Unassociated Document


    RYLAND
OIL CORPORATION

    302
– 1620 West 8th Avenue

    Vancouver,
B.C. Canada  V6J 1V4

     

    November
24,  2009

    


    Eternal
Energy Corp.

    2549 West
Main Street, Suite 202

    Littleton,
Colorado 80120

    


    Attention:  Bradley
M. Colby, President and Chief Executive Officer

    


    Dear
Sirs,

    


    
      
        	
                Re:

              	
                Acquisition
      of Eternal Energy Corp. ("Eternal") by Ryland Oil Corporation.
      ("Ryland")

              


      

    

    


    We write
further to our recent discussions regarding a transaction (the "Proposed Transaction") whereby Ryland
desires to acquire all of the issued and outstanding shares of common stock of
Eternal (the "Eternal
Shares"), making Eternal a wholly-owned subsidiary of Ryland, in exchange
for shares of common stock of Ryland (the "Ryland Shares").

    


    In
consideration of the respective covenants contained herein and intending to be
legally bound, the parties hereto agree as follows.

    


    Background

    


    The
purpose of this letter agreement is set out the material terms and conditions of
the Proposed Transaction.  Upon the execution of this letter
agreement, the parties will instruct their respective legal counsel to prepare a
more definitive agreement (the "Definitive Agreement") for
approval by the shareholders of each of the parties, which upon execution will
replace and supersede this letter agreement.  The parties acknowledge
that the Definitive Agreement will contain the representations, warranties,
covenants and conditions set out herein and additional terms that are normally
included in transactions similar to those contemplated hereby.  Unless
and until such execution, this letter agreement will exist and continue in full
force and effect, unless otherwise terminated on the terms set out
herein.

    


    Transaction

    


    Subject
to the terms and conditions hereof, Ryland will purchase all of the issued and
outstanding Eternal Shares from the stockholders of Eternal (the "Eternal Stockholders") in
exchange for Ryland Shares (the "Consideration Shares") to be
issued to the Eternal Stockholders at the closing of the Proposed
Transaction.  Each Eternal Stockholder will receive on the Closing
Date (as defined below) 0.352 of one Consideration Share for each one Eternal
Share (an “Exchange
Transaction”).  This share
exchange ratio is based on Eternal having 50,550,000 shares of common stock
issued and outstanding on a fully diluted basis and would result in the Eternal
Stockholders being issued a total of approximately 17,776,000 Consideration
Shares. Upon the execution and delivery of this letter agreement, each of Ryland
and Eternal will issue a press release setting out the material terms of the
Proposed Transaction as contemplated by this letter agreement.  The
press releases will, among other things, set out the number of issued and
outstanding common shares of each of Ryland and Eternal (on both an issued and
outstanding and a fully diluted basis).  Ryland and Eternal will also
make such regulatory filings as each determines to be
appropriate.  Ryland and Eternal will provide each other with an
opportunity to review and comment on the other’s press releases regarding the
Proposed Transaction issued by either party prior to the closing of the Proposed
Transaction.

    


    The
Proposed Transaction will be in the form of an “arrangement” as that term is
defined under the Ontario
Business Corporations Act.  The parties agree
to use their best efforts to structure the Proposed Transaction so as to
minimize the tax, corporate and accounting effects of the Proposed Transaction
on the parties and their respective equity holders.  The Proposed
Transaction will be structured such that the U.S. and Canadian Eternal
Stockholders will not be subject to payment of tax as a result of exchanging
their Eternal Shares for the Consideration Shares, but rather that the Exchange
Transaction will be completed on a tax-free basis.  The parties
currently contemplate that a court of suitable authority located in the Province
of British Columbia or Ontario will provide the requisite approval of the
Proposed Transaction upon a fairness hearing after receipt of shareholder
approval of both companies, which order will allow the Consideration Shares to
be issued to the Eternal Stockholders as freely tradable under the laws of the
United States and Canada.

