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EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into between
Sun River Energy, Inc., a Colorado Corporation (the “Company”), and James E.
Pennington, a Texas resident (“Employee”) and shall be effective as of January
1, 2011 (the “Effective Date”).

RECITALS:

The Company desires to employ Employee, and Employee desires to be employed by
the Company, on the terms and conditions hereinafter provided.

AGREEMENT:

NOW, THEREFORE, in consideration of the foregoing, of the mutual promises herein
contained, and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties, intending to be
legally bound, agree as follows:

Section 1. Term of Employment.

Subject to earlier termination in accordance with this Agreement, this Agreement
will remain in effect for a period of 3 years from the Effective Date (the
“Initial Term”). Provided that this Agreement has not been terminated prior to
the expiration of the Initial Term in accordance with the terms contained
herein, subsequent to such time, Employee’s employment hereunder shall be
automatically continued for successive additional terms of one (1) year each
unless written notice of non-renewal is given by either party no less than 60
days prior to the end of the Initial Term or any additional term, as applicable.

Section 2. Responsibilities of Employee.

During the Employment Period, Employee shall serve as General Counsel to the
Company. Employee shall report to the CEO and as otherwise required by the Board
of Directors. During the Term, Employee shall faithfully, diligently and to the
best of his ability perform such duties as are mutually agreed by Employee and
the Board of the Company from time to time (which duties shall be consistent
with Employee’s role as General Counsel), and shall devote the time necessary to
fulfill his duties. Employee shall undertake and assume the responsibility of
performing for and on behalf of the Company any and all duties of General
Counsel and shall have the duties, functions, responsibilities and authority
commensurate with such office as are from time to time delegated to Employee by
the CEO and/or the Board of Directors.

All services that Employee may render to the Company or any of its subsidiaries
or Affiliates in any capacity during the Employment Period shall be deemed to be
services required by this Agreement and consideration for the compensation
provided for herein.

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Section 3. Compensation.

  (a)

As compensation for the services to be rendered by Employee for the Company
under this Agreement, the Company shall pay Employee during the Employment
Period an annual salary of $225,000.00 (“Base Pay”), which amount may be
adjusted upward by the Management of the Company, in its sole discretion, from
time to time. Such annual salary shall be earned and payable periodically in
equal installments in accordance with the Company’s normal payroll practices,
including applicable deductions and withholdings. Base Pay will be subject to
annual review pursuant to the Company’s normal review policy for other similarly
situated Employees of the Company and any changes in Base Pay will be
communicated in writing to Employee.

        (b)

With respect to stock options, the Company shall issue to Employee Stock Options
(“Stock Options”) exercisable into Three Hundred Thousand (300,000) shares of
Common Stock of the Company pursuant to the terms of the Sun River Energy, Inc.
2010 Stock Incentive Plan (the “Stock Plan”). The Stock Options shall be
cashless and shall be issued to Employee on the Effective Date and shall vest
1/36 each month thereafter (each a “Vesting Date”) so long as Employee is
employed by the Company. The exercise price of the Stock Options shall equal the
average fair market value of a share of the Company’s common stock on January
12, 2011, the date that Employee began serving as General Counsel to the
Company. Further, all 300,000 shares of Common Stock under the Stock Plan shall
vest in either of the following events: (i) Employee’s employment with the
Company is terminated by the Company for any reason other than Cause; or (ii) a
Change in Control (as that term is defined in the Stock Plan) occurs during the
Term. Finally, the Company shall cause common stock obtained through the Stock
Options to be registered pursuant to the terms of the Stock Plan on Form S-8.

        (c)

At the sole discretion of the Management of the Company, the Employee may earn
additional stock options and cash bonuses. These additional benefits will be
subject to all applicable deductions and withholdings at the discretion of the
Management of the Company.

        (d)

Further, in consideration for the compensation in paragraphs (a) and (b)
commencing on the Effective Date, the Company shall not be obligated to pay for
any legal fees invoiced by the Law Offices of James E. Pennington for the months
of January or February, 2011; however, the Company shall be required to pay for
any expenses invoiced during the aforementioned period.

Section 4. Expenses.

The Company will advance, pay or reimburse Employee, in accordance with the
regular policies of the Company, for all pre-approved reasonable and necessary
business expenses incurred by Employee in furtherance of or in connection with
performing his obligations under this Agreement during the Term and consistent
with the Company’s annual budget. Such expenses shall be reimbursed to the
extent they are incurred and accounted for in accordance with the policies and
practices of the Company as in effect from time to time.

