate,  and EE and HPS shall take all actions
reasonably necessary to cause the Escrow Agent to release the Performance
Warranty Escrow Fund less the amount of any Outstanding Performance Claim to
HPS on such Performance Warranty Escrow Release Date.  EE further agrees that, as soon as any
Outstanding Performance Claim is resolved pursuant to the procedures set forth
in this Section 13, EE and HPS shall cause the Escrow Agent to release
any remaining amounts of the Performance Warranty Escrow Fund held by the
Escrow Agent pursuant to the terms of the Escrow Agreement to HPS.  All interest accrued in the Performance
Warranty Escrow Fund shall be for the benefit of HPS.

i.                  Cost Warranty
Escrow Fund.

i.                        The Cost
Warranty Escrow Fund shall be held by the Escrow Agent to pay the limited
warranty obligations of HPS under Section 9(j)(ii)only.  If the Construction Expenses exceed the
Maximum Cost, EE shall be entitled to receive an amount equal to $1.00 from the
Cost Warranty Escrow Fund for each $1.00 by which the Construction Expenses
exceed the Maximum Cost (the “Cost Claim Amount”) as set forth in
Section 9(j)(ii), up to the amount of the Cost Warranty Escrow Fund, and EE
shall provide a Claim Notice (a “Cost Claim Notice”) simultaneously to
HPS and to the Escrow Agent.  The Escrow
Agreement shall provide that the Escrow Agent shall release the Cost Claim
Amount to EE immediately upon its receipt of the Cost Claim Notice.

ii.                     Except for
any amount with respect to which EE shall have previously provided a Cost Claim
Notice (the “Outstanding Cost Claim”), title and all rights to the Cost
Warranty Escrow Fund shall automatically transfer to HPS upon the fortieth day
after the Construction Completion Date (the “Cost Warranty Escrow Release
Date”), and EE and HPS shall take all actions reasonably necessary to cause
the 

 23
 

 

                              Escrow
Agent to release the Cost Warranty Escrow Fund less the amount of any
Outstanding Cost Claim to HPS on such Cost Warranty Escrow Release Date.  EE further agrees that, as soon as any
Outstanding Cost Claim is resolved pursuant to the procedures set forth in this
Section 13, EE and HPS shall cause the Escrow Agent to release any
remaining amounts of the Cost Warranty Escrow Fund held by the Escrow Agent
pursuant to the terms of the Escrow Agreement to HPS.  All interest accrued in the Cost Warranty
Escrow Fund shall be for the benefit of HPS.

j.                  Limitation on
Indemnification.  The indemnification
obligations of HPS with respect to any item described above in Section
9(j)(i) shall be limited to an aggregate dollar amount not to exceed the
sum of Performance Warranty Escrow Fund. 
The indemnification obligations of HPS with respect to any item
described above in Section 9(j)(ii) shall be limited to an aggregate
dollar amount not to exceed the Cost Warranty Escrow Fund.  The indemnification obligations of HPS and EE
with respect to any item described above except Sections 9(j)(i) and
9(j)(ii), respectively, shall be limited to an aggregate dollar amount not
to exceed $5,000,000; provided, however, that the foregoing
limitation shall not apply with respect to any claim for fraud or intentional
misconduct.

14.                                 Amendment
and Waiver.  Except as is otherwise
required by applicable law, this Agreement may be amended at any time by
execution of an instrument in writing signed by each of the Parties.

15.                                 Miscellaneous.

a.               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, (i) five
(5) days after deposit with the U.S. Postal Service or other applicable postal
service, if delivered by first class mail, postage prepaid, (ii) upon delivery,
if delivered by hand, (iii) one (1) business day after the business day of
deposit with Federal Express or similar overnight courier, freight prepaid, or
(iv) one (1) business day after the business day of confirmed facsimile
transmission, if delivered by facsimile transmission with copy by first class
mail, postage prepaid, and shall be addressed to the address set forth below
(or at such other address as a Party may designate by ten (10) days’ advance
written notice to the other Parties pursuant to the provisions above):

 24
 

 

if to EE, to:

3001 Knox Street,
Suite 403

Dallas, Texas  75205

Attention: Dennis McLaughlin and Tommy Johnson

Facsimile No.: 214-389-9806

         with a copy (which shall not constitute
notice) to:

Scheef &
Stone, L.L.P.

5956 Sherry Lane, Suite 1400

Dallas, Texas  75225

Attention: Roger A. Crabb, Esq.

Facsimile No.: 214-706-4242

         if to HPS, to:

11266 Highway 23

Belle Chasse, Louisiana  70037

Attention: Kennett F. Stewart

Facsimile No.: 504-656-7607

         with a copy (which shall not constitute
notice) to:

Lobrano &
Lobrano, L.L.C.

147 Keating Drive

P.O. Box 208

Belle Chasse, Louisiana  70037

Attention: Francis J. Lobrano, Esq.

Facsimile No.: 504-433-3103

if to SLE, to:

278 E. Ravenna
Road

Belle Chasse, Louisiana 70037

Attention: William Hurst and John Paul

Facsimile No.:

b.              Counterparts.  This Agreement may be executed in one or more
counterparts (including by means of telecopier), all of which shall be
considered one and the same agreement and shall become effective when one or
more counterparts have been signed by each of the Parties and delivered to the
other Parties, it being understood that all Parties need not sign the same
counterpart.

 25
 

 

 

c.               Entire Agreement;
Assignment.  This Agreement, the
schedules and exhibits hereto, and the documents and instruments and other
agreements between the Parties hereto referenced herein: (i) constitute the
entire agreement between the Parties with respect to the subject matter hereof
and supersede all prior agreements and understandings, both written and oral,
between the Parties with respect to the subject matter hereof; and (ii) shall
not be assigned by operation of law or otherwise except as otherwise
specifically provided, except that EE may assign its respective rights and
delegate its respective obligations hereunder to its respective affiliates.

d.              Severability.  In the event that any provision of this
Agreement or the application thereof becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remainder of
this Agreement will continue in full force and effect and the application of
such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the Parties hereto.  The Parties further agree to replace such
illegal, void or unenforceable provision of this Agreement with a legal, valid
and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such illegal, void or unenforceable
provision.

e.               Other Remedies.  Except as otherwise provided herein, any and
all remedies herein expressly conferred upon a Party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or
equity upon such Party, and the exercise by a Party of any one remedy will not
preclude the exercise of any other remedy.

f.                 Governing Law.  This Agreement shall be governed by and
construed in accordance with the laws of the State of Louisiana, regardless of
the laws that might otherwise govern under applicable principles of conflicts
of laws thereof.

g.              Rules of
Construction.  The Parties hereto
agree that they have been represented by counsel during the negotiation and
execution of this Agreement and, therefore, waive the application of any law,
regulation, holding or rule of construction providing that ambiguities in an
agreement or other document will be construed against the party drafting such
agreement or document.

h.              Fees and Expenses.  Except as provided in Section 11(b),
each Party shall be solely responsible for the payment of its own fees and
expenses.

i.                  Dispute
Resolution.  In the event of any
dispute, claim or controversy arising out of or relating to this Agreement or the
breach, termination, enforcement, interpretation or validity thereof, including
the determination of the scope or applicability of this 

 26
 

 

                        agreement
to arbitrate (each, a “Dispute”), the parties to such Dispute shall use
their best efforts to settle such Dispute. 
To this effect, the parties to such Dispute shall consult and negotiate
with each other in good faith and, recognizing their mutual interests, attempt
to reach a just and equitable solution satisfactory to such parties.  If such parties do not reach a solution
within a period of fifteen (15) days (or such longer period as such parties
mutually agree in writing), then, upon notice by any party to the other parties
involved in the Dispute, the Dispute shall be determined by arbitration in New
York, New York, before one arbitrator. 
The arbitration shall be administered by JAMS pursuant to its
Streamlined Arbitration Rules and Procedures. 
Judgment on the award may be entered in any court having
jurisdiction.  This clause shall not
preclude the parties from seeking provisional remedies in aid of arbitration
from a court of appropriate jurisdiction. 
The arbitrator may, in the award, allocate all or part of the costs of
the arbitration, including the fees of the arbitrator and the reasonable
attorneys’ fees of the prevailing party.

j.                  Waiver of
Resolutory Conditions and Vendor’s Privilege.  HPS agrees and acknowledges that, upon
effectuation of the Contribution Closing and the Purchase Closings, the
contribution of the Assets and the sale of the Purchased Units will be complete
and final, and the failure to pay or perform any obligations of SLE or EE
hereunder shall not be cause for the resolution and/or rescission of the
transfer of the Assets or the Purchased Units. 
HPS further confirms and agrees that the contribution of the Assets and
the sale of the Purchased Units contemplated hereby shall contain no resolutory
conditions whatsoever.  HPS also waives
any and all rights to a vendor’s lien and privilege or, except as may be
expressly provided herein, any other liens or privileges against, or rights in
or to, the Assets or the Purchased Units, except as may be otherwise provided
in this Agreement.

k.               No Third Party
Beneficiaries.  This Agreement is for
the sole benefit of the parties hereto and their permitted assigns and nothing
herein expressed or implied shall give or be construed to give any person,
other than the parties hereto and such assigns, any legal or equitable rights
hereunder.  All references herein to the
enforceability of agreements with third parties, or similar matters or
statements, are intended only to allocate rights and risks between the parties
and are not intended to be admissions against interests in favor of
non-parties, give rise to any inference of proof of accuracy in favor of any
non-parties, be admissible by any non-party, or give rise to any claim or
benefit to any non-party.

[The remainder of
this page has been left blank intentionally.]

 27
 

 

 

IN WITNESS
WHEREOF, the Parties hereto have executed this Agreement as of the date first
above written.

	
  

  	
   

  	
  EARTH ETHANOL, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  HPS DEVELOPMENT, L.L.C.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  SOUTH LOUISIANA ETHANOL, L.L.C.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 28
 

 

 

Exhibit A

Articles of
Organization

 29
 

 

 

Exhibit B

Assets

The Immovable
Property comprising 50 acres, more or less, described as Tract A-1C on the
attached survey of Dufrene Surveying and Engineering, Inc. Dated July 1, 2006,
together with the servitudes in favor of Tract A-1C and encumbering Tract A-1C
recorded at COB 1095, folio 138 on June 14, 2005; COB 860, folio 724, recorded
May 23, 1995, and COB 860, folio 861, recorded May 23, 1995, in the conveyance
records for the Parish of Plaquemines, State of Louisiana, Clerk of Court 25th Judicial District.  Said Immovable Property includes all
improvements located thereon.

The Movable
Property consists of all movable property currently located on Tract A-1C,
including, but not limited to, the equipment described below.

SEE BELOW FOR
SURVEY AND ASSET LISTING

 

 30

 

 

Exhibit C

Act of Transfer of
Immovable Property Agreement

 31
 

 

 

Exhibit D

Act of Transfer of
Movable Property Agreement

 32
 

 

 

Exhibit E

Escrow Agreement

STANDARD
COMMERCIAL ESCROW AGREEMENT

AS REQUIRED BY ESCROW AGENT

 33
 

 

 

Exhibit F

Promissory Note
(Purchase Note), Loan Agreement and Security Interest

SEE ATTACHED

 34
 

 

 

Exhibit G

Promissory Note
(EE Note), Loan Agreement and Security Interest

 35
 

 

 

Exhibit H

Operating
Agreement

 36
 

 

 

Exhibit I

Promissory Note

 37
 

 

 

Schedule 5(g)

Encumbrances

 38
 

 

 

Schedule 9(h)(i)

Real Property
Ownership

 39
 

 

 

Schedule 9(h)(ii)

Insurance Policy

 40
 

 

 

Schedule 9(i)

Litigation

 41
 

 

 

Schedule 9(o)

SLE Litigation

 

 42Exhibit
4.1

 

 

SHAREHOLDER
RIGHTS PLAN AGREEMENT

DATED AS
OF

JANUARY
22, 2001

AS
AMENDED AND RESTATED AS OF MAY 17, 2001

BETWEEN

CANADIAN
SUPERIOR ENERGY INC.

AND

COMPUTERSHARE
TRUST COMPANY OF CANADA

AS
RIGHTS AGENT

 

  
  
  
  
 

 

 

SHAREHOLDER
RIGHTS PLAN AGREEMENT

TABLE
OF CONTENTS

	
  ARTICLE 1 - INTERPRETATION

  	
  2

  	
   

  
	
  1.1

  	
   

  	
  Certain Definitions

  	
  2

  	
   

  
	
  1.2

  	
   

  	
  Currency

  	
  13

  	
   

  
	
  1.3

  	
   

  	
  Headings

  	
  13

  	
   

  
	
  1.4

  	
   

  	
  Calculation of Number
  and Percentage of Beneficial Ownership of Outstanding Voting Shares

  	
  14

  	
   

  
	
  1.5

  	
   

  	
  Acting Jointly or in
  Concert

  	
  14

  	
   

  
	
  1.6

  	
   

  	
  Generally Accepted
  Accounting Principles

  	
  14

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 2 - THE RIGHTS

  	
  15

  	
   

  
	
  2.1

  	
   

  	
  Legend on Common Share
  Certificates

  	
  15

  	
   

  
	
  2.2

  	
   

  	
  Initial Exercise Price;
  Exercise of Rights; Detachment of Rights

  	
  15

  	
   

  
	
  2.3

  	
   

  	
  Adjustments to Exercise
  Price; Number of Rights

  	
  18

  	
   

  
	
  2.4

  	
   

  	
  Date on Which Exercise
  Is Effective

  	
  23

  	
   

  
	
  2.5

  	
   

  	
  Execution,
  Authentication, Delivery and Dating of Rights Certificates

  	
  23

  	
   

  
	
  2.6

  	
   

  	
  Registration, Transfer
  and Exchange

  	
  24

  	
   

  
	
  2.7

  	
   

  	
  Mutilated, Destroyed,
  Lost and Stolen Rights Certificates

  	
  24

  	
   

  
	
  2.8

  	
   

  	
  Persons Deemed Owners
  of Rights

  	
  25

  	
   

  
	
  2.9

  	
   

  	
  Delivery and
  Cancellation of Certificates

  	
  25

  	
   

  
	
  2.10

  	
   

  	
  Agreement of Rights
  Holders

  	
  26

  	
   

  
	
  2.11

  	
   

  	
  Rights Certificate
  Holder Not Deemed a Shareholder

  	
  26

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 3 - ADJUSTMENTS
  TO THE RIGHTS ON CERTAIN TRANSACTIONS

  	
  27

  	
   

  
	
  3.1

  	
   

