Document:

Unassociated Document

    AMENDED
AND RESTATED

    EMPLOYMENT
AGREEMENT

    (Bradley
M. Colby)

    

    This Amended and Restated Employment
Agreement (the “Agreement”) is made and entered into by and between Eternal
Energy Corp. (the “Company”) and Bradley M. Colby (“Executive”), on the 1st day of
November, 2009 (the “Effective Date”).  In consideration of the mutual
promises, covenants and conditions hereinafter set forth and other good and
valuable consideration, the receipt and sufficiency of which the parties
acknowledge, the parties agree as follows:

    

    1.           Amendment
and Restatement of Employment Agreement.  This Amended and
Restated Employment Agreement amends, restates, supersedes and replaces that
certain Employment Agreement between the Company and Executive which was entered
into as of the 7th day of
November, 2005.

    

    2.           The
Company’s Relationship with Rover and Roadrunner.  The Company
holds an undivided ten percent (10%) working interest in leases acquired by
Ryland Oil Corporation (“Ryland”) and its affiliates (including, without
limitation, Rover, defined below) in North Dakota (the “North Dakota Prospect”),
and a five percent (5%) overriding royalty on all leases and licenses acquired
by Ryland in the Pebble Beach Prospect in the province of Saskatchewan, Canada
(the “Prospect”).  The Company retained an overriding royalty in an
amount equal to the difference between existing burdens of record and eighty
percent (80%) on production from acreage in Eastern Utah and Western Colorado
which it sold to Roadrunner Oil and Gas (USA), Inc. (“Roadrunner”) and will
receive an overriding royalty, calculated in the same manner, on any additional
oil and gas leases acquired by Roadrunner in an area of mutual interest covering
approximately 2,765,000 acres in Eastern Utah and approximately 806,000 acres in
Western Colorado (the “AMI”).  Ryland and its affiliates own one-half
of the play in the AMI.  Executive became a shareholder of Ryland and
provides consulting services to Ryland’s wholly owned subsidiary, Rover
Resources, Inc. (“Rover”) pursuant to the terms of that certain Consulting
Agreement dated the 1st day of
November, 2006 (the “Consulting Agreement”), all with the Company’s prior
written consent.  Executive also became a shareholder of Roadrunner, a
member of its Board of Directors and its President, with the Company’s and
Rover’s prior written consent.  Executive, Rover and Roadrunner all
entered into that certain Management Services Agreement dated October 1st, 2008
(the “Management Services Agreement”) under which Executive’s duties and
obligations to each of the parties and aspects of the parties’ respective
interests in the Prospect, the North Dakota Prospect and the
AMI.  Copies of the Consulting and Management Services Agreements are
attached hereto as Exhibit “A” and incorporated herein by this
reference.  The Company and Executive acknowledge and agree that the
terms of the Consulting and Management Services Agreements are incorporated
herein and shall supercede any and all conflicting provisions set forth in this
Agreement.

    

    3.           Employment
and Duties.  The Company shall employ Executive in the position
of President and Chief Executive Officer (“CEO”).  Executive shall
report directly to the Board of Directors (the “Board”) of the Company (or such
other persons designated by the Board) and shall perform all duties and
obligations of President and CEO.  Executive shall at all times be
required by the Company to provide only those services customarily expected of
Presidents and CEOs of companies of a like size to the Company.  The
Company shall not require Executive to infringe good business and professional
ethics or violate any statute, law, rule, order, decree or
ordinance.  Executive agrees to devote sufficient time, attention and
energy to the Company’s business to provide his services hereunder as Executive
shall determine in the exercise of his reasonable discretion.  In this
regard, Company acknowledges and agrees that Executive is actively involved in
the day to day management and operation of Ryland and Roadrunner and in other
oil and gas ventures and that he may pursue these ventures and such other
opportunities in the oil and gas industry without limitation as he determines
appropriate.  Therefore, the Parties acknowledge that Executive shall
not be required to devote all of his time, attention and energy to the Company’s
business, that his performance of services for and on behalf of Rover and
Roadrunner may impinge upon the time which Executive may otherwise be obligated
to render for and on behalf of the Company and that Executive will also,
contemporaneously, be participating in the formation and operation of other oil
and gas ventures.  Executive hereby accepts this engagement, subject
to all of the terms and conditions set forth in this Agreement.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    4.           Term of
Agreement.  The term of this Agreement shall commence on the
Effective Date and shall continue through and including October 31, 2011,
subject to the provisions of the Section in this Agreement entitled “Termination or Expiration of
Agreement,” (the “Term”).  Notwithstanding the foregoing, the
provisions of the Sections in this Agreement entitled “Non-competition;
Secrecy,” “Representations and
Warranties” and “Miscellaneous” shall
survive, and continue in full force and effect, after any termination or
expiration of this Agreement, irrespective of the reason for the termination or
any claim that the termination was wrongful or illegal.”

    

    5.           Compensation
and Other Benefits.  The Company shall provide the following
compensation and other benefits to Executive during the Term in consideration of
Executive’s performance of all of his obligations under this
Agreement:

    

    5.1           Base
Salary.  Subject to the provisions of the Section in this
Agreement entitled “Termination or Expiration of
Agreement,” during the Term the Company shall pay Executive an annual
base salary of One Hundred Seventy Four Thousand and No/100s US Dollars
($174,000.00 USD), payable in arrears on the last day of each calendar month, in
gross monthly installments of Fourteen Thousand Five Hundred and No/100s US
Dollars ($14,500.00 USD).  The base salary to be paid to Executive
hereunder, as changed by the parties from time to time, may be referred to
herein as “Base Salary.”

    

    5.2           Fringe
Benefits.  As additional compensation under this Agreement,
Executive shall be entitled to receive the following benefits (the “Fringe
Benefits”):

    

    5.2.1           Employee
Benefit Plans.  During the Term, the Company will pay the
premiums incurred to provide group medical insurance coverage for Executive and
his dependents. During the Term, the Company will also allow Executive to
participate in such other group health, pension, welfare, and insurance plans
(together with the group medical insurance plan, the “Employee Benefit Plans”)
maintained by the Company from time to time for the general benefit of its
executive employees, as such Employee Benefit Plans may be modified from time to
time in the Company’s sole and absolute discretion.

