Document:

February 25, 2011

CONFIDENTIAL

Mr. Paul E. Rumler

Special Committee of the Board of Directors

Eternal Energy Corp.

2549 West Main Street, Ste. 202

Littleton, CO  80120

Gentlemen:

This letter will confirm our understanding that C. K. Cooper & Company, Inc. (“CKCC”) has been engaged as sole financial advisor for the Special Committee of the Board of Directors (the “Committee” or the “Board”) of Eternal Energy Corp. (the “Company”), whereby CKCC would render to the Committee a written opinion as to the fairness (the “
Opinion”), from a financial point of view, of the share ownership ratio currently contemplated for the closing of the proposed merger (the “Transaction”) by and between a wholly-owned subsidiary of the Company and American Eagle Energy Inc. (“American”), as announced on February 23, 2011.

In its capacity as financial advisor, CKCC will, upon request, deliver its written Opinion addressed to the Committee as to the fairness of the Transaction to the stockholders of the Company from a financial point of view.

CKCC will undertake a financial review and analysis of the Company, American, and the Transaction, the nature and scope of which shall be in such form and substance as CKCC considers appropriate in accordance with industry standards to provide such advice and render the Opinion to the Committee.  CKCC services will include preparing a summary of our review and analysis and delivering, if requested, the Opinion to the Committee.  The Opinion shall, in any event, be limited to the fairness of the share ownership ratio currently contemplated for closing of the Transaction, and shall not address the Committee’s or the Board’s underlying business decision to engage in the Transaction.  The Opinion shall be based upon such financial review of the Company, American, and the
Transaction and the respective business, assets and operations of the Company and American as CKCC shall deem appropriate and feasible, limited, in any event, to an analysis of (i) publicly available information with respect to the Company and American and such other matters as CKCC deems appropriate and (ii) such other information as shall be requested by, and supplied to, CKCC by the Company, American, and their respective consultants.  The Opinion may be in such form as CKCC shall determine and CKCC may qualify the Opinion in such manner as CKCC believes appropriate, including by stating therein that CKCC has relied upon the information furnished to it by the Company, American, their respective consultants or which is publicly available, has assumed the accuracy and completeness of such information and has not attempted to conduct any appraisal of assets or verify independently any such information, and had no reasonable basis to believe that any of such information was
not accurate or complete.  CKCC shall not be obligated to provide any services other than those specifically set forth above.

 

  

  

  

Eternal Energy Corp.

Engagement Agreement – Fairness Opinion

February 25, 2011

Page 2

The Company agrees to pay CKCC, in immediately available funds, as compensation for its services under this engagement a fee of $125,000 along the following schedule:

	
  

	
·

	
$75,000 upon execution of this engagement agreement; and

 

	
  

	
·

	
$50,000 upon CKCC’s delivery of the written Opinion.

 

There will be an additional fee of $15,000 for each update of the Opinion delivered at the Committee’s request in connection with the Transaction.

The Company shall, promptly upon request and submission of reasonable documentation to the Company, reimburse CKCC for all reasonable and documented out-of-pocket expenses incurred in connection with the Transaction, which expenses shall not exceed in aggregate amount of $20,000 without the prior approval of the Company.

The Company agrees that all advice and any documents (including the Opinion) prepared or given by CKCC in connection with its engagement hereunder is for the benefit and use of the Company in connection with the services covered by this letter agreement and that no such advice or documents shall be used for any other purpose or be disclosed, reproduced, disseminated, quoted or referred to at any time, in any manner or for any purpose, nor shall any public references to CKCC or the documents be made by or on behalf of the Company, in each case without CKCC’s prior written consent, which consent shall not be unreasonably withheld; provided, however, that the Company may (a) deliver information copies of the Opinion to its legal counsel and other
professional advisors that are participating in the Transaction, and (b) produce an information copy of the Opinion and any other materials in its possession in response to any subpoena, court order, or similar legal demand. In addition, CKCC acknowledges that the text of the Opinion and a description thereof may be included in certain filing(s) required to be made by the Company with the Securities and Exchange Commission in connection with the Transaction, and in materials required to be delivered to the Company's stockholders, and in materials that are required to be delivered to the stockholders of American, provided that (i) if the Opinion is included in such filing(s) or materials, the Opinion will be reproduced therein only in its entirety, and (ii) the content and context of any such inclusion or description (including, without limitation, any reference to CKCC, the Company's engagement of CKCC, the services provided by CKCC or the Opinion) shall be subject to CKCC's prior
review and written approval (and, if applicable, formal written consent), which shall not be unreasonably withheld, delayed, or denied.