    


    
      
         

      

      
         

        
          

        

      

      
         

      

       

      - 2 -

       

    

    The
parties agree to use their reasonable best efforts to enter into the Definitive
Agreement on or before January 15, 2010 and to apply for and
obtain all necessary acceptances, consents, approvals and orders, including
without limitation, shareholder approvals, acceptance by the TSX Venture
Exchange (the "TSX-V")
and the United States Securities and Exchange Commission (the "SEC”), and orders of the
British Columbia Supreme Court or Ontario Supreme Court , as counsel may advise
are necessary or desirable for the implementation of the Transaction on or
before June 30, 2010 (the “Closing Date”).

    


    As
referenced above, the Consideration Shares issuable by Ryland to Eternal
Stockholders hereunder will be issued pursuant to an exemption from the
registration and prospectus delivery requirements of the applicable United
States securities laws and state regulations, including without limitation, the
Securities Act of 1933
(United States) provided by Section 3(a)(10) thereof and pursuant to exemptions
under the Securities
Act (British Columbia) (collectively, the "Securities Laws"), and that
completion of the Proposed Transaction will be conditional upon the
Consideration Shares being issued as freely tradable shares for all Eternal
Stockholders, regardless of their respective status or state of domicile, under
both U.S. and Canadian securities laws.

    


    Warranties
and Representations

    


    Each of
Ryland and Eternal represents and warrants to the other party as follows: (i) it
is duly incorporated and organized under the laws of its jurisdiction of
incorporation, has the power to enter into this letter agreement (subject to the
approval of the Eternal Stockholders) and agrees to provide customary
representations and warranties in the Definitive Agreement, including without
limitation, warranties and representations with regards to corporate status and
authority to enter into the Definitive Agreement and to complete the Proposed
Transaction; (ii) the execution and delivery of this letter agreement has been
duly authorized by all necessary corporate action and constitutes a legal and
binding obligation of such party; (iii) the authorized share capital and issued
and outstanding share capital of the party is as disclosed in the party's public
record, as filed on SEDAR or EDGAR as the case may be; (iv) except as disclosed
in its public record, the party has no outstanding options or rights and is not
bound by any agreement that would obligate the party to issue equity securities;
(v) the party has not entered into and is not bound by any agreement to sell or
encumber any of its assets other than in the ordinary course of business; (vi)
the execution and delivery of this letter agreement and the Definitive Agreement
and the completion of the Proposed Transaction will not conflict with any of the
charter documents or articles of the party.  Ryland represents and
warrants to Eternal that it is not now negotiating to (i) sell all or
substantially all of its assets, (ii) enter into any merger, amalgamation, or
arrangement with any third party (other than Eternal in respect of the Proposed
Transaction), or (iii) dissolve.

    


    Conditions
of Closing

    


    Ryland’s
Conditions.  Ryland’s
obligation to complete the Proposed Transaction is subject to the following
conditions precedent which may be waived in whole or part by Ryland in its
discretion by notice in writing to Eternal:

    


    
      	
              1.

            	
              Ryland
      receiving, from its counsel and advisors, U.S. and Canadian tax opinions
      that the Eternal Stockholders are able to exchange their Eternal Shares
      for the Consideration Shares on a tax-free
  basis;

            


    

     

    
      	
              2.

            	
              Ryland
      and Eternal obtaining all necessary orders, consents and approvals from
      any relevant court, government authority, securities regulatory body,
      including without limitation, acceptances by the TSX-V and the
      SEC;

            


    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    - 3 -

     

    
      	
              3.

            	
              The
      Transaction having received the requisite statutory approvals of the
      shareholders of each of Ryland and
Eternal;

            


    

     

    
      	
              4.

            	
              Eternal
      having on closing not more than 50,550,000 shares of common stock issued
      and outstanding on a fully diluted basis (with all Eternal stock options
      having been exercised or cancelled prior to completion of the Proposed
      Transaction);

            


    

     

    
      	
              5.

            	
              From
      the date of execution of this letter agreement until completion of the
      Proposed Transaction, Eternal shall carry on its business in the ordinary
      course and maintain payables and other liabilities at levels consistent
      with normal industry practices and procedures of payment of obligations on
      a “net 30 day” basis, unless otherwise agreed by the relevant creditor,
      and shall not dispose of or encumber any of its assets without the prior
      written consent of Ryland, which shall not be unreasonably withheld,
      delayed, or denied;

            


    

     

    
      	
              6.

