American Eagle 2012 Annual RPT

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
____________________
FORM 10-K
(Mark one)
x ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year ended December 31, 2012
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
Commission File No: 000-50906
____________________
AMERICAN EAGLE ENERGY CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Nevada
(State or Other Jurisdiction
of Incorporation or Organization)
20-0237026
(I.R.S. Employer
Identification No.)
2549 W. Main Street, Suite 202

Littleton, Colorado
(Address of Principal Executive Offices)
80120
(Zip Code)
(303) 798-5235
(Registrants Telephone Number, Including Area Code)
____________________
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock, $0.001 par value
_____________________
Indicate by check mark if the registrant is a well-known seasonal issuer, as defined in Rule 405 of the Securities Act.
Yes No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes x No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small
reporting company.
Large accelerated filer
Non-accelerated filer
Accelerated Filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
x
Yes No x
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, computed by
reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of June 30,
2012, the last business day of the registrants most recently completed second fiscal quarter, was $32,089,947.
The number of shares outstanding of the registrants common stock as of April 10, 2013 was 50,068,346.

TABLE OF CONTENTS
Page
PART I
Item 1.
Business.
Item 1A.
Risk Factors.
Item 2.
Properties.
12
Item 3.
Legal Proceedings.
13
Item 4.
Mine Safety Disclosure.
14
PART II
Item 5.
Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities.
14
Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations.
15
Item 8.
Financial Statements and Supplementary Data.
32
Item 9.
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.
33
Item 9A.
Controls and Procedures.
33
Item 9B
Other Information.
34
PART III
Item 10.
Directors, Executive Officers and Corporate Governance.
35
Item 11.
Executive Compensation.
39
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
42
Item 13.
Certain Relationships and Related Transactions, and Director Independence.
43
Item 14.
Principal Accountant Fees and Services.
44
PART IV
Item 15.
Exhibits, Financial Statement Schedules.
45
SIGNATURES
FINANCIAL STATEMENTS AND NOTES

2
49
PART I
Item 1. Business.
Corporate History
American Eagle Energy Corporation (we, our, us or the Company) was incorporated in Nevada on July 25, 2003, to engage
in the acquisition, exploration, and development of natural resource properties. On November 7, 2005, we and a then-newly-formed, whollyowned subsidiary formed for that purpose completed a merger transaction with us as the surviving corporation (the 2005 Merger). In
connection with the 2005 Merger, we changed our name to Eternal Energy Corp. from our original name, Golden Hope Resources Corp.
On December 20, 2011, we, a newly-formed merger subsidiary (Merger Sub), and American Eagle Energy Inc. (AEE Inc.)
consummated the final steps of a merger transaction (the 2011 Merger), whereby Merger Sub merged with and into AEE Inc., with AEE
Inc. surviving as our wholly-owned subsidiary. Following the initial step of the 2011 Merger, AEE Inc. changed its name from American
Eagle Energy Inc. to AMZG, Inc. In the 2001 Merger, each share of AEE Inc. was converted into 3.641 shares of our common stock,
$0.001 par value, per share, which resulted in the issuance of 164,144,426 shares of our common stock. Immediately following the
consummation of the 2011 Merger, we declared a one-for-four and one-half reverse split of our common stock. The reverse split reduced the
number of shares of our common stock then issued and outstanding to 45,588,948. The retroactive effect of this reverse split has been applied
to all share data included in this Annual Report.
In connection with the 2011 Merger, we changed our name from Eternal Energy Corp. to American Eagle Energy Corporation.
Business Overview
Since the 2005 Merger, we have been engaged in the exploration for petroleum and natural gas in the States of Nevada, Utah, Texas,
Colorado, and North Dakota, the North Sea, and southeastern Saskatchewan, Canada, through the acquisition of contractual rights for oil and
gas property leases and the participation in the drilling of exploratory wells.
As discussed below, our primary area of focus is, and will be for the foreseeable future, oil deposits located within the Bakken and
Three Forks formations in western North Dakota and eastern Montana.
In the fourth quarter of 2010, we began our current drilling activity for our operated wells, targeting the Bakken and Three Forks
Formations in Divide County, North Dakota. In November 2010, we elected to participate in our first non-operated well to be drilled within
the Spyglass Property area. Since that time, we have elected to participate in 53 non-operated Spyglass wells. For more information about our
working interests in the Bakken and Three Forks Formations, see Properties below on page 12 for a discussion of the wells in which we
have elected to participate that are located in this area.
On January 31, 2011, AEE Inc. entered into a Lease Acquisition Agreement with Americana Exploration LLC and Big Sky
Operating LLC to acquire an undivided 66.67% working interest in approximately 47,392 net acres located in Toole County, Montana for cash
consideration of $1,235,684.
In May 2011, we entered into a Purchase and Sale Agreement with AEE Inc. and an unrelated third party for the sale by us and AEE
Inc. of one-half of our respective 50% working interests in approximately 8,948 net acres located primarily in Divide County, North Dakota
(the Spyglass Property). The initial closing of the transactions occurred on May 26, 2011 and resulted in the sale of an undivided 50%
interest in approximately 8,118 net acres for net cash consideration of 6,913,920, which was divided equally between us and AEE Inc. A
second closing related to the transaction occurred on August 5, 2011 and resulted in the sale of an undivided 50% interest in approximately
760 additional net acres for net cash consideration totaling 641,666, which was divided equally between us and AEE Inc. The Purchase and
Sale Agreement also provided for the sale by us of an undivided 50% interest in approximately 269 net acres located within the Spyglass
Property (as we refer to it under Properties below on page 12) in Divide County, North Dakota for net cash consideration totaling $227,079.
The closing of this sale occurred on August 5, 2011. Post-closing, we retained a 50% working interest in the Spyglass Property.
3
On November 18, 2011, we entered into a Purchase and Sale Agreement with AEE Inc. and a third-party purchaser, pursuant to
which we and AEE Inc. agreed to sell to the purchaser an aggregate of 75% of approximately 10,521 aggregate net acres located in Western
Divide County, North Dakota, and eastern Sheridan County, Montana (the West Spyglass Prospect), a region known for its Bakken and
Three Forks zone oil production. The initial closing of the sale occurred on December 14, 2011, with the payment of $10,913,096, to be split
equally us and AEE Inc. We retained a 25% working interest in the West Spyglass Prospect acreage and remained the operator on that acreage.
In addition, subject to the expiration of a previously granted ten-day preferential sale right, we agreed to sell to the same third-party
purchaser 75% of 1,440 net acres in our Spyglass Property, for cash consideration of $1,889,974, which funds were received in January
2012. Post-closing, we remained the operator on the West Spyglass Prospect.
In January 2012, we commenced drilling of our first operated well located within the Spyglass Property, the Christianson 15-12 well.
Throughout the remainder of 2012, we drilled and completed eight additional operated wells within the Spyglass Property. An additional five
wells were drilled and awaiting completion as of December 31, 2012.
Effective April 15, 2011, we and AEE Inc., entered into a farmout agreement with Passport Energy Ltd. (Passport), whereby
Passport agreed to fund 38.5% of the drilling, completing, and equipping costs of up to two future wells located within the Hardy Property in
exchange for a 25% working interest in each well. We retained the remaining working interest. In May 2011, we and Passport successfully
drilled and completed the Hardy 4-16 well, an offset well located within the Hardy Property. A 29-stage fracture stimulation of the Hardy 4-16
well was completed in July 2011 and was placed on production during September 2011. In December 2011, we and Passport modified our
existing farmout agreement to reduce Passports interest in the second well to 23.1% of all drilling related costs and 15% of all lease
operations expenses and corresponding revenues, and commenced drilling of the Hardy 14-17 well, a second well within the Hardy Project.
The Hardy 14-17 well was completed in April 2012.
Competitors
The oil and gas industry is intensely competitive. We compete with numerous individuals and companies, including many major oil
and gas companies, which have substantially greater technical, financial, and operational resources and staffs. Accordingly, there is a high
degree of competition for desirable oil and gas leases and farmin and farmout agreements, suitable properties for drilling operations, and
necessary drilling and completion equipment and services, as well as for access to funds. There are other competitors that have operations in
the various areas of Bakken and Three Forks reserves and the presence of these competitors could adversely affect our ability to acquire
additional leases and farmin and farmout agreements.
Hydraulic Stimulation
We have drilled and completed twelve operated wells since July 2010. Each of our wells contains a lateral section that has been
subjected to hydraulic stimulation in order to improve the productivity of the well. As of the date of this Annual Report, we are currently in the
process of drilling and completing five additional wells, each of which will be stimulated using stimulationthese same techniques. We have
contracted with industry-standard third-party specialists for both the drilling and completion phases of these wells. To date, there have not
been any environmental or safety incidents, citations, or suits related to the hydraulic stimulation operations used as part of the completion of
these wells.
As part of the process of drilling exploratory or producing wells, we currently expect that substantially all of the horizontal wells that
we may cause to be drilled will be completed using hydraulic stimulation techniques. We will use industry-standard, long-established thirdparty service providers for such endeavors. When we initiate any new well in the future, we will determine in advance whether it will be
hydraulically fractured and, if so, we will include in the planning and budgetary process all costs associated with the fracture treatment. The
costs of a well vary based on the depth to which it will be drilled, its horizontal length, and the completion technique to be used, which will
include the added expenditure for the fracture treatment, as well as all related environmental and safety considerations.
4
Because we contract with industry-standard, long-established third-party service providers for all drilling, casing, and cementing
services, we depend upon their industry expertise, safety processes, and best practices for conducting those operations. Our management, and
that of our advisors, has significant, long-term experience with the engineering required to determine where and how a well should be drilled
and whether the well should be hydraulically fractured as part of the completion process. Accordingly, we believe that we will be able to
determine whether our third-party service providers are utilizing proper drilling and completion techniques. Nevertheless, we will rely on
them, in the case of stimulation services, to:
monitor the rate and pressure of the stimulation treatment in real time for any abrupt change in rate or pressure;
evaluate the environmental impact of additives to the hydraulic stimulation fluid;
minimize the use of water during the stimulation process; and
dispose of any produced water in a manner that avoids any impact on other resources and is in full compliance with all federal,
state, and local governmental regulations.
We and our third-party service providers are insured as to various drilling and environmental risks. Our well insurance policy limits
are $5,000,000 in each individual instance with a deductible of $100,000. Our environmental liability policy limit is $1,000,000 per individual
instance with a deductible of $100,000. Historically, we have not had any indemnification obligations in favor of those entities to whom we
sell the oil that is produced from our wells and we do not expect to incur any such obligations in the future. Prior to the closing of the 2011
Merger, AEE Inc. and we, as co-working interest owners, have had reciprocal indemnification obligations to each other.
We rely fully on our third-party service providers to establish and carry out procedures to cope with any negative environmental
impact that could occur in the event of a spill or leak in connection with their hydraulic stimulation services. The third-party service providers
would be responsible for costs arising out of any surface spillage, mishandling of fluids, or leakage from their equipment, including chemical
additives.
The specific chemical composition of the fluids utilized by the third-party service providers in hydraulic stimulation operations are
expected to vary by project and by provider; however, we expect that the chemical composition of such fluids will meet industry standards and
will be utilized in a manner that conforms to all relevant federal, state, and local rules and regulations.
In order to prevent the underground migration of fracture fluids, we, and we expect our third party service providers to, follow
industry-standard practices in respect of casing, cementing, and testing to ensure good physical isolation of the fractured interval from other
sections of the well. Our well construction processes and procedures conform to all relevant federal, state, and local rules and regulations. We
believe that the large thickness of rock formations between the fractured interval and any potable water sources will minimize the risk of
underground migration of fracture fluids. We would generally be responsible for any costs resulting from underground migration of fracture
fluids, and we are not fully insured against this risk. The occurrence of a significant event resulting from the underground migration of fracture
fluids or surface spillage, mishandling, or leakage of fracture fluids could have a materially adverse effect on our financial condition and
results of operations. To date, there have been no such incidents, nor have the members of our management team encountered such an incident
in their long-term experience in this industry.
Government Regulations
Our oil and gas operations are subject to various United States and Canadian federal, state / provincial, and local governmental
regulations. Matters subject to regulation include discharge permits for drilling operations, drilling, and abandonment bonds, reports
concerning operations, the spacing of wells, and pooling of properties and taxation. From time to time, regulatory agencies have imposed price
controls and limitations on production by restricting the rate of flow of oil and gas wells below actual production capacity in order to conserve
supplies of oil and gas. The production, handling, storage, transportation, and disposal of oil and gas, by-products thereof, and other
substances and materials produced or used in connection with oil and gas operations are also subject to regulation under federal, state,
provincial, and local laws and regulations relating primarily to the protection of human health and the environment. To date, expenditures
related to complying with these laws, and for remediation of existing environmental contamination, have not been significant in relation to the
results of our operations. The requirements imposed by such laws and regulations are frequently changed and subject to interpretation, and we
are unable to predict the ultimate cost of compliance with these requirements or their effect on our operations. For information about hydraulic
stimulation regulatory matters, see Risk Factors Federal and state legislative and regulatory initiatives relating to hydraulic stimulation could
result in increased costs, additional operating restrictions or delays, and inability to book future reserves.
5
Research and Development

Our business plan is primarily focused on acquiring prospective oil and gas leases and/or operating existing wells located in the
United States and Canada. We have expended zero funds on research and development in each of our last two fiscal years. We have developed
and are in the process of implementing a future exploration and development plan.
Employees
As of March 31, 2013, our management team consists of Bradley M. Colby, our President, Chief Executive Officer, and Treasurer,
Thomas Lantz, our Chief Operating Officer, and Kirk Stingley, our Chief Financial Officer. Including members of senior management, we
currently employ 17 full-time operations, financial and administrative employees. We do not expect any material changes in the number of our
employees over the next 12-month period. In the past, we have outsourced certain contract employment as needed. It is possible that we may
utilize independent contractors to perform certain corporate activities during the next twelve months.
Item 1A. Risk Factors.
The information in this Annual Report on Form 10-K includes forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). Forwardlooking statements are statements other than statements of historical or present facts, that address activities, events, outcomes, and other
matters that the Company plans, expects, intends, assumes, believes, budgets, predicts, forecasts, projects, estimates, or anticipates (and other
similar expressions) will, should, or may occur in the future. Generally, the words expects, anticipates, targets, goals, projects,
intends, plans, believes, seeks, estimates, may, will, could, should, future, potential, continue, variations of such
words, and similar expressions identify forward-looking statements. These forward-looking statements are based on our current expectations
and assumptions about future events and are based on currently available information as to the outcome and timing of future events.
These forward-looking statements appear in a number of places and include statements with respect to, among other things:
estimates of our oil and gas reserves;

estimates of our future oil and natural gas production, including estimates of any increases or decreases in our production;
our future financial condition and results of operations;
our future revenues, cash flows and expenses;
our access to capital and our anticipated liquidity;
our future business strategy and other plans and objectives for future operations;
our outlook on oil and gas prices;
the amount, nature and timing of capital expenditures, including future development costs, and availability of capital resources to
fund capital expenditures;
our ability to access the capital markets to fund capital and other expenditures;
the impact of political and regulatory developments;
our assessment of our counterparty risk and the ability of our counterparties to perform their future obligations; and
the impact of federal, state and local political, regulatory and environmental developments in the United States and certain foreign
locations where we conduct business operations.
6
These forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of
which are beyond the Companys control, incident to the exploration for and development, production, and sale of oil and gas. These risks
include, but are not limited to, commodity price volatility, inflation, lack of availability of drilling and production equipment and services,
environmental risks, drilling and other operating risks, regulatory changes, the uncertainty inherent in estimating proved oil and natural gas
reserves and in projecting future rates of production, cash flow and access to capital, the timing of development expenditures, and the other
risks described herein under Risk Factors.
Reserve engineering is a process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact
way. The accuracy of any reserve estimates depends on the quality of available data, the interpretation of such data, and price and cost
assumptions made by reservoir engineers. In addition, the results of drilling, testing, and production activities may justify revisions of
estimates that were made previously. If significant, such revisions would change the schedule of any further production and development
drilling. Accordingly, reserve estimates may differ significantly from the quantities of oil and natural gas that are ultimately recovered.
We may not realize the benefits of the 2011 Merger.
There are significant risks and uncertainties associated with our recent merger with AEE Inc. We need to combine and integrate our
operations and AEE Inc.s operations into one company effectively and efficiently. Integration will require substantial management attention
and could detract attention from the day-to-day business of the combined company. We could encounter difficulties in the integration process,
such as the need to revisit assumptions about reserves, future production, revenues, capital expenditures, and operating costs, including
synergies, the loss of key employees or commercial relationships or the need to address unanticipated liabilities. If we cannot continue to
integrate our businesses and AEE Inc.s businesses successfully, we may fail to realize the expected benefits of the 2011 Merger.
Re-sales of a substantial number of shares of our common stock in the public market after the 2011 Merger could materially adversely
affect the market price of common stock.
In connection with closing the 2011 Merger, we issued to AEE Inc.s stockholders approximately 36,476,539 shares of our common
stock, substantially all of which will have no restrictions on resale. The re-sale of a substantial number of shares of our common stock may
result in substantial fluctuations in the price of our common stock. In addition, the re-sale of a substantial number of shares of our common
stock within a short period of time could cause our stock price to fall. The sale of those shares could also impair our ability to raise capital
through sales of additional shares of our common stock.
There is no assurance that we will operate profitably or will generate positive cash flow in the future.
If we cannot generate positive cash flows in the future, or raise sufficient financing to continue our normal operations, then we may
be forced to scale down or even close our operations. In particular, additional capital may be required in the event that drilling and completion
costs for further wells increase beyond our expectations, or that we encounter greater costs associated with general and administrative
expenses or offering costs. The occurrence of any of the aforementioned events could adversely affect our ability to meet our business plan.
We will depend heavily on outside capital to pay for the continued exploration and development of our properties. Such outside
capital may include the sale of additional stock and/or commercial borrowing. Capital may not continue to be available if necessary to meet
these continuing exploration and development costs or, if capital is available, it may not be on terms acceptable to us. The issuance of
additional equity securities by us would result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial
loans, assuming those loans would be available, will increase our liabilities and future cash commitments.
If we are unable to obtain financing in the amounts and on terms deemed acceptable to us, we may be unable to continue our business
and as a result may be required to scale back or cease operations for our business, the result of which would be that our stockholders would
lose some or all of their investment.
7
A decline in the price of our common stock could affect our ability to raise further working capital and adversely impact our operations.
A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a
reduction in our ability to raise capital. Because one of the methods that we have used to finance our operations has been the sale of equity
securities, a decline in the price of our common stock could be especially detrimental to our liquidity and our continued operations. Any
reduction in our ability to raise equity capital in the future could force us to reallocate funds from other planned uses and, if so, would have a
significant negative effect on our business plans and operations, including our ability to develop new projects and continue our current
operations. If our stock price declines, we may not be able to raise additional capital or generate funds from operations sufficient to meet our
obligations.
If we are not successful in continuing to grow our business, then we may have to scale back or even cease our ongoing business
operations.
Our success is significantly dependent on a successful acquisition, drilling, completion, and production program. We may be unable
to locate recoverable reserves or operate on a profitable basis. If our business plan is not successful, and we are not able to operate profitably,
our investors may lose some or all of their investment.
Trading of our stock may be restricted by the SECs Penny Stock regulations, which may limit a stockholders ability to buy and sell
our stock.
The SEC has adopted regulations that generally define penny stock to be any equity security that has a market price (as defined)
less than $5.00 per share. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on brokerdealers who sell to persons other than established customers or accredited investors. The term accredited investor refers generally to
institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000
or $300,000 jointly with his or her spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise
exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC, which provides information about
penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid
and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account
statements showing the market value of each penny stock held in the customer's account. The bid and offer quotations, and the broker-dealer
and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be
given to the customer in writing before or with the customers confirmation. In addition, the penny stock rules require that, prior to a
transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchasers written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules.
Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules
may discourage investor interest in, and limit the marketability of, our common stock.
FINRA sales practice requirements may also limit a stockholders ability to buy and sell our stock.
In addition to the penny stock rules described above, FINRA has adopted rules that require that in recommending an investment to
a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to
recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain
information about the customers financial status, tax status, investment objectives and other information. Under interpretations of these rules,
FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA
requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability
to buy and sell our stock and have an adverse effect on the market for our shares.
8
Trading in our common stock on the OTC Bulletin Board and OTC Markets Group, Inc.s OTCQB tier has been volatile, making it
more difficult for our stockholders to sell their shares or liquidate their investments with predictability.
Our common stock is currently quoted on the OTC Bulletin Board and the OTC Markets Group, Inc.s OTCQX tier. The trading
price of our common stock has been subject to wide fluctuations. Trading prices of our common stock may fluctuate in response to a number
of factors, many of which have been and will continue to be beyond our control. The stock market has generally experienced extreme price and
volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies with no current business
operation. There can be no assurance that trading prices and price earnings ratios previously experienced by our common stock will be
matched or maintained. These broad market and industry factors may adversely affect the market price of our common stock, regardless of our
operating performance.
In the past, following periods of volatility in the market price of a companys securities, securities class-action litigation has often
been instituted. Such litigation, if instituted, could result in substantial costs for us and a diversion of managements attention and resources.
Our securities are considered highly speculative.
Our securities must be considered highly speculative, generally because of the nature of our business and the early stage of our
exploration and development operations. We are engaged in the business of exploring and, if warranted, developing commercial reserves of oil
and gas. Any profitability in the future from our business will be dependent upon our ability to locate and develop additional reserves of oil
and gas, which itself is subject to numerous risk factors as set forth herein. Since we have not generated any material revenues, we expect that
we will need to raise additional monies through the sale of our equity securities or debt in order to continue our business operations.
A portion of our properties are located in undeveloped areas. There can be no assurance that we will establish commercial discoveries on
these properties.
Exploration for economic reserves of oil and gas is subject to a number of risk factors. Few properties that are explored are ultimately
developed into producing oil and/or gas wells. A number of our properties are in the exploration stage only and are without proven reserves of
oil and gas. We may not establish commercial discoveries on any of these properties that do not have any proved developed or undeveloped
reserves. For information about our proved reserves, please see Note 15 to our consolidated financial statements as of and for the years ended
December 31, 2012 and 2011, included in this Annual Report.
The potential profitability of oil and gas ventures depends upon factors beyond our control.
The potential profitability of oil and gas properties is dependent upon many factors beyond our control. For instance, world prices
and markets for oil and gas are unpredictable, highly volatile, potentially subject to governmental fixing, pegging, controls, or any combination
of these and other factors, and respond to changes in domestic, international, political, social, and economic environments. Additionally, due to
worldwide economic uncertainty, the availability and cost of funds for production and other expenses have become increasingly difficult, if not
impossible, to project. These changes and events will likely materially affect our financial performance.
Adverse weather conditions can also hinder drilling and completion operations. A productive well may become uneconomic in the
event water or other deleterious substances are encountered that impair or prevent the production of oil and/or gas from the well. In addition,
production from any well may be unmarketable if it is impregnated with water or other deleterious substances. The marketability of oil and gas
that may be acquired or discovered will be affected by numerous factors beyond our control. These factors include the proximity and capacity
of oil and gas pipelines and processing equipment, market fluctuations of prices, taxes, royalties, land tenure, allowable production, and
environmental protection. These factors cannot be accurately predicted and the combination of these factors may result in us not receiving an
adequate return on invested capital.
Competition in the oil and gas industry is highly competitive and there is no assurance that we will be successful in acquiring the leases.
The oil and gas industry is intensely competitive. We compete with numerous individuals and companies, including many major oil
and gas companies that have substantially greater technical, financial, and operational resources and staffs. Accordingly, there is a high degree
of competition for desirable oil and gas leases, suitable properties for drilling operations, and necessary drilling and completion equipment and
services, as well as for access to funds. We cannot predict if the necessary funds can be raised or that any projected work will be completed.
Our budget anticipates our acquisition of additional acreage. This acreage may not become available or if it is available for leasing, we may not
be successful in acquiring the leases. There are other competitors that have operations in areas of potential interest to us and the presence of
these competitors could adversely affect our ability to acquire additional leases.
9
The marketability of natural resources will be affected by numerous factors beyond our control, which may result in us not receiving an
adequate return on invested capital to be profitable or viable.
The marketability of natural resources that may be acquired or discovered by us will be affected by numerous factors beyond our
control. These factors include market fluctuations in oil and gas pricing and demand, the proximity and capacity of natural resource markets
and processing equipment, land tenure, land use and governmental regulations including regulations concerning the importing and exporting of
oil and gas, and environmental protection regulations. The exact effect of these factors cannot be accurately predicted, but the combination of
these factors may result in us not receiving an adequate return on invested capital to be profitable or viable.
Oil and gas operations are subject to comprehensive regulation, which may cause substantial delays or require capital outlays in excess
of those anticipated, causing an adverse effect on us.
Oil and gas operations are subject to federal, state, and local laws relating to the protection of the environment, including laws
regulating removal of natural resources from the ground and the discharge of materials into the environment. Oil and gas operations are also
subject to federal, state, and local laws and regulations which seek to maintain health and safety standards by regulating the design and use of
drilling methods and equipment. Various permits from government bodies are required for drilling operations to be conducted; no assurance
can be given that such permits will be received. Environmental standards imposed by federal, provincial, or local authorities may be changed
and any such changes may have material adverse effects on our activities. Moreover, compliance with such laws may cause substantial delays
or require capital outlays in excess of those anticipated, thus causing an adverse effect on us. Additionally, we may be subject to liability for
pollution or other environmental damages that we may elect not to insure against due to prohibitive premium costs and other reasons. To date
we have not been required to spend any material amount on compliance with environmental regulations. However, we may be required to do
so in future and this may affect our ability to expand or maintain our operations.
Exploration and production activities are subject to certain environmental regulations, which may prevent or delay the commencement or
continuance of our operations.
In general, our exploration and production activities are subject to certain federal, state, and local laws and regulations relating to
environmental quality and pollution control. Such laws and regulations increase the costs of these activities and may prevent or delay the
commencement or continuance of a given operation. Compliance with these laws and regulations has not had a material effect on our
operations or financial condition to date. Specifically, we are subject to legislation regarding emissions into the environment, water discharges,
and storage and disposition of hazardous wastes. In addition, legislation has been enacted which requires well and facility sites to be
abandoned and reclaimed to the satisfaction of state authorities. However, such laws and regulations are frequently changed and we are unable
to predict the ultimate cost of compliance. Generally, environmental requirements do not appear to affect us any differently or to any greater or
lesser extent than other companies in the industry.
We believe that our operations comply, in all material respects, with all applicable environmental regulations. We are not fully insured
against all possible environmental risks.
Exploratory drilling involves many risks and we may become liable for pollution or other liabilities, which may have an adverse effect on
our financial position.
Drilling operations generally involve a high degree of risk. Hazards such as unusual or unexpected geological formations, power
outages, labor disruptions, blow-outs, sour gas leakage, fire, inability to obtain suitable or adequate machinery, equipment or labor, and other
risks are involved. We may become subject to liability for pollution or hazards against which we cannot adequately insure or for which we
may elect not to insure. Incurring any such liability may have a material adverse effect on our financial position and operations. For
information about risks associated specifically with hydraulic stimulation, please see Business Hydraulic Stimulation on page 4 of this
Annual Report.
10
Any change to government regulation/administrative practices may have a negative impact on our ability to operate and our profitability.
The laws, regulations, policies, or current administrative practices of any government body, organization, or regulatory agency in the
United States or any other jurisdiction, may be changed, applied, or interpreted in a manner that will fundamentally alter the ability of our
company to carry on our business. The actions, policies, or regulations, or changes thereto, of any government body, regulatory agency, or
special interest groups, may have a detrimental effect on us. Any or all of these situations may have a negative impact on our ability to operate
and/or our profitability.
Climate change legislation or regulations restricting emissions of greenhouse gases could result in increased operating costs and
reduced demand for the oil and natural gas that we produce.
On December 15, 2009, the U.S. Environmental Protection Agency, or EPA, published its findings that emissions of carbon dioxide,
or CO2, methane, and other greenhouse gases, or GHGs, present an endangerment to public health and the environment because emissions of
such gases are, according to the EPA, contributing to the warming of the earths atmosphere and other climate changes. These findings allow
the EPA to adopt and implement regulations that would restrict emissions of GHGs under existing provisions of the Federal Clean Air Act.
The EPA has adopted two sets of regulations under the existing Clean Air Act that would require a reduction in emissions of GHGs from
motor vehicles and could trigger permit review for GHG emissions from certain stationary sources. In addition, in April 2010, the EPA
proposed to expand its existing GHG reporting rule to include onshore oil and natural gas production, processing, transmission, storage, and
distribution facilities. If the proposed rule is finalized as proposed, reporting of GHG emissions from such facilities would be required on an
annual basis, with reporting beginning in 2012 for emissions occurring in 2011.
In addition, both houses of Congress have actively considered legislation to reduce emissions of GHGs, and almost one-half of the
states have already taken legal measures to reduce emissions of GHGs, primarily through the planned development of GHG emission
inventories and/or regional GHG cap and trade programs. Most of these cap and trade programs work by requiring either major sources of
emissions or major producers of fuels to acquire and surrender emission allowances, with the number of allowances available for purchase
reduced each year until the overall GHG emission reduction goal is achieved. The adoptions of any legislation or regulations that require
reporting of GHGs or otherwise limits emissions of GHGs from our equipment and operations could require us to incur costs to monitor and
report on GHG emissions or reduce emissions of GHGs associated with our operations, and such requirement also could adversely affect
demand for the oil and natural gas that we produce.
Federal and state legislative and regulatory initiatives relating to hydraulic stimulation could result in increased costs, additional
operating restrictions or delays, and inability to book future reserves.
Hydraulic stimulation is a process used by oil and natural gas exploration and production operators in the completion or re-working
of certain oil and natural gas wells, whereby water, sand, and chemicals are injected under pressure into subsurface formations to stimulate
natural gas and, to a lesser extent, oil production. We engaged third parties to provide hydraulic stimulation or other well stimulation services
to us in connection with the well for which we are the operator and we expect to do so in the future for other wells. Hydraulic stimulation is
typically regulated by state oil and natural gas agencies and has not been subject to Federal regulation. However, due to concerns that hydraulic
stimulation may adversely affect drinking water supplies, the EPA has commenced a study of the potential adverse effects that hydraulic
stimulation may have on water quality and public health, and a committee of the U.S. House of Representatives has commenced its own
investigation into hydraulic stimulation practices. Additionally, legislation has been introduced in Congress to amend the Federal Safe
Drinking Water Act to subject hydraulic stimulation processes to regulation under that Act and to require the disclosure of chemicals used by
the oil and natural gas industry in the hydraulic stimulation process. If enacted, such a provision could require hydraulic stimulation activities
to meet permitting and financial assurance requirements, adhere to certain construction specifications, fulfill monitoring, reporting, and
recordkeeping requirements, and meet plugging and abandonment requirements.
11
In unrelated oil spill legislation being considered by the U.S. Senate in the aftermath of the April 2010 Macondo well release in the
Gulf of Mexico, Senate Majority Leader Harry Reid has added a requirement that natural gas drillers disclose the chemicals that are pumped
into the ground as part of the hydraulic stimulation process. Disclosure of chemicals used in the stimulation process could make it easier for
third parties opposing hydraulic stimulation to initiate legal proceedings based on allegations that specific chemicals used in the stimulation
process could adversely affect groundwater. Certain states and other agencies have adopted or are considering similar disclosure legislation,
moratoria, or enforcement initiatives relating to hydraulic stimulation. Adoption of legislation or of any implementing regulations placing
restrictions on, or imposing reporting and disclosure obligations regarding, hydraulic stimulation activities could impose operational delays,
increased operating costs and additional regulatory burdens on our exploration and production activities, which could make it more difficult to
perform hydraulic stimulation, resulting in reduced amounts of oil and natural gas being produced and booked as reserves in the future, as well
as increase our costs of compliance and doing business.
Our Bylaws contain provisions indemnifying our officers and directors against all costs, charges, and expenses incurred by them.
Our Bylaws contain provisions with respect to the indemnification of our officers and directors against all costs, charges, and
expenses, including an amount paid to settle an action or satisfy a judgment, (i) actually and reasonably incurred and (ii) in a civil, criminal, or
administrative action or proceeding to which such person is made a party by reason of such person being or having been one of our directors
or officers.
Investors interests in us will be diluted and investors may suffer dilution in their net book value per share if we issue additional shares
or raise funds through the sale of equity securities.
In the event that we are required to issue any additional shares or enter into private placements to raise financing through the sale of
equity securities, investors interests in us will be diluted and investors may suffer dilution in their net book value per share depending on the
price at which such securities are sold. If we issue any such additional shares, such issuances also will cause a reduction in the proportionate
ownership and voting power of all other stockholders. Further, any such issuance may result in a change in our management and directors.
We have never paid cash dividends and do not intend to do so.
We have never declared or paid cash dividends on our common stock. We currently plan to retain any earnings to finance the growth
of our business rather than pay cash dividends. Payments of any cash dividends in the future will depend on our financial condition, results of
operations, and capital requirements, as well as other factors deemed relevant by our board of directors.
Our Bylaws do not contain anti-takeover provisions, which could result in a change of our management and directors if there is a takeover of us.
We do not currently have a stockholder rights plan or any anti-takeover provisions in our Bylaws. Without any anti-takeover
provisions, there is no deterrent for a take-over of us, which may result in a change in our management and directors.
Item 2. Properties.
We own an undivided 50% working interest in approximately 7,623 net acres located within the Spyglass Property, primarily in
Divide County, North Dakota. An unrelated third-party owns the other undivided 50% working interest in such net acres. To date, we have
agreed to participate in 53 non-operated wells located within the Spyglass Property areas, at various levels of participation. As of December
31, 2012, 46 of the non-operated wells are producing / shut in and the remaining 7 wells have been, or are in the process of being, drilled or
completed. A listing of our Spyglass wells and the status of each well as of December 31, 2012 is discussed in Item 7, Managements
Discussion and Analysis of Financial Condition and Results of Operations, below. Our Spyglass Property wells currently produce
approximately 1,800 barrels of oil and 1.1 million mmcf of gas per day.
We own a 25% working interest in oil and gas leases covering approximately 4,555 aggregate net acres within in the West Spyglass
Prospect, located primarily in Western Divide County, North Dakota, and eastern Sheridan County, Montana. We sold 75% of the working
interest to an unrelated third party during 2011. Post-closing, we remain the operator on that acreage.
We own a 100% working interest in oil and gas leases covering approximately 5,914 net acres within the NE Montana Prospect,
located in Sheridan and Daniels counties, Montana.
12
We own a 33% working interest in oil and gas leases covering approximately 2,757 net acres located in the Glacier Prospect,
primarily in Toole County, Montana.
We own a 100% working interest in oil and gas leases covering approximately 697 net acres located within the Sidney North
Prospect, primarily in Richland County, Montana.
We own a 100% working interest in oil and gas leases covering approximately 683 net acres located within the Benrude Property,
primarily in Roosevelt County, Montana. In 2012, we completed a 3-D seismic analysis of the Benrude Property sometime in 2012. We are
currently evaluating the results of the 3-D seismic analysis, in order to determine our development strategy with respect to the Benrude
acreage.
We own a 100% working interest in oil and gas leases covering approximately 329 net acres located within the Mustang Prospect,
located in Divide Country, North Dakota, outside of the boundaries of our Spyglass Property and West Spyglass Prospect.
We own a 100% working interest in the Hardy Property, containing approximately 4,300 net acres located in southeastern
Saskatchewan, Canada. Our working interest in the Hardy Property is subject to certain, well-specific farmout agreements that reduce our
working interests in those particular wells. Our Canadian operations currently produce approximately 60 barrels of oil per day.
The following is a summary of our developed acreage as of December 31, 2012:
Property /
Prospect
Hardy
Spyglass
Totals
Working
Interest
100%
50%
Gross
Acres
960
18,750
19,710
Number
of Leases
Net Acres
960
4,006
4,966
2
497
499
Earliest Lease
Expiration Date
April 2014
Held by Production
Latest Lease
Expiration Date
April 2014
Held by Production
The following is a summary of our undeveloped acreage as of December 31, 2012:

Property /
Prospect
Hardy
Spyglass
Benrude
Glacier
Mustang
NE Montana
Sidney North
West Spyglass
Totals
Working
Interest
100%
50%
100%
33%
100%
100%
100%
25%
Gross
Acres
3,340
14,733
1,120
8,271
329
10,960
834
42,444
82,031
Number
of Leases
Net Acres
3,340
3,883
683
2,757
329
5,914
697
4,555
22,158
4
96
29
406
12
63
30
436
1,076
Earliest Lease
Expiration Date
April 2014
April 2013
January 2013
May 2013
July 2015
January 2015
July 2014
February 2013
Latest Lease
Expiration Date
April 2014
August 2017
July 2015
June 2015
August 2015
December 2016
October 2015
August 2017
Additional information regarding our oil and gas properties can be found in Note 5 and Note 15 to our financial statements as of and for the
years ended December 31, 2012 and 2011, which are included in Item 8 of this document (see pages F-17 and F-28, respectively)
We currently lease 5,294 square feet of office space in Littleton, Colorado, which we believe to be sufficient for the operation of our
business for the foreseeable future. The current lease agreement expires in December 2014.
We do not own or lease any other properties.
Item 3. Legal Proceedings.
We are not currently a party to any material legal proceedings.
13
Item 4. Mine Safety Disclosures.

Not applicable.
PART II
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common stock, par value $0.001, is dually quoted on the OTC Bulletin Board and on the OTC Markets Group, Inc.s OTCQX
tier under the symbol AMZG. From November 7, 2005 until January 18, 2012, our symbol was EERG except from December 20, 2011
to January 17, 2012 when our symbol was EERGD in connection with our 2011 Merger. Active trading in the market of our common stock
commenced on February 2, 2006. The following table sets forth the high and low bid prices for our common stock for the periods indicated,
as reported by OTC Markets Group, Inc. Such quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions, and
may not necessarily represent actual transactions. Historical prices have been adjusted to reflect the effect of the 1.0-for-4.5 reverse stock-split
that occurred on December 20, 2011.
Bid
High
Year ended December 31, 2012:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year ended December 31, 2011:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Low
1.40 $
0.95
0.77
0.88
0.56
0.64
0.60
0.59
1.89
2.03
1.49
1.75
0.50
1.40
0.81
0.81
As of March 31, 2013, there were 47 holders of record of our common stock.
We have never declared or paid any cash dividends on our common stock. For the foreseeable future, we expect to retain any
earnings to finance the operation and expansion of our business.
14
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
THE FOLLOWING PRESENTATION OF OUR MANAGEMENT'S DISCUSSION AND ANALYSIS SHOULD BE READ IN
CONJUNCTION WITH THE FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION INCLUDED ELSEWHERE
IN THIS REPORT.
A Note About Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995 that are based on current management's expectations. These statements may be identified by their use of words like
plans, expect, aim, believe, projects, anticipate, intend, estimate, will, should, could, and other expressions that indicate
future events and trends. All statements that address expectations or projections about the future, including statements about our business
strategy, expenditures, and financial results are forward-looking statements. We believe that the expectations reflected in such forward-looking
statements are accurate. However, we cannot assure you that such expectations will occur.
Actual results could differ materially from those in the forward-looking statements due to a number of uncertainties, including, but
not limited to, those discussed in this section. Factors that could cause future results to differ from these expectations include general economic
conditions, further changes in our business direction or strategy, competitive factors, oil and gas exploration uncertainties, and an inability to
attract, develop, or retain technical, consulting, or managerial agents or independent contractors. As a result, the identification and interpretation
of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives requires the
exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected
results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. No assurance can be given that
any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and we assume no
obligation to update any such forward-looking statements. You should not unduly rely on these forward-looking statements, which speak only
as of the date of this Annual Report, except as required by law; we are not obligated to release publicly any revisions to these forward-looking
statements to reflect events or circumstances occurring after the date of this Annual Report or to reflect the occurrence of unanticipated events.
Industry Outlook
The petroleum industry is highly competitive and subject to significant volatility due to numerous market forces. Crude oil and natural
gas prices are affected by market fundamentals such as weather, inventory levels, competing fuel prices, overall demand, and the availability of
supply.
Worldwide oil prices reached historical highs during the last half of 2008, before tumbling amid worldwide economic crisis. Oil
prices stabilized during 2009 and remained stable throughout 2010. Since December 31, 2010, oil prices increased rapidly, topping $100 per
barrel in mid-March 2011 and again in March 2012 before settling back into the mid-eighties at the end of the third quarter.
15
Oil prices cannot be predicted with any certainty and have significantly affected profitability and returns for upstream producers.
Historically, crude oil prices have averaged approximately $86 per barrel over the past five years, per the New York Mercantile Exchange
(NYMEX). However, during that time, NYMEX oil prices have experienced wide fluctuations in prices, ranging from $37 per barrel to
$145 per barrel, with the median price of $86 per barrel. NYMEX oil prices averaged approximately $95 for both of the years ended
December 31, 2012 and 2011.
While local supply/demand fundamentals are a decisive factor affecting domestic natural gas prices over the long term, day-to-day
prices may be more volatile in the futures markets, such as on the NYMEX and other exchanges, making it difficult to forecast prices with any
degree of confidence.
Company Overview
The address of our principal executive office is 2549 W. Main Street, Suite 202, Littleton, Colorado, 80120. Our telephone number is
303-798-5235.
Our common stock is quoted on the OTC Bulletin Board and the OTC Markets Group Inc.s OTCQX tier under the symbol
AMZG.
Our Company was incorporated in the State of Nevada under the name Golden Hope Resources Corp. on July 25, 2003 and is
engaged in the acquisition, exploration, and development of natural resource properties of merit. On November 7, 2005, we filed documents
with the Nevada Secretary of State to change our name to Eternal Energy Corp. by way of a merger with our wholly-owned subsidiary,
Eternal Energy Corp., which was formed solely to facilitate the name change. In December 2011, we again filed documents with the Nevada
Secretary of state to change our name to American Eagle Energy Corporation, in conjunction with our acquisition of, and merger with, AEE
Inc.
Since our inception, we have entered into participation agreements related to oil and gas exploration projects throughout the
continental United States, including Colorado, Montana, Nevada, North Dakota, Texas, and Utah, as well as in the province of Saskatchewan,
Canada, and areas located in the North Sea.
As of December 31, 2012, we are principally engaged in exploration activities within our Spyglass Property, located in Divide
County, North Dakota, where we target the extraction of oil and natural gas reserves from the Bakken and Three-Forks formations. We also
hold an interest in a small number of wells located in southeastern Saskatchewan, Canada, though our focus on these wells will continue to
diminish as we aggressively pursue the development of our Spyglass Property.
In addition to our existing wells, we own undeveloped acreage interests in the Glacier Prospect, located in Toole County, Montana,
the Sidney North Prospect, located in Richland County, Montana and the West Spyglass Prospect, located in an area adjacent to our Spyglass
Property in Divide County, North Dakota and Sheridan County, Montana.
Our current operations consist of 17 full-time employees.
16
Oil & Gas Wells

As stated above, we are primarily focused on drilling and completing wells located within our Spyglass Property, located in western
North Dakota. As of December 31, 2012, we have successfully drilled and completed 9 Spyglass wells, in which we own significant working
interests, and for which we serve as the Operator. An additional 5 operated wells have been drilled and are awaiting completion as of
December 31, 2012. All 5 of these wells are expected to be completed and put on production during the first quarter of 2013. Our working
interest in our Spyglass operated ranges from 17.81% to 46.93%.
In addition, we have elected to participate as a non-operating working interest partner in the drilling of 53 wells within the Spyglass
Property and areas within Divide County, North Dakota. As of December 31, 2012, 46 of these wells are producing. The remaining 7 wells
are scheduled for completion during the first quarter of 2013. Our working interest ownership in these non-operated wells ranges from 0.03%
to 43.82%.
We also operate three wells and participate as a non-operating working interest partner in a fourth well located in southeastern
Saskatchewan (the Hardy Property). Our working interests in these four wells ranges from 50.00% to 85.00%. Though profitable from a
cashflow perspective, the financial results stemming from the operation of our Canadian wells is significantly less favorable than those of our
US wells. Accordingly, we will continue to evaluate the performance of our Hardy wells going forward. Should circumstances dictate, we
may elect to shut in our Hardy wells and/or seek to sell our interest in such wells in the future.
We evaluate our oil and gas properties for potential impairment on a quarterly basis. At December 31, 2012, we recorded an
impairment adjustment in the amount of $10,631,345 related to our Canadian oil and gas properties. There were no impairments evident as of
December 31, 2012 relative to our US oil and gas properties.
A summary of our working interest in the Spyglass wells and the status of each well as of December 31, 2012 are as follows:
Well Name
Aarestad 4-34H-160N-97W
Adams 2-18H-163N-100W
Anton 3-4-163N-101W (1)
August 4-26H
Bagley 4-30-163N-100W
Operator
Kodiak Oil & Gas Inc.
SM Energy Company
American Eagle Energy
Corporation
SM Energy Company
SM Energy Company
Working
Interest
0.63%
18.52%
22.87%
Actual or Anticipated
Spud Date
November 1, 2010
April 20, 2012
June 15, 2012
Current
Status
Producing
Producing
Producing
5.96%
3.87%
August 17, 2012

April 4, 2011
Producing
Producing
17
Baja 1522-04TFH-163N-99W
Baja 1522-5H
Bakke 3229-2TFH
Bakke 3229-3TFH
Samson Resources Company

0.63%
0.63%
3.94%
3.94%
July 9, 2012
July 7, 2012
November 8, 2012
December 14, 2012
Bakke 3229-4TFH
3.94%
December 25, 2012
Bakke 3229-5MBH
3.94%
December 21, 2012
Blazer 2-11-163N-98W
Border Farms 3130-1H
Border Farms 3130-2TFH
Camino 5-8-163N-98W
Christianson 15-12-163N101W (1)
Christianson Bros. 15-33164N-101W (1)

Corporation
Corporation
0.94%
17.54%
17.54%
17.54%
1.25%
17.81%
February 12, 2011

August 6, 2012
August 4, 2012
June 7, 2012
May 12, 2012
January 11, 2012
21.39%
November 25, 2012
18
Producing
Producing
Producing
Waiting on
Completion
Waiting on
Completion
Waiting on
Completion
Producing
Producing
Producing
Producing
Producing
Producing
Waiting on
Completion
Cody 15-11-163N-101W (1)