The Company agrees that CKCC has been retained to act solely as financial advisor to the Committee, and not as an advisor to or agent of any other person, and that the Committee’s engagement of CKCC is not intended to confer rights upon any person not a party hereto (including stockholders, employees or creditors of the Company) as against CKCC or its affiliates, or their directors, officers, employees or agents.  The Company further agrees that under no circumstances shall the execution of this letter agreement or any act of CKCC hereunder commit or be deemed a commitment by CKCC (or any affiliate) to provide or arrange any bank financing, other debt or equity financing for any transaction or to purchase any security in connection therewith.  The Company acknowledges that CKCC will act
as an independent contractor under this letter agreement and shall not assume the responsibilities of a fiduciary to the Company, American, or their respective stockholders in connection with the performance of CKCC’s services hereunder.

  

  

  

Eternal Energy Corp.

Engagement Agreement – Fairness Opinion

February 25, 2011

Page 3

The Company acknowledges that CKCC is a full service securities firm engaged in a broad range or securities activities and financial services, including securities trading, investment management, financing and brokerage activities.  In the ordinary course CKCC’s business, CKCC or its affiliates (i) may at any time hold long or short positions, and may trade or otherwise effect transactions, for CKCC’s own account or the accounts of customers, in debt or equity securities of the Company or any other company that may be involved in any proposed transaction and (ii) may at any time be providing or arranging financing and other financial services to other companies that may be involved in a competing transaction.

In addition, CKCC and its affiliates may from time to time perform various investment banking and financial advisory services for other companies which may have conflicting interests with the Company.  CKCC will not use or disclose any confidential information of the Company obtained during its engagement hereunder in connection with its representation of such companies and will not disclose confidential information of such other companies to the Company.

The Company acknowledges that CKCC does not provide legal, tax or accounting advice and that the Company confirms that it will rely on its own independent advisors for such advice.

The Company and CKCC agree to the provisions with respect to the Company’s indemnity of CKCC and other matters set forth in Schedule A, the terms of which are incorporated herein in their entirety.

CKCC’s engagement hereunder may be terminated at any time by either CKCC or the Company, it being understood that upon termination, this letter agreement shall have no further force or effect, except that any termination of CKCC’s engagement hereunder for any reason shall not affect the Company’s obligations to provide indemnification as provided in Schedule A hereto.  In the event that CKCC terminates this letter agreement, CKCC shall not be entitled to payment as set forth above.  In addition, provisions relating to the status of CKCC as an independent contractor, the limitation on to whom CKCC shall owe any duties, governing law, successors and assigns, and the waiver of the right to trial by jury shall survive any termination of this letter agreement.

This letter agreement, including all Schedules, and any rights, duties or obligations hereunder may not be waived, amended, modified or assigned, nor may any obligations of a party hereto be delegated, in any way, in whole or in part, including by operation of law, without the prior written consent of, and shall inure to the benefit of and be binding upon the successors, assigns and personal representatives of, each of the parties hereto.  Any attempted assignment or delegation in violation of the preceding sentence shall be void.  This letter agreement embody the entire agreement and understanding of the parties and supercede all prior agreements and understandings relating to the subject matter hereof.

All of the Schedules to this letter agreement are an integral part of this letter agreement and shall survive any termination or expiration hereof.  In case any provision of this letter agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions of this letter agreement shall not in any way be affected or impaired thereby.  This letter agreement and any claim or dispute of any kind or nature whatsoever arising out or, or relating to, this letter agreement or CKCC’s engagement hereunder, directly or indirectly (including any claim concerning advice provided pursuant to this letter agreement), shall be governed by and construed in accordance with the laws of the State of California, without regard to conflict of law
principles.  Any rights to trial by jury with respect to any claim, action or proceeding, directly or indirectly, arising out of, or relating to, this letter agreement or CKCC’s engagement hereunder are waived by CKCC and the Company.

