THIS OPTION HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933. EXECUTIVE 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 Bradley M. Colby (“Executive”).


 


1.Recitals. Executive
and EERG entered into that certain Stock Option Exchange Agreement dated the 14th day of October, 2009 under which the
Executive agreed to cancel and terminate all Prior Stock Option Agreements, defined below, (and all options granted thereunder)
and all provisions in any Employment Agreement, defined below, relating to the grant of stock options 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reasons, EERG’s authority to issue the Restricted Shares was withdrawn and the Restricted Shares were not issued.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 Executive 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, Executive 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, Executive 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 Executive, EERG will pay Executive, on demand, an amount equal to the state and federal income tax incurred by Executive
with respect to the fair market value of the Restricted Shares. The amount due Executive hereunder shall be the difference, determined
by Executive’s certified public accountant, between (i) the amount of state and federal income tax which Executive owes for
calendar year 2009 based upon inclusion of the fair market value of the Restricted Shares to be issued to Executive in his gross
income, less (ii) the amount of state and federal income tax which Executive 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 Executive the option (“Option”) to purchase Two Million Three Hundred
Seven Thousand Five Hundred (2,307,500) 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 Executive 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 Executive 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 Executive, 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, Executive 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 Executive 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. Executive may satisfy this requirement
by (i) tendering to EERG shares of EERG common stock already owned by Executive, which, in the case of shares of common stock purchased
by Executive pursuant to the exercise of an option granted by EERG, have been held by Executive 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 Executive’s lifetime only by Executive or Executive’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 Executive 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. Executive 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 Executive by EERG. Except as provided in this Agreement,
no adjustment shall be made in the number of shares of common stock issued to Executive or in any other rights of Executive 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 Executive and/or to EERG, then
EERG, after consultation with Executive, 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, Executive acknowledges that EERG has made no representations
or warranties to Executive with respect to the tax consequences related to the transactions contemplated in this Agreement, and
Executive is in no manner relying on EERG or its representatives for an assessment of such tax consequences. Executive 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 Executive to insure any particular tax result, and (iii) that Executive 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 Executive.



    	 



    	 



    

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


 


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 Executive, the withdrawal of EERG’s authority
to issue the Restricted Shares and the failure to issue the Restricted Shares; (ii) the execution, delivery, rescission, cancellation
and termination of the Prior Stock Option Agreements and the stock options granted thereunder; and (iii) the execution, delivery,
rescission, cancellation and termination of those portions of the Employment Agreement relating to the grant of stock options.
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 Executive 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 Executive 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 Executive:	Bradley M. Colby



			5722 South Benton Way



			Littleton, Colorado 80123



 


		If to Eternal Energy:	Eternal Energy Corp.



			Attn: Chief Executive 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.


 


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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: _____________________________________


 


 


	 	EXECUTIVE:
	 	 
	 	 
	 	_____________________________________________________ 
	 	Name:  Bradley M. Colby