Unassociated Document


    


    AGREEMENT
TO TERMINATE DGWS OPTION

    


    This Agreement (this “Agreement”) is
made and entered into as of the 20th day of
December, 2008 (the “Effective Date”), by and between Eternal Energy Corp.
(“EERG”) and Heritage Natural Gas, Inc. (“HNG”).  EERG and HNG may be
referred to herein individually as “Party” or collectively as
“Parties.”

    


    IN CONSIDERATION OF the mutual
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which the Parties hereby
acknowledge, the Parties agree as follows:

    


    1.           Nature
and Purpose of Agreement.  EERG and HNG entered into an
agreement on the 1st day of December, 2007, under which EERG acquired the option
to merge with HNG and thereby acquire ownership of HNG’s down-hole gas/water
separation (“DGWS”) opportunity (the “Option Agreement”).  In
consideration of HNG’s grant of the option under the Option Agreement, EERG
agreed (i) to pay Westport Petroleum Company (“Westport”) One Hundred
Twenty-Five Thousand US Dollars (US$125,000.00) in exchange for all of
Westport’s right, title and interest in and to the rights Westport held in the
Atlas Joint Venture, (ii) to drill and equip a well in Section 9-20-10W4,
Alberta, Canada for purposes of natural gas production from the Bow Island
reservoir with water disposal in the neighboring 10-9 well, and (iii) during the
period ending on April 30th, 2009,
to make all payments and to perform all covenants necessary to maintain the
exclusivity under all of HNG’s DGWS contracts.  Under the terms of the
Option Agreement, EERG was required to pay HNG Two Hundred Fifty Thousand US
Dollars (US$250,000.00) on each of December 31, 2008 and December 31, 2009 in
order to maintain the option to merge with HNG until the merger was
completed.  Following the grant of the option under the Option
Agreement, EERG tendered payments (net of inventory acquired by EERG) totaling
Two Hundred Thirty-Five Thousand US Dollars (US$235,000) as required by the
Option Agreement.  However, following HNG’s grant of the option under
the Option Agreement, Zavanna, LLC, Zavanna Canada Corporation and various other
plaintiffs commenced litigation against EERG, which rendered EERG unable to
drill and equip a well in Section 9-20-10W4 and unable to make the payments and
to perform the covenants necessary to maintain the exclusivity under HNG’s DGWS
contracts.  Consequently, HNG has lost exclusive rights under its DGWS
contracts.  HNG desires to terminate the Option Agreement and release
all claims it may have against EERG for failing to perform its obligations under
the Option Agreement.  EERG is willing to terminate the Option
Agreement upon the terms and conditions set forth below.

    


    2.           Termination
of Option Agreement.  The Parties (i)
hereby terminate the Option Agreement and release and discharge each other from
any and all duties, rights, liabilities and obligations arising under the Option
Agreement, and (ii) release and forever discharge each other and each other's
stockholders, directors, officers, employees, agents, successors and assigns
from any and all claims, rights, demands and damages of any kind or nature
arising out of the execution, delivery, performance under and/or termination of
the Option Agreement.  Accordingly, EERG acknowledges and agrees that,
following its execution and delivery of this Agreement, HNG shall have the sole
and exclusive right to pursue exploitation of HNG’s DGWS
opportunities.

    


    3.           Other
Covenants and Agreements.

    


    A.           Capitalized
terms not otherwise defined in this Paragraph shall have the meanings given such
terms in that certain License Agreement entered into by and between Down Hole
Water Management, Inc. and Westport on April 1, 2005 (the “License
Agreement”).  If, within six months following the date of this
Agreement, a net five percent working interest “carried to the tanks” is granted
in the Exclusive Territory to Down Hole Water Management, Inc. pursuant to the
terms of the License Agreement, then thereafter HNG shall also require each
working interest owner(s) granting such a working interest to Down Hole Water
Management, Inc. in the Exclusive Territory pursuant to the terms of the License
Agreement to grant EERG a net one percent over-riding royalty interest in the
same well.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    B.           If,
within twelve months from the Effective Date, (i) HNG secures an investor
(whether equity or debt) to enable it to pursue its DGWS opportunity in the
Exclusive Territory, (ii) HNG engages in a business combination transaction with
another entity, or (iii) HNG sells its interest in its DGWS opportunity, HNG
then agrees to use good faith efforts to induce the other party to the
transaction to remit to EERG all or some portion of the amount EERG has invested
in the DGWS opportunity, net of inventory acquired by EERG.  The
Parties agree that, as of the Effective Date, this amount is Two Hundred
Thirty-Five Thousand US Dollars (US$235,000).  HNG also agrees to use
good faith efforts to induce the other party in the transaction to grant to EERG
a one percent over-riding royalty interest in each well in which the entity
and/or EERG employs a DGWS tool.

    


    C.           Contemporaneously
with its execution and delivery of this Agreement, EERG agrees to transfer to
HNG all of EERG’s right, title and interest in and to the rights EERG holds in
the Atlas Joint Venture.