    

    5.2.2           Other
Benefits.  The Company shall provide Executive with all other
benefits and perquisites as are made generally available to the Company’s
executive employees under the Company’s Employee Handbook, as such Employee
Handbook may be modified from time to time in the Company’s sole and absolute
discretion.

    

    5.2.3           Vacation;
Sick Leave and Holidays.  Executive shall be entitled to such
vacation time, sick leave and paid holidays as are generally made available to
the Company’s executive employees under the Company’s Employee Handbook, as such
Employee Handbook may be modified from time to time in the Company’s sole and
absolute discretion.

    

    5.2.4           Reimbursement
of Business Expenses.  The Company shall reimburse Executive
for all reasonable travel, entertainment and other expenses incurred by
Executive in connection with the performance of his duties under this Agreement,
upon submission by Executive to Company of reasonable documentation pertaining
to such expenses.

    

    5.3           Deferred
Compensation.  Any deferred compensation (within the meaning of
Section 409A of the Internal Revenue Code) payable under this Agreement on
account of Executive’s separation from service shall not commence prior to six
months following such separation if Executive is a key employee (within the
meaning of Section 409A).  Provided, that in determining whether
Executive is a key employee, any compensation realized on account of the
exercise of a stock option or a disqualifying disposition of stock acquired
through exercise of an incentive stock option shall be disregarded.

    

    
      
         

      

      
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    5.4           Withholding.  All
customary withholding taxes and other employment taxes which the Company is
required by law to withhold and pay with respect to compensation paid by an
employer to an employee shall be subtracted and withheld from all compensation
paid by the Company to Executive for services rendered by Executive to the
Company.

    

    6.           Termination
or Expiration of Agreement.

    

    6.1           Termination
at Company’s Election.  The Company may terminate Executive’s
employment at any time during the Term, for any reason or no reason, with or
without Cause (as hereinafter defined), and with or without notice, subject to
provisions of the Subsections of this Section entitled “Termination for
Cause,” “Termination Without
Cause” and “Severance Following a Change
in Control.”

    

    6.1.1           Termination
for Cause.  If Executive’s employment is terminated for Cause
(defined below), Executive shall be entitled to receive only the following: (i)
payment of Executive’s Base Salary through and including the date of
termination; (ii) payment for all accrued and unused vacation time as of the
date of termination, which will be paid at a rate calculated in accordance with
Executive’s Base Salary at the time of termination; and (iii) reimbursement of
business expenses incurred prior to the date of termination.  Except
as expressly set forth in this Subsection, Executive shall not be entitled to
receive any Base Salary, Fringe Benefits or severance benefits in the event
Executive’s employment is terminated for Cause, except that Executive may
continue to participate in the Employee Benefit Plans to the extent permitted by
and in accordance with the terms of those plans or as otherwise required by
law.

    

    6.1.2           Termination
Without Cause.  If Executive’s employment by the Company is
terminated by the Company without Cause or if Executive’s employment is
terminated for Good Reason (defined below), Executive shall
receive:  (i) payment of Executive’s Base Salary through and including
the date of termination; (ii) payment for all accrued and unused vacation time
existing as of the date of termination, which will be paid at a rate calculated
in accordance with Executive’s Base Salary at the time of termination; and (iii)
reimbursement of business expenses incurred prior to the date of
termination.  In addition, if the severance of Executive’s employment
falls within the terms of this Subsection and if the terms of the Subsection of
this Section entitled “Severance Following a Change
in Control” does not apply to the severance of Executive’s employment
with the Company, then, subject to the condition that Executive sign a general
release of all claims in a form approved by the Company in the exercise of its
sole discretion, Executive shall also receive, and the Company shall pay
Executive, a severance payment in an amount equal to Executive’s annual Base
Salary as the same may have been changed through the date of the severance of
Executive’s employment, less applicable withholdings.

    

    6.1.3           Severance
Following a Change in Control.

    

    A.           If,
immediately prior to or within twelve months following a Change in Control
(defined below): (i) Executive’s employment is terminated by the Company without
Cause; or (ii) Executive’s employment is terminated for Good Reason (defined
below), Executive shall receive:  (x) payment of Executive’s
Base Salary through and including the date of termination; (y) payment for all
accrued and unused vacation time existing as of the date of termination, which
will be paid at a rate calculated in accordance with Executive’s Base Salary at
the time of termination; and (z) reimbursement of business expenses incurred
prior to the date of termination.  In addition, if the severance of
Executive’s employment falls within the terms of this Subsection, then, subject
to the condition that Executive sign a general release of all claims in a form
approved by the Company in the exercise of its sole discretion, Executive shall
also receive, and the Company shall pay Executive, a severance payment in an
amount equal to the product of two times Executive’s annual Base Salary as the
same may have been changed through the date of the severance of Executive’s
employment, less applicable withholdings.

    

    
      
         

      

      
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    B.           If
Executive severs employment with the Company within sixty (60) days of a Change
in Control (defined below) for any reason other than Good Reason (defined
below), Executive shall receive:  (x) payment of Executive’s Base
Salary through and including the date of termination; (y) payment for all
accrued and unused vacation time existing as of the date of termination, which
will be paid at a rate calculated in accordance with Executive’s Base Salary at
the time of termination; and (z) reimbursement of business expenses incurred
prior to the date of termination.  In addition, if Executive severs
employment with the Company within sixty (60) days of a Change in Control for
any reason other than Good Reason, then, subject to the condition that Executive
sign a general release of all claims in a form approved by the Company in the
exercise of its sole discretion, Executive shall also receive, and the Company
shall pay Executive, a severance payment in an amount equal to Executive’s
annual Base Salary as the same may have been changed through the date of the
severance of Executive’s employment, less applicable withholdings.

