THIS OPTION HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933. DIRECTOR WILL NOT TRANSFER THIS OPTION OR THE UNDERLYING COMMON SHARES UNLESS (i) THERE IS AN EFFECTIVE
REGISTRATION COVERING SUCH OPTION OR SUCH SHARES, AS THE CASE MAY BE, UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE STATES SECURITIES
LAWS, (ii) ETERNAL ENERGY CORP. FIRST RECEIVES A LETTER FROM AN ATTORNEY, ACCEPTABLE TO IT, STATING THAT IN THE OPINION OF THE
ATTORNEY THE PROPOSED TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND UNDER ALL APPLICABLE STATE SECURITIES
LAWS, OR (iii) THE TRANSFER IS MADE PURSUANT TO RULE 144 UNDER THE SECURITIES ACT OF 1933.


 


NON-QUALIFIED STOCK OPTION AGREEMENT


 


THIS STOCK OPTION AGREEMENT
(“Agreement”) is made and entered into effective as of the 30th day of October, 2009, (the “Effective
Date”) by and between Eternal Energy Corp., a Nevada corporation, (“EERG”) and Paul E. Rumler (“Director”).


 


1.Recitals. Director
and EERG entered into that certain Stock Option Exchange Agreement dated the 14th day of October, 2009 under which the
Director agreed to cancel and terminate all Prior Stock Option Agreements, defined below, and all options granted thereunder in
exchange for the issuance of a designated number of shares of its restricted common stock (the “Restricted Shares”).
For compelling business reasons, EERG’s authority to issue the Restricted Shares was withdrawn and the Restricted Shares
were not issued. Instead, EERG has authorized the grant of stock options to Director pursuant to the terms and conditions set forth
in this Agreement. Therefore, in consideration of these Recitals, the covenants and agreements of the parties set forth herein
and other good and valuable consideration, the receipt and sufficiency of which the parties hereby acknowledge, the parties hereto
agree to the following covenants and agreements.


 


2.Reimbursement of Tax Costs.
Prior to the withdrawal of the authority to issue the Restricted Shares and in reliance on the cancellation and termination of
the Prior Stock Options, Director filed a Section 83(b) election with the Internal Revenue Service with respect to the issuance
of the Restricted Shares. Following the withdrawal of the authority to issue the Restricted Shares, Director filed a Revocation
of Section 83(b) Election with the Internal Revenue Service. EERG hereby agrees that if the Revocation of Section 83(b) Election
is ineffective to avoid state and federal income tax on the fair market value of the Restricted Shares which were to have been
issued to Director, EERG will pay Director, on demand, an amount equal to the state and federal income tax incurred by Director
with respect to the fair market value of the Restricted Shares. The amount due Director hereunder shall be the difference, determined
by Director’s certified public accountant, between (i) the amount of state and federal income tax which Director owes for
calendar year 2009 based upon inclusion of the fair market value of the Restricted Shares to be issued to Director in his gross
income, less (ii) the amount of state and federal income tax which Director would have owed for calendar year 2009 had he not been
compelled to include in gross income the fair market value of the Restricted Shares to be issued to him.


 


3.Shares Subject to Option.
As of the Effective Date, EERG hereby grants to Director the option (“Option”) to purchase Six Hundred Ninety Two Thousand
Five Hundred (692,500) shares of EERG’s common stock (the “Optioned Shares”), at the price set forth in the Paragraph
of this Agreement entitled “Exercise Price” (the “Exercise Price”), subject to the terms and conditions
and within the period of time set forth in this Agreement. This Option is intended to be a nonstatutory, non-qualified stock option
which does not qualify as an “incentive stock option” under Section 422 of the Internal Revenue Code of 1986,
as amended (the “Code”).


 



    	 



    	 



    

4.Term.
This Agreement and the Option granted hereunder shall expire at 5:00 p.m. Mountain Time on the fifth anniversary of the Effective
Date. If all or any portion of this Option is unexercised upon the expiration of this Agreement, then to that extent this Option
shall be deemed to have been forfeited and of no further force or effect.


 


5.Vesting. Upon the execution
and delivery of this Agreement by the parties, the Option granted hereunder shall be fully and immediately exercisable and shall
be fully vested. Therefore, upon the parties’ execution and delivery of this Agreement and until the expiration of this Agreement,
the Optioned Shares shall be exercisable by Director in whole or in part at any time and from time to time.


 


6.Exercise Price. Subject
to adjustment in the manner provided below, the purchase price for each share of stock purchased upon the exercise of the Option
(the “Exercise Price”) shall be five US Cents ($0.05 USD) per share.