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Section 5. Vacation and Other Benefits.

  (a)

During the Employment Period, Employee shall be entitled to three (3) weeks of
paid vacation during each twelve-month period commencing on the calendar year
beginning January 1, 2011. These three (3) weeks shall vest equally over a 12
month period. Employee shall also be entitled to all paid holidays given by the
Company to its employees. Employee agrees to utilize his vacation at such time
or times as are:

          i)

(i) consistent with the proper performance of his duties and responsibilities
under this Agreement, and

          ii)

(ii) mutually convenient for the Company and Employee.

          (b)

During the Employment Period, Employee shall be entitled to participate in all
employee group health insurance plans, or other welfare benefit plans, programs,
and arrangements provided by the Company from time to time to its employees
generally, subject to and on a basis consistent with the terms, conditions, and
overall administration (including eligibility and vesting requirements) of such
plans, programs, and arrangements. Such plans may include health, dental,
retirement or other such programs which may be to the benefit of the Company’s
employees.

Section 6. This section was intentionally omitted.

Section 7. This section was intentionally omitted.

Section 8. Termination of Employment.

  (a)

Employee’s employment hereunder shall terminate automatically upon his death.

        (b)

If the Company determines in good faith that the Disability (as defined herein)
of Employee has occurred during the Employment Period, the Company may notify
Employee of the Company’s intention to terminate Employee’s employment hereunder
for Disability. In such event, Employee’s employment hereunder shall terminate
effective on the fifth day following the date such notice of termination is
given to Employee. For purposes of this Agreement, the “Disability” of Employee
shall be deemed to have occurred if Employee shall have been unable to perform
his essential duties hereunder for a period consisting of 90 continuous days
within any given period of 365 consecutive days, (excluding any leaves of
absence approved by the Board and the number of days of accrued vacation of
Employee) as a result of his physical or mental incapacity; provided that, if
Employee has a physical or mental impairment that substantially limits one or
more major life activities, as defined under the Americans with Disabilities
Act, the Company may extend the 90-day period to reasonably accommodate
Employee’s impairment.

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  (c)

The Company may terminate Employee’s employment hereunder at any time for Cause.
For purposes of this Agreement, “Cause” shall mean any of the following:

          (i)

the breach by Employee of his duties as an employee of the Company, which breach
is materially detrimental to the Company, monetarily or otherwise,

          (ii)

the failure of Employee to comply in any material respect with any written or
oral direction of the Board which reasonably relates to the performance of his
duties that he is physically able to perform and which would not require him to
perform an illegal act or breach any agreement to which the Company is a party,

          (iii)

the failure of Employee to substantially perform his duties as an employee after
demand for substantial performance is delivered by the Company to Employee that
specifically identifies the manner in which the Company believes that Employee
has not substantially performed his duties,

          (iv)

the commission by Employee of any criminal act that constitutes a felony or
involves fraud, dishonesty, or moral turpitude,

          (v)

Employee’s failure to render the services to the Company as contemplated under
this Agreement as a result of alcohol or drug use,

          (vi)

the taking by Employee of any action, knowing or with reckless disregard that it
is adverse in a material respect to the interests of the Company, or its assets,

          (vii)

the willful, material violation by Employee of any employer policies of the
Company or its Affiliates, and

          (viii)

the material breach by Employee of any of his material covenants and agreements
contained in this Agreement.

         

With respect to clauses (i), (ii), (iii), and (viii), Cause shall only exist if
Employee fails to cure such matter within ten (10) days after receiving written
notice from the Company.

          (d)

The Company may terminate Employee’s employment hereunder at any time without
Cause upon thirty (30) days notice to Employee.