  	
  Flip-in Event

  	
  27

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 4 - THE RIGHTS
  AGENT

  	
  28

  	
   

  
	
  4.1

  	
   

  	
  General

  	
  28

  	
   

  
	
  4.2

  	
   

  	
  Merger, Amalgamation or
  Consolidation or Change of Name of Rights Agent

  	
  29

  	
   

  
	
  4.3

  	
   

  	
  Duties of Rights Agent

  	
  30

  	
   

  
	
  4.4

  	
   

  	
  Change of Rights Agent

  	
  31

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 5 -
  MISCELLANEOUS

  	
  32

  	
   

  
	
  5.1

  	
   

  	
  Redemption and Waiver

  	
  32

  	
   

  
	
  5.2

  	
   

  	
  Expiration

  	
  34

  	
   

  
	
  5.3

  	
   

  	
  Issuance of New Rights
  Certificates

  	
  34

  	
   

  
	
  5.4

  	
   

  	
  Supplements and
  Amendments

  	
  34

  	
   

  
	
  5.5

  	
   

  	
  Fractional Rights and
  Fractional Shares

  	
  36

  	
   

  
	
  5.6

  	
   

  	
  Rights of Action

  	
  36

  	
   

  
	
  5.7

  	
   

  	
  Regulatory Approvals

  	
  36

  	
   

  
	
  5.8

  	
   

  	
  Declaration as to
  Non-Canadian Holders

  	
  37

  	
   

  
	
  5.9

  	
   

  	
  Notices

  	
  37

  	
   

  
	
  5.12

  	
   

  	
  Benefits of this
  Agreement

  	
  38

  	
   

  
	
  5.13

  	
   

  	
  Governing Law

  	
  38

  	
   

  
	
  5.14

  	
   

  	
  Severability

  	
  39

  	
   

  
	
  5.15

  	
   

  	
  Effective Date and
  Shareholder Confirmation

  	
  39

  	
   

  
	
  5.16

  	
   

  	
  Reconfirmation

  	
  39

  	
   

  
	
  5.17

  	
   

  	
  Determinations and
  Actions by the Board of Directors

  	
  39

  	
   

  
	
  5.18

  	
   

  	
  Time of the Essence

  	
  39

  	
   

  
	
  5.19

  	
   

  	
  Execution in
  Counterparts

  	
  40

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ATTACHMENT 1

  	
  1

  	
   

  

 

  
  
  
  

 

 

SHAREHOLDER RIGHTS PLAN AGREEMENT

MEMORANDUM OF AGREEMENT, dated as of
January 22, 2001, as amended and restated as of May 17, 2001, between
Canadian Superior Energy Inc. (“Canadian Superior”) a corporation incorporated
under the Business Corporations Act
(Alberta), and Computershare Trust Company of Canada, a trust company
incorporated under the laws of Canada (the “Rights Agent”);

WHEREAS the Board of Directors (as hereinafter
defined) has determined that it is in the best interests of Canadian Superior to
adopt a shareholder rights plan to ensure, to the extent possible, that all
shareholders of Canadian Superior are treated fairly in connection with any
take-over bid for Canadian Superior;

AND WHEREAS in order to implement the adoption of a
shareholder rights plan as established by this Agreement, the Board of
Directors has:

(a)                                  authorized
the issuance, effective at 12:01 a.m. (Calgary time) on the Effective Date
(as hereinafter defined), of one Right (as hereinafter defined) in respect of
each Common Share (as hereinafter defined) outstanding at 12:01 a.m.
(Calgary time) on the Effective Date (the “Record Time”); and

(b)                                 authorized
the issuance of one Right in respect of each Common Share of Canadian Superior
issued after the Record Time and prior to the earlier of the Separation Time
(as hereinafter defined) and the Expiration Time (as hereinafter defined);

AND
WHEREAS each Right entitles the holder thereof, after the Separation Time, to
purchase securities of Canadian Superior pursuant to the terms and subject to
the conditions set forth herein;

AND
WHEREAS Canadian Superior desires to appoint the Rights Agent to act on behalf
of Canadian Superior and the holders of Rights, and the Rights Agent is willing
to so act, in connection with the issuance, transfer, exchange and replacement
of Rights Certificates (as hereinafter defined), the exercise of Rights and
other matters referred to herein;

AND
WHEREAS the Board of Directors of Canadian Superior proposes that this
Agreement be in place for a period of ten years, subject to the Agreement being
reconfirmed as herein provided;

AND
WHEREAS pursuant to Section 5.4(a) hereof the Board of Directors,
acting in good faith, by resolution on May 17, 2001 made certain
amendments to the shareholder rights plan agreement dated as of
January 22, 2001;

NOW
THEREFORE, in consideration of the premises and the respective covenants and
agreements set forth herein, and subject to such covenants and agreements, the
parties hereby agree as follows:

 1
 

 

 

2              INTERPRETATION

2.1                                 Certain Definitions

For
purposes of this Agreement, the following terms have the meanings indicated:

(a)                                  “Acquiring Person” shall mean any Person
who is the Beneficial Owner of 20 per cent or more of the outstanding Voting
Shares; provided, however, that the term “Acquiring Person” shall not include:

(i)                                     Canadian
Superior or any Subsidiary of Canadian Superior; or

(ii)                                  any
Person who becomes the Beneficial Owner of 20 per cent or more of the
outstanding Voting Shares as a result of one or any combination of (A) a Voting
Share Reduction, (B) Permitted Bid Acquisitions, (C) an Exempt
Acquisition or (D) Pro Rata Acquisitions; provided, however, that if a
Person becomes the Beneficial Owner of 20 per cent or more of the outstanding
Voting Shares by reason of one or any combination of the operation of (A), (B),
(C) or (D) above and such Person’s Beneficial Ownership of Voting
Shares thereafter increases by more than 1.0 per cent of the number of Voting
Shares outstanding (other than pursuant to one or any combination of a Voting
Share Reduction, a Permitted Bid Acquisition, an Exempt Acquisition or a Pro
Rata Acquisition), then as of the date such Person becomes the Beneficial Owner
of such additional Voting Shares, such Person shall become an “Acquiring
Person”;

(iii)                               for a period of ten days
after the Disqualification Date (as defined below), any Person who becomes the
Beneficial Owner of 20 per cent or more of the outstanding Voting Shares as a
result of such Person becoming disqualified from relying on Clause 1.1(f)(v) solely
because such Person or the Beneficial Owner of such Voting Shares is making or
has announced an intention to make a Take-over Bid, either alone or by acting
jointly or in concert with any other Person. For the purposes of this
definition, “Disqualification Date” means the first date of public
announcement that any Person is making or has announced an intention to
make a Take-over Bid;

 2
 

 

 

(iv)                              an
underwriter or member of a banking or selling group that becomes the Beneficial
Owner of 20 per cent or more of the Voting Shares in connection with a
distribution of securities of Canadian Superior; or

(v)                                 a
Grandfathered Person;

(b)                                 “Affiliate” means, when used to indicate a
relationship with a Person, a Person that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, such specified Person;

(c)                                  “Agreement” shall mean this shareholder
rights plan agreement dated as of January 22, 2001 as amended and restated
effective as May 17, 2001 between Canadian Superior and the Rights Agent,
as amended or supplemented from time to time; “hereof”, “herein”, “hereto” and
similar expressions mean and refer to this Agreement as a whole and not to any
particular part of this Agreement;

(d)                                 “annual cash dividend” shall mean cash
dividends paid in any fiscal year of Canadian Superior to the extent that such
cash dividends do not exceed, in the aggregate, the greatest of:

(i)                                     200
per cent of the aggregate amount of cash dividends declared payable by Canadian
Superior on its Common Shares in its immediately preceding fiscal year;

(ii)                                  300
per cent of the arithmetic mean of the aggregate amounts of the annual cash
dividends declared payable by Canadian Superior on its Common Shares in its
three immediately preceding fiscal years; and

(iii)                               100 per cent of the
aggregate consolidated net income of Canadian Superior, before extraordinary
items, for its immediately preceding fiscal year;

(e)                                  “Associate” means, when used to indicate a
relationship with a specified Person, a spouse of that Person, any Person of
the same or opposite sex with whom that Person is living in a conjugal
relationship outside marriage, a child of that Person or a relative of that
Person if that relative has the same residence as that Person;

(f)                                    A
Person shall be deemed the “Beneficial Owner”
of, and to have “Beneficial Ownership”
of, and to “Beneficially Own”,

 3
 

 

 

(i)                                     any
securities as to which such Person or any of such Person’s Affiliates or
Associates is the owner at law or in equity;

(ii)                                  any
securities as to which such Person or any of such Person’s Affiliates or
Associates has the right to become the owner at law or in equity
(whether such right is exercisable immediately or within a period of 60
days thereafter and whether or not on condition or the happening of any
contingency or the making of any payment) pursuant to any agreement,
arrangement, pledge or understanding, whether or not in writing (other than
(x) customary agreements with and between underwriters and/or banking
group members and/or selling group members with respect to a public offering or
private placement of securities and (y) pledges of securities in the
ordinary course of business), or upon the exercise of any conversion right,
exchange right, share purchase right (other than the Rights), warrant or
option; or

(iii)                               any securities which are
Beneficially Owned within the meaning of Clauses 1.1(f)(i) and
(ii) by any other Person with whom such Person is acting jointly or in
concert;

provided, however, that a Person shall not be deemed
the “Beneficial Owner” of, or to
have “Beneficial Ownership” of, or
to “Beneficially Own”, any
security:

(iv)                              where
such security has been agreed to be deposited or tendered pursuant to a Lock-up
Agreement, or is otherwise deposited or tendered to any Take-over Bid
made by such Person, made by any of such Person’s Affiliates or Associates or
made by any other Person acting jointly or in concert with such Person until
such deposited or tendered security has been taken up or paid for, whichever
shall first occur;

(v)                                 where
such Person, any of such Person’s Affiliates or Associates or any other Person
acting jointly or in concert with such Person holds such security provided
that:

(A)                              the
ordinary business of any such Person (the “Investment Manager”) includes the
management of investment funds for others (which others, for greater certainty,
may include or be limited to one or more employee benefit plans or pension
plans) and such security is held by the Investment Manager in the ordinary
course of such business in the 

 4
 

 

                                                performance
of such Investment Manager’s duties for the account of any other Person (a
“Client”);

(B)                                such
Person (the “Trust Company”) is licensed to carry on the business of a trust
company under applicable laws and, as such, acts as trustee or administrator or
in a similar capacity in relation to the estates of deceased or incompetent
Persons (each an “Estate Account”) or in relation to other accounts (each an
“Other Account”) and holds such security in the ordinary course of such duties
for the estate of any such deceased or incompetent Person or for such other
accounts;

(C)                                such
Person is established by statute for purposes that include, and the ordinary
business or activity of such Person (the “Statutory Body”) includes, the
management of investment funds for employee benefit plans, pension plans,
insurance plans or various public bodies; or

(D)                               such
Person (the “Administrator”) is the administrator or trustee of one or more
pension funds or plans (a “Plan”), or is a Plan, registered under the laws of
Canada or any Province thereof or the laws of the United States of America or
any State thereof;

provided, in any of the above cases, that the
Investment Manager, the Trust Company, the Statutory Body, the Administrator or
the Plan, as the case may be, is not then making a Take-over Bid or has not
then announced an intention to make a Take-over Bid alone or acting jointly or
in concert with any other Person, other than an Offer to Acquire Voting Shares
or other securities (x) pursuant to a distribution by Canadian Superior
(y) by means of a Permitted Bid or (z) by means of ordinary market
transactions (including prearranged trades entered into in the ordinary course
of business of such Person) executed through the facilities of a stock exchange
or organized over-the-counter market;

(vi)                              where
such Person is (A) a Client of the same Investment Manager as another
Person on whose account the Investment Manager holds such security, (B) an
Estate Account or an Other Account of the same Trust Company as another Person
on whose account the Trust Company holds such security or (C) a Plan with
the same Administrator as another Plan on whose account the Administrator holds
such security;

 5
 

 

(vii)                           where such Person is (A) a
Client of an Investment Manager and such security is owned at law or in equity
by the Investment Manager, (B) an Estate Account or an Other Account of a
Trust Company and such security is owned at law or in equity by the Trust
Company or (C) a Plan and such security is owned at law or in equity by
the Administrator of the Plan; or

(viii)                        where such Person is a
registered holder of such security as a result of carrying on the business of,
or acting as a nominee of, a securities depositary;

(g)                                 “Board of Directors” shall mean the board
of directors of Canadian Superior or any duly constituted and empowered
committee thereof;

(h)                                 “Business
Corporations Act (Alberta)” means the Business Corporations Act (Alberta), S.A.
1981, c. B-15, as amended, and the regulations made thereunder, and any
comparable or successor laws or regulations thereto;

(i)                                     “Business Day” shall mean any day other
than a Saturday, Sunday or a day on which banking institutions in Calgary are
authorized or obligated by law to close;

(j)                                     “Canadian Superior” means Canadian Superior
Energy Inc., a corporation subject to the Business
Corporations Act (Alberta);

(k)                                  “close of business” on any given date shall
mean the time on such date (or, if such date is not a Business Day, the time on
the next succeeding Business Day) at which the principal transfer office in
Calgary of the transfer agent for the Common Shares of Canadian Superior (or,
after the Separation Time, the principal transfer office in Calgary of the
Rights Agent) is closed to the public;

(l)                                     “Common Shares” shall mean the common
shares in the capital of Canadian Superior;

(m)                               “Competing Permitted Bid” means a Take-over
Bid that:

(i)                                     is
made after a Permitted Bid has been made and prior to the expiry of the
Permitted Bid;

(ii)                                  satisfies
all components of the definition of a Permitted Bid other than the requirements
set out in Clause (ii)(A) of the definition of a Permitted Bid; and

 6
 

 

 

(iii)                               contains, and the
take-up and payment for securities tendered or deposited is subject to, an
irrevocable and unqualified condition that no Voting Shares will be taken up or
paid for pursuant to the Take-over Bid prior to the close of business on a date
that is no earlier than the later of:

(A)                              the
60th day after the date on which the earliest Permitted Bid which preceded the
Competing Permitted Bid was made; and

(B)                                35
days after the date of the Take-over Bid constituting the Competing Permitted
Bid;

(n)                                 “controlled” a corporation is “controlled”
by another Person if:

(i)                                     securities
entitled to vote in the election of directors carrying more than 50 per cent of
the votes for the election of directors are held, directly or indirectly, by or
for the benefit of the other Person; and

(ii)                                  the
votes carried by such securities are entitled, if exercised, to elect a
majority of the board of directors of such corporation;