  

  

  

  

Eternal Energy Corp.

Engagement Agreement – Fairness Opinion

February 25, 2011

Page 4

Please confirm that the foregoing is in accordance with your understanding by signing and returning to us the enclosed duplicate if this letter, which shall thereupon constitute a binding agreement.  The exchange of copies of this letter agreement and of signature pages by facsimile transmission or e-mail will constitute effective signing and delivery of this letter agreement and may be used in lieu of the original for all purposes. Signatures of any party transmitted by facsimile or e-mail will be deemed to be original signatures for all purposes.

 

We are pleased to accept this engagement and look forward to working with the Committee.

 

	  	
Very truly yours,

	  	  
	  	
C. K. COOPER & COMPANY, INC.

	  	  	  	  
	  	
By

	
  /s/ Alexander G. Montano

	  	  	
Name:

	
Alexander G. Montano

	  	  	
Title:

	
Managing Director

Accepted and agreed to as of the date first written above:

ETERNAL ENERGY CORP.

	
By

	
/s/ Paul E. Rumler

	  
	  	
Name:

	
Paul E. Rumler

	  
	  	
Title:

	
Chairman of the Special Committee

	  

  

  

  

 

SCHEDULE A

INDEMNIFICATION

The Company agrees to indemnify CKCC, any controlling person of CKCC and each of their respective directors, officers, employees, agents, affiliates and representatives (each, an “Indemnified Party”) and hold each of them harmless against any and all losses, claims, damages, expenses, liabilities, joint or several (collectively, “Liabilities”) to which the Indemnified Parties may become liable, directly or indirectly, arising out of or relating to the engagement under the letter agreement to which this Schedule A is attached (the “Letter Agreement”), unless the Liabilities resulted from the negligence or willful misconduct of any Indemnified Party.  The Company further agrees to reimburse each Indemnified Party promptly upon request for all expenses (including
reasonable attorneys’ fees and expenses) as they are incurred in connection with the investigation of, preparation for, defense of, or providing evidence in, any action, claim, suit, proceeding or investigation, directly or indirectly, arising out of, or relating to, the engagement under the Letter Agreement, whether or not pending or threatened and whether or not any Indemnified party is a formal party to such proceeding; provided, however, that, if the Liabilities resulted from the negligence or willful misconduct of any Indemnified Party, the Indemnified Parties shall remit to the Company any amounts reimbursed pursuant to this sentence.  The Company also agrees that no Indemnified Party shall have any liability (whether direct or indirect, in contract or tort or otherwise) to the Company or any person asserting claims on behalf of or in right of the
Company, directly or indirectly, arising out of, or relating to, the engagement under the Letter Agreement, unless such liability resulted from the negligence or willful misconduct of such Indemnified Party.  In the event that an Indemnified Party is requested or required to appear as a witness in any action brought by or on behalf of or against the Company or any affiliate of the Company, in which such Indemnified Party is not named (and is not subsequently named) as a defendant, the Company agrees to reimburse CKCC for all reasonable expenses incurred by it in connection with such Indemnified Party’s appearing in preparing to appear as such a witness, including, without limitation, the reasonable fees and disbursements of its outside legal counsel.

An Indemnified Party shall promptly notify the Company in writing as to any action, claim, suit, proceeding or investigation for which indemnity may be sought, but the omission so to notify the Company will not relieve the Company from any liability which it may have to any Indemnified Party hereunder to the extent that it is not materially prejudiced as a result of such failure.  After such notice to the Company, the Company shall be entitled to participate in, and to the extent that it shall elect by written notice delivered to such Indemnified Party promptly after receiving the aforesaid notice of such Indemnified Party, to assume the defense thereof with counsel reasonably satisfactory to such Indemnified Party to represent such Indemnified Party such action, claim, suit, proceeding or investigation
and shall pay as incurred the fees and expenses of such counsel related to such action,  claim, suit, proceeding or investigation.  In any action, claim, suit, proceeding or investigation, any Indemnified Party shall have the right to retain its own separate counsel at such Indemnified Party’s own expense and not subject to reimbursement by the Company; provided, however, that the Company shall pay as incurred the reasonable fees and expenses of such counsel incurred in connection with investigation, preparing, defending, paying settling or compromising any action, claim, suit, proceeding or investigation if (i) the parties to such action, claim, suit, proceeding or investigation include both the Indemnified Party and the Company; (ii) the use of counsel chosen by the Company to represent both the Company and such Indemnified Party would present
such counsel with an actual or potential conflict of interest; (iii) the Company shall not have employed satisfactory counsel to represent the Indemnified Party within a reasonable time after notice of the institution of such action, claim, suit, proceeding or investigation; or (iv) the Company shall authorize the Indemnified Party to employ separate counsel (in addition to any local counsel) at the expense of the Company.  The Company shall not, in connection with any action, claim, suit, proceeding or investigation, be liable for the fees and expenses of more than one separate law firm (in addition to any local counsel) for all Indemnified Parties, and, in the event that separate counsel is to be retained to represent one or more Indemnified parties, such separate counsel shall be chosen by CKCC.  The Company will not be liable for any settlement, compromise or consent to the entry of any judgment in action, claim, suit, proceeding, or investigation affected
without the prior written consent of the Company, which consent shall not be unreasonable withheld.