    

    C.           For
purposes of this Agreement, the term “Change in Control” shall mean the
occurrence of any of the following events:  (i) the consummation of
any transaction after the Effective Date in which any person or entity or group
of related persons and/or entities becomes the beneficial owner, directly or
indirectly, of securities representing more than twenty percent (20%) of the
combined voting power of the Company’s outstanding voting securities, (ii) three
or more directors, whose election or nomination for election is not approved by
a majority of the members of the Company’s Board of Directors on the Effective
Date, are elected within any twelve month period to serve on its Board of
Directors, or (iii) any merger (other than a merger in which the Company is the
survivor and there is no change of control pursuant to (i) or (ii) of this
sentence), reorganization, consolidation, liquidation, winding up or dissolution
of the Company or the sale of all or substantially all of its
assets.

    

    6.1.4           “Cause.”  As
used in this Agreement, “Cause” shall be defined as:

    

    A.           Criminal
Conduct.  If Executive is convicted of a criminal offense
punishable as a felony, has been convicted of any offense involving moral
turpitude, dishonesty or immoral conduct, or is subject to
incarceration.  For purposes of this provision, incarceration will
mean any incarceration which causes the Employee to be unable to provide
services to the Company for the period of incarceration;

    

    B.           Neglect or Other
Misconduct.  If Executive engages in any conduct, or fails to
take any action which (1) materially and adversely effects the business or
reputation of the Company; or (2) renders his continued service in employment of
the Company detrimental to the ordinary, continued, or successful operation of
its business, or is substantially detrimental to or materially interferes with
his ability to perform his duties for the Company; or (3) constitutes the
misappropriation, misuse, or misdirection of its funds or property; or (4)
substantially interferes with or impairs the ordinary operation of its business;
or (5) involves moral turpitude that is reasonable likely to cause material
damage to the business or reputation of the Company;

    

    
      
         

      

      
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    C.           Absence.  If
a Executive is absent from the active performance of his duties in the operation
of the business on more than an occasional basis, other than with respect to
approved medical or personal leave, or a disability beyond Executive’s
control;

    

    D.           Violation of the Company’s
Rules.  If Executive violates the Company’s material specific
written rules, policies or procedures (which do not conflict with the terms of
this Agreement), which in the Company’s discretion, renders his continued
employment detrimental to the best interests of the Company; or

    

    E.           Failure to Perform
Duties.  If Executive fails or refuses to perform the duties
reasonably required of him pursuant to the terms of this Agreement after notice
and not less than fifteen (15) days opportunity to cure such failure or refusal,
or if Executive takes actions reasonably calculated to cause his termination of
employment, after notice and not less than fifteen (15) days opportunity to cure
cease or otherwise such actions.

    

    6.1.5           “Good
Reason.”  As used in this Agreement, “Good Reason” means the
occurrence of any of the following without Executive’s prior written consent and
in the absence of any circumstance that constitutes Cause: (i) the regular
assignment to Executive of duties materially inconsistent with the position and
status of Executive; (ii) a material reduction in the nature, status or prestige
of Executive’s responsibilities or a materially detrimental change in
Executive’s title or reporting level, excluding for this purpose an isolated,
insubstantial or inadvertent action by the Company which is remedied by the
Company promptly after the Company’s receipt of written notice from Executive;
(iii) a reduction by the Company of Executive’s annual Base Salary; or (iv) if
Executive shall be required to perform his duties for the Company at a physical
location which is more than twenty miles from 2549 West Main Street, Littleton,
CO  80120 or if the Company’s principal office is moved to a location
which is more than twenty miles from 2549 West Main Street, Littleton,
CO  80120.

    

    6.2           Termination
upon Death or Permanent Disability.  This Agreement will
terminate automatically on Executive’s death or if Executive becomes Permanently
Disabled (as defined below) and the Base Salary, Fringe Benefits and other
payments and benefits which Executive, or Executive’s beneficiaries or estate,
shall be entitled to receive shall be determined exclusively by operation of
this Subsection.  In the event of such termination, Executive, or
Executive’s beneficiaries or estate, shall be entitled to receive such amounts
of the Base Salary and Fringe Benefits as would have been payable to Executive
under a termination without Cause under the Subsection of this Section entitled
“Termination Without Cause” as of the date of death or on which the Company
determines in its reasonable discretion that Executive has become Permanently
Disabled.  As used in this Agreement, “Permanently Disabled” shall
mean the incapacity of Executive due to illness, accident, or any other reason
to perform his duties for a period of ninety (90) days, whether or not
consecutive, during any twelve month period of the Term, all as determined by
the Company in its reasonable discretion.  All determinations as to
the date and extent of incapacity of Executive shall be made by the Company’s
Board of Directors, upon the basis of such evidence, including independent
medical reports and data, as the Board of Directors in its discretion deems
necessary and desirable.  All such determinations of the Board of
Directors shall be final.

    

    6.3           Termination
at Executive’s Election.  Executive may resign from employment
with the Company prior to the expiration of the Term for any reason by providing
written notice to the Company at least thirty (30) days prior to the date
selected for resignation.  If Executive resigns from employment before
expiration of the Term under any circumstances other than:  (i) for
Good Reason (defined above), or (ii) within sixty (60) days of a Change in
Control (defined above) for any reason other than Good Reason (defined above),
then Executive shall be entitled to receive only the following: (i) payment of
Executive’s Base Salary through and including the date of resignation; (ii)
payment for all accrued and unused vacation time existing as of the date of
resignation, which will be paid at a rate calculated in accordance with
Executive’s Base Salary at the time of resignation; and (iii) reimbursement of
business expenses incurred prior to the date of resignation.  Except
as expressly set forth in this Subsection, Executive shall not be entitled to
receive any Base Salary, Fringe Benefits or severance benefits in the event
Executive resigns from employment before expiration of the Term, except that
Executive may continue to participate in the Employee Benefit Plans to the
extent permitted by and in accordance with the terms thereof or as otherwise
required by law and except as otherwise provided by this Agreement.