            	
              Not
      later than January 31, 2010, Ryland shall have received a fairness opinion
      from a qualified investment banking firm, of Ryland’s choosing, to the
      effect that the Transaction is fair to the Ryland shareholders from a
      financial viewpoint and shall have received a copy of an equivalent
      fairness opinion received by
Eternal;

            


    

     

    
      	
              7.

            	
              Eternal
      having on closing (i) cash on hand in an amount of not less than the
      aggregate of US$2.4 million, plus the amount of any royalties paid to
      Eternal from the date hereof until the date of completion of the Proposed
      Transaction, less (a) general and administrative expenses not to exceed
      $60,000 per month from the date hereof until the date of completion of the
      Proposed Transaction and (b) fees, costs, and expenses directly and
      indirectly related to the Proposed Transaction and (ii) liabilities of not
      more than US$0.8 million (including amounts payable to buy out management
      and employment agreements and Eternal’s premises lease
      obligations);

            


    

     

    
      	
              8.

            	
              Eternal
      shall have executed a mutually acceptable Definitive Agreement, the terms
      and conditions of which Eternal shall have negotiated reasonably,
      diligently, and in good faith and which shall provide for a Closing Date
      as soon as is reasonably practicable;
and

            


    

     

    
      	
              9.

            	
              The
      holders of not more than 20% of the issued and outstanding shares of
      common stock of Eternal shall have duly exercised their Dissenter’s rights
      with respect to the Proposed Transaction pursuant to the Nevada Revised
      Statutes.

            


    

     

    Eternal’s
Conditions.  Eternal’s
obligation to complete the proposed Transaction is subject to the satisfaction
of each of the following conditions precedent,  which may be waived in
whole or part by Eternal in its discretion by notice in writing to
Ryland:

    


    
      	
              1.

            	
              Eternal
      receiving, from its counsel and advisors, a U.S. tax opinion that the
      Eternal Stockholders are able to exchange their Eternal Shares for the
      Consideration Shares on a tax-free
basis;

            


    

     

    
      	
              2.

            	
              Ryland
      and Eternal obtaining all necessary orders, consents and approvals from
      any relevant court, government authority, securities regulatory body,
      including without limitation, acceptances by the TSX-V and the
      SEC;

            


    

     

    
      	
              3.

            	
              The
      Transaction having received the requisite statutory approvals of the
      shareholders of each of Ryland and
Eternal;

            


    

     

    
      	
              4.

            	
              Ryland
      having on closing not more than 300,000,000 shares of common stock issued
      and outstanding on a fully diluted
basis;

            


    

     

    
      	
              5.

            	
              From
      the date of execution of this letter agreement until completion of the
      Proposed Transaction, Ryland shall carry on its business in the ordinary
      course and maintain payables and other liabilities at levels consistent
      with normal industry practices and procedures of payment of obligations on
      a “net 30 day” basis, unless otherwise agreed by the relevant
      creditor;

            


    

     

    
      	
              6.

            	
              Not
      later than January 31, 2020, Eternal shall have received a fairness
      opinion from a qualified investment banking firm, of Eternal’s choosing,
      to the effect that the Proposed Transaction is fair to the Eternal
      Stockholders from a financial viewpoint and shall have received a copy of
      an equivalent fairness opinion received by
  Ryland;

            


    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
       

      - 4 -

       

    

    
      	
              7.

            	
              Ryland
      shall have completed one or more financings and/or sales of assets and
      used the proceeds thereof together with cash currently on hand to pay out
      its outstanding debt obligations to all creditors (which currently stand
      at approximately CDN$8.5 million) and discharged all liens registered
      against its properties by such creditors, and, on completion of the
      Proposed Transaction, (i) Ryland shall be not be in material default of
      any debt obligations, (ii) Ryland’s shareholders’ equity shall be not less
      than CDN$20 million , and (iii) Ryland’s working capital deficiency shall
      be not more than CDN$10,000,000

            


    

     

    
      	
              8.