Coplan 1-3-163N-101W (1)
Denali 13-21-163N-98W
Dewitt State 3-16-163-101
Dorothy Ann 1-11H
Elizabeth 3-4-163N-101W (1)
Gerhardsen 1-10H
Gjovig 0508-5MBH
Gulbranson 1-1H-163N-100W
Gulbranson 2-1H-163N-100W
Haagenson 3-2-163N-101W
Jurasin 32-29-162N-100W
Karen Bailard 3625-1TFH
Karlgaard 27-34-160-98H 1XP
Lancaster 2-11H-162N-101W
Legaard 4-25H-163N-101W

Corporation
Corporation
Corporation
Continental Resources
18.30%
March 22, 2012
Producing
22.15%
April 25, 2012
Producing
0.03%
14.06%
December 23, 2010

December 22, 2012
0.12%
December 10, 2012

Corporation
Continental Resources
22.68%
August 1, 2012
Producing
Waiting on
Completion
Waiting on
Completion
Producing
2.37%
3.94%
January 22, 2011

December 24, 2012
SM Energy Company
SM Energy Company
Corporation
Crescent Point Energy Corp.
Baytex Energy USA Ltd
SM Energy Company
11.55%
11.51%
43.82%
September 13, 2012

April 14, 2012
September 21, 2012
Producing
Waiting on
Completion
Producing
Producing
Producing
0.21%
1.08%
0.57%
6.23%
3.69%
October 15, 2011

October 6, 2012
June 1, 2012
July 1, 2011
July 19, 2011
Producing
Producing
Producing
Producing
Producing
19
Leininger 3-10-1H
Mountainview Energy
1.17%
December 12, 2012
Megan 14-12-163N-101W (1)

Corporation
Corporation
Corporation
Continental Resources, Inc.
Baytex Energy USA
17.88%
September 23, 2012
Waiting on
Completion
Producing
46.93%
January 24, 2013
Waiting to Drill
1.08%
1.60%
0.32%
22.87%
October 10, 2012

November 7, 2011
April 25, 2011
October 23, 2012
0.44%
17.54%
17.54%
17.54%
17.54%
28.22%
0.78%
December 21, 2010

August 20, 2012
August 18, 2012
June 9, 2012
June 5, 2012
October 26, 2011
August 11, 2011
Producing
Producing
Producing
Waiting on
Completion
Producing
Producing
Producing
Producing
Producing
Producing
Producing
Mona Johnson 1-3

Montclair 0112-2TFH
Montclair 1-12-163N-99W
Mustang 7-6-163N-98W
Muzzy 15-33S-164N-101W (1)
Nielsen 1-12H-160N-97W
Nomad 0607-1H
Nomad 0607-2TFH
Nomad 0607-05H
Nomad 0607-6TFH
Nomad 6-7-163N-99W
Olson 15-22-162N-100W
20
Reistad 1-1H-162N-102W
Ridgeway 25-36-163N-101W
Riede 4-14H-163N-100W
Silas 3-2N-163N-101W (1)
Stanley 8-1E-163N-102W (1)
Terri Lynn 3-3-163N-101W
Thomte 5-8-163N-99W
Thomte 0508-2TFH
Thomte 0508-3H
Titan 36-25-163N-99W
Titan 3625-2TFH
Torgeson 1-15H-163N-100W
Violet 3-3-163N-101W
Wigness 5-8-1H
William Bailard 0112-1TFH
Murex Petroleum Corporation

SM Energy Company
Corporation
Corporation
Corporation
SM Energy Company
Corporation
Mountainview Energy
21
5.50%
1.88%
0.34%
24.61%
February 28, 2011

August 15, 2011
January 30, 2011
August 31, 2012
Producing
Producing
Producing
Producing
17.81%
December 18, 2012
34.52%
November 22, 2012
6.36%
3.94%
3.94%
0.29%
1.08%
4.38%
20.20%
August 22, 2011

October 20, 2012
November 25, 2012
October 8, 2011
October 9, 2012
March 6, 2011
October 21, 2012
Waiting on
Completion
Waiting on
Completion
Producing
Producing
Producing
Producing
Producing
Producing
Producing
1.56%
1.08%
November 14, 2012

October 7, 2012
Producing
Producing
Wolter 1-28H-163N-100W
Yukon 12-1-163N-98W
SM Energy Company
SM Energy Company
SM Energy Company
1.30%
5.92%
1.54%
1.25%
November 27, 2010

June 26, 2011
November 20, 2011
February 28, 2011
Producing
Producing
Producing
Producing
(1) This well is included in the Carry Agreement to which we are a party as of December 31, 2012. Our working interest in this well
is subject to change depending on the length of time it takes for the well to pay out.
Well Summary
The following tables summarize the number of our completed wells and our drilling activity for the years ended December 31, 2012 and 2011:
December 31, 2012
U.S.
Canada
Gross exploratory wells:

Beginning of period
Purchased / acquired
Drilled
Abandoned
End of period
December 31, 2011

U.S.
Canada
Beginning of period
Drilled
Abandoned
21.00
34.00
-
2.00
2.00
-
21.00
-
1.00
1.00
-
End of period
55.00
4.00
21.00
2.00
Gross development wells:
Net exploratory wells:
Year Ended
December 31, 2012
U.S.
Canada
Beginning of period
Drilled
Abandoned
End of period
22
Year Ended
December 31, 2011
U.S.
Canada
-
Year Ended
December 31, 2012
U.S.
Canada
Net development wells:

Beginning of period
Drilled
Abandoned
End of period
0.50
4.30
4.80
1.75
1.35
3.10
Year Ended
December 31, 2011
U.S.
Canada
0.50
0.50
1.00
0.75
1.75
The Company did not drill any dry exploratory or developmental wells during the years ended December 31, 2012 and 2011.
Acquisition of AEE Inc.
On February 23, 2011, we announced our intention to pursue a merger with AEE Inc. On April 8, 2011, we entered into a definitive
merger agreement (that was amended on September 28, 2011, to extend the termination date), pursuant to which we formed a wholly-owned
subsidiary into which AEE Inc. was merged. On December 20, 2011, we consummated the final steps in the merger transaction and trading of
the common stock of the combined company commenced. The relevant documents for the merger were filed with the Secretary of State of
Nevada effective November 30, 2011.
The ratio of stockholdings between the companies at the closing of the merger, exclusive of any then-outstanding options, was
approximately 80% to the legacy stockholders of AEE Inc. and 20% to our legacy stockholders. Despite the fact that the AEE Inc.s legacy
stockholders held approximately 80% of the Companys outstanding shares immediately following the merger, other factors present in the
structure of the transaction resulted in the Company being determined to be the acquiring entity for financial reporting purposes. Specific
factors that led to this conclusion included the fact that the majority of the merged companys officers and Board of Directors membership
consists of legacy Eternal Energy Corp. officers and directors. In addition, there is no single stockholder or organized group of stockholders
of the former AEE Inc. that holds the largest minority voting interest in the merged company. Rather, the individual who owns the largest
number of shares of the merged companys voting stock is a legacy Eternal Energy stockholder and was a member of the Eternal Energy
Corp.s senior management and is a member of the merged companys senior management team.
We completed the registration of the common stock that we issued to the legacy stockholders of AEE Inc. with the Securities and
Exchange Commission on November 11, 2011.
Results of Operations for the Year Ended December 31, 2012 vs. 2011
The consolidated results of operations for the year ended December 31, 2012 include the results of operations of both American
Eagle Energy Corporation and AEE Inc. and their respective subsidiaries. For financial reporting purposes, the consolidated results of
operations for AEE Inc. for the period January 1, 2011 through December 20, 2011, the date of our merger, are excluded from our reportable
2011 results of operations due to accounting rules applicable to business combinations. However, for analysis purposes only, the following
discussion includes references, where appropriate, to pro forma amounts, which represent the combined results of operations for the year
ended December 31, 2011.
23
Our Spyglass Property represents the majority of our US holdings and is the primary focus of our ongoing and future operations. As
discussed previously, we also participate in a small number of wells located within our Hardy Property, in southeastern Saskatchewan,
Canada. The following is a summary of our well count as of December 31, 2012:
US
Operated wells producing
Operated wells waiting to be completed
Non-operated wells producing
Non-operated wells waiting to be completed
Totals
Canada
9
5
46
7
67
Total
3
1
4
12
5
47
7
71
Overall, our revenues associated with the sale of oil and gas totaled $10,713,946 for the year ended December 31, 2012, compared to
$864,918 for the year ended December 31, 2011, an increase of 1,139%. Our US wells accounted for 82.0% ($8,785,986) of our total sales
for 2012. This percentage will continue to climb as we build our inventory of wells within our Spyglass Property going forward.
Due to lower than anticipate production volumes from our Hardy wells, resulting in a significant reduction of our proved Canadian
reserves from 2011 to 2012, we were required to write-down the value of the Canadian oil and gas properties at year-end, pursuant to full-cost
accounting rules. In doing so, we recognized an impairment expense of $10,631,345 related to our Hardy Property for the year ended
December 31, 2012. The impairment expense represents a non-cash charge against our earnings.
Our results from operations for the year ended December 31, 2012 showed a net loss of ($9,292,784), compared to net income of
$4,453,901 for the year ended December 31, 2011. Our basic and diluted loss per share for the year ended December 31, 2012 was ($0.20),
compared to basic and diluted earnings per share of $0.49 and $0.37, respectively, for the year ended December 31, 2011. The 2011 earnings
per share figures have been adjusted to reflect the effects of the 1.0-to-4.5 reverse stock split that occurred in December 2011.
Excluding the impairment expense recognized on the Hardy Property, our operating income for the year ended December 31, 2012
would have been $149,829, compared to an operating loss of ($1,917,117) for the year ended December 31, 2011. Furthermore, our revenues,
less oil and gas production costs, was $$7,513,775 for the year ended December 31, 2012, compared to $327,796 for the year ended
December 31, 2011. A discussion of the key components of our statements of operations and material fluctuations for the year ended
December 31, 2012 and 2011 is provided below.
A comparison of the 2012 and 2011 oil and gas sales and lease operating expenses is as follows:
24
Consolidated:
The following table summarizes our oil and gas revenues and our lease operating expenses for the year ended December 31, 2012
and 2011.
Oil sales
Gas sales
Total revenues
2012
$10,705,762 $
8,184
$10,713,946 $
2011
864,918
864,918
Lease operating expenses (LOE)
$ 2,149,335 $
537,122
134,314
2,306
134,698
11,337
11,337
Oil sales volumes (barrels)

Gas sales volumes (mcf)
Total sales volumes (BOE)
Average oil sales price per barrel
Average gas sales price per mcf
$
$
79.71 $
3.55 $
76.29
-
Average LOE per BOE
15.96 $
47.38
The decrease in the average LOE per BOE from 2011 to 2012 is primarily due to the increase in the number of US wells, which operate at
significantly lower expense levels than our Canadian wells due to significantly lower water levels.
US Operations:
We drilled and completed our first US operated well, the Christianson 15-11, in April 2012. Since that time, we have drilled and
completed eight additional US operated wells. The following table summarizes the oil and gas revenues and lease operating expenses for our
US operated wells for the years ended December 31, 2012 and 2011.
2012
2011
US operated wells:
Oil sales
Gas sales
Total revenues
$ 3,082,289 $
$ 3,082,289 $
Lease operating expenses

157,708 $
37,892
37,892

$
$
81.34 $
- $
Average LOE per BOE
4.16 $
25
BOE is Barrel of Oil Equivalent: This summarizes the amount of energy that
is equivalent to the amount of energy found in a barrel of crude oil.
There are approx 42 gal (159 L) in 1 barrel of oil - which contain 5.8M
MBtus (British Thermal Units) or 1700 kilowatt hours. The term is used to
report amount of reserves company has access to without breaking it down
into barrel's of crude oil or cubic feet of natural gas.
As of December 31, 2012, we own working interests in 53 non-operated producing wells located within the United States. The
following table summarizes the oil and gas revenues and lease operating expenses for our US non-operated wells for the years ended
2012
US non-operated wells:
Oil sales
Gas sales
Total revenues
$ 5,695,513 $
8,184
$ 5,703,697 $

265,469 $
70,788
2,306
71,172
2011
402,436
402,436
23,264
5,535
5,535

$
$
80.46 $
3.55 $
72.71
-
Average LOE per BOE
3.73 $
4.20
We began depleting our US wells in 2012, during which time we recognized aggregate depletion expense totaling $1,547,186
($14.19 per BOE) related to our US operated and non-operated wells.
Canadian Operations:
In April 2012, we drilled and completed our third Canadian operated well, the Hardy 14-17. As of December 31, 2012, we own
working interests in and operate three producing wells within our Hardy Property. The following table summarizes the oil and gas revenues
and lease operating expenses for our Canadian operated wells for the years ended December 31, 2012 and 2011.
2012
2011
Canadian operated wells:

Oil sales
Gas sales
Total revenues
$ 1,732,720 $
$ 1,732,720 $
462,482
462,482
$ 1,573,587 $
512,234

23,208
23,208
5,802
5,802

$
$
74.66 $
- $
79.71
-
Average LOE per BOE
67.80 $
88.29
26
In 2012, we constructed a flowline to connect the Hardy 7-9 and Hardy 4-16 wells, which reduced our trucking expenses considerably,
resulting in a lower average LOE per BOE compared to 2011. However, our Canadian wells continue to incur higher lease operating expenses
than our US wells, primarily due to higher water content in the fluids produced by the wells and related trucking and disposal costs.
In July 2012, we elected to participate in our first non-operated well in Canada, the Minton HZ-1C11 well. The Minton HZ-1C11
well was completed and put on production in August, 2012.
2012
Canadian non-operated wells:
Oil sales
Gas sales
Total revenues
2011
195,240 $
195,240 $
152,572 $
2,425
2,425

$
$
80.51 $
- $
Average LOE per BOE
62.91 $
27
We recognized depletion expense totaling $1,253,207 ($48.89 per BOE) and $89,185 ($15.37 per BOE) related to our Canadian
wells for the years ended December 31, 2012 and 2011, respectively. The increase is primarily due to the significant decline in our Canadian
proved oil and gas reserves from December 31, 2011 to December 31, 2012, coupled with increased production year over year. The decline in
our Canadian reserves from 2011 to 2012 is primarily due to lower than anticipated production from certain wells, which resulted in fewer
proved, undeveloped reserves being recognized.
Despite generating positive cash flows, our Canadian wells continue to underperform compared to our US wells. Our intention is to
aggressively expand our US operations through continued drilling within the Spyglass Property, as well as to conduct exploratory drilling in a
number of our undeveloped prospects. Should circumstances dictate, we may elect to shut-in our Hardy wells at some point in the future
and/or pursue the sale of such wells. No such determination has been made as of the date of this filing. ,
General and administrative expenses totaled $4,503,759 for the year ended December 31, 2012, compared to $2,148,126 for the year
ended December 31, 2011. A discussion of the key components of our general and administrative expenses for the years ended December 31,
2012 and 2011 is as follows:
Salaries and related payroll expenses totaled $2,607,163 for the year ended December 31, 2012, compared to $663,011 for the
same period in 2011. Our staff consisted of 17 full-time employees as of December 31, 2012, compared to 4 full-time employees
as of December 31, 2011. Pro-forma payroll expense for the year ended December 31, 2011 would have been $945,960 (6
employees).
We incurred legal fees totaling $450,975 during the year ended December 31, 2012, compared to $637,708 for the same period in
2011. The majority of our 2011 legal fees were non-recurring and related to the then-proposed merger with AEE Inc., which
closed in December 2011. Pro-forma legal fees for the year ended December 31, 2011 would have been $1,022,295.
We incurred consulting fees totaling $176,447 during the year ended December 31, 2012, compared to $171,417 for the same
period in 2011. The 2012 consulting fees included fees associated with the recruitment of new employees totaling $51,250, fees
associated with our rebranding totaling $31,782 and fees associated with estimating our proved oil and gas reserves totaling
$72,460. Included in the 2011 consulting fees were costs associated with obtaining a fairness opinion related to our then-proposed
merger with AEE Inc., totaling $126,051. Pro-forma consulting fees for the year ended December 31, 2011 would have been
$187,912.
28
During the year ended December 31, 2012, we paid geological consulting fees to a related party, Synergy Resources LLC
(Synergy) totaling $168,000. We incurred no such costs during the same period in 2011. Our consulting arrangement with
Synergy is a legacy arrangement from AEE Inc., which was entered into prior to the merger of the two companies. We anticipate
utilizing Synergy to provide us with geological consulting services throughout the coming year. Pro-forma consulting fees paid to
Synergy for the year ended December 31, 2011 would have been $146,581.
We incurred accounting fees totaling $311,360 during the year ended December 31, 2012, compared to $169,993 for the same
period in 2011. The increase in fees is directly related to the growth and complexity of our accounting operations as a result of
drilling and operating additional wells in 2012. Pro-forma accounting fees for the year ended December 31, 2011 would have been
$278,919.
We record the fair value of stock options as of the date of grant, and amortize this value over the vesting term of the options.
During the year ended December 31, 2012, we granted 1,760,000 stock options to directors, employees and two independent
contractors. As a result, we recognized stock-based compensation expense of $822,485 for the year ended December 31, 2012.
We granted 975,000 stock options to members of our management and operational teams, as well as two directors and one
independent contractor during 2011 and, in doing so, we recognized stock-based compensation expense of $30,614 for the year
ended December 31, 2011.
We incurred insurance expenses totaling $312,267 during the year ended December 31, 2012, compared to $101,775 for the same
period in 2011. The increase is primarily due to obtaining tail coverage for our Directors & Officers insurance for the three-year
period prior to the merger with AEE Inc., as well as to obtain well insurance for the wells that we are operating or anticipate
drilling in the coming year. Our health insurance premiums also increased as a result of adding significant headcount during 2012.
Pro-forma insurance expense for the year ended December 31, 2011 would have been $134,414.
Beginning in 2012, we began recovering a portion of our general and administrative costs through the assessment of overhead
charges on the wells for which we serve as Operator, pursuant to the various operating agreements to which we are a party. Such
charges totaled $270,732 for the year ended December 31, 2012. We did not assess any overhead charges during 2011.
We incurred travel and entertainment related expenses totaling $119,276 during the year ended December 31, 2012, compared to
$40,141 for the same period in 2011. We incurred additional travel related costs throughout the year related to the general
oversight of our drilling program. Pro-forma travel and entertainment expenses for the year ended December 31, 2011 would have
been $71,779.
29
We incurred computer-related expenses totaling $136,393 for the year ended December 31, 2012, compared to $10,967 for the
same period in 2011. The increase is largely due to various computer software licenses that were obtained, as well as access to
various oil and gas production and investor relations information services. In addition, we contracted with a third-party provider to
manage our network security and to oversee our various IT programs. Pro-forma computer expenses for the year ended December
31, 2011 would have been $63,383.
We incurred land management fees totaling $203,901 for the year ended December 31, 2012, compared to $72,733 for the same
period in 2011. The increase is primarily due to our land management consultant working full-time for us in 2012, versus parttime in 2011. Pro-forma land management fees for the year ended December 31, 2011 would have been $193,158.
Rent expense associated with our corporate offices totaled $110,364 for the year ended December 31, 2012, compared to $64,193
for the year ended December 31, 2011. In July 2012, we expanded our office space to accommodate the increase in our employee
headcount. Pro-forma rent expense for the year ended December 31, 2011 would have been $75,735.
Though our functional and reporting currency is the US Dollar, the majority of our transactions related to our Hardy Property are
transacted in Canadian Dollars. During the year ended December 31, 2012, we recognized a foreign exchange gains totaling
$40,131 versus foreign exchange losses of $17,886 for the same period in 2011.
On a pro-forma basis, aggregate general and administrative expenses would have been $3,376,708 for the year ended December
31, 2011.
We routinely receive dividends from our equity investment in shares of Crescent Point Energy Corp.s common stock. Dividend
income totaled $63,654 for the year ended December 31, 2012, compared to $69,822 for the year ended December 31, 2011.
We recognized an estimated income tax benefit in the amount of $1,240,010 for the year ended December 31, 2012, compared to
income tax expense of ($99,291) for the year ended December 31, 2011. Our effective tax rate for the year ended December 31, 2012 was
11.77% compared to (2.18%) for the year ended December 31, 2011. The change in our effective rate is primarily due to the tax effects of the
impairment expense that we recognized in 2012 with respect to our Canadian oil & gas properties. Our deferred tax liabilities relate primarily
to our merger with AEE Inc., which occurred in December 2011, and intangible drilling costs incurred during the year, which are immediately
deductible for tax purposes but are amortized / depleted for financial reporting purposes.
Liquidity and Capital Resources
As of December 31, 2012, our assets totaled $96,914,112, which included, among other items, cash balances totaling $19,057,727,
trade receivables totaling $24,750,444 and marketable securities valued at $1,049,859.
30
On December 28, 2012, we entered into a prepaid swap facility (the Swap Facility) with Macquarie Bank Limited (MBL),
pursuant to which MBL agreed to advance up to $18 million. As of December 31, 2012, we had received $16 million under the agreement.
The remaining $2 million was received in January 2013. The proceeds of the Swap Facility are recorded as a long-term liability and are
earmarked to fund the acquisition and development of oil and gas properties within our Spyglass Property, as well as various corporate
activities. Funds received under the Swap Facility will be repaid through a series of monthly payments from the sale of approximately 212,000
barrels of oil over the five-year period from January 2013 to December 2017, with a final balloon payment of $2 million, due in February
2018. The monthly volumes of oil production to be used to calculate the amounts of such tenders represent less than 25% of our current net
production. The cost of the Swap Facility is based upon an equivalent variable annual interest rate of LIBOR plus 650 basis points, which was
approximately 7.4% as of December 31, 2012.
As of December 31, 2012, we had a working capital deficit of $21,352,954, exclusive of our marketable securities, which, due to our
intent to hold them for the foreseeable future, are presented as non-current assets on our December 31, 2012 balance sheet. Included in our
working capital deficit is the current portion of the Swap Facility ($5,931,003), and the funds payable to a working interest partner in June
2013 ($5,600,000) in connection with our purchase of additional working interests in certain non-operated wells. In addition, the working
capital deficit includes liabilities payable to our Carry Agreement partner ($4,956,817) relating to funds advanced to us for the last of the ten
carried wells, the drilling of which had not yet commended as of December 31, 2012.
Our working capital deficit grew during the year ended December 31, 2012 as a result of our accelerating our drilling activities,
which, as expected, were in advance of our anticipated corresponding revenues. Our senior management team is currently developing a plan to
reduce our working capital deficit in the near future, which includes the evaluation of potential equity and long-term financing opportunities.
Historically, we have raised additional operating capital through private equity funding sources and from the sale of various oil and
gas prospects and properties. However, no assurances can be given that we will be able to obtain sufficient operating capital through the sale
of common stock and/or borrowing or that the development and implementation of our business plan will generate sufficient future revenues
to sustain ongoing operations.
In April 2012, we entered into a Carry Agreement with a third-party working interest partner, pursuant to which (i) that partner
agreed to fund 100% of our working interest share of the drilling and completion costs of up to six new oil and gas wells within our Spyglass
Property, up to 120% of the anticipated cost of the wells and (ii) we will convey, for a limited duration, a portion of our interest in the prepayout revenues of each carried well to that partner, as well as a portion of our working interest in the operating costs of the carried wells. If
payout has not occurred within two years of the commencement date for such well, then the temporary assignment is to increase to 100% for
years three through payout. Once payout has occurred (112% of the costs on a well-by-well basis), our respective revenue and working
interests in each carried well will revert to our original interests in each such well. In July 2012, we amended the existing Carry Agreement to
include an additional four wells. As of December 31, 2012, seven of the ten carried wells had been drilled, completed and placed on
production. None of the seven carried wells had achieved payout as of December 31, 2012. Two additional carried wells were in the process
of being drilled and completed as of December 31, 2012. The Company has received aggregated funding under the amended Carry Agreement
totaling $32,847,102 as of December 31, 2012.
31
Litigation
As of December 31, 2012, we are not subject to any known, pending or threatened litigation.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Item 8. Financial Statements and Supplementary Data.
Our financial statements required to be included in Item 8 are set forth in the Index to Financial Statements on page F-1 of this
Annual Report.
32
American Eagle Energy Corporation

Consolidated Financial Statements
As of December 31, 2012 and 2011 and
For Each of the Two Years in the Period Ended December 31, 2012

Index to the Financial Statements
Report of Independent Registered Public Accounting Firm
F-1
Consolidated Balance Sheets as of December 31, 2012 and 2011
F-2
Consolidated Statements of Operations and Comprehensive Income (Loss) for Each of the Two Years in the Period Ended
December 31, 2012
F-3
Consolidated Statements of Stockholders Equity for Each of the Two Years in the Period Ended December 31, 2012
F-5
Consolidated Statements of Cash Flows for Each of the Two Years in the Period Ended December 31, 2012
F-6
Notes to the Consolidated Financial Statements
F-7
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Stockholders of American Eagle Energy Corporation
We have audited the accompanying consolidated balance sheets of American Eagle Energy Corporation and subsidiaries (the Company) as
of December 31, 2012 and 2011, and the related consolidated statements of operations and comprehensive income (loss), stockholders equity,
and cash flows for the years then ended. These financial statements are the responsibility of the Companys management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of American
Eagle Energy Corporation and subsidiaries as of December 31, 2012 and 2011, and the results of their operations and their cash flows for the
years then ended, in conformity with U.S. generally accepted accounting principles.
Hein & Associates LLP
Denver, Colorado
April 16, 2013
The accompanying notes are an integral part of the consolidated financial statements.
F-1

Consolidated Balance Sheets
As of December 31, 2012 and 2011
2012
Current assets:
Cash
Trade receivables
Receivables from related parties
Income tax receivable
Prepaid expenses
Total current assets

Equipment and leasehold improvements, net of accumulated depreciation and amortization of $227,067
and $156,744, respectively
Oil and gas properties subject to amortization, net of accumulated depletion of $2,978,403 and $183,238,
respectively
Oil and gas properties not subject to amortization
Marketable securities
Other assets
Total assets
Current liabilities:
Accounts payable
Amounts due to working interest partners
Accrued income taxes
Derivative liability
Current portion of long-term debt
2011
19,057,727
24,750,444
190,000
133,067
12,151,309
3,105,079
314,521
45,690
44,131,238
15,616,599
201,329
19,823
43,291,543
7,349,994
1,049,859
890,149
15,798,307
7,295,215
1,254,434
56,845
96,914,112
40,041,223
54,473,721
4,956,817
122,651
5,931,003
6,002,204
2,233,267
1,460,137
-
Total current liabilities
65,484,192
9,695,608
Asset retirement obligation

Noncurrent portion of long-term debt
Deferred taxes
Total liabilities
441,609
10,068,997
3,519,494
79,514,292
34,628
4,552,864
14,283,100
Commitments and contingencies (Note 9)

Stockholders equity:
Common stock, $.001 par value, 194,444,444 shares authorized, 46,068,346 and 45,588,948 shares
outstanding
Additional paid-in capital
Accumulated other comprehensive income (loss)
Accumulated deficit
46,068
27,094,941
(32,091)
(9,709,098)
45,589
25,948,311
180,447
(416,224)
Total stockholders equity
17,399,820
25,758,123
Total liabilities and stockholders equity
96,914,112
F-2
40,041,223

Consolidated Statements of Income and Comprehensive Income
2012
Oil and gas revenues
Operating expenses:
Oil and gas production costs
General and administrative expenses
Depreciation, depletion and amortization
Impairment of oil and gas properties, subject to amortization
Total operating expenses
Total operating (loss)
10,713,946
864,918
3,200,171
4,503,759
2,860,187
10,631,345
21,195,462
537,122
2,148,126
96,787
2,782,035
(10,481,516)
(1,917,117)
Other income (expense)

Interest income
Dividend income
Interest expense
Unrealized loss on derivatives
Gain on the sale of oil and gas property not subject to amortization, net of costs
Total other income (expense)
Income (loss) before taxes
2011
8,335
63,654
(706)
(122,651)
(51,368)
5,286
69,822
6,395,201
6,470,309
(10,532,884)
4,553,192
Income tax benefit (expense)
1,240,010
(99,291)
Net income (loss)
(9,292,874) $
4,453,901
Net income (loss) per common share:

Basic
Diluted
$
$
(0.20) $
(0.20) $
0.49
0.37
Weighted average number of shares outstanding:

Basic
Diluted
45,792,193
45,792,193
F-3
9,143,099
12,161,472

Consolidated Statements of Income and Comprehensive Income
Net income (loss)
2012
2011
(9,292,874) $
4,453,901
Other comprehensive (loss) income:

Unrealized losses on securities, net of tax
Foreign currency translation adjustments
(109,681)
(102,857)
Comprehensive income (loss)
(9,505,412) $
F-4
(235,016)
4,218,885

Consolidated Statements of Stockholders Equity
Additional
Paid-In
Capital
Common Stock
Shares
Amount
Balance, January 1, 2011
9,112,405
Shares issued during acquisition

Stock based compensation
Unrealized loss on securities, net of tax
Net Income
Balance, December 31, 2011
Net income
Balance, December 31, 2012
9,112
$ 9,231,199
36,477
-
16,686,498
30,614
-
45,589
$ 25,948,311
100,000
153,830
225,564
-
100
153
226
-
822,485
109,900
34,471
179,774
-
46,068
$ 27,094,941
36,476,543
45,588,948
Stock based compensation

Shares issued in private placement
Shares issued from exercise of stock options
Shares issued in debt financing
Unrealized loss on securities, net of tax
Foreign exchange translation adjustments
46,068,342
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
$ (4,870,125) $ 4,785,649
415,463
(235,016)
-
180,447
(109,681)
(102,857)
-
16,722,975
30,614
(235,016)
4,453,901
(416,224) $ 25,758,123
(9,292,874)
822,485
110,000
34,624
180,000
(109,681)
(102,857)
(9,292,874)
(32,091) $ (9,709,098) $ 17,399,820
F-5
4,453,901
Total
Stockholders
Equity

Consolidated Statements of Cash Flows
2012
2011
(9,292,874) $
4,453,901
Cash flows provided by (used for) operating activities:

Net income (loss)
Adjustments to reconcile net income (loss) to net cash used by operating activities:
Non-cash transactions:
Stock-based compensation
Depreciation, depletion and amortization
Accretion of discount on asset retirement obligation
Provision for deferred income taxes
Impairment of oil and gas properties
Unrealized loss on derivatives
Foreign currency adjustments
Gain on the sale of oil and gas properties, not subject to amortization
Changes in operating assets and liabilities:
(Increase) decrease in prepaid expense
Increase in trade receivables
Increase in income taxes receivable
(Increase) decrease in receivables from related parties
Increase in deposits
Increase in accounts payable
Increase (decrease) in income taxes payable
822,485
2,860,187
5,301
(938,476)
10,631,345
122,651
(51,556)
-
30,614
96,787
1,548
(385,846)
(6,395,201)
(87,377)
(798,868)
(190,000)
314,521
(3,304)
1,954,489
(1,460,137)
(8,115)
(568,916)
(314,521)
1,047,508
485,137
3,888,387
(1,557,104)
227,661
3,789,989
1,100
(18,914,663)
(252,929)
2,723,550
(50,000)
(51,301)
5,598,916
227,079
9,234,341
700
(5,928,820)
(7,432)
2,233,267
(50,000)
-
(12,526,593)
11,308,051
Cash flows provided by financing activities:

Proceeds from issuance of stock
Proceeds from exercise of stock options
Proceeds from issuance of long-term debt
Commissions paid on issuance of long-term debt
110,000
34,624
16,000,000
(600,000)
Net cash provided by financing activities
15,544,624
6,906,418
9,750,947
12,151,309
2,400,362
Net cash provided by (used for) operating activities

Cash flows provided by (used for) investing activities:
Cash obtained in acquisition
Proceeds from the partial sale of oil and gas properties
Proceeds from the partial sale of oil and gas prospects
Proceeds from the conveyance of working interests
Proceeds from the sale of equipment
Additions to oil and gas properties
Additions to equipment and leasehold improvements
Increase in amounts due to Carry Agreement partner
Purchase of certificates of deposit
Purchase of marketable securities
Net cash provided by (used for) investing activities
Net increase in cash

Cash - beginning of period
Cash - end of period
19,057,727
F-6
12,151,309

Consolidated Statements of Cash Flows
Supplemental Disclosure of Cash Flow Information
2012
Cash paid during the period for:
Interest
Income taxes
706
1,255,000
2011
$
10,438
Supplemental Disclosure of Non-Cash Investing and Financing Activities

2012
Stock issued in acquisition
Stock issued in connection with debt financing
Property additions included in accounts payable
Recording of asset retirement obligation
180,000
25,670,531
406,981
F-7
2011
16,722,975
1,223,505
1,913

1.
Description of Business
American Eagle Energy Corporation (the Company) was incorporated in the state of Nevada in March 2003 under the name Golden
Hope Resources. In July 2005, the Company changed its name to Eternal Energy Corp. In December 2011, the Company changed its
name to American Eagle Energy Corporation, in connection with its acquisition of, and merger with, American Eagle Energy Inc. (AEE
Inc.). See Note 3.
The Company engages in the acquisition, exploration, development and producing of oil and gas properties. The Company is primarily
focused on extracting proved oil reserves. At December 31, 2012, the Company had entered into participation agreements related to oil and
gas exploration projects in the Spyglass Property and West Spyglass Prospect, located in Divide County, North Dakota, and Sheridan
County, Montana and the Hardy Property, located in southeastern Saskatchewan, Canada. In addition, the Company owns working
interests in mineral leases located in Richland, Roosevelt and Toole Counties in Montana.
2.
Summary of Significant Accounting Policies

Basis of Presentation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, AMZG,
Inc., EERG Energy ULC (Canadian) and AEE Canada Inc. (Canadian). All material intercompany accounts, transactions and profits have
been eliminated.
Certain reclassifications have been made to prior year balances to conform to the current years presentation.
In December 2011, the Company announced a 1.0-for-4.5 reverse stock split. As a result, all share and per share information included in
these consolidated financial statements has been presented on a post-reverse-split basis.
Revenue Recognition
Revenue from the sale of oil and gas is recognized when the terms of the sale have been finalized and the oil has been delivered to the
purchaser. The Company records the sale of its interests in prospects when the terms of the transaction are final and the sales price is
determinable.
Concentration of Credit Risk
At December 31, 2012, the Company had $24,718,972 on deposit that exceeded the United States (FDIC) federally insurance limit of
$250,000 per bank.
F-8

Foreign Currency Adjustments
The functional currency of the Companys wholly-owned first-tier subsidiaries, EERG Energy ULC (EERG) and AEE Canada, Inc.
(AEE Canada), is the Canadian Dollar. EERG Energy ULCs and AEE Canada, Inc.s asset and liability account balances are translated
into US Dollars at the exchange rate in effect as of the balance sheet dates. Gains and losses realized upon the settlement of foreign
currency transactions are included in the Companys results of operations. The Company recognized transaction gains (losses) relating to
foreign exchange rates totaling ($40,131) and $17,186 for the years ended December 31, 2012 and 2011, respectively. Foreign currency
translation adjustments are presented as other comprehensive income.
Components of Other Comprehensive Income
Comprehensive income consists of net income and other gains and losses affecting stockholders equity that, under generally accepted
accounting principles, are excluded from net income. For the Company, such items consist of unrealized gains (losses) on marketable
securities and foreign currency translation adjustments.
Cash and Cash Equivalents
Cash equivalents consist of time deposits and liquid debt investments with original maturities of three months or less at the time of
purchase.
Receivables
Receivables are stated at the amount the Company expects to collect. In certain instances, the Company has the legal right to offset
undistributed revenues from its operated wells against uncollected receivables from its working interest partners. The Company considers
the following factors when evaluating the collectability of specific receivable balances: credit-worthiness of the debtor, past transaction
history with the debtor, current economic industry trends, and changes in debtor payment terms. If the financial condition of the
Companys debtors were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required.
The Company maintains an estimated allowance for doubtful accounts for estimated losses resulting from the inability of its customers to
make required payments. Changes to the allowance for doubtful accounts made as a result of managements determination regarding the
ultimate collectability of such accounts are recognized as a charge to the Companys earnings. Specific receivable balances that remain
outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a
credit to the receivable.
F-9

At December 31, 2012 and 2011, the Company has determined that all receivable balances are fully collectible and, accordingly, no
allowance for doubtful accounts has been recorded.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are recorded at cost. Expenditures for major additions and improvements are capitalized and
depreciated or amortized over the estimated useful lives of the related assets using the straight-line method for financial reporting purposes.
The estimated useful lives for significant property and equipment categories are as follows:
Furniture and equipment
Leasehold improvements
3 years
lesser of useful life or lease term
When equipment and improvements are retired or otherwise disposed of, the cost and the related accumulated depreciation are removed
from the Companys accounts and any resulting gain or loss is included in the results of operations for the respective period.
Expenditures for minor replacements, maintenance and repairs are charged to expense as incurred.
Oil and Gas Properties and Prospects
The Company follows the full-cost method of accounting for its investments in oil and gas properties. Under the full-cost method, all costs
associated with the acquisition, exploration or development of properties, are capitalized into appropriate cost centers within the full-cost
pool. Internal costs that are capitalized are limited to those costs that can be directly identified with acquisition, exploration, and
development activities undertaken and do not include any costs related to production, general corporate overhead, or similar activities. Cost
centers are established on a country-by-country basis.
Capitalized costs and estimated future development and abandonment costs for each of the Companys cost centers are amortized on the
unit-of-production basis using proved oil and gas reserves. The cost of investments in unproved properties and major development
projects are excluded from capitalized costs to be amortized until it is determined that proved reserves can be assigned to the properties.
Until such a determination is made, the properties are assessed annually to ascertain whether impairment has occurred. The costs of
drilling exploratory dry holes are included in the amortization base immediately upon determination that the well is dry.
F-10

As of the end of each reporting period, the capitalized costs of each cost center are subject to a ceiling test, in which the costs may not
exceed the cost center ceiling. The cost center ceiling is equal to (i) the present value of estimated future net revenues computed by
applying average monthly prices of oil and gas reserves (with consideration of price changes only to the extent provided by contractual
arrangements) to estimated future production of proved oil and gas reserves as of the date of the latest balance sheet presented, less
estimated future expenditures (based on current costs) to be incurred in developing and producing the proved reserves computed using a
discount factor of ten percent and assuming continuation of existing economic conditions; plus (ii) the cost of properties not being
amortized; plus (iii) the lower of cost or estimated fair value of unproven properties included in the costs being amortized; less (iv) income
tax effects related to differences between the book and tax basis of the properties. If unamortized costs capitalized within a cost center, less
related deferred income taxes, exceed the cost center ceiling, the excess is charged to expense and separately disclosed during the period in
which the excess occurs. The Company recognized $10,206,031 and $0 of impairment losses associated with its Canadian cost center for
the years ended December 31, 2012 and 2011, respectively.
Proceeds received from disposals are credited against accumulated costs except when the sale represents a significant disposal of reserves,
in which case a gain or loss is recognized.
Deferred Loan Costs
The Company capitalizes costs that are directly related to securing bank loans and other types of long-term financing and amortizes such
costs over the life of the corresponding debt using the effective interest method.
Derivatives
The Company reports its price swap derivative at its fair market value as of each period end. Unrealized gains (losses) for the period
associated with the price swap derivative are included in the Companys results of operations.
Asset Retirement Obligations
The Company records estimated asset retirement obligations related to the future plugging and abandoning of its existing wells in the
period in which the wells are completed. The initial recording of an asset retirement obligation results in an increase in the carrying amount
of the related long-lived asset and the creation of a liability. The portion of the asset retirement obligation expected to be realized during the
next 12-month period is classified as a current liability, while the portion of the asset retirement obligation expected to be realized during
subsequent periods is discounted and recorded at its net present value. The discount factors used to determine the net present value of the
Companys asset retirement obligation range from 4.2% to approximately 7.2%, which represents the Companys estimated incremental
borrowing rate as of December 31, 2012.
F-11

Changes in the noncurrent portion of the asset retirement obligation due to the passage of time are accreted using the interest method. The
amount of change is recognized as an increase in the liability and an accretion expense in the statement of operations. Changes in either the
current or noncurrent portion of the Companys asset retirement obligation resulting from revisions to the timing or the amount of the
original estimate of undiscounted cash flows are recognized as an increase or a decrease to the carrying amount of the liability and the
related long-lived asset.
Stock-Based Compensation
The Company measures compensation cost for all stock-based awards at fair value on the date of grant and recognizes compensation
expense in its statements of operations over the service period that the awards are expected to vest. The Company has elected to recognize
compensation cost for all options with graded vesting on a straight-line basis over the vesting period of the entire option. The Company
recognized stock-based compensation expense of $822,485 and $30,614 for the years ended December 31, 2012 and 2011, respectively.
Fair Value of Financial Instruments
Fair value is the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market
participants. Hierarchy Levels 1, 2 or 3 are terms for the priority of inputs to valuation techniques used to measure fair value. Hierarchy
Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Hierarchy Level 2 inputs are inputs other than quoted
prices included within Level 1 that are directly or indirectly observable for the asset or liability. Hierarchy Level 3 inputs are inputs that are
not observable in the market.
The Company uses Level 2 inputs to determine the fair value of certain warrants to purchase shares of common stock of an entity that is
traded on the Canadian National Stock Exchange. The warrants are valued using the Black Scholes Option Pricing Model, which includes
a calculation of historical volatility of the stock.
Basic and Diluted Earnings Per Share
Basic earnings per common share is computed by dividing net earnings available to common stockholders by the weighted average
number of common shares outstanding during the period. For periods in which the Company recognizes net income, diluted earnings per
common share is computed in the same way as basic earnings per common share except that the denominator is increased to include the
number of additional common shares that would be outstanding if all potential common shares had been issued that were dilutive. For
periods in which the Company recognizes losses, the calculation of diluted earnings per share is the same as the calculation of basic
earnings per share. See Note 14 for the calculation of basic and diluted weighted average common shares outstanding for the years ended
Income Taxes
F-12

The Company follows the liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are
recognized for the future tax benefits and consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax balances. Deferred income tax assets and liabilities are measured using enacted or
substantially enacted tax rates expected to apply to the taxable income in the years in which those differences are expected to be recovered
or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes
the date of enactment or substantive enactment. U.S. deferred tax liabilities are not recognized on profits that are expected to be
permanently reinvested in Canada and, thus, are not considered to be available for distribution to the parent company. Net operating loss
carry forwards and other deferred tax assets are reviewed annually for recoverability and, if necessary, are recorded net of a valuation
allowance. See Note 13 for a summary of the Companys income tax expense (benefit) for the years ended December 31, 2012 and 2011.
Liquidity
The Company finances its oil and gas exploration and development activities and corporate operations through a combination of internally
generated funds, external debt financing and sales of its common stock. As of December 31, 2012, the Company had a working capital
deficit of ($21,352,954). The Company is currently developing a plan to reduce its working capital deficit, which may include potential
equity sales or long-term borrowings.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the use of
estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent
obligations in the financial statements and accompanying notes. The Companys most significant assumptions are the estimates used in the
determination of the deferred income tax asset valuation allowance, the valuation of oil and gas reserves to which the Company owns
rights, estimates related to the Companys asset retirement obligations, valuation of the warrants held by the Company as investments and
valuation of assets acquired via merger. The estimation process requires assumptions to be made about future events and conditions, and
as such, is inherently subjective and uncertain. Actual results could differ materially from these estimates.
New Accounting Pronouncements
In January 2013, the Financial Accounting Standards Board (FASB) issued ASC Update No. 2013-01 (ASC No. 2013-01), The
objective of ASC No. 2013-01 is to clarify that the scope of Accounting Standards Update No. 2011-11, Disclosures about Offsetting
Assets and Liabilities (ASC No. 2011-11), would apply to derivatives including bifurcated embedded derivatives, repurchase
agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset or are
subject to a master netting arrangement or similar agreement. ASC No. 2011-11, issued in December 2011, requires that entities disclose
both gross and net information about instruments and transactions eligible for offset in the statement of financial position as well as
instruments and transactions subject to an agreement similar to a master netting arrangement. In addition, the standard requires disclosure
of collateral received and posted in connection with master netting agreements or similar arrangements. The amendments are effective for
annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The disclosures required
by the amendments are required to be applied retrospectively for all comparative periods presented. The Company does not believe the
adoptions of this update will have a material impact on the Companys consolidated financial statements.
F-13

3.
Acquisition of American Eagle Energy Inc.

On December 20, 2011, the Company finalized its merger transaction with AEE Inc. Prior to the transaction, AEE Inc. operated as a
publicly traded company with oil and gas holdings in North Dakota, Texas and southeastern Saskatchewan, Canada and was a working
interest partner to the Company with respect to its Hardy Property and certain proved oil and gas properties and unproven oil and gas
prospects located in North Dakota. The Company acquired AEE Inc. in order to leverage the two companies respective oil and gas
holdings.
Pursuant to the terms of the Merger Agreement, the Company issued 36,476,543 shares of its common stock to acquire 100% of the thenoutstanding shares of AEE Inc.s common stock, which resulted in AEE Inc. becoming a wholly owned subsidiary of the Company.
Immediately subsequent to the transaction, legacy AEE Inc. stockholders owned approximately 80% of the shares of the Companys
outstanding common stock, exclusive of outstanding options to purchase shares of the Companys common stock and shares of AEE
Inc.s common stock. The shares of common stock that were issued in connection with the Companys acquisition of AEE Inc. were
registered with the SEC on November 11, 2011.
Despite the fact the AEE Inc.s legacy stockholders held approximately 80% of the Companys outstanding shares immediately following
the merger, other factors present in the structure of the transaction resulted in the Company being determined to be the acquiring entity for
financial reporting purposes. Specific factors that led to this conclusion included the fact that the majority of the merged companys
officers and Board of Directors membership consists of legacy Eternal Energy Corp. officers and directors. In addition, there is no single
stockholder or organized group of stockholders of the former AEE Inc. that holds the largest minority voting interest in the merged
company. Rather, the individual who owns the largest number of shares of the merged companys voting stock is a legacy Eternal Energy
stockholder and was a member of the Eternal Energy Corp.s senior management and is a member of the merged companys senior
management team. Immediately after the merger, AEE Inc. changed its name to AMZG, Inc.
The Companys historical financial statements have been prepared to give effect to the merger and to represent the historical operations of
the Company through the merger date and the consolidated results of operations for the period from the merger date forward. The merger
was structured to qualify as a tax-free transaction pursuant to Internal Revenue Service regulations.
F-14

The following table summarizes the consideration paid by the Company to acquire AEE Inc. and the net assets acquired:
Consideration given:
36,476,543 shares of the Companys common stock
16,722,975
6,032,799
12,781,348
7,290,500
(9,381,672)
16,722,975
Identifiable assets acquired and liabilities assumed:

Financial assets acquired
Oil and gas properties acquired (amortizable)
Oil and gas properties acquired (non-amortizable)
Financial liabilities assumed
Net assets acquired
Because the common stock of both companies is very thinly traded, the Company estimated the fair market value of the shares issued
based on an independent valuation.
The financial assets acquired included cash and cash equivalents of $5,598,916, trade and other receivables totaling $351,558, prepaid
expenses totaling $7,468, marketable securities of a related party totaling $73,357 and restricted cash totaling $1,500.
The financial liabilities assumed consisted of trade payables and accrued liabilities totaling $3,300,491, amounts due to the Company
totaling $251,081 and long-term asset retirement obligations totaling $17,314. The Company recorded a deferred tax liability in the amount
of $4,837,786, which represents the future tax effects of the fair market value adjustments applied to the assets of AEE Inc. upon
acquisition and current income taxes payable totaling $975,000.
Supplemental Pro Forma Information (Unaudited)
The Companys consolidated statement of income for the year ended December 31, 2011 includes AEE Inc.s revenues and net losses for
the period December 21, 2011 through December 31, 2011 of $42,308 and ($144,525), respectively.
Had the merger transaction occurred effective January 1, 2011, the Companys consolidated financial statements for the year ended
December 31, 2011 would have been as follows (unaudited):
Revenue
Net Income
$ 13,165,575 $ 8,595,814
2011 supplemental pro forma information

F-15

The following assumptions were used to prepare the supplemental pro forma financial information presented above:
4.
No adjustments were made to reflect economies of scale or other potential cost savings that may have been achieved had the
merger occurred on January 1, 2010.
No adjustments were made relative to alternative financing strategies that may have been implemented on a combined entity basis.
Marketable Securities
Available-for-sale marketable securities at December 31, 2012 and 2011 consist of the following:
Estimated
Fair
Value
Gains in
Accumulated
Other
Comprehensive
Income
Losses in
Accumulated
Other
Comprehensive
Income
December 31, 2012

Noncurrent assets:
Common stock
1,049,859 $
76,796 $
Total available-for-sale marketable securities
1,049,859 $
76,796 $
December 31, 2011

Noncurrent assets:
Common stock
1,254,434 $
281,371 $
Total available-for-sale marketable securities
1,254,434 $
281,371 $
The fair value of substantially all securities is determined by quoted market prices. The estimated fair value of securities for which there are
no quoted market prices is based on similar types of securities that are traded in the market. There were no sales of marketable securities
for the years ended December 31, 2012 or 2011. Certain warrants to purchase additional shares of common stock of Passport Energy Ltd.
were exercised in June 2012. The warrants were valued using the Level 2 hierarchy at December 31, 2011. The shares for which the
warrants were exchanged are valued using the Level 1 hierarchy as of December 31, 2012.
F-16

The fair value of the Companys financial instruments, measured on a recurring basis at December 31, 2012 and 2011, were as follows:
Level 1
December 31, 2012
December 31, 2011

5.
1,049,859
1,181,077
Level 2
$
Level 3
-
73,357
Total
-
1,049,859
1,254,434
Purchases and Sales of Royalty and Property Interests

In May 2011, the Company sold half of its 50% working interest in the Spyglass Property to a third party for cash consideration, net of
finders fees, totaling $3,823,963. As of December 31, 2011, $46,170 of the net proceeds was still receivable. At the time of the sale, the
Spyglass Prospect represented the only prospect included in the portion of the Companys full-cost pool that was not subject to
amortization. After reducing the carrying value of the full-cost pool, not subject to amortization to zero, the Company recognized a gain on
the sale of $3,072,377. Because proved reserves were later established, subsequent costs associated with the Company interest in the
Spyglass Prospect have been assigned to the full-cost pool that is subject to amortization.
Also in May 2011, the Company sold half of its 10% working interest in certain acreage included in the Spyglass Property (previously
referred to as the Pebble Beach Property) to the same third-party for cash consideration, net of finders fees, totaling $227,079. Because
the sale of the Pebble Beach working interest did not represent a significant portion of the full-cost pool that is subject to amortization, the
net proceeds received were recorded as a reduction of the amortizable full-cost pool.
In December 2011, the Company sold three-quarters of its 50% working interest in the West Spyglass Prospect to a third party for cash
consideration totaling $5,456,548. At the time of the sale, the West Spyglass Prospect represented the only prospect included in the portion
of the Companys full-cost pool that was not subject to amortization. After again reducing the carrying value of the full-cost pool, not
subject to amortization, to zero, the Company recognized a gain on the sale of $3,332,737.
Also in December 2011, the Company sold half of its 10% working interest in certain other acreage included in the Spyglass Property
(previously referred to as the Pebble Beach Property) to the same third-party for cash consideration totaling $1,889,674. The full amount
of the consideration was included in the Companys receivable balance as of December 31, 2011 and collected in January 2012. Because
the sale of the Pebble Beach working interest did not represent a significant portion of the full-cost pool that is subject to amortization, the
sales proceeds to be received were recorded as a reduction of the amortizable full-cost pool.
In December 2012, the Company purchased additional working interest in several key, non-operated spacing units within the Spyglass
Property from its Carry Agreement partner. The purchase price totaled $8,000,000 in cash, of which $2,400,000 was paid at closing. The
remaining $5,600,000, due in June 2013, has been presented as a current liability on the Companys balance sheet as of December
31,2012.
F-17

6.
Carry Agreement
On April 16, 2012, the Company entered into a Carry Agreement with a third-party working interest partner, pursuant to which (i) that
partner agreed to fund 100% of the Companys working interest share of the drilling and completion costs of up to six new oil and gas
wells within our Spyglass Property, up to 120% of the original AFE amount, and (ii) the Company will convey, for a limited duration, a
portion of its revenue interest in the pre-payout revenues of each carried well and a portion of its working interest in the pre-payout
operating costs of each carried well, to that partner. In the event that the gross drilling and completion cost of a carried well exceeds 120%
of the AFE amount, the Company and the working interest partner will share in the excess costs based on the working interests stipulated
in the Carry Agreement.
Pursuant to the terms of the Carry Agreement, the portion of the Companys net revenue interest in each well to be conveyed to the
working interest partner follows a graduated scale, whereby 50% of the Companys net revenue and working interests is assigned to the
working interest partner during the first year of the wells production or until the carried costs, plus the 12% return, have been achieved,
whichever occurs first. In the event that the working interest partner has not recouped all of the carried costs plus the 12% return by the
end of the first year of production, the assignment of the Companys net revenue and working interests in the well will increase from 50%
to 75% for the second year of production or until the carried costs, plus the 12% return, have been achieved, whichever occurs first. In the
event that the working interest partner has not recouped all of the carried costs, plus the 12% return, by the end of the second year of
production, the assignment of the Companys net revenue and working interests in the well will increase to 100% until the carried costs,
plus the 12% return, have been achieved. Once payout has occurred (112% of the costs on a well-by-well basis), the respective working
interests in the revenues from each carried well will revert to the original working interests in each such well.
Drilling of the first two carried wells commenced prior to the final closing of the Carry Agreement. As of the date of closing, the
Company had incurred drilling costs associated with the first two wells to be covered under the Carry Agreement totaling $3,789,989.
Upon execution of the Carry Agreement, these costs were removed from the Companys books and an offsetting receivable was created.
The receivable has since been fully collected. Pursuant to accounting rules, the assignment of a portion of the Companys working
interests in certain existing and future wells under the Carry Agreement has been treated as a conveyance of the working interests. The
Companys share of the revenues and operating costs of the carried wells for the year ended December 31, 2012, as adjusted pursuant to
the graduated conveyance schedule per the Carry Agreement, have been included in the Companys results of operations for the
corresponding period. In addition, the Company has disclosed the transfer of the drilling costs to the financing partner as a source of cash
from investing activities on its consolidated statement of cash flows for the year ended December 31, 2012.
F-18

Effective July 15, 2012, the Company amended the Carry Agreement with the third-party to include an additional four oil and gas wells.
As of December 31, 2012, the Company has received $32,847,102 of funding under the Carry Agreement, as amended. Proceeds received
pursuant to the terms of the Carry Agreement, subsequent to the closing, are applied against the drilling and completion costs to which
they relate. Additions to oil and gas properties that occurred subsequent to the closing of the Carry Agreement are presented net of
proceeds received under the Carry Agreement on the consolidated statement of cash flows. Funds received pursuant to the Carry
Agreement, prior to the incurrence of related drilling costs, are presented as amounts due to working interest partners on the consolidated
balance sheet.
As of December 31, 2012, the gross drilling and completion costs of four of the carried wells had exceeded the 120% of AFE limit.
Accordingly, the Company has recorded its working interest share in the excess drilling and completion costs which, as of December 31,
2012, totaled $1,680,215.
7.
Swap Facility
On December 28, 2012, the Company entered into a prepaid swap facility with Macquarie Bank Limited (MBL), pursuant to which
MBL agreed to advance up to $18 million. As of December 31, 2012, the Company had received $16 million under the agreement. The
remaining $2 million was received in January 2013.
Funds received under the Swap Facility are accounted for as debt and will be repaid through a series of monthly payments from the sale of
approximately 212,000 barrels of oil over the five-year period from January 2013 to December 2017, with a final balloon payment of $2
million, due in February 2018. The monthly volumes of oil production to be used to calculate the amounts of such tenders represent less
than 25% of the Companys current net production. As of December 31, 2012, the interest rate approximated 7.4%.
F-19

The following table summarizes the scheduled future principal repayments under the Swap Facility:
Amount
2013
2014
2015
2016
2017
2018
Total
5,931,003
3,456,217
2,179,836
2,119,756
2,130,432
2,182,756
18,000,000
The payment schedule presented above is based on predetermined volumes and prevailing oil prices as of the date of closing. Fluctuations
in oil prices could result in higher or lower aggregate payments over the life of the Swap Facility. Any such changes in aggregate payment
amounts will be charged to interest expense when the payments are made.
To effect the Swap Facility, the Company entered into series of agreements for the benefit of MBL, all of which are intended (a) to
evidence MBLs continuing security interest in certain of the Companys US oil and gas properties, including, without limitation,
hydrocarbons produced from such properties and the proceeds of the sale of such hydrocarbons and (b) to secure the Companys
obligations under the Swap Agreement.
The Swap Facility contains customary affirmative and negative covenants for swap facilities of this type, including limitations on the
Company with respect to transactions with affiliates, hedging agreements, dividends and distributions, operations in respect of the
property that secures its collective obligations under the Swap Facility, liens and encumbrances in respect of the property that secures our
collective obligations under the Swap Facility, subsidiaries and divestitures, indebtedness, investments, and changes in business. The
Swap Documents provide for customary events of default with corresponding grace periods, including failure to tender any amount when
due to MBL under the Swap Agreement, failure to comply with or perform any other agreement or obligation under any of the Swap
Documents, misrepresentation, certain cross-defaults, and bankruptcy. In the event of a default by us or our subsidiary, MBL, among
other remedies, may terminate its obligations under the Swap Agreement, declare all of our collective obligations thereunder, including all
of our future tender obligations, immediately due, and enforce any and all of its rights under the Swap Documents. For certain events of
default related to bankruptcy, insolvency, and receivership of ours or of our subsidiary, MBLs obligations would be automatically
terminated and all of our collective outstanding obligations in favor of MBL would become immediately due.
F-20

The Company has agreed to use the advances only for: (i) development of our Spyglass Property in North Dakota to increase production
of hydrocarbons, (ii) acquisition of new oil and gas properties within the Spyglass Property, and (iii) general corporate purposes that are
usual and customary in the oil and gas exploration and production business.
As a condition of closing for the Swap Facility, the Company entered into a price swap agreement relative to 59,052 barrels of future oil
production, using a fixed price of $88.95 per barrel. Future payments related to these barrels will occur monthly over the term of the Swap
Facility. The Company has not designated the price swap agreement as a hedge. Accordingly, management has elected not to apply hedge
accounting to this derivative but will, instead, recognize unrealized gains (losses) associated with derivative in its statement of operations
in the period for which such unrealized gains (losses) occur.
The price swap agreement has a fair market value of ($122,651) as of December 31, 2012. Accordingly, the Company has presented a
short-term derivative liability on its balance sheet as of December 31, 2012 and recognized an unrealized loss associated with the price
swap agreement of $122,651 for the year ended December 31, 2012.
The Company paid investment banking fees of $540,000, consulting fees of $50,000, and legal fees of $10,000 in connection with the
negotiation and closing of the Swap Facility. In addition, the Company issued 225,564 shares of its common stock, valued at $180,000 as
of the date that the Swap Facility was executed, to the investment banking firm that facilitated the transaction. The Company has capitalized
these items as deferred financing costs, to be amortized over the life of the Swap Facility.
8.
Asset Retirement Obligations

During the years ended December 31, 2012 and 2011, the Company recorded initial, estimated asset retirement obligations totaling
$402,928 and $1,913, respectively, in connection with wells that were drilled and completed during the period. The asset retirement
obligations represent the discounted future plugging and abandonment costs for operated and non-operated wells located within its
Spyglass and Hardy Properties. As of December 31, 2012 and 2011, the consolidated discounted value of the Companys asset retirement
obligations was $441,609 and $34,628, respectively.
The Company recognized accretion expense of $4,053 and $1,548 for the years ended December 31, 2012 and 2011, respectively. The
projected plugging dates for wells in which the Company owns a working interest ranges from December 31, 2020 to December 31, 2032.
F-21

9.
Commitments and Contingencies

Drilling Obligations
The Company has the option to participate in the drilling of future exploratory wells related to its working interest in the Spyglass
Property, should any such wells be proposed by the other working interest owners. As of December 31, 2012, the Company has elected to
participate in 67 wells located within the Spyglass Property. As such, the Company is currently obligated to fund its non-operating
working interest portion of the drilling and future operations costs of these wells. The Companys working interests in the Spyglass wells
range from 0.03% to 43.82%. Additional wells could be proposed in the future, at which time the Company may or may not elect to
participate in such additional wells.
The Company intends to drill and operate additional horizontal and/or vertical wells to be located within the Spyglass Property and the
West Spyglass Prospect and has contracted for the use of a drilling rig for the foreseeable future. The Company is obligated to pay its
proportionate share of the costs related to the use of the drilling rig in connection with the drilling of future wells, some of which are
subject to the Carry Agreement.
Employment Contracts
The Company has entered into employment agreements with its President, Chief Operating Officer and Chief Financial Officer which
include, among other things, severance clauses should a change of control occur with respect to the Companys ownership, as defined by
the agreements. Should a change of control occur, the Company would be liable for aggregate severance payments totaling $1,173,000.
Lease Obligation
The Company currently leases office space pursuant to the terms of a three-year lease agreement. Future lease payments related to the
Companys office lease as of December 31, 2012 are as follows:
2013
2014
Total
$
$
Amount
105,880
111,174
217,054
Rent expense for the years ended December 31, 2012 and 2011 totaled $110,364 and $75,735, respectively.
10. Equity Transactions
Shares Issued in Connection with the AEE Inc. Merger
As discussed in Note 3, on December 20, 2011, the Company issued 36,476,543 shares of its common stock to legacy AEE Inc.
stockholders in order to acquire 100% of the then-outstanding shares of AEE Inc.
Reverse Stock Split
Immediately subsequent to the acquisition of AEE Inc., the Company declared a 1.0-for-4.5 reverse stock split. All historical share and per
share information presented below has been restated and presented on a post-reverse-split basis.
F-22

Shares Issued in Connection with Swap Facility
As discussed in Note 7, the Company issued 225,564 shares of its common stock in connection with the Swap Facility with MBL.
Stock Options
In December 2011, the Company granted 975,000 options to purchase shares of the Companys common stock to certain employees and
contractors. The options have a five-year life, are exercisable at a price of $1.18 per share and vest over a two-year period. The stock
options were valued using the Black-Scholes Option Pricing Model and had an aggregate fair value of $1,325,414 at the time of grant.
In January 2012, the Company granted 190,000 options to purchase shares of its common stock to certain employees. The options have an
exercise price of $1.18 per share. The stock options were valued using the Black-Scholes Option Pricing Model and had an aggregate fair
market value of $216,162 at the time of grant.
In February 2012, the Company granted 200,000 options to purchase shares of its common stock to certain employees. The options have
an exercise price of $0.92 per share. The stock options were valued using the Black-Scholes Option Pricing Model and had an aggregate
fair market value of $175,800 at the time of grant.
As of the date of merger, AEE Inc. had 1,732,990 options to purchase shares of AEE Inc.s common stock. The options were issued in
December 2010 and had a five-year life. In April 2012, these options were exchanged for options to purchase shares of the Companys
common stock at a price of $0.74 per share. The options are scheduled to expire in December 2015.
In August 2012, the Company granted 140,000 options to purchase shares of its common stock to certain non-officer employees and a
full-time consultant. The options have an exercise price of $0.72 per share. The stock options were valued using the Black-Scholes Option
Pricing Model and had an aggregate fair market value of $69,230 at the time of grant.
In September 2012, the Company granted 100,000 options to purchase shares of its common stock to a non-officer employee. The options
have an exercise price of $0.73 per share. The stock options were valued using the Black-Scholes Option Pricing Model and had an
aggregate fair market value of $49,260 at the time of grant.
F-23

In November 2012, the Company granted 240,000 options to purchase shares of its common stock to non-officer employees. The options
have an exercise price of $0.78 per share. The stock options were valued using the Black-Scholes Option Pricing Model and had an
aggregate fair market value of $111,144 at the time of grant.
In December 2012, the Company granted 890,000 options to purchase shares of its common stock to employees, directors and a paid
consultant. The options have an exercise price of $0.74 per share. The stock options were valued using the Black-Scholes Option Pricing
Model and had an aggregate fair market value of $397,118 at the time of grant.
The Company recognized stock-based compensation expense of $822,485 and $30,614 for the years ended December 31, 2012 and 2011,
respectively.
The assumptions used in the Black-Scholes Option Pricing Model for the stock options granted were as follows:
2012
0.22% to 0.92%
79% to 196%
$0.00
5 years
$0.58
Risk-free interest rate

Expected volatility of common stock
Dividend yield
Expected life of options
Weighted average fair market value of options granted
2011
0.28%
101%
$0.00
5 years
$0.79
A summary of stock option activity for the years ended December 31, 2012 and December 31, 2011 is presented below:
Options
Outstanding at January 1, 2011
Weighted
Average
Exercise
Price ($)
Weighted
Average
Remaining
Contract
Term
820,444 $
0.23
3.8 years
975,000
-
1.18
-
5.0 years
-
1,795,444 $
0.74
4.0 years
1,732,990
1,760,000
(153,834)
-
0.74
0.81
0.23
-
3.2 years
4.8 years
3.8 years
-
Outstanding at December 31, 2012
5,134,600 $
0.78
3.6 years
Exercisable at December 31, 2012
2,887,100 $
0.70
2.9 years
Options granted
Options exercised
Options expired
Options forfeited
Outstanding at December 31, 2011
AEE Inc. options converted
Options granted
Options exercised
Options expired
Options forfeited
F-24

The options outstanding as of December 31, 2012 and December 31, 2011 have an intrinsic value of $0.12 and $0.56 per share and an
aggregate intrinsic value of $616,152 and $1,005,449, respectively.
Shares Reserved for Future Issuance
As of December 31, 2012 and December 31, 2011, the Company had reserved 5,134,600 and 1,795,444 shares, respectively, for future
issuance upon exercise of outstanding options.
11. Income Taxes
The Company recognized income tax benefit (expense) of $1,240,010 and ($99,291) for the years ended December 31, 2012 and
December 31, 2011, respectively. Income tax expense for the years ended December 31, 2012 and 2011 consisted of the following:
2012
Current income tax benefit (expense):
Domestic
Foreign
Total current income tax benefit (expense)
Deferred income tax benefit (expense):

Domestic
Foreign
Total deferred income tax benefit (expense)
301,533
32,268
333,801
2011
$
(348,510)
1,254,719
906,209
Total income tax benefit (expense)
1,240,010
(485,137)
(485,137)
523,627
(137,781)
385,846
(99,291)
Significant components of the Companys deferred income tax assets and liabilities at December 31, 2012 and 2011 are as follows:
2012
Deferred tax assets:
Foreign tax credits
Unrealized hedging loss
Asset retirement obligations
Net operating losses domestic
Net operating losses foreign
Foreign fixed assets
Stock options
Total deferred tax assets
Valuation allowance
Net deferred income tax assets
32,275 $
44,520
112,608
4,075,159
716,967
1,448,717
757,432
7,187,678
(2,165,684)
$ 5,021,994 $
F-25
2011
137,781
464,428
602,209
602,209

2012
Deferred tax liabilities:
Deferred gain
Investment in foreign subsidiary
Domestic fixed assets
Foreign fixed assets
Deferred tax liabilities
Net deferred tax liabilities
2011
$
181,548
8,353,909
6,031
8,541,488
591,100
3,061,917
1,401,132
100,924
5,155,073
3,519,494
4,552,864
A reconciliation between the amount of income tax expense for the years ended December 31, 2012 and 2011, determined by applying the
appropriate applicable statutory income tax rates, is as follows:
2012
3,581,180
242,104
(8,003)
(2,165,684)
536,758
(908,878)
(39,421)
1,954
$ 1,240,010
U.S. Statutory tax benefit (expense)

State income taxes, net of federal benefit (expense)
Foreign taxes paid
Permanent differences
Change in valuation allowance
True-up of prior year amounts
Foreign operations
Rate change
Other
Net income tax benefit (expense)
Effective tax rate
2011
$ (1,620,602)
(89,071)
(3,054)
1,799,976
(324,321)
137,781
$
(99,291)
(11.77)%
2.18%
12. Earnings Per Share

The following is a reconciliation of the number of shares used in the calculation of basic and diluted earnings per share for the years ended
December 31, 2012 and 2011:
2012
Net income (loss)
2011
$ (9,292,874) $
4,453,901
Weighted average number of common shares outstanding
45,792,193
9,143,099
Incremental shares from the assumed exercise of dilutive stock options

Diluted common shares outstanding
45,792,193
3,018,373
12,161,472
Earnings (loss) per share - basic

Earnings (loss) per share - diluted
$
$
F-26
(0.20) $
(0.20) $
0.49
0.37

Because the Company recognized a net loss for the year ended December 31, 2012, the calculation of diluted loss per share is the same as
the calculation of basic loss per share, as the effect of including any incremental shares from the assumed exercise of dilutive stock options
would be anti-dilutive. The number of anti-dilutive shares that have been excluded from the calculation of diluted loss per share for the
year ended December 31, 2012 is 468,775.
13. Related Party Transactions
The Company routinely obtains legal services from a firm for whom one of its directors serves as a principal. Fees paid this firm totaled
$23,644 and $16,585 for the years ended December 31, 2012 and 2011, respectively.
Historically, the Company has not typically compensated its directors. However, during the year ended December 31, 2011, the Company
paid $11,786 to one of its directors for additional services provided in connection with the contemplated acquisition of AEE Inc.
Prior to its acquisition by the Company, AEE Inc. entered into an agreement with Synergy Energy Resources LLC (Synergy) for it to
provide monthly geological consulting services to AEE Inc. One of the Companys current directors and one current officer own material
ownership interests in Synergy. The Company purchased $140,000 of consulting fees from Synergy during the year ended December 31,
2012 and $7,000 of consulting fees during the period from December 20, 2011, the date of acquisition, through December 31, 2011. In
addition, a $20,000 performance bonus was paid to an employee of Synergy related to services rendered in connection with the acquisition
of AEE Inc. The consulting agreement between the Company and Synergy can be cancelled at any time by either party.
The Companys Chairman and Chief Operating Officer each owns overriding royalty interests in certain of the Companys operated wells.
The overriding royalty interests were obtained prior the Companys acquisition of AEE, Inc. in December 2011 (see Note 3). Revenues
paid to these individuals totaled $67,426 and $51,858 for the year ended December 31, 2012. No such overriding revenues were paid
during the year ended December 31, 2011 as the operated wells had not yet been drilled as of that time.
F-27

14. Subsequent Events
On January 3, 2013, the Company acquired additional working interests in certain of its operated wells from SM Energy Company for
$3,899,500 in cash.
On January 4, 2013, the Company sold 4,000,000 shares of its common stock to Power Energy Ltd. at a price of $1.00 per share.
Proceeds from the sale totaled $4,000,000.
On February 4, 2013, the Company received the remaining $2,000,000 of funding under the Swap Facility.
15. Supplemental Oil and Gas Information (Unaudited)
During the years ended December 31, 2012 and 2011, the Company incurred the following costs associated with the acquisition,
exploration and development of oil and gas properties:
2012
$ 16,671,183
27,914,011
$ 44,585,194
Acquisition costs
Exploration costs
Development costs
Total costs
2011
2,649,493
4,502,832
7,152,325
The net capitalized cost of the Companys oil and gas properties, subject to amortization, as of December 31, 2012 and 2011 is
summarized below:
US
Cost Center
December 31, 2012:
Acquisition costs
Exploration costs
Development costs
Impairments and sales
Gross capitalized costs
Accumulated depletion
Net capitalized costs
Canadian
Cost Center
Total
$ 20,796,371 $ 5,254,122 $ 26,050,493

22,232,845
10,867,097
33,099,942
(2,249,144) (10,631,345) (12,880,489)
40,780,072
5,489,874
46,269,946
(1,547,186)
(1,431,217)
(2,978,403)
$ 39,232,886 $ 4,058,657 $ 43,291,543
December 31, 2011:

Acquisition costs
Exploration costs
Development costs
Impairments and sales
Gross capitalized costs
Accumulated depletion
Net capitalized costs
4,336,958 $
4,283,103
(1,803,407)
6,816,654
$ 6,816,654 $
F-28
5,213,127 $ 9,550,085
3,951,764
8,234,867
(1,803,407)
9,164,891
15,981,545
(183,238)
(183,238)
8,981,653 $ 15,798,307

The Company recognized the following revenues and expenses associated with its oil and gas producing activities for the years ended
December 31, 2012 and 2011:
2012
$ 10,713,946
3,200,171
$ 7,513,775
Oil and gas revenues

Oil and gas production costs
Net oil and gas revenues
Oil and gas revenues by cost center:
United States
Canada
Total oil revenue
8,785,986
1,927,960
$ 10,713,946
Oil and gas production by cost center (BOE):

United States
Canada
Total oil & gas production
$
$
$
$
108,996
25,633
134,629
Average prices per unit by cost center (BOE):

United States
Canada
Oil and gas production costs by cost center:
United States
Canada
Total oil production costs
Depletion expense by cost center:

United States
Canada
Total depletion expense
72.71
79.71
1,474,012
1,726,159
3,200,171
23,264
513,858
537,122
13.52
67.34
4.20
88.57
1,547,186
1,253,207
2,800,393
$
$
89,185
89,185
- $
(10,631,345)
$ (10,631,345)
F-29
5,535
5,802
11,337
80.60
75.21
Impairment by cost center:

United States
Canada
Total impairment
402,436
462,482
864,918
Oil and gas production costs per unit (BOE):

United States
Canada
2011
864,918
537,122
327,796

2012
Income tax benefit (expense) by cost center:
United States
Canada
Total income tax expense
Net operating results from oil and gas activities:
United States
Canada
Total net operating results from oil and gas activities
2011
$ (1,960,028) $
3,271,170
$ 1,311,142 $
(128,918)
39,357
(89,561)
250,254
(101,204)
149,050
3,804,760 $
(8,411,581)
$ (4,606,821) $
The tables presented below set forth the Companys net interests in quantities of proved developed and undeveloped reserves of crude oil,
condensate and natural gas and changes in such quantities from the prior period. Crude oil reserves estimates include condensate.
The reserve estimation process involves reservoir engineers, geoscientists, planning engineers and financial analysts. As part of this
process, all reserves volumes are estimated by a forecast of production rates, operating costs and capital expenditures. Estimated future
cash flows were computed by applying an average of the monthly oil prices for the year to the Companys share of estimated annual future
production from proved oil and gas reserves, net of royalties. Production rate forecasts are derived by a number of methods, including
estimates from decline curve analyses, material balance calculations that take into account the volume of substances replacing the volumes
produced and associated reservoir pressure changes, or computer simulation of the reservoir performance. Operating costs and capital
costs are forecast based on past experience combined with expectations of future cost for the specific reservoirs. In many cases, activitybased cost models for a reservoir are utilized to project operating costs as production rates and the number of wells for production and
injection vary.
The Company has retained an independent petroleum engineering firm to determine its annual estimate of oil and gas reserves as of
December 31, 2012 and 2011. The independent petroleum engineering firm estimated the oil and gas reserves associated with the
Companys Hardy, Spyglass and Benrude Properties using generally accepted industry standards, which include the review of technical
data, methods and procedures used in estimating reserves volumes, the economic evaluations and reserves classifications.
F-30

The Company believes that the methodologies used by the independent petroleum engineering firm in preparing the relevant estimates
comply with current Securities and Exchange Commission standards for preparing such estimates. The Company has implemented internal
controls regarding the development of reasonable oil and gas reserves estimates. These controls include, among other things, a thorough
review of the estimated future development costs and estimated production costs associated with the reserves and a comparison of such
estimated future costs to actual development and production costs incurred during the current period. In addition, the Companys
operational team compares the average prices used to estimate discounted net future cash flows from proved reserves to actual prices
received during the period for reasonableness. The internal control procedures described above were performed by the Companys
operational team, which includes petroleum engineers having in excess of 80 years of oil and gas exploration and production experience,
collectively. Based on the performance of these internal controls, the Companys management believes that the underlying data provided
by the Company to the independent petroleum engineering firm for the purpose of preparing its estimates, is reasonable Furthermore, the
estimated reserves as of December 31, 2012 and 2011, as described in the final report issued by the independent petroleum engineering
firm, were reviewed by members of the Companys operational management and determined to be reasonable based on the underlying
data.
The following tables summarize the Companys proved oil and gas reserves, annual production and other changes in the Companys
proved oil and gas reserves for the years ended December 31, 2012 and 2011:
Oil
Gas
Total
(Barrels)
(Mcf)
(BOE)
For the year ended December 31, 2012:
Proved reserves, beginning of year
Revisions
Extensions and discoveries
Purchases of reserves in place
Sale of reserves in place
Production
Proved reserves, end of year
1,511,238
(687,083)
4,428,960
478,596
(199,924)
(134,245)
5,397,542
416,900
(190,856)
1,774,297
247,780
(106,748)
(2,306)
2,139,067
1,580,721
(718,893)
4,724,676
519,893
(217,715)
(134,629)
5,754,053
Proved reserves by cost center:

United States
Canada
Total proved reserves
5,230,386
167,156
5,397,542
2,139,069
2,139,069
5,586,897
167,156
5,754,053
Proved developed reserves

Proved undeveloped reserves
2,387,283
3,010,259
5,397,542
1,074,362
1,064,707
2,139,069
2,566,343
3,187,710
5,754,053
F-31

Oil
(Barrels)
Gas
(Mcf)
Total
(BOE)
Proved developed reserves by cost center:

United States
Canada
Total proved developed reserves
2,308,551
78,732
2,387,283
1,074,362
1,074,362
2,487,611
78,732
2,566,343
Proved undeveloped reserves by cost center:

United States
Canada
Total proved undeveloped reserves
2,921,833
88,426
3,010,259
1,064,707
1,064,707
3,099,284
88,426
3,187,710
As a result of participating in 15 new wells, the Company converted 351,883 barrels of oil and 195,092 mcf of gas from proved
undeveloped reserves to proved developed reserves during the year ended December 31, 2012. The Company incurred $2,897,436 of
capitalized expenditures to drill these wells.
Oil
(Barrels)
Gas
(Mcf)
Total
(BOE)
For the year ended December 31, 2011:

Proved reserves, beginning of year
Revisions
Discoveries
Purchases of reserves in place
Production
Proved reserves, end of year
198,825
50,484
430,920
842,346
(11,337)
1,511,238
416,900
416,900
198,825
50,484
430,920
911,829
(11,337)
1,580,721
Proved reserves by cost center:

United States
Canada
909,067
602,171
1,511,238
416,900
416,900
978,550
602,171
1,580,721
Proved developed reserves

Proved undeveloped reserves
274,188
1,237,050
1,511,238
59,892
357,008
416,900
284,170
1,296,551
1,580,721
102,937
171,251
274,188
59,892
59,892
112,919
171,251
284,170
Proved developed reserves by cost center:

United States
Canada
Total proved developed reserves
F-32

Oil
(Barrels)
Proved undeveloped reserves by cost center:
United States
Canada
Total proved undeveloped reserves
Gas
(Mcf)
806,130
430,920
1,237,050
357,008
357,008
Total
(BOE)
865,631
430,920
1,296,551
As a result of drilling the Hardy 4-16 well in September 2011, the Company converted 152,348 barrels of oil from proved
undeveloped reserves to proved developed reserves. The Company incurred $1,187,598 of capitalized expenditures to drill Hardy 4-16
well.
Standardized Measure, Including Year-to-Year Changes Therein, of Discounted Future Net Cash Flows
For purposes of the following disclosures, estimates were made of quantities of proved reserves and the periods during which they are
expected to be produced. Estimated future cash flows were computed by applying a 12-month average of oil prices, except in those
instances where future oil or natural gas sales are covered by physical contract terms providing for higher or lower prices, to the
Companys share of estimated annual future production from proved oil and gas reserves, net of royalties. Future development and
production costs were computed by applying year-end costs to be incurred in producing and further developing the proved reserves.
Future income tax expenses were computed by applying, generally, year-end statutory tax rates (adjusted for permanent differences, tax
credits, allowances and foreign income repatriation considerations) to the estimated net future pre-tax cash flows. The discount was
computed by application of a 10 % discount factor. The calculations assumed the continuation of existing economic, operating and
contractual conditions at December 31, 2012 and 2011, respectively.
Standardized Measure of Discounted Future Net Cash Flows
At December 31,
2012
2011
$ 448,623,295 $ 132,047,257
Future cash flows

Future costs:
Production costs
Development costs
Income taxes
Future net cash flows
Ten percent discount factor
Standardized measure of discounted future net cash flows
(99,410,979)
(50,693,286)
(104,826,989)
193,692,041
(116,784,091)
$ 76,907,950 $
F-33
(28,976,839)
(15,273,800)
(31,309,370)
56,487,248
(31,265,211)
25,222,037

The following table summarizes the changes in the Companys standardized measure of discounted future net cash flows for the years
ended December 31, 2012 and 2011:
Extensions and discoveries

Net changes in sales prices and production costs
Oil and gas sales, net of production costs
Change in estimated future development costs
Revision of quantity estimates
Purchases of mineral interests
Additions of mineral interests due to merger
Previously estimated development costs incurred in the current period
Changes in production rates, timing and other
Changes in income taxes
Accretion of discount
Net increase
Standardized measure of discounted future cash flows:
Beginning of year
End of year
At December 31,
2012
2011
$ 84,275,965 $ 10,865,465
(2,939,472)
370,076
(7,513,775)
(329,420)
12,376,364
(710,348)
(22,267,585)
999,954
12,776,983
17,700,515
14,176,308
2,897,436
1,640,348
1,947,497
(5,455,760)
(33,864,445)
(16,258,320)
3,993,945
287,166
51,682,913
23,285,984
25,225,037
$ 76,907,950
Assumed prices used to calculate future cash flows

Oil price per barrel
Gas price per mcf
$
$
F-34
1,939,053
$ 25,225,037
At December 31,
2012
2011
81.78 $
86.47
3.38 $
3.29
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.
There have been no disagreements in the applicable period.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
Our Principal Executive Officer and Principal Financial Officer has evaluated the effectiveness of our disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of December 31, 2012. Based on this
evaluation, our Principal Executive Officer and Principal Financial Officer has concluded that our disclosure controls and procedures were
effective, at the reasonable assurance level, during the period and as of the end of the period covered by this Annual Report to ensure that
information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and
reported within the time periods specified in the Securities and Exchange Commission rules and forms and that such information is
accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosures.
33
Our Principal Executive Officer and Principal Financial Officer do not expect that our disclosure controls and procedures will prevent
all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that
the objectives of the control system are met. Further, the benefits of controls must be considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any,
within us have been detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Managements Report on Internal Control Over Financial Reporting
Our internal controls over financial reporting are designed by, or under the supervision of our Principal Executive Officer and
Principal Financial Officer or persons performing similar functions, and effected by our board of directors, management, and other personnel,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and
procedures that:
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our
assets;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with accounting principles generally accepted in the United States and that our receipts and expenditures are being
made only in accordance with authorizations of our management and directors; and
Provide reasonable assurance regarding prevention of, or timely detection of, unauthorized acquisition or disposition of our assets
that could have a material effect on the financial statements.
Our management has evaluated the effectiveness of our internal control over financial reporting as of December 31, 2012, based on
the control criteria established in a report entitled Internal Control Integrated Framework, issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this evaluation, our management has concluded that our internal control over financial
reporting were not effective as of December 31, 2012 because the Company does not maintain appropriate segregation of duties. This is
largely inherent to the size of the Company and the limited number of individuals that it employs. As a result, certain calculations underlying
journal entries are not subject to review by someone, other than the preparer, who possesses the necessary knowledge and/or background to
perform an effective review of such calculations.
Changes in Internal Control over Financial Reporting
During the fourth quarter of 2012, the Company expanded its system of internal controls over financial reporting to include a more
formalized monthly close process and added additional levels of review and approval over account reconciliations and journal entry approvals.
This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over
financial reporting. Managements report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of
the Securities and Exchange Commission that permit us to provide only managements report in this Annual Report.
Item 9B. Other Information.
There is no other information required to be disclosed during the fourth quarter of the fiscal year covered by this Annual Report.
34
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Executive Officers and Directors
The following table sets forth information concerning current executive officers and directors as of the date of this Annual Report:
Name
Richard Findley
Bradley M. Colby
Kirk A. Stingley
Thomas Lantz
John Anderson
Andrew P. Calerich
Paul E. Rumler
Age
61
56
47
61
49
48
59
Position(s)
Director (Chairman of the Board)
President, Chief Executive Officer, Treasurer and Director
Chief Financial Officer
Chief Operating Officer
Director
Director
Director and Secretary
Richard (Dick) Findley Mr. Findley was appointed as our Chairman of the Board of Directors immediately following the
closing of the 2011 Merger. Prior to the closing of the 2011 Merger and since December 14, 2009, he served as AEE Inc.s President,
Secretary, and Treasurer, and as its sole director. Mr. Findley is a geologist engaged in exploration for oil and gas. His 35-year career began in
February 1975 with Tenneco Oil Company, located in Denver, Colorado, and continued with Patrick Petroleum, located in Billings, Montana,
in January 1978. Mr. Findley formed Prospector Oil, Inc. in September 1983 to build an independent company working within the Williston
Basin and Northern Rockies. He served as Chairman of the Board for Ryland, a company engaged in Bakken exploitation in Saskatchewan
and North Dakota, from June 2007 until November 2007 and he served as a board member for RPT Uranium Inc. from July 2008 until June
2009. From October 19, 2010 to March 12, 2012, Mr. Findley served as an Executive Director of Passport, a Canadian resources company
traded on the Canadian National Stock Exchange.
Mr. Findley has been credited with the discovery of Elm Coulee Field, which has been ranked as the 23rd largest oil field in terms of
liquid proved reserves in the United States and is also the analogy for the Bakken Play in Montana, North Dakota, and Canada. His story has
been featured in the Wall Street Journal, and the Canadian National Post, as well as other international papers in Italy and the Netherlands. He
has also been the subject in oil and gas trade journals, including the American Oil and Gas Reporter, Petroleum Intelligence Weekly, and the
AAPG Explorer magazine.
Mr. Findley holds a BS (1973) and an MS (1975) from Texas A&M University. He was awarded a Tenneco Fellowship Grant from
1973 to 1975 and received a best paper award Third Place, Gulf Coast Association of Geological Societies in 1973. He also received the
Michel T. Halbouty Fellowship in 1974. In December 2006, Texas A&M awarded him the Michel Halbouty Medal for distinguished
achievement in geosciences and earth resources exploration development and conservation following the discovery of Elm Coulee. Mr.
Findley has been a member of the American Association of Petroleum Geologists since 1974 and received its Outstanding Explorer Award
in 2006 for his discovery of Elm Coulee Field.
Bradley M. Colby Mr. Colby was appointed as our President, Chief Executive Officer, and Treasurer and as one of our directors
on November 4, 2005. From November 2010 until January 1, 2012, he also served as our Chief Financial and Accounting Officer. For the
four years prior to joining us, Mr. Colby was a principal at Westport Petroleum, Inc., where he bought and sold producing properties for his
own account. Mr. Colby received a BS in Business-Minerals Land Management from the University of Colorado in 1979 and studied
petroleum engineering at the Colorado School of Mines.
Kirk A. Stingley Mr. Stingley was appointed as our Chief Financial Officer on January 1, 2012, having served in that capacity
from June 2, 2008, to November 1, 2010. From January 1, 2011 to August 31, 2011, Mr. Stingley provided financial consulting services to
us on an independent basis; effective September 1, 2011, he recommenced his status as a full-time employee. During November and
December 2010, Mr. Stingley was employed as the Corporate Controller for MicroStar Keg Management LLC. Between January and May
2008, Mr. Stingley was employed by Adam James Consulting, where he provided accounting consulting services. During the preceding four
years, from December 2003 to January 2008, he served as the Director of Internal Audit and as Director of Online Operations for The Sports
Authority, Inc. Mr. Stingley began his career with Coopers & Lybrand in Houston, Texas and Denver, Colorado, where he provided auditing
and consulting services to a number of private and publicly traded companies, whose principle activities involved the exploration,
development, and operation of oil and gas properties. Subsequent to leaving public accounting, Mr. Stingley served as the Director of
Accounting Services for Jefferson Wells International, a regional financial consulting firm, where he provided accounting and financial related
services to various oil and gas related entities. Mr. Stingley holds an active CPA license in Colorado.
35
Thomas G. Lantz Mr. Lantz was appointed as our Chief Operating Office immediately following the closing of the 2011 Merger.
Prior to the closing of the 2011 Merger and since June 2010, he had served as AEE Inc.s Vice President of Operations. During his 30-year
professional career and immediately prior to his affiliation with AEE Inc., he served as VP of Operations for a wholly-owned subsidiary of
Ryland. From 1998 through 2006, Mr. Lantz was an Asset Manager for Halliburton Energy Services, during which time he led the efforts for
several development programs for Halliburtons clients, including the initial development of the Elm Coulee oil field. In that capacity, he and
his team designed the technology for combining fracture stimulation in horizontal well bores, which advancement in technology was the key to
unlocking the economic development of the Elm Coulee Field. This technology is being applied worldwide in other unconventional reservoirs
in both gas and oil. Mr. Lantz also served as U.S. Operations Manager for Enerplus Resources (USA) Corporation after it acquired a major
interest in the Elm Coulee Field from Lyco Oil Corporation. His expertise is reservoir and completion engineering. His recent work has been
focused on development of unconventional resource plays in the Rockies, including the Bakken, Three Forks, Wasatch, and Mesaverde
Formations. Mr. Lantz received a BS in Chemical Engineering from University of Southern California and engaged in graduate studies at
Colorado State University in Mechanical Engineering. From October 5, 2010 to March 17, 2012, he served on the board of directors of
Passport.
John Anderson Mr. Anderson was appointed as one of our directors on November 4, 2005. From December 1994 to the present,
he has served as President of Axiom Consulting Partners, a personal consulting and investing company primarily involved in capital raising
for private and public companies in North America, Europe, and Asia. Mr. Anderson is the founder and General Partner of Aquastone Capital
Partners LLC, a New York-based private gold and special situations fund and serves as the President of Purplefish Capital Ltd., which
specializes in financial consulting with small-to mid-cap companies in the resource sector. Mr. Anderson received a BA from University of
Western Ontario. He serves as a director or an executive officer of a number of publicly traded natural resources companies with operations
around the world:
Blue Note Mining Inc. (TSX Venture Exchange), a gold company in Quebec, Canada director since August 2009.
Cadan Resources Corp. (TSX Venture Exchange), a gold and copper producing company operating in the Philippines director
since February 2007, becoming the Chairman of the Board in January 2010 and its Executive Chairman in October 2010.
Dawson Gold Corporation (TSX Venture Exchange), a mineral exploration company director since March 2008.
Huakan International Mining, Inc. (TSX Venture Exchange), a gold and exploration company in British Columbia, Canada and
Washington State director since June 2010.
Northern Freegold Resources Ltd. (TSX Venture Exchange), a gold exploration and development company in Yukon, Canada
director since January 2010.
Passport Energy Ltd. (Canadian National Stock Exchange), a Canadian natural resources company director since September 2009.
Simba Gold Corp. (TSX Venture Exchange), a company developing gold projects in Rwanda director since January 2009 and
serves as interim Chief Executive Officer.
Soho Resources Corp. (TSX Venture Exchange), a mining company in Mexico director since November 2010.
Sona Resource Corp. (TSX Venture Exchange), a mine development company director since June 2006.
Strategic Resources Ltd. (Other OTC), a Nevada company in the business of exploring, acquiring and developing advanced precious
metals and base metal properties President, Chief Executive Officer, Secretary and Treasurer and a director since May 2004.
Wescorp Energy, Inc. (OTC Bulletin Board), an oil and gas operations solution and engineering company director between October
2001 and May 2009, Secretary and Treasurer from April 2003 to May 2009 and President and Chief Executive Officer between March
2003 and May 2004.
36
Andrew P. Calerich Mr. Calerich was appointed as one of our directors on February 21, 2012. From July 2003 until its merger
into Hess Bakken Investments I Corporation (a wholly-owned subsidiary of Hess Corporation) in December 2010, he held various positions,
including president, chief financial officer, and director of American Oil & Gas Inc. Prior to the merger, American Oil & Gas Inc. was a
publicly traded independent oil and gas exploration and production company that was engaged in the acquisition of oil and gas mineral leases
and the exploration and development of crude oil and natural gas reserves and production, most recently in the Williston Basin of North
Dakota and Montana. Since the merger, he has been on sabbatical from full-time employment. During his 20-year professional career, Mr.
Calerich has served public companies engaged in upstream oil and gas businesses in a variety of capacities, most recently (January 2011)
becoming an independent director for Earthstone Energy, Inc., a Delaware corporation, whose common stock is traded on the NYSE Amex
tier. Earthstone is primarily engaged in the exploration, development, and production of oil and natural gas properties, whose operating
activities are concentrated in the North Dakota and Montana portions of the Williston basin, the southern portions of Texas, onshore portions
of the Gulf Coast, and the Denver-Julesburg basin of Colorado. From August 2006 through September 2007, he served as a Director with
Falcon Oil & Gas, Ltd. (TSXV). Mr. Calerich holds an inactive Certified Public Accountant license and earned BS degrees in both
Accounting and Business Administration at Regis College, in Denver.
Paul E. Rumler Mr. Rumler was appointed as one of our directors on July 26, 2007, and he became our corporate Secretary on
October 22, 2007. Mr. Rumler also served as the sole member of our Special Committee that reviewed and evaluated the transactions that
ultimately became the 2011 Merger. For more than the preceding five years, Mr. Rumler has been the principal shareholder and the managing
shareholder at Rumler Tarbox Lyden Law Corporation, PC, in Denver, Colorado. He is a business attorney, whose areas of practice include
general corporate and business planning matters and mergers and acquisitions, primarily in the closely held market place. Mr. Rumler is also a
shareholder and a member of the board of directors of Stargate International, Inc., a manufacturer located in the Denver, Colorado,
metropolitan area.
There are no family relationships among any of our directors, executive officers, or key employees.
Messrs. Anderson, Calerich, and Rumler are independent directors. The determination of independence of directors has been made
using the definition of independent director contained in Section 803A of the NYSE Amex LLC Company Guide. All directors have
participated in the consideration of director nominees. We do not have a policy with regard to attendance at board meetings. Our board of
directors held four formal meetings during the year ended December 31, 2012, at which each then-elected director was present. All other
proceedings of our board of directors were conducted by resolutions consented to in writing by all of the directors and filed with the minutes
of the proceedings of our directors.
We do not have a policy with regard to consideration of nominations of directors. Nominations for directors are accepted from our
security holders. There is no minimum qualification for a nominee to be considered by our directors. All of our directors will consider any
nomination and will consider such nomination in accordance with his or her fiduciary responsibility to us and our stockholders.
Security holders may send communications to our board of directors by writing to American Eagle Energy Corporation, 2549 West
Main Street, Suite 202, Littleton, Colorado 80120, attention: Board of Directors or to any specified director. Any correspondence received at
the foregoing address to the attention of one or more directors is promptly forwarded to such director or directors.
Committees
Prior to the consummation of the 2011 Merger, we did not have standing audit, nominating, or compensation committees of our
board of directors, or committees performing similar functions; our board of directors performed such functions. Our common stock is not
currently listed on any national exchange and we are not required to maintain such committees by any self-regulatory agency. Prior to the 2011
Merger, we did not believe it was necessary for our board of directors to appoint such committees because the volume of matters that
historically came before our board of directors for consideration permitted each director to give sufficient time and attention to such matters to
be involved in all decision making. Following consummation of the 2011 Merger, our board of directors established three committees: the
Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee.
37
Audit Committee
Following consummation of the 2011 Merger and in connection with a potential listing of our common stock on the NYSE Amex,
we established an Audit Committee in order to comply with the NYSE MKT rules, on which Messrs. Anderson, Calerich, and Rumler
currently serve. Messrs. Anderson, Calerich, and Rumler each qualifies as an independent director within the meaning of Section 303A.02
of the NYSE Listed Company Manual and Rule 10A-3 under the Exchange Act. The Audit Committee is responsible for oversight of the
integrity of the Companys financial statements, the selection and retention of our independent registered public accounting firm, review of the
scope of their audit function, and review of the audit reports rendered by them. The Audit Committee is not responsible for conducting audits,
preparing financial statements, or the accuracy of any financial statements or filings, all of which remain the responsibility of management and
our independent registered public accounting firm. Our board of directors has designated Mr. Calerich as the Audit Committees named
financial expert as defined in Section 407 of the Sarbanes-Oxley Act and the SEC rules under that statute. Mr. Calerichs biography is
available on page 37. The charter of the Audit Committee may be found on our website (www.americaneagleenergy.com).
Compensation Committee
Following consummation of the 2011 Merger and in connection with a potential listing of our common stock on NYSE MKT LLC,
we established a Compensation Committee, on which Messrs. Anderson, Findley, and Rumler currently serve. The Compensation Committee
is responsible for reviewing and approving our goals and objectives relevant to compensation, evaluating the performance of our senior
executive officers (including our Chief Executive Officer) with respect to such goals and objectives, approving the compensation of our senior
executive officers (including our Chief Executive Officer), and overseeing our compensation and benefits policies. The charter of the
Compensation Committee may be found on our website (www.americaneagleenergy.com).
Nominating and Corporate Governance Committee
Following completion of the 2011 Merger and in connection with a potential listing of our common stock on the NYSE Amex, we
established a Nominating and Corporate Governance Committee, on which Messrs. Anderson, Findley, and Rumler currently serve. The
Nominating and Corporate Governance Committee is responsible for recommending corporate governance principles and a code of conduct
and ethics to our board of directors, overseeing adherence to the corporate governance principles adopted by our board of directors,
recommending policies for compensation of directors, recommending criteria and qualifications for new directors, and recommending
individuals to be nominated as directors and committee members. This function includes evaluation of new candidates, as well as evaluation of
then-current directors.
The Nominating and Corporate Governance Committee will consider nominees recommended by our stockholders. A stockholders
recommendation must be submitted in writing to: Nominating and Corporate Governance Committee, American Eagle Energy Corporation,
2459 W. Main Street, Suite 202, Littleton, Colorado 80120. The recommendation should include the nominees name and biography. The
Nominating and Corporate Governance Committee may also require a candidate to furnish additional information regarding his or her
eligibility and qualifications. The charter of the Nominating and Corporate Governance Committee may be found on our website
(www.americaneagleenergy.com).
Compensation Committee Interlocks and Insider Participation
Historically, our board of directors has performed the functions of a compensation committee. With the exception of Mr. Colby, none
of the current members of our board of directors is an employee or officer of ours. None of our officers or employees serves as a member of
our Compensation Committee.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires officers, directors, and persons who own more than 10% of any class of our securities
registered under Section 12(g) of the Exchange Act to file reports of ownership and changes in ownership with the SEC. Officers, directors,
and greater than 10% stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file. To our
knowledge, based solely on review of the copies of such reports furnished to us, during the fiscal year ended December 31, 2012, or with
respect to such fiscal year, all Section 16(a) filing requirements were met.
38
Code of Ethics
We adopted a Code of Conduct and Ethics that applies to all of our directors, executive officers, and employees. A copy of our Code
of Conduct and Ethics is available on our website (www.americaneagleenergy.com) and is also available free of charge by writing to: Investor
Relations, American Eagle Energy Corporation, 2459 W. Main Street, Suite 202, Littleton, Colorado 80120. Our Nominating and Corporate
Governance Committee is responsible for the review and oversight of our ethical policies. Our management believes our Code of Conduct and
Ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely, and
understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of code violations; and provide
accountability for adherence to the Code. Our board of directors must approve an amendment, exception, or waiver to the Code of Conduct
and Ethics with respect to a director or an executive officer; the Nominating and Corporate Governance Committee must approve the same
with respect to any other employee. In addition, a description of any exception, amendment, or waiver to the Code of Conduct and Ethics with
respect to the Chief Executive Officer, Chief Financial Officer, our principal accounting officer, controller, or persons performing similar
functions will be posted on our website within four business days following the date of such exception, amendment, or waiver.
Item 11. Executive Compensation.
We have not regularly compensated our directors in cash for their service as members of our board of directors. However, during
2011, Mr. Rumler received a payment of $11,786 in connection with his service as the sole member of the special committee of our board of
directors that was formed specifically to review and evaluate the transactions that ultimately became the 2011 Merger. We do reimburse our
directors for reasonable expenses in connection with attendance at board meetings and, commencing in 2012, have adopted a policy to
compensate our directors for their attendance at our board of directors meetings.
The following table presents information concerning compensation paid to our Chief Executive Officer and our other executive
officers for the years ended December 31, 2012 and 2011.
Summary Compensation Table
Name & Principal