 

  

  

  

 

The Company agrees that, with CKCC’s prior written consent, it will not settle, compromise or consent to the entry of any judgment in any claim, action, suit, proceeding or investigation in respect of which indemnification could be sought hereunder (whether or not CKCC or any other Indemnified Party is an actual or potential party to such claim, action, suit, proceeding or investigation), unless (a) such settlement, compromise, consent or termination includes an unconditional release of each Indemnified Party from any liabilities arising out of such claim, action, suit, proceeding or investigation, (b) such settlement does not admit any wrongdoing by CKCC and (c) the parties agree that the terms of such settlement shall remain confidential.

The Company and CKCC agree that, if any indemnification or reimbursement sought pursuant to the first paragraph of this Schedule A is for any reason unavailable or insufficient to hold it harmless (except by reason of the negligence or willful misconduct of an Indemnified Party), then, whether or not CKCC is the person entitled to indemnification or reimbursement, the Company and CKCC shall contribute to the Liabilities for which such indemnification or reimbursement is held unavailable in such proportion as a appropriate to reflect (a) the relative benefits to the Company on the one hand and CKCC on the other hand, in connection with the transaction to which such indemnification or reimbursement relates or (b) if the allocation provided by clause (a) above is not available, in such proportion as is appropriate
to reflect not only the relative benefits referred to in such clause (a), but also the relative fault of the parties as well as any other relevant equitable considerations, provided, however, that, in no event, shall the amount to be contributed by CKCC exceed the fees actually received by CKCC under the Letter Agreement.  The Company agrees that, for the purpose of this paragraph, the relative benefits to the Company and CKCC of the contemplated transaction (whether or not such transaction is consummated) shall be deemed to be in the same proportion that the aggregate consideration payable, exchangeable or transferable (or contemplated to be payable, exchangeable or transferable) in such transaction bears to the fees paid or payable to CKCC as financial advisor under the Letter Agreement.

The rights of the Indemnified Parties referred to above shall be in addition to any rights that any Indemnified Party may otherwise have.Phone (406) 294-9765

Fax   (406) 294-9764

 

 AMERICAN EAGLE ENERGY INC.

  

February 21, 2011

Eternal Energy Corp.

2549 West Main Street, Suite 202

Littleton, Colorado 80120

Attention:  Paul E. Rumler, Esq.

Dear Mr. Rumler:

 

This letter of intent confirms our understanding regarding a proposed transaction involving Eternal Energy Corp., a Nevada corporation (“EERG”), and American Eagle Energy Inc., a Nevada corporation (“AMZG”).  The following sets forth the basic terms of the proposed transaction:

 

1.    Structure of the Transaction.  The transaction will be structured as follows (collectively, the “Merger”):  (a) a wholly-owned shell subsidiary of EERG, formed solely for purposes of the proposed transaction, will merge with and into AMZG, with AMZG surviving such merger as a wholly-owned subsidiary of EERG and (b) AMZG will then merge with and into EERG, with EERG surviving such merger (the “Surviving Corporation”).  In connection with the Merger, EERG will change its name to “American Eagle Energy Corp.”  The Merger will be structured as a tax-free reorganization.