(o)                                 “Co-Rights Agents” shall have the
meaning ascribed thereto in Subsection 4.1(a);

(p)                                 “Disposition Date” shall have the meaning
ascribed thereto in Subsection 5.1(h);

(q)                                 “Dividend Reinvestment Acquisition” shall
mean an acquisition of Voting Shares pursuant to a Dividend Reinvestment Plan;

(r)                                    “Dividend Reinvestment Plan” means a
regular dividend reinvestment or other plan of Canadian Superior, if any, that
is made available by Canadian Superior after the Effective Date to holders of
its securities, where such plan permits the holder to direct that some or all
of:

(i)                                     dividends
paid in respect of shares of any class of Canadian Superior;

(ii)                                  proceeds
of redemption of shares of Canadian Superior;

(iii)                               interest paid on
evidences of indebtedness of Canadian Superior; or

(iv)                              optional
cash payments;

 7
 

 

 

be applied to the purchase from Canadian Superior of
Voting Shares;

(s)                                  “Election to Exercise” shall have the
meaning ascribed thereto in Clause 2.2(d)(ii);

(t)                                    “Effective Date” shall mean January 22,
2001;

(u)                                 “Exempt Acquisition” means a share
acquisition:

(i)                                     in
respect of which the Board of Directors has waived the application of Section 3.1
pursuant to the provisions of Subsection 5.1(a) or (h); or

(ii)                                  resulting
from a distribution pursuant to a prospectus, private placement or securities
exchange take-over bid of securities of Canadian Superior that have not been
previously issued;

(v)                                 “Exercise Price” shall mean, as of any
date, the price at which a holder may purchase the securities issuable upon
exercise of one whole Right which, until adjustment thereof in accordance with
the terms hereof, shall be $15.00,
provided that if at the end of any fiscal quarter of Canadian Superior prior to
the Separation Time the Exercise Price then in effect is not equal to at least
four times the Market Price per share of the Common Shares as at the end of
such fiscal quarter, the Exercise Price shall (without duplication of any
adjustment required to be made pursuant to Section 2.3) be adjusted, effective
as at the end of such fiscal quarter, such that the Exercise Price shall be
equal to five times the Market Price per share of the Common Shares as at such
time, until further adjusted in accordance with the terms of this Agreement;

(w)                               “Expansion Factor” shall have the meaning
ascribed thereto in Clause 2.3(a)(x);

(x)                                   “Expiration Time” shall mean the close of
business on that date which is the earliest of the date of termination of this
Agreement pursuant to Section 5.15 or, if this Agreement is confirmed
pursuant to Section 5.15, the date of termination of this Agreement
pursuant to Section 5.16 or, if this Agreement is reconfirmed pursuant to Section 5.16,
the close of business on the tenth anniversary of the Effective Date;

(y)                                 “Flip-in Event” shall mean a
transaction in or pursuant to which any Person becomes an Acquiring Person;

(z)                                   “Grandfathered Person” means a Person who
is the Beneficial Owner of 10% or more of the outstanding Voting Shares as at
the Record Time;

(aa)                            “holder” shall have the meaning ascribed
thereto in Section 2.8;

 8
 

 

 

(bb)                          “Independent Shareholders” shall mean
holders of Voting Shares, other than:

(i)                                     any
Acquiring Person;

(ii)                                  any
Offeror (other than any Person who by virtue of Clause 1.1(f)(v) is not
deemed to Beneficially Own the Voting Shares held by such Person);

(iii)                               any Affiliate or
Associate of any Acquiring Person or Offeror;

(iv)                              any
Person acting jointly or in concert with any Acquiring Person or Offeror; and

(v)                                 any
employee benefit plan, deferred profit sharing plan, stock participation plan
and any other similar plan or trust for the benefit of employees of Canadian
Superior unless the beneficiaries of the plan or trust direct the manner in
which the Voting Shares are to be voted or withheld from voting or direct
whether the Voting Shares are to be tendered to a Take-over Bid;

(cc)                            “Lock-up Agreement” means an agreement
between an Offeror, any of its Affiliates or Associates or any other Person
acting jointly or in concert with the Offeror and a Person (the “Locked-up
Person”) who is not an Affiliate or Associate of the Offeror or a Person acting
jointly or in concert with the Offeror whereby the Locked-up Person agrees to
deposit or tender the Voting Shares held by the Locked-up Person to the Offeror’s
Take-over Bid or to any Take-over Bid made by any of the Offeror’s Affiliates
or Associates or made by any other Person acting jointly or in concert with the
Offeror (the “Subject Bid”) where the agreement:

(i)                                     permits
the Locked-up Person to withdraw the Voting Shares from the agreement in order
to tender or deposit the Voting Shares to another Take-over Bid or to support
another transaction that in either case will provide greater value to the
Locked-up Person than the Subject Bid; or

(ii)                                  (a) permits
the Locked-up Person to withdraw the Voting Shares from the agreement in order
to tender or deposit the Voting Shares to another Take-over Bid or to support
another transaction that contains an offering price for each Voting Share that
exceeds by as much as or more than a specified amount (the “Specified Amount”)
the offering price for each Voting Share contained in or proposed to be
contained in the Subject Bid; and (b) does not 

 9
 

 

 

                                                by its
terms provide for a Specified Amount that is greater than 7% of the offering
price contained in or proposed to be contained in the Subject Bid;

and, for greater clarity, an agreement may contain a
right of first refusal or require a period of delay to give an offeror an
opportunity to match a higher price in another Take-over Bid or other similar
limitation on a Locked-up Person as long as the Locked-up Person can accept
another bid or tender to another transaction;

(dd)                          “Market Price” per share of any securities
on any date of determination shall mean the average of the daily closing prices
per share of such securities (determined as described below) on each of the 20
consecutive Trading Days through and including the Trading Day immediately
preceding such date; provided, however, that if an event of a type analogous to
any of the events described in Section 2.3 hereof shall have caused the
closing prices used to determine the Market Price on any Trading Days not to be
fully comparable with the closing price on such date of determination or, if
the date of determination is not a Trading Day, on the immediately preceding
Trading Day, each such closing price so used shall be appropriately adjusted in
a manner analogous to the applicable adjustment provided for in Section 2.3
hereof in order to make it fully comparable with the closing price on such date
of determination or, if the date of determination is not a Trading Day, on the
immediately preceding Trading Day. The closing price per share of any
securities on any date shall be:

(i)                                     the
closing board lot sale price or, if no such sale takes place on such date, the
average of the closing bid and asked prices for such securities as reported by
the Canadian Venture Exchange; or

(ii)                                  if
for any reason neither of such prices is available on such day or the
securities are not listed or admitted to trading on the Canadian Venture
Exchange, the closing board lot sale
price or, if such price is not available, the average of the closing bid and
asked prices, for such securities as reported by the Canadian stock exchange
(other than the Canadian Venture Exchange) on which the greatest volume of
trading occurred on the 20 Trading Days being utilized to determine the Market
Price;

provided, however, that if
on any such date the securities are not quoted on any Canadian stock exchange,
the closing price per share of such securities on such date shall mean the fair
value per share of such securities on such date as determined by a nationally
recognized investment dealer or investment banker; and provided further that if
an event of a type analogous to any of the events described in Section 2.3
hereof shall have caused any price used to determine the Market Price on any
Trading Day not to be fully comparable with the 

 10
 

 

 

price as so determined on
the Trading Day immediately preceding such date of determination, each such
price so used shall be appropriately adjusted in a manner analogous to the
applicable adjustment provided for in Section 2.3 hereof in order to make
it fully comparable with the price on the Trading Day immediately preceding
such date of determination.

(ee)                            “Nominee” shall have the meaning ascribed
thereto in Subsection 2.2(c);

(ff)                                “Offer to Acquire” shall include:

(i)                                     an
offer to purchase or a solicitation of an offer to sell Voting Shares; and

(ii)                                  an
acceptance of an offer to sell Voting Shares, whether or not such offer to sell
has been solicited;

or any combination thereof, and the Person accepting
an offer to sell shall be deemed to be making an Offer to Acquire to the Person
that made the offer to sell;

(gg)                          “Offeror” shall mean a Person who has
announced, and has not withdrawn, an intention to make or who has made, and has
not withdrawn, a Take-over Bid, other than a Person who has completed a
Permitted Bid, a Competing Permitted Bid or an Exempt Acquisition;

(hh)                          “Offeror’s Securities” means Voting Shares
Beneficially Owned by an Offeror on the date of the Offer to Acquire;

(ii)                                  “Permitted Bid” means a Take-over Bid
made by an Offeror by way of take-over bid circular which also complies with
the following additional provisions:

(i)                                     the
Take-over Bid is made to all holders of Voting Shares as registered on
the books of Canadian Superior, other than the Offeror;

(ii)                                  the
Take-over Bid contains, and the take-up and payment for securities
tendered or deposited is subject to, an irrevocable and unqualified provision
that no Voting Shares will be taken up or paid for pursuant to the Take-over
Bid (A) prior to the close of business on the date which is not less than
60 days following the date of the Take-over Bid and (B) only if at such
date more than 50 per cent of the Voting Shares held by Independent
Shareholders shall have been deposited or tendered pursuant to the Take-over
Bid and not withdrawn;

 11

 

(iii)                               unless
the Take-over Bid is withdrawn, the Take-over Bid contains an irrevocable and
unqualified provision that Voting Shares may be deposited pursuant to such
Take-over Bid at any time during the period of time described in Clause (ii) above
and that any Voting Shares deposited pursuant to the Take-over Bid may be
withdrawn until taken up and paid for; and

(iv)                              the
Take-over Bid contains an irrevocable and unqualified provision that in the
event that the deposit condition set forth in Clause (ii) above is
satisfied the Offeror will make a public announcement of that fact and the
Take-over Bid will remain open for deposits and tenders of Voting Shares for
not less than ten Business Days from the date of such public announcement;

(jj)                                  “Permitted Bid Acquisition” shall mean an
acquisition of Voting Shares made pursuant to a Permitted Bid or a Competing
Permitted Bid;

(kk)                            “Person” shall include any individual,
firm, partnership, association, trust, trustee, executor, administrator, legal
personal representative, body corporate, corporation, unincorporated
organization, syndicate, governmental entity or other entity;

(ll)                                  “Pro Rata Acquisition” means an acquisition
by a Person of Voting Shares pursuant to:

(i)                                     a
Dividend Reinvestment Acquisition;

(ii)                                  a
stock dividend, stock split or other event in respect of securities of Canadian
Superior of one or more particular classes or series pursuant to which such
Person becomes the Beneficial Owner of Voting Shares on the same pro rata basis
as all other holders of securities of the particular class, classes or series;

(iii)                               the acquisition or the
exercise by the Person of only those rights to purchase Voting Shares
distributed to that Person in the course of a distribution to all holders of
securities of Canadian Superior of one or more particular classes or series
pursuant to a rights offering or pursuant to a prospectus; or

(iv)                              a
distribution of Voting Shares, or securities convertible into or exchangeable
for Voting Shares (and the conversion or exchange of such convertible or
exchangeable securities), made pursuant to a prospectus or by way of a private
placement, provided that the Person does not thereby acquire a greater
percentage of such Voting Shares, or securities convertible into or

 12
 

 

 

                                                exchangeable
for Voting Shares, so offered than the Person’s percentage of Voting Shares
Beneficially Owned immediately prior to such acquisition;

(mm)                      “Record Time” means 12:01 a.m.
(Calgary time) on the Effective Date;

(nn)                          “Right” means a right to purchase a Common
Share of Canadian Superior, upon the terms and subject to the conditions set
forth in this Agreement;

(oo)                          “Rights Certificate” means the certificates
representing the Rights after the Separation Time, which shall be substantially
in the form attached hereto as Attachment 1;

(pp)                          “Rights Holders’ Special Meeting” means a
meeting of the holders of Rights called by the Board of Directors for the
purpose of approving a supplement or amendment to this Agreement pursuant to
Subsection 5.4(c);

(qq)                          “Rights Register” shall have the meaning
ascribed thereto in Subsection 2.6(a);

(rr)                                “Securities Act
(Alberta)” means the Securities
Act, S.A. 1991, c.S-6.1 and the regulations thereunder, and
any comparable or successor laws or regulations thereto;

(ss)                            “Separation Time” shall mean the close of
business on the eighth Trading Day after the earlier of:

(i)                                     the
Stock Acquisition Date; and

(ii)                                  the
date of the commencement of or first public announcement of the intent of any
Person (other than Canadian Superior or any Subsidiary of Canadian Superior) to
commence a Take-over Bid (other than a Permitted Bid or a Competing
Permitted Bid), or such later time as may be determined by the Board of
Directors, provided that, if any Take-over Bid referred to in this Clause
(ii) expires, is cancelled, terminated or otherwise withdrawn prior to the
Separation Time, such Take-over Bid shall be deemed, for the purposes of
this definition, never to have been made;

(tt)                                “Special Meeting” means a special meeting
of the holders of Voting Shares, called by the Board of Directors for the
purpose of approving a supplement or amendment to this Agreement pursuant to
Subsection 5.4(b);

 13
 

 

(uu)                          “Stock Acquisition Date” shall mean the
first date of public announcement (which, for purposes of this definition, shall
include, without limitation, a report filed pursuant to section 141 of the Securities Act (Alberta)) by Canadian
Superior or an Acquiring Person that an Acquiring Person has become such;

(vv)                          “Subsidiary”: a corporation is a Subsidiary
of another corporation if:

(i)                                     it
is controlled by:

(A)                              that
other; or

(B)                                that
other and one or more corporations each of which is controlled by that other;
or

(C)                                two
or more corporations each of which is controlled by that other; or

(ii)                                  it
is a Subsidiary of a corporation that is that other’s Subsidiary;

(ww)                      “Take-over Bid” shall mean an Offer
to Acquire Voting Shares, or securities convertible into Voting Shares if,
assuming that the Voting Shares or convertible securities subject to the Offer
to Acquire are acquired and are beneficially owned at the date of such Offer to
Acquire by the Person making such Offer to Acquire, such Voting Shares
(including Voting Shares that may be acquired upon conversion of securities
convertible into Voting Shares) together with the Offeror’s Securities,
constitute in the aggregate 20 per cent or more of the outstanding Voting
Shares at the date of the Offer to Acquire;

(xx)                              “Trading Day”, when used with respect to
any securities, shall mean a day on which the principal Canadian stock exchange
on which such securities are listed or admitted to trading is open for the
transaction of business or, if the securities are not listed or admitted to
trading on any Canadian stock exchange, a Business Day;

(yy)                          “Voting Share Reduction” means an acquisition
or redemption by Canadian Superior of Voting Shares which, by reducing the
number of Voting Shares outstanding, increases the proportionate number of
Voting Shares Beneficially Owned by any person to 20 per cent or more of the
Voting Shares then outstanding; and

 14
 

 

(zz)                              “Voting Shares” means the Common Shares of
Canadian Superior and any other shares in the capital of Canadian Superior
entitled to vote generally in the election of all directors.