    

    
      
         

      

      
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    6.4           Termination
on Expiration of Term.  If this Agreement is terminated on the
expiration of the Term in accordance with the Section in this Agreement entitled
“Term of
Agreement,” Executive shall receive:  (i) payment of
Executive’s Base Salary through and including the date of termination; (ii)
payment for all accrued and unused vacation time existing as of the date of
termination, which will be paid at a rate calculated in accordance with
Executive’s Base Salary at the time of expiration of the Term; and (iii)
reimbursement of business expenses incurred prior to the date of the expiration
of the Term.  Except as expressly set forth in Subsection, Executive
shall not be entitled to receive any Base Salary, Fringe Benefits or severance
benefits in the event that this Agreement is terminated on the expiration of the
Term in accordance with the Section in this Agreement entitled “Term of Agreement,”
except that Executive may continue to participate in the Employee Benefit Plans
to the extent permitted by and in accordance with the terms thereof or as
otherwise required by law and except as otherwise provided by this
Agreement.

    

    7.           Non-competition;
Secrecy.

    

    7.1           Assistance
to Competitors.  Subject to the terms of the Consulting and
Management Services Agreements, Executive shall not during the Term, except as
provided in the Paragraphs in this Agreement entitled “The Company’s Relationship
with Rover and Roadrunner” and “Employment and
Duties,” own a material interest in (other than up to two percent of the
voting securities of a publicly traded corporation), render financial assistance
to, or offer personal services to (whether for payment or otherwise), any entity
or individual that competes with the Company in the Company Business or any
entity or individual that the Company has reviewed as a business or investment
opportunity in any given three-month period.  “Company Business” shall mean
the specific oil and gas projects undertaken by the Company and as to which it
retains an economic interest during the Term.  Notwithstanding
anything to the contrary set forth in this Agreement, Executive shall have the
right to own a material interest in, render financial assistance to and/or offer
personal services to any entity or individual in connection with a project or
opportunity in which: (i) such entity or individual produces, or proposes to
produce, hydrocarbons through surface or subsurface gas/water separation and
disposal; which Executive is entitled to pursue pursuant to the terms of this
Agreement, the Consulting Agreement or the Management Services Agreement; or
(iii) the Company has failed or declined to exercise its right of first refusal
described below.  Subject to the terms of the Consulting and
Management Services Agreements, Executive agrees that during the Term he will,
in writing, offer the Company a right of first refusal to pursue all
opportunities which he desires to pursue involving the exploration, development
and production of hydrocarbons which do not involve, or which are proposed to
involve, surface or subsurface gas/water separation and disposal.  The
parties acknowledge and agree that Executive has no obligation to offer
opportunities to the Company which involve, or which are proposed to involve,
surface or subsurface gas/water separation and disposal or which otherwise fall
within the ambit of this Agreement, the Consulting and/or the Management
Services Agreement.  This right of first refusal shall include such
information in Executive’s possession as shall be reasonably necessary to
evaluate the economic viability and risks of pursuing each such
opportunity.  Company shall exercise its right of first refusal to
pursue such an opportunity by giving Executive written notice of its exercise
within ten business days of its receipt of Executive’s written
offer.

    

    
      
         

      

      
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    7.2           Confidential
Information.  Executive acknowledges and agrees that the
Company is engaged in business activities in which it is or may be crucial to
develop and retain proprietary, trade secret, or confidential information for
the benefit of the Company (collectively, “Confidential
Information”).  Accordingly, subject to the terms of the Consulting
and/or Management Services Agreements, Executive shall not at any time during or
after the Term, either directly or indirectly, (i) divulge or convey any
Confidential Information to any entity or individual, except as may be expressly
authorized in writing by the Company or as required in the course of Executive’s
performance of his duties hereunder, or (ii) use any Confidential Information
for Executive’s own benefit or the benefit of any entity or individual except
the Company.  The Confidential Information to which Executive may have
access may include, but is not limited to, matters of a technical or
intellectual nature such as inventions, designs, improvements, processes of
discovery, techniques, methods, ideas, discoveries, developments, know-how,
formulae, compounds, compositions, specifications, trade secrets, specialized
knowledge, or matters of a business nature such as information about costs and
profits, records, customer lists, customer data or sales data.

    

    7.3           Ownership
of Ideas.  Subject to, and except as provided by, the terms of
this Agreement, the Consulting Agreement and/or the Management Services
Agreement, the Company shall own, and Executive hereby transfers and assigns to
the Company, all rights, of every kind and character throughout the world, in
perpetuity, in and to any material or ideas, and all results and proceeds of the
performance of Executive’s services hereunder, conceived of or produced during
the Term by Executive in the performance of his services
hereunder.  The parties acknowledge and agree, however, that such
transfer and assignment shall not apply to, or attach in and to, any material or
ideas which were not conceived or produced in the performance of Executive’s
services hereunder or which fall within the ambit of this Agreement, the
Consulting Agreement and/or the Management Services
Agreement.  Executive shall execute and deliver to the Company such
assignments, certificates of authorship, or other instruments as the Company may
require from time to time to evidence ownership of such material, ideas, the
results and proceeds of the performance of Executive’s services under this
Agreement.  Executive’s agreement to assign to the Company any of his
rights as set forth in this Section shall not apply to any invention for which
no equipment, supplies, facility or trade secret information of the Company was
used and that was developed entirely upon Executive’s own time, and (i) that
does not result from any work performed by Executive for the Company, (ii) that
relates to the exploitation of commercial oil and gas opportunities which
Executive is permitted to pursue pursuant to the terms of this Agreement,
including, without limitation, the Section in this Paragraph entitled “Assistance to
Competitors,” or (iii) which falls within the ambit of the Consulting
and/or Management Services Agreements.

