Borrower

Canadian Superior Energy, Inc. (The “Company”)

Facility

Interest bearing notes (“Notes”) issued to accredited investors (“Noteholders”) pursuant to note purchase agreements and a trust indenture.

Term

3 years

Amount

$60,000,000 (U.S. Dollars)

Use of Proceeds

T o pay outstanding amounts for the exploration program under the Joint Operating Agreement associated with Block 5(c) project in Trinidad and Tobago, and all costs related to the associated receivership established by BG. Excess of facility would be available to pay down (but not cancel) a portion of amounts owing under existing revolving line of credit with Canadian Western Bank.

Rate

15% coupon, paid semi-annually and at maturity. Borrower option to pay ”in-kind” and capitalize interest payments through the term of the Notes, resulting in semi-annual compounding.

Equity/Warrants

100% warrant coverage. Each Note carries one detachable warrant per dollar of Note face value, each warrant bearing the right to purchase one share of common stock of the Company, strike price of $1.00 (USD) per share, exercisable at any time over a period of 5 years. Full warrant exercise implies 60 million additional shares on a fully diluted basis. Cashless exercise available.

Early Repayment

At the option of the Borrower, Notes may be repaid at a premium to par value at any time , based on a sliding scale starting at 120% of par during the first year, plus all accrued and unpaid interest. Warrants are detachable and survive after repayment of the Notes.

Security

First lien on all of the Company’s assets in Trinidad, including the full 70% interest in Block 5(c) and all other licenses, rights, and equipment associated with the Company’s activities in Trinidad. Second lien, subordinated to all claims and liens of Canadian Western Bank, on all the Company’s assets in Western Canada. General unsecured claim on all other assets of the Company. Subsidiaries of the Company will also provide comparable first and second liens on all of their assets, and will also guarantee all payment and performance due by the Company under the Notes.

Asset Sales

Proceeds of all asset sales required to retire debt, with first priority to revolving line of credit (currently provided by Canadian Western Bank), and second priority to retire the Notes.

Equity Issuances

Limitations on issuing dilutive equity or equity-linked securities without the written consent of a majority of the Noteholders.

Other debt

Assumes continuing availability of $35,000,000 revolving line of credit. Limitations on issuance of other debt. If Canadian Western Bank is unwilling to continue to provide such existing credit, a separate or augmented facility for replacing it or buying out its existing debt may be arranged.

Governance

Existing board of directors of the Company to be reconstituted, with new directors selected by Noteholders in conjunction with Palo Alto Investors, LLC (“PAI”). New directors will take no fewer than 5 and no more than 7 seats, commensurate with the resignation of the same number of existing directors. Company bylaws to change to set the number of directors at 7 and to match minimum residency and citizenship requirements under Albertan securities laws. New non-executive Chairman to be named from among the new directors. PAI and a majority of the Noteholders shall have a nomination right to appoint a to-be-determined number directors of the Company at each annual meeting, until the Notes have been repaid.

Standstill

Existing board members agree to sign multi-year standstill agreement which would disallow engaging in any legal action, lawsuits, or proxy contests against the Company, current and future directors, Noteholders, and shareholders.

Closing

Closing targeted for 30 days, or such lesser time period as may be determined by PAI, from the date of acceptance of an agreed-upon term sheet. Closing is subject to normal due diligence, including but not limited to, verification of Company representations regarding assets in Trinidad and Western Canada. Also subject to ability to establish first-priority lien on assets in Trinidad under Trinidadian law and Canadian law, as applicable, ability to establish second-priority lien on Company assets in Western Canada, and other customary closing conditions.

Conditions Precedent

Closing is subject to final approval by all parties in the Company’s current CCAA court action, receivership, and arbitration action by BG. Further requirement that this recapitalization is approved and ratified specifically by Canadian Western Bank, that such bank agrees to remain the Company’s lender post-transaction, that the Notes and associated plan of reorganization have been ratified by the court, and that all claims have been satisfied by BG such that no further default exists under the Joint Operating Agreement at the date of closing.

Expenses

Borrower is responsible for third-party legal costs associated with structuring and documentation of deal. The Company also agrees to pay costs incurred by PAI for third-party board recruitment and legal costs of PAI’s activism with respect to the Company’s board of directors.