 


7.Method of Exercise. This Option
shall be deemed to be exercised when written notice identifying the number of Optioned Shares as to which this Option is then being
exercised is given to EERG in accordance with the terms of this Option and full payment for the Optioned Shares with respect to
which the Option is exercised has been received by EERG. Upon the exercise of this Option in whole or in part and payment of the
Exercise Price in the manner provided by this Agreement, EERG shall, as soon thereafter as practicable, deliver to Director a certificate
or certificates for the shares purchased. The Exercise Price for the Optioned Shares to be purchased upon the exercise of the Option
may be paid (i) in cash or cash equivalents, (ii) by delivery (by either actual delivery or attestation) of EERG shares of its
common stock already owned by Director, having a Fair Market Value, defined below, on the date of exercise less than (with the
balance paid in cash or cash equivalents) or equal to the aggregate Exercise Price for the purchased shares, (iii) to the extent
permitted by law, by a “cashless exercise” procedure approved by EERG in the exercise of its reasonable discretion,
or (iv) by a combination of the foregoing methods. The term “Fair Market Value” for shares of EERG’s common stock
on any particular date shall mean the last reported sale price of the common stock on the principal market on which the common
stock trades on such date or, if no trades of common stock are made or reported on such date, then on the next preceding date on
which the common stock traded. If EERG’s common stock ceases to be traded on any market, Director and the Board of Directors
of EERG shall mutually agree upon an alternative method of determining the Fair Market Value for shares of EERG’s common
stock.


 


8.Withholding. EERG may,
in its discretion, require that Director pay to it at or after the time of the exercise of any portion of this Option any such
additional amount as EERG deems necessary, in the exercise of its reasonable discretion, to satisfy its liability to withhold federal,
state or local income tax or any other tax incurred by reason of the exercise of this Option. Director may satisfy this requirement
by (i) tendering to EERG shares of EERG common stock already owned by Director, which, in the case of shares of common stock purchased
by Director pursuant to the exercise of an option granted by EERG, have been held by Director for at least six months following
the date of such purchase or (ii) by electing to have EERG withhold from delivery Optioned Shares, provided that, in either case,
such shares have a Fair Market Value equal to the minimum amount of tax required to be withheld. Such shares shall be valued on
the date as of which the amount of tax to be withheld is determined. Fractional share amounts shall be settled in cash. Such election
may be made with respect to all or any portion of the Optioned Shares to be delivered pursuant to this Option.


 


9.Adjustment of Optioned
Shares. In the event that there is any stock dividend, stock split, reverse stock split, combination, reclassification reorganization,
recapitalization, merger, consolidation, split up, spin-off, combination, repurchase or exchange of common stock or other securities
of EERG, issuance of warrants or other rights to purchase common stock or other securities of EERG or other similar corporate transaction
or events which affect the common stock of EERG such that an adjustment is necessary to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available pursuant to this Option, then the number of unexercised Optioned Shares
subject to this Option and the exercise price per share of such Optioned Shares shall be proportionately adjusted.


 



    	 



    	 



    

10.Option
Non-Transferable. This Option shall not be transferable other than by will or the laws of descent and distribution, and this
Option shall be exercisable during Director’s lifetime only by Director or Director’s guardian or legal representative.
Any purported assignment of this Option, or of any right or privilege conferred hereunder, contrary to the provisions hereof shall
be null and void.


 


11.Laws and Regulations.
No shares of common stock shall be issued under this Option unless and until all legal requirements applicable to the issuance
of such shares have been complied with to the satisfaction of EERG in the exercise of its reasonable discretion.


 


12.Registration. As soon as
practicable, but in no event later than the date six months following the Effective Date, EERG shall, at its expense, cause the
shares of common stock subject to this Option to be registered under the Securities Act of 1933, as amended, (the “Securities
Act”), and registered or qualified under applicable state law, to be freely resold. EERG shall thereafter use its best efforts
to maintain the effectiveness of such registration and qualification for so long as Director holds this Option (or any portion
thereof) or any of the Optioned Shares, or until such earlier date as the Optioned Shares may otherwise be freely sold under applicable
law.


 


13.Rights in Stock Before
Issuance and Delivery. Director shall not be entitled to the privileges of stock ownership in respect of any shares issuable
upon exercise of this Option, unless and until such shares have been issued to Director by EERG. Except as provided in this Agreement,
no adjustment shall be made in the number of shares of common stock issued to Director or in any other rights of Director upon
exercise of this Option by reason of any dividend (other than a stock dividend), distribution or other right granted to the EERG’s
shareholders for which the record date is prior to the date of exercise of this Option.


 


14.Tax Consequences.


 


14.1Section
409A. This Option is intended to meet the requirements of Internal Revenue Code Section 409A and the Treasury Regulations
promulgated thereunder. If the Option contained in this Agreement is determined to be taxable to Director and/or to EERG, then
EERG, after consultation with Director, shall have the authority to adopt, prospectively or retroactively, such amendments to
this Agreement which EERG determines in its reasonable discretion to be appropriate to: (i) exempt the Option payable under this
Agreement from Section 409A; (ii) make this Agreement comply with the requirements of Section 409A; or (iii) more generally avoid
the adverse tax consequences of Section 409A as it applies to this Agreement.