Position
Bradley M. Colby
President, CEO, and
Treasurer
Kirk Stingley
Chief Financial
Officer(1)
Thomas Lantz(2)
Chief Operating
Officer
Year
Option
Awards
($) (3)
100,395
Non-Equity
Incentive Plan
Compensation
($)
Nonqualified
Deferred
Compensation
Earnings
($)
All Other
Compensation
($)
Total
($)
404,395
289,000
Stock
Awards
($)
2012
2011
Salary
($)
204,000
189,000
Bonus
($)
100,000
100,000
2012
150,000
30,000
22,310
202,310
2012
2011
204,000
10,323
100,000
44,620
348,620
10,323
(1) Effective January 1, 2012, we re-appointed Kirk Stingley as our Chief Financial Officer. Mr. Stingley previously served in that capacity for
us from June 2, 2008, until November 1, 2010.
(2) Mr. Lantzs employment commenced on December 20, 2011, immediately following the closing of the 2011 Merger.
(3) The amounts reported in the Option Awards column of the table above reflect the aggregate dollar amounts recognized for option
awards for financial statement reporting purposes with respect to our 2011 and 2012 fiscal years. For a discussion of the assumptions
and methodologies used to value the awards reported in table above, please see the discussion of option awards contained in Note 10
(Equity Transactions Stock Options) to our Consolidated Financial Statements, included as part of this Annual Report on Form 10-K.
Narrative Disclosure to Summary Compensation Table
Compensation Philosophy
The Companys basic objectives for executive compensation are to recruit and keep top quality executive leadership focused on
attaining long-term corporate goals and increasing stockholder value.
39
Employment Agreements
We have entered into written employment agreements with each of our executive officers, the material terms of which are:
Officer
Bradley M. Colby
Thomas G. Lantz
Kirk A. Stingley
Annual Compensation
$252,000 per year
$252,000 per year
$165,000 per year
Term
3 Years
3 Years
2 Years
Expiration Date
01/1/2015
12/20/2014
01/01/2014
In the event that we terminate Mr. Colbys or Mr. Lantzs employment without cause or such officer terminates his employment
for good reason, as each such term is defined in his respective employment agreement, then such individual would be entitled to the
following benefits: (i) payment of all accrued salary through the date of such termination, payment for all accrued, but unused, vacation, and
reimbursement of all business expenses; (ii) upon the signing and delivering to us a general release of all claims against us, a severance
payment equal to one times his then-current annual base salary; and (iii) continuation of group health, vision, and dental benefits in accordance
with the relevant benefit plan. If, upon or within 12 months of, a change of control, as such term is defined in his respective employment
agreement, such individuals employment is terminated without cause or for good reason, then such individual would be entitled to the
following benefits: (i) payment of all accrued salary through the date of such termination, payment for all accrued, but unused, vacation, and
reimbursement of all business expenses; (ii) upon the signing and delivering to us a general release of all claims against us, a severance
payment equal to two times his then-current annual base salary; and (iii) continuation of group health, vision, and dental benefits in accordance
with the relevant benefit plan. If, within 60 days of a change of control, such individual terminates his employment for any reason other than
for good reason, then such individual would be entitled to the following benefits: (i) payment of all accrued salary through the date of such
termination, payment for all accrued, but unused, vacation, and reimbursement of all business expenses; (ii) upon the signing and delivering to
us a general release of all claims against us, a severance payment equal to one times his then-current annual base salary; and (iii) continuation
of group health, vision, and dental benefits in accordance with the relevant benefit plan. We may also terminate such officers employment for
cause, as such term is defined in his respective employment agreement. In such event, such individual would be entitled to receive payment of
all accrued salary through the date of such termination, payment for all accrued, but unused, vacation, and reimbursement of all business
expenses.
In the event that we terminate Mr. Stingleys employment without cause or he terminates his employment for good reason, as
each such term is defined in his employment agreement, then he would be entitled to the following benefits: (i) payment of all accrued salary
through the date of such termination, payment for all accrued, but unused, vacation, and reimbursement of all business expenses; (ii) upon the
signing and delivering to us a general release of all claims against us, a severance payment of $35,000; and (iii) continuation of group health,
vision, and dental benefits in accordance with the relevant benefit plan. If, upon or within 12 months of, a change of control, as such term is
defined in his respective employment agreement, his employment is terminated without cause or for good reason, then he would be
entitled to the following benefits: (i) payment of all accrued salary through the date of such termination, payment for all accrued, but unused,
vacation, and reimbursement of all business expenses; (ii) upon the signing and delivering to us a general release of all claims against us, a
severance payment equal to his then-current annual base salary; and (iii) continuation of group health, vision, and dental benefits in accordance
with the relevant benefit plan. If, within 60 days of a change of control, he terminates his employment for any reason other than for good
reason, then he would be entitled to the following benefits: (i) payment of all accrued salary through the date of such termination, payment for
all accrued, but unused, vacation, and reimbursement of all business expenses; (ii) upon the signing and delivering to us a general release of all
claims against us, a severance payment equal to one-half of his then-current annual base salary; and (iii) continuation of group health, vision,
and dental benefits in accordance with the relevant benefit plan. We may also terminate his employment for cause, as such term is defined in
his employment agreement. In such event, he would be entitled to receive payment of all accrued salary through the date of such termination,
payment for all accrued, but unused, vacation, and reimbursement of all business expenses.
Stock Option Grants to Management
During 2011, we granted five-year options to purchase 975,000 shares of our common stock with a per-share exercise price of
$1.18, 50% of which vested on December 28, 2012 and 50% of which vest on December 28, 2013, in each case subject to the grantees
continued service as a director, officer, employee, or consultant, as applicable, through such dates. The exercise price at which these options
were issued was equal to closing price of our common stock on the date of grant.
40
In connection with the 2011 Merger, we granted replacement options to three of our directors or executive officers to purchase
1,732,988 shares of our common stock with a per-share exercise price of $0.74, in exchange for options to purchase shares of AEE Inc.
common stock that had been tendered in connection with the 2011 Merger. The replacement options expire on December 30, 2015, the same
date on which the original options were set to expire.
Throughout 2012, we granted five-year options to purchase 1,760,000 shares of our common stock with a per-share exercise prices
ranging from $0.72 to $1.18, 50% of which vest on the one-year anniversary of the grant date and 50% of which vest on the two-year
anniversary of the grant date, in each case subject to the grantees continued service as a director, officer, employee, or consultant, as
applicable, through such dates. The exercise price at which these options were issued was equal to the average closing price of our common
stock for the 5-day period preceding the date of grant.
As of December 31, 2012, the following stock options were outstanding and held by management:
Outstanding Equity Awards at 2012 Fiscal Year-End
Name
Bradley M. Colby
Kirk A. Stingley
Thomas G. Lantz
Richard L. Findley
John D. Anderson
Paul E. Rumler
Andrew P. Calerich
Number of
Securities
Underlying
Unexercised
Options
Exercisable
225,000(4)
512,778(1)
144,416(1)(2)
50,000(4)
150,000(3)
225,000(4)
433,247(2)
50,000(4)
577,663(1)(2)
50,000(4)
158,834(1)
50,000(3)
50,000(4)
250,000(3)
50,000(4)
200,000(5)
Number of Securities
Underlying
Unexercised Options
Unexercisable
225,000
512,778
144,416
50,000
150,000
225,000
433,247
50,000
577,663
50,000
158,834
50,000
50,000
250,000
50,000
200,000
Option Exercise
Price
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
0.74
0.225
0.74
0.74
1.18
0.74
0.74
0.74
0.74
0.74
0.225
1.18
0.74
1.18
0.74
0.92
Option
Expiration Date
12/13/2017
10/29/2014
12/30/2015
12/13/2017
12/28/2016
12/13/2017
12/30/2015
12/13/2017
12/30/2015
12/13/2017
10/29/2014
12/28/2016
12/13/2017
12/28/2016
12/13/2017
2/21/2017
(1) All options vested 100% and were exercisable immediately upon grant.
(2) These options were granted by the Company in exchange for options to purchase shares of AEE Inc. common stock that were tendered in
connection with the 2011 Merger.
(3) Fifty percent of the options granted on December 28, 2011 vested on December 28, 2012, and 50% of such options vest on December 28,
2013, in each event subject to the grantees continued service as a director or officer, as applicable, of the Company through such dates.
(4) Fifty percent of the options granted on December 14, 2012 vest on December 14, 2013, and 50% of such options vest on December 14,
2014, in each event subject to the grantees continued service as a director or officer, as applicable, of the Company through such dates.
41
(5) Fifty percent of the options granted on February 21, 2012 vest on February 21, 2013, and 50% of such options vest on February 21, 2014,
in each event subject to the grantees continued service as a director or officer, as applicable, of the Company through such dates.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth certain information regarding the shares of common stock beneficially owned or deemed to be
beneficially owned as of April 10, 2013 by: (i) each person known to beneficially own more than 5% of our common stock, (ii) each of our
directors, (iii) our executive officers named above in the summary compensation table, and (iv) all such directors and executive officers as a
group.
Except as indicated by the footnotes below, our management believes, based on the information furnished to us, that the persons and
entities named in the table below have sole voting and investment power with respect to all shares of our common stock that they beneficially
own, subject to applicable community property laws.
In computing the number of shares of our common stock beneficially owned by a person and the percentage ownership of that
person, we deemed as outstanding shares of our common stock subject to options or warrants held by that person that are currently exercisable
or exercisable within 60 days of April 10, 2013. We did not deem such shares outstanding, however, for the purpose of computing the
percentage ownership of any other person.
Name of Beneficial Owner / Management and Address

Bradley M. Colby (2)
Kirk A. Stingley (3)
Thomas Lantz (4)
Richard Findley (5)
John Anderson (6)
Andrew P. Calerich (7)
Paul E. Rumler (8)
All directors and executive officers as a group (7 persons) (9)
Five Percent Beneficial Owner:
Steven Swanson (10)
Power Energy Holdings LLC (11)
Shares of
Common
Stock
Beneficially
Owned (1)
3,470,258
99,687
2,793,361
2,874,510
992,946
200,000
313,020
10,743,782
Percent of
Common
Stock
Beneficially
Owned (1)
6.78%
*
5.53%
5.68%
1.98%
*
*
20.80%
2,840,321
4,000,000
5.61%
7.99%
* Less than 1%
(1) The applicable percentage ownership is based on 50,068,346 shares of common stock outstanding at April 10, 2013. The number of shares
of common stock owned are those beneficially owned as determined under the rules of the Securities and Exchange Commission,
including any shares of common stock as to which a person has sole or shared voting or investment power and any shares of common
stock which the person has the right to acquire within 60 days through the exercise of any option, warrant or right.
(2) Includes 2,373,204 shares owned by Mr. Colby and an aggregate of 439,860 shares owned by five members of his immediate family as to
which he disclaims beneficial ownership of an aggregate of 349,888 shares owned of record by his spouse and three of their adult children.
Also includes 657,194 shares underlying options that are exercisable within 60 days of April 10, 2013. The business address for this
person is 2549 W. Main Street, Suite 202, Littleton, Colorado 80120.
(3) Includes 75,000 shares underlying options that are exercisable within 60 days of April 10, 2013. The business address for this person is
2549 W. Main Street, Suite 202, Littleton, Colorado 80120.
(4) Includes 2,226,524 shares owned by Mr. Lantz and 133,590 shares owned by his adult child as to which he disclaims beneficial
ownership. Also includes 433,247 shares underlying options that are exercisable within 60 days of April 10, 2013.
42
(5) Includes 2,296,847 shares held by Golden Vista Energy, LLC (Golden Vista). Mr. Findley is the sole member of Golden Vista and
beneficially owns all of the shares held by Golden Vista. Also includes 577,663 shares underlying options that are exercisable within 60
days of April 10, 2013. The business address for this person is 27 North 27th Street, Suite 21G, Billings, Montana 59101.
Suite 916-925 West Georgia Street, Vancouver, British Columbia V6C 3L2.
PO Box 1571, Eastlake, Colorado 80614.
1777 South Harrison Street, Suite 1250, Denver, Colorado 80210.
(9) Includes all shares and options referenced in notes 2 through 8.
(10)We obtained this information regarding share ownership from the Schedule 13G/A filed April 18, 2012, by Mr. Swanson. Includes
969,507 shares owned by Mr. Swanson, 969,507 shares owned by his spouse, and 161,822 shares each owned by their two adult children,
as to which 1,293,151 shares Mr. Swanson disclaims beneficial ownership. Also includes 577,663 shares underlying options that are
exercisable within 60 days of April 10, 2013. The business address for this person is 2375 S. Atlantic Avenue #501, Cocoa Beach, Florida
32931.
(11)The business address for this person is 778 Frontage Rd., Suite 122, Northfield, Illinois 60093.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Related Party Transactions
Synergy Resources LLC
In January 2010, AEE Inc. engaged Synergy Resources LLC, a privately-held company (Synergy), to provide geological and
engineering consulting services. Mr. Findley, who currently serves as a director of the Company, and Mr. Lantz, who currently serves as
Chief Operating Officer of the Company, are each a member of Synergy. We purchased $140,000 of consulting fees from Synergy during the
year ended December 31, 2012 and $7,000 of consulting fees during the period from December 20, 2011, the date of acquisition, through
December 31, 2011. In addition, a $20,000 performance bonus was paid to an employee of Synergy related to services rendered in connection
with the acquisition of AEE Inc. In December 2012, we granted 50,000 options to purchase shares of our common stock to this same
employee. The options have a five-year life, vest over a period of two years and have an exercise price of $0.74 per option, which is equal to
the average closing price of our common stock for the five trading days prior to the date of grant.
Paul E. Rumler
We routinely obtain legal services from a firm for which Mr. Rumler, one of our directors, serves as a principal. Fees paid this firm
totaled $23,644 and $16,585 for the years ended December 31, 2012 and 2011, respectively.
Historically, we have not typically compensated its directors. However, during the year ended December 31, 2011, we paid $11,786
to Mr. Rumler for additional services provided in connection with the contemplated acquisition of AEE Inc.
Richard L. Findley
Mr. Findley, our Chairman, owns overriding royalty interests in certain of our operated wells. The overriding royalty interests were
obtained prior the Companys acquisition of AEE, Inc. in December 2011. Revenues paid to Mr. Findley totaled $67,426 for the year ended
December 31, 2012.
Thomas G. Lantz
Mr. Lantz, our Chief Operating Officer, owns overriding royalty interests in certain of our operated wells. The overriding royalty
interests were obtained prior the Companys acquisition of AEE, Inc. in December 2011. Revenues paid to Mr. Lantz totaled $51,858 for the
year ended December 31, 2012.
43
Item 14. Principal Accountant Fees and Services.

Hein & Associates (Hein) audited our financial statements for the years ended December 31, 2012 and 2011 and provided
preparation services for the 2010 and 2011 US federal and state tax returns. The aggregate fees billed for professional services by Hein for the
year ended December 31, 2012 and 2011 were as follows:
Audit Fees
Audit Related Fees
Tax Fees
All Other Fees
Total
$
$
$
$
$
2012
136,061
51,079
187,140
2011
80,000
80,000
It is our board of directors policy and procedure to approve in advance all audit engagement fees and terms and all permitted nonaudit services provided by our independent auditors. We believe that all audit engagement fees and terms and permitted non-audit services
provided by our independent registered public accounting firm as described in the above table were approved in advance by our board of
directors.
44
PART IV
Item 15. Exhibits, Financial Statement Schedules.
Exhibit
2.1
2.1(a)
3(i).1
3(i).2
3(i).3
3(i).4
3(i).5
3(i).6
3(ii).1
3(ii).2
3(ii).3
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
INDEX TO EXHIBITS
Description of Exhibit
Agreement and Plan of Merger among Eternal Energy Corp., Eternal Sub Corp. and American Eagle Energy Inc., dated April 8,
2011. (Incorporated by reference to Exhibit 2.1 of our Registration Statement on Form S-4 filed May 4, 2011.)
First Amendment to Agreement and Plan of Merger among Eternal Energy Corp., Eternal Sub Corp. and American Eagle
Energy Inc., dated September 28, 2011. (Incorporated by reference to Exhibit 2.1(a) of our Current Report on Form 8-K filed
September 28, 2011.)
Articles of Incorporation filed with the Nevada Secretary of State on July 25, 2003. (Incorporated by reference to Exhibit 3.1 of
our Form 10-SB filed August 18, 2004.)
Certificate of Change filed with the Nevada Secretary of State effective November 7, 2005. (Incorporated by reference to
Exhibit 3(i).2 of our Current Report on Form 8-K filed November 9, 2005.)
Articles of Merger filed with the Nevada Secretary of State effective November 7, 2005. (Incorporated by reference to Exhibit
3(i).3 of our Current Report on Form 8-K filed November 9, 2005.)
3(i).4 of our Current Report on Form 8-K filed December 20, 2011.)
3(i).5 of our Current Report on Form 8-K filed December 20, 2011.)
Certificate of Change filed with the Nevada Secretary of State effective November 30, 2011. (Incorporated by reference to
Exhibit 3(i).6 of our Current Report on Form 8-K filed December 20, 2011.)
Bylaws, adopted July 18, 2003. (Incorporated by reference to Exhibit 3.2 of our Form 10-SB filed August 18, 2004.)
Amendment No. 1 to Bylaws, adopted November 4, 2005. (Incorporated by reference to Exhibit 3(ii) of our Current Report on
Form 8-K filed November 9, 2005.)
Amendment No. 2 to Bylaws, adopted February 22, 2011. (Incorporated by reference to Exhibit 3(ii).3 of our Current Report
on Form 8-K filed February 23, 2011.)
American Eagle Energy Corporation 2012 Equity Incentive Plan. (Incorporated by reference to Exhibit 4.1 of our Registration
Statement on Form S-8 filed February 28, 2012.)
Non-qualified Stock Option Agreement, dated as of October 30, 2009, by and between the Registrant and Bradley M. Colby.
(Incorporated by reference to Exhibit 4.2 of our Registration Statement on Form S-8 filed February 28, 2012.)
Non-qualified Stock Option Agreement, dated as of October 30, 2009, by and between the Registrant and John Anderson.
Non-qualified Stock Option Agreement, dated as of October 30, 2009, by and between the Registrant and Paul E. Rumler.
Non-qualified Stock Option Agreement, dated as of December 30, 2010, by and between the Registrant and Bradley M. Colby.
Non-qualified Stock Option Agreement, dated as of December 30, 2010, by and between the Registrant and Thomas G. Lantz.
Reserved for future use.
Non-qualified Stock Option Agreement, dated as of December 30, 2010, by and between the Registrant and Richard Findley.
Non-qualified Stock Option Agreement, dated as of December 28, 2011, by and between the Registrant and Paul E. Rumler.
45
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
4.19
4.20
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
Non-qualified Stock Option Agreement, dated as of December 28, 2011, by and between the Registrant and John Anderson.
Non-qualified Stock Option Agreement, dated as of December 28, 2011, by and between the Registrant and Kirk Stingley.
Non-qualified Stock Option Agreement, dated as of February 21, 2012, by and between the Registrant and Andrew P. Calerich.
(Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed February 21, 2012.)
Agreement and Plan of Merger between Golden Hope Resources Corp. (renamed Eternal Energy Corp.) and Eternal Energy
Corp., filed with the Nevada Secretary of State effective November 7, 2005. (Incorporated by reference to Exhibit 10.1 of our
Current Report on Form 8-K filed November 9, 2005.)
Purchase and Sale Agreement between Eternal Energy Corp. and American Eagle Energy Inc. dated June 18, 2010.
(Incorporated by reference to Exhibit 10.3 of our Quarterly Report on Form 10-Q filed August 16, 2010.)
Amended and Restated Employment Agreement by and between the Registrant and Bradley M. Colby effective July 1, 2011.
Employment Agreement by and between the Registrant and Thomas G. Lantz, effective November 30, 2011.
Employment Agreement by and between the Registrant and Kirk Stingley, effective January 1, 2012.
Consulting Agreement by and between the Registrant and Richard Findley, effective November 30, 2011.
Letter Agreement dated October 15, 2006, by and among Eternal Energy Corp., Fairway Exploration, LLC, Prospector Oil,
Inc., and 0770890 B.C. Ltd. (Incorporated by reference to Exhibit 10.17 of our Annual Report on Form 10-KSB filed April 16,
2007).
Letter Agreement dated October 26, 2006, by and among Eternal Energy Corp., Fairway Exploration, LLC, Prospector Oil,
Inc., 0770890 B.C. Ltd., and Rover Resources Inc. (Incorporated by reference to Exhibit 10.18 of our Annual Report on Form
10-KSB filed April 16, 2007.)
46
10.26
10.27
10.27a
10.27b*
10.28
10.29
10.29a
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.38a
10.39^
10.40^
10.40a
10.40b
10.41^
10.42^
10.43
10.44*

Lease Agreement dated January 1, 2009 by and between Eternal Energy Corp. and Oakley Ventures, LLC. (Incorporated by
reference to Exhibit 10.27 of our Annual Report on Form 10-K filed March 23, 2010.)
Lease Addendum, dated October 1, 2011 by and between Eternal Energy Corp. and Oakley Ventures, LLC, and Exhibit A
thereto. (Incorporated by reference to Exhibit 10.27a of our Annual Report on Form 10-K filed April 16, 2012.)
Lease Addendum, dated July 1, 2012 by and between American Eagle Energy Corporation and Oakley Ventures, LLC.
Purchase and Sale Agreement by and between Eternal Energy Corp. and Ryland Oil Corporation dated March 26, 2010.
(Incorporated by reference to Exhibit 10.28 of our Current Report on Form 8-K filed March 29, 2010.)
Purchase of Royalty Agreement by and between Eternal Energy Corp. and Ryland Oil Corporation dated March 26, 2010.
(Incorporated by reference to Exhibit 10.29 of our Current Report on Form 8-K filed March 29, 2010.)
Amending Agreement to the Ryland / Eternal Royalty Purchase Agreement by and between Eternal Energy Corp. and Ryland
Oil Corporation dated April 20, 2010. (Incorporated by reference to Exhibit 10.29a of our Current Report on Form 8-K filed
March 29, 2010.)
Letter of Intent between Eternal Energy Corp. and American Eagle Energy Inc. dated February 22, 2011. (Incorporated by
reference to Exhibit 10.36 of our Annual Report on Form 10-K filed March 23, 2011.)
Engagement Letter for Professional Services between Eternal Energy Corp. and C.K. Cooper & Company, dated February 25,
2011. (Incorporated by reference to Exhibit 10.37 of our Annual Report on Form 10-K filed March 23, 2011.)
Participation and Operating Agreement among Eternal Energy Corp., AEE Canada Inc. and Passport Energy Inc., dated April
15, 2011. (Incorporated by reference to Exhibit 10.38 of our Registration Statement on Form S-4 filed May 4, 2011.)
Amendment to the participation and operating agreement among EERG Energy ULC, AEE Canada Inc. and Passport Energy
Inc., dated February 1, 2012. (Incorporated by reference to Exhibit 10.38a of our Annual Report on Form 10-K/A filed April
10, 2012.)
Purchase and Sale Agreement among Eternal Energy Corp., American Eagle Energy Inc., and NextEra Energy Gas Producing,
LLC, dated May 17, 2011. (Incorporated by reference to Exhibit 10.39 of our Amended Quarterly Report on Form 10-Q/A
filed October 11, 2011.)
LLC, dated May 17, 2011. (Incorporated by reference to Exhibit 10.40 of our Amended Quarterly Report on Form 10-Q/A
filed October 11, 2011.)
First Amendment to Purchase and Sale Agreement among Eternal Energy Corp., American Eagle Energy Inc., and NextEra
Energy Gas Producing, LLC, dated June 14, 2011. (Incorporated by reference to Exhibit 10.40a of our Quarterly Report on
Form 10-Q filed August 18, 2011.)
Second Amendment to Purchase and Sale Agreement among Eternal Energy Corp., American Eagle Energy Inc., and NextEra
Energy Gas Producing, LLC, dated July 25, 2011. (Incorporated by reference to Exhibit 10.40b of our Quarterly Report on
Form 10-Q filed August 18, 2011.)
LLC, dated November 15, 2011. (Incorporated by reference to Exhibit 10.38a of our Annual Report on Form 10-K/A filed
April 10, 2012.)
Carry Agreement by and among American Eagle Energy Corporation, American Eagle Energy Inc., and NextEra Energy Gas
Producing, LLC, dated as of April 16, 2012, and Exhibit C thereto. (Incorporated by reference to Exhibit 10.42 of our Quarterly
Report on Form 10-Q filed on August 20, 2012.
First Amendment to Carry Agreement by and among American Eagle Energy Corporation, American Eagle Energy Inc., and
NextEra Energy Gas Producing, LLC, dated as of July 15, 2012. (Incorporated by reference to Exhibit 10.43 of our Quarterly
Report on Form 10-Q filed on August 20, 2012.)
ISDA Master Agreement by and among American Eagle Energy Corporation, AMZG, Inc., and Macquarie Bank Limited,
dated December 27, 2012.
47
10.44a*
10.45*
10.46*
10.47*
10.48*
10.49*
21.1*
31.1*
31.2*
32.1*
32.2*
Schedule to the 2002 ISDA Master Agreement by and among American Eagle Energy Corporation, AMZG, Inc., and
Macquarie Bank Limited, dated December 27, 2012.
Commodity Swap Transaction Confirmation by and among American Eagle Energy Corporation, AMZG, Inc., and Macquarie
Bank Limited, dated December 27, 2012.
Security Agreement by and among American Eagle Energy Corporation, AMZG, Inc., and Macquarie Bank Limited, dated
December 27, 2012.
Mortgage, Security Agreement, Fixture Filing, Financing Statement and Assignment of Production and Revenue by and among
American Eagle Energy Corporation, AMZG, Inc., and Macquarie Bank Limited, dated December 27, 2012.
Purchase and Sale Agreement by and between USG Properties Bakken I, LLC and American Eagle Energy Corporation, dated
December 20, 2012.
Purchase and Sale Agreement Between SM Energy Company and American Eagle Energy Corporation, dated November 20,
2012.
List of Subsidiaries.
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Section 906 of the SarbanesOxley Act of 2002.
Certification of Chief Financial Officer pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Section 906 of the SarbanesOxley Act of 2002.
____________
* Filed herewith.
^ Portions omitted pursuant to a request for confidential treatment.
48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
By:
/s/ BRADLEY M. COLBY

Bradley M. Colby
President, Chief Executive Officer, Treasurer and Director
Date: April 16, 2013
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
President, Chief Executive
Officer, Treasurer and Director
(Principal Executive Officer)
Date
April 16, 2013

(Principal Accounting Officer)
April 16, 2013
/S/THOMAS LANTZ
Thomas Lantz
Chief Operating Officer
April 16, 2013
/s/RICHARD FINDLEY
Richard Findley
Director (Chairman)
April 16, 2013
/s/JOHN ANDERSON
John Anderson
Director
April 16, 2013
/s/ ANDREW P. CALERICH

Andrew P. Calerich
Director
April 16, 2013
/s/PAUL E. RUMLER
Paul E. Rumler
Director and Secretary
April 16, 2013
/s/BRADLEY M. COLBY
Bradley M. Colby
/s/KIRK A. STINGLEY
Kirk A. Stingley
49
LEASE ADDENDUM
THIS LEASE ADDENDUM (this Addendum) is entered into effective the 1st day of July 2012, by and between Oakley
Ventures, LLC, a Colorado limited liability company (Oakley), and American Eagle Energy, a Nevada Corporation, successor in interest to
Eternal Energy Corp., a Nevada Corporation (Lessee).
WHEREAS, Lessee is a party to that certain Colorado Shopping Center Lease dated December 05, 2008, by and between Lessee, as
tenant, and Oakley, as landlord, pursuant to which Lessee has leased the Demised Premises at 2549 West Main Street, Ste 202, Littleton
Colorado; and
2011.
WHEREAS, parties entered into a Lease Addendum dated and executed on September 20, 2011, with an effective date of October 1,
WHEREAS, parties desire to expand the square footage of the Lease pursuant to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants set forth in the Agreement and herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows
1.
Definitions. Any capitalized terms used but not otherwise defined in this Addendum shall have the meanings assigned to
such terms in the Lease. For the purposes of this Addendum and all rights of the Lessor as set forth in the Lease, shall be referred to as the
Lessor.
2.
Expansion. The Lease obligations will be amended to include the entire square footage of the second floor of 2549 West
Main Street, Suites 201 (2087 sq. ft.) and 202 (3207 sq. ft.), for a total of 5294 square feet. An additional security deposit of Three Thousand
Three Hundred and Four Dollars ($3,304.00) shall be paid by Lessee to Oakley.
3.
Base Rent. Notwithstanding any provision of the Lease to the contrary, the Base Rent payable by Lessee to Lessor for the
Demised Premise from and after July 1, 2012 until December 31, 2014 shall be an amount equal to Two Hundred Sixty Seven Thousand
Three Hundred Forty Seven Dollars ($267,347.00), which shall be payable by Lessee to Lessor in monthly installments pursuant to the terms
of the Lease as follows:
Months
7/01/2012 - 12/31/2012
1/01/2013 - 12/31/2013
1/01/2014 - 12/31/2014
Sq. Ft. Cost

$
$
$
19.00
20.00
21.00
Monthly Payment
$ 8,382.20 per month
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4.
Improvements and Repairs. Lessor agrees to reimburse Lessee for the annual cost of cleaning the carpets located within the
Demised Premises.
5.
Notice. The notice provisions set forth in Paragraph 35 of the Lease are hereby amended to provide that the proper addresses
for Lessor to be used for the purpose of notice pursuant to the Lease is as follows:
If to Lessor:
6.
Oakley Ventures, LLC

c/o Highline Realty Partners, Inc.
Attn: Rees F. Davis, Jr.
3695 East Long Road
Greenwood Village, Colorado 80120
Parking. Lessee and Lessees employees agree to adhere to a priority parking plan as follows:
First, to utilize the reserved north facing spaces in the parking lot commonly known as the Lilley Building parking lot.
Second, if the north facing spaces of Lilley are full, to utilize the middle section of spaces in the Lilley lot.
Lessor reserves the right to change or modify the priority parking if the Lilley lot becomes over-parked.
7.
Confidentiality Agreement. Per Exhibit A to Addendum as attached.
8.
Ratification. Except as modified by this Addendum and subject to the last sentence of this Section 6, all of the terms,
covenants and conditions of the Lease are ratified and affirmed and shall remain in full force and effect. To the extent the terms and provisions
of this Addendum modify or conflict with any term or provision of the Lease, the modifying or conflicting term and provision of this
Addendum shall control in all respects, and the corresponding term and provision of the Lease shall be superseded to the extent of such
modification or conflict.
9.
Entire Agreement. The Lease, including this Addendum, expresses the entire agreement of Lessor and Lessee. There are no
other understandings, oral or written, which in any manner alter or enlarge its terms.
10.
Binding. This Addendum shall be binding upon and benefit the parties hereto and their successors and assigns.
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11.
Acceptance. This Addendum is offered for signature to Lessee, and it is understood that this Addendum shall not be binding
upon Lessor unless and until Lessor shall have executed and delivered a fully-executed copy of this Addendum to Lessee.
12.
Execution. This Addendum may be executed in multiple counterparts. A fully-executed copy of this Addendum may be
transmitted by facsimile or electronic mail, and such shall be deemed to be an original.
[Signature Page to Follow]
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IN WITNESS WHEREOF, the undersigned have executed this Addendum effective as of the date first set forth above.
LESSOR:
OAKLEY VENTURES, LLC,
a Colorado limited liability company
By:
/s/ Rees F. Davis, Jr.

Rees F. Davis, Jr., Manager
LESSEE:
AMERICAN EAGLE ENERGY CORP.,
a Nevada Corporation
By:
Name:
Title:
/s/ Brad Colby

Brad Colby
President & CEO
Page 4 of 4
ISDA
International Swaps and Derivatives Association, Inc.
2002 MASTER AGREEMENT

dated as of December 27, 2012
Macquarie Bank Limited and American Eagle Energy Corporation and AMZG, Inc.
have entered and/or anticipate entering into one or more transactions (each a "Transaction") that are or will be governed by this 2002 Master
Agreement, which includes the schedule (the "Schedule"), and the documents and other confirming evidence (each a "Confirmation")
exchanged between the parties or otherwise effective for the purpose of confirming or evidencing those Transactions. This 2002 Master
Agreement and the Schedule are together referred to as this "Master Agreement".
Accordingly, the parties agree as follows:1.
Interpretation
(a)
Definitions. The terms defined in Section 14 and elsewhere in this Master Agreement will have the meanings therein specified for the
purpose of this Master Agreement.
(b)
Inconsistency. In the event of any inconsistency between the provisions of the Schedule and the other provisions of this Master
Agreement, the Schedule will prevail. In the event of any inconsistency between the provisions of any Confirmation and this Master
Agreement, such Confirmation will prevail for the purpose of the relevant Transaction.
(c)
Single Agreement. All Transactions are entered into in reliance on the fact that this Master Agreement and all Confirmations form a
single agreement between the parties (collectively referred to as this "Agreement"), and the parties would not otherwise enter into any
Transactions.
2.
Obligations
(a)
General Conditions.
(i)
Each party will make each payment or delivery specified in each Confirmation to be made by it, subject to the other provisions
of this Agreement.
(ii)
Payments under this Agreement will be made on the due date for value on that date in the place of the account specified in the
relevant Confirmation or otherwise pursuant to this Agreement, in freely transferable funds and in the manner customary for payments
in the required currency. Where settlement is by delivery (that is, other than by payment), such delivery will be made for receipt on the
due date in the manner customary for the relevant obligation unless otherwise specified in the relevant Confirmation or elsewhere in
this Agreement.
Copyright 2002 by International Swaps and Derivatives Association, Inc.
(iii)
Each obligation of each party under Section 2(a)(i) is subject to (1) the condition precedent that no Event of Default or
Potential Event of Default with respect to the other party has occurred and is continuing, (2) the condition precedent that no Early
Termination Date in respect of the relevant Transaction has occurred or been effectively designated and (3) each other condition
specified in this Agreement to be a condition precedent for the purpose of this Section 2(a)(iii).
(b)
Change of Account. Either party may change its account for receiving a payment or delivery by giving notice to the other party at
least five Local Business Days prior to the Scheduled Settlement Date for the payment or delivery to which such change applies unless such
other party gives timely notice of a reasonable objection to such change.
(c)
Netting of Payments. If on any date amounts would otherwise be payable:(i)
in the same currency; and
(ii)
in respect of the same Transaction,
by each party to the other, then, on such date, each party's obligation to make payment of any such amount will be automatically satisfied and
discharged and, if the aggregate amount that would otherwise have been payable by one party exceeds the aggregate amount that would
otherwise have been payable by the other party, replaced by an obligation upon the party by which the larger aggregate amount would have
been payable to pay to the other party the excess of the larger aggregate amount over the smaller aggregate amount.
The parties may elect in respect of two or more Transactions that a net amount and payment obligation will be determined in respect of all
amounts payable on the same date in the same currency in respect of those Transactions, regardless of whether such amounts are payable in
respect of the same Transaction. The election may be made in the Schedule or any Confirmation by specifying that "Multiple Transaction
Payment Netting" applies to the Transactions identified as being subject to the election (in which case clause (ii) above will not apply to such
Transactions). If Multiple Transaction Payment Netting is applicable to Transactions, it will apply to those Transactions with effect from the
starting date specified in the Schedule or such Confirmation, or, if a starting date is not specified in the Schedule or such Confirmation, the
starting date otherwise agreed by the parties in writing. This election may be made separately for different groups of Transactions and will
apply separately to each pairing of Offices through which the parties make and receive payments or deliveries.
(d)
Deduction or Withholding for Tax.