 

2.    Merger Consideration; Post-Merger Ownership; Reverse Stock Split.

 

(a)      In the merger described in clause (a) of paragraph 1 above, (i) each issued and outstanding share of common stock of AMZG will be converted into the right to receive such number of shares of common stock of EERG to effect the ownership percentages described in clause (b) below of this paragraph 2 (the “Exchange Ratio”) and (ii) each outstanding and unexercised option to acquire shares of common stock of AMZG will be converted into the right to receive an option to acquire such number of shares of common stock of EERG and at such exercise price, in each case in proportion to the Exchange Ratio.  No fractional shares will be issued in the Merger and any stockholder of AMZG otherwise entitled to a
fractional share will receive a number of shares rounded up to the next whole number.

 

(b)      Upon consummation of the Merger and assuming consummation of the Debenture Conversion and the Equity Infusion (as such terms are defined in paragraph 10 below), current stockholders of EERG will own 20% of the Surviving Corporation (without giving effect to outstanding stock options) and current stockholders of AMZG will own 80% of the Surviving Corporation (without giving effect to outstanding stock options).  The valuation supporting the Exchange Ratio that would result in these ownership percentages is subject to EERG’s receipt of a satisfactory fairness opinion regarding the Merger and
EERG’s and AMZG’s satisfactory completion of due diligence. 

 

27 North 27th Street, Suite 21G,

Billings, MT 59101

 

  

  

  

 

Phone (406) 294-9765

Fax   (406) 294-9764

 

(c)      Concurrently with, or immediately following, consummation of the Merger, the then-outstanding shares of common stock and outstanding stock options of the Surviving Corporation will be subject to a reverse stock split in a ratio that is currently anticipated to be 1-for-6.5 (the “Reverse Stock Split”).  Such ratio may be subject to change depending on a variety of factors, including market conditions.  The Surviving Corporation will have the discretion to issue such number of additional shares of common stock of the Surviving Corporation to those stockholders of either or both of AMZG or EERG, who, immediately prior to the consummation of the Merger, were “round lot holders”
(holders of 100 or more shares) of AMZG or EERG, respectively, and who, solely as a result and upon consummation of the Merger and Reverse Stock Split, would then own less than 100 shares of common stock of the Surviving Corporation, so that such stockholders would own 100 shares of common stock of the Surviving Corporation.

 

3.    Establishment of Option Pool.  Following consummation of the Merger, the Surviving Corporation will establish an option pool, which will include options granted by each of EERG and AMZG that are exercisable as of the consummation of the Merger.  The option pool (once fully allocated to such EERG and AMZG option holders and to employees, consultants, and/or independent directors of the Surviving Corporation) will represent not less than approximately 10% and not more than approximately 15% of the Surviving Corporation’s issued and outstanding common stock (measured as of consummation of the Merger) and issuances of shares upon the exercise of such then-existing options, as well as options granted
thereafter from the option pool will proportionately dilute all of the Surviving Corporation’s stockholders.

 

4.    Registration Statements and Blue Sky Filings.

 

(a)      The shares of common stock of EERG to be issued to the stockholders of AMZG as part of the Merger will be issued pursuant to a registration statement (the “1933 Act Registration Statement”), on such form as EERG’s counsel determines to be necessary under the applicable rules and regulations promulgated under the Securities Act of 1933, as amended and/or the Securities Exchange Act of 1934, as amended (the “Exchange Act”), to be filed by EERG with the Securities and Exchange Commission (“SEC”) as promptly as reasonably practical after execution and delivery of the Definitive Agreement (as defined below).

 

(b)      EERG will make such filings and secure such approvals as may be required by any applicable state securities or “blue sky” laws in connection with the transactions contemplated hereby.

 

27 North 27th Street, Suite 21G,

Billings, MT 59101

 

  

  

  

 

Phone (406) 294-9765

Fax   (406) 294-9764

 

(c)      The Surviving Corporation will cause a separate registration statement on Form 8-A under the Exchange Act to be prepared and filed with the SEC and a listing application and such other documents to be prepared and filed with the NYSE Amex as may be required to effect EERG’s and AMZG’s intention that the class of common stock of the Surviving Corporation be registered under Section 12(b) of the Exchange Act and listed on the NYSE Amex.