2.2                                 Currency

All
sums of money which are referred to in this Agreement are expressed in lawful
money of Canada, unless otherwise specified.

2.3                                 Headings

The
division of this Agreement into Articles, Sections, Subsections, Clauses,
Paragraphs, Subparagraphs or other portions hereof and the insertion of headings,
subheadings and a table of contents are for convenience of reference only and
shall not affect the construction or interpretation of this Agreement.

2.4                                 Calculation
of Number and Percentage of Beneficial Ownership of Outstanding Voting Shares

For
purposes of this Agreement, the percentage of Voting Shares Beneficially Owned
by any Person, shall be and be deemed to be the product determined by the
formula:

100
x A/B

where:

A                                                                                    =              the number of votes for the
election of all directors generally attaching to the
                Voting Shares Beneficially
Owned by such Person; and

B                                                                                      =              the number of votes for the
election of all directors generally attaching to all
                outstanding Voting Shares.

Where any Person
is deemed to Beneficially Own unissued Voting Shares, such Voting Shares shall
be deemed to be outstanding for the purpose of calculating the percentage of
Voting Shares Beneficially Owned by such Person.

 15
 

 

2.5                                 Acting
Jointly or in Concert

For
the purposes hereof, a Person is acting jointly or in concert with every Person
who, as a result of any agreement, commitment or understanding, whether formal
or informal, with the first Person or any Affiliate thereof, acquires or offers
to acquire Voting Shares (other than customary agreements with and between
underwriters and/or banking group members and/or selling group members with
respect to a public offering or private placement of securities or pledges of
securities in the ordinary course of business).

2.6                                 Generally
Accepted Accounting Principles

Wherever
in this Agreement reference is made to generally accepted accounting
principles, such reference shall be deemed to be the recommendations at the
relevant time of the Canadian Institute of Chartered Accountants, or any
successor institute, applicable on a consolidated basis (unless otherwise
specifically provided herein to be applicable on an unconsolidated basis) as at
the date on which a calculation is made or required to be made in accordance
with generally accepted accounting principles. Where the character or amount of
any asset or liability or item of revenue or expense is required to be
determined, or any consolidation or other accounting computation is required to
be made for the purpose of this Agreement or any document, such determination
or calculation shall, to the extent applicable and except as otherwise
specified herein or as otherwise agreed in writing by the parties, be made in
accordance with generally accepted accounting principles applied on a
consistent basis.

3              THE
RIGHTS

3.1                                 Legend
on Common Share Certificates

Certificates
representing Common Shares which are issued after the Record Time but prior to
the earlier of the Separation Time and the Expiration Time, shall also evidence
one Right for each Common Share represented thereby and shall have impressed
on, printed on, written on or otherwise affixed to them a legend to the
following effect:

Until
the Separation Time (defined in the Shareholder Rights Plan Agreement referred
to below), this certificate also evidences rights of the holder described in a
Shareholder Rights Plan Agreement dated January 22, 2001, as the same may
be

 16
 

 

amended
or supplemented from time to time (the “Shareholder Rights Plan Agreement”),
between Canadian Superior Energy Inc. (“Canadian Superior”) and Computershare
Trust Company of Canada, the terms of which are incorporated herein by
reference and a copy of which is on file at the principal executive offices of
Canadian Superior. Under certain circumstances set out in the Shareholder
Rights Plan Agreement, the rights may expire, may become null and void or may
be evidenced by separate certificates and no longer evidenced by this
certificate. Canadian Superior will mail or arrange for the mailing of a copy
of the Shareholder Rights Plan Agreement to the holder of this certificate
without charge as soon as practicable after the receipt of a written request
therefor.

Certificates
representing Common Shares that are issued and outstanding at the Record Time
shall also evidence one Right for each Common Share represented thereby,
notwithstanding the absence of the foregoing legend, until the close of
business on the earlier of the Separation Time and the Expiration Time.

3.2                                 Initial
Exercise Price; Exercise of Rights; Detachment of Rights

(a)                                  Subject
to adjustment as herein set forth, each Right will entitle the holder thereof,
from and after the Separation Time and prior to the Expiration Time, to
purchase one Common Share for the Exercise Price (and the Exercise Price and
number of Common Shares are subject to adjustment as set forth below). Notwithstanding
any other provision of this Agreement, any Rights held by Canadian Superior or
any of its Subsidiaries shall be void.

(b)                                 Until
the Separation Time,

(i)                                     the
Rights shall not be exercisable and no Right may be exercised; and

(ii)                                  each
Right will be evidenced by the certificate for the associated Common Share of
Canadian Superior registered in the name of the holder thereof (which
certificate shall also be deemed to represent a Rights Certificate) and will be
transferable only together with, and will be transferred by a transfer of, such
associated Common Share.

(c)                                  From
and after the Separation Time and prior to the Expiration Time:

(i)                                     the
Rights shall be exercisable; and

 17

 

(ii)                                  the
registration and transfer of Rights shall be separate from and independent of
Common Shares of Canadian Superior.

Promptly following the Separation Time, Canadian
Superior will prepare and the Rights Agent will mail to each holder of record
of Common Shares as of the Separation Time (other than an Acquiring Person and,
in respect of any Rights Beneficially Owned by such Acquiring Person which are
not held of record by such Acquiring Person, the holder of record of such
Rights (a “Nominee”)) at such holder’s address as shown by the records of
Canadian Superior (Canadian Superior hereby agreeing to furnish copies of such
records to the Rights Agent for this purpose):

(x)                                 a
Rights Certificate appropriately completed, representing the number of Rights held
by such holder at the Separation Time and having such marks of identification
or designation and such legends, summaries or endorsements printed thereon as
Canadian Superior may deem appropriate and as are not inconsistent with the
provisions of this Agreement, or as may be required to comply with any law, rule or
regulation or with any rule or regulation of any self-regulatory
organization, stock exchange or quotation system on which the Rights may from
time to time be listed or traded, or to conform to usage; and

(y)                               a
disclosure statement describing the Rights,

provided that a Nominee shall be sent the materials
provided for in (x) and (y) in respect of all Common Shares of
Canadian Superior held of record by it which are not Beneficially Owned by an
Acquiring Person.

(d)                                 Rights
may be exercised, in whole or in part, on any Business Day after the Separation
Time and prior to the Expiration Time by submitting to the Rights Agent:

(i)                                     the
Rights Certificate evidencing such Rights;

(ii)                                  an
election to exercise such Rights (an “Election to Exercise”) substantially in
the form attached to the Rights Certificate appropriately completed and
executed by the holder or his executors or administrators or other personal
representatives or his or their legal attorney duly appointed by an instrument
in writing in form and executed in a manner satisfactory to the Rights Agent;
and

 18
 

 

(iii)                               payment by certified
cheque, banker’s draft or money order payable to the order of Canadian
Superior, of a sum equal to the Exercise Price multiplied by the number of
Rights being exercised and a sum sufficient to cover any transfer tax or charge
which may be payable in respect of any transfer involved in the transfer or
delivery of Rights Certificates or the issuance or delivery of certificates for
Common Shares in a name other than that of the holder of the Rights being
exercised.

(e)                                  Upon
receipt of a Rights Certificate, together with a completed Election to Exercise
executed in accordance with Clause 2.2(d)(ii), which does not indicate that
such Right is null and void as provided by Subsection 3.1(b), and payment as
set forth in Clause 2.2(d)(iii), the Rights Agent (unless otherwise instructed
by Canadian Superior in the event that Canadian Superior is of the opinion that
the Rights cannot be exercised in accordance with this Agreement) will
thereupon promptly:

(i)                                     requisition
from the transfer agent certificates representing the number of such Common
Shares to be purchased (Canadian Superior hereby irrevocably authorizing its
transfer agent to comply with all such requisitions);

(ii)                                  when
appropriate, requisition from Canadian Superior the amount of cash to be paid
in lieu of issuing fractional Common Shares;

(iii)                               after receipt of the
certificates referred to in Clause 2.2(e)(i), deliver the same to or upon the
order of the registered holder of such Rights Certificates, registered in such
name or names as may be designated by such holder; and

(iv)                              when
appropriate, after receipt, deliver the cash referred to in Clause 2.2(e)(ii) to
or to the order of the registered holder of such Rights Certificate.

(f)                                    In
case the holder of any Rights shall exercise less than all the Rights evidenced
by such holder’s Rights Certificate, a new Rights Certificate evidencing the
Rights remaining unexercised (subject to the provisions of Subsection 5.5(a))
will be issued by the Rights Agent to such holder or to such holder’s duly
authorized assigns.

(g)                                 Canadian
Superior covenants and agrees that it will:

(i)                                     take
all such action as may be necessary and within its power to ensure that all
Common Shares delivered upon exercise of Rights shall, at the time of delivery
of the certificates for such Common Shares (subject to payment of

 19
 

 

the Exercise Price), be duly and validly authorized, executed, issued
and delivered as fully paid and non-assessable;

(ii)                                  take
all such action as may be necessary and within its power to comply with the
requirements of the Business Corporations
Act (Alberta), the Securities Act
(Alberta), and the securities laws or comparable legislation of each
of the provinces of Canada and any other applicable law, rule or
regulation, in connection with the issuance and delivery of the Rights
Certificates and the issuance of any Common Shares upon exercise of Rights;

(iii)                               use reasonable efforts
to cause all Common Shares issued upon exercise of Rights to be listed on the
stock exchanges on which such Common Shares were traded immediately prior to
the Stock Acquisition Date;

(iv)                              cause
to be reserved and kept available out of the authorized and unissued Common
Shares, the number of Common Shares that, as provided in this Agreement, will
from time to time be sufficient to permit the exercise in full of all
outstanding Rights;

(v)                                 pay
when due and payable, if applicable, any and all federal, provincial and
municipal transfer taxes and charges (not including any income or capital taxes
of the holder or exercising holder or any liability of Canadian Superior to
withhold tax) which may be payable in respect of the original issuance or
delivery of the Rights Certificates, or certificates for Common Shares to be
issued upon exercise of any Rights, provided that Canadian Superior shall not
be required to pay any transfer tax or charge which may be payable in respect
of any transfer involved in the transfer or delivery of Rights Certificates or
the issuance or delivery of certificates for Common Shares in a name other than
that of the holder of the Rights being transferred or exercised; and

(vi)                              after
the Separation Time, except as permitted by Section 5.1, not take (or
permit any Subsidiary to take) any action if at the time such action is taken
it is reasonably foreseeable that such action will diminish substantially or
otherwise eliminate the benefits intended to be afforded by the Rights.

3.3                                 Adjustments
to Exercise Price; Number of Rights

 20
 

 

The
Exercise Price, the number and kind of securities subject to purchase upon
exercise of each Right and the number of Rights outstanding are subject to
adjustment from time to time as provided in this Section 2.3.

(a)                                  In
the event Canadian Superior shall at any time after the date of this Agreement:

(i)                                     declare
or pay a dividend on Common Shares payable in Common Shares (or other
securities exchangeable for or convertible into or giving a right to acquire
Common Shares or other securities of Canadian Superior) other than pursuant to
any optional stock dividend program;

(ii)                                  subdivide
or change the then outstanding Common Shares into a greater number of Common
Shares;

(iii)                               consolidate or change
the then outstanding Common Shares into a smaller number of Common Shares; or

(iv)                              issue
any Common Shares (or other securities exchangeable for or convertible into or
giving a right to acquire Common Shares or other securities of Canadian
Superior) in respect of, in lieu of or in exchange for existing Common Shares
except as otherwise provided in this Section 2.3,

the Exercise Price and the number of Rights
outstanding, or, if the payment or effective date therefor shall occur after
the Separation Time, the securities purchasable upon exercise of Rights shall
be adjusted as of the payment or effective date in the manner set forth below.

If the Exercise Price and number of Rights outstanding
are to be adjusted:

(x)                                   the
Exercise Price in effect after such adjustment will be equal to the Exercise
Price in effect immediately prior to such adjustment divided by the number of
Common Shares (or other capital stock) (the “Expansion Factor”) that a holder
of one Common Share immediately prior to such dividend, subdivision, change,
consolidation or issuance would hold thereafter as a result thereof; and

(y)                                 each
Right held prior to such adjustment will become that number of Rights equal to
the Expansion Factor,

 21
 

 

and the adjusted number of Rights will be deemed to be
distributed among the Common Shares with respect to which the original Rights
were associated (if they remain outstanding) and the shares issued in respect
of such dividend, subdivision, change, consolidation or issuance, so that each
such Common Share (or other capital stock) will have exactly one Right
associated with it.

For greater certainty, if the securities purchasable
upon exercise of Rights are to be adjusted, the securities purchasable upon
exercise of each Right after such adjustment will be the securities that a
holder of the securities purchasable upon exercise of one Right immediately
prior to such dividend, subdivision, change, consolidation or issuance would
hold thereafter as a result of such dividend, subdivision, change,
consolidation or issuance.

If, after the Record Time and prior to the Expiration
Time, Canadian Superior shall issue any shares of capital stock other than
Common Shares in a transaction of a type described in Clause 2.3(a)(i) or
(iv), shares of such capital stock shall be treated herein as nearly equivalent
to Common Shares as may be practicable and appropriate under the circumstances
and Canadian Superior and the Rights Agent agree to amend this Agreement in
order to effect such treatment.

In the event Canadian Superior shall at any time after
the Record Time and prior to the Separation Time issue any Common Shares
otherwise than in a transaction referred to in this Subsection 2.3(a), each
such Common Share so issued shall automatically have one new Right associated
with it, which Right shall be evidenced by the certificate representing such
associated Common Share.