    


    D.           EERG
agrees, for itself and for its subsidiaries and affiliates, that it will not,
for a period of three years from the Effective Date, for its or their own
account or as an agent or otherwise pursuant to any contractual agreement for
the account of any party other than HNG, create, organize, establish, engage in,
operate, purchase or otherwise acquire an interest in, capitalize, facilitate
the capitalization of, act as investment banker to, lend to, or in any manner
acquire, either directly or indirectly and however structured, any business
which uses or intends to use down-hole gas-water separation and disposal
technologies and know how related thereto to produce natural gas within the
Exclusive Territory.  Notwithstanding the foregoing, however, EERG
shall have the right to sell all items of the DGWS equipment which, as of the
Effective Date, it maintains in its inventory.  EERG acknowledges that
the covenants made in this Subparagraph are reasonable in scope, duration and
geographical area.  EERG further agree that the covenants made in this
Subparagraph shall be construed as agreements independent of any other provision
of this Agreement.  Hence, the covenants made in this Subparagraph
shall survive the termination or expiration of this
Agreement.  Moreover, the existence of any claim, right or cause of
action of any kind or nature of EERG asserted or which may be asserted against
HNG, whether or not predicated upon the terms of this Agreement, shall not
constitute a defense to the enforcement of the covenants set forth in this
Subparagraph.  In the event of the actual or threatened breach of the
provisions of this Subparagraph, HNG shall have the right to obtain injunctive
relief and/or specific performance and to seek any other available remedy
available to it.  EERG further agrees to waive any requirement that
HNG secure or post a bond in connection with such remedy.

    


    4.           Execution
of Additional Documents.  The Parties will at any time and from
time to time after the Effective Date, upon request of the other Party, execute,
acknowledge and deliver all such further acts, deeds, assignments, transfers,
conveyances, powers of attorney and assurances as may be required to carry out
the intent of this Agreement.

    


    
      	
               
      

            	
              5.

            	
              Miscellaneous.

            


    

    


    A.           Agreement
Binding.  This Agreement shall be binding upon the Parties,
their legal representatives, successors and assigns.  This Agreement
contains the entire understanding of the Parties with respect to the subject
matter of this Agreement and supersedes all previous verbal and written
agreements.  There are no other agreements, representations, or
warranties other than as set forth herein.  This Agreement may be
amended only by a written instrument executed by the Parties.  No
delay or failure by either Party to exercise any right under this Agreement, and
no partial or single exercise of that right, shall constitute a waiver of that
or any other right, unless otherwise expressly provided herein.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    B.           Law, Jurisdiction and
Venue.  This Agreement and all matters and issues collateral
thereto shall be construed according to the laws of the State of
Colorado.  The Parties agree that the District Court of the County of
Arapahoe, Colorado, shall have exclusive jurisdiction, and shall be the
exclusive venue for any and all controversies and claims arising out of or
relating to this Agreement or a breach thereof, except as otherwise unanimously
agreed upon by the Parties.  If any Party shall commence any action or
proceeding against another Party in order to enforce the provisions hereof, or
to recover damages as the result of the alleged breach of any of the provisions
hereof, the prevailing Party therein shall be entitled to recover all reasonable
costs incurred in connection therewith, including, but not limited to,
reasonable attorneys' fees.

    


    C.           Severability.  If
any provision of this Agreement becomes or is found to be illegal or
unenforceable for any reason, such clause or provision must first be modified to
the extent necessary to make this Agreement legal and enforceable and then if
necessary, second, severed from the remainder of the Agreement to allow the
remainder of the Agreement to remain in full force and effect.

    


    D.           Captions and
Gender.  All captions, titles, headings and divisions hereof
are for purposes of convenience and reference only, and shall not be construed
to limit or affect the interpretation of this Agreement.  As used
herein, the masculine gender shall include the feminine and neuter genders, and
the singular shall include the plural, and vice versa, where the context
requires.

    


    6.           Counterparts;
Electronic Signatures.  For the convenience of the Parties, any
number of counterparts of this Agreement may be executed by any one or more
Parties hereto, and each such executed counterpart shall be, and shall be deemed
to be, an original, but all of which shall constitute, and shall be deemed to
constitute, in the aggregate but one and the same instrument.  This
Agreement may be circulated for signature through electronic transmission,
including, without limitation, facsimile and email, and all signatures so
obtained and transmitted shall be deemed for all purposes under this Agreement
to be original signatures until such time, if ever, as original counterparts are
exchanged by the Parties.

    


    In Witness Whereof, the Parties hereto
have entered into this Agreement as of the Effective Date.

     

    
      
        	 	
                Eternal
      Energy Corp.

              	 
	 	 	 	 
	
              	
                By:
      

              	/s/ John
      Anderson  	 
	 	 	Name:
      John Anderson, authorized signatory	 


      



    
      	 	
              

                Heritage
      Natural Gas, Inc.

              

            	 
	 	 	 	 
	
            	
              By:
      

            	/s/ Bradley M.
      Colby  	 
	 	 	Name:
      Bradley M. Colby, President