 

5.    Board Composition of Surviving Corporation.  The Surviving Corporation initially will have a five-person board of directors, composed of John Anderson, Sean Mitchell and Paul Rumler, as independent directors, and Richard Findley (Chairman) and Brad Colby, as non-independent directors.

 

6.    Executive Officers of Surviving Corporation.  The initial executive officers of the Surviving Corporation will include, among others, Brad Colby as the Chief Executive Officer and President, Tom Lantz as the Chief Operating Officer, and Paul Rumler as Secretary.  Further, an individual reasonably acceptable to the current directors of both EERG and AMZG shall be employed as the Chief Financial Officer of the Surviving Corporation and EERG shall use commercially reasonable efforts to commence the employment of such person as its Chief Financial Officer prior to the declaration of effectiveness of the 1933 Act Registration Statement.  A mutually acceptable employment agreement will be negotiated

with the new executive officer of the Surviving Corporation, Mr. Lantz; a mutually acceptable consulting or employment agreement, as appropriate, will be negotiated with the new employee of, or consultant to, the Surviving Corporation, Mr. Findley; and the current employment agreement between Mr. Colby and the Surviving Corporation will be amended, if required, such that each of such persons will devote his full business time and efforts to the Surviving Corporation and present all oil and gas business opportunities to the Surviving Corporation.

 

7.    Definitive Agreement.  As promptly as reasonably practical after EERG’s acceptance of this letter, EERG’s counsel will commence preparation of an initial draft of the definitive agreement reflecting the transactions contemplated hereby (the “Definitive Agreement”), and the parties will negotiate the Definitive Agreement in good faith.  The Definitive Agreement will contain such representations, warranties, covenants, conditions and other provisions as are customary for transactions of this nature and otherwise as may be required to give effect to the terms set forth herein.

 

8.    Board Approvals.  The execution and delivery of the Definitive Agreement shall be subject to the approval of the Board of Directors of each of EERG and AMZG.

 

9.    Due Diligence.  Execution of the Definitive Agreement will be subject to each party’s satisfaction with the results of its due diligence review of the other party.  Upon execution of this letter, each party agrees to permit the other and its employees, attorneys, accountants, investment bankers and other agents to have full access, during normal business hours, to the books and records of the other and to the other’s premises, employees, customers and suppliers (each party will work closely with the other’s senior management to avoid disruption of these relationships) for the purpose of investigating the business and financial affairs and prospects of each other.

 

27 North 27th Street, Suite 21G,

Billings, MT 59101

 

  

  

  

 

Phone (406) 294-9765

Fax   (406) 294-9764

 

10.  Closing Conditions.  Any transaction of the type contemplated hereby will be subject to the satisfaction of certain conditions, including the following:

 

(a)      the negotiation and execution of a mutually satisfactory Definitive Agreement and the satisfaction of the conditions set forth therein;

 

(b)      the receipt by the Special Committee of the Board of Directors of EERG of a fairness opinion regarding the Merger satisfactory to such committee;

 

(c)      the conversion of the 8% Convertible Debenture issued by AMZG, in the initial principal amount of $1 million, to shares of common stock of AMZG at a conversion price currently expected to be $0.60 per share (the “Debenture Conversion”);

 

(d)      the private placement sale and issuance by AMZG of approximately 5,833,333 shares of its common stock at $0.60 per share (resulting in $3.5 million in gross proceeds, including the approximate $670,000 that has been received as of the date of this letter) on the terms set forth in the irrevocable commitment received by AMZG from accredited investors on December 1, 2010 to purchase such number of shares at such purchase price (the “Equity Infusion”);

 

(e)      the receipt of any necessary approvals of the stockholders of AMZG and the respective Boards of Directors of EERG and AMZG;

 

(f)      the receipt of all necessary third-party and governmental or regulatory consents and approvals;

 

(g)      no more than five percent of the outstanding shares of AMZG shall be subject to dissenters’ or appraisal rights, if any, exercised by its stockholders in connection with the Merger;

 

(h)      the 1933 Act Registration Statement being declared effective by the SEC; and

 

(i)      AMZG, subject to the 1933 Act Registration Statement being declared effective by the SEC, will have transmitted, or caused to be transmitted, to its stockholders a proxy statement or other document containing in all substantial respects the information required to be contained in a Schedule 14A or Schedule 14C proxy statement promulgated under the Exchange Act; however, inasmuch as AMZG is not subject to Section 14 of the Exchange Act, such proxy statement or other document shall not be filed with the SEC, but may be furnished by AMZG in accordance with the requirements of Section 15(d) of the Exchange Act.