    

    7.4           Company
Property.  Subject to the terms of the Consulting and
Management Services Agreements, all records, papers, documents, materials, and
electronically stored data kept, made, or received by Executive in the
performance of his duties while employed by the Company, or generated for, in
the course of, or in connection with the business of the Company (other than
opportunities (i) that does not result from any work performed by Executive for
the Company, (ii) that relates to the exploitation of commercial oil and gas
opportunities which Executive is permitted to pursue pursuant to the terms of
this Agreement, including, without limitation, the Section in this Paragraph
entitled “Assistance
to Competitors,” or (iii) which falls within the ambit of the Consulting
and/or Management Services Agreements), whether or not containing Confidential
Information, shall be and remain the exclusive property of the Company
(collectively referred to as “Company Property”) at all
times during and after Executive’s employment with the Company, without regard
to how Executive came into possession of any Company Property or whether
Executive played any role in creating any Company Property.  Executive
shall not destroy any Company Property or remove any Company Property from the
Company’s premises, whether during or after employment at the Company, except as
expressly directed for the purpose of performing services on behalf of the
Company.  Upon the termination of Executive’s employment with the
Company at any time and for any reason, or upon the Company’s request at any
time and for any reason, Executive shall promptly return all Company Property to
the Company, without keeping a copy of any such Company Property for himself or
any other entity or individual.

    

    
      
         

      

      
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    7.5           Interference
with Employees and Clients.

    

    7.5.1           Non-Solicitation
of Employees.  Subject to the terms of the Consulting and/or
Management Services Agreements, for so long as Executive is employed by the
Company in an executive role, and for a one-year period thereafter, Executive
shall not, directly or indirectly, whether for his own benefit or for the
benefit of any other entity or individual, (i) solicit, encourage, or in any way
influence any person employed by, or engaged to render services on behalf of,
the Company to engage in any activity contrary to or conflicting with the
interests of the Company; or (ii) otherwise interfere to the Company’s detriment
in any way in the Company’s relationship with any person who is employed by, or
engaged to render services on behalf of, the Company.

    

    7.5.2           Non-Solicitation
of Clients.  Subject to the terms of the Consulting and/or
Management Services Agreements, for so long as Executive is employed by the
Company in an executive role, and for a one-year period thereafter, Executive
shall not, whether for his own benefit or for the benefit of any other entity or
individual, take any action which would cause any customer or client of the
Company (i) who became known to Executive by virtue of Executive’s employment
with the Company during the Term, or (ii) whose status as a client or customer
of the Company during the Term can be determined by reference to records
maintained by the Company to curtail or terminate its business relationship with
the Company.

    

    7.5.3           Injunctive
Relief.  Executive and the Company acknowledge and agree that
(i) Executive’s breach of his obligations under this Section would cause the
Company irreparable harm and that monetary damages alone would not be an
adequate remedy for any such breach; and, therefore, (ii) if Executive breaches
this Section, the Company shall be entitled to obtain injunctive relief (and any
other form of equitable relief), as well as any other remedies (including
monetary damages) to which the Company is entitled as a consequence of such
breach or otherwise.

    

    8.           Representation
and Warranties.  Executive represents and warrants to the
Company that, except as contemplated by the Consulting and/or Management
Services Agreements, Executive is under no contractual or other restriction or
obligation that is materially inconsistent with the execution of this Agreement,
the performance of his duties hereunder, or the rights of the Company hereunder,
including, without limitation, any development agreement, non-competition
agreement or confidentiality agreement previously entered into by
Executive.

    

    9.           Miscellaneous.

    

    9.1           Severability.  In
the event that any provision of this Agreement should be held to be void,
voidable, unlawful or for any reason unenforceable, the remaining provisions or
portions of this Agreement shall remain in full force and effect.

    

    9.2           Amendment
and Waiver.  No provision of this Agreement can be modified,
amended, supplemented or waived in any manner except by an instrument in writing
signed by both Executive and the Company.  The waiver by either party
of compliance with any provision of this Agreement by the other party shall not
operate or be construed as a waiver of any other provision of this Agreement, or
of any subsequent breach by such party of any provision of this
Agreement.

    

    9.3.           Applicable
Law.  This Agreement, Executive’s employment relationship with
the Company, and any and all matters or claims arising out of or related to this
Agreement or Executive’s employment relationship with the Company, shall be
governed by, and construed in accordance with, the laws of the State of
Colorado, regardless of choice of law provisions of any
jurisdiction.

    

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    9.4.           Arbitration.

    

    9.4.1           Exclusive
Remedy.  Except as set forth in the Subsection in this
Paragraph entitled “Claims Not Subject to
Arbitration,” arbitration shall be the sole and exclusive remedy for any
dispute, claim, or controversy of any kind or nature (a “Claim”) arising out of,
related to, or connected with this Agreement, Executive’s employment
relationship with the Company, or the termination of Executive’s employment
relationship with the Company, including any Claim against any parent,
subsidiary, or affiliated entity of the Company, or any director, officer,
employee, or agent of the Company or of any such parent, subsidiary, or
affiliated entity.  It also includes any claim against the Executive
by the Company, or any parent, subsidiary or affiliated entity of the
Company.

    

    9.4.2           Claims
Subject to Arbitration.  Except for claims described in the
Subsection in this Paragraph entitled “Claims Not Subject to
Arbitration,” this Agreement specifically includes (without limitation)
all claims under or relating to any federal, state or local law or regulation
prohibiting discrimination, harassment or retaliation based on race, color,
religion, national origin, sex, age, disability or any other condition or
characteristic protected by law; demotion, discipline, termination or other
adverse action in violation of any contract, law or public policy; entitlement
to wages or other economic compensation; any Claim for personal, emotional,
physical, economic or other injury; and any Claim for business torts or
misappropriation of confidential information or trade secrets.