(i)
Gross-Up. All payments under this Agreement will be made without any deduction or withholding for or on account of any
Tax unless such deduction or withholding is required by any applicable law, as modified by the practice of any relevant governmental
revenue authority, then in effect. If a party is so required to deduct or withhold, then that party ("X") will:(1)
promptly notify the other party ("Y") of such requirement;
(2)
pay to the relevant authorities the full amount required to be deducted or withheld (including the full amount required
to be deducted or withheld from any additional amount paid by X to Y under this Section 2(d)) promptly upon the earlier of
determining that such deduction or withholding is required or receiving notice that such amount has been assessed against Y;
(3)
promptly forward to Y an official receipt (or a certified copy), or other documentation reasonably acceptable to Y,
evidencing such payment to such authorities; and
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(4)
if such Tax is an Indemnifiable Tax, pay to Y, in addition to the payment to which Y is otherwise entitled under this
Agreement, such additional amount as is necessary to ensure that the net amount actually received by Y (free and clear of
Indemnifiable Taxes, whether assessed against X or Y) will equal the full amount Y would have received had no such
deduction or withholding been required. However, X will not be required to pay any additional amount to Y to the extent that
it would not be required to be paid but for: (A)
the failure by Y to comply with or perform any agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d); or
(B)
the failure of a representation made by Y pursuant to Section 3(f) to be accurate and true unless such failure
would not have occurred but for (I) any action taken by a taxing authority, or brought in a court of competent
jurisdiction, after a Transaction is entered into (regardless of whether such action is taken or brought with respect to a
party to this Agreement) or (II) a Change in Tax Law.
(ii)
Liability. If (1)
X is required by any applicable law, as modified by the practice of any relevant governmental revenue authority, to
make any deduction or withholding in respect of which X would not be required to pay an additional amount to Y under
Section 2(d)(i)(4);
(2)
X does not so deduct or withhold; and
(3)
a liability resulting from such Tax is assessed directly against X,
then, except to the extent Y has satisfied or then satisfies the liability resulting from such Tax, Y will promptly pay to X the amount of
such liability (including any related liability for interest, but including any related liability for penalties only if Y has failed to comply
with or perform any agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d)).
3.
Representations
Each party makes the representations contained in Sections 3(a), 3(b), 3(c), 3(d), 3(e) and 3(f) and, if specified in the Schedule as applying,
3(g) to the other party (which representations will be deemed to be repeated by each party on each date on which a Transaction is entered into
and, in the case of the representations in Section 3(f), at all times until the termination of this Agreement). If any "Additional Representation"
is specified in the Schedule or any Confirmation as applying, the party or parties specified for such Additional Representation will make and,
if applicable, be deemed to repeat such Additional Representation at the time or times specified for such Additional Representation.
(a)
Basic Representations.
(i)
Status. It is duly organised and validly existing under the laws of the jurisdiction of its organisation or incorporation and, if
relevant under such laws, in good standing;
(ii)
Powers. It has the power to execute this Agreement and any other documentation relating to this Agreement to which it is a
party, to deliver this Agreement and any other documentation relating to this Agreement that it is required by this Agreement to deliver
and to perform its obligations under this Agreement and any obligations it has under any Credit Support Document to which it is a
party and has taken all necessary action to authorise such execution, delivery and performance;
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(iii)
No Violation or Conflict. Such execution, delivery and performance do not violate or conflict with any law applicable to it,
any provision of its constitutional documents, any order or judgment of any court or other agency of government applicable to it or any
of its assets or any contractual restriction binding on or affecting it or any of its assets;
(iv)
Consents. All governmental and other consents that are required to have been obtained by it with respect to this Agreement or
any Credit Support Document to which it is a party have been obtained and are in full force and effect and all conditions of any such
consents have been complied with; and
(v)
Obligations Binding. Its obligations under this Agreement and any Credit Support Document to which it is a party constitute
its legal, valid and binding obligations, enforceable in accordance with their respective terms (subject to applicable bankruptcy,
reorganisation, insolvency, moratorium or similar laws affecting creditors' rights generally and subject, as to enforceability, to equitable
principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)).
(b)
Absence of Certain Events. No Event of Default or Potential Event of Default or, to its knowledge, Termination Event with respect
to it has occurred and is continuing and no such event or circumstance would occur as a result of its entering into or performing its obligations
under this Agreement or any Credit Support Document to which it is a party.
(c)
Absence of Litigation. There is not pending or, to its knowledge, threatened against it, any of its Credit Support Providers or any of
its applicable Specified Entities any action, suit or proceeding at law or in equity or before any court, tribunal, governmental body, agency or
official or any arbitrator that is likely to affect the legality, validity or enforceability against it of this Agreement or any Credit Support
Document to which it is a party or its ability to perform its obligations under this Agreement or such Credit Support Document.
(d)
Accuracy of Specified Information. All applicable information that is furnished in writing by or on behalf of it to the other party and
is identified for the purpose of this Section 3(d) in the Schedule is, as of the date of the information, true, accurate and complete in every
material respect.
(e)
Payer Tax Representation. Each representation specified in the Schedule as being made by it for the purpose of this Section 3(e) is
accurate and true.
(f)
Payee Tax Representations. Each representation specified in the Schedule as being made by it for the purpose of this Section 3(f) is
accurate and true.
(g)
No Agency. It is entering into this Agreement, including each Transaction, as principal and not as agent of any person or entity.
4.
Agreements
Each party agrees with the other that, so long as either party has or may have any obligation under this Agreement or under any Credit Support
Document to which it is a party:(a)
Furnish Specified Information. It will deliver to the other party or, in certain cases under clause (iii) below, to such government or
taxing authority as the other party reasonably directs:(i)
any forms, documents or certificates relating to taxation specified in the Schedule or any Confirmation;
(ii)
any other documents specified in the Schedule or any Confirmation; and

4
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(iii)
upon reasonable demand by such other party, any form or document that may be required or reasonably requested in writing
in order to allow such other party or its Credit Support Provider to make a payment under this Agreement or any applicable Credit
Support Document without any deduction or withholding for or on account of any Tax or with such deduction or withholding at a
reduced rate (so long as the completion, execution or submission of such form or document would not materially prejudice the legal or
commercial position of the party in receipt of such demand), with any such form or document to be accurate and completed in a manner
reasonably satisfactory to such other party and to be executed and to be delivered with any reasonably required certification,
in each case by the date specified in the Schedule or such Confirmation or, if none is specified, as soon as reasonably practicable.
(b)
Maintain Authorisations. It will use all reasonable efforts to maintain in full force and effect all consents of any governmental or
other authority that are required to be obtained by it with respect to this Agreement or any Credit Support Document to which it is a party and
will use all reasonable efforts to obtain any that may become necessary in the future.
(c)
Comply With Laws. It will comply in all material respects with all applicable laws and orders to which it may be subject if failure so
to comply would materially impair its ability to perform its obligations under this Agreement or any Credit Support Document to which it is a
party.
(d)
Tax Agreement. It will give notice of any failure of a representation made by it under Section 3(f) to be accurate and true promptly
upon learning of such failure.
(e)
Payment of Stamp Tax Subject to Section 11, it will pay any Stamp Tax levied or imposed upon it or in respect of its execution or
performance of this Agreement by a jurisdiction in which it is incorporated, organised, managed and controlled or considered to have its seat,
or where an Office through which it is acting for the purpose of this Agreement is located ("Stamp Tax Jurisdiction"), and will indemnify the
other party against any Stamp Tax levied or imposed upon the other party or in respect of the other party's execution or performance of this
Agreement by any such Stamp Tax Jurisdiction which is not also a Stamp Tax Jurisdiction with respect to the other party.
5.
Events of Default and Termination Events
(a)
Events of Default. The occurrence at any time with respect to a party or, if applicable, any Credit Support Provider of such party or
any Specified Entity of such party of any of the following events constitutes (subject to Sections 5(c) and 6(e)(iv)) an event of default (an
"Event of Default") with respect to such party:(i)
Failure to Pay or Deliver. Failure by the party to make, when due, any payment under this Agreement or delivery under
Section 2(a)(i) or 9(h)(i)(2) or (4) required to be made by it if such failure is not remedied on or before the first Local Business Day in
the case of any such payment or the first Local Delivery Day in the case of any such delivery after, in each case, notice of such failure
is given to the party;
(ii)
Breach of Agreement; Repudiation of Agreement.

(1)
Failure by the party to comply with or perform any agreement or obligation (other than an obligation to make any
payment under this Agreement or delivery under Section 2(a)(i) or 9(h)(i)(2) or (4) or to give notice of a Termination Event
or any agreement or obligation under Section 4(a)(i), 4(a)(iii) or 4(d)) to be complied with or performed by the party in
accordance with this Agreement if such failure is not remedied within 30 days after notice of such failure is given to the party;
or
(2)
the party disaffirms, disclaims, repudiates or rejects, in whole or in part, or challenges the validity of, this Master
Agreement, any Confirmation executed and delivered by that party or any
5
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Transaction evidenced by such a Confirmation (or such action is taken by any person or entity appointed or empowered to operate it
or act on its behalf);
(iii)
Credit Support Default.

(1)
Failure by the party or any Credit Support Provider of such party to comply with or perform any agreement or obligation to
be complied with or performed by it in accordance with any Credit Support Document if such failure is continuing after any applicable
grace period has elapsed;
(2)
the expiration or termination of such Credit Support Document or the failing or ceasing of such Credit Support Document, or
any security interest granted by such party or such Credit Support Provider to the other party pursuant to any such Credit Support
Document, to be in full force and effect for the purpose of this Agreement (in each case other than in accordance with its terms) prior
to the satisfaction of all obligations of such party under each Transaction to which such Credit Support Document relates without the
written consent of the other party; or
(3)
the party or such Credit Support Provider disaffirms, disclaims, repudiates or rejects, in whole or in part, or challenges the
validity of, such Credit Support Document (or such action is taken by any person or entity appointed or empowered to operate it or act
on its behalf);
(iv)
Misrepresentation. A representation (other than a representation under Section 3(e) or 3(f)) made or repeated or deemed to have
been made or repeated by the party or any Credit Support Provider of such party in this Agreement or any Credit Support Document proves to
have been incorrect or misleading in any material respect when made or repeated or deemed to have been made or repeated;
(v)
Default Under Specified Transaction. The party, any Credit Support Provider of such party or any applicable Specified Entity of
such party:(1)
defaults (other than by failing to make a delivery) under a Specified Transaction or any credit support arrangement relating to
a Specified Transaction and, after giving effect to any applicable notice requirement or grace period, such default results in a
liquidation of, an acceleration of obligations under, or an early termination of, that Specified Transaction;
(2)
defaults, after giving effect to any applicable notice requirement or grace period, in making any payment due on the last
payment or exchange date of, or any payment on early termination of, a Specified Transaction (or, if there is no applicable notice
requirement or grace period, such default continues for at least one Local Business Day);
(3)
defaults in making any delivery due under (including any delivery due on the last delivery or exchange date of) a Specified
Transaction or any credit support arrangement relating to a Specified Transaction and, after giving effect to any applicable notice
requirement or grace period, such default results in a liquidation of, an acceleration of obligations under, or an early termination of, all
transactions outstanding under the documentation applicable to that Specified Transaction; or
(4)
disaffirms, disclaims, repudiates or rejects, in whole or in part, or challenges the validity of, a Specified Transaction or any
credit support arrangement relating to a Specified Transaction that is, in either case, confirmed or evidenced by a document or other
confirming evidence executed and delivered by that party, Credit Support Provider or Specified Entity (or such action is taken by any
person or entity appointed or empowered to operate it or act on its behalf);
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(vi)
Cross Default. If "Cross-Default" is specified in the Schedule as applying to the party, the occurrence or existence of:(1)
a default, event of default or other similar condition or event (however described) in respect of such party, any Credit Support
Provider of such party or any applicable Specified Entity of such party under one or more agreements or instruments relating to
Specified Indebtedness of any of them (individually or collectively) where the aggregate principal amount of such agreements or
instruments, either alone or together with the amount, if any, referred to in clause (2) below, is not less than the applicable Threshold
Amount (as specified in the Schedule) which has resulted in such Specified Indebtedness becoming, or becoming capable at such time
of being declared, due and payable under such agreements or instruments before it would otherwise have been due and payable; or
(2)
a default by such party, such Credit Support Provider or such Specified Entity (individually or collectively) in making one or
more payments under such agreements or instruments on the due date for payment (after giving effect to any applicable notice
requirement or grace period) in an aggregate amount, either alone or together with the amount, if any, referred to in clause (1) above, of
not less than the applicable Threshold Amount;
(vii)
Bankruptcy. The party, any Credit Support Provider of such party or any applicable Specified Entity of such party:(1) is dissolved (other than pursuant to a consolidation, amalgamation or merger); (2) becomes insolvent or is unable to pay its debts or
fails or admits in writing its inability generally to pay its debts as they become due; (3) makes a general assignment, arrangement or
composition with or for the benefit of its creditors; (4)(A) institutes or has instituted against it, by a regulator, supervisor or any similar
official with primary insolvency, rehabilitative or regulatory jurisdiction over it in the jurisdiction of its incorporation or organisation or
the jurisdiction of its head or home office, a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any
bankruptcy or insolvency law or other similar law affecting creditors' rights, or a petition is presented for its winding-up or liquidation
by it or such regulator, supervisor or similar official, or (B) has instituted against it a proceeding seeking a judgment of insolvency or
bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors' rights, or a petition is
presented for its winding-up or liquidation, and such proceeding or petition is instituted or presented by a person or entity not
described in clause (A) above and either (I) results in a judgment of insolvency or bankruptcy or the entry of an order for relief or the
making of an order for its winding-up or liquidation or (II) is not dismissed, discharged, stayed or restrained in each case within 15
days of the institution or presentation thereof; (5) has a resolution passed for its winding-up, official management or liquidation (other
than pursuant to a consolidation, amalgamation or merger); (6) seeks or becomes subject to the appointment of an administrator,
provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets; (7)
has a secured party take possession of all or substantially all its assets or has a distress, execution, attachment, sequestration or other
legal process levied, enforced or sued on or against all or substantially all its assets and such secured party maintains possession, or
any such process is not dismissed, discharged, stayed or restrained, in each case within 15 days thereafter; (8) causes or is subject to
any event with respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified
in clauses (1) to (7) above (inclusive); or (9) takes any action in furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the foregoing acts; or
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(viii)
Merger Without Assumption. The party or any Credit Support Provider of such party consolidates or amalgamates with, or
merges with or into, or transfers all or substantially all its assets to, or reorganises, reincorporates or reconstitutes into or as, another
entity and, at the time of such consolidation, amalgamation, merger, transfer, reorganisation, reincorporation or reconstitution:(1)
the resulting, surviving or transferee entity fails to assume all the obligations of such party or such Credit Support
Provider under this Agreement or any Credit Support Document to which it or its predecessor was a party; or
(2)
the benefits of any Credit Support Document fail to extend (without the consent of the other party) to the
performance by such resulting, surviving or transferee entity of its obligations under this Agreement.
(b)
Termination Events. The occurrence at any time with respect to a party or, if applicable, any Credit Support Provider of such party
or any Specified Entity of such party of any event specified below constitutes (subject to Section 5(c)) an Illegality if the event is specified in
clause (i) below, a Force Majeure Event if the event is specified in clause (ii) below, a Tax Event if the event is specified in clause (iii) below, a
Tax Event Upon Merger if the event is specified in clause (iv) below, and, if specified to be applicable, a Credit Event Upon Merger if the
event is specified pursuant to clause (v) below or an Additional Termination Event if the event is specified pursuant to clause (vi) below:(i)
Illegality. After giving effect to any applicable provision, disruption fallback or remedy specified in, or pursuant to, the
relevant Confirmation or elsewhere in this Agreement, due to an event or circumstance (other than any action taken by a party or, if
applicable, any Credit Support Provider of such party) occurring after a Transaction is entered into, it becomes unlawful under any
applicable law (including without limitation the laws of any country in which payment, delivery or compliance is required by either
party or any Credit Support Provider, as the case may be), on any day, or it would be unlawful if the relevant payment, delivery or
compliance were required on that day (in each case, other than as a result of a breach by the party of Section 4(b)):(1)
for the Office through which such party (which will be the Affected Party) makes and receives payments or
deliveries with respect to such Transaction to perform any absolute or contingent obligation to make a payment or delivery in
respect of such Transaction, to receive a payment or delivery in respect of such Transaction or to comply with any other
material provision of this Agreement relating to such Transaction; or
(2)
for such party or any Credit Support Provider of such party (which will be the Affected Party) to perform any
absolute or contingent obligation to make a payment or delivery which such party or Credit Support Provider has under any
Credit Support Document relating to such Transaction, to receive a payment or delivery under such Credit Support Document
or to comply with any other material provision of such Credit Support Document;
(ii)
Force Majeure Event. After giving effect to any applicable provision, disruption fallback or remedy specified in, or pursuant
to, the relevant Confirmation or elsewhere in this Agreement, by reason of force majeure or act of state occurring after a Transaction is
entered into, on any day:(1)
the Office through which such party (which will be the Affected Party) makes and receives payments or deliveries
with respect to such Transaction is prevented from performing any absolute or contingent obligation to make a payment or
delivery in respect of such Transaction, from receiving a payment or delivery in respect of such Transaction or from
complying with any other material provision of this Agreement relating to such Transaction (or would be so prevented if such
payment, delivery or compliance were required on that day), or it becomes impossible orimpracticable for such Office so to
perform, receive or comply (or it would be impossible or impracticable for such Office so to perform, receive or comply if
such payment, delivery or compliance were required on that day); or
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(2)
such party or any Credit Support Provider of such party (which will be the Affected Party) is prevented from performing any
absolute or contingent obligation to make a payment or delivery which such party or Credit Support Provider has under any Credit
Support Document relating to such Transaction, from receiving a payment or delivery under such Credit Support Document or from
complying with any other material provision of such Credit Support Document (or would be so prevented if such payment, delivery or
compliance were required on that day), or it becomes impossible or impracticable for such party or Credit Support Provider so to
perform, receive or comply (or it would be impossible or impracticable for such party or Credit Support Provider so to perform,
receive or comply if such payment, delivery or compliance were required on that day),
so long as the force majeure or act of state is beyond the control of such Office, such party or such Credit Support Provider, as appropriate,
and such Office, party or Credit Support Provider could not, after using all reasonable efforts (which will not require such party or Credit
Support Provider to incur a loss, other than immaterial, incidental expenses), overcome such prevention, impossibility or impracticability;
(iii)
Tax Event. Due to (1) any action taken by a taxing authority, or brought in a court of competent jurisdiction, after a Transaction is
entered into (regardless of whether such action is taken or brought with respect to a party to this Agreement) or (2) a Change in Tax Law, the
party (which will be the Affected Party) will, or there is a substantial likelihood that it will, on the next succeeding Scheduled Settlement Date
(A) be required to pay to the other party an additional amount in respect of an Indemnifiable Tax under Section 2(d)(i)(4) (except in respect of
interest under Section 9(h)) or (B) receive a payment from which an amount is required to be deducted or withheld for or on account of a Tax
(except in respect of interest under Section 9(h)) and no additional amount is required to be paid in respect of such Tax under Section
2(d)(i)(4) (other than by reason of Section 2(d)(i)(4)(A) or (B));
(iv)
Tax Event Upon Merger. The party (the "Burdened Party") on the next succeeding Scheduled Settlement Date will either (1) be
required to pay an additional amount in respect of an Indemnifiable Tax under Section 2(d)(i)(4) (except in respect of interest under Section
9(h)) or (2) receive a payment from which an amount has been deducted or withheld for or on account of any Tax in respect of which the other
party is not required to pay an additional amount (other than by reason of Section 2(d)(i)(4)(A) or (B)), in either case as a result of a party
consolidating or amalgamating with, or merging with or into, or transferring all or substantially all its assets (or any substantial part of the
assets comprising the business conducted by it as of the date of this Master Agreement) to, or reorganising, reincorporating or reconstituting
into or as, another entity (which will be the Affected Party) where such action does not constitute a Merger Without Assumption;
(v)
Credit Event Upon Merger. If "Credit Event Upon Merger" is specified in the Schedule as applying to the party, a Designated Event
(as defined below) occurs with respect to such party, any Credit Support Provider of such party or any applicable Specified Entity of such
party (in each case, "X") and such Designated Event does not constitute a Merger Without Assumption, and the creditworthiness of X or, if
applicable, the successor, surviving or transferee entity of X, after taking into account any applicable Credit Support Document, is materially
weaker immediately after the occurrence of such Designated Event than that of X immediately prior to the occurrence of such Designated
Event (and, in any such event, such party or its successor, surviving or transferee entity, as appropriate, will be the Affected Party). A
"Designated Event" with respect to X means that:(1)
X consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets (or any substantial
part of the assets comprising the business conducted by X as of the date of this Master Agreement) to, or reorganises, reincorporates
or reconstitutes into or as, another entity;
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(2)
any person, related group of persons or entity acquires directly or indirectly the beneficial ownership of (A) equity
securities having the power to elect a majority of the board of directors (or its equivalent) of X or (B) any other ownership
interest enabling it to exercise control of X; or
(3)
X effects any substantial change in its capital structure by means of the issuance, incurrence or guarantee of debt or
the issuance of (A) preferred stock or other securities convertible into or exchangeable for debt or preferred stock or (B) in the
case of entities other than corporations, any other form of ownership interest; or
(vi)
Additional Termination Event. If any "Additional Termination Event" is specified in the Schedule or any Confirmation as
applying, the occurrence o f such event (and, in such event, the Affected Party or Affected Parties will be as specified for such
Additional Termination Event in the Schedule or such Confirmation).
(c)
Hierarchy of Events.
(i)
An event or circumstance that constitutes or gives rise to an Illegality or a Force Majeure Event will not, for so long as that is
the case, also constitute or give rise to an Event of Default under Section 5(a)(i), 5(a)(ii)(1) or 5(a)(iii)(1) insofar as such event or
circumstance relates to the failure to make any payment or delivery or a failure to comply with any other material provision o f this
Agreement or a Credit Support Document, as the case may be.
(ii)
Except in circumstances contemplated by clause (i) above, if an event or circumstance which would otherwise constitute or give
rise to an Illegality or a Force Majeure Event also constitutes an Event of Default or any other Termination Event, it will be treated as
an Event of Default or such other Termination Event, as the case may be, and will not constitute or give rise to an Illegality or a Force
Majeure Event.
(iii)
If an event or circumstance which would otherwise constitute or give rise to a Force Majeure Event also constitutes an
Illegality, it will be treated as an Illegality, except as described in clause (ii) above, and not a Force Majeure Event.
(d)
Deferral of Payments and Deliveries During Waiting Period. If an Illegality or a Force Majeure Event has occurred and is
continuing with respect to a Transaction, each payment or delivery which would otherwise be required to be made under that Transaction will
be deferred to, and will not be due until: (i)
the first Local Business Day or, in the case of a delivery, the first Local Delivery Day (or the first day that would have been a
Local Business Day or Local Delivery Day, as appropriate, but for the occurrence of the event or circumstance constituting or giving
rise to that Illegality or Force Majeure Event) following the end of any applicable Waiting Period in respect of that Illegality or Force
Majeure Event, as the case may be; or
(ii)
if earlier, the date on which the event or circumstance constituting or giving rise to that Illegality or Force Majeure Event
ceases to exist or, if such date is not a Local Business Day or, in the case of a delivery, a Local Delivery Day, the first following day
that is a Local Business Day or Local Delivery Day, as appropriate.
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(e)
Inability of Head or Home Office to Perform Obligations of Branch. If (i) an Illegality or a Force Majeure Event occurs under
Section 5(b)(i)(1) or 5(b)(ii)(1) and the relevant Office is not the Affected Party's head or home office, (ii) Section 10(a) applies, (iii) the other
party seeks performance of the relevant obligation or compliance with the relevant provision by the Affected Party's head or home office and
(iv) the Affected Party's head or home office fails so to perform or comply due to the occurrence of an event or circumstance which would, if
that head or home office were the Office through which the Affected Party makes and receives payments and deliveries with respect to the
relevant Transaction, constitute or give rise to an Illegality or a Force Majeure Event, and such failure would otherwise constitute an Event of
Default under Section 5(a)(i) or 5(a)(iii)(1) with respect to such party, then, for so long as the relevant event or circumstance continues to exist
with respect to both the Office referred to in Section 5(b)(i)(1) or 5(b)(ii)(1), as the case may be, and the Affected Party's head or home office,
such failure will not constitute an Event of Default under Section 5(a)(i) or 5(a)(iii)(1).
6.
Early Termination; Close-Out Netting
(a)
Right to Terminate Following Event of Default. If at any time an Event of Default with respect to a party (the "Defaulting Party")
has occurred and is then continuing, the other party (the "Non-defaulting Party") may, by not more than 20 days notice to the Defaulting Party
specifying the relevant Event of Default, designate a day not earlier than the day such notice is effective as an Early Termination Date in
respect of all outstanding Transactions. If, however, "Automatic Early Termination" is specified in the Schedule as applying to a party, then an
Early Termination Date in respect of all outstanding Transactions will occur immediately upon the occurrence with respect to such party of an
Event of Default specified in Section 5(a)(vii)(1), (3), (5), (6) or, to the extent analogous thereto, (8), and as of the time immediately preceding
the institution of the relevant proceeding or the presentation of the relevant petition upon the occurrence with respect to such party of an Event
of Default specified in Section 5(a)(vii)(4) or, to the extent analogous thereto, (8).
(b)
Right to Terminate Following Termination Event.

(i)
Notice. If a Termination Event other than a Force Majeure Event occurs, an Affected Party will, promptly upon becoming
aware of it, notify the other party, specifying the nature of that Termination Event and each Affected Transaction, and will also give the
other party such other information about that Termination Event as the other party may reasonably require. If a Force Majeure Event
occurs, each party will, promptly upon becoming aware of it, use all reasonable efforts to notify the other party, specifying the nature
of that Force Majeure Event, and will also give the other party such other information about that Force Majeure Event as the other
party may reasonably require.
(ii)
Transfer to Avoid Termination Event. If a Tax Event occurs and there is only one Affected Party, or if a Tax Event Upon
Merger occurs and the Burdened Party is the Affected Party, the Affected Party will, as a condition to its right to designate an Early
Termination Date under Section 6(b)(iv), use all reasonable efforts (which will not require such party to incur a loss, other than
immaterial, incidental expenses) to transfer within 20 days after it gives notice under Section 6(b)(i) all its rights and obligations under
this Agreement in respect of the Affected Transactions to another of its Offices or Affiliates so that such Termination Event ceases to
exist.
If the Affected Party is not able to make such a transfer it will give notice to the other party to that effect within such 20 day period,
whereupon the other party may effect such a transfer within 30 days after the notice is given under Section 6(b)(i).
Any such transfer by a party under this Section 6(b)(ii) will be subject to and conditional upon the prior written consent of the other
party, which consent will not be withheld if such other party's policies in effect at such time would permit it to enter into transactions
with the transferee on the terms proposed.
(iii)
Two Affected Parties. If a Tax Event occurs and there are two Affected Parties, each party will use all reasonable efforts to
reach agreement within 30 days after notice of such occurrence is given under Section 6(b)(i) to avoid that Termination Event.
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(iv)
Right to Terminate.
(1)
If:(A)
a transfer under Section 6(b)(ii) or an agreement under Section 6(b)(iii), as the case may be, has not been
effected with respect to all Affected Transactions within 30 days after an Affected Party gives notice under Section
6(b)(i); or
(B)
a Credit Event Upon Merger or an Additional Termination Event occurs, or a Tax Event Upon Merger
occurs and the Burdened Party is not the Affected Party,
the Burdened Party in the case of a Tax Event Upon Merger, any Affected Party in the case of a Tax Event or an Additional
Termination Event if there are two Affected Parties, or the Non-affected Party in the case of a Credit Event Upon Merger or
an Additional Termination Event if there is only one Affected Party may, if the relevant Termination Event is then continuing,
by not more than 20 days notice to the other party, designate a day not earlier than the day such notice is effective as an Early
Termination Date in respect of all Affected Transactions.
(2)
If at any time an Illegality or a Force Majeure Event has occurred and is then continuing
and any applicable Waiting Period has expired:
(A)
Subject to clause (B) below, either party may, by not more than 20 days notice to the other party, designate
(I) a day not earlier than the day on which such notice becomes effective as an Early Termination Date in respect of
all Affected Transactions or (II) by specifying in that notice the Affected Transactions in respect of which it is
designating the relevant day as an Early Termination Date, a day not earlier than two Local Business Days following
the day on which such notice becomes effective as an Early Termination Date in respect of less than all Affected
Transactions. Upon receipt of a notice designating an Early Termination Date in respect of less than all Affected
Transactions, the other party may, by notice to the designating party, if such notice is effective on or before the day so
designated, designate that same day as an Early Termination Date in respect of any or all other Affected Transactions.
(B)
An Affected Party (if the Illegality or Force Majeure Event relates to performance by such party or any
Credit Support Provider of such party of an obligation to make any payment or delivery under, or to compliance with
any other material provision of, the relevant Credit Support Document) will only have the right to designate an Early
Termination Date under Section 6(b)(iv)(2)(A) as a result of an Illegality under Section 5(b)(i)(2) or a Force Majeure
Event under Section 5(b)(ii)(2) following the prior designation by the other party of an Early Termination Date,
pursuant to Section 6(b)(iv)(2)(A), in respect of less than all Affected Transactions.
(c)
Effect of Designation.
(i)
If notice designating an Early Termination Date is given under Section 6(a) or 6(b), the Early Termination Date will occur on
the date so designated, whether or not the relevant Event of Default or Termination Event is then continuing.
(ii)
Upon the occurrence or effective designation of an Early Termination Date, no further payments or deliveries under Section
2(a)(i) or 9(h)(i) in respect of the Terminated Transactions will be required to be made, but without prejudice to the other provisions of
this Agreement. The amount, if any, payable in respect of an Early Termination Date will be determined pursuant to Sections 6(e) and
9(h)(ii).
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(d)
Calculations; Payment Date.

(i)
Statement. On or as soon as reasonably practicable following the occurrence of an Early Termination Date, each party will
make the calculations on its part, if any, contemplated by Section 6(e) and will provide to the other party a statement (1) showing, in
reasonable detail, such calculations (including any quotations, market data or information from internal sources used in making such
calculations),
(2) specifying (except where there are two Affected Parties) any Early Termination Amount payable and
(3) giving details of the relevant account to which any amount payable to it is to be paid. In the absence of written confirmation from
the source of a quotation or market data obtained in determining a Close-out Amount, the records of the party obtaining such quotation
or market data will be conclusive evidence of the existence and accuracy of such quotation or market data.
(ii)
Payment Date. An Early Termination Amount due in respect of any Early Termination Date will, together with any amount of
interest payable pursuant to Section 9(h)(ii)(2), be payable (1) on the day on which notice of the amount payable is effective in the case
of an Early Termination Date which is designated or occurs as a result of an Event of Default and (2) on the day which is two Local
Business Days after the day on which notice of the amount payable is effective (or, if there are two Affected Parties, after the day on
which the statement provided pursuant to clause (i) above by the second party to provide such a statement is effective) in the case of an
Early Termination Date which is designated as a result of a Termination Event.
(e)
Payments on Early Termination. If an Early Termination Date occurs, the amount, if any, payable in respect of that Early
Termination Date (the "Early Termination Amount") will be determined pursuant to this Section 6(e) and will be subject to Section 6(f).
(i)
Events of Default. If the Early Termination Date results from an Event of Default, the Early Termination Amount will be an
amount equal to (1) the sum of (A) the Termination Currency Equivalent of the Close-out Amount or Close-out Amounts (whether
positive or negative) determined by the Non-defaulting Party for each Terminated Transaction or group of Terminated Transactions, as
the case may be, and (B) the Termination Currency Equivalent of the Unpaid Amounts owing to the Non-defaulting Party less (2) the
Termination Currency Equivalent of the Unpaid Amounts owing to the Defaulting Party. If the Early Termination Amount is a positive
number, the Defaulting Party will pay it to the Non-defaulting Party; if it is a negative number, the Non-defaulting Party will pay the
absolute value of the Early Termination Amount to the Defaulting Party.
(ii)
Termination Events. If the Early Termination Date results from a Termination Event:(1)
One Affected Party.Subject to clause (3) below, if there is one Affected Party, the Early Termination Amount will be
determined in accordance with Section 6(e)(i), except that references to the Defaulting Party and to the Non-defaulting Party
will be deemed to be references to the Affected Party and to the Non-affected Party, respectively.
(2)
Two Affected Parties.Subject to clause (3) below, if there are two Affected Parties, each party will determine an
amount equal to the Termination Currency Equivalent of the sum of the Close-out Amount or Close-out Amounts (whether
positive or negative) for each Terminated Transaction or group of Terminated Transactions, as the case may be, and the Early
Termination Amount will be an amount equal to (A) the sum of (I) one-half of the difference between the higher amount so
determined (by party "X") and the lower amount so determined (by party "Y") and (II) the Termination Currency Equivalent
of the Unpaid Amounts owing to X less (B) the Termination Currency Equivalent of the Unpaid Amounts owing to Y. If the
Early Termination Amount is a positive number, Y will pay it to X; if it is a negative number, X will pay the absolute value of
the Early Termination Amount to Y.
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(3)
Mid-Market Events. If that Termination Event is an Illegality or a Force Majeure Event, then the Early Termination
Amount will be determined in accordance with clause (1) or (2) above, as appropriate, except that, for the purpose of
determining a Close-out Amount or Close-out Amounts, the Determining Party will:(A)
if obtaining quotations from one or more third parties (or from any of the Determining Party's Affiliates),
ask each third party or Affiliate (I) not to take account of the current creditworthiness of the Determining Party or
any existing Credit Support Document and (II) to provide mid-market quotations; and
(B)
in any other case, use mid-market values without regard to the creditworthiness of the Determining Party.
(iii)
Adjustment for Bankruptcy. In circumstances where an Early Termination Date occurs because Automatic Early Termination
applies in respect of a party, the Early Termination Amount will be subject to such adjustments as are appropriate and permitted by
applicable law to reflect any payments or deliveries made by one party to the other under this Agreement (and retained by such other
party) during the period from the relevant Early Termination Date to the date for payment determined under Section 6(d)(ii).
(iv)
Adjustment for Illegality or Force Majeure Event. The failure by a party or any Credit Support Provider of such party to
pay, when due, any Early Termination Amount will not constitute an Event of Default under Section 5(a)(i) or 5(a)(iii)(1) if such
failure is due to the occurrence of an event or circumstance which would, if it occurred with respect to payment, delivery or compliance
related to a Transaction, constitute or give rise to an Illegality or a Force Majeure Event. Such amount will (1) accrue interest and
otherwise be treated as an Unpaid Amount owing to the other party if subsequently an Early Termination Date results from an Event of
Default, a Credit Event Upon Merger or an Additional Termination Event in respect of which all outstanding Transactions are Affected
Transactions and (2) otherwise accrue interest in accordance with Section 9(h)(ii)(2).
(v)
Pre-Estimate. The parties agree that an amount recoverable under this Section 6(e) is a reasonable pre-estimate of loss and not
a penalty. Such amount is payable for the loss of bargain and the loss of protection against future risks, and, except as otherwise
provided in this Agreement, neither party will be entitled to recover any additional damages as a consequence of the termination of the
Terminated Transactions.
(f)
Set-Off. Any Early Termination Amount payable to one party (the "Payee") by the other party (the "Payer"), in circumstances where
there is a Defaulting Party or where there is one Affected Party in the case where either a Credit Event Upon Merger has occurred or any other
Termination Event in respect of which all outstanding Transactions are Affected Transactions has occurred, will, at the option of the Nondefaulting Party or the Non-affected Party, as the case may be ("X") (and without prior notice to the Defaulting Party or the Affected Party, as
the case may be), be reduced by its set-off against any other amounts ("Other Amounts") payable by the Payee to the Payer (whether or not
arising under this Agreement, matured or contingent and irrespective of the currency, place of payment or place of booking of the obligation).
To the extent that any Other Amounts are so set off, those Other Amounts will be discharged promptly and in all respects. X will give notice
to the other party of any set-off effected under this Section 6(f).
For this purpose, either the Early Termination Amount or the Other Amounts (or the relevant portion of such amounts) may be converted by
X into the currency in which the other is denominated at the rate of exchange at which such party would be able, in good faith and using
commercially reasonable procedures, to purchase the relevant amount of such currency.
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If an obligation is unascertained, X may in good faith estimate that obligation and set off in respect of the estimate, subject to the relevant party
accounting to the other when the obligation is ascertained.
Nothing in this Section 6(f) will be effective to create a charge or other security interest. This Section 6(f) will be without prejudice and in
addition to any right of set-off, offset, combination of accounts, lien, right of retention or withholding or similar right or requirement to which
any party is at any time otherwise entitled or subject (whether by operation of law, contract or otherwise).
7.
Transfer
Subject to Section 6(b)(ii) and to the extent permitted by applicable law, neither this Agreement nor any interest or obligation in or under this
Agreement may be transferred (whether by way of security or otherwise) by either party without the prior written consent of the other party,
except that:(a)
a party may make such a transfer of this Agreement pursuant to a consolidation or amalgamation with, or merger with or into, or
transfer of all or substantially all its assets to, another entity (but without prejudice to any other right or remedy under this Agreement); and
(b)
a party may make such a transfer of all or any part of its interest in any Early Termination Amount payable to it by a Defaulting
Party, together with any amounts payable on or with respect to that interest and any other rights associated with that interest pursuant to
Sections 8, 9(h) and 11.
Any purported transfer that is not in compliance with this Section 7 will be void.
8.
Contractual Currency
(a)
Payment in the Contractual Currency. Each payment under this Agreement will be made in the relevant currency specified in this
Agreement for that payment (the "Contractual Currency"). To the extent permitted by applicable law, any obligation to make payments under
this Agreement in the Contractual Currency will not be discharged or satisfied by any tender in any currency other than the Contractual
Currency, except to the extent such tender results in the actual receipt by the party to which payment is owed, acting in good faith and using
commercially reasonable procedures in converting the currency so tendered into the Contractual Currency, of the full amount in the Contractual
Currency of all amounts payable in respect of this Agreement. If for any reason the amount in the Contractual Currency so received falls short
of the amount in the Contractual Currency payable in respect of this Agreement, the party required to make the payment will, to the extent
permitted by applicable law, immediately pay such additional amount in the Contractual Currency as may be necessary to compensate for the
shortfall. If for any reason the amount in the Contractual Currency so received exceeds the amount in the Contractual Currency payable in
respect of this Agreement, the party receiving the payment will refund promptly the amount of such excess.
(b)
Judgments. To the extent permitted by applicable law, if any judgment or order expressed in a currency other than the Contractual
Currency is rendered (i) for the payment of any amount owing in respect of this Agreement, (ii) for the payment of any amount relating to any
early termination in respect of this Agreement or (iii) in respect of a judgment or order of another court for the payment of any amount
described in clause (i) or (ii) above, the party seeking recovery, after recovery in full of the aggregate amount to which such party is entitled
pursuant to the judgment or order, will be entitled to receive immediately from the other party the amount of any shortfall of the Contractual
Currency received by such party as a consequence of sums paid in such other currency and will refund promptly to the other party any excess
of the Contractual Currency received by such party as a consequence of sums paid in such other currency if such shortfall or such excess
arises or results from any variation between the rate of exchange at which the Contractual Currency is converted into the currency of the
judgment or order for the purpose of such judgment or order and the rate of exchange at which such party is able, acting in good faith and
using commercially reasonable procedures in converting the currency received into the Contractual Currency, to purchase the Contractual
Currency with the amount of the currency of the judgment or order actually received by such party.
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(c)
Separate Indemnities. To the extent permitted by applicable law, the indemnities in this Section 8 constitute separate and independent
obligations from the other obligations in this Agreement, will be enforceable as separate and independent causes of action, will apply
notwithstanding any indulgence granted by the party to which any payment is owed and will not be affected by judgment being obtained or
claim or proof being made for any other sums payable in respect of this Agreement.
(d)
Evidence of Loss. For the purpose of this Section 8, it will be sufficient for a party to demonstrate that it would have suffered a loss
had an actual exchange or purchase been made.
9.
Miscellaneous
(a)
Entire Agreement. This Agreement constitutes the entire agreement and understanding of the parties with respect to its subject
matter. Each of the parties acknowledges that in entering into this Agreement it has not relied on any oral or written representation, warranty or
other assurance (except as provided for or referred to in this Agreement) and waives all rights and remedies which might otherwise be
available to it in respect thereof, except that nothing in this Agreement will limit or exclude any liability of a party for fraud.
(b)
Amendments. An amendment, modification or waiver in respect of this Agreement will only be effective if in writing (including a
writing evidenced by a facsimile transmission) and executed by each of the parties or confirmed by an exchange of telexes or by an exchange
of electronic messages on an electronic messaging system.
(c)
Survival of Obligations. Without prejudice to Sections 2(a)(iii) and 6(c)(ii), the obligations of the parties under this Agreement will
survive the termination of any Transaction.
(d)
Remedies Cumulative. Except as provided in this Agreement, the rights, powers, remedies and privileges provided in this Agreement
are cumulative and not exclusive of any rights, powers, remedies and privileges provided by law.
(e)
Counterparts and Confirmations.

(i)
This Agreement (and each amendment, modification and waiver in respect of it) may be executed and delivered in counterparts
(including by facsimile transmission and by electronic messaging system), each of which will be deemed an original.
(ii)
The parties intend that they are legally bound by the terms of each Transaction from the moment they agree to those terms
(whether orally or otherwise). A Confirmation will be entered into as soon as practicable and may be executed and delivered in
counterparts (including by facsimile transmission) or be created by an exchange of telexes, by an exchange of electronic messages on
an electronic messaging system or by an exchange of e-mails, which in each case will be sufficient for all purposes to evidence a
binding supplement to this Agreement. The parties will specify therein or through another effective means that any such counterpart,
telex, electronic message or e-mail constitutes a Confirmation.
(f)
No Waiver of Rights. A failure or delay in exercising any right, power or privilege in respect of this Agreement will not be presumed
to operate as a waiver, and a single or partial exercise of any right, power or privilege will not be presumed to preclude any subsequent or
further exercise, of that right, power or privilege or the exercise of any other right, power or privilege.
(g)
Headings. The headings used in this Agreement are for convenience of reference only and are not to affect the construction of or to
be taken into consideration in interpreting this Agreement.
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(h)
Interest and Compensation.

(i)
Prior to Early Termination. Prior to the occurrence or effective designation of an Early Termination Date in respect of the
relevant Transaction:(1)
Interest on Defaulted Payments. If a party defaults in the performance of any payment obligation, it will, to the extent
permitted by applicable law and subject to Section 6(c), pay interest (before as well as after judgment) on the overdue amount
to the other party on demand in the same currency as the overdue amount, for the period from (and including) the original due
date for payment to (but excluding) the date of actual payment (and excluding any period in respect of which interest or
compensation in respect of the overdue amount is due pursuant to clause (3)(B) or (C) below), at the Default Rate.
(2)
Compensation for Defaulted Deliveries. If a party defaults in the performance of any obligation required to be settled
by delivery, it will on demand (A) compensate the other party to the extent provided for in the relevant Confirmation or
elsewhere in this Agreement and (B) unless otherwise provided in the relevant Confirmation or elsewhere in this Agreement,
to the extent permitted by applicable law and subject to Section 6(c), pay to the other party interest (before as well as after
judgment) on an amount equal to the fair market value of that which was required to be delivered in the same currency as that
amount, for the period from (and including) the originally scheduled date for delivery to (but excluding) the date of actual
delivery (and excluding any period in respect of which interest or compensation in respect of that amount is due pursuant to
clause (4) below), at the Default Rate. The fair market value of any obligation referred to above will be determined as of the
originally scheduled date for delivery, in good faith and using commercially reasonable procedures, by the party that was
entitled to take delivery.
(3)
Interest on Deferred Payments. If:(A)

a party does not pay any amount that, but for Section 2(a)(iii), would have been payable, it will, to the extent
permitted by applicable law and subject to Section 6(c) and clauses (B) and (C) below, pay interest (before as well as
after judgment) on that amount to the other party on demand (after such amount becomes payable) in the same
currency as that amount, for the period from (and including) the date the amount would, but for Section 2(a)(iii), have
been payable to (but excluding) the date the amount actually becomes payable, at the Applicable Deferral Rate;
(B)
a payment is deferred pursuant to Section 5(d), the party which would otherwise have been required to make
that payment will, to the extent permitted by applicable law, subject to Section 6(c) and for so long as no Event of
Default or Potential Event of Default with respect to that party has occurred and is continuing, pay interest (before as
well as after judgment) on the amount of the deferred payment to the other party on demand (after such amount
becomes payable) in the same currency as the deferred payment, for the period from (and including) the date the
amount would, but for Section 5(d), have been payable to (but excluding) the earlier of the date the payment is no
longer deferred pursuant to Section 5(d) and the date during the deferral period upon which an Event of Default or
Potential Event of Default with respect to that party occurs, at the Applicable Deferral Rate; or
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(C)
a party fails to make any payment due to the occurrence of an Illegality or a Force Majeure Event (after
giving effect to any deferral period contemplated by clause (B) above), it will, to the extent permitted by applicable
law, subject to Section 6(c) and for so long as the event or circumstance giving rise to that Illegality or Force Majeure
Event continues and no Event of Default or Potential Event of Default with respect to that party has occurred and is
continuing, pay interest (before as well as after judgment) on the overdue amount to the other party on demand in the
same currency as the overdue amount, for the period from (and including) the date the party fails to make the payment
due to the occurrence of the relevant Illegality or Force Majeure Event (or, if later, the date the payment is no longer
deferred pursuant to Section 5(d)) to (but excluding) the earlier of the date the event or circumstance giving rise to
that Illegality or Force Majeure Event ceases to exist and the date during the period upon which an Event of Default
or Potential Event of Default with respect to that party occurs (and excluding any period in respect of which interest
or compensation in respect of the overdue amount is due pursuant to clause (B) above), at the Applicable Deferral
Rate.
(4)
Compensation for Deferred Deliveries. If:(A)

a party does not perform any obligation that, but for Section 2(a)(iii), would have been required to be settled
by delivery;
(B)
a delivery is deferred pursuant to Section 5(d); or
(C)
a party fails to make a delivery due to the occurrence of an Illegality or a Force Majeure Event at a time
when any applicable Waiting Period has expired,
the party required (or that would otherwise have been required) to make the delivery will, to the extent permitted by applicable
law and subject to Section 6(c), compensate and pay interest to the other party on demand (after, in the case of clauses (A)
and (B) above, such delivery is required) if and to the extent provided for in the relevant Confirmation or elsewhere in this
Agreement.
(ii)
Early Termination. Upon the occurrence or effective designation of an Early Termination Date in respect of a Transaction:(1)
Unpaid Amounts. For the purpose of determining an Unpaid Amount in respect of the relevant Transaction, and to
the extent permitted by applicable law, interest will accrue on the amount of any payment obligation or the amount equal to the
fair market value of any obligation required to be settled by delivery included in such determination in the same currency as
that amount, for the period from (and including) the date the relevant obligation was (or would have been but for Section
2(a)(iii) or 5(d)) required to have been performed to (but excluding) the relevant Early Termination Date, at the Applicable
Close-out Rate.
(2)
Interest on Early Termination Amounts. If an Early Termination Amount is due in respect of such Early Termination
Date, that amount will, to the extent permitted by applicable law, be paid together with interest (before as well as after
judgment) on that amount in the Termination Currency, for the period from (and including) such Early Termination Date to
(but excluding) the date the amount is paid, at the Applicable Close-out Rate.
(iii)
Interest Calculation. Any interest pursuant to this Section 9(h) will be calculated on the basis of daily compounding and the
actual number of days elapsed.
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10.
Offices; Multibranch Parties
(a)
If Section 10(a) is specified in the Schedule as applying, each party that enters into a Transaction through an Office other than its
head or home office represents to and agrees with the other party that, notwithstanding the place of booking or its jurisdiction of incorporation
or organisation, its obligations are the same in terms of recourse against it as if it had entered into the Transaction through its head or home
office, except that a party will not have recourse to the head or home office of the other party in respect of any payment or delivery deferred
pursuant to Section 5(d) for so long as the payment or delivery is so deferred. This representation and agreement will be deemed to be repeated
by each party on each date on which the parties enter into a Transaction.
(b)
If a party is specified as a Multibranch Party in the Schedule, such party may, subject to clause (c) below, enter into a Transaction
through, book a Transaction in and make and receive payments and deliveries with respect to a Transaction through any Office listed in respect
of that party in the Schedule (but not any other Office unless otherwise agreed by the parties in writing).
(c)
The Office through which a party enters into a Transaction will be the Office specified for that party in the relevant Confirmation or
as otherwise agreed by the parties in writing, and, if an Office for that party is not specified in the Confirmation or otherwise agreed by the
parties in writing, its head or home office. Unless the parties otherwise agree in writing, the Office through which a party enters into a
Transaction will also be the Office in which it books the Transaction and the Office through which it makes and receives payments and
deliveries with respect to the Transaction. Subject to Section 6(b)(ii), neither party may change the Office in which it books the Transaction or
the Office through which it makes and receives payments or deliveries with respect to a Transaction without the prior written consent of the
other party.
11.
Expenses
A Defaulting Party will on demand indemnify and hold harmless the other party for and against all reasonable out-of-pocket expenses,
including legal fees, execution fees and Stamp Tax, incurred by such other party by reason of the enforcement and protection of its rights
under this Agreement or any Credit Support Document to which the Defaulting Party is a party or by reason of the early termination of any
Transaction, including, but not limited to, costs of collection.
12.
Notices
(a)
Effectiveness. Any notice or other communication in respect of this Agreement may be given in any manner described below (except
that a notice or other communication under Section 5 or 6 may not be given by electronic messaging system or e-mail) to the address or
number or in accordance with the electronic messaging system or e-mail details provided (see the Schedule) and will be deemed effective as
indicated: (i)
if in writing and delivered in person or by courier, on the date it is delivered;
(ii)
if sent by telex, on the date the recipient's answerback is received;
(iii) if sent by facsimile transmission, on the date it is received by a responsible employee of the recipient in legible form (it being
agreed that the burden of proving receipt will be on the sender and will not be met by a transmission report generated by the sender's
facsimile machine);
(iv) if sent by certified or registered mail (airmail, if overseas) or the equivalent (return receipt requested), on the date it is delivered
or its delivery is attempted;
(v)
if sent by electronic messaging system, on the date it is received; or

19
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(vi)
if sent by e-mail, on the date it is delivered,
unless the date of that delivery (or attempted delivery) or that receipt, as applicable, is not a Local Business Day or that communication is
delivered (or attempted) or received, as applicable, after the close of business on a Local Business Day, in which case that communication will
be deemed given and effective on the first following day that is a Local Business Day.
(b)
Change of Details. Either party may by notice to the other change the address, telex or facsimile number or electronic messaging
system or e-mail details at which notices or other communications are to be given to it.
13.
Governing Law and Jurisdiction
(a)
Governing Law. This Agreement will be governed by and construed in accordance with the law specified in the Schedule.
(b)
Jurisdiction. With respect to any suit, action or proceedings relating to any dispute arising out of or in connection with this
Agreement ("Proceedings"), each party irrevocably:(i)
submits:(1)
if this Agreement is expressed to be governed by English law, to (A) the non-exclusive jurisdiction of the English
courts if the Proceedings do not involve a Convention Court and (B) the exclusive jurisdiction of the English courts if the
Proceedings do involve a Convention Court; or
(2)
if this Agreement is expressed to be governed by the laws of the State of New York, to the non-exclusive jurisdiction
of the courts of the State of New York and the United States District Court located in the Borough of Manhattan in New
York City;
(ii)
waives any objection which it may have at any time to the laying of venue of any Proceedings brought in any such court,
waives any claim that such Proceedings have been brought in an inconvenient forum and further waives the right to object, with
respect to such Proceedings, that such court does not have any jurisdiction over such party; and
(iii)
agrees, to the extent permitted by applicable law, that the bringing of Proceedings in any one or more jurisdictions will not
preclude the bringing of Proceedings in any other jurisdiction.
(c)
Service of Process. Each party irrevocably appoints the Process Agent, if any, specified opposite its name in the Schedule to receive,
for it and on its behalf, service of process in any Proceedings. If for any reason any party's Process Agent is unable to act as such, such party
will promptly notify the other party and within 30 days appoint a substitute process agent acceptable to the other party. The parties irrevocably
consent to service of process given in the manner provided for notices in Section 12(a)(i), 12(a)(iii) or 12(a)(iv). Nothing in this Agreement
will affect the right of either party to serve process in any other manner permitted by applicable law.
(d)
Waiver of Immunities. Each party irrevocably waives, to the extent permitted by applicable law, with respect to itself and its
revenues and assets (irrespective of their use or intended use), all immunity on the grounds of sovereignty or other similar grounds from (i)
suit, (ii) jurisdiction of any court, (iii) relief by way of injunction or order for specific performance or recovery of property, (iv) attachment of
its assets (whether before or after judgment) and (v) execution or enforcement of any judgment to which it or its revenues or assets might
otherwise be entitled in any Proceedings in the courts of any jurisdiction and irrevocably agrees, to the extent permitted by applicable law, that
it will not claim any such immunity in any Proceedings.
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14.
Definitions
As used in this Agreement:"Additional Representation" has the meaning specified in Section 3.