            	
              Ryland
      shall apply for a listing in the relevant Standard and Poors’ or Mergent
      Manuals in respect of the standard “Manuals Exemption” for unsolicited
      secondary trades of the Ryland Shares and shall remain so listed for the
      five-year period following the completion of the Proposed Transaction,
      provided that the cost of such listing does not exceed US$5,000 per year;
      and

            


    

     

    
      	
              9.

            	
              Ryland
      shall have executed a mutually acceptable Definitive Agreement, the terms
      and conditions of which Ryland shall have negotiated reasonably,
      diligently, and in good faith and which shall provide for a Closing Date
      as soon as is reasonably
practicable.

            


    

     

    Board
Representation

     

    On
completion of the Proposed Transaction, one nominee of Eternal shall be
appointed to the board of directors of Ryland until the next annual general
meeting of shareholders of Ryland.

     

    Lock-up
Agreements

    


    Concurrently
with the execution of this letter agreement, the directors and senior officers
of each of Ryland and Eternal will enter into support and lock-up agreements
substantially in the form delivered herewith.

    


    Standstill

    


    Until the
closing of the Proposed Transaction, or until this letter agreement is
terminated in accordance with the provisions hereof and subject to standard
fiduciary outs, Eternal will not:  (i) enter into any contract in
respect of its business or assets, other than in the ordinary course of business
or as otherwise contemplated by this letter agreement without the prior written
consent of Ryland, which shall not be unreasonably withheld, delayed, or denied;
(ii) engage or commit to engage in any extraordinary material transactions,
(iii) make or commit to make distributions, dividends or special bonuses; (iv)
repay or commit to repay any stockholders’ loans, or enter into or renegotiate
or commit to enter into or renegotiate any employment, management or consulting
agreement with any senior officer; or (v) issue any securities (debt, equity,
convertible securities, options, warrants or rights to acquire securities or
otherwise) other than pursuant to the exercise of stock options granted prior to
the date hereof.  In addition, on or before the completion of the
Proposed Transaction, Eternal will redeem, cause to be exercised or otherwise
terminate all outstanding options, warrants and rights entitling the holders
thereof to acquire equity securities of Eternal unless such options or other
rights are exercised in accordance with their terms prior to completion of the
Proposed Transaction.

    


    Furthermore,
Eternal agrees that it will not, and will not permit any of its respective
subsidiaries or affiliates, and, subject to standard fiduciary-out provisions,
will cause its officers, directors, employees, agents and representatives not
to, at any time during the term of this letter agreement, directly or
indirectly:

    


    
      	
               
      

            	
              (a)

            	
              solicit,
      initiate or encourage submission of proposals or offers from any person,
      other than Ryland, relating to any acquisition or purchase of all or a
      significant portion of Eternal, its assets, or any equity interest in
      Eternal, any of its subsidiaries or affiliates controlled by it or any
      business combination involving Eternal or any of its subsidiaries or
      affiliates controlled by it; and

            


    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
       

      - 5 -

       

    

    
      	
               
      

            	
              (b)

            	
              further
      participate in any negotiations regarding, or furnish to any other person
      any additional non-public information with respect to, or otherwise
      further cooperate in any way with, or assist or participate in, facilitate
      or encourage, any effort or attempt by any other person other than Ryland
      to do or seek any of the foregoing.

            


    

    


    Furthermore,
Eternal acknowledges and agrees that the ability of Ryland to successfully
complete the Proposed Transaction will be dependent on Ryland's success in
entering into lock-up agreements with the officers and directors of Eternal, and
to this regard, agrees to assist Ryland in its efforts to enter into such
lock-up agreements.

    


    Public
Disclosure

    


    No
disclosure or announcement, public or otherwise, in respect of this letter
agreement or the transactions contemplated herein will be made by any party
without the prior written agreement of the other party as to the content and
method; provided, that the obligations herein will not prevent either party from
making, after consultation with the other party, such disclosure as its counsel
advises is required by the applicable securities laws and regulations or,
in  the case of Ryland, the rules and policies of the
TSX-V.