(b)                                 In
the event Canadian Superior shall at any time after the Record Time and prior
to the Separation Time fix a record date for the issuance of rights, options or
warrants to all holders of Common Shares entitling them (for a period expiring
within 45 calendar days after such record date) to subscribe for or purchase
Common Shares (or securities convertible into or exchangeable for or carrying a
right to purchase Common Shares) at a price per Common Share (or, if a security
convertible into or exchangeable for or carrying a right to purchase or
subscribe for Common Shares, having a conversion, exchange or exercise price,
including the price required to be paid to purchase such convertible or
exchangeable security or right per share) less than the Market Price per Common
Share on such record date, the Exercise Price to be in effect after such record
date shall be determined by multiplying the Exercise Price in effect
immediately prior to such record date by a fraction:

 22

 

(i)                                     the
numerator of which shall be the sum of the number of Common Shares outstanding
on such record date plus the number of Common Shares that the aggregate
offering price of the total number of Common Shares so to be offered (and/or
the aggregate initial conversion, exchange or exercise price of the convertible
or exchangeable securities or rights so to be offered, including the price
required to be paid to purchase such convertible or exchangeable securities or
rights) would purchase at such Market Price per Common Share; and

(ii)                                  the
denominator of which shall be the sum of the number of Common Shares
outstanding on such record date plus the number of additional Common Shares to
be offered for subscription or purchase (or into which the convertible or exchangeable
securities or rights so to be offered are initially convertible, exchangeable
or exercisable).

In case such subscription price may be paid by
delivery of consideration, part or all of which may be in a form other than
cash, the value of such consideration shall be as determined in good faith by
the Board of Directors, whose determination shall be described in a statement
filed with the Rights Agent and shall be binding on the Rights Agent and the
holders of Rights. Such adjustment shall be made successively whenever such a
record date is fixed, and in the event that such rights, options or warrants
are not so issued, or if issued, are not exercised prior to the expiration
thereof, the Exercise Price shall be readjusted to the Exercise Price which
would then be in effect if such record date had not been fixed, or to the
Exercise Price which would be in effect based upon the number of Common Shares
(or securities convertible into, or exchangeable or exercisable for Common
Shares) actually issued upon the exercise of such rights, options or warrants,
as the case may be.

For purposes of this Agreement, the granting of the
right to purchase Common Shares (whether from treasury or otherwise) pursuant
to the Dividend Reinvestment Plan or any employee benefit, stock option or
similar plans shall be deemed not to constitute an issue of rights, options or
warrants by Canadian Superior; provided, however, that, in all such cases, the
right to purchase Common Shares is at a price per share of not less than 95 per
cent of the current market price per share (determined as provided in such
plans) of the Common Shares.

(c)                                  In
the event Canadian Superior shall at any time after the Record Time and prior
to the Separation Time fix a record date for the making of a distribution to
all holders of Common Shares (including any such distribution made in
connection with a merger or amalgamation) of evidences of indebtedness, cash
(other than an annual cash 

 23
 

 

 

                                                dividend
or a dividend referred to in Subsection 2.3(a)(i) but including any
dividend payable in other securities of Canadian Superior) assets or rights,
options or warrants (excluding those referred to in Subsection 2.3(b)), the
Exercise Price to be in effect after such record date shall be determined by
multiplying the Exercise Price in effect immediately prior to such record date
by a fraction:

(i)                                     the
numerator of which shall be the Market Price per Common Share on such record
date, less the fair market value (as determined in good faith by the Board of
Directors, whose determination shall be described in a statement filed with the
Rights Agent and shall be binding on the Rights Agent and the holders of
Rights), on a per share basis, of the portion of the cash, assets, evidences of
indebtedness, rights, options or warrants so to be distributed; and

(ii)                                  the
denominator of which shall be such Market Price per Common Share.

Such adjustments shall be made successively whenever
such a record date is fixed, and in the event that such a distribution is not
so made, the Exercise Price shall be adjusted to be the Exercise Price which
would have been in effect if such record date had not been fixed.

(d)                                 Notwithstanding
anything herein to the contrary, no adjustment in the Exercise Price shall be
required unless such adjustment would require an increase or decrease of at
least one per cent in the Exercise Price; provided, however, that any
adjustments which by reason of this Subsection 2.3(d) are not required to
be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under Section 2.3 shall be made to the
nearest cent or to the nearest ten-thousandth of a share. Notwithstanding the
first sentence of this Subsection 2.3(d), any adjustment required by Section 2.3
shall be made no later than the earlier of:

(i)                                     three
years from the date of the transaction which gives rise to such adjustment; or

(ii)                                  the
Expiration Date.

(e)                                  In
the event Canadian Superior shall at any time after the Record Time and prior
to the Separation Time issue any shares of capital stock (other than Common
Shares), or rights, options or warrants to subscribe for or purchase any such
capital stock, or securities convertible into or exchangeable for any such
capital stock, in a transaction referred to in Clause 2.3(a)(i) or (iv) above,
if the Board of Directors acting in good 

 24
 

 

 

                                                faith
determines that the adjustments contemplated by Subsections 2.3(a), (b) and
(c) above in connection with such transaction will not appropriately
protect the interests of the holders of Rights, the Board of Directors may
determine what other adjustments to the Exercise Price, number of Rights and/or
securities purchasable upon exercise of Rights would be appropriate and,
notwithstanding Subsections 2.3(a), (b) and (c) above, such
adjustments, rather than the adjustments contemplated by Subsections 2.3(a), (b) and
(c) above, shall be made. Subject to the prior consent of the holders of
the Voting Shares or the Rights obtained as set forth in Subsection 5.4(b) or
(c), Canadian Superior and the Rights Agent shall have authority to amend this
Agreement as appropriate to provide for such adjustments.

(f)                                    Each
Right originally issued by Canadian Superior subsequent to any adjustment made
to the Exercise Price hereunder shall evidence the right to purchase, at the
adjusted Exercise Price, the number of Common Shares purchasable from time to
time hereunder upon exercise of a Right immediately prior to such issue, all
subject to further adjustment as provided herein.

(g)                                 Irrespective
of any adjustment or change in the Exercise Price or the number of Common
Shares issuable upon the exercise of the Rights, the Rights Certificates
theretofore and thereafter issued may continue to express the Exercise Price
per Common Share and the number of Common Shares which were expressed in the
initial Rights Certificates issued hereunder.

(h)                                 In
any case in which this Section 2.3 shall require that an adjustment in the
Exercise Price be made effective as of a record date for a specified event,
Canadian Superior may elect to defer until the occurrence of such event the
issuance to the holder of any Right exercised after such record date the number
of Common Shares and other securities of Canadian Superior, if any, issuable
upon such exercise over and above the number of Common Shares and other
securities of Canadian Superior, if any, issuable upon such exercise on the
basis of the Exercise Price in effect prior to such adjustment; provided,
however, that Canadian Superior shall deliver to such holder an appropriate
instrument evidencing such holder’s right to receive such additional shares
(fractional or otherwise) or other securities upon the occurrence of the event
requiring such adjustment.

(i)                                     Notwithstanding
anything contained in this Section 2.3 to the contrary, Canadian Superior
shall be entitled to make such reductions in the Exercise Price, in addition to
those adjustments expressly required by this Section 2.3, as and to the
extent that in their good faith judgment the Board of Directors shall determine
to be advisable, in order that any:

 25
 

 

 

(i)                                     consolidation
or subdivision of Common Shares;

(ii)                                  issuance
(wholly or in part for cash) of Common Shares or securities that by their terms
are convertible into or exchangeable for Common Shares;

(iii)                               stock dividends; or

(iv)                              issuance
of rights, options or warrants referred to in this Section 2.3,

hereafter made by Canadian Superior to holders of its
Common Shares, shall not be taxable to such shareholders.

3.4           Date
on Which Exercise Is Effective

Each
Person in whose name any certificate for Common Shares or other securities, if
applicable, is issued upon the exercise of Rights shall for all purposes be
deemed to have become the holder of record of the Common Shares or other
securities, if applicable, represented thereon, and such certificate shall be
dated the date upon which the Rights Certificate evidencing such Rights was
duly surrendered in accordance with Subsection 2.2(d) (together with a
duly completed Election to Exercise) and payment of the Exercise Price for such
Rights (and any applicable transfer taxes and other governmental charges
payable by the exercising holder hereunder) was made; provided, however, that
if the date of such surrender and payment is a date upon which the Common Share
transfer books of Canadian Superior are closed, such Person shall be deemed to
have become the record holder of such shares on, and such certificate shall be
dated, the next succeeding Business Day on which the Common Share transfer
books of Canadian Superior are open.

3.5           Execution,
Authentication, Delivery and Dating of Rights Certificates

(a)                                  The
Rights Certificates shall be executed on behalf of Canadian Superior by any two
of its President and Chief Executive Officer, Vice President and Corporate
Secretary or any other duly appointed officer of Canadian Superior under the
corporate seal of Canadian Superior reproduced thereon. The signature of any of
these officers on the Rights Certificates may be manual or facsimile. Rights
Certificates bearing the manual or facsimile signatures of individuals who were
at any time the proper officers of Canadian Superior shall bind Canadian
Superior, notwithstanding that such individuals or any of them have ceased to
hold such offices either before or after the countersignature and delivery of such
Rights Certificates.

 26
 

 

 

(b)                                 Promptly
after Canadian Superior learns of the Separation Time, Canadian Superior will
notify the Rights Agent of such Separation Time and will deliver Rights
Certificates executed by Canadian Superior to the Rights Agent for countersignature,
and the Rights Agent shall manually countersign (in a manner satisfactory to
Canadian Superior) and send such Rights Certificates to the holders of the
Rights pursuant to Subsection 2.2(c) hereof. No Rights Certificate shall
be valid for any purpose until countersigned by the Rights Agent as aforesaid.

(c)                                  Each
Rights Certificate shall be dated the date of countersignature thereof.

3.6           Registration,
Transfer and Exchange

(a)                                  Canadian
Superior will cause to be kept a register (the “Rights Register”) in which,
subject to such reasonable regulations as it may prescribe, Canadian Superior
will provide for the registration and transfer of Rights. The Rights Agent is
hereby appointed registrar for the Rights (the “Rights Registrar”) for the
purpose of maintaining the Rights Register for Canadian Superior and
registering Rights and transfers of Rights as herein provided and the Rights
Agent hereby accepts such appointment. In the event that the Rights Agent shall
cease to be the Rights Registrar, the Rights Agent will have the right to
examine the Rights Register at all reasonable times.

After the Separation Time and prior to the Expiration
Time, upon surrender for registration of transfer or exchange of any Rights
Certificate, and subject to the provisions of Subsection 2.6(c), Canadian
Superior will execute, and the Rights Agent will manually countersign and
deliver, in the name of the holder or the designated transferee or transferees,
as required pursuant to the holder’s instructions, one or more new Rights
Certificates evidencing the same aggregate number of Rights as did the Rights
Certificates so surrendered.

(b)                                 All
Rights issued upon any registration of transfer or exchange of Rights
Certificates shall be the valid obligations of Canadian Superior, and such
Rights shall be entitled to the same benefits under this Agreement as the
Rights surrendered upon such registration of transfer or exchange.

(c)                                  Every
Rights Certificate surrendered for registration of transfer or exchange shall
be duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to Canadian Superior or the Rights Agent, as the case may be, duly

 27
 

 

 

                                                executed
by the holder thereof or such holder’s attorney duly authorized in writing. As
a condition to the issuance of any new Rights Certificate under this Section 2.6,
Canadian Superior may require the payment of a sum sufficient to cover any tax
or other governmental charge that may be imposed in relation thereto and any
other expenses (including the reasonable fees and expenses of the Rights Agent)
connected therewith.

3.7           Mutilated,
Destroyed, Lost and Stolen Rights Certificates

(a)                                  If
any mutilated Rights Certificate is surrendered to the Rights Agent prior to
the Expiration Time, Canadian Superior shall execute and the Rights Agent shall
countersign and deliver in exchange therefor a new Rights Certificate
evidencing the same number of Rights as did the Rights Certificate so
surrendered.

(b)                                 If
there shall be delivered to Canadian Superior and the Rights Agent prior to the
Expiration Time:

(i)                                     evidence
to their reasonable satisfaction of the destruction, loss or theft of any
Rights Certificate; and

(ii)                                  such
security or indemnity as may be reasonably required by them to save each of
them and any of their agents harmless;

then, in the absence of notice to Canadian Superior or
the Rights Agent that such Rights Certificate has been acquired by a bona fide purchaser, Canadian Superior
shall execute and upon Canadian Superior’s request the Rights Agent shall countersign
and deliver, in lieu of any such destroyed, lost or stolen Rights Certificate,
a new Rights Certificate evidencing the same number of Rights as did the Rights
Certificate so destroyed, lost or stolen.

(c)                                  As
a condition to the issuance of any new Rights Certificate under this Section 2.7,
Canadian Superior may require the payment of a sum sufficient to cover any tax
or other governmental charge that may be imposed in relation thereto and any
other expenses (including the reasonable fees and expenses of the Rights Agent)
connected therewith.

(d)                                 Every
new Rights Certificate issued pursuant to this Section 2.7 in lieu of any
destroyed, lost or stolen Rights Certificate shall evidence the contractual
obligation 

 28
 

 

 

                                                of
Canadian Superior, whether or not the destroyed, lost or stolen Rights
Certificate shall be at any time enforceable by anyone, and shall be entitled
to all the benefits of this Agreement equally and proportionately with any and
all other Rights duly issued hereunder.

3.8           Persons
Deemed Owners of Rights

Canadian
Superior, the Rights Agent and any agent of Canadian Superior or the Rights
Agent may deem and treat the Person in whose name a Rights Certificate (or,
prior to the Separation Time, the associated Common Share certificate) is registered
as the absolute owner thereof and of the Rights evidenced thereby for all
purposes whatsoever. As used in this Agreement, unless the context otherwise
requires, the term “holder” of any Rights shall mean the registered holder of
such Rights (or, prior to the Separation Time, of the associated Common
Shares).

3.9           Delivery
and Cancellation of Certificates

All
Rights Certificates surrendered upon exercise or for redemption, registration
of transfer or exchange shall, if surrendered to any Person other than the
Rights Agent, be delivered to the Rights Agent and, in any case, shall be
promptly canceled by the Rights Agent. Canadian Superior may at any time
deliver to the Rights Agent for cancellation any Rights Certificates previously
countersigned and delivered hereunder which Canadian Superior may have acquired
in any manner whatsoever, and all Rights Certificates so delivered shall be
promptly canceled by the Rights Agent. No Rights Certificate shall be
countersigned in lieu of or in exchange for any Rights Certificates canceled as
provided in this Section 2.9, except as expressly permitted by this
Agreement. The Rights Agent shall, subject to applicable laws, destroy all
canceled Rights Certificates and deliver a certificate of destruction to
Canadian Superior.