          (e)

Employee may terminate his employment hereunder at any time for Good Reason or
without Good Reason upon thirty (30) days advance notice to the Company. For
purposes of this Agreement, “Good Reason” means:

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  (i)

the Company’s failure to timely pay any compensation due to Employee under this
Agreement, including failure to provide any stock or stock options due under
Section 3;

        (ii)

a reduction in Employee’s compensation without Employee’s written consent;

        (iii)

the Company’s failure to timely provide resources necessary for the Employee to
perform his duties under this agreement, other than (i) a purely monetary
failure with respect to an amount less than $5,000, (ii) a failure within
Executive’s control or (iii) an isolated, insubstantial or inadvertent failure
that is not taken in bad faith;

        (iv)

any action by the Company, except as required by law or applicable government
regulations, which is specific to the Executive that adversely affects
Executive’s ability to perform his duties, or participation in bonus or
incentive plans or the Other Benefits; or

        (v)

the occurrence of a “Change in Control” as that term is defined in the Company’s
2010 Stock Incentive Plan. Notwithstanding the foregoing, in the event any
compensation or benefit provided to the Employee as a result of a Change in
Control is subject to Section 409A of the Internal Revenue Code of 1986, as
amended (the “Code”), then, in lieu of the foregoing definition and to the
extent necessary to comply with the requirements of Section 409A of the Code,
the definition of “Change in Control” for purposes of such Award shall be the
definition provided by Section 409A of the Code.

Notwithstanding anything herein to the contrary, Good Reason shall exist only if
the Company fails to cure the matter described in clauses (i), (ii), (iii), and
(iv) of this Section 8(e) within 30 days after written notice from Employee.

  (f)

In the event of the termination of Employee’s employment hereunder (for any
reason other than the death of Employee), Employee agrees that if at such time
he is a manager or officer of the Company or any of its subsidiaries, he will
promptly deliver to the Company his written resignation from all such positions,
such resignation to be effective as of the date of termination.

Section 9. Obligations of Company Upon Termination of Employment.

  (a)

If Employee’s employment hereunder is terminated pursuant to Sections 8(a), 8(b)
or 8(c), or if Employee terminates his employment without Good Reason, the
Company shall pay to Employee, or his estate, trust or similar Person if
applicable, on the sixth (6th) day following the Termination Date or the next
regularly scheduled pay day of the Company following the Termination Date, (i)
any accrued but unpaid Base Salary provided for in Section 3 hereof for services
rendered through the Termination Date, (ii) any accrued but unpaid expenses
required to be reimbursed under Section 4, (iii) any vacation accrued to the
Termination Date, and (iv) any accrued vested Stock Options provided for in
Section 3 hereof through the Termination Date. Additionally, Employee may
exercise any such options within 90 days of Termination Date.

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  (b)

If Employee’s employment hereunder is terminated by the Company for any reason
(other than for death or Disability or pursuant to Section 8(c)) or by Employee
for Good Reason, the Company shall pay to Employee:

            (i)

on the sixth (6th) day following the Termination Date or the next regularly
scheduled pay day of the Company following the Termination Date, respectively,

            (A)

any accrued but unpaid Base Salary provided for in Section 3 hereof for services
rendered through the Termination Date,

            (B)

any accrued but unpaid expenses required to be reimbursed under Section 4, and

            (C)

any vacation accrued to the Termination Date, and

            (ii)

severance pay in an amount equal to Employee’s Base Salary pursuant to Section 3
for a period beginning on the Termination Date and ending one (1) year from the
Termination Date or if the Termination Date occurs in the third (3rd ) year of
this Agreement then Employee shall receive his pro- rata Base Salary until the
third (3rd ) anniversary of the date of this Agreement. Payments shall be
payable in equal monthly installments beginning on the last day of the first
month following the Termination Date; provided, however, that none of the
benefits payable under Section 9(b)(ii) will be payable unless, and the
obligation to pay any severance pursuant to Section 9(b)(ii) shall not accrue
until, the Employee has signed and delivered an executed general release, which
has become irrevocable, satisfactory to the Company in its reasonable
discretion, releasing the Company and its Affiliates and their respective
officers, directors, managers, members, partners and employees from any and all
claims or potential claims arising from or related to the Employee’s employment
or termination of employment, and

            (iii)

all 300,000 shares of common stock under the Stock Option.

Section 10. Withholding Taxes.

The Company shall withhold from any payments to be made to Employee hereunder
such amounts (including social security contributions and federal income taxes)
as shall be required by federal, state, and local withholding tax laws.

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Section 11. Attorneys’ Fees and Costs.

In the event there is any litigation between the parties hereto with respect to
this Agreement, the prevailing party in such litigation shall be entitled to
recover all attorneys’ fees and costs incurred by such party in connection with
such litigation.

Section 12. Notices.