    


    Unless
and until the transactions contemplated in this letter agreement will have been
completed, except with the prior written consent of the other party, each of the
parties and its respective employees, officers, directors, shareholders, agents,
advisors and other representatives will hold all information received from the
other party in strict confidence, except for such information and documents as
are already available to the public or as are required to be filed or disclosed
by the applicable Securities Laws.

    


    In the
event that the transactions provided for in this letter agreement are not
completed, all such information and documents in any form or medium whatsoever,
including copies and derivative materials made will be returned to the party
originally delivering them, or at the direction of such party,
destroyed.

    


    Termination

    


    This
letter agreement may be terminated by mutual written agreement of the
parties.  Unless otherwise agreed to in writing by the parties, this
letter agreement shall terminate without further notice or agreement in the
event that:

    


    
      	
              1.

            	
              the
      Transaction is not accepted by either the TSX-V or the SEC or any relevant
      state agency;

            


    

     

    
      	
              2.

            	
              the
      Transaction is not approved by the requisite majority of votes cast by the
      holders of voting stock  of either party at a duly constituted
      meeting of shareholders called for that purpose, as prescribed under the
      applicable corporate statute governing such
  party;

            


    

     

    
      	
              3.

            	
              any
      conditions precedent set out herein are not satisfied, released or waived
      on or before the Closing Date or such earlier date indicted thereby;
      or

            


    

     

    
      	
              4.

            	
              the
      closing of the Proposed Transaction has not occurred on or before June 30,
      2010, or such later date as may be agreed in writing by the
      parties.

            


    

     

    General

    


    Each of
the parties hereby covenants and agrees that at any time upon the request of the
other party, do, execute, acknowledge and deliver or cause to be done, executed,
acknowledged and delivered all such further acts, deeds, assignments, transfers,
conveyances, powers of attorney and assurances as may be reasonably required for
the better carrying out and performance of all the terms of this letter
agreement.  Each party will pay its own costs incurred in respect of
the Proposed Transaction, including without limitation, legal feel, audit costs
and court application costs.  This letter agreement will be governed
by and be construed in accordance with the laws of British
Columbia.  This letter agreement will be binding upon and enure to the
benefit of the parties hereto and their respective heirs and executors and
successors and assigns as the case may be.  This letter agreement| may
not be assigned without the prior written consent of the other
party.  This letter agreement constitutes the entire agreement between
the parties and supersedes all prior letters of intent, agreements,
representations, warranties, statements, promises, information, arrangements and
understandings, whether oral or written, express or implied.  The
recitals and any schedules form a part of and are incorporated by reference into
this letter agreement.  No modification or amendment to this letter
agreement may be made unless agreed to by the parties thereto in
writing.  In the event any provision of this letter agreement will be
deemed invalid or void, in whole or in part, by any court of competent
jurisdiction, the remaining terms and provisions will remain in full force and
effect.  Time is of the essence.  This letter agreement may
be executed in any number of counterparts with the same effect as if all parties
to this letter agreement had signed the same document and all counterparts will
be construed together and will constitute one and the same instrument and any
facsimile signature shall be taken as an original.

    


    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
       

      - 6 -

       

    

    If you
agree to the above terms, kindly sign and date this letter (where indicated
below) signifying your approval and acceptance and return the fully executed
letter to the writer at your earliest convenience.  Upon acceptance,
this offer becomes a binding agreement subject to its terms.

    


    Yours
truly,

     

    
      
        	RYLAND
      OIL CORPORATION	 	 	 	 
	 	 	 	 	 	 
	Per:	
                /s/
      Gerald J. Shields

              	 	 	
                 

              	 
	 	
                Gerald
      J.  Shields

              	 	 	
                 

              	 
	 	
                President

              	 	 	
                 

              	 


      

    

     

    The
above terms and conditions are hereby accepted this 25th day of
November, 2009.

    


    
      	ETERNAL
      ENERGY CORP.	 	 	 	 
	 	 	 	 	 	 
	Per:	
              /s/
      Bradley M. Colby

            	 	 	
               

            	 
	 	
              Bradley
      M. Colby

            	 	 	
               

            	 
	 	
              Chief
      Executive Officer