3.10         Agreement
of Rights Holders

Every
holder of Rights, by accepting the same, consents and agrees with Canadian
Superior and the Rights Agent and with every other holder of Rights:

(a)                                  to
be bound by and subject to the provisions of this Agreement, as amended from
time to time in accordance with the terms hereof, in respect of all Rights
held;

 

 29

 

(b)                                 that
prior to the Separation Time, each Right will be transferable only together
with, and will be transferred by a transfer of, the associated Common Share
certificate representing such Right;

(c)                                  that
after the Separation Time, the Rights Certificates will be transferable only on
the Rights Register as provided herein;

(d)                                 that
prior to due presentment of a Rights Certificate (or, prior to the Separation
Time, the associated Common Share certificate) for registration of transfer,
Canadian Superior, the Rights Agent and any agent of Canadian Superior or the
Rights Agent may deem and treat the Person in whose name the Rights Certificate
(or, prior to the Separation Time, the associated Common Share certificate) is
registered as the absolute owner thereof and of the Rights evidenced thereby
(notwithstanding any notations of ownership or writing on such Rights
Certificate or the associated Common Share certificate made by anyone other
than Canadian Superior or the Rights Agent) for all purposes whatsoever, and
neither Canadian Superior nor the Rights Agent shall be affected by any notice
to the contrary;

(e)                                  that
such holder of Rights has waived his right to receive any fractional Rights or
any fractional shares or other securities upon exercise of a Right (except as
provided herein); and

(f)                                    that
without the approval of any holder of Rights or Voting Shares and upon the sole
authority of the Board of Directors, acting in good faith, this Agreement may
be supplemented or amended from time to time to cure any ambiguity or to
correct or supplement any provision contained herein which may be inconsistent
with the intent of this Agreement or is otherwise defective, as provided
herein.

3.11         Rights Certificate
Holder Not Deemed a Shareholder

 

No
holder, as such, of any Rights or Rights Certificate shall be entitled to vote,
receive dividends or be deemed for any purpose whatsoever the holder of any
Common Share or any other share or security of Canadian Superior which may at
any time be issuable on the exercise of the Rights represented thereby, nor
shall anything contained herein or in any Rights Certificate be construed or
deemed or confer upon the holder of any Right or Rights Certificate, as such,
any right, title, benefit or privilege of a holder of Common Shares or any
other shares or securities of Canadian Superior or any right to vote at any
meeting of shareholders of Canadian Superior whether for the election of
directors or otherwise or upon any matter submitted to holders of Common Shares
or any other shares of Canadian Superior at any meeting thereof, or to give or
withhold consent to any 

 30
 

 

action of Canadian
Superior, or to receive notice of any meeting or other action affecting any
holder of Common Shares or any other shares of Canadian Superior except as expressly
provided herein, or to receive dividends, distributions or subscription rights,
or otherwise, until the Right or Rights evidenced by Rights Certificates shall
have been duly exercised in accordance with the terms and provisions hereof.

4              ADJUSTMENTS
TO THE RIGHTS ON CERTAIN TRANSACTIONS

4.1           Flip-in
Event

 

(a)                                  Subject
to Subsection 3.1(b) and Section 5.1, in the event that prior to the
Expiration Time a Flip-in Event shall occur, each Right shall constitute,
effective at the close of business on the eighth Trading Day after the Stock
Acquisition Date, the right to purchase from Canadian Superior, upon exercise
thereof in accordance with the terms hereof, that number of Common Shares
having an aggregate Market Price on the date of consummation or occurrence of
such Flip-in Event equal to twice the Exercise Price for an amount in
cash equal to the Exercise Price (such right to be appropriately adjusted in a
manner analogous to the applicable adjustment provided for in Section 2.3
in the event that after the such consummation or occurrence, an event of a type
analogous to any of the events described in Section 2.3 shall have
occurred).

(b)                                 Notwithstanding
anything in this Agreement to the contrary, upon the occurrence of any Flip-in
Event, any Rights that are or were Beneficially Owned on or after the earlier
of the Separation Time or the Stock Acquisition Date by:

(i)                                     an
Acquiring Person (or any Affiliate or Associate of an Acquiring Person or any
Person acting jointly or in concert with an Acquiring Person or any Affiliate
or Associate of an Acquiring Person); or

(ii)                                  a
transferee of Rights, directly or indirectly, from an Acquiring Person (or any
Affiliate or Associate of an Acquiring Person or any Person acting jointly or
in concert with an Acquiring Person or any Affiliate or Associate of an
Acquiring Person), where such transferee becomes a transferee concurrently with
or subsequent to the Acquiring Person becoming such in a transfer that the
Board of Directors has determined is part of a plan, arrangement or scheme of
an Acquiring Person (or any Affiliate or Associate of an Acquiring Person or
any Person acting jointly or in concert with an Acquiring Person or 

 31
 

 

any Affiliate or Associate of an Acquiring Person),
that has the purpose or effect of avoiding Clause 3.1(b)(i),

shall become null and void without any further action,
and any holder of such Rights (including transferees) shall thereafter have no
right to exercise such Rights under any provision of this Agreement and further
shall thereafter not have any other rights whatsoever with respect to such
Rights, whether under any provision of this Agreement or otherwise.

(c)                                  From
and after the Separation Time, Canadian Superior shall do all such acts and
things as shall be necessary and within its power to ensure compliance with the
provisions of this Section 3.1, including without limitation, all such
acts and things as may be required to satisfy the requirements of the Business Corporations Act (Alberta), the Securities Act (Alberta) and the securities
laws or comparable legislation of each of the provinces of Canada in respect of
the issue of Common Shares upon the exercise of Rights in accordance with this
Agreement.

(d)                                 Any
Rights Certificate that represents Rights Beneficially Owned by a Person described
in either Clause 3.1(b)(i) or (ii) or transferred to any nominee of
any such Person, and any Rights Certificate issued upon transfer, exchange,
replacement or adjustment of any other Rights Certificate referred to in this
sentence, shall contain the following legend:

The
Rights represented by this Rights Certificate were issued to a Person who was
an Acquiring Person or an Affiliate or an Associate of an Acquiring Person (as
such terms are defined in the Shareholder Rights Plan Agreement) or a Person
who was acting jointly or in concert with an Acquiring Person or an Affiliate
or Associate of an Acquiring Person. This Rights Certificate and the Rights
represented hereby are void or shall become void in the circumstances specified
in Subsection 3.1(b) of the Shareholder Rights Plan Agreement.

Provided, however, that the Rights Agent shall not be
under any responsibility to ascertain the existence of facts that would require
the imposition of such legend but shall impose such legend only if instructed to
do so by Canadian Superior in writing or if a holder fails to certify upon
transfer or exchange in the space provided on the Rights Certificate that such
holder is not a Person described in such legend.

 32
 

 

5              THE
RIGHTS AGENT

5.1           General

 

(a)                                  Canadian
Superior hereby appoints the Rights Agent to act as agent for Canadian Superior
and the holders of the Rights in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment. Canadian Superior
may from time to time appoint such co-Rights Agents (“Co-Rights
Agents”) as it may deem necessary or desirable. In the event Canadian Superior
appoints one or more Co-Rights Agents, the respective duties of the
Rights Agent and Co-Rights Agents shall be as Canadian Superior may determine.
Canadian Superior agrees to pay all reasonable fees and expenses of the Rights
Agent in respect of the performance of its duties under this Agreement. Canadian
Superior also agrees to indemnify the Rights Agent for, and to hold it harmless
against, any loss, liability, or expense, incurred without negligence, bad
faith or wilful misconduct on the part of the Rights Agent, for anything done
or omitted by the Rights Agent in connection with the acceptance and
administration of this Agreement, including the costs and expenses of defending
against any claim of liability, which right to indemnification will survive the
termination of this Agreement.

(b)                                 The
Rights Agent shall be protected and shall incur no liability for or in respect
of any action taken, suffered or omitted by it in connection with its
administration of this Agreement in reliance upon any certificate for Common
Shares, Rights Certificate, certificate for other securities of Canadian
Superior, instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement, or other
paper or document believed by it to be genuine and to be signed, executed and,
where necessary, verified or acknowledged, by the proper Person or Persons.

5.2           Merger,
Amalgamation or Consolidation or Change of Name of Rights Agent

 

(a)                                  Any
corporation into which the Rights Agent may be merged or amalgamated or with
which it may be consolidated, or any corporation resulting from any merger,
amalgamation, statutory arrangement or consolidation to which the Rights Agent
is a party, or any corporation succeeding to the shareholder or stockholder
services business of the Rights Agent, will be the successor to the Rights
Agent under this Agreement without the execution or filing of any paper or any
further act on the part of any of the parties hereto, provided that such
corporation would be eligible for appointment as a successor Rights Agent under
the provisions of Section 4.4 hereof. 

 33
 

 

In case at the time such successor Rights Agent succeeds to the agency
created by this Agreement any of the Rights Certificates have been
countersigned but not delivered, any successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Rights
Certificates so countersigned; and in case at that time any of the Rights have
not been countersigned, any successor Rights Agent may countersign such Rights
Certificates in the name of the predecessor Rights Agent or in the name of the
successor Rights Agent; and in all such cases such Rights Certificates will
have the full force provided in the Rights Certificates and in this Agreement.

(b)                                 In
case at any time the name of the Rights Agent is changed and at such time any
of the Rights Certificates shall have been countersigned but not delivered, the
Rights Agent may adopt the countersignature under its prior name and deliver
Rights Certificates so countersigned; and in case at that time any of the
Rights Certificates shall not have been countersigned, the Rights Agent may
countersign such Rights Certificates either in its prior name or in its changed
name; and in all such cases such Rights Certificates shall have the full force
provided in the Rights Certificates and in this Agreement.

5.3           Duties
of Rights Agent

 

The
Rights Agent undertakes the duties and obligations imposed by this Agreement
upon the following terms and conditions, all of which Canadian Superior and the
holders of certificates for Common Shares and Rights Certificates, by their
acceptance thereof, shall be bound:

(a)                                  The
Rights Agent may consult with legal counsel (who may be legal counsel for
Canadian Superior) and the opinion of such counsel will be full and complete
authorization and protection to the Rights Agent as to any action taken or
omitted by it in good faith and in accordance with such opinion;

(b)                                 Whenever
in the performance of its duties under this Agreement, the Rights Agent deems
it necessary or desirable that any fact or matter be proved or established by
Canadian Superior prior to taking or suffering any action hereunder, such fact
or matter (unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established by a
certificate signed by a Person believed by the Rights Agent to be the President
and Chief Executive Officer, Vice President and Corporate Secretary or any
other duly appointed officer of Canadian Superior and delivered to the Rights
Agent; and such certificate will be full 

 34
 

 

authorization to the Rights Agent for any action taken or suffered in
good faith by it under the provisions of this Agreement in reliance upon such
certificate;

(c)                                  The
Rights Agent will be liable hereunder for its own negligence, bad faith or
wilful misconduct;

(d)                                 The
Rights Agent will not be liable for or by reason of any of the statements of
fact or recitals contained in this Agreement or in the certificates for Common
Shares or the Rights Certificates (except its countersignature thereof ) or be
required to verify the same, but all such statements and recitals are and will
be deemed to have been made by Canadian Superior only;

(e)                                  The
Rights Agent will not be under any responsibility in respect of the validity of
this Agreement or the execution and delivery hereof (except the due
authorization, execution and delivery hereof by the Rights Agent) or in respect
of the validity or execution of any certificate for a Common Share or Rights
Certificate (except its countersignature thereof ); nor will it be responsible
for any breach by Canadian Superior of any covenant or condition contained in
this Agreement or in any Rights Certificate; nor will it be responsible for any
change in the ability to exercise the Rights (including the Rights becoming
void pursuant to Subsection 3.1(b) hereof ) or any adjustment required
under the provisions of Section 2.3 hereof or responsible for the manner,
method or amount of any such adjustment or the ascertaining of the existence of
facts that would require any such adjustment (except with respect to the
exercise of Rights after receipt of the certificate contemplated by Section 2.3
describing any such adjustment); nor will it by any act hereunder be deemed to
make any representation or warranty as to the authorization of any Common
Shares to be issued pursuant to this Agreement or any Rights or as to whether
any Common Shares will, when issued, be duly and validly authorized, executed,
issued and delivered and fully paid and non-assessable;

(f)                                    Canadian
Superior agrees that it will perform, execute, acknowledge and deliver or cause
to be performed, executed, acknowledged and delivered all such further and
other acts, instruments and assurances as may reasonably be required by the
Rights Agent for the carrying out or performing by the Rights Agent of the provisions
of this Agreement;

(g)                                 The
Rights Agent is hereby authorized and directed to accept instructions in
writing with respect to the performance of its duties hereunder from any
individual believed by the Rights Agent to be the President and Chief Executive
Officer, Vice President and Corporate Secretary or any other duly appointed
officer of Canadian Superior, 

 35
 

 

and to apply to such individuals for advice or instructions in
connection with its duties, and it shall not be liable for any action taken or suffered
by it in good faith in accordance with instructions of any such individual;

(h)                                 The
Rights Agent and any shareholder or stockholder, director, officer or employee
of the Rights Agent may buy, sell or deal in Common Shares, Rights or other
securities of Canadian Superior or become pecuniarily interested in any
transaction in which Canadian Superior may be interested, or contract with or
lend money to Canadian Superior or otherwise act as fully and freely as though
it were not Rights Agent under this Agreement. Nothing herein shall preclude
the Rights Agent from acting in any other capacity for Canadian Superior or for
any other legal entity; and

(i)                                     The
Rights Agent may execute and exercise any of the rights or powers hereby vested
in it or perform any duty hereunder either itself or by or through its
attorneys or agents, and the Rights Agent will not be answerable or accountable
for any act, default, neglect or misconduct of any such attorneys or agents or
for any loss to Canadian Superior resulting from any such act, default, neglect
or misconduct, provided reasonable care was exercised in the selection and
continued employment thereof.

5.4           Change
of Rights Agent

 

The
Rights Agent may resign and be discharged from its duties under this Agreement
upon 60 days’ notice (or such lesser notice as is acceptable to Canadian
Superior) in writing mailed to Canadian Superior and to each transfer agent of
Common Shares by registered or certified mail. Canadian Superior may remove the
Rights Agent upon 60 days’ notice in writing, mailed to the Rights Agent and to
each transfer agent of the Common Shares by registered or certified mail. If
the Rights Agent should resign or be removed or otherwise become incapable of
acting, Canadian Superior will appoint a successor to the Rights Agent. If
Canadian Superior fails to make such appointment within a period of 30 days
after such removal or after it has been notified in writing of such resignation
or incapacity by the resigning or incapacitated Rights Agent, then by prior
written notice to Canadian Superior the holder of any Rights (which holder
shall, with such notice, submit such holder’s Rights Certificate, if any, for
inspection by Canadian Superior), may apply to any court of competent
jurisdiction for the appointment of a new Rights Agent. Any successor Rights
Agent, whether appointed by Canadian Superior or by such a court, shall be a
corporation incorporated under the laws of Canada or a province thereof
authorized to carry on the business of a trust company in the Province of
Alberta. After appointment, the successor Rights Agent will be vested with the
same powers, rights, duties and responsibilities as if it had been originally
named as Rights Agent without further act or deed; but the predecessor Rights
Agent shall deliver and transfer to the

 

 36

 

successor Rights
Agent any property at the time held by it hereunder, and execute and deliver
any further assurance, conveyance, act or deed necessary for the purpose. Not
later than the effective date of any such appointment, Canadian Superior will
file notice thereof in writing with the predecessor Rights Agent and each
transfer agent of the Common Shares and mail a notice thereof in writing to the
holders of the Rights in accordance with Section 5.9. Failure to give any
notice provided for in this Section 4.4, however, or any defect therein,
shall not affect the legality or validity of the resignation or removal of the
Rights Agent or the appointment of any successor Rights Agent, as the case may
be.