    

    9.4.3           Claims
Not Subject to Arbitration.  This Subsection
does not preclude either party from making an application to a court of
competent jurisdiction for provisional remedies (e.g., temporary restraining
order or preliminary injunction), subject to Colorado Revised
Statutes.  This Agreement also does not apply to any claims by
Executive:  (i) for workers’ compensation benefits; (ii) for
unemployment insurance benefits; (iii) under a benefit plan where the plan
specifies a separate arbitration procedure; (iv) filed with an administrative
agency which are not legally subject to arbitration under this Agreement; or (v)
which are otherwise expressly prohibited by law from being subject to
arbitration under this Agreement.

    

    9.4.5           Procedure.  The
arbitration shall be conducted in the City and County of Denver.  Any
Claim submitted to arbitration shall be decided by a single, neutral arbitrator
(the “Arbitrator”).  The parties to the arbitration shall mutually
select the Arbitrator not later than 45 days after service of the demand for
arbitration.  If the parties for any reason do not mutually select the
Arbitrator within the 45 day period, then any party may apply to any court of
competent jurisdiction to appoint a retired judge as the
Arbitrator.  The arbitration shall be conducted in accordance with the
Colorado Revised Statutes, except as modified by this Agreement.  The
Arbitrator shall apply the substantive federal, state, or local law and statute
of limitations governing any Claim submitted to arbitration.  In
ruling on any Claim submitted to arbitration, the Arbitrator shall have the
authority to award only such remedies or forms of relief as are provided for
under the substantive law governing such Claim.  The Arbitrator shall
issue a written decision revealing the essential findings and conclusions on
which the decision is based.  Judgment on the Arbitrator’s decision
may be entered in any court of competent jurisdiction.

    

    9.4.6           Interpretation
of Arbitrability.  The Arbitrator, and not any federal or state
court, shall have the exclusive authority to resolve any issue relating to the
interpretation, formation or enforceability of this Subsection, or any issue
relating to whether a Claim is subject to arbitration under this Subsection,
except that any party may bring an action in any court of competent jurisdiction
to compel arbitration in accordance with the terms of this Section.

    

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    9.5.           Entire
Agreement.  All Exhibits to this Agreement are incorporated
herein by this reference.  This Agreement constitutes the entire
agreement between the parties relating to the subject matter of this Agreement
and supersedes all prior and contemporaneous negotiations, understandings, or
agreements between the parties, whether oral or written, expressed or
implied.

    

    9.6           Counterparts.  This
Agreement may be executed by the parties in counterparts, each of which shall be
deemed to be an original, but all such counterparts shall together constitute
one and the same instrument.

    

    9.7           Headings.  The
headings of sections and subsections of this Agreement are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.

    

    9.8           Notices.  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 days after the date when sent to the recipient by overnight delivery by
reputable express 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 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
      S. Benton Way
	 	 	 Littleton,
      CO  80123

    

     

    
    

    
      	
               
      

            	
              If
      to the Company:

            	
              Eternal
      Energy Corp.

            
	 	 	2549
      West Main Street, Suite 202
	 	 	Littleton,
      CO  80120

    

     

    9.9           Attorneys’
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.

    

    9.10           Independent
Legal Advice.  Executive
acknowledges that he has been advised to obtain independent legal advice with
respect to this Agreement and that he has had the opportunity to do
so.

    

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

     

     

    
      
        	 BRADLEY
      M. COLBY	 	ETERNAL
      ENERGY CORP.	 
	 	 	 	 	 
	
                /s/
      Bradley M. Colby

              	 	
                By:
      

              	/s/ Paul
      E. Rumler	 
	      
                Bradley
      M. Colby

              	 	 	Paul
      E. Rumler, Secretary	 
	 	 	 	 	 
	 	 	 	 	 

      

    

     

     

    
      
         

      

      
        10Unassociated Document

    
      

      FIRST AMENDMENT TO
THE

      AMENDED AND RESTATED
EMPLOYMENT AGREEMENT

      (“Craig
Phelps)

      

      This
First Amendment (this “Amendment”) to the Amended and Restated Employment
Agreement dated effective as of the 1st day of
August, 2007, “the “Employment Agreement”) is effective as of the 31st day of
July, 2009, (the “Effective Date”).  This Amendment is by and between
Eternal Energy Corp. (the “Company”) and Craig H. Phelps
(“Executive”).  The Company and Executive are all of the parties to
the Employment Agreement.  This Amendment is made pursuant to the
terms of the Section entitled “Amendment and Waiver” of the Paragraph in the
Employment Agreement entitled “Miscellaneous.”  Capitalized
terms not defined in this Amendment shall have the meaning given such terms in
the Employment Agreement.

       

      1.           The
parties hereby delete the text of the Paragraph entitled “3. Term of Agreement” of
the Employment Agreement in its entirety and substitute the following in its
place:

      

      “3.           Term of
Agreement.  The term of this Agreement shall commence on the
Effective Date and shall continue through and including July 31, 2011, subject
to the provisions of the Section in this Agreement entitled “Termination or Expiration of
Agreement,” (the “Term)”.  Notwithstanding the foregoing, the
provisions of the Sections in this Agreement entitled “Non-competition;
Secrecy,” “Representations and
Warranties” and “Miscellaneous” shall
survive, and continue in full force and effect, after any termination or
expiration of this Agreement, irrespective of the reason for the termination or
any claim that the termination was wrongful or illegal.”

      

      2.           The
parties hereby delete the text of the Section entitled “4.3 Stock Options” of the
Paragraph of the Employment Agreement entitled “Compensation and Other
Benefits” in its entirety and substitute the following in its
place:

      

      “4.3           Stock
Options.  Not used.”

      

      3.           The
parties hereby delete the text of the Paragraph entitled “5.  Termination or Expiration of
Agreement” of the Employment Agreement in its entirety and substitute the
following in its place:

      

      “5.           Termination
or Expiration of Agreement.

      

      5.1           Termination
at Company’s Election.  The Company may terminate Executive’s
employment at any time during the Term, for any reason or no reason, with or
without Cause (as hereinafter defined), and with or without notice, subject to
provisions of the Sub-sections of this Section entitled “Termination for
Cause,” “Termination Without
Cause” and “Severance Following a Change
in Control.”