 


14.2Other
Tax Consequences. Except as otherwise provided in this Agreement, Director acknowledges that EERG has made no representations
or warranties to Director with respect to the tax consequences related to the transactions contemplated in this Agreement, and
Director is in no manner relying on EERG or its representatives for an assessment of such tax consequences. Director acknowledges
that (i) there may be adverse tax consequences upon acquisition or disposition of this Option or the Shares subject to this Option,
(ii) that EERG has no responsibility to Director to insure any particular tax result, and (iii) that Director should consult his
or her own tax advisor prior to acquisition, exercise or disposition of this Option and the underlying Shares with regard the
particular tax treatment of this Option as it relates to Director.


 



    	 



    	 



    

15.Rescission
and Cancellation of Stock Options. As of the Effective Date, EERG and Director agree that (i) all stock option agreements executed
prior to the Effective Date by the parties (the “Prior Stock Option Agreements”) and (ii) all stock options granted
thereunder shall be rescinded and cancelled and the Prior Stock Option Agreements and all stock options granted thereunder shall
be of no further force or effect. Accordingly, from and after the Effective Date, Director shall not have any right or option to
purchase any shares of EERG’s stock pursuant to any Prior Stock Option Agreement. In addition, EERG and Director agree that,
as of the Effective Date, EERG has no obligation to issue, and Director has no right to receive, the Restricted Shares which were
to have been issued to Director.


 


16.Releases.
Each party, on behalf of itself/himself, his/its successors, assigns, heirs, executors and personal
representatives hereby fully releases, discharges, and acquits the other party and its affiliates, officers, directors, employees,
agents, assigns, heirs, executors, personal representatives (each, a “Releasee”), from any claims, causes of action,
or liabilities which such party now has, may have, may have had, or claims to have had against any Releasee, whether directly or
indirectly, whether accrued in the past, present, or future, whether known or unknown, whether for damages or equitable relief
of any sort including, without limitation, economic damages, lost profits, exemplary damages, treble damages, consequential damages,
attorneys’ fees, and costs, and which have arisen or which may arise out of (i) the grant of Restricted Shares to Director,
the withdrawal of EERG’s authority to issue the Restricted Shares and the failure to issue the Restricted Shares; and (ii)
the execution, delivery, rescission, cancellation and termination of the Prior Stock Option Agreements and the stock options granted
thereunder. The foregoing release does not affect the ability of either party to commence any action or proceeding to assert any
rights or claims against any Releasee for a breach of this Agreement. 


 


17.Miscellaneous.


 


17.1Agreement Binding.
This Agreement shall be binding upon the parties, their legal representatives, and permitted successors and assigns.


 


17.2Entire Agreement.
This Agreement supersedes any statements, representations or agreements of EERG with respect to the grant of the Option made herein
and any related rights set forth herein and affecting the grant of this Option and Director hereby waives any rights or claims
related to any such statements, representations or agreements. Except to the extent specifically set forth herein, this Agreement
does not supersede or amend any existing confidentiality agreement, non-solicitation agreement, non-competition agreement, employment
agreement or any other similar agreement between Director and EERG. No addition to or modification of any provision of this Agreement
shall be binding upon any party unless made in writing and signed by all parties.


 


17.3Notice.  All
notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given (a) when delivered to and received personally by the recipient, (b) when sent
to and received by the recipient by facsimile (receipt electronically confirmed by sender’s facsimile machine) if during
normal business hours of the recipient, otherwise on the next business day, (c) one business day after the date when sent to the
recipient by reputable express overnight courier service (charges prepaid) and delivery confirmed, or (d) three business days after
the date when mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid and such receipt
is confirmed. Such notices, demands and other communications shall be sent to the parties at the addresses indicated below or to
such other address as a party may direct on written notice given pursuant to the terms of this Sub-paragraph:


 



    	 



    	 



    

		If to Director:	Paul E. Rumler



			5200 S. Race Street



			Greenwood Village, CO 80121



 


		If to Eternal Energy:	Eternal Energy Corp.



			Attn: Chief Director Officer



			2549 West Main Street, Suite 202



			Littleton, CO 80120



 


17.4Non-Waiver.
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.


 


17.5Governing Law; Jurisdiction;
Venue. This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado, United States
of America exclusive of the conflict of law provisions thereof. The parties agree that the District Court of the County of Arapahoe,
Colorado, United States of America shall have exclusive jurisdiction, including in personam 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.


 


17.6Attorneys' Fees.
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 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 attorney' fees.


 


17.7Gender and Number.
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.


 


17.8Caption. 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.


 


17.9Counterparts and 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.


 


[Remainder of page intentionally left blank.]



    	 



    	 



    

 


IN WITNESS WHEREOF, the
parties have executed this Agreement as of the day and year first above written. 


 





	 	ETERNAL ENERGY:
	 	Eternal Energy Corp.
	 	 	 	 
	 	 	 	 
	 	 	By:	________________________________________
	 	 	 	Name: ___________________________________
	 	 	 	Its: _____________________________________


 





	 	Director:
	 	 
	 	 
	 	_____________________________________________________ 
	 	Name:Paul E. Rumler