 

27 North 27th Street, Suite 21G,

Billings, MT 59101

 

  

  

  

 

Phone (406) 294-9765

Fax   (406) 294-9764

 

11.  Exclusive Negotiations.  For a period of 30 days commencing with the date of EERG’s acceptance of this letter, each of EERG and AMZG agrees that, except as provided herein, neither it nor any of its subsidiaries will directly or indirectly solicit, entertain, negotiate with, or otherwise pursue an Acquisition Proposal.  Notwithstanding the foregoing, nothing in this letter shall restrict or prohibit (a) any disclosure by EERG or AMZG that is required in any document to be filed with the SEC, (b) any disclosure that is otherwise required by applicable law, or (c) the participation in discussions and negotiations regarding, and furnishing to any other third party any information with respect to, an
Acquisition Proposal if the failure to take such actions would be inconsistent with the fiduciary duties of EERG’s or AMZG’s respective Board of Directors.  For purposes of this letter, an “Acquisition Proposal” means any proposal or offer with respect to (i) a merger, consolidation, business combination or similar transaction or (ii) any other acquisition, in the case of clause (i) or (ii) involving 50% or more of the total voting power of EERG or AMZG, as the case may be, or 50% or more of the consolidated totals assets of EERG or AMZG, as the case may be.

 

12.  No-Shop.  The Definitive Agreement will contain a “no shop” provision with a “fiduciary out.”

 

13.  Mutual Standstill.  For a period of six months from the date hereof, without the prior written consent of EERG’s or AMZG’s Board of Directors, as the case may be, which consent may be withheld, delayed or denied in the sole and absolute discretion of such Board, neither EERG nor AMZG will directly or indirectly (nor will any of them assist or encourage directly or indirectly others to):  (i) acquire or agree, offer, seek or propose to acquire, or cause to be acquired, directly or indirectly, by purchase or otherwise, ownership of any voting securities or rights to acquire any voting securities of the other, or any of the assets or businesses of the other or any subsidiary or division thereof or any
bank debt, claims or other obligations of the other or any rights to acquire such ownership (including from a third party); (ii) seek or propose to influence or control the management or policies of the other or to obtain representation on the other’s Board of Directors, or solicit, or participate in the solicitation of, any proxies of the other’s shareholders, or make any public announcement with respect to any of the foregoing; (iii) make any public announcement with respect to, or submit a proposal for, or offer of (with or without conditions) any extraordinary transaction involving the other or its securities or assets; or (iv) enter into any discussions, negotiations, arrangements or understandings with any third party with respect to any of the foregoing, or otherwise form, join or in any way participate in a “group” (as defined in the Exchange Act) in connection with any of the foregoing.  Each party will promptly advise the other of any
inquiry or proposal made to it with respect to any of the foregoing.  Notwithstanding the foregoing, (i) neither party’s Board of Directors shall withhold its consent if to do so would be inconsistent with its fiduciary duties; (ii) either party shall be permitted to commence a non-coercive tender offer for the other’s common stock at a price higher than that contemplated by any other then-existing merger agreement to which the other is a party; (iii) either party may comment on any merger negotiation process or other matter relating to or involving the merger or takeover of the other in order to correct material misstatements or omissions by the other or its advisors; and (iv) either party may continue the current oil and gas operating activities conducted with the other party and as may be reasonably contemplated in the ordinary course of business relating to such activities.  If either party enters into a standstill with a third party that is more
favorable than the foregoing, such party will amend its standstill with the other party accordingly.

 

27 North 27th Street, Suite 21G,

Billings, MT 59101

 

  

  

  

 

Phone (406) 294-9765

Fax   (406) 294-9764

     

14.  Mutual Non-Solicit.  During the period of one year following the date hereof, without the prior written consent of EERG or AMZG, as relevant (which consent may be withheld, delayed or denied in the sole and absolute discretion of the relevant party), neither EERG nor AMZG will hire, or solicit for hire or employment, directly or indirectly, any officer or employee of the other or any person who, at the time of the solicitation or proposed hire, had been an officer or employee of the other within the previous six months excluding current oil and gas operating activities that the parties are conducting with one another or as may be reasonably anticipated in the ordinary course of business relating to such
activities.  For the purposes of this clause, “solicitation” shall not include solicitation of any officer or employee who is solicited by advertising in a newspaper or periodical of general circulation or who on his or her own initiative seeks employment with EERG or AMZG, as the case may be.