      

      5.1.1           Termination
for Cause.  If Executive’s employment is terminated for Cause
“defined below), Executive shall be entitled to receive only the
following:  (i) payment of Executive’s Base Salary through and
including the date of termination; (ii) payment for all accrued and unused
vacation time as of the date of termination, which will be paid at a rate
calculated in accordance with Executive’s Base Salary at the time of
termination; and (iii) reimbursement of business expenses incurred prior to the
date of termination.  Except as expressly set forth in this
Subsection, Executive shall not be entitled to receive any Base Salary, Fringe
Benefits or severance benefits in the event Executive’s employment is terminated
for Cause, except that Executive may continue to participate in the Employee
Benefit Plans to the extent permitted by and in accordance with the terms of
those plans or as otherwise required by law.

      

      
        
           

        

        
          1

          
            

          

        

        
           

        

      

      5.1.2           Termination
Without Cause.  If Executive’s employment by the Company is
terminated by the Company without Cause or if Executive’s employment is
terminated for Good Reason (defined below), Executive shall
receive:  (i) payment of Executive’s Base Salary through and including
the date of termination; (ii) payment for all accrued and unused vacation time
existing as of the date of termination, which will be paid at a rate calculated
in accordance with Executive’s Base Salary at the time of termination; and (iii)
reimbursement of business expenses incurred prior to the date of
termination.  In addition, if the severance of Executive’s employment
falls within the terms of this Subsection and if the terms of the Subsection of
this Section entitled “Severance Following a Change
in Control” does not apply to the severance of Executive’s employment
with the Company, then, subject to the condition that Executive sign a general
release of all claims in a form approved by the Company in the exercise of its
sole discretion, Executive shall also receive a severance payment in an amount
equal to Thirty Thousand and No/100s US Dollars ($30,000.00 USD), less
applicable withholdings.

      

      5.1.3           Severance
Following a Change in Control.

      

      A.           If,
immediately prior to or within twelve months following a Change in Control
(defined below): (i) Executive’s employment is terminated by the Company without
Cause; or (ii) Executives’ employment is terminated for Good Reason (defined
below), Executive shall receive:  (x) payment of Executive’s Base
Salary through and including the date of termination; (y) payment for all
accrued and unused vacation time existing as of the date of termination, which
will be paid at a rate calculated in accordance with Executive’s Base Salary at
the time of termination; and (z) reimbursement of business expenses incurred
prior to the date of termination.  In addition, if the severance of
Executive’s employment falls within the terms of this Subsection, then, subject
to the condition that Executive sign a general release of all claims in a form
approved by the Company in the exercise of its sole discretion, Executive shall
also receive a severance payment in an amount equal to the product of two times
Executive’s annual Base Salary as the same may have been changed through the
date of the severance of Executive’s employment, less applicable
withholdings.

      

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

      B.           If
Executive severs employment with the Company within sixty (60) days of a Change
in Control (defined below) for any reason other than Good Reason (defined
below), Executive shall receive:  (x) payment of Executive’s Base
Salary through and including the date of termination; (y) payment for all
accrued and unused vacation time existing as of the date of termination, which
will be paid at a rate calculated in accordance with Executive’s Base Salary at
the time of termination; and (z) reimbursement of business expenses incurred
prior to the date of termination.  In addition, if Executive severs
employment with the Company within sixty (60) days of a Change in Control for
any reason other than Good Reason, then, subject to the condition that Executive
sign a general release of all claims in a form approved by the Company in the
exercise of its sole discretion, Executive shall also a severance payment in an
amount equal to Executive’s annual Base Salary as the same may have been changed
through the date of the severance of Executive’s employment, less applicable
withholdings.

      

      C.           For
purposes of this Agreement, the term “Change in Control” shall mean the
occurrence of any of the following events:  (i) the consummation of
any transaction after the Effective Date in which any person or entity or group
of related persons and/or entities becomes the beneficial owner, directly or
indirectly, of securities representing more than twenty percent (20%) of the
combined voting power of the Company’s outstanding voting securities, (ii) three
or more directors, whose election or nomination for election is not approved by
a majority of the members of the Company’s Board of Directors on the Effective
Date, are elected within any twelve month period to serve on its Board of
Directors, or (iii) any merger (other than a merger in which the Company is the
survivor and there is no change of control pursuant to (i) or (ii) of this
sentence), reorganization, consolidation, liquidation, winding up or dissolution
of the Company or the sale of all or substantially all of its
assets.

      

      5.1.4           “Cause.”  As used in this
Agreement, “Cause” shall be defined as:

      

      A.           Criminal
Conduct.  If Executive is convicted of a criminal offense
punishable as a felony, has been convicted of any offense involving moral
turpitude, dishonesty or immoral conduct, or is subject to
incarceration.  For purposes of this provision, incarceration will
mean any incarceration which causes the Employee to be unable to provide
services to the Company for the period of incarceration;

      

      B.           Neglect or Other
Misconduct.  If Executive engages in any conduct, or fails to
take any action which (1) materially and adversely effects the business or
reputation of the Company; or (2) renders his continued service in employment of
the Company detrimental to the ordinary, continued, or successful operation of
its business, or is substantially detrimental to or materially interferes with
his ability to perform his duties for the Company; or (3) constitutes the
misappropriation, misuse, or misdirection of its funds or property; or (4)
substantially interferes with or impairs the ordinary operation of its business;
or (5) involves moral turpitude that is reasonable likely to cause material
damage to the business or reputation of the Company;

      

      
        
           

        

        
          3

          
            

          

        

        
           

        

      

      C.           Absence.  If
a Executive is absent from the active performance of his duties in the operation
of the business on more than an occasional basis, other than with respect to
approved medical or personal leave, or a disability beyond Executive's
control;

      

      D.           Violation of the Company’s
Rules.  If Executive violates the Company’s material specific
written rules, policies or procedures (which do not conflict with the terms of
this Agreement), which in the Company’s discretion, renders his continued
employment detrimental to the best interests of the Company; or

      

      E.           Failure to Perform
Duties.  If Executive fails or refuses to perform the duties
reasonably required of him pursuant to the terms of this Agreement after notice
and not less than fifteen (15) days opportunity to cure such failure or refusal,
or if Executive takes actions reasonably calculated to cause his termination of
employment, after notice and not less than fifteen (15) days opportunity to cure
cease or otherwise such actions.