6              MISCELLANEOUS

6.1                                 Redemption and Waiver

(a)                                  The
Board of Directors acting in good faith may, until the occurrence of a Flip-in
Event, upon prior written notice delivered to the Rights Agent, determine to
waive the application of Section 3.1 to a particular Flip-in Event that
would result from a Take-over Bid made by way of take-over bid circular to all
holders of Voting Shares (which for greater certainty shall not include the
circumstances described in Subsection 5.1(h)); provided that if the Board of
Directors waives the application of Section 3.1 to a particular Flip-in
Event pursuant to this Subsection 5.1(a), the Board of Directors shall be
deemed to have waived the application of Section 3.1 to any other Flip-in
Event occurring by reason of any Take-over Bid which is made by means of a
take-over bid circular to all holders of Voting Shares prior to the expiry of
any Take-over Bid in respect of which a waiver is, or is deemed to have been,
granted under this Subsection 5.1(a).

(b)                                 Subject
to the prior consent of the holders of the Voting Shares or the Rights obtained
as set forth in Subsection 5.4(b) or (c), the Board of Directors acting in
good faith may, at its option, at any time prior to the provisions of Section 3.1
becoming applicable as a result of the occurrence of a Flip-in Event, elect to
redeem all but not less than all of the outstanding Rights at a redemption
price of $0.0001 per Right appropriately adjusted in a manner analogous to the
applicable adjustment provided for in Section 2.3 if an event of the type
analogous to any of the events described in Section 2.3 shall have
occurred (such redemption price being herein referred to as the “Redemption
Price”).

(c)                                  Where
a Person acquires outstanding Voting Shares pursuant to a Permitted Bid, a
Competing Permitted Bid or an Exempt Acquisition under Subsection 5.1(a), other

 37
 

 

than Voting Shares Beneficially Owned at the date of the Permitted Bid,
the Competing Permitted Bid or the Exempt Acquisition under Subsection 5.1(a) by
such Person, then the Board of Directors shall immediately upon the consummation
of such acquisition without further formality and without any approval under
Subsection 5.4(b) or (c) be deemed to have elected to redeem the
Rights at the Redemption Price.

(d)                                 Where
a Take-over Bid that is not a Permitted Bid Acquisition is withdrawn or
otherwise terminated after the Separation Time has occurred and prior to the
occurrence of a Flip-in Event, the Board of Directors may elect to redeem all
the outstanding Rights at the Redemption Price.

(e)                                  If
the Board of Directors is deemed under Subsection 5.1(c) to have elected,
or elects under either of Subsection 5.1(b) or (d), to redeem the Rights,
the right to exercise the Rights will thereupon, without further action and
without notice, terminate and the only right thereafter of the holders of
Rights shall be to receive the Redemption Price.

(f)                                    Within
10 days after the Board of Directors is deemed under Subsection 5.1(c) to
have elected, or elects under Subsection 5.1(b) or (d), to redeem the
Rights, Canadian Superior shall give notice of redemption to the holders of the
then outstanding Rights by mailing such notice to each such holder at his last
address as it appears upon the registry books of the Rights Agent or, prior to
the Separation Time, on the registry books of the transfer agent for the Voting
Shares. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice
of redemption will state the method by which the payment of the Redemption
Price will be made.

(g)                                 Upon
the Rights being redeemed pursuant to Subsection 5.1(d), all the provisions of
this Agreement shall continue to apply as if the Separation Time had not
occurred and Rights Certificates representing the number of Rights held by each
holder of record of Common Shares as of the Separation Time had not been mailed
to each such holder and for all purposes of this Agreement the Separation Time
shall be deemed not to have occurred.

(h)                                 The
Board of Directors may waive the application of Section 3.1 in respect of
the occurrence of any Flip-in Event if the Board of Directors has
determined within eight Trading Days following a Stock Acquisition Date that a
Person became an Acquiring Person by inadvertence and without any intention to
become, or knowledge that it would become, an Acquiring Person under this
Agreement and, in the event that such a waiver is granted by the Board of
Directors, such Stock Acquisition Date shall be 

 38
 

 

deemed not to have occurred. Any such waiver pursuant to this
Subsection 5.1(h) must be on the condition that such Person, within 14
days after the foregoing determination by the Board of Directors or such
earlier or later date as the Board of Directors may determine (the “Disposition
Date”), has reduced its Beneficial Ownership of Voting Shares such that the
Person is no longer an Acquiring Person. If the Person remains an Acquiring
Person at the close of business on the Disposition Date, the Disposition Date
shall be deemed to be the date of occurrence of a further Stock Acquisition Date
and Section 3.1 shall apply thereto.

6.2                                 Expiration

No
Person shall have any rights whatsoever pursuant to this Agreement or in
respect of any Right after the Expiration Time, except the Rights Agent as
specified in Subsection 4.1(a) of this Agreement.

6.3                                 Issuance of New Rights Certificates

Notwithstanding
any of the provisions of this Agreement or of the Rights to the contrary,
Canadian Superior may, at its option, issue new Rights Certificates evidencing
Rights in such form as may be approved by the Board of Directors to reflect any
adjustment or change in the number or kind or class of securities purchasable
upon exercise of Rights made in accordance with the provisions of this
Agreement.

6.4                                 Supplements and Amendments

(a)                                  Canadian
Superior may make amendments to this Agreement to correct any clerical or
typographical error or, subject to Subsection 5.4(e), which are required to
maintain the validity of this Agreement as a result of any change in any
applicable legislation, rules or regulations thereunder. Canadian Superior
may, prior to the date of the 2001 annual meeting of shareholders referred to
in Section 5.16, supplement or amend this Agreement without the approval
of any holders of Rights or Voting Shares in order to make any changes which
the Board of Directors acting in good faith may deem necessary or desirable. Notwithstanding
anything in this Section 5.4 to the contrary, no such supplement or
amendment shall be made to the provisions of Article 4 except with the
written concurrence of the Rights Agent to such supplement or amendment.

 39
 

 

(b)                                 Subject
to Section 5.4(a), Canadian Superior may, with the prior consent of the
holders of Voting Shares obtained as set forth below, at any time before the
Separation Time, amend, vary or rescind any of the provisions of this Agreement
and the Rights (whether or not such action would materially adversely affect
the interests of the holders of Rights generally). Such consent shall be deemed
to have been given if provided by the holders of Voting Shares at a Special
Meeting, which Special Meeting shall be called and held in compliance with
applicable laws and regulatory requirements and the requirements in the
articles and by-laws of Canadian Superior. Subject to compliance with any
requirements imposed by the foregoing, consent shall be given if the proposed
amendment, variation or rescission is approved by the affirmative vote of a
majority of the votes cast by Independent Shareholders present or represented
in person or by proxy at and entitled to be voted at the Special Meeting.

(c)                                  Canadian
Superior may, with the prior consent of the holders of Rights obtained as set
forth below, at any time after the Separation Time and before the Expiration
Time, amend, vary or rescind any of the provisions of this Agreement and the
Rights (whether or not such action would materially adversely affect the
interests of the holders of Rights generally), provided that no such amendment,
variation or rescission shall be made to the provisions of Article 4
except with the written concurrence of the Rights Agent thereto. Such consent
shall be deemed to have been given if provided by the holders of Rights at a
Rights Holders’ Special Meeting, which Rights Holders’ Special Meeting shall be
called and held in compliance with applicable laws and regulatory requirements
and, to the extent possible, with the requirements in the articles and by-laws
of Canadian Superior applicable to meetings of holders of Voting Shares,
applied mutatis mutandis. Subject
to compliance with any requirements imposed by the foregoing, consent shall be
given if the proposed amendment, variation or rescission is approved by the
affirmative vote of a majority of the votes cast by holders of Rights (other
than holders of Rights whose Rights have become null and void pursuant to
Subsection 3.1(b)), represented in person or by proxy at and entitled to be
voted at the Rights Holders’ Special Meeting.

(d)                                 Any
approval of the holders of Rights shall be deemed to have been given if the
action requiring such approval is authorized by the affirmative votes of the
holders of Rights present or represented at and entitled to be voted at a
meeting of the holders of Rights and representing a majority of the votes cast
in respect thereof. For the purposes hereof, each outstanding Right (other than
Rights which are void pursuant to the provisions hereof ) shall be entitled to
one vote, and the procedures for the calling, holding and conduct of the
meeting shall be those, as nearly as may be, which 

 40
 

 

are provided in Canadian Superior’s by-laws and the Business Corporations Act (Alberta) with
respect to meetings of shareholders of Canadian Superior.

(e)                                  Any
amendments made by Canadian Superior to this Agreement pursuant to Subsection
5.4(a) which are required to maintain the validity of this Agreement as a
result of any change in any applicable legislation, rule or regulation
thereunder shall:

(i)                                     if
made before the Separation Time, be submitted to the shareholders of Canadian
Superior at the next meeting of shareholders and the shareholders may, by the
majority referred to in Subsection 5.4(b), confirm or reject such amendment;

(ii)                                  if
made after the Separation Time, be submitted to the holders of Rights at a
meeting to be called for on a date not later than immediately following the
next meeting of shareholders of Canadian Superior and the holders of Rights
may, by resolution passed by the majority referred to in Subsection 5.4(d),
confirm or reject such amendment.

Any such amendment shall be effective from the date of
the resolution of the Board of Directors adopting such amendment, until it is
confirmed or rejected or until it ceases to be effective (as described in the
next sentence) and, where such amendment is confirmed, it continues in effect
in the form so confirmed. If such amendment is rejected by the shareholders or
the holders of Rights or is not submitted to the shareholders or holders of
Rights as required, then such amendment shall cease to be effective from and
after the termination of the meeting at which it was rejected or to which it
should have been but was not submitted or from and after the date of the
meeting of holders of Rights that should have been but was not held, and no
subsequent resolution of the Board of Directors to amend this Agreement to
substantially the same effect shall be effective until confirmed by the
shareholders or holders of Rights as the case may be.

6.5                                 Fractional Rights and Fractional Shares

(a)                                  Canadian
Superior shall not be required to issue fractions of Rights or to distribute
Rights Certificates which evidence fractional Rights. After the Separation
Time, in lieu of issuing fractional Rights, Canadian Superior shall pay to the
holders of record of the Rights Certificates (provided the Rights represented
by such Rights Certificates are not void pursuant to the provisions of
Subsection 3.1(b), at the time such fractional Rights would otherwise be
issuable), an amount in cash equal to the 

 41
 

 

fraction of the Market Price of one whole Right that the fraction of a
Right that would otherwise be issuable is of one whole Right.

(b)                                 Canadian
Superior shall not be required to issue fractions of Common Shares upon
exercise of Rights or to distribute certificates which evidence fractional
Common Shares. In lieu of issuing fractional Common Shares, Canadian Superior
shall pay to the registered holders of Rights Certificates, at the time such
Rights are exercised as herein provided, an amount in cash equal to the
fraction of the Market Price of one Common Share that the fraction of a Common
Share that would otherwise be issuable upon the exercise of such Right is of
one whole Common Share at the date of such exercise.

6.6                                 Rights of Action

Subject
to the terms of this Agreement, all rights of action in respect of this
Agreement, other than rights of action vested solely in the Rights Agent, are
vested in the respective holders of the Rights. Any holder of Rights, without
the consent of the Rights Agent or of the holder of any other Rights, may, on
such holder’s own behalf and for such holder’s own benefit and the benefit of
other holders of Rights, enforce, and may institute and maintain any suit,
action or proceeding against Canadian Superior to enforce such holder’s right
to exercise such holder’s Rights, or Rights to which such holder is entitled,
in the manner provided in such holder’s Rights Certificate and in this
Agreement. Without limiting the foregoing or any remedies available to the
holders of Rights, it is specifically acknowledged that the holders of Rights
would not have an adequate remedy at law for any breach of this Agreement and
will be entitled to specific performance of the obligations under, and
injunctive relief against actual or threatened violations of the obligations of
any Person subject to, this Agreement.

6.7                                 Regulatory Approvals

Any
obligation of Canadian Superior or action or event contemplated by this
Agreement shall be subject to the receipt of any requisite approval or consent
from any governmental or regulatory authority, and without limiting the
generality of the foregoing, necessary approvals of the Canadian Venture
Exchange shall be obtained, such as to the issuance of Common Shares upon the
exercise of Rights under Subsection 2.2(d) or to the implementation of any
supplement or amendment to this Agreement under Section 5.4.

 

 42

 

6.8                                 Declaration as to Non-Canadian Holders

If
in the opinion of the Board of Directors (who may rely upon the advice of
counsel) any action or event contemplated by this Agreement would require
compliance by Canadian Superior with the securities laws or comparable
legislation of a jurisdiction outside Canada, the Board of Directors acting in
good faith shall take such actions as it may deem appropriate to ensure such
compliance. In no event shall Canadian Superior or the Rights Agent be required
to issue or deliver Rights or securities issuable on exercise of Rights to
persons who are citizens, residents or nationals of any jurisdiction other than
Canada or the United States, in which such issue or delivery would be unlawful
without registration of the relevant Persons or securities for such purposes.

6.9                                 Notices

(a)                                  Notices
or demands authorized or required by this Agreement to be given or made by the
Rights Agent or by the holder of any Rights to or on Canadian Superior shall be
sufficiently given or made if delivered, sent by registered or certified mail,
postage prepaid (until another address is filed in writing with the Rights
Agent), or sent by facsimile or other form of recorded electronic
communication, charges prepaid and confirmed in writing, as follows:

Canadian Superior Energy
Inc.