All notices, requests, or consents provided for or permitted to be given under
this Agreement must be in writing and must be given either by depositing that
writing in the United States mail, addressed to the recipient, postage paid, and
registered or certified with return receipt requested or by delivering that
writing to the recipient in person, by courier, by electronic transmission, or
by facsimile transmission; and a notice, request, or consent given under this
Agreement is effective on receipt by the person to receive it.

Section 13. Governing Law.

It is understood and agreed that the construction and interpretation of this
Agreement shall at all times and in all respects be governed by the laws of the
State of Texas.

Section 14. Assistance in Litigation.

During the Employment Period and for a period of four (4) years thereafter,
Employee shall, upon reasonable notice, furnish such information and proper
assistance to the Company as may reasonably be required by the Company in
connection with any litigation in which the Company, or any of its subsidiaries
or Affiliates is, or may become, a party. The Company shall reimburse Employee
for

  (i)

all reasonable, documented out-of-pocket expenses incurred by Employee in
rendering such assistance subject to the Company’s reasonable policies regarding
the reimbursement of expenses and

        (ii)

reasonable compensation for Employee’s time in rendering such assistance if such
assistance occurs after the Employment Period.

Section 15. Severability.

The invalidity or unenforceability of any one provision or more of the
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect to the fullest extent permissible by law. Should any one or more of the
provisions of this Agreement be held to be excessive, unreasonable, or otherwise
unenforceable, then that provision shall be construed by limiting and reducing
it so as to be reasonable and enforceable to the fullest extent compatible with
applicable law.

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Section 16. Survival.

Neither the expiration nor the termination of the term of Employee’s employment
hereunder shall impair the rights or obligations of either party hereto which
shall have accrued hereunder prior to such expiration or termination. The
provisions of Sections 6, 7, 9, and 14 and the rights and obligations of the
parties thereunder, shall survive the expiration or termination of the term of
Employee’s employment hereunder.

Section 17. Entire Agreement.

This Agreement, including the schedules attached hereto, contains the entire
agreement and understanding by and between the Company and Employee with respect
to the employment of Employee, and no representations, promises, agreements, or
understandings, written or oral, not contained herein shall be of any force or
effect. No waiver of any provision of this Agreement shall be valid unless it is
in writing and signed by the party against whom the waiver is sought to be
enforced. No valid waiver of any provision of this Agreement at any time shall
be deemed a waiver of any other provision of this Agreement at such time or any
other time.

Section 18. Modification.

No amendment, alteration or modification to any of the provisions of this
Agreement shall be valid unless made in writing and signed by both parties.

Section 19. Binding Effect; Assignment; No Third Party Benefit.

This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, legal representatives, successors, and
assigns; provided, however, that the duties and responsibilities of Employee
hereunder may not be assumed by, or delegated to, any other person. Nothing in
this Agreement, express or implied, is intended to or shall confer upon any
person other than the parties hereto, and their respective heirs, legal
representatives, successors, and permitted assigns, any rights, benefits, or
remedies of any nature whatsoever under or by reason of this Agreement.

Section 20. Counterparts.

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

Section 21. Voluntary Agreement.

Each party to this Agreement has read and fully understands the terms and
provisions hereof, has had an opportunity to review this Agreement with legal
counsel, has executed this Agreement based upon such party’s own judgment and
advice of counsel (if any), and knowingly, voluntarily, and without duress,
agrees to all of the terms set forth in this Agreement. The parties have
participated jointly in the negotiation and drafting of this Agreement. If an
ambiguity or question of intent or interpretation arises, this Agreement will be
construed as if drafted jointly by the parties and no presumption or burden of
proof will arise favoring or disfavoring any party because of authorship of any
provision of this Agreement.

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Section 22. Directly or Indirectly.

Where any provision of this Agreement refers to action to be taken by any
person, or which such person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such person,
including actions taken by or on behalf of any Affiliate of such person.

SIGNATURE PAGE — PENNINGTON EMPLOYMENT AGREEMENT

 

IN WITNESS WHEREOF, executed this __ day of March, 2011.

COMPANY:
Sun River Energy, Inc.

 

By: /s/Donal R. Schmidt, Jr.     Donal R. Schmidt, Jr., President and CEO  

 

EMPLOYEE:
James E. Pennington

 

By: By:/s/James E. Pennington     James E. Pennington  

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