 

15.  Public Announcements.  EERG and AMZG will agree to the form of a joint press release announcing this letter, the material contents hereof, and the proposed Merger.  The parties otherwise will not, without the other’s prior written consent, issue any press release or other public announcement relating to the terms and conditions set forth in (or the existence of) this letter, except for such disclosure to the public or to governmental agencies as their respective counsel shall deem reasonably necessary to comply with applicable laws, rules or regulations, including any rules or regulations of any stock exchange or national securities quotation system.  Notwithstanding the foregoing, if either party

is so required to issue a public announcement, it will inform the other party thereof and make reasonable efforts to provide for review by the other party a copy of the proposed release a reasonable time prior to publication.

 

16.  Confidentiality.  Except as provided in paragraph 15 above, each party, for itself and its respective employees and agents, agrees to keep confidential (i) the existence and terms of this letter and (ii) all confidential information provided by or through a party to the other.  Confidential information includes all business and financial information of a party, whether disclosed prior to or after execution of this letter, including financial statements, tax returns, business and marketing plans and customer and supplier data.  Despite the foregoing, “confidential information” does not include publicly available information, information obtained from a third party source not under an agreement

or obligation to maintain the confidentiality of such information and information independently developed by a party without the use of any otherwise confidential information.  The parties agree that any breach or threatened breach of the provisions of this paragraph 16 may be enjoined by a court of competent jurisdiction and damages may be in order.  The parties agree that the state and federal courts located in Denver, Colorado shall have personal and subject matter jurisdiction as to any such injunctive action.

 

17.  Pre-Execution Expenses.  All costs and expenses incurred prior to execution of the Definitive Agreement will be borne by the party incurring them.

 

27 North 27th Street, Suite 21G,

Billings, MT 59101

 

  

  

  

 

Phone (406) 294-9765

Fax   (406) 294-9764

 

18.  Post-Execution Expenses.  All costs and expenses incurred after execution of the Definitive Agreement will be borne by the party incurring them.

 

19.  Timing.  The parties will exercise commercially reasonable good faith efforts to prepare, negotiate and execute the Definitive Agreement within 30 days of the date of EERG’s acceptance of this letter and to consummate the transactions contemplated by the Merger prior to or on May 15, 2011.

 

20.  Miscellaneous.  Except for paragraphs 11, 13, 14, 15, 16 and 17 hereof and this paragraph 20, this letter is not intended to be a binding agreement between the parties hereto and is only intended to be an expression of mutual understandings until the Definitive Agreement, if any, is executed and delivered.  Notwithstanding the foregoing, paragraphs 11, 13, 14, 15, 16 and 17 hereof and this paragraph 20 will bind and inure to the benefit of the parties hereto and their respective successors and permitted assigns and the parties reiterate their intention to work together in good faith to try to consummate a mutually satisfactory transaction.  Further, this letter of intent, while setting forth the
intentions of the parties, does not necessarily reflect all of the material terms that might be included in the Definitive Agreement, which the parties expect to execute and deliver on or before March 17, 2011, if at all.

 

If the foregoing conforms to your understanding, please sign, date and fax or scan a copy of this letter to my attention at 406-248-1012 or prospector@180com.net.

 

	
Sincerely,

	  
	  	  
	
AMERICAN EAGLE ENERGY INC.

	  
	  	  
	
By:

	
/s/ Richard Findley

	  
	  	
Richard Findley, President

	  

ACCEPTED:

ETERNAL ENERGY CORP.

	
By:

	
/s/ Paul E. Rumler

	  
	  	
Paul E. Rumler, Esq., Board Member

	  
	  	
and Sole Member of the Special Committee

	  
	  	
of the Board of Directors of Eternal Energy Corp.

	  

27 North 27th Street, Suite 21G,

Billings, MT 59101

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