Suite 3300, 400 - 3rd Avenue SW

Calgary,
Alberta  T2P 4H2

Attention:                                       President and
Chief Executive Officer

Telecopy No.:       (403) 216-2374

(b)                                 Notices
or demands authorized or required by this Agreement to be given or made by
Canadian Superior or by the holder of any Rights to or on the Rights Agent
shall be sufficiently given or made if delivered, sent by first class mail,
postage prepaid (until another address is filed in writing with Canadian
Superior), or sent by facsimile or other form of recorded electronic
communication, charges prepaid, and confirmed in writing, as follows:

 43
 

 

Computershare Trust
Company of Canada

600, 530 - 8th Avenue SW

Calgary,
Alberta  T2P 3S8

Attention: Manager, Client Services

Telecopy No.:
(403) 267-6529

(c)                                  Notices
or demands authorized or required by this Agreement to be given or made by
Canadian Superior or the Rights Agent to or on the holder of any Rights shall
be sufficiently given or made if delivered or sent by registered or certified
mail, postage prepaid, addressed to such holder at the address of such holder
as it appears upon the register of the Rights Agent or, prior to the Separation
Time, on the register of Canadian Superior for its Common Shares, as the case
may be. Any notice which is mailed or sent in the manner herein provided shall
be deemed given, whether or not the holder receives the notice.

(d)                                 Any
notice given or made in accordance with this Section 5.9 shall be deemed
to have been given and to have been received on the day of delivery, if so
delivered, on the third Business Day (excluding each day during which there
exists any general interruption of postal service due to strike, lockout or
other cause) following the mailing thereof, if so mailed, and on the day of
telegraphing, telecopying or sending of the same by other means of recorded
electronic communication (provided such sending is during the normal business
hours of the addressee on a Business Day and if not, on the first Business Day
thereafter). Each of Canadian Superior and the Rights Agent may from time to
time change its address for notice by notice to the other given in the manner
aforesaid.

6.10                           Costs of Enforcement

Canadian
Superior agrees that if Canadian Superior fails to fulfil any of its
obligations pursuant to this Agreement, then Canadian Superior will reimburse
the holder of any Rights for the costs and expenses (including legal fees)
incurred by such holder to enforce his rights pursuant to any Rights or this
Agreement.

 44
 

 

6.11                           Successors

All
the covenants and provisions of this Agreement by or for the benefit of
Canadian Superior or the Rights Agent shall bind and enure to the benefit of
their respective successors and assigns hereunder.

6.12                           Benefits of this Agreement

Nothing
in this Agreement shall be construed to give to any Person other than Canadian
Superior, the Rights Agent and the holders of the Rights any legal or equitable
right, remedy or claim under this Agreement; further, this Agreement shall be
for the sole and exclusive benefit of Canadian Superior, the Rights Agent and
the holders of the Rights.

6.13                           Governing Law

This
Agreement and each Right issued hereunder shall be deemed to be a contract made
under the laws of the Province of Alberta and for all purposes shall be
governed by and construed in accordance with the laws of such Province
applicable to contracts to be made and performed entirely within such Province.

6.14                           Severability

If
any term or provision hereof or the application thereof to any circumstance
shall, in any jurisdiction and to any extent, be invalid or unenforceable, such
term or provision shall be ineffective only as to such jurisdiction and to the
extent of such invalidity or unenforceability in such jurisdiction without
invalidating or rendering unenforceable or ineffective the remaining terms and
provisions hereof in such jurisdiction or the application of such term or
provision in any other jurisdiction or to circumstances other than those as to
which it is specifically held invalid or unenforceable.

6.15                           Effective Date and Shareholder Confirmation

This
Agreement is effective and in full force and effect in accordance with its
terms from and after the Effective Date. At the first annual meeting of holders
of Voting Shares of Canadian Superior following the Effective Date, Canadian
Superior shall request confirmation of this Agreement by the holders of its
Voting Shares. If this Agreement is not confirmed by a majority of the votes
cast by holders of Voting Shares who vote in respect of confirmation of this
Agreement at 

 45
 

 

such meeting, then
this Agreement and all outstanding Rights shall terminate and be void and of no
further force and effect on and from the close of business on the date of
termination of such meeting.

6.16                           Reconfirmation

Notwithstanding
the confirmation of this Agreement pursuant to Section 5.15, this
Agreement must be reconfirmed by a resolution passed by a majority of greater
than 50 per cent of the votes cast by all holders of Voting Shares who vote in
respect of such reconfirmation at every third annual meeting following the 2001
annual meeting of Canadian Superior. If this Agreement is not so reconfirmed or
is not presented for reconfirmation at such annual meeting, this Agreement and
all outstanding Rights shall terminate and be void and of no further force and
effect on and from the date of such annual meeting; provided that termination
shall not occur if a Flip-in Event has occurred (other than a Flip-in Event
which has been waived pursuant to Subsection 5.1(a) or (h) hereof )
prior to the date upon which this Agreement would otherwise terminate pursuant
to this Section 5.16.

6.17                           Determinations and Actions by the Board of Directors

 All actions, calculations and determinations
(including all omissions with respect to the foregoing) which are done or made
by the Board of Directors in good faith for the purposes hereof shall not
subject the Board of Directors or any director of Canadian Superior to any
liability to the holders of the Rights.

6.18                           Time of the Essence

Time
shall be of the essence in this Agreement.

 46
 

 

6.19                           Execution in Counterparts

This
Agreement may be executed in any number of counterparts and each of such
counterparts shall for all purposes be deemed to be an original, and all such
counterparts shall together constitute one and the same instrument.

IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the 22nd day of January, 2001.

	
   

  	
  CANADIAN SUPERIOR ENERGY INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Signed “Donald W. Axford”

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Signed “Robert A. Pilling”

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  COMPUTERSHARE TRUST COMPANY OF CANADA

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Signed “Lynn Safiniuk”

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Signed “Linda Hseuing”

  

 

 47

ATTACHMENT 1

CANADIAN SUPERIOR ENERGY INC..

SHAREHOLDER RIGHTS PLAN AGREEMENT

[Form of Rights Certificate]

	
  Certificate No.

  	
   

  	
  Rights

  

 

THE
RIGHTS ARE SUBJECT TO TERMINATION ON THE TERMS SET FORTH IN THE SHAREHOLDER
RIGHTS PLAN AGREEMENT. UNDER CERTAIN CIRCUMSTANCES (SPECIFIED IN SUBSECTION 3.1(b) OF
THE SHAREHOLDER RIGHTS PLAN AGREEMENT), RIGHTS BENEFICIALLY OWNED BY AN
ACQUIRING PERSON OR CERTAIN RELATED PARTIES, OR TRANSFEREES OF AN ACQUIRING
PERSON OR CERTAIN RELATED PARTIES, MAY BECOME VOID.

Rights
Certificate

This
certifies that                       ,
or registered assigns, is the registered holder of the number of Rights set
forth above, each of which entitles the registered holder thereof, subject to
the terms, provisions and conditions of the Shareholder Rights Plan Agreement,
dated as of January 22, 2001 as the same may be amended or supplemented
from time to time (the “Shareholder Rights Plan Agreement”), between Canadian
Superior Energy Inc., a corporation duly incorporated under the Business Corporations Act (Alberta) (“Canadian
Superior”) and Computershare Trust Company of Canada, a trust company
incorporated under the laws of Canada (the “Rights Agent”) (which term shall
include any successor Rights Agent under the Shareholder Rights Plan
Agreement), to purchase from Canadian Superior at any time after the Separation
Time (as such term is defined in the Shareholder Rights Plan Agreement) and
prior to the Expiration Time (as such term is defined in the Shareholder Rights
Plan Agreement), one fully paid common share of Canadian Superior (a “Common
Share”) at the Exercise Price referred to below, upon presentation and
surrender of this Rights Certificate with the Form of Election to Exercise
(in the form provided hereinafter) duly executed and submitted to the Rights
Agent at its principal office in Calgary or Toronto. The Exercise Price shall
initially be $15.00 (CDN) per Right and shall be subject to adjustment in
certain events as provided in the Shareholder Rights Plan Agreement.

This
Rights Certificate is subject to all of the terms and provisions of the
Shareholder Rights Plan Agreement, which terms and provisions are incorporated
herein by reference and made a part hereof and to which Shareholder Rights Plan
Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities thereunder of the 

 

Rights Agent,
Canadian Superior and the holders of the Rights Certificates. Copies of the
Shareholder Rights Plan Agreement are on file at the registered office of
Canadian Superior.

This
Rights Certificate, with or without other Rights Certificates, upon surrender
at any of the offices of the Rights Agent designated for such purpose, may be
exchanged for another Rights Certificate or Rights Certificates of like tenor
and date evidencing an aggregate number of Rights equal to the aggregate number
of Rights evidenced by the Rights Certificate or Rights Certificates
surrendered. If this Rights Certificate shall be exercised in part, the
registered holder shall be entitled to receive, upon surrender hereof, another
Rights Certificate or Rights Certificates for the number of whole Rights not
exercised.

No
holder of this Rights Certificate, as such, shall be entitled to vote or receive
dividends or be deemed for any purpose the holder of Common Shares or of any
other securities which may at any time be issuable upon the exercise hereof,
nor shall anything contained in the Shareholder Rights Plan Agreement or herein
be construed to confer upon the holder hereof, as such, any of the Rights of a
shareholder of Canadian Superior or any right to vote for the election of
directors or upon any matter submitted to shareholders at any meeting thereof,
or to give or withhold consent to any corporate action, or to receive notice of
meetings or other actions affecting shareholders (except as provided in the
Shareholder Rights Plan Agreement), or to receive dividends or subscription
rights, or otherwise, until the Rights evidenced by this Rights Certificate
shall have been exercised as provided in the Shareholder Rights Plan Agreement.

This
Rights Certificate shall not be valid or obligatory for any purpose until it
shall have been countersigned by the Rights Agent.

WITNESS
the facsimile signature of the proper officers of Canadian Superior and its
corporate seal.

	
  Date:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  CANADIAN
  SUPERIOR ENERGY INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  President and
  Chief Executive Officer

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Vice President
  and Corporate Secretary

  	
   

  
	
   

  	
   

  	
   

  

 

 2
 

 

	
  Countersigned:

  	
   

  
	
   

  	
   

  
	
  COMPUTERSHARE
  TRUST COMPANY OF CANADA

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Authorized
  Signature

  	
   

  

 

 3

 

CANADIAN SUPERIOR
ENERGY INC.

FORM OF
ASSIGNMENT

(To
be executed by the registered holder if such holder desires to transfer the
Rights Certificate.)

FOR
VALUE RECEIVED                                                                     
hereby sells, assigns and transfers unto          

(Please
print name and address of transferee.)

the Rights
represented by this Rights Certificate, together with all right, title and
interest therein, and does hereby irrevocably constitute and appoint                           
, as attorney, to transfer the within Rights on the books of Canadian Superior,
with full power of substitution.

	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Signature

  
	
  Signature Guaranteed:

  	
   

  	
  (Signature must correspond to name as written upon
  the face of this Rights Certificate in every particular, without alteration
  or enlargement or any change whatsoever.)

  

 

(Signature must be
guaranteed by a member firm of a recognized stock exchange in Canada who is a
member of the Stock Transfer Association Medallion Program (medallion
guarantee), or a Schedule I Canadian chartered bank or major Canadian trust
company.)

CERTIFICATE

(To be completed if true.)

The undersigned
party transferring Rights hereunder, hereby represents, for the benefit of all
holders of Rights and Common Shares, that the Rights evidenced by this Rights
Certificate are not, and, to the knowledge of the undersigned, have never been,
Beneficially Owned by an Acquiring Person or an Affiliate or Associate thereof
or a Person acting jointly or in concert with an Acquiring Person or an
Affiliate or Associate thereof. Capitalized terms shall have the meaning
ascribed thereto in the Shareholder Rights Plan Agreement.

	
  

  	
   

  	
   

  
	
   

  	
   

  	
  Signature

  

 

(To be attached to each Rights Certificate.)

 

CANADIAN SUPERIOR
ENERGY INC.

FORM OF
ELECTION TO EXERCISE

(To be exercised
by the registered holder if such holder desires to exercise the Rights
Certificate.)

TO:                                 

The
undersigned hereby irrevocably elects to exercise                  
whole Rights represented by the attached Rights Certificate to purchase the
Common Shares or other securities, if applicable, issuable upon the exercise of
such Rights and requests that certificates for such securities be issued in the
name of:

 

	
  

  
	
  (Name)

  
	
   

  
	
   

  
	
  (Address)

  
	
   

  
	
   

  
	
  (City and Province)

  
	
   

  
	
   

  
	
  (Social Insurance Number or other taxpayer
  identification number)

  

 

If such number of
Rights shall not be all the Rights evidenced by this Rights Certificate, a new
Rights Certificate for the balance of such Rights shall be registered in the
name of and delivered to:

 

	
  

  
	
  (Name)

  
	
   

  
	
   

  
	
  (Address)

  
	
   

  
	
   

  
	
  (City and Province)

  
	
   

  
	
   

  
	
  (Social Insurance Number or other taxpayer
  identification number)

  
	
   

  
	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Signature

  
	
   

  	
   

  	
   

  
	
  Signature Guaranteed:

  	
   

  	
  (Signature must correspond to name as written upon
  the face of this Rights Certificate in every particular, without alteration
  or enlargement or any change whatsoever.)

  

 

(Signature must be
guaranteed by a member firm of a recognized stock exchange in Canada who is a
member of the Stock Transfer Association Medallion Program (medallion
guarantee), or a Schedule I Canadian chartered bank or major Canadian trust
company.)

 

CERTIFICATE

(To be completed if true.)

The undersigned
party exercising Rights hereunder, hereby represents, for the benefit of all
holders of Rights and Common Shares, that the Rights evidenced by this Rights
Certificate are not, and, to the knowledge of the undersigned, have never been,
Beneficially Owned by an Acquiring Person or an Affiliate or Associate thereof
or a Person acting jointly or in concert with an Acquiring Person or an
Affiliate or Associate thereof. Capitalized terms shall have the meaning
ascribed thereto in the Shareholder Rights Plan Agreement.

	
  

  	
   

  	
   

  
	
   

  	
   

  	
  Signature

  

 

(To be attached to
each Rights Certificate.)

 2
 

 

NOTICE

In
the event the certification set forth above in the Forms of Assignment and
Election is not completed, Canadian Superior will deem the Beneficial Owner of
the Rights evidenced by this Rights Certificate to be an Acquiring Person or an
Affiliate or Associate thereof. No Rights Certificates shall be issued in
exchange for a Rights Certificate owned or deemed to have been owned by an
Acquiring Person or an Affiliate or Associate thereof, or by a Person acting
jointly or in concert with an Acquiring Person or an Affiliate or Associate
thereof.

 

 3

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