"Additional Termination Event" has the meaning specified in Section 5(b).
"Affected Party" has the meaning specified in Section 5(b).
"Affected Transactions" means (a) with respect to any Termination Event consisting of an Illegality, Force Majeure Event, Tax Event or Tax
Event Upon Merger, all Transactions affected by the occurrence of such Termination Event (which, in the case of an Illegality under Section
5(b)(i)(2) or a Force Majeure Event under Section 5(b)(ii)(2), means all Transactions unless the relevant Credit Support Document references
only certain Transactions, in which case those Transactions and, if the relevant Credit Support Document constitutes a Confirmation for a
Transaction, that Transaction) and (b) with respect to any other Termination Event, all Transactions.
"Affiliate" means, subject to the Schedule, in relation to any person, any entity controlled, directly or indirectly, by the person, any entity that
controls, directly or indirectly, the person or any entity directly or indirectly under common control with the person. For this purpose,
"control" of any entity or person means ownership of a majority of the voting power of the entity or person.
"Agreement" has the meaning specified in Section 1(c).
"Applicable Close-out Rate" means:(a)
in respect of the determination of an Unpaid Amount:(i)

in respect of obligations payable or deliverable (or which would have been but for Section 2(a)(iii)) by a Defaulting Party, the
Default Rate;
(ii)
in respect of obligations payable or deliverable (or which would have been but for Section 2(a)(iii)) by a Non-defaulting Party,
the Non-default Rate;
(iii) in respect of obligations deferred pursuant to Section 5(d), if there is no Defaulting Party and for so long as the deferral period
continues, the Applicable Deferral Rate; and
(iv) in all other cases following the occurrence of a Termination Event (except where interest accrues pursuant to clause (iii) above),
the Applicable Deferral Rate; and
(b)
in respect of an Early Termination Amount:(i)

for the period from (and including) the relevant Early Termination Date to (but excluding) the date (determined in accordance
with Section 6(d)(ii)) on which that amount is payable:(1)
if the Early Termination Amount is payable by a Defaulting Party, the Default Rate;
(2)
if the Early Termination Amount is payable by a Non-defaulting Party, the Non-default Rate; and
(3)
in all other cases, the Applicable Deferral Rate; and

21
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(ii)
for the period from (and including) the date (determined in accordance with Section 6(d)(ii)) on which that amount is payable
to (but excluding) the date of actual payment:
(1)
if a party fails to pay the Early Termination Amount due to the occurrence of an event or circumstance which would,
if it occurred with respect to a payment or delivery under a Transaction, constitute or give rise to an Illegality or a Force
Majeure Event, and for so long as the Early Termination Amount remains unpaid due to the continuing existence of such
event or circumstance, the Applicable Deferral Rate;
(2)
if the Early Termination Amount is payable by a Defaulting Party (but excluding any period in respect of which
clause (1) above applies), the Default Rate;
(3)
if the Early Termination Amount is payable by a Non-defaulting Party (but excluding any period in respect of which
clause (1) above applies), the Non-default Rate; and
(4)
in all other cases, the Termination Rate.
"Applicable Deferral Rate" means:(a)

for the purpose of Section 9(h)(i)(3)(A), the rate certified by the relevant payer to be a rate offered to the payer by a major bank in a
relevant interbank market for overnight deposits in the applicable currency, such bank to be selected in good faith by the payer for the purpose
of obtaining a representative rate that will reasonably reflect conditions prevailing at the time in that relevant market;
(b)
for purposes of Section 9(h)(i)(3)(B) and clause (a)(iii) of the definition of Applicable Close-out Rate, the rate certified by the
relevant payer to be a rate offered to prime banks by a major bank in a relevant interbank market for overnight deposits in the applicable
currency, such bank to be selected in good faith by the payer after consultation with the other party, if practicable, for the purpose of obtaining
a representative rate that will reasonably reflect conditions prevailing at the time in that relevant market; and
(c)
for purposes of Section 9(h)(i)(3)(C) and clauses (a)(iv), (b)(i)(3) and (b)(ii)(1) of the definition of Applicable Close-out Rate, a rate
equal to the arithmetic mean of the rate determined pursuant to clause (a) above and a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the relevant payee (as certified by it) if it were to fund or of funding the relevant amount.
"Automatic Early Termination" has the meaning specified in Section 6(a).
"Burdened Party" has the meaning specified in Section 5(b)(iv).
"Change in Tax Law" means the enactment, promulgation, execution or ratification of, or any change in or amendment to, any law (or in the
application or official interpretation of any law) that occurs after the parties enter into the relevant Transaction.
"Close-out Amount" means, with respect to each Terminated Transaction or each group of Terminated Transactions and a Determining Party,
the amount of the losses or costs of the Determining Party that are or would be incurred under then prevailing circumstances (expressed as a
positive number) or gains of the Determining Party that are or would be realised under then prevailing circumstances (expressed as a negative
number) in replacing, or in providing for the Determining Party the economic equivalent of, (a) the material terms of that Terminated
Transaction or group of Terminated Transactions, including the payments and deliveries by the parties under Section 2(a)(i) in respect of that
Terminated Transaction or group of Terminated Transactions that would, but for the occurrence of the relevant Early Termination Date, have
been required after that date (assuming satisfaction of the conditions precedent in Section 2(a)(iii)) and (b) the option rights of the parties in
respect of that Terminated Transaction or group of Terminated Transactions.
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Any Close-out Amount will be determined by the Determining Party (or its agent), which will act in good faith and use commercially
reasonable procedures in order to produce a commercially reasonable result. The Determining Party may determine a Close-out Amount for
any group of Terminated Transactions or any individual Terminated Transaction but, in the aggregate, for not less than all Terminated
Transactions. Each Close-out Amount will be determined as of the Early Termination Date or, if that would not be commercially reasonable, as
of the date or dates following the Early Termination Date as would be commercially reasonable.
Unpaid Amounts in respect of a Terminated Transaction or group of Terminated Transactions and legal fees and out-of-pocket expenses
referred to in Section 11 are to be excluded in all determinations of Close-out Amounts.
In determining a Close-out Amount, the Determining Party may consider any relevant information, including, without limitation, one or more
of the following types of information:(i)
quotations (either firm or indicative) for replacement transactions supplied by one or more third parties that may take into account the
creditworthiness of the Determining Party at the time the quotation is provided and the terms of any relevant documentation, including credit
support documentation, between the Determining Party and the third party providing the quotation;
(ii)
information consisting of relevant market data in the relevant market supplied by one or more third parties including, without
limitation, relevant rates, prices, yields, yield curves, volatilities, spreads, correlations or other relevant market data in the relevant market; or
(iii)
information of the types described in clause (i) or (ii) above from internal sources (including any of the Determining Party's
Affiliates) if that information is of the same type used by the Determining Party in the regular course of its business for the valuation of similar
transactions.
The Determining Party will consider, taking into account the standards and procedures described in this definition, quotations pursuant to
clause (i) above or relevant market data pursuant to clause (ii) above unless the Determining Party reasonably believes in good faith that such
quotations or relevant market data are not readily available or would produce a result that would not satisfy those standards. When considering
information described in clause (i), (ii) or (iii) above, the Determining Party may include costs of funding, to the extent costs of funding are
not and would not be a component of the other information being utilised. Third parties supplying quotations pursuant to clause (i) above or
market data pursuant to clause (ii) above may include, without limitation, dealers in the relevant markets, end-users of the relevant product,
information vendors, brokers and other sources of market information.
Without duplication of amounts calculated based on information described in clause (i), (ii) or (iii) above, or other relevant information, and
when it is commercially reasonable to do so, the Determining Party may in addition consider in calculating a Close-out Amount any loss or
cost incurred in connection with its terminating, liquidating or re-establishing any hedge related to a Terminated Transaction or group of
Terminated Transactions (or any gain resulting from any of them).
Commercially reasonable procedures used in determining a Close-out Amount may include the following:(1) application to relevant market data from third parties pursuant to clause (ii) above or information from internal sources pursuant to clause
(iii) above of pricing or other valuation models that are, at the time of the determination of the Close-out Amount, used by the Determining
Party in the regular course of its business in pricing or valuing transactions between the Determining Party and unrelated third parties that are
similar to the Terminated Transaction or group of Terminated Transactions; and
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(2) application of different valuation methods to Terminated Transactions or groups of Terminated Transactions depending on the type,
complexity, size or number of the Terminated Transactions or group of Terminated Transactions.
"Confirmation" has the meaning specified in the preamble.
"consent" includes a consent, approval, action, authorisation, exemption, notice, filing, registration or exchange control consent.
"Contractual Currency" has the meaning specified in Section 8(a).
"Convention Court" means any court which is bound to apply to the Proceedings either Article 17 of the 1968 Brussels Convention on
Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters or Article 17 of the 1988 Lugano Convention on Jurisdiction
and the Enforcement of Judgments in Civil and Commercial Matters.
"Credit Event Upon Merger" has the meaning specified in Section 5(b).
"Credit Support Document" means any agreement or instrument that is specified as such in this Agreement.
"Credit Support Provider" has the meaning specified in the Schedule.
"Cross-Default" means the event specified in Section 5(a)(vi).
"Default Rate" means a rate per annum equal to the cost (without proof or evidence of any actual cost) to the relevant payee (as certified by it)
if it were to fund or of funding the relevant amount plus 1% per annum.
"Defaulting Party" has the meaning specified in Section 6(a).
"Designated Event" has the meaning specified in Section 5(b)(v).
"Determining Party" means the party determining a Close-out Amount.
"Early Termination Amount" has the meaning specified in Section 6(e).
"Early Termination Date" means the date determined in accordance with Section 6(a) or 6(b)(iv).
"electronic messages" does not include e-mails but does include documents expressed in markup languages, and "electronic messaging
system" will be construed accordingly.
"English law" means the law of England and Wales, and "English" will be construed accordingly.
"Event of Default" has the meaning specified in Section 5(a) and, if applicable, in the Schedule.
"Force Majeure Event" has the meaning specified in Section 5(b).
"General Business Day" means a day on which commercial banks are open for general business (including dealings in foreign exchange and
foreign currency deposits).
"Illegality" has the meaning specified in Section 5(b).
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"Indemnifiable Tax" means any Tax other than a Tax that would not be imposed in respect of a payment under this Agreement but for a
present or former connection between the jurisdiction of the government or taxation authority imposing such Tax and the recipient of such
payment or a person related to such recipient (including, without limitation, a connection arising from such recipient or related person being or
having been a citizen or resident of such jurisdiction, or being or having been organised, present or engaged in a trade or business in such
jurisdiction, or having or having had a permanent establishment or fixed place of business in such jurisdiction, but excluding a connection
arising solely from such recipient or related person having executed, delivered, performed its obligations or received a payment under, or
enforced, this Agreement or a Credit Support Document).
"law" includes any treaty, law, rule or regulation (as modified, in the case of tax matters, by the practice of any relevant governmental revenue
authority), and "unlawful" will be construed accordingly.
"Local Business Day" means (a) in relation to any obligation under Section 2(a)(i), a General Business Day in the place or places specified in
the relevant Confirmation and a day on which a relevant settlement system is open or operating as specified in the relevant Confirmation or, if
a place or a settlement system is not so specified, as otherwise agreed by the parties in writing or determined pursuant to provisions contained,
or incorporated by reference, in this Agreement, (b) for the purpose of determining when a Waiting Period expires, a General Business Day in
the place where the event or circumstance that constitutes or gives rise to the Illegality or Force Majeure Event, as the case may be, occurs, (c)
in relation to any other payment, a General Business Day in the place where the relevant account is located and, if different, in the principal
financial centre, if any, of the currency of such payment and, if that currency does not have a single recognised principal financial centre, a day
on which the settlement system necessary to accomplish such payment is open, (d) in relation to any notice or other communication, including
notice contemplated under Section 5(a)(i), a General Business Day (or a day that would have been a General Business Day but for the
occurrence of an event or circumstance which would, if it occurred with respect to payment, delivery or compliance related to a Transaction,
constitute or give rise to an Illegality or a Force Majeure Event) in the place specified in the address for notice provided by the recipient and, in
the case of a notice contemplated by Section 2(b), in the place where the relevant new account is to be located and (e) in relation to Section
5(a)(v)(2), a General Business Day in the relevant locations for performance with respect to such Specified Transaction.
"Local Delivery Day" means, for purposes of Sections 5(a)(i) and 5(d), a day on which settlement systems necessary to accomplish the
relevant delivery are generally open for business so that the delivery is capable of being accomplished in accordance with customary market
practice, in the place specified in the relevant Confirmation or, if not so specified, in a location as determined in accordance with customary
market practice for the relevant delivery.
"Master Agreement" has the meaning specified in the preamble.
"Merger Without Assumption" means the event specified in Section 5(a)(viii).
"Multiple Transaction Payment Netting" has the meaning specified in Section 2(c).
"Non-affected Party" means, so long as there is only one Affected Party, the other party.
"Non-default Rate" means the rate certified by the Non-defaulting Party to be a rate offered to the Non-defaulting Party by a major bank in a
relevant interbank market for overnight deposits in the applicable currency, such bank to be selected in good faith by the Non-defaulting Party
for the purpose of obtaining a representative rate that will reasonably reflect conditions prevailing at the time in that relevant market.
"Non-defaulting Party" has the meaning specified in Section 6(a).
"Office" means a branch or office of a party, which may be such party's head or home office.
"Other Amounts" has the meaning specified in Section 6(f).
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"Payee" has the meaning specified in Section 6(f).

"Payer" has the meaning specified in Section 6(f).
"Potential Event of Default" means any event which, with the giving of notice or the lapse of time or both, would constitute an Event of
Default.
"Proceedings" has the meaning specified in Section 13(b).
"Process Agent" has the meaning specified in the Schedule.
"rate of exchange" includes, without limitation, any premiums and costs of exchange payable in connection with the purchase of or
conversion into the Contractual Currency.
"Relevant Jurisdiction" means, with respect to a party, the jurisdictions (a) in which the party is incorporated, organised, managed and
controlled or considered to have its seat, (b) where an Office through which the party is acting for purposes of this Agreement is located, (c) in
which the party executes this Agreement and (d) in relation to any payment, from or through which such payment is made.
"Schedule" has the meaning specified in the preamble.
"Scheduled Settlement Date" means a date on which a payment or delivery is to be made under Section 2(a)(i) with respect to a Transaction.
"Specified Entity" has the meaning specified in the Schedule.
"Specified Indebtedness" means, subject to the Schedule, any obligation (whether present or future, contingent or otherwise, as principal or
surety or otherwise) in respect of borrowed money.
"Specified Transaction" means, subject to the Schedule, (a) any transaction (including an agreement with respect to any such transaction)
now existing or hereafter entered into between one party to this Agreement (or any Credit Support Provider of such party or any applicable
Specified Entity of such party) and the other party to this Agreement (or any Credit Support Provider of such other party or any applicable
Specified Entity of such other party) which is not a Transaction under this Agreement but (i) which is a rate swap transaction, swap option,
basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond
option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction,
cross-currency rate swap transaction, currency option, credit protection transaction, credit swap, credit default swap, credit default option, total
return swap, credit spread transaction, repurchase transaction, reverse repurchase transaction, buy/sell-back transaction, securities lending
transaction, weather index transaction or forward purchase or sale of a security, commodity or other financial instrument or interest (including
any option with respect to any of these transactions) or (ii) which is a type of transaction that is similar to any transaction referred to in clause
(i) above that is currently, or in the future becomes, recurrently entered into in the financial markets (including terms and conditions
incorporated by reference in such agreement) and which is a forward, swap, future, option or other derivative on one or more rates, currencies,
commodities, equity securities or other equity instruments, debt securities or other debt instruments, economic indices or measures of
economic risk or value, or other benchmarks against which payments or deliveries are to be made, (b) any combination of these transactions
and (c) any other transaction identified as a Specified Transaction in this Agreement or the relevant confirmation.
"Stamp Tax" means any stamp, registration, documentation or similar tax.
"Stamp Tax Jurisdiction" has the meaning specified in Section 4(e).
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"Tax" means any present or future tax, levy, impost, duty, charge, assessment or fee of any nature (including interest, penalties and additions
thereto) that is imposed by any government or other taxing authority in respect of any payment under this Agreement other than a stamp,
registration, documentation or similar tax.
"Tax Event" has the meaning specified in Section 5(b).
"Tax Event Upon Merger" has the meaning specified in Section 5(b).
"Terminated Transactions" means, with respect to any Early Termination Date, (a) if resulting from an Illegality or a Force Majeure Event,
all Affected Transactions specified in the notice given pursuant to Section 6(b)(iv), (b) if resulting from any other Termination Event, all
Affected Transactions and (c) if resulting from an Event of Default, all Transactions in effect either immediately before the effectiveness of the
notice designating that Early Termination Date or, if Automatic Early Termination applies, immediately before that Early Termination Date.
"Termination Currency" means (a) if a Termination Currency is specified in the Schedule and that currency is freely available, that currency,
and (b) otherwise, euro if this Agreement is expressed to be governed by English law or United States Dollars if this Agreement is expressed
to be governed by the laws of the State of New York.
"Termination Currency Equivalent" means, in respect of any amount denominated in the Termination Currency, such Termination Currency
amount and, in respect of any amount denominated in a currency other than the Termination Currency (the "Other Currency"), the amount in
the Termination Currency determined by the party making the relevant determination as being required to purchase such amount of such Other
Currency as at the relevant Early Termination Date, or, if the relevant Close-out Amount is determined as of a later date, that later date, with the
Termination Currency at the rate equal to the spot exchange rate of the foreign exchange agent (selected as provided below) for the purchase of
such Other Currency with the Termination Currency at or about 11:00 a.m. (in the city in which such foreign exchange agent is located) on
such date as would be customary for the determination of such a rate for the purchase of such Other Currency for value on the relevant Early
Termination Date or that later date. The foreign exchange agent will, if only one party is obliged to make a determination under Section 6(e), be
selected in good faith by that party and otherwise will be agreed by the parties.
"Termination Event" means an Illegality, a Force Majeure Event, a Tax Event, a Tax Event Upon Merger or, if specified to be applicable, a
Credit Event Upon Merger or an Additional Termination Event.
"Termination Rate" means a rate per annum equal to the arithmetic mean of the cost (without proof or evidence of any actual cost) to each
party (as certified by such party) if it were to fund or of funding such amounts.
"Threshold Amount" means the amount, if any, specified as such in the Schedule.
"Transaction" has the meaning specified in the preamble.
"Unpaid Amounts" owing to any party means, with respect to an Early Termination Date, the aggregate of (a) in respect of all Terminated
Transactions, the amounts that became payable (or that would have become payable but for Section 2(a)(iii) or due but for Section 5(d)) to
such party under Section 2(a)(i) or 2(d)(i)(4) on or prior to such Early Termination Date and which remain unpaid as at such Early
Termination Date, (b) in respect of each Terminated Transaction, for each obligation under Section 2(a)(i) which was (or would have been but
for Section 2(a)(iii) or 5(d)) required to be settled by delivery to such party on or prior to such Early Termination Date and which has not been
so settled as at such Early Termination Date, an amount equal to the fair market value of that which was (or would have been) required to be
delivered and (c) if the Early Termination Date results from an Event of Default, a Credit Event Upon Merger or an Additional Termination
Event in respect of which all outstanding Transactions are Affected Transactions, any Early Termination Amount due prior to such Early
Termination Date and which remains unpaid as of such Early Termination Date, in each case together with any amount of interest accrued or
other compensation in respect of that obligation or deferred obligation, as the case may be, pursuant to Section 9(h)(ii)(1) or (2), as
appropriate. The fair market value of any obligation referred to in clause (b) above will be determined as of the originally scheduled date for
delivery, in good faith and using commercially reasonable procedures, by the party obliged to make the determination under Section 6(e) or, if
each party is so obliged, it will be the average of the Termination Currency Equivalents of the fair market values so determined by both parties.
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"Waiting Period" means:(a)

in respect of an event or circumstance under Section 5(b)(i), other than in the case of Section 5(b)(i)(2) where the relevant payment,
delivery or compliance is actually required on the relevant day (in which case no Waiting Period will apply), a period of three Local Business
Days (or days that would have been Local Business Days but for the occurrence of that event or circumstance) following the occurrence of
that event or circumstance; and
(b)
in respect of an event or circumstance under Section 5(b)(ii), other than in the case of Section 5(b)(ii)(2) where the relevant payment,
delivery or compliance is actually required on the relevant day (in which case no Waiting Period will apply), a period of eight Local Business
Days (or days that would have been Local Business Days but for the occurrence of that event or circumstance) following the occurrence of
that event or circumstance.
IN WITNESS WHEREOF the parties have executed this document on the respective dates specified below with effect from the date specified
on the first page of this document.
Macquarie Bank Limited
By:
By:
Name:
Title:
Date:
Name:
Title:
Date:
AMZG, Inc.
By:
By:
Name:
Title:
Date:
Name:
Title:
Date:
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ISDA 2002
ISDA
International Swaps and Derivatives Association, Inc.
SCHEDULE
to the
2002 Master Agreement
dated as of December 27, 2012
between
(AFS Licence: 237502)
and
(Party A)
American Eagle Energy Corporation (AEEC)

and
AMZG, Inc. (AMZG)
(individually and collectively, and
jointly and severally, Party B)
established as a company
each established as a corporation
with limited liability with
under the laws of the state of Nevada
Australian Business Number 46 008 583 542

under the laws of Australia
acting through its branches in Sydney and London
Part 1.
Termination Provisions.
(a)
Specified Entity means in relation to Party A for the purpose of:

Section 5(a)(v),
Section 5(a)(vi),
Section 5(a)(vii),
Section 5(b)(v),
Section 5(a)(v),
Section 5(a)(vi),
Section 5(a)(vii),
Section 5(b)(v),
(b)
and in relation to Party B for the purpose of:
Nil
Nil
Nil
Nil
Affiliates
Affiliates
Affiliates
Affiliates
Specified Transaction will have the meaning specified in Section 14 of this Agreement.
29
(c)
The Cross-Default provisions of Section 5(a)(vi) will apply to Party A and Party B as amended such that the phrase or becoming
capable at such time of being declared is deleted from the seventh line of Section 5(a)(vi).
Specified Indebtedness has the meaning specified in Section 14, except that for Party A it excludes an obligation for borrowed
money where the creditors recourse on the obligation is limited to assets for which the money was borrowed.
Derivative Transaction means any obligation (whether present or future, contingent or otherwise, as principal or surety or
otherwise) in respect of any transaction in the nature of a transaction as described in (a)(i) and (ii), (b) and (c) of the definition of
Specified Transaction.
For the purposes of Section 5(a)(vi)(1), any reference to the principal amount of Specified Indebtedness becoming, or becoming
capable of being declared, due and payable shall, in the case of a Derivative Transaction, refer to the amount that becomes, or would
become, due and payable as a result of the termination of such Derivative Transaction.
Threshold Amount means:
(i)
with respect to Party A, an amount in USD equivalent to 3% of the Shareholders Equity of Macquarie Group Limited
(ABN 94 122 169 279). For the purposes of the definition of Threshold Amount, Shareholders Equity means, at any time, the
amount of paid-in capital in respect of all issued and fully-paid shares of capital of the relevant entity, plus the contributed surplus, plus
the cumulative translation adjustment (if any), plus the retained earnings, all of the foregoing as calculated in accordance with generally
accepted accounting principles in the country in which the entity is organized, consistently applied; and
(ii)
with respect to Party B, USD100,000.00.
(d)
The Credit Event Upon Merger provisions of Section 5(b)(v) will apply to Party B.
(e)
The Automatic Early Termination provision of Section 6(a) will not apply to Party A and will not apply to Party B.
(f)
Termination Currency means United States Dollars.
(g)
The following Additional Termination Events will apply to Party B if at any time:
(i)
the ratio of:

(x)
the sum of (I) the PV10 Value of PDP Projected Production and (II) Most Current Cash Position (as defined in Part
3) less (III) Most Current Past Due Payables (as defined in Part 3); to
(y)
Close-out Amount, calculated as if such day were an Early Termination Date,

30
is less than 1.3, as determined by Party A on the basis of the most recent Reserve Report, provided (x) and (y) will be
determined based upon the same prices for Hydrocarbons;
(ii)
Party B fails to comply with any covenant under Part 6 of this Agreement and failure is not remedied within ten (10) Local
Business Days following the earlier of: (i) Party Bs actual notice of such failure or (ii) Party A providing written notice to
Party B of such failure;
(iii)
A Change of Control results with regard to Party B;
(iv)
Party B fails to enter into a Deposit Account Control Agreement, a Three Party Lockbox Agreement and a Lockbox
Management Agreement within thirty (30) days following the execution of this Agreement;
(v)
Party B fails to enter into an amendment to the Mortgage adding the property interests acquired by Party B pursuant to the
SM Energy Acquisition and/or the NextEra Acquisition within 30 days following the closing of each of the SM Energy
Acquisition and/or the NextEra Acquisition, as applicable;
(vi)
A judgement for more than $100,000 is entered against Party B and not appealed or bonded or fully stayed, vacated, paid or
discharged within 30 days of its entry unless the judgment relates to a claim that is fully covered by insurance and for which
the insurance company has unconditionally accepted liability;
(vii)
A Material Adverse Effect results with regards to Party B;
(viii)
Party B fails to comply with any covenant set out in any Credit Support Document and such failure is not remedied within ten
(10) Local Business Days following the earlier of: (i) Party Bs actual notice of such failure or (ii) Party A providing written
notice to Party B of such failure; or
(ix)
Any representation or warranty by Party B hereunder or under any Credit Support Document proves to be false or
misleading in any material respect.
For the purpose of each of the foregoing Termination Events, the Affected Party will be Party B, and the following definitions will
apply:
Deposit Account Control Agreement means a Deposit Account Control Agreement by and among the parties hereto and Bank of
the West, in form and substance reasonably acceptable to the parties thereto.
Lockbox Management Agreement means a lockbox management agreement by and between the parties hereto, in form and
substance reasonably acceptable to the parties hereto.
NextEra Acquisition means the acquisition by Party B of certain working interests as more particularly described in Appendix
XVII hereto.
Production means the net Hydrocarbons (defined in Part 6 of this Agreement) produced and saved from the Property (defined in
Part 6 of this Agreement).
31
PDP Projected Production means projected Production as referenced in the most recent Reserve Report (defined in Part 6 of this
Agreement) except for pricing, for which strip pricing determined by Party A based on average NYMEX settlement pricing shall be
used.
PV10 Value means the net present value expected to accrue from the PDP Projected Production, calculated using a discount rate of
ten percent (10.00%) per annum and estimates of reserves, prices, production rates, taxes and costs in the most recently delivered
Reserve Report.
Three Party Lockbox Agreement means a three party lockbox agreement amendment to Cash Management Terms and Conditions
by and between the parties hereto and Bank of the West, in form and substance reasonably acceptable to the parties thereto.
SM Energy Acquisition means the acquisition by Party B of certain working interest as more particularly described in Appendix
XVIII hereto.
32
Part 2.
Tax Representations.
(a)
Payer Representations.
representation:
For the purpose of Section 3(e) of this Agreement, Party A and Party B each make the following
It is not required by any applicable Law, as modified by the practice of any relevant governmental revenue authority, of any Relevant
Jurisdiction to make any deduction or withholding for or on account of any Tax from any payment (other than interest under
Section 9(h) of this Agreement) to be made by it to the other party under this Agreement. In making this representation, it may rely on
(i) the accuracy of any representations made by the other party pursuant to Section 3(f) of this Agreement, (ii) the satisfaction of the
agreement contained in Section 4(a)(i) or 4(a)(iii) of this Agreement and the accuracy and effectiveness of any document provided by
the other party pursuant to Section 4(a)(i) or 4(a)(iii) of this Agreement, and (iii) the satisfaction of the agreement of the other party
contained in Section 4(d) of this Agreement, except that it will not be a breach of this representation where reliance is placed on clause
(ii) above and the other party does not deliver a form or document under Section 4(a)(iii) by reason of material prejudice to its legal or
commercial position.
(b)
Payee Representations. For the purpose of Section 3(f) of this Agreement, each of Party A and Party B make the representations
specified below, as applicable:
(1)
Jurisdiction of residence for tax purposes.

The following representations will apply to all Transactions:
(2)
(i)
Party A represents that it is resident for tax purposes in Australia.
(ii)
Party B represents that it is resident for tax purposes in the United States of America.
Both parties transacting in same jurisdiction.

The following representation will apply to Transactions in respect of which Party A Specified Jurisdiction is the same as
Party B Specified Jurisdiction:
(i)
Party A Payee Representation
Each payment received or to be received by it in connection with the Transaction will be effectively connected with its conduct
of a trade or business in Party B Specified Jurisdiction carried on through a permanent establishment in Party B Specified
Jurisdiction.
(ii)
Party B Payee Representation
Each payment received or to be received by it in connection with the Transaction will be effectively connected with its conduct
of a trade or business in Party A Specified Jurisdiction carried on through a permanent establishment in Party A Specified
Jurisdiction.
33
(3)
Parties transacting out of different jurisdictions with no double tax agreement.

The following representation will apply to any payments made in relation to Transactions in respect of which representation
(2) does not apply and there is no Specified Treaty under which the payee of such payment is eligible for benefits:
(i)
Party A Payee Representations

Party A represents that it does not derive the payments under the Transaction in part or in whole in carrying on
business at or through a permanent establishment of itself in Party B Specified Jurisdiction.
(ii)
Party B Payee Representations

Party B represents that it does not derive the payments under the Transaction in part or in whole in carrying on
business at or through a permanent establishment of itself in Party A Specified Jurisdiction.
(4)
Parties transacting out of different jurisdictions with a double tax agreement.

The following representation will apply to any payments made in relation to Transactions in respect of which neither
representation (2) nor representation (3) applies:
(i)
Party A Payee Representations

It is fully eligible for the benefits of the Business Profits or Industrial and Commercial Profits provision (or
equivalent provision whether or not actually so named), as the case may be, the Interest provision or the Other
Income provision (if any) of the Specified Treaty with respect to any payment described in such provisions and
received or to be received by it in connection with the Transaction and no such payment is attributable to a trade or
business carried on by it through a permanent establishment in Party B Specified Jurisdiction.
(ii)
Party B Payee Representations

It is fully eligible for the benefits of the Business Profits or Industrial and Commercial Profits provision (or
equivalent provision whether or not actually so named), as the case may be, the Interest provision or the Other
Income provision (if any) of the Specified Treaty with respect to any payment described in such provisions and
received or to be received by it in connection with the Transaction and no such payment is attributable to a trade or
business carried on by it through a permanent establishment in Party A Specified Jurisdiction.
(5)
Other payments under the Agreement

Solely for the purposes of the representations made under Section 3(f) of the Agreement, any payments made under the
Agreement but not as part of a Transaction, including any payments made in accordance with Section 6(e), shall be deemed to
be payments in relation to a Transaction.
34
(6)
Definitions
(i)
Party A Specified Jurisdiction means :

(a)
the country in which is located the office identified in the applicable Confirmation as the office through
which Party A is acting for the purpose of the Transaction; and
(b)
if no office is expressly identified in the applicable Confirmation, the country in which is located the office
from which the applicable Confirmation originated.
(ii)
For the purpose of the representations made by Party A, Specified Treaty means the income tax convention
applicable between Party B Specified Jurisdiction and the country of residence of Party A.
(iii)
Party B Specified Jurisdiction means:
(iv)
(a)
the country in which is located the office identified in the applicable Confirmation as the office through
which Party B is acting for the purpose of the Transaction; and
(b)
if no office is expressly identified in the applicable Confirmation, the country in which is located the office
from which the applicable Confirmation originated.
For the purpose of the representations made by Party B, Specified Treaty means the income tax convention
applicable between Party A Specified Jurisdiction and the country of residence of Party B.
35
Part 3.
Agreement to Deliver Documents.
For the purpose of Sections 4(a)(i) and 4(a)(ii) of this Agreement, each party agrees to deliver the following documents, as applicable:
(a)
Tax forms, documents or certificates to be delivered are :
Party required to
deliver document
Party A and
Party B
(b)
Form/Document/
Certificate
Date by which
to be delivered
Any form or document requested by the other party

under Section 4(a)(iii).
As soon as possible after request
Other documents to be delivered are :
Party required to
deliver document
Form/Document/
Certificate
Date by which
to be delivered
Covered by Section
3(d)
Representation
Party A and
Party B
A list of authorised signatories for the party

(and, as applicable, any Credit Support
Provider of such party) and evidence of the
authority of the authorised signatories of
such party to execute this Agreement (and, as
applicable, any Credit Support Document).
At the execution of this Agreement
Yes
Party A and
Party B
Any Credit Support Document(s) specified in

Part 4 of this Schedule.
At the execution of this Agreement.
Yes
Party A
A copy of Party As audited consolidated

financial statements prepared in accordance
with accounting principles that are generally
accepted in Party As country of organisation
and certified by independent certified public
accountants for each financial year.
Upon request, if such financial statements are

not available from public sources or at
www.macquarie.com.au
No
Party B
A copy of Party Bs annual audited

consolidated and consolidating financial
statements prepared in accordance with
accounting principles that are generally
accep ted in such partys country of
organisation and certified by independent
certified public accountants for each financial
year.
Within 120 days from partys financial year

end, commencing with the fiscal year ending
December 31, 2012.
No
36
Party A
A copy of Party As semi-annual unaudited

consolidated financial statements prepared in
accordance with accounting principles that
are generally accepted in such partys country
of organisation.
If publicly available, within 60 days from

partys financial half-year end. If Party As
semi-annual financial statements are available
on Party As website, then such website
publication shall be deemed delivery to Party
B under this Agreement.
No
Party B
A copy of Party Bs quarterly unaudited

consolidated and consolidating financial
statements prepared in accordance with
accounting principles that are generally
accep ted in such partys country of
organisation.
Within 75 days from Party Bs financial

quarter end.
No
Party B
Final lease operating statement relating to, the

Property including Hydrocarbon production,
revenue and operating expenses.
Within 45 days from Party Bs each calendar

month end.
Yes
Party B
Reserve Report as defined in Part 6(n) of this

Agreement.
In accordance with Part 6(n) of this

Agreement.
Yes
Party B
Certificates of insurance and copies of

insurance policies.
In accordance with Part 6(b) of this

Agreement.
Yes
Party A and
Party B
Copies of the partys standard settlement

instructions.
At the execution of this Agreement and at

any time there is a change to those standard
settlement instructions.
Yes
Party A and
Party B
A list of authorised signatories for the Party

and evidence of the authority of the
authorised signatories of the party to execute
Confirmations on behalf of the party.
Upon execution of this Agreement and at any

time there is a change to the list of those
authorised to sign Confirmations.
Yes
37
Party B
Contact details for settlement purposes,

including telephone, facsimile (and email
details if relevant), addresses and names of
the relevant contacts.
At the execution of this Agreement and at any

time there is a change to those contacts
details.
Yes
Party B
Satisfactory legal opinions, including (i) the

enforceability opinions in relation to this
Agreement and the Credit Support
Documents, (ii) the due authorization,
formation and existence of Party B and (iii)
the proper form and content of the Credit
Support Documents to be filed in North
Dakota, each in form and substance
satisfactory to Party A in its sole and absolute
discretion.
Prior to entering into the first Transaction

after the date of this Agreement.
Yes
Party B
Satisfactory searches of the UCC filing

records or similar public (including applicable
county) records to evidence and confirm the
first priority ranking rights and remedies of
Party A in and to the Collateral granted by
Party B pursuant to the Credit Support
Documents.
Prior to entering into the first Transaction

after the date of this Agreement.
Yes
Party B
Certificates certified by the secretary of Party

B as to the truth, completeness and accuracy
of (i) the resolutions authorizing the
transactions hereunder by Party B, (ii) Party
Bs governing documents and (iii) the
existence and good standing of Party B in the
applicable states.
At the execution of this Agreement, or as

otherwise agreed by Party A.
Yes
Party B
Extract from Party Bs management accounts

evidencing its cash position at close of
business on the date of such extract (Most
Current Cash Position) and its past due
payables at close of business on the date of
such extract (Most Current Past Due
Payables).
Within 3 Local Business Days of request by

Party A.
Yes
38
Part 4.
Miscellaneous.
(a)
Addresses for Notices. For the purpose of Section 12(a) of this Agreement:
Address for notices or communications to Party A:
Address:

No. 1 Martin Place
Sydney NSW 2000
Australia
Attention:
Executive Director, Legal Risk Management Division,

Fixed Income, Currencies and Commodities Group
Facsimile No.:
E-mail:
+(612) 8232 4540 Telephone No.:

+(612) 8232 3333
for Section 5 and 6 Notices only: ficc.notices@macquarie.com
With a copy to:

Address:

Level 23, Citypoint,
1 Ropemaker Street
London EC2Y 9HD
England
Attention:
Facsimile No.:
Legal Risk Management, Fixed Income, Currencies and Commodities Group

+(44) 20 3037 4301 Telephone No.: +(44) 20 7065 2000
Address for notices or communications to Party B:

Address:

Littleton, Colorado 80120
Attention:
Brad Colby
Facsimile No.:
Email:
+1 303-798-5767 Telephone No.: +1 303 798 5235

bradcolby@amzgroup.com
With a copy to:

Address:
Roberts & Olivia, LLC

2060 Broadway, Suite 250
Boulder, CO 80302
Attention:
William R. Roberts
Facsimile No.:
Email:
+1 720-210-5447 Telephone No.: +1 720-210-5447 x71

wrroberts@wrrlaw.com
39
(b)
Process Agent. For the purpose of Section 13(c) of this Agreement:

Party A appoints as its Process Agent:
Macquarie Bank Limited Representative Office
125 West 55th Street, 22nd Floor,
New York NY 10019
Attn: Legal Risk Management, Fixed Income, Currencies and Commodities
Telephone: (+1 212) 231 1000
Facsimile: (+1 212) 231 2177
In the event of service of process in any Proceedings by Party B, Party B must also send copies of all documents initiating that process
immediately to Party A in Australia at the address given in Part 4(a) above.
Party B appoints as its Process Agent: Not Applicable
(c)
Offices. The provisions of Section 10(a) will apply to this Agreement.
(d)
Multibranch Party. For the purpose of Section 10(b) of this Agreement:

Party A is a Multibranch Party and may enter into a Transaction through any of the following Offices: London or Sydney
Party B is not a Multibranch Party.
(e)
Calculation Agent. The Calculation Agent is Party A, unless otherwise specified in a Confirmation in relation to the relevant
Transaction.
For the avoidance of doubt, if a party hereto is designated as the Calculation Agent, Section 5(a)(ii) shall not include any failure by that
party to comply with its obligations as Calculation Agent.
(f)
Credit Support Document. Details of any Credit Support Document:

In relation to Party A: None.
In relation to Party B: (i) (North Dakota) Mortgage, Security Agreement, Fixture Filing, Financing Statement and Assignment of
Production and Revenue (Mortgage), (ii) Security Agreement, (iii) Financing Statements, (iv) Deposit Account Control Agreement,
(v) Three Party Lockbox Agreement (together with a Lockbox Management Agreement between Party A and Party B), (vi) Letter in
Lieu, and (vii) Notice of Assignment of Proceeds.
(g)
Credit Support Provider.