      

      5.1.5           “Good
Reason.”  As used in this
Agreement, “Good Reason” means the occurrence of any of the following without
Executive’s prior written consent and in the absence of any circumstance that
constitutes Cause: (i) the regular assignment to Executive of duties materially
inconsistent with the position and status of Executive; (ii) a material
reduction in the nature, status or prestige of Executive’s responsibilities or a
materially detrimental change in Executive’s title or reporting level, excluding
for this purpose an isolated, insubstantial or inadvertent action by the Company
which is remedied by the Company promptly after the Company’s receipt of written
notice from Executive; (iii) a reduction by the Company of Executive’s annual
Base Salary; or (iv) if Executive shall be required to perform his duties for
the Company at a physical location which is more than twenty miles from 2549
West Main Street, Littleton, CO  80120 or if the Company’s principal
office is moved to a location which is more than twenty miles from 2549 West
Main Street, Littleton, CO  80120.

      

      5.2           Termination
upon Death or Permanent Disability.  This Agreement will
terminate automatically on Executive’s death or if Executive becomes Permanently
Disabled (as defined below) and the Base Salary, Fringe Benefits and other
payments and benefits which Executive, or Executive’s beneficiaries or estate,
shall be entitled to receive shall be determined exclusively  by
operation of this Subsection.  In the event of such termination,
Executive, or Executive’s beneficiaries or estate, shall be entitled to receive
such amounts of the Base Salary and Fringe Benefits as would have been payable
to Executive under a termination without Cause under the Subsection of this
Section entitled “Termination Without Cause” as of the date of death or on which
the Company determines in its reasonable discretion that Executive has become
Permanently Disabled.  As used in this Agreement, “Permanently
Disabled” shall mean the incapacity of Executive due to illness, accident, or
any other reason to perform his duties for a period of ninety (90) days, whether
or not consecutive, during any twelve month period of the Term, all as
determined by the Company in its reasonable discretion.  All
determinations as to the date and extent of incapacity of Executive shall be
made by the Company’s Board of Directors, upon the basis of such evidence,
including independent medical reports and data, as the Board of Directors in its
discretion deems necessary and desirable.  All such determinations of
the Board of Directors shall be final.

      

      
        
           

        

        
          4

          
            

          

        

        
           

        

      

      5.3           Termination
at Executive=s
Election.  Executive may resign from employment with the
Company prior to the expiration of the Term for any reason by providing written
notice to the Company at least thirty (30) days prior to the date selected for
resignation.  If Executive resigns from employment before expiration
of the Term under any circumstances other than:  (i) for Good Reason
(defined above), or (ii) within sixty (60) days of a Change in Control (defined
above) for any reason other than Good Reason (defined above), then Executive
shall be entitled to receive only the following: (i) payment of Executive’s Base
Salary through and including the date of resignation; (ii) payment for all
accrued and unused vacation time existing as of the date of resignation, which
will be paid at a rate calculated in accordance with Executive’s Base Salary at
the time of resignation; and (iii) reimbursement of business expenses incurred
prior to the date of resignation.  Except as expressly set forth in
this Subsection, Executive shall not be entitled to receive any Base Salary,
Fringe Benefits or severance benefits in the event Executive resigns from
employment before expiration of the Term, except that Executive may continue to
participate in the Employee Benefit Plans to the extent permitted by and in
accordance with the terms thereof or as otherwise required by law and except as
otherwise provided by this Agreement.

      

      5.4           Termination
on Expiration of Term.  If this Agreement is terminated on the
expiration of the Term in accordance with the Section in this Agreement entitled
“Term of
Agreement,” Executive shall receive:  (i) payment of
Executive=s Base
Salary through and including the date of termination; (ii) payment for all
accrued and unused vacation time existing as of the date of termination, which
will be paid at a rate calculated in accordance with Executive=s Base
Salary at the time of expiration of the Term; and (iii) reimbursement of
business expenses incurred prior to the date of the expiration of the
Term.  Except as expressly set forth in Subsection, Executive shall
not be entitled to receive any Base Salary, Fringe Benefits or severance
benefits in the event that this Agreement is terminated on the expiration of the
Term in accordance with the Section in this Agreement entitled “Term of Agreement,”
except that Executive may continue to participate in the Employee Benefit Plans
to the extent permitted by and in accordance with the terms thereof or as
otherwise required by law and except as otherwise provided by this
Agreement.

      

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

      4.           The
parties hereby incorporate the text of the Paragraph of the Employment Agreement
entitled AMiscellaneous@ into this
Amendment by this reference.

      

      5.           Except
as amended by this First Amendment, the parties reconfirm the Employment
Agreement.

      

      6.           For
the convenience of the parties, any number of counterparts of this Amendment 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.  The Amendment may be circulated for
signature through facsimile transmission and all signatures so obtained and
transmitted shall be deemed for all purposes under this Amendment to be original
signatures until such time as original counterparts are exchanged by the
parties.

      

      IN
WITNESS WHEREOF, the parties agree that this Amendment shall be effective as of
and from and after the Effective Date.

       

    

    
      
        
          	 Executive:	 	Eternal
      Energy Corp.	 
	 	 	 	 	 
	
                  /s/
      Craig H. Phelps

                	 	
                  By:
      

                	/s/ Brad
      Colby	 
	      
                        
                    Craig
      H. Phelps

                  

                	 	 	Brad
      Colby, Chief Executive Officer	 
	 	 	 	 	 
	 	 	 	 	 

        

      

       

       

      
        
           

        

        
          6

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