Credit Support Provider means in relation to Party A, none.
Credit Support Provider means in relation to Party B, none.
40
(h)
Governing Law. This Agreement will be governed by and construed in accordance with the Laws of the State of New York (without
reference to choice of law doctrine).
Waiver of Jury Trial. Each party waives, to the fullest extent permitted by applicable Law, any right it may have to a trial by jury in
respect of any suit, action or proceeding relating to this Agreement or any Transaction. Each party:
(i)
certifies that no representative, agent or attorney of the other party has represented, expressly or otherwise, that such other
party would not seek to enforce the foregoing waiver in the event of any such suit, action or proceeding; and
(ii)
acknowledges that it and the other party have entered into this Agreement, in reliance on, among other things, the mutual
waivers and certifications of this provision.
(i)
Netting of Payments. Multiple Transaction Payment Netting will apply for the purpose of Section 2(c) of this Agreement to any
Transactions of the same product type (in each case starting from the date of this Agreement).
(j)
Affiliate will have the meaning specified in Section 14 of this Agreement.
(k)
Absence of Litigation. For the purpose of Section 3(c):

Specified Entity means in relation to Party A, not applicable.
Specified Entity means in relation to Party B, not applicable.
(l)
No Agency. The provisions of Section 3(g) will apply to this Agreement.
(m)
Additional Representations will apply. For the purpose of Section 3 of this Agreement, each of the following will constitute an
Additional Representation:
(i)
Relationship Between Parties. Each party will be deemed to represent to the other party on the date on which it enters into a
Transaction that (absent a written agreement between the parties that expressly imposes affirmative obligations to the contrary
for that Transaction):
(A)
Non-Reliance. It is acting for its own account, and it has made its own independent decisions to enter into that
Transaction and as to whether that Transaction is appropriate or proper for it based upon its own judgment and upon
advice from such advisers as it has deemed necessary. It is not relying on any communication (written or oral) of the
other party as investment advice or as a recommendation to enter into that Transaction, it being understood that
information and explanations related to the terms and conditions of a Transaction will not be considered investment
advice or a recommendation to enter into that Transaction. No communication (written or oral) received from the other
party will be deemed to be an assurance or guarantee as to the expected results of that Transaction.
(B)
Assessment and Understanding. It is capable of assessing the merits of and understanding (on its own behalf or
through independent professional advice), and understands and accepts, the terms, conditions and risks of that
Transaction. It is also capable of assuming, and assumes, the risks of that Transaction.
41
(C)
(ii)
Status of Parties. The other party is not acting as a fiduciary for or an adviser to it in respect of that Transaction.
Party B represents to Party A (with such representations deemed to be repeated by Party B on each date on which a
Transaction is entered into) that:
(A)
Licenses, Permits, Authorizations. Party B has fulfilled all requirements for obtaining and has obtained and
maintained all licenses, permits, operating authorities and other authorizations necessary for the conduct of the
business of Party B or for Party B or any Operators to operate or maintain the Property which the failure to obtain
and maintain could result in the breach of representations regarding Defensible Title, and Party B or any such
Operator is fully qualified to own and hold such Property and to exercise in all material respects the rights under all
leases, contracts or other documents governing the operation or maintenance of the Property. The continuation,
validity and effectiveness of each such license, permit and other authorization are not and will in no way be
adversely affected by the Transactions contemplated by this Agreement. Except as set forth on Appendix I attached
hereto, as of the date hereof, Party B is not in material breach of, or in default under the terms of, and has not
engaged in any activity which would cause revocation or suspension of, any of its licenses, permits or authorizations
necessary for the conduct of the business of Party B or for Party B or any Operators to operate or maintain the
Property.
(B)
Basic Documents. Party Bs Basic Documents as of the date hereof are set forth on Appendix II attached hereto.
With respect to the Basic Documents:
(a)
all are in full force and effect in accordance with their terms and constitute valid and binding obligations,
except as limited by applicable bankruptcy or other debtor relief laws and by general equitable principles;
(b)
to Party Bs knowledge, no other party to any Basic Document (or any successor in interest to that party) is
in breach or default with respect to any of its obligations under the Basic Documents;
(c)
no party to any Basic Document has given Party B or has threatened to give Party B notice of any action to
terminate, cancel, rescind or procure a judicial reformation of any Basic Document or any of their
provisions; and
(d)
the execution and delivery of this Agreement and the consummation of the Transactions contemplated by
this Agreement will not result in a breach of, a default under, or other violation of the provisions of any
Basic Document.
42
(C)
Farmout Agreements and Subject Contracts, Etc. With respect to the oil, gas and/or mineral leases comprising the
Properties, and except as expressly set out on Appendix II attached hereto:
(a)
there are no outstanding farmout agreements, obligations to drill additional wells or agreements to engage in
other development operations, except for obligations arising under offset well provisions or obligations
arising under provisions of any Operating Agreement which allow the parties to elect whether or not they
will participate in development activities other than as specified in those leases, contracts and other
agreements;
(b)
there are no limitations as to the depths covered or substances to which such interests purport to apply other
than as specified in those leases, contracts and other agreements; and
(c)
(D)
there are no royalty provisions (other than those allowing a lessor the right to take in kind) requiring the
payment of royalties on any basis other than as specified in those leases, contracts and other agreements.
Operating Agreements. With respect to the operating agreements (Operating Agreements) relating to Party Bs
Working Interest and Net Revenue Interest in the Property,
(a)
Appendix II lists all Operating Agreements to which the Property is subject and the Operators for such
Property, which Operators are hereby Approved by Party A;
(b)
there are no outstanding payments which are past due or which Party B or, to the best of Party Bs
knowledge, any predecessor of Party B has committed to make which have not been or are not being paid
within the terms required; and
(c)
(E)
there are no operations under any of the Operating Agreements with respect to which Party B has become a
non-consenting party nor are there any non-consenting penalties binding or that will become binding upon
Party B that are not reflected in the Net Revenue Interest or Working Interest as set out on Appendix III.
Debt Instruments. Appendix IV attached hereto sets forth a complete and correct list of all documents, instruments
and agreements that as of the date hereof require or could in the future require payments by Party B or its
Subsidiaries that relate to payments that are not usual, customary and recurring in the oil and gas, exploration and
production industry.
43
(F)
Hedging Agreements. Other than this Agreement, Appendix V attached hereto sets forth, as of the date hereof, a
true and complete list of all hedging agreements of Party B, the material terms thereof (including the type, term,
effective date, termination date and notional amounts or volumes), the net mark to market value thereof, all credit
support agreements relating thereto (including any margin required or supplied) and the counterparty to each such
agreement.
(G)
Marketing of Production. Except as set forth on Appendix VI attached hereto, no purchase or sale agreements exist
as of the date hereof which are not cancellable on sixty (60) days notice or less without penalty or detriment for the
sale of production from Party Bs Hydrocarbons attributable to the Property (including, without limitation, calls on
or other rights to purchase, production, whether or not the same are currently being exercised) that (a) pertain to the
sale of production at a fixed price and (b) have a maturity or expiry date of longer than six (6) months from the date
hereof. Each Purchaser as at the date of this Agreement is identified on Appendix XIII attached hereto together with
such Purchasers contact information.
(H)
Preferential Rights and Consents. There are no outstanding preferential rights or consents to assign affecting the
Property that have not been satisfied in full by Party B.
(I)
Name; Executive Offices. The name of Party B, as listed in its Charter Documents on file in the public records of its
jurisdiction of organization, is American Eagle Energy Corporation and AMZG, Inc., respectively. Party Bs
principal place of business and chief executive offices are located at the address specified in Part 4(a).
(J)
Capitalization; Ownership; Subsidiaries. AEEC owns one hundred percent (100%) of all outstanding Equity
Interests of AMZG, Inc. There are no other classes, types or designations of Equity Interests in AMZG, and no
Person holds any right that could result in the transfer or issuance of any Equity Interest in AMZG. Except as listed
on Appendix VII, Party B has no Subsidiaries.
(K)
Solvency. Party B is Solvent and will be Solvent after giving effect to the transactions contemplated by this
Agreement.
(L)
Omissions and Misstatements. Party B has disclosed in writing to Party A all agreements, and all other matters
known to Party B, that could, individually or in the aggregate, reasonably be expected to have a Material Adverse
Effect. All financial and other information furnished in writing by or on behalf of Party B to Party A in connection
with the negotiation or performance of this Agreement or any other Credit Support Document, when taken as a
whole, do not contain any material misstatement of fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were made, not misleading; but, with respect to
financial projections, Party B represents only that such information was prepared in good faith based upon
assumptions believed to be reasonable at the time. There is no fact peculiar to Party B which could reasonably be
expected to have a Material Adverse Effect or in the future is reasonably likely to have a Material Adverse Effect and
which has not been set forth in this Agreement or the Credit Support Documents. There are no statements or
conclusions in any Reserve Report which are based upon or include misleading information or fail to take into
account material information regarding the matters reported therein.
44
(M)
Commissions; Expenses. Except for the commission that will be due to C.K.Cooper & Company, no brokers or
finders fees or commissions have been paid or will be payable by Party B to any Person in connection with the
transactions contemplated by this Agreement, except as payable to Party A or its Affiliates.
(N)
Tax Returns; Taxes. Party B has timely filed (after giving effect to any applicable extensions) all U.S. federal
income tax and all other material tax returns (foreign, state and local) required to be filed and has paid all taxes
(including interest and penalties) due and payable and required to be paid by them, except for amounts contested in
good faith by Party B through appropriate proceedings timely filed and against which Party B maintains adequate
reserves in accordance with GAAP. No assessments have been made by any Governmental Authority against Party
B or any of the Collateral that have not been paid (except for assessments protested in good faith by Party B through
appropriate proceedings timely filed and against which Party B maintains adequate reserves in accordance with
GAAP) nor has any penalty or deficiency been assessed by any Governmental Authority. As of the effective date of
this Agreement, no Governmental Authority has notified Party B that any U.S. federal income tax or other tax return
is under examination, nor is the result of any prior examination being contested by Party B. Except with respect to
taxes being contested in good faith by Party B through appropriate proceedings timely filed and against which Party
B maintains adequate reserves in accordance with GAAP, no material tax Liens have been filed against Party B or
any of the Collateral.
(O)
Litigation; Governmental Proceedings. Except as set forth on Appendix VIII, no claim, action, suit or other
proceeding (collectively, an Action) by any Governmental Authority or any other Person is pending or, to Party
Bs knowledge, threatened against Party B or that relates to any of the Collateral. With respect to the Actions set
forth on Appendix VIII, Party B has not accepted liability in connection with any Action except in the specific
instances described on Appendix VIII, none of which could reasonably be expected to have a Material Adverse
Effect.
(P)
Debt. Upon consummation of the transactions contemplated by this Agreement, Party B will have no Debt
outstanding for borrowed money owing to any third party, other than the obligations under this Agreement and Debt
permitted under Part 6(i).
45
(Q)
USA PATRIOT Act Representation. Party B is not a country, individual or entity named on the Specifically
Designated National and Blocked Persons list issued by the Office of Foreign Asset Control of the Department of
the Treasury of the United States of America.
(R)
Contingent Liabilities. Except for (a) obligations arising under bonds required by Law and identified on Appendix
IX, (b) indemnity and other customary obligations of a customary nature assumed or incurred (excluding Debt for
borrowed money) in favor of any Person from whom Party B acquired any of the Collateral, and (c) Debt permitted
by Part 6(i), Party B has not assumed, guaranteed, endorsed or otherwise become directly, indirectly or contingently
liable for any liability of any other Person.
(S)
Investment Company. Party B is not an investment company within the meaning of the Investment Company Act
of 2005, as amended.
(T)
No Pending Sale or Financing. Except as described on Appendices XVII and XVIII, no agreement, whether
written or oral, exists between Party B and any other Person regarding the purchase, sale or financing of any of the
Collateral.
(U)
Employee Plans. Except as set forth on Appendix X, Party B has no Employee Plans.
(V)
No Material Adverse Effect. Since the later of (i) January 1, 2012 and (ii) date of the most recent audited financial
statements delivered to Party A, no Material Adverse Effect has occurred.
(W)
Deposit Accounts. Except as set forth on Appendix XI, Party B does not maintain any deposit accounts (as defined
in the UCC).
(X)
Labor Matters. Party B is not in violation of any Law relating to labor matters and all payments due and payable by
Party B for employee health and welfare insurance have been paid or accrued as a liability on its books.
(Y)
No Default. No default exists or is reasonably likely to result from Party Bs entry into or performance under any
Credit Support Document or under this Agreement. No event or circumstance exists which, with the expiry of a
grace period, the giving of notice or the making of any determination by any other Person would constitute a default
under any other agreement, whether written or oral, by which Party B is bound or to which any of the Collateral is
subject.
(Z)
Priority. Subject to Permitted Liens, the Security Documents have or will have first ranking priority and none is
subject to any prior ranking or pari passu ranking Lien.
46
(AA)
(n)
Use of Proceeds. The prepayment proceeds advanced by Party A to Party B under this Agreement will be used by
Party B only for the purposes described in Part 6(t).
Recording of Conversations. Each party:

(i)
acknowledges that telephone conversations between the trading, marketing and other relevant personnel of the parties in
connection with this Agreement or any potential Transaction will be recorded;
(ii)
consents to the recording of telephone conversations between the trading, marketing and other relevant personnel of the
parties in connection with this Agreement or any potential Transaction;
(iii)
has obtained any necessary consent of, and has given any necessary notice of such recording to, its relevant personnel;
(iv)
agrees, to the extent permitted by applicable Law, that recordings may be submitted in evidence in any Proceedings and that
such party will not object to the admissibility of the recording on the basis that the same was not originated or maintained in
documentary form; and
(v)
agrees, to the extent permitted by applicable Law, this section constitutes effective notice of and consent to such recording.
47
Part 5.
Other Provisions.
(a)
Definitions. Unless otherwise specified in a Confirmation, this Agreement and each Transaction between the parties are subject to the
latest set of any published ISDA Definitions in existence from time to time which are specifically relevant to the Transaction (the
Definitions) each as published by either the International Swaps & Derivatives Association, Inc., or the International Swap Dealers
Association, Inc., as the case may be. Any amendment to such Definitions subsequent to their initial publication, or any new
Definitions published, will only be effective as to Transactions entered into on or after the date of amendment or publication.
(b)
Inconsistency. At the end of Section 1(b), the following sentence is inserted:

In the event of any inconsistency between the Definitions and this Master Agreement (including the Schedule), the Master Agreement
will prevail.
(c)
Amendment of Section 2. A new Section 2(a)(iv) is inserted as follows:

(iv)
The condition precedent in Section 2(a)(iii)(1) does not apply to a payment or delivery due to be made to a party if it has
satisfied in full all its payment and delivery obligations under Section 2(a)(i) and Section 9(h) of this Agreement and has no
future payment or delivery obligations, whether absolute or contingent, under Section 2(a)(i) or Section 9(h).
(d)
Change of Accounts. For the purposes of Section 2(b) of this Agreement both parties agree that such new account so designated shall
be in the same tax jurisdiction as the original account.
(e)
Tax Events. Section 5(b)(iii) is amended by deleting the words , or there is a substantial likelihood that it will, where they appear in
that clause.
(f)
Procedures for Confirming Transactions. Section 9(e) of this Agreement is amended by the addition of the following terms:
(iii)
With respect to each Transaction entered into pursuant to this Agreement and for the purposes of Section 9(e)(ii), Party A
shall, on or promptly after the relevant Trade Date, send Party B a Confirmation confirming that Transaction and Party B
shall promptly then confirm the accuracy of or request the correction of such Confirmation. In the absence of manifest error,
where Party B fails to confirm the accuracy of or request the correction of a Confirmation within three Local Business Days
after it was sent, the terms of a Confirmation will be binding on and conclusive against Party B.
Delivery of a Confirmation is effected whether a party uses facsimile, email or an electronic messaging system, and
irrespective of the form of delivery used by the other party to confirm the terms of the relevant Transaction. The requirement
of this Agreement that the parties exchange Confirmations shall for all purposes be satisfied by following the procedure set
out in this paragraph.
48
Where a Transaction is confirmed by means of a facsimile, email or an electronic messaging system, such message will
constitute a Confirmation even where not so specified in that Confirmation.
(i)
Notices. Section 12 of the Agreement is amended by deleting the following words where they appear on lines 2 and 3 of Section 12(a):
(except that a notice or other communication under Section 5 or 6 may not be given by electronic messaging system or
email).
and replacing it with:
(except that a notice or other communication under Section 5 or 6 may not be given by electronic messaging system).
(j)
Close-out Amount. At the end of the definition of Close-out Amount in Section 14, the following sentence is inserted:
A Close-out Amount is not required to be the market value of the Terminated Transaction or group of Terminated Transactions and,
subject to Section 6(e)(ii)(3), the Determining Party is not obliged to use the mid-market quotations or mid-market valuations in
determining a Close-out Amount.
(k)
2002 Master Agreement Protocol. The parties agree that, with effect from the date of this Agreement, the terms of each Annex to the
2002 Master Agreement Protocol published by the International Swaps and Derivatives Association Inc., (the Protocol) shall apply
to this Agreement as if the parties had adhered to the Protocol without amendment.
(l)
Miscellaneous. With effect from and including the date of this Agreement the parties agree that every transaction between them is a
Transaction governed by this Agreement (whether or not the parties refer to this Agreement when entering into or confirming the
transaction) unless the terms of this Agreement have been expressly excluded or any confirmation of such transaction is expressed to
be governed by another agreement. Furthermore, AEEC and AMZG acknowledge that their obligations under this Agreement and any
Transaction are joint and several.
For the purpose of this clause transaction means a transaction between the parties, whether entered into before, on or after the
commencement of this Agreement, of the nature of a Specified Transaction.
(m)
Payment of Premium Unless otherwise agreed in writing by the parties, with respect to any premium related to a Transaction that is
an option, if any such premium is not paid on the date such premium is due to be paid under the terms of the Transaction, the seller of
such Transaction may elect:
(i)
to accept a late payment of such premium;
(ii)
to give written notice of such non-payment and, if such payment shall not be received within one Local Business
Day of such notice, treat the related Transaction as void; or
49
(iii)
to give written notice of such non-payment and, if such payment shall not be received within one Local Business
Day of such notice, treat such non-payment as an Event of Default under Section 5(a)(i) of this Agreement.
If the seller of such option Transaction elects to act under either (i) or (ii) above, the buyer of such Transaction shall pay all out-ofpocket costs and actual damages incurred in connection with such unpaid or late premium or void Transaction, including, without
limitation, interest on such premium in the same currency as such premium at the then prevailing market rate and any other costs or
expenses incurred by the seller of the Transaction in covering its obligations (including, without limitation, a delta hedge) with respect
to such Transaction.
(n)
ISDA August 2012 DF Supplement The parties agree that the ISDA August 2012 DF Supplement Schedules 1, 2 and 3 (August
2012 DF Supplement) as published by the International Swaps and Derivatives Association, Inc. (ISDA), are incorporated into this
Agreement, and shall apply to and form part of this Agreement, effective as of the later of the date of this Agreement and the date of
registration by Party A as a swap dealer with the U.S. Commodity Futures Trading Commission (CFTC) (such later date the
Implementation Date).
(o)
Complaints
Any complaints with respect to Party A may be directed as follows:
Name/Department:
Complaints Officer
Address:
Macquarie Bank Limited, GPO Box 4294, SYDNEY NSW 1164, Australia
Email:
swapcomplaints@macquarie.com
Phone:
+61 2 8232 3333
(p)
Swap disclosures
Party A hereby provides Party B with the disclosures contained in the General Disclosure Statement and annexes thereto (together, the
ISDA DF Disclosure) at www.macquarie.com/mgl/com/swap-disclosures, and Party B agrees to such disclosures. The ISDA DF
Disclosure will apply to all standard Transactions (as defined in the ISDA DF Disclosure) between the parties. Where the ISDA DF
Disclosure is not sufficient to address all material risks and characteristics related to Transactions between the parties, Party A may
provide Party B with alternative (or supplementary) disclosures suitable for such Transactions.
(q)
Required Notifications and Disclosures

Party B agrees (i) that the following e-mail address may be used for the delivery by Party A of notifications and any informational
disclosures given pursuant to CFTC Regulations, and (ii) for the purposes of Schedule 2, Part 1, Section 2.3 of the August DF
Protocol, the Notices Procedures applicable to Party B includes written notice by e-mail delivered to the following address:
Email: bradcolby@amzgcorp.com
50
(r)
Questionnaires
Party B agrees to provide to Party A, upon or prior to execution of this Agreement, a completed questionnaire in the form of (i) the
ISDA August 2012 DF Protocol Questionnaire, including any Addenda thereto, published by ISDA (ISDA Questionnaire), or (ii)
the Macquarie Bank Limited/Macquarie Energy LLC Onboarding Questionnaire for Swap Counterparties provided by Party A to
Party B (Macquarie Questionnaire). Party B agrees that all information and representations provided by it in either the ISDA
Questionnaire or the Macquarie Questionnaire will constitute DF Supplement Information for the purposes of the August 2012 DF
Supplement. In the event of any conflict between the August 2012 DF Supplement Schedules incorporated in Part 5(m) above and the
DF Schedules referred to in any ISDA Questionnaire, Part 5(m) shall govern.
51
Part 6.
Additional Covenants
Party B covenants and agrees that, so long as there are any Transactions (or any amounts due from Party B to Party A are) outstanding under
this Agreement, Party B will comply with the following covenants:
(a)
Affiliate Transactions.
Party B shall not enter into any transaction with any Affiliates without the Approval of Party A unless such
Affiliate has executed a subordination agreement with Party A and in a form and substance satisfactory to Party A, in which case, Party
B must give no less than ten (10) days written notice to Party A in advance of such transaction, and, if Approved by Party A, Party B
shall conduct those transactions on an arms length basis.
(b)
Insurance. Party B shall:

(i)
continuously keep all Personal Property together with all improvements on real property insured for replacement value of like
kind and quality with insurance companies licensed or approved to do business in the jurisdictions in which the Property are
located with a Bests Rating of A or better, or as otherwise reasonably satisfactory to Party A, against loss or damage by fire
or other risk usually insured against by other prudent owners in similar businesses similarly situated under extended coverage
endorsement and against theft, burglary, and pilferage together with other insurance covering any other hazards as Party A
may from time to time reasonably request;
(ii)
deliver certificates of insurance and copies of insurance policies as required under Part 6(b)(i) above. All such insurance shall
contain endorsements in form satisfactory to Party A showing Party A as a loss payee and additional insured as its interest
may appear. Subject to Part 6(b)(i) above, all casualty and property damage insurance proceeds received by Party A will be
retained (or, if Party B receives any such insurance proceeds, it shall promptly deposit such insurance proceeds into an
account nominated by Party A to be retained) by Party A at its option, for application to the payment of such portion of any
amounts owed to Party A pursuant to this Agreement as Party A may determine in its reasonable discretion or shall be
applied to repair, restore or replace any such insurable loss or damage, provided that the proceeds of the insurance shall be
deposited by Party B into an account nominated by Party A and, so long as no Event of Default, Termination Event or
Additional Termination Event shall have occurred and be continuing, at the request of Party B, such proceeds shall be
disbursed to Party B upon such terms and conditions as Party A may deem appropriate for its protection to pay the cost of
repairing, replacing or restoring Collateral or purchasing replacement Collateral;
(iii)
promptly, upon Party B becoming aware thereof, notify Party A of the occurrence or existence of an event resulting in a
material claim in excess of $100,000 under any insurance and the estimated amount thereof. In furtherance, but not in
limitation of the requirements of the preceding sentence, Party B shall continuously keep and maintain in full force and effect
during the term of this Agreement, at Party Bs sole cost and expense, original insurance policies for which the payment of
premiums are current containing waivers of subrogation by the respective insurers and non contributory standard mortgagee
clauses or their equivalent or a satisfactory mortgagee loss payable endorsement in favor of Party A providing the types of
insurance covering each of the Property and the interest and liabilities incident to the ownership, possession and operation
thereof as specified on Appendix XII, in each case to the extent such insurance is available on commercially reasonable terms;
52
(c)
(iv)
deliver to Party A all certificates of insurance (and if requested by Party A, copies of all insurance policies and endorsements)
which are required to be obtained and maintained by Party B. Such certificates shall show that (i) such insurance is in full
force and effect in accordance with the provisions of this Agreement, (ii) such insurance is non cancelable without at least
fifteen (15) days prior written notice to the Party A sent by United States registered or certified mail, return receipt requested,
and (iii) written notice shall be sent to the Party A in the same manner at least fifteen (15) days prior to any non renewal of
such policies;
(v)
obtain at least fifteen (15) days prior to the expiration date of each policy maintained pursuant to this Part 6(b)(v) hereof, a
renewal or replacement thereof and deliver to Party A a certificate of such renewal or replacement policy; and
(vi)
notwithstanding the foregoing, Party B shall at all times employ industry standard practices for insurance coverages to
include, but not limited to, drilling, workovers, flowline repairs, rig work and facilities work. Party B will exercise
commercially reasonable efforts to ensure that third-party operators also carry such insurance coverages. To the extent Party
Bs existing coverage is not in compliance or falls below those standard for the industry for the type and location of the
Property and Personal Property, as reasonably determined by Party A, Party B shall promptly act to increase, if necessary,
insurance coverages and coverage amounts to come into compliance with such industry standards, in each case to the extent
such insurance is available to Party B on commercially reasonable terms.
Hedging Hydrocarbon Production. (i) Party B shall enter into one or more Confirmations at the request of Party A from time to time
including, without limitation, in connection with Party Bs (A) lease operating expenses and (B) taxes and other assessments; (ii) Party B
will not enter into any Hedging Agreements or transactions thereunder (with any party including Party A) unless Approved by Party A,
which Approval may be conditioned upon the hedged production, when taken in aggregate, does not exceed eighty percent (80%) of the
PDP Projected Production produced in the following five (5) years. Additionally, Party B will not purchase, assume, or hold a
speculative position in any commodities market or futures market or enter into any Hedging Agreement or similar hedge arrangements
for speculative purposes; or other than the Hedging Agreements required to be entered into and maintained pursuant to Part (c)(i), be
party to or otherwise enter into any Hedging Agreement which (A) is entered into for reasons other than as a part of its normal business
operations as a risk management strategy and/or hedge against changes resulting from changes in Hydrocarbon commodity prices, or (B)
contains provisions requiring or providing for (w) margin calls, (x) credit support of any kind (including letters of credit), (y) security
interests or liens on any of Party Bs Property or recourse to Party B or to the Property or other Collateral or (z) adequate assurance.
53
(d)
(e)
Purchasers of Hydrocarbons. Party B shall:

(i)
in the event that any Purchaser of Hydrocarbons has its senior-most unsecured debt assigned a rating of less than investment
grade by either of Standard & Poors Ratings Group or Moodys Investors Services, Inc., upon the request of Party A, Party B
will (I) use all reasonable efforts to cause the Purchaser to provide cash deposits or one or more letters of credit, in form and
substance and from a bank satisfactory to Party A in connection with its purchase of Hydrocarbons from the Property, (II) to the
extent allowed under applicable contracts, sell Hydrocarbons only to Purchasers who are creditworthy in Party As reasonable
judgment or who prepay, or (III) exercise its right to take the Hydrocarbons in kind and sell to Purchasers of Hydrocarbons who
are creditworthy in Party As reasonable judgment; to the extent Party B is legally entitled to take such action;
(ii)
after the date of this Agreement, give Party A thirty (30) days prior written notice if a Person other than the Purchasers identified
in Appendix XIII to this Agreement which have been issued a Notice of Assignment of Proceeds that are executed on the date of
this Agreement will become a Purchaser of Hydrocarbons. The notice will contain the Persons name and address (including
contact person).
Dividends and Distributions. Without the Approval of Party A, Party B will not:
(a)
declare or pay any cash dividends or distributions;
(b)
declare or make any non-cash distribution;
(c)
(other than issuances in one or more transactions of stock by AEEC to the extent such issuance does not result in a Change of
Control) issue additional Equity Interests of any class to any Person unless such Equity Interests are subordinated to Party A and
documented to the satisfaction of Party A; or
(d)
take any other action that has substantially the same effect as any of the actions prohibited under items (a)(c) above.
(f)
Ownership and Business Operations. Party B will not contract for operation of the Property except with an Operator Approved by
Party A who has executed a Subordination Agreement acceptable to Party A.
(g)
Liens and Encumbrances. Except for Permitted Liens, Party B will not:
(h)
(i)
suffer to exist any Lien or consent to the filing of any financing statement on any of its Property; or
(ii)
dedicate, sell, encumber or dispose of, or suffer to exist any agreement for the sale, disposition or encumbrance of the Property or
of any Hydrocarbon production attributable to the Property except the sale of Hydrocarbons in the ordinary course of business.
Subsidiaries and Divestitures. Party B will not create any direct or indirect Subsidiary or divest any of the Collateral by (i) transferring
them to any future Subsidiary or (ii) by entering into a partnership, joint venture, or similar arrangement without the Approval of Party
A. Party B shall not enter into any management contract permitting a third party to exercise management rights with respect to Party Bs
business, without the Approval of Party A.
54
(i)
Debt. Party B will not create, incur, assume or suffer to exist any Debt, except:
(i)
Debt pursuant to this Agreement or any Credit Support Document;
(ii)
Capital Leases which are identified in Appendix XIV to this Agreement (including such updates to Appendix XIV to this
Agreement that are prepared by Party B from time to time);
(iii)
accounts payable and accrued expenses, liabilities or other obligations to pay the deferred purchase price of property or services,
from time to time incurred in the ordinary course of business;
(iv)
letters of credit, surety or other bonds incurred in the ordinary course of business, and if any such letter of credit, surety or other
bond is for an amount in excess of $250,000, Approved by Party A; provided, however, that any of the foregoing shall be
permitted if required by a competent regulator having jurisdiction over Party B or the Property;
(v)
endorsements of negotiable instruments for collection in the ordinary course of business;
(vi)
other Debt to third parties not to exceed $250,000 in the aggregate;
(vii)
amounts owed to NextEra Energy Gas Producing, LLC pursuant to Carry Agreement dated April 16, 2012, as amended; and
(viii)
other Debt incurred with the Approval of Party A, and fully subordinated (pursuant to a Subordination Agreement in a form
and substance satisfactory to Party A) to all amounts owing or to be owing by Party B to Party A pursuant to this Agreement.
(j)
Taxes. Party B will pay, or will cause Operator to pay, all taxes and assessments of every kind and character charged, levied or assessed
against the Property, or any part thereof, and all franchise taxes, production, severance or other similar taxes or charges, before any such
taxes and assessments shall become delinquent; but Party B shall have the right to contest any such tax in good faith, and while any such
contest is pending shall not be in default hereunder.
(k)
Books and Records; Visit Property. Party B will keep accurate books and records in accordance with GAAP in which full, true and
correct entries shall be promptly made with respect to operations on the Property, and all such books and records shall during reasonable
business hours upon three (3) Local Business Days prior written notice be subject to inspection by Party A and its duly accredited
representatives, but not as to unreasonably interfere with the business of Party B. In addition, Party A and its duly accredited
representatives shall have the right to visit the Property during reasonable business hours upon three (3) Local Business Days prior
written notice, but not as to unreasonably interfere with the business of Party B; provided further, however, that Party A executes a form
of release and indemnity satisfactory to Party B with respect to Party As visit to the Property.
55
(l)
Guaranties. Other than Debt permitted by Part 6(i), Party B will not assume, guaranty or endorse or otherwise become directly or
contingently liable for any Debt of any other Person, except for the indemnification obligations contained in this Agreement and the
Credit Support Documents and agreements entered into in the ordinary course of business with indemnifications common in the industry
that are directly related to the Property. For purposes of this Part 6(l), the term guaranty includes any agreement, whether contingent or
otherwise, to purchase, repurchase or otherwise acquire any obligation or liability of any other Person, or to purchase, sell or lease, as
lessee or lessor, property or services, in any case primarily for the purpose of enabling another Person to make payment of any Debt, or
to make any payment (whether as a capital contribution, purchase of an equity interest or otherwise) to assure a minimum equity, asset
base, working capital or other balance sheet or financial condition, in connection with a Debt of another Person, or to supply funds to or
in any manner invest in another Person in connection with that Persons Debt.
(m)
Environmental Matters.
(i)
Party B shall, at its expense: (i) comply, and shall cause its Property and operations to comply, with all applicable Environmental
Laws, the breach of which could be reasonably expected to have a Material Adverse Effect; (ii) not dispose of or otherwise
release, any Crude Oil, Crude Oil and Natural Gas waste, Hazardous Material, or solid waste on, under, about or from any of
Party Bs Property or any other property to the extent caused by Party Bs operations except in compliance with applicable
Environmental Laws, the disposal or release of which could reasonably be expected to have a Material Adverse Effect; (iii) timely
obtain or file all notices, permits, licenses, exemptions, approvals, registrations or other authorizations, if any, required under
applicable Environmental Laws to be obtained or filed in connection with the operation or use of Party Bs Property, which failure
to obtain or file could reasonably be expected to have a Material Adverse Effect; (iv) promptly commence and diligently prosecute
to completion any assessment, evaluation, investigation, monitoring, containment, cleanup, removal, repair, restoration,
remediation or other remedial obligations (collectively, the Remedial Work) in the event any Remedial Work is required under
applicable Environmental Laws because of or in connection with the actual or suspected past, present or future disposal or other
release of any Crude Oil, Crude Oil and Natural Gas waste, hazardous substance or solid waste on, under, about or from any of
Party Bs Property, which failure to commence and diligently prosecute to completion could reasonably be expected to have a
Material Adverse Effect; and (v) establish and implement such procedures as may be necessary to continuously determine and
assure that Party Bs obligations under this subsection (m)(i) are timely and fully satisfied, which failure to establish and
implement could reasonably be expected to have a Material Adverse Effect.
(ii)
Party B will promptly, but in no event later three (3) days of the occurrence of a triggering event, notify Party A in writing of any
threatened action, investigation or inquiry by any Governmental Authority or any threatened demand or lawsuit by any landowner
or other third party against Party B or the Property of which Party B has knowledge in connection with any Environmental Laws
(excluding routine testing and corrective action) if Party B reasonably anticipate that such action will result in liability (whether
individually or in the aggregate) in excess of $100,000, not fully covered by insurance, subject to normal deductibles.
56
(iii)
(n)
Party B will provide environmental audits and tests in accordance with American Society of Testing Materials standards upon
reasonable request by Party A and no more than once per year in the absence of any Event of Default, Termination Event or
Additional Termination Event (or as otherwise required to be obtained by Party A by any Governmental Authority), or in
connection with any material future acquisitions of any other Property.
Reserve Reports.
(i)
Beginning on January 1, 2013 and continuing annually (each report is dated effective as of January 1 throughout the term of this
Agreement, Party B shall, at its sole expense, cause an engineering reserve report relating to the Property to be prepared by the
Engineers and delivered to Party A (in each case, the Reserve Report). The Reserve Reports will set forth, without limitation, the
projected recoverable reserves attributable to the Working Interests and Net Revenue Interests of Party B. Party B shall deliver
each Reserve Report to Party A within sixty (60) days of its effective date.
(ii)
Preparation of Reports. Party B shall cause each Reserve Report to be prepared in a manner acceptable to Party A in all respects
and similar to those generally prepared and delivered to financial institutions. For the avoidance of all doubt, each such acceptable
Reserve Report will be prepared in accordance with at least the following assumptions:
(A)
reserves shall be adjusted for cumulative production since the effective date of the prior Reserve Report;
(B)
(I)
for all Natural Gas to be sold by Party B, the purchase price for each calendar year will be strip pricing determined
by Party A based on average NYMEX settlement pricing for Natural Gas (as adjusted for appropriate quality,
transportation and location differentials approved by Party A); and
(II)
for Crude Oil to be sold by Party B, the purchase price for each calendar year shall be strip pricing determined by
Party A based on average NYMEX settlement pricing for Crude Oil (as adjusted for appropriate quality,
transportation and location differentials reasonably approved by Party A).
(C)
reserves will be adjusted to reflect revisions to volume estimates of reserves since the effective date of the last Reserve
Report;
(D)
projected operating expenses and capital expenditures will be adjusted to reflect (a) actual expense levels incurred since the
effective date of the last Reserve Report and (b) projected increases or decreases in anticipated operating expenses and
capital expenditure levels; and
57
(E)
(iii)
each Reserve Report will separately report on PDP Reserves, PDNP Reserves and PUD Reserves and will utilize any other
assumptions that Party A may reasonably request from time to time.
Preparation of Additional Reserve Reports. Party A or Party B, at the sole option of either of them so long as there are any
Transactions outstanding under this Agreement, may cause additional Reserve Reports meeting the requirements of the preceding
paragraph to be prepared by any of the Engineers to be delivered to the other party. Except for the Reserve Report each year
required in this Part 6(n) which will be paid for by Party B, the costs and expenses of any additional reports will be borne by the
party requesting the report. Notwithstanding the foregoing, if an Event of Default, Termination Event or Additional Termination
Event has occurred and is continuing, then Party A may request an additional Reserve Report to be prepared at the sole expense of
Party B.
(o)
Certificates
AMZG will deliver to Party A a certified copy of a Certificate of Good Standing issued by the Secretary of State of North Dakota
with regard to AMZG no later than January 15, 2013.
(p)
Notices of Default and Other Significant Events

Party B will provide written notice to Party A promptly (but, in any event, within three (3) Local Business Days) after Party B becomes
aware that a default has occurred or that any event has occurred or that any circumstance exists that could reasonably be expected have a
Material Adverse Effect, including:
(i)
any dispute that arises between Party B and any Governmental Authority;
(ii)
the making of a demand or the commencement of any proceeding against Party B or related to the Properties with an amount in
controversy in excess of $100,000;
(iii)
a proposal by any Governmental Authority to acquire any of the Collateral by condemnation or eminent domain;
(iv)
any change in (i) Party Bs company name (including the creation or change of any trade name); (ii) the location of Party Bs
principal office; (iii) Party Bs company structure or the jurisdiction in which Party B is organized; (iv) Party Bs organizational
identification number; or (v) Party Bs federal taxpayer identification number;
(v)
the revocation, suspension, forfeiture, expiration or material modification of any permit;
(vi)
any loss of or damage to any material portion of the Collateral;
(vii)
the failure or refusal to make any payment when due in respect of any Debt; and
(viii)
the occurrence of any event or circumstance that could, if it continues, constitute a default by any Person under any of the Basic
Documents.
58
(q) Charter Documents. Party B shall deliver to Party A true and complete copies of all amendments to any of its charter documents;
but this Part 6(q) does not constitute Party As Approval of any such amendment.
(r) Compliance with Law. Party B will: Comply (and use commercially reasonable efforts to Cause the Operators to comply), in all
material respects, with all Laws, including, without limitation, Laws regarding the collection, payment and deposit of employees
income, unemployment and Social Security taxes.
i.
Make (and Cause the Operators to make), properly and timely, all royalty or overriding royalty payments and payments to all
other interest owners in the Properties.
ii.
Comply (and Cause the Operators to comply), in all material respects, with all Laws affecting the ownership and operation of
any of the Properties, including, all Environmental Laws.
iii.
Operate (and Cause the Operators to operate) all Properties (whether or not such Property constitutes a facility under
CERCLA) so that no cleanup or other obligation is imposed under CERCLA or any other Law (including other Hazardous
Substance Laws) intended to protect the environment or relating to the generation, transportation or disposal of hazardous
waste which could allow any Person to assert a Lien to secure that obligation on the Collateral, but excluding Liens being
protested in good faith by Party B through appropriate proceedings timely filed and against which Party B maintains adequate
reserves in accordance with Australian Accounting Standards.
(s) Solvency. Party B will conduct its business in a manner as is necessary to remain Solvent.
(t) Use of Proceeds. Party B will use the prepayment proceeds advanced hereunder from Party A to Party B only for: (i)
development of the Property to increase production or Hydrocarbons, (ii) acquisition of new oil and gas properties, which if they
are additional interests in the Property, shall be included as part of the Property, and (iii) general corporate purposes that are usual
and customary in the oil and gas exploration and production business.
(u) Evidence of Title. Party B will:
(i)
Deliver to Party A, on or before the date of this Agreement for the Property set forth on Exhibit A-1 to the Mortgage, title
opinions or other evidence of title (including, without limitation, run sheets and a title memo, in each case, certified by a
landman Approved by Party A) acceptable to Party A covering no less than 90% of the PV10 value of the Proved Reserves of the
Properties and showing Defensible Title to those Properties vested in Party B subject only to the Permitted Liens.
(ii)
Deliver to Party A, within 90 days after the completion of each new Well, a division order title opinion or other evidence of title
acceptable to Party A covering such new Well and showing Defensible Title to Party Bs interest in those Properties on which
such new Well is located vested in Party B subject only to Permitted Liens.
59
(iii)
Deliver to Party A, within 20 days after Party As request, title opinions or updated run sheets or other documentation reasonably
acceptable to Party A reflecting (i) Defensible Title in the Party Bs interest in Property that comprises no less than 90% of the
PV10 value of the Proved Reserves of the Party Bs interest in the Properties, (ii) the recordation of Party As Lien related to the
Mortgage over all Property for which Party B has not previously delivered a title opinion under 6(u)(i) above, and (iii) the
absence of any Lien other than Permitted Liens.
(v) Investments. Party B will not make any Investment except: (i) certificates of deposit or other obligations issued by a bank
Approved by Party A; (ii) obligations of the United States government or any of its agencies; (iii) Investments consisting of the
other Hedging Agreements to the extent consistent with Part 6(c); and (iv) Investments existing on the date hereof as reflected on
Appendix XV.
(w) Modifications to Documents. Party B will not waive or modify (or agree to waive or modify) the terms of any Operating
Agreement, any Hedging Agreement or any Basic Document except (i) in the ordinary course of business and (ii) only to extent
any such waiver or modification does not result in an adverse effect on Party A or any eights hereunder or any Credit Support
Document.
(x) Nature of Business. Party B will not allow any change to be made in the character of Party Bs business as an independent
Hydrocarbon exploration and production company. Party B will not acquire or make any other expenditure (whether such
expenditure is capital, operating or otherwise) in or related to, any oil and gas assets not located within the geographical
boundaries of the United States or Canada.
(y) Fees, Costs and Expenses. Party B will promptly (and, in any event, within 10 days after the presentation of any invoice by Party
A) pay (a) all Related Costs, (b) all transfer, stamp, mortgage, documentary or other similar taxes, assessments or charges levied
by any taxing authority in connection with this Agreement and the Credit Support Documents or the transactions contemplated by
them, (c) all reasonable costs and expenses incurred by or on behalf of Party A (including the reasonable fees, expenses and
disbursements of its attorneys and consultants) in connection with (i) preparing this Agreement and the Credit Support Documents
and any modifications to them, (ii) filing, recording and registering any Credit Support Documents, (iii) administering the
transactions and Confirmation and monitoring Party Bs compliance with the terms of this Agreement and the Credit Support
Documents, (v) enforcing Party As rights and remedies under the Credit Support Documents, and (vi) investigating, prosecuting
or defending any claim or alleged claim arising under or in connection with the Credit Support Documents and the transactions
contemplated by them.
(z) Early Repayment. Party B may at any time prepay the payments advanced to Party B by Party A (the Early Repayment),
provided that (i) such Early Repayment shall be for the full amount set forth in the Confirmations under this Agreement (including
Party As expected internal rate of return or other returns set forth therein) and (ii) such Early Repayment shall also include the
amount of the Balloon Payment set forth in the Confirmations.
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(aa)
Definitions. For the purposes of this Agreement the following definitions will apply:
Approval and Consent mean, with respect to any consent or approval sought by Party B and given by Party A, the written
instruments executed by Party A that (a) authorize Party B to take the action (prior to taking such action) for which the consent or
approval is sought and (b) set forth the conditions, if any, upon which the consent or approval is given by Party A. Approve and
Approved have the correlative meaning.
Basic Documents means mineral grants and oil, gas and/or mineral leases (or other documents evidencing its ownership in the
Property), operating agreements, Hydrocarbon purchase, sales, exchange, processing, gathering, treatment, compression and
transportation agreements; farm out or farm in agreements; exploration agreements; participation agreements; carry agreements,
unitization agreements; joint venture, limited or general partnership, dry hole, bottom hole, acreage contribution, purchase and acquisition
agreements; area of mutual interest agreements; salt water disposal agreements, servicing contracts; easement and/or pooling agreements;
surface leases, permits, licenses, rights-of-way, servitudes, or other interests appertaining to the Party Bs interest in the Property and all
other executory contracts and agreements relating to Party Bs Interest in the Property.
Capital Leases means, in respect of any Person, all leases which shall have been, or should have been, in accordance with GAAP,
recorded as capital leases on the balance sheet of the Person liable (whether contingent or otherwise) for the payment of rent thereunder.
Cause means, when any Person is obligated to cause another Person to take or refrain from taking any action, (a) that the obligor in fact
causes its Affiliates to take or refrain from taking the specified action, or (b) that the obligor uses all commercially reasonable efforts to
cause any non-Affiliate to take or refrain from taking the specified action, as applicable.
CERCLA means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended.
Change of Control means the occurrence of any event pursuant to which (a) AEEC ceases to own 100% of the outstanding Equity
Interests in AMZG; or (b) AEEC ceases to be a publicly traded company.
Collateral means all of Party Bs right title and Interest in and to the Property and all other assets of Party B covered by the Credit
Support Documents.
Crude Oil means all crude oil, condensate and other liquid hydrocarbon substances (excluding liquid hydrocarbon substances defined
as Natural Gas).
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Debt means, for any Person, the sum of the following (without duplication): (a) all obligations of such Person for borrowed money or
evidenced by bonds, bankers acceptances, debentures, notes or other similar instruments; (b) all obligations of such Person (whether
contingent or otherwise) in respect of letters of credit, surety or other bonds and similar instruments; (c) all accounts payable and all
accrued expenses, liabilities or other obligations of such Person to pay the deferred purchase price of property or services; (d) all
obligations under Capital Leases which are required to be recorded as a liability on the balance sheet of such Person in accordance with
GAAP; (e) all obligations under Synthetic Leases; (f) all Debt (as defined in the other clauses of this definition) of others secured by a
Lien on any property of such Person, whether or not such Debt is assumed by such Person to the extent of the lesser of the amount of
such Debt and the fair market value of such property (only if such Debt is non-recourse to such Person and is secured by a Lien upon
such property); (g) all Debt (as defined in the other clauses of this definition) of others guaranteed by such Person or in which such
Person otherwise assures a creditor against loss of the Debt (howsoever such assurance shall be made) to the extent of the lesser of the
amount of such Debt and the maximum stated amount of such guarantee or assurance against loss; (h) all obligations or undertakings of
such Person to maintain or cause to be maintained the financial position or covenants of others or to purchase the Debt or property of
others; (i) obligations to deliver commodities, goods or services, including, without limitation, Hydrocarbons, in consideration of one or
more advance payments, other than Natural Gas balancing arrangements in the ordinary course of business; (j) obligations to pay for
goods or services whether or not such goods or services are actually received or utilized by such Person; (k) any Debt of a partnership or
limited liability company for which such Person is liable either by agreement, by operation of law or by a governmental requirement but
only to the extent of such liability; (l) Disqualified Capital Stock; and (m) the undischarged balance of any production payment created by
such Person or for the creation of which such Person directly or indirectly received payment. The Debt of any Person shall include all
obligations of such Person of the character described above to the extent such Person remains legally liable in respect thereof
notwithstanding that any such obligation is not included as a liability of such Person under GAAP.
Default Rate shall be amended in the Agreement to delete the existing language and replace with means a rate per annum equal to the
lesser of (a) ten percent (10%) and (b) the highest interest rate permitted under New York law.
Defensible Title means with respect to each Property, title that (a) entitles the Person to receive (free and clear of all royalties,
overriding royalties and net profits interests or other burdens on or measured by production of Hydrocarbons without regard to whether
such interest appears of record) not less than the Net Revenue Interest set forth on Appendix III (or in such other certificate or writing
provided to Party A by Party B representing the interests in the Property, including, without limitation, any Credit Support Documents)
in all Hydrocarbons produced, saved and marketed from the Property for the productive life of the Property, free and clear of any Lien
other than Permitted Liens.
Disqualified Capital Stock means any Equity Interest that, by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable) or upon the happening of any event, matures or is mandatorily redeemable for any consideration other than
other Equity Interests (which would not constitute Disqualified Capital Stock), pursuant to a sinking fund obligation or otherwise, or is
convertible into or exchangeable for Debt or redeemable for any consideration other than other Equity Interests (which would not
constitute Disqualified Capital Stock) at the option of the holder thereof, in whole or in part, on or prior to the date that is one (1) year
after (a) the final scheduled payment date hereunder; and (b) the date on which Party A agrees in writing that this Agreement is
terminated.
Early Repayment has the meaning given to such term in Part 6(aa).
62
Employee Plan means an employee pension benefit plan covered by Title IV of ERISA.
Engineers means MHA Petroleum Consultants LLC, or any other an independent petroleum engineering firm selected by Party B and
approved by Party A in writing from time to time.
Environmental Laws shall mean any and all Governmental Requirements and Environmental and Safety Regulations pertaining to
health or the environment in effect in any and all jurisdictions in which Party B is conducting or at any time has conducted business, or
where any Property of Party B is located, including without limitation, the OPA, CERCLA, RCRA, the Safe Drinking Water Act, as
amended, the Toxic Substances Control Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended, the
Hazardous Materials Transportation Act, as amended, and other environmental conservation or protection Laws. The term oil shall
have the meaning specified in OPA, the terms hazardous substance and release (or threatened release) have the meanings specified
in CERCLA, and the terms solid waste and disposal (or disposed) have the meanings specified in RCRA; provided, however, that
(a) in the event either OPA, CERCLA or RCRA is amended so as to broaden the meaning of any term defined thereby, such broader
meaning shall apply subsequent to the effective date of such amendment and (b) to the extent the Laws of the state in which any Property
of Party B is located establish a meaning for oil, hazardous substance, release, solid waste or disposal which is broader than
that specified in either OPA, CERCLA or RCRA, such broader meaning shall apply to those issues covered by the applicable state Laws.
Environmental and Safety Regulations means all applicable federal, state or local Laws, ordinances, codes, rules, orders and regulations
with respect to any environmental, pollution, toxic or hazardous waste or health and safety Law, including, without limitation, those
promulgated by the United States Environmental Protection Agency, the Federal Energy Regulatory Commission, the Department of
Energy, the Occupational Safety and Health Administration, the Department of the Interior, or any other Governmental Authority, or any
of their predecessor or successor agencies.
Equipment has the meaning assigned to that term in the UCC and includes all surface or subsurface machinery, goods, equipment,
fixtures, inventory, facilities, supplies or other personal or moveable property of whatsoever kind or nature (excluding property rented by
Party B or taken to the premises for temporary uses) now owned or hereafter acquired by Party B which are now or hereafter located on
or under any of the lands attributable to the Property which are used for the production, gathering, treatment, processing, storage or
transportation of Hydrocarbons and whether or not attributable to the Property (together with all accessions, additions and attachments to
any thereof), including, without limitation, all Wells, casing, tubing, tubular goods, rods, pumping units and engines, Christmas trees,
platforms, separators, compressors, gun barrels, flow lines, water injection lines, tanks, gas systems (for gathering, treating and
compression), pipelines (including gathering lines, laterals and trunklines), chemicals, solutions, water systems (for treating, disposal and
injection), power plants, poles, lines, transformers, starters and controllers, machine shops, tools, storage yards and equipment stored
therein, telegraph, telephone and other communication systems, loading docks, loading racks, shipping facilities, platforms, well
equipment, wellhead valves, meters, motors, pumps, tankage, regulators, furniture, fixtures, automotive equipment, forklifts, storage and
handling equipment, together with all additions and accessions thereto, all replacements and all accessories and parts therefor, all
manuals, blueprints, documentation and processes, warranties and records in connection therewith including, without limitation, any and,
to the extent permitted, all rights against suppliers, warrantors, manufacturers, sellers or others in connection therewith, and together with
all substitutes for any of the foregoing.
63
Equity Equivalents means, with respect to any Person (other than an individual), any rights, warrants, options, convertible securities,
exchangeable securities, indebtedness or other rights, in each case exercisable for or convertible or exchangeable into, directly or
indirectly, Equity Interests of such Person or securities exercisable for or convertible or exchangeable into Equity Interests of such
Person, whether at the time of issuance or upon the passage of time or the occurrence of some future event.
Equity Interests means shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial
interests in a trust or other equity ownership interests in a Person (other than an individual), and any Equity Equivalents of such Person.
G&A Expenses means the actual general and administrative expenses of Party B, including capitalized general and administrative
expenses, calculated in accordance with GAAP, (excluding all (i) costs associated with closing of Party Bs acquisition of the Properties;
(ii) reasonable legal and professional expenses; and (ii) non-cash charges and performance-based compensation pursuant to a plan
approved by Party A in writing).
GAAP means generally accepted accounting principles recognized as such by the Financial Accounting Standards Board (or generally
recognized successor) consistently applied and maintained throughout the period indicated and consistent with applicable Laws, except
for changes mandated by the Financial Accounting Standards Board or any similar accounting authority of comparable standing. If any
change in any accounting principle or practice is required by the Financial Accounting Standards Board (or generally recognized
successor) in order for such principle or practice to continue as a generally accepted principle or practice, all financial reports or
statements required hereunder or in connection herewith may be prepared in connection with such change, but all calculations and
determinations to be made hereunder may be made in accordance with such change only if Party B and Party A agree to do so. Whenever
any accounting term is used herein which is not otherwise defined, it shall be interpreted in accordance with GAAP.
Governmental Authority means the government of the United States of America, any other nation or any political subdivision thereof,
whether state, local or tribal, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising
executive, legislative, judicial, taxing, regulatory or administrative powers, jurisdiction or functions of or pertaining to government over
the Property, Party A, Party B or any of their respective Affiliates.
Governmental Requirements means, with respect to any Person, any law, statute, code, ordinance, order, determination, rule,
regulation, judgment, decree, injunction, franchise, permit, certificate, license, authorization or other directive or requirement, whether
now or hereinafter in effect, including, without limitation, Environmental Laws, energy regulations and occupational, safety and health
standards or controls, of any Governmental Authority applicable to such Person.
64
Hazardous Materials means and include (i) all elements or compounds that are contained in the list of hazardous substances adopted by
the United States Environmental Protection Agency and the list of toxic pollutants designated by the United States Congress or the
Environmental Protection Agency or under any Hazardous Substance Laws (as hereinafter defined), and (ii) any hazardous waste,
hazardous substance, toxic substance, regulated substance, pollutant or contaminant as defined under any Hazardous
Substance Laws.
Hazardous Substance Laws means CERCLA, RCRA, the Federal Water Pollution Control Act, as amended, 33 U.S.C. 1251 et seq.,
the Toxic Substances Control Act, 15 U.S.C. 2601 et seq., the Hazardous Liquid Pipeline Safety Act of 1979, as amended, 40 U.S.C.
2001 et seq., the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. 136 et seq., the Federal Clean Air Act, 42 U.S.C. 7401 et
seq., any so called federal, state or local superfund or super lien statute, and any other applicable federal, state or local law, rule,
regulation or ordinance related to the remediation, clean up or reporting of environmental pollution or contamination or imposing liability
(including strict liability) or standards of conduct concerning any Hazardous Materials.
Hydrocarbons means all Crude Oil and Natural Gas.
Law means any current or future law, statute, code, ordinance, order, determination, rule, regulation, judgment, decree, injunction,
franchise, permit, certificate, license, authorization or other directive or requirement enacted, promulgated, adopted or imposed by any
Governmental Authority.
Lien means any interest in property (real or personal) securing an obligation owed to, or a claim by, a Person other than the owner of
the Property, whether such interest is based on the common law, statute or contract, and whether such obligation or claim is fixed or
contingent, and including but not limited to (a) the lien or security interest arising from a mortgage, encumbrance, pledge, security
agreement, financing statements, conditional sale or trust receipt or a lease, consignment or bailment for security purposes, or (b)
production payments and the like payable out of oil and gas properties and the Property. The term Lien shall include easements,
servitudes, restrictions, permits, conditions, covenants, exceptions or reservations. For the purposes of this Agreement, Party B shall be
deemed to be the owner (to the extent of its interest therein) of any Property which it has acquired or holds subject to a conditional sale
agreement, or leases under a financing lease or other arrangement pursuant to which title to the Property has been retained by or vested in
some other Person in a transaction intended to create a financing.
Material Adverse Effect means any effect or matter:
(a) which has a materially adverse effect on:
(i) the business, assets, liabilities, prospects or condition (financial or otherwise) of Party B; or
(ii) the ability of Party B to perform any payment obligations under this Agreement or any Credit Support Documents; or
(b) which could reasonably be expected to result in any Credit Support Document not providing to Party A the Liens and/or security
interests in the assets expressed to be secured under that Credit Support Document.
65
Natural Gas means all natural gas, and any natural gas liquids and all products recovered in the processing of natural gas (other than
condensate) including, without limitation, natural gasoline, casinghead gas, iso butane, normal butane, propane and ethane (including
such methane allowable in commercial ethane) produced from or attributable to the Property.
Net Revenue Interest means, with respect to any Property, the decimal or percentage share of Hydrocarbons produced and saved from
or allocable to such Property, after deduction of Royalty Interests and other burdens on or paid out of such production; provided that if
Party Bs ownership is in the form of a mineral fee or interest, such decimal or percentage share shall be equal to such mineral fee or
interest.
OPA means the Oil Pollution Act of 1990, as amended.
Operating Cash Flow means, on a cash accounting basis, Party Bs gross cash receipts from sales of Production Volumes and all other
cash receipts from whatever source (including, without limitation, if applicable, cash payments received under this Agreement).
Operator means each Person identified in Appendix XVI to this Agreement or any other operator Approved by Party A.
Permitted Liens means (i) minor irregularities in title which do not (a) materially interfere with the occupation, use and enjoyment by
Party B of any of the Properties in the normal course of business as presently conducted, or (b) materially impair the value of such
Properties; and (ii) Liens arising in the ordinary course of business or incidental to the ownership of the Properties (including, liens of
landlords, vendors, carriers, warehousemen, taxing authorities, mechanics, laborers and material men arising by applicable Law, and of
Operators arising by contract) for sums not yet due or being contested in good faith by appropriate action promptly initiated and
diligently conducted, if such reserves as may be required by GAAP, consistently applied, have been made; provided that any such Liens
do not materially interfere with the occupation, use and enjoyment by Party B of any of the Property or the proceeds and Hydrocarbons
to be attributable thereto; provided further there is no intent to subordinate Party As Liens under the Credit Support Documents.
Person means an individual, corporation, partnership, limited liability company, joint venture, trust or unincorporated organization,
joint stock company or other similar organization, governmental authority or any other legal entity, whether acting in an individual,
fiduciary or other capacity.
Personal Property means all personal property of every kind, whether now owned or later acquired, including all goods (including
Equipment), documents, accounts, chattel paper (whether tangible or electronic), money, deposit accounts, letters of credit and letter-ofcredit rights (without regard to whether the letter of credit is evidenced by a writing), documents, securities and all other investment
property, supporting obligations, any other contract rights (including all rights under Basic Documents) or rights to the payment of
money, insurance claims and proceeds, all general intangibles (including all payment intangibles and rights to seismic and other
geophysical data) and all permits, licenses, books and records related to the Property or the business of Party B as it relates to the
Property in any way whatsoever.
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Production Volumes means, with respect to the Property, the product of Party Bs Net Revenue Interest multiplied by gross
Hydrocarbons produced and saved from the Property.
Property shall mean the oil and gas properties described in Appendix III to this Agreement and the interest thereunder and production
of Hydrocarbons attributable or allocable to the Property.
Proved Reserves has the meaning given that term in the definitions promulgated by the Society of Petroleum Evaluation Engineers and
the World Petroleum Congress as in effect at the time in question; Proved Developed Producing Reserves or PDP Reserves means
Proved Reserves which are categorized as both Developed and Producing in such definitions; Proved Developed Non Producing
Reserves or PDNP Reserves means Proved Reserves which are categorized as both Developed and Non Producing in such
definitions; and Proved Undeveloped Reserves or PUD Reserves means Proved Reserves which are categorized as Undeveloped
in such definitions.
Purchaser means all Persons, including each Person identified in Appendix XIII to this Agreement or otherwise Approved pursuant to
Part 6(d), who purchase Hydrocarbons from Party B which is attributable or allocable to the Property.
RCRA means the Resource Conservation and Recovery Act of 1976, as amended.
Related Costs means the reasonable and documented fees and out-of-pocket expenses of counsel for Party A and consultants for Party
A and such other reasonable and documented out-of-pocket, third-party expenses incurred by Party A in connection with the due
diligence, negotiation and preparation of documents relating to this Agreement and the Credit Support Documents and execution, delivery
and filing and/or recording of the Credit Support Documents together with any amendments, supplements or modifications thereto or
administration or enforcement thereof.
Reserve Report has the meaning assigned to that term in Part 6(n) of this Agreement.
Solvent means, as to any Person on any date, (a) the fair saleable value of that Persons assets exceed the total amount of its liabilities
(including income tax liabilities) as they become absolute and matured; and (b) that Person is able to meet its debts as they mature.
Subsidiary means, as to any Person, an entity of which fifty percent (50%) or greater of the issued and outstanding securities having
ordinary voting power for the election of directors, members or general partners is owned, directly or indirectly, by such Person and/or
one or more of its subsidiaries.
Synthetic Leases means, in respect of any Person, all leases which have been, or should have been, in accordance with GAAP, treated
as operating leases on the financial statements of the Person liable (whether contingently or otherwise) for the payment of rent thereunder
and which were properly treated as indebtedness for borrowed money for purposes of U.S. federal income taxes, if the lessee in respect
thereof is obligated to either purchase for an amount in excess of, or pay upon early termination an amount in excess of, eighty percent
(80%) of the residual value of the property subject to such operating lease upon expiration or early termination of such lease.
67
Well means any existing or future oil or gas well, salt water disposal well, injection well, water supply well or any other well located
on or related to the Property, and any facility or equipment in addition to or replacement of any well.
Working Interest means the property interest which entitles the owner thereof to explore and develop certain land for oil and gas
production purposes, whether under an oil and gas lease or unit, a compulsory pooling order or otherwise.
[SIGNATURE PAGE AND APPENDICES FOLLOW]
68
IN WITNESS WHEREOF the parties have executed this document on the respective dates specified below with effect from the date
specified on the first page of this Agreement.
By:
Name:
Title:

By:
Name:
Title:
AMZG, Inc.
By:
Name:
Title:
By:
Name:
Title:
Signature Page
to
Schedule to the 2002 ISDA Master Agreement
Appendix I
Operating Permits, Licenses and Authorizations
None
Appendix II
Basic Documents
(Including Farmout Agreements, Subject Contracts, and Operating Agreements)
1.
Carry Agreement dated April 16, 2012, but effective as of January 1, 2012, by and between American Eagle Energy Corporation and
NextEra Energy Gas Producing, LLC (as amended).
2.
Confidentiality Agreement dated November 20, 2012 by and between SM Energy and American Eagle Energy Corporation.
3.
Operating Agreement dated October 26, 2006 by and among Rover Resources, Inc. as operator, Eternal Energy Corp., as nonoperator.
4.
Operating Agreement dated November 1, 2010 by and among SM Energy Company, as operator, Crescent Point Energy U.S. Corp.
and Eternal Energy Corp., as non-operators.
5.
Operating Agreement dated May 1, 2011 by and among Eternal Energy Corporation, as operator, NextEra Energy Gas Producing,
LLC and American Eagle Energy, Inc., as non-operators.
6.
Operating Agreement dated January 1, 2011 by and among Continental Resources, Inc., as operator, Crescent Point Energy U.S.
Corporation, Black Stone Minerals Company, Eternal Energy Corporation, Geronimo Holdings Company, Kasmer & Aafedt Oil, Inc.
and Lario Oil & Gas Company, as non-operators.
7.
Operating Agreement dated March 1, 2011 by and among SM Energy Company, as operator, Crescent Point Energy U.S. Corp,
Eternal Energy Corp., Richard Gallegos, Samson Resources Company, Baytex Energy USA Ltd., Murex Petroleum Corporation, Rich
Slagle Minerals Trust, Williston Hunter, Inc., Kent M. Lynch, The Dublin Company and Empire Oil Company, as non-operators.
8.
Operating Agreement dated January 1, 2012 by and among American Eagle Energy Corporation, as operator, NextEra Energy Gas
Producing, LLC, SM Energy Company, American Standard Energy Corporation, Harms-Wold Family Group, LLP, Murex Petroleum
Corporation, Geronimo Holding Corporation, MBI Oil & Gas, LLC, Cody Oil & Gas Corporation, ASEN 2 Corp., Stewart
Geological, Inc., Roy G. & Opal Barton Revocable Trust, and Kasmer & Aafedt Oil, Inc., as non-operators.
9.
Operating Agreement dated March 1, 2012 by and among American Eagle Energy Corporation, as operator, NextEra Energy Gas
Producing, LLC, SM Energy Company, Crescent Point Energy US Operations, Black Stone Minerals Company, LP, Missouri River
Royalty Corporation, BRP, LLC, MBI Oil & Gas, LLC, Murex Petroleum Corporation, ASEN 2 Corp., Stewart Geological, Inc.,
Cody Oil & Gas Corporation, Harms-Wold Family Group, LLP, and Geronimo Holding Corporation, as non-operators.
10. Operating Agreement dated April 1, 2012 by and among American Eagle Energy Corporation, as operator, NextEra Energy Gas
Producing, LLC, SM Energy Company, Black Stone Minerals Company, LP, Samson Resources Company, Empire Oil Company,
Crescent Point Energy US Corp., Cody Oil & Gas Corporation, Inland Oil & Gas Corporation, Luella M. Boss, Sanish Properties,
LLC, Benjamin Fliginger, Blair Fliginger, Trust for the Hill Foundation Trust, Virginia W. Hill Foundation Minerals Trust, and Jon
Wiltfong, as non-operators.
11. Operating Agreement dated May 1, 2012 by and among American Eagle Energy Corporation, as operator, NextEra Energy Gas
Producing, LLC, Nodana Petroleum Corporation, Williston Projects, Inc., Crescent Point Energy U.S. Corp., Onnhi, Inc., Roy G.
Barton, Sr. and Opal Barton Revocable Trust, Rosemary A. Scherer, Linda Petroleum, Heringer/Herco Minerals, LLC, and Murex
Petroleum Corporation, as non-operators.
12. Operating Agreement dated August 1, 2012 by and among American Eagle Energy Corporation, as operator, NextEra Energy Gas
Producing, LLC, Samson Resources Company, Crescent Point Energy U.S. Corp, SM Energy, Michelene G. Toomey, Ursula G.
Lusk, WLCUM Oil & Gas, Ltd., Enchanted Royalty Partners, Sam G. Harrison, Jr., Stockdale Royalty Partners, Heather C. Harrison,
Margo S. Harrison, Marshall C. Harrison, Parker L. Harrison, and Steven Lane Harrison, Jr., as non-operators.
13. Operating Agreement dated June 1, 2012 by and among American Eagle Energy Corporation, as operator, NextEra Energy Gas
Producing, LLC, Crescent Point Energy U.S. Corp., Samson Resources Company, J. Hiram Moore Ltd., Brennand Energy, Ltd.,
MHM Resources LP, AP Assets, LLC, Onnhi, Inc., Hancock Enterprises, Frank C. and LaRaine E. Greider, Barbara Bargsten, Shari
R. Weber Trust, The Roy G. Barton Sr., and Opal Barton Rev. Trust, Edwin M. Avery, John A. Redeker, William H. Watson, and
Bobby L. Jarrett, as non-operators.
14. Operating Agreement dated January 1, 2011 by and among SM Energy Company, as operator, Samson Resources Company, Baytex
Energy USA LTD, Williston Hunter, Inc., J. Hiram Moore, LTD, Madelon L. Bradshaw, MHM Resources, LP, Pfanenstiel
Company, LLC, Chevron USA, Inc., Come Big or Stay Home, LLC, PANAN Energy, Inc., Prince Petroleum Company, Inc., VML
Resources, Inc., Eternal Energy Corp.
15. Operating Agreement dated November 1, 2012 by and among American Eagle Energy Corporation, as operator, NextEra Energy Gas
Producing, LLC, Crescent Point Energy U.S. Corp., Empire Oil Company, Kasmer & Aafedt Oil, Inc., Thomas T. Ritter, Timothy J.
Ritter, Steven C. Ritter, Pamela J. Hegge, Sanish Properties, LLC, Tracy B. Witherspoon, Dale Williston Minerals 2010, LP, John J.
Kasmer, as non-operators.
16. Operating Agreement dated November 1, 2012 by and among American Eagle Energy Corporation, as operator, NextEra Energy Gas
Producing, LLC, Crescent Point Energy U.S. Corp., Baytex Energy USA, LTD, J. Hiram Moore, LTD, WLCUM Oil & Gas, LTD,
Ursula G. Lusk, Michelene Toomey, MHM Resources, AP Assets, LLC, Enchanted Royalty Partners, Stockade Royalty Partners,
Sam G. Harrison, Jr., Parker L. Harrison, Margo S. Harrison, Heather C. Harrison, Marshall C. Harrison, Steven Lane Harrison, Jr.,
Roy G. Barton Sr. and Opal Barton Revocable Trust, as non-operators.
17. Operating Agreement dated December 1, 2012 by and among American Eagle Energy Corporation, as operator, NextEra Energy Gas
Producing, LLC, SM Energy Company, Geronimo Holding Corporation, ASEN 2, Corp., Empire Oil Company, as non-operators.
18. First Amendment to Carry Agreement dated July 15, 2012 by and between American Eagle Energy Corporation and NextEra Energy
Gas Producing, LLC.
19. Midstream Proposal for Spyglass AMI production dated October 29, 2012, by and between USG Midstream Bakken 1, LLC and
20. Gas Gathering, Processing and Purchase Agreement, pending execution, by and between USG Midstream Bakken 1, LLC and
21. Gas Purchase Agreement, dated May 1, 2012, by and between Oneok Rockies Midstream, L.L.C. and SM Energy Company
22. Lease Crude Oil Purchase Agreement, dated August 10, 2012, by and between Power Energy Partners, LP and American Eagle
Energy Corporation
23. Lease Crude Oil Purchase Agreement, dated November 23, 2012, by and between Power Energy Partners, LP and American Eagle
Energy Corporation (Not yet executed)
24. Crude Oil Purchase Agreement, dated November 28, 2012, by and between Power Freepoint Commodities, LLC and American Eagle
Energy Corporation
25. See Appendix III for a listing of oil and gas leases.
Appendix III
Property Description and Net Revenue Interests
Operated
BPO
Well Name
Christianson 15-12-163-101
Cody 15-11-163-101
Coplan 1-3-163-101
Anton 3-4-163-101
Elizabeth 3-4N-163-101
Silas 3-2N-163-101
Megan 14-12-163-101
Haagenson 3-2S-163-101
Christianson Brothers 15-33N-164-101
Muzzy 15-33S-164-101
Violet 3-3-163-101
Terri Lynn 3-3-163-101
Stanley 8-1E-163-102
Mona Johnson 1-3N
Location
T163N, R101W
T163N, R101W
T163N, R101W
T163N, R101W
T164N, R101W
T164N, R101W
T163N, R101W
T163N, R101W
T164N, R101W
T163N, R101W
T163N, R101W
T164N, R101W
T163N, R101W
T164N, R101W
Non-Operated - PDP
Adams 2-18H
Adams 4-18H
August 4-26H
Bagley 4-30H
Baja 1522-04TFH
Blazer 2-11-163-98H
T163N-R100W - Sections 6 & 7

- Sections 1 & 12
- Sections 2 & 11
- Sections 3 & 10
- Sections 4 & 9
- Sections 28 & 33
- Sections 26 & 35
- Sections 1 & 12
- Sections 2 & 11
- Sections 28 & 33
- Sections 4 & 9
- Sections 3 & 10
- Sections 27 & 34
- Sections 5 & 6
- Sections 27 & 34
Status
120% over AFE
120% over AFE
NEE Carry
NEE Carry
120% over AFE + Non-Consent
NEE Carry + Non-Consent
No Carry
NEE Carry
Not subject to Carry
NEE Carry
APO
WI
17.81%
18.45%
0.00%
0.00%
22.68%
6.65%
0.07%
35.81%
1.77%
0.00%
19.79%
33.83%
0.00%
33.83%
NRI
14.12%
14.26%
5.39%
18.35%
17.88%
20.01%
14.17%
27.85%
17.88%
18.35%
15.94%
27.53%
14.39%
27.53%
WI
18.52%
18.52%
6.53%
3.87%
0.63%
0.94%
NRI
14.81%
14.81%
5.19%
3.05%
0.50%
0.75%
WI
35.62%
35.74%
13.57%
45.74%
41.84%
35.92%
35.62%
35.74%
41.84%
45.74%
19.79%
26.38%
36.25%
26.38%
NRI
28.24%
27.79%
10.78%
36.70%
33.29%
28.86%
28.24%
27.79%
33.29%
36.70%
15.94%
21.32%
28.78%
21.32%
Non-Operated - PDP
Border Farms 3130-3
Border Farms 3130-5
Camino 5-8-163-98H
Denali 31-21
Gerhardson 1-10H
Gulbranson 1-1H
Gulbranson 2-1H
Jurasin 32-29-163N-100W
Lancaster 2-11H
Legaard 4-25H
Montclair 0112-2TFH
Karen Bailard 3625-1TFH
Montclair 1-12-163-99H
Mustang 7-6-163-98H
Nielsen 1-12H
T163N-R99W - Sections 6 & 7, T164N-R99W Sections 30 & 31

WI
8.77%
NRI
7.01%
8.77%
7.01%
8.77%
7.01%
8.77%
7.01%
8.77%
7.01%
1.25%
0.03%
2.37%
11.37%
11.37%
0.61%
6.21%
4.09%
1.09%
1.00%
0.02%
1.90%
9.02%
9.02%
0.48%
4.97%
3.27%
0.87%
1.09%
0.87%
1.57%
0.31%
0.44%
1.26%
0.25%
0.35%
Non-Operated - PDP
Nomad 0607-1H (PUD)
Nomad 0607-2TFH (PUD)
Nomad 0607-3TFH (PUD)
Nomad 0607-5H
Nomad 0607-6TFH
Nomad 6-7 163-99H
Olson 15-22-162-100H 1CN
Prochnick 15-35HSA
Prochnick 15-35HSB
Reide 4-14H
Ridgeway 25-36-163N-101W
Thomte 0508-03TFH (PUD)
Thomte 8-5-163-99H
Titan 36-25-164-99H
Torgeson 1-15H
Torgeson 4-15 (PUD)
Wolter 1-28H
T163N-R99W - Sections 6 & 7, T164N-R99W

Sections 30 & 31
Sections 30 & 31
Sections 30 & 31
Sections 30 & 31
Sections 30 & 31
Sections 30 & 31
T163N-100W - Sections 2 & 11
T163N-100W - Sections 2 & 11
T163N, R101W - Sections 25 & 36
Sections 29 & 32
Sections 30 & 31
WI
8.77%
NRI
7.01%
8.77%
7.01%
8.77%
7.01%
8.77%
7.01%
8.77%
7.01%
14.41%
11.53%
0.78%
0.35%
0.35%
0.34%
1.88%
1.97%
0.63%
0.28%
0.28%
0.27%
1.50%
1.58%
3.18%
0.18%
2.50%
0.15%
4.38%
4.38%
1.30%
3.48%
3.48%
1.04%
Non-Operated - PDP
Wolter 13-9H
Wolter 15-8H
Yukon 12-1

[See following pages for lease schedule]
WI
5.90%
1.54%
1.25%
NRI
4.64%
1.21%
1.00%
Appendix IV
Debt Instruments
1.
Carry Agreement dated April 16, 2012, but effective as of January 1, 2012, by and between American Eagle Energy Corporation and
NextEra Energy Gas Producing, LLC (as amended).
Appendix V
Hedging Agreements
None
Appendix VI
Marketing of Production
1.
Lease Crude Oil Purchase Agreement, dated November 23, 2012, by and between Power Energy Partners, LP and American Eagle
Energy Corporation, not cancellable within 60 days. (not yet executed)
Appendix VII
Subsidiaries
1.
AMZG, Inc. (wholly-owned by American Eagle Energy Corporation)
2.
EERG Energy ULC (wholly-owned by American Eagle Energy Corporation)
3.
AEE Canada Inc. (wholly-owned by AMZG, Inc.)
The consolidate corporate structure is as follows:
Appendix VIII
Litigation and Governmental Proceedings
The Company received a series of comment letters from the Securities Exchange Commission regarding certain disclosures related to
the Form 10-K that was filed on April 14, 2012. The Company has formally responded to all comment letters and is awaiting further
comment or final resolution of the matter.
The Companys management is unaware of any threatened or pending claims, litigation, proceedings, arbitration, investigations or
other inquiries.
Appendix IX
Contingent Liabilities
1.
North Dakota Surety Bonds - $100,000
2.
Bureau of Indian Affairs (Montana) Surety Bond - $1,500
Appendix X
Employee Plans
Non-Qualified Stock Option Plan
Appendix XI
Deposit Accounts
American Eagle Energy Corporation:
Key Bank Payables Account - 765070012958
Key Bank Revenue Account - 765071003428
Key Bank Money Market Account - 765070014095
Wells Fargo Advisors Investment Account 1592-9837
AMZG, Inc.:
Key Bank Checking Account 765071002552
EERG Energy ULC:
Key Bank Checking Account - 765071001042
Royal Bank of Canada Checking Account 09591 103-921-3
Appendix XII
Insurance
Directors, Officers and Organization Liability Travelers Insurance
Commercial General Liability & Umbrella Chubb Insurance Company
Operators Extra (Well Control) Lloyds of London
Workers Compensation Pinnacol Assurance
Group Medical UnitedHealthcare
Group Dental Delta Dental
Group Vision Vision Service Provider (VSP)
Appendix XIII
Purchaser
1.
Freepoint Commodities, LLC

Crude Oil Purchase Agreement
-November 28, 2012
-terminates December 31, 2012
-Contact:
Jeremy Weil
Crude Oil Trader, Vice President
58 Commerce Road
Stamford, CT 06902
Telephone: 203-542-6262
2.
Power Energy Partners, LP

-August 10, 2012
-Covers the Christianson, Cody and Coplan wells
-Contact:
William Jegen
CEO
778 Frontage Road Suite 122
Northfield, IL 60093
Telephone: 847-730-3844
3.
Power Energy Partners, LP

-November 23, 2012 (not yet executed)
-effective February 1, 2013
-Contact:
William Jegen
CEO
778 Frontage Road Suite 122
Northfield, IL 60093
Telephone: 847-730-3844
4.
USG Midstream Bakken 1, LLC

-Pending execution
-Contact:
Attn: Contract Administration
601 Travis, Suite 1900
Houston, Texas 77002
Telephone: 713-374-1582
5.
Oneok Rockies Midstream, L.L.C.

-May 1, 2012
-only covers lands acquired from SM Energy
-Contact:
Contract Administration 17-5
P.O. Box 871
Tulsa, OK 74102-0871
Telephone: 918-732-1354
Fax: 918-588-7533
Appendix XIV
Capital Leases
None
Appendix XV
Investments
25,107 shares of Crescent Point Energy Corp. common stock
2,000,000 shares of Passport Energy Ltd. common stock
Appendix XVI
Operators
1.
SM Energy Company
550 North 31st Street, Suite 500
Billings, MT 59101
2.

370 17th Street, Suite 3000
Denver, CO 80222
3.
Crescent Point Energy U.S. Corp.

555 17th Street, Suite 750
Denver, CO 80202
4.
Continental Resources, Inc.

302 N. Independence Ave.
Enid, OK 73702
5.
Baytex Energy USA Ltd.

600 Seventeenth Street, Suite 1600S
Denver, CO 80202
Appendix XVII
NextEra Acquisition
Well Name
Nomad 6-7 163-99H
Nomad 0607-1TFH
Nomad 0607-05H
Nomad 0607-6TFH
Thomte 8-5-163-99H
Thomte 0508-2TFH
Thomte 0508-03TFH
Bakke 3229-2TFH
Bakke 3229-3TFH
Location
Working Interest Net Revenue Interest

14.41%
11.53%
8.77%
7.01%
8.77%
7.01%
8.77%
7.01%
8.77%
7.01%
8.77%
7.01%
8.77%
3.18%
7.01%
2.50%
1.97%
1.58%
1.97%
1.58%
1.97%
1.58%
1.97%
1.58%
Lease
LSE-00594
Lessor
KATHY K. SCOTT SPOON, JOHN
THUMMA, AND CHARLENE JUDGE,
CO-TRUSTEES OF THE HENRY
RUSSELL FAMILY MINERAL
TRUST, U/T/D MARCH 10, 2010
DOROTHY M. TORGESON, A WIDOW
Lessee
DIAMOND
RESOURCES CO.
Lease Date
1/6/2011
DIAMOND
RESOURCES CO.
1/6/2011
LSE-00635
RANDAL TORGESON AND

ELIZABETH ELSBERND, TRUSTEES
OF THE HOWARD TORGESON
FAMILY TRUST
DIAMOND
RESOURCES CO.
1/6/2011
LSE-00838
ROSE HANSEN, TRUSTEE OF THE

DIAMOND
ROBERT H. HANSEN TRUST DATED RESOURCES CO.
10-18-1989
6/14/2011
LSE-00841
JILL LUKE, A MARRIED WOMAN
DIAMOND
RESOURCES CO.
6/27/2011
LSE-00842
KERIN KNIGHT, A SINGLE WOMAN
DIAMOND
RESOURCES CO.
6/8/2011
LSE-00843
BEN LEROY CLARK, A MARRIED

MAN
DIAMOND
RESOURCES CO.
6/15/2011
LSE-00634
Recording Data Legal Description

Document #: INSOFAR AND ONLY INSOFAR AS
255585
SAID LEASE COVERS:
Township 163 North, Range 99 West
Book:305M
Section 7: LOTS 1 (37.61), 2 (37.71),
Page: 142
E2NW4, NE4
Document #
INSOFAR AND ONLY INSOFAR AS
254924
SAID LEASE COVERS:
Book: 302M Section 6: LOTS 6 (37.32), 7 (37.48),
Page: 578
E2SW4
Document #
254930
SAID LEASE COVERS:
Page: 592
E2SW4
Document #
25883
SAID LEASE COVERS:
Page: 158
E2NW4, NE4
Document #
259060
SAID LEASE COVERS:
Page: 579
E2NW4, NE4
Document #
258741
SAID LEASE COVERS:
Page: 568
E2NW4, NE4
Document #
258886
SAID LEASE COVERS:
Page: 164
E2NW4, NE4
LSE-00844
STEVEN HORSWELL, A MARRIED DIAMOND RESOURCES CO.

MAN
6/10/2011
Document #
258887
Book: 316M
Page: 166
LSE-00845
LINDA SUE O'DONNELL, A

MARRIED WOMAN
DIAMOND RESOURCES CO.
6/15/2011
Document #
258889
Book: 316M
Page: 170
LSE-00846
LSE-00849
LSE-00850
SHARON K. PISESKI, A MARRIED

WOMAN
SHARON DEATON, A MARRIED

WOMAN
KATHRYN M. GAMBLE, A WIDOW DIAMOND RESOURCES CO.
6/10/2011
6/15/2011
5/31/2011
LSE-00851
ANTON C. HARRIS, JR., A

MARRIED MAN
6/1/2011
LSE-00852
AMANDA HEGSTROM, A SINGLE

WOMAN
6/9/2011
Document #
258888
Book: 316M
Page: 168
Document #
258891
Book: 316M
Page: 174
Document #
259055
Book: 316M
Page: 569
Document #
258571
Book: 315M
Page: 127
Document #
259057
Book: 316M
Page: 573
INSOFAR AND ONLY INSOFAR

AS SAID LEASE COVERS:
Section 7: LOTS 1 (37.61), 2 (37.71),
E2NW4, NE4
Section 7: LOTS 1 (37.61), 2 (37.71),
E2NW4, NE4
Section 7: LOTS 1 (37.61), 2 (37.71),
E2NW4, NE4
Section 7: LOTS 1 (37.61), 2 (37.71),
E2NW4, NE4
Section 7: LOTS 1 (37.61), 2 (37.71),
E2NW4, NE4
Section 7: LOTS 1 (37.61), 2 (37.71),
E2NW4, NE4
Section 7: LOTS 1 (37.61), 2 (37.71),
E2NW4, NE4
LSE-00853
LSE-00854
JENNIFER HEGSTROM PRIVIA, A

MARRIED WOMAN
ERICA HEGSTROM, A SINGLE

WOMAN
6/9/2011
6/9/2011
Document #
259059
Book: 316M
Page: 577
Document #
258890
Book: 316M
Page: 172
LSE-00856
JASON L. PALMER, A MARRIED

MAN
7/1/2011
Document #
259173
Book: 317M
Page: 45
LSE-00857
LSE-00858
LSE-00859
LSE-00860
CHAD D. PALMER, A SINGLE

MAN
RONDA S. PETERS A SINGLE

WOMAN
EDWARD JAMES HEGSTROM, A

SINGLE MAN
JOHN RUSSELL HEGSTROM, A

MARRIED MAN
7/1/2011
6/29/2011
6/9/2011
6/9/2011
Document #
259058
Book: 316M
Page: 575
Document #
259174
Book: 317M
Page: 47
Document #
258575
Book: 315M
Page: 135
Document #
258740
Book: 315M
Page: 566
LSE-00861
MICHAEL WAYNE HEGSTROM, A

MARRIED MAN
6/9/2011
Document #
258574
Book: 315M
Page: 133

Section 7: LOTS 1 (37.61), 2 (37.71),
E2NW4, NE4
Section 7: LOTS 1 (37.61), 2 (37.71),
E2NW4, NE4
Section 7: LOTS 1 (37.61), 2 (37.71),
E2NW4, NE4
Section 7: LOTS 1 (37.61), 2 (37.71),
E2NW4, NE4
Section 7: LOTS 1 (37.61), 2 (37.71),
E2NW4, NE4
Section 7: LOTS 1 (37.61), 2 (37.71),
E2NW4, NE4
Section 7: LOTS 1 (37.61), 2 (37.71),
E2NW4, NE4
Section 7: LOTS 1 (37.61), 2 (37.71),
E2NW4, NE4
LSE-00862
LSE-00863
ANN LOUISE HEGSTROM, A

SINGLE WOMAN
MARTIN G. MORANVILLE, A
MARRIED MAN
6/9/2011
6/8/2011
Document #
258743
Book: 315M
Page: 572
Document #
258885
Book: 316M
Page: 162
LSE-00864
LYNN ANDERSON, A MARRIED

WOMAN
6/15/2011
Document #
259054
Book: 316M
Page: 567
LSE-00865
LSE-00866
LSE-00867
JULIE ELLEN HEGSTROM

BEYERINK, A MARRIED WOMAN
RUSSELL W. STARRY, TRUSTEE

OF THE RUSSELL AND LEAH
STARRY LIVING TRUST 1992
KRAIG BROWER, A MARRIED

MAN
6/9/2011
7/1/2011
6/8/2011
Document #
258882
Book: 316M
Page: 156
Document #
259053
Book: 316M
Page: 563
Document #
258572
Book: 315M
Page: 129

Section 7: LOTS 1 (37.61), 2 (37.71),
E2NW4, NE4
Section 7: LOTS 1 (37.61), 2 (37.71),
E2NW4, NE4
Section 7: LOTS 1 (37.61), 2 (37.71),
E2NW4, NE4
Section 7: LOTS 1 (37.61), 2 (37.71),
E2NW4, NE4
Section 7: LOTS 1 (37.61), 2 (37.71),
E2NW4, NE4
Section 7: LOTS 1 (37.61), 2 (37.71),
E2NW4, NE4
LSE-00868
LSE-00885
LSE-00890
LSE-00891
LSE-00896
RICHARD D. CHAPMAN, A
MARRIED MAN
MARILYN LEISSLER, A MARRIED DIAMOND RESOURCES CO.

WOMAN
MARILYN J HAMMAN, A
MARRIED WOMAN
KEITH RIDNOUR, A MARRIED

MAN
GLORIA SELVOG, A/K/A GLORIA

J. SELVOG, A MARRIED WOMAN
6/10/2011
6/10/2011
6/10/2011
6/3/2011
7/18/2011
Document #
25884
Book: 316M
Page: 160
Document #
258742
Book: 315M
Page: 570
Document #
259172
Book: 317M
Page: 43
Document #
259769
Book: 319M
Page: 34
Document #
259349
Book: 317M
Page: 430
LSE-00899
LSE-00911
LSE-00918
TRICIA L. PARKER SCANTLIN, A

MARRIED WOMAN
CLELL MCGUIGAN, A WIDOWER
GARY L. MORANVILLE, A
MARRIED MAN
6/9/2011
7/18/2011
6/13/2011
Document #
258573
Book: 315M
Page: 131
Document #
259575
Book: 318M
Page: 250
Document #
259576
Book: 318M
Page: 252

Section 7: LOTS 1 (37.61), 2 (37.71),
E2NW4, NE4
Section 7: LOTS 1 (37.61), 2 (37.71),
E2NW4, NE4
Section 7: LOTS 1 (37.61), 2 (37.71),
E2NW4, NE4
Section 7: LOTS 1 (37.61), 2 (37.71),
E2NW4, NE4
Section 7: LOTS 1 (37.61), 2 (37.71),
E2NW4, NE4
Section 7: LOTS 1 (37.61), 2 (37.71),
E2NW4, NE4
Section 7: LOTS 1 (37.61), 2 (37.71),
E2NW4, NE4
Section 7: LOTS 1 (37.61), 2 (37.71),
E2NW4, NE4
LSE-00405
KEITH BRAATEN, A MARRIED

MAN
10/1/2010
LSE-00406
KIM BRAATEN, A SINGLE MAN
10/8/2010
LSE-00439
DONOVAN DISETH, A MARRIED

MAN
DIAMOND RESOURCES, CO.
10/4/2010
LSE-00440
DOYLE DISETH, A SINGLE MAN
DIAMOND RESOURCES, CO.
10/4/2010
LSE-00441
SCOTT DISETH, A MARRIED MAN DIAMOND RESOURCES, CO.
10/4/2010
LSE-00442
SHANE DISETH, A MARRIED MAN DIAMOND RESOURCES, CO.
10/4/2010
LSE-00463
DALE GJERTSEN, A MARRIED

MAN
10/1/2010
LSE-00464
DENNIS GJERTSEN, A MARRIED

MAN
10/1/2010
Document:
253132
Book: 297M
Page: 83
Document:
253319
Book: 297M
Page: 506
Document:
253134
Book: 297M
Page: 87
Document:
253137
Book: 297M
Page: 93
Document:
253138
Book: 297M
Page: 95
Document:
254073
Book: 299M
Page: 653
Document:
253133
Book: 297M
Page: 85
Document:
253126
Book: 297M
Page: 71

Section 8: SW4
Section 8: SW4
Section 8: SW4

Section 8: SW4
Section 8: SW4

Section 8: SW4

Section 8: SW4
Section 8: SW4
LSE-00465
HOWARD GJERTSEN, A MARRIED DIAMOND RESOURCES CO.

MAN
10/1/2010
LSE-00466
LORRETTA GJESDAL, A MARRIED DIAMOND RESOURCES CO.

WOMAN
10/1/2010
LSE-00535
LSE-00552
LSE-00553
JANE MELLAND, A MARRIED

WOMAN
BRAD NESS, A MARRIED MAN
BRENT NESS, A MARRIED MAN
10/1/2010
10/4/2010
10/4/2010
LSE-00554
JACQUELINE NESS, A SINGLE

WOMAN
10/4/2010
LSE-00555
KENT NESS, A MARRIED MAN
10/4/2010
LSE-00598
CORRINE SANDERSON, A WIDOW DIAMOND RESOURCES CO.
10/1/2010
Document:
253124
Book: 297M
Page: 66
Document:
253139

Section 8: SW4
Section 8: SW4
Book: 297M
Page: 97
Document:
253135

Section 8: SW4
Book: 297M
Page: 89
Document:
253141

Section 8: SW4
Book: 297M
Page: 101
Document:
253130

Section 8: SW4
Book: 297M
Page: 79
Document:
253137
Book: 297M
Page: 502
Document:
253131
Book: 297M
Page: 81
Document:
253324
Book: 297M
Page: 516

Section 8: SW4
Section 8: SW4
Section 8: SW4
LSE-00599
LSE-00600
JOHN SANDERSON, A MARRIED

MAN
LLOYD SANDERSON, A MARRIED DIAMOND RESOURCES CO.

MAN
10/1/2010
10/1/2010
LSE-00601
RONALD SANDERSON, A
MARRIED MAN
10/1/2010
LSE-00606
JILL SCHLECHT FKA JILL NESS, A DIAMOND RESOURCES CO.

MARRIED WOMAN
10/4/2010
LSE-00608
BEVERLY SILVA, A MARRIED

WOMAN
10/1/2010
LSE-00609
ARCHIE SMITH, A WIDOWER
10/1/2010
LSE-00616
GREG STRAND, A SINGLE MAN
10/1/2010
LSE-00636
KIETH A TORGESON & KATHY L

RADENIC
10/1/2010
Document:
253136

Section 8: SW4
Book: 297M
Page: 91
Document:
253316

Section 8: SW4
Book: 297M
Page: 500
Document:
253125
Book: 297M
Page: 69
Document:
253318
Book: 297M
Page: 504
Document:
253128
Book: 297M
Page: 75
Document:
253129
Book: 297M
Page: 77
Document:
253142
Book: 297M
Page: 103
Document:
254284
Book: 300M
Page: 423

Section 8: SW4
Section 8: SW4

Section 8: SW4
Section 8: SW4

Section 8: SW4
Section 5: SW4
LSE-00639
LSE-00640
LSE-00659
KENNETH VALLIER, A SINGLE

MAN
DAWN VALLIER-BEAN, A
MARRIED WOMAN
LAUREL WINTER, A MARRIED

WOMAN
10/1/2010
10/1/2010
10/1/2010
Document:
253322

Section 8: SW4
Book: 297M
Page: 512
Document:
253127

Section 8: SW4
Book: 297M
Page: 73
Document:
2531470

Section 8: SW4
Book: 297M
Page: 99
Appendix XVIII
SM Energy Acquisition Well Schedule
Well
No.
32553
33138
33447
33798
34067
34269
34022
34022
Lease Name
Description
County/State
Christianson 15-12-163-101
Cody 15-11-163-101
Coplan 1-3-163-101
Megan 14-12-163-101
Haagenson 3-2-163-101
Violet 3-3-163-101
Silas 3-2N-163-101
Silas 3-2N-163-101
Sections 1 & 12 - T163N-R101W

Sections 26 & 35-T164-R101W
Sections 26 & 35-T164-R101W
Divide, North Dakota

GWI
NWI
19.598907%
17.795680%
34.131811%
19.598907%
17.795680%
34.131811%
0.000000%
4.969961%
16.316138%
14.829740%
28.221292%
16.316138%
14.829740%
28.221292%
0.000000% BPO
4.141634% APO
Appendix XVIII
SM Energy Acquisition Lease Schedule
LEASE
#
TRACT
#
LESSOR
496966A ROBERT C. HAAGENSON AND

SANDRA K. HAAGENSON,
TRUSTEES OF THE HAAGENSON
57868
FAMILY MINERAL TRUST,
CREATED BY AGREEMENT
DATED DECEMBER 24, 2002
BOOK
PAGE
DOC.
NO.
DESCRIPTION
LESSEE
DATED
ST. MARY LAND &

EXPLORATION
COMPANY
2/25/2010 281M
264
Insofar and only insofar as

said lease covers
COUNTY,
STATE
Divide,
ND
and affects the following:
248493 T163N R101W

SEC 1: LOTS 3-4, S/2NW/4
T164N R101W
SEC 35: SE/4
496966B VERONA POWERS, AKA VERONA ST. MARY LAND &

G. POWERS, FKA VERONA G.
EXPLORATION
BAKER, A SINGLE
COMPANY
57868
WOMAN
3/1/2010
496966C MARJORIE A. LETSCH, A

MARRIED WOMAN DEALING IN
HER SOLE AND SEPARATE
57868
PROPERTY
3/5/2010
ST. MARY LAND &

EXPLORATION
COMPANY
282M

said lease covers
Divide,
ND
300
248800 T163N R101W
T164N R101W
SEC 35: SE/4
282M Insofar and only insofar as Divide,
said lease covers
ND
636
248936 T163N R101W
T164N R101W
SEC 35: SE/4
497021A JOHN M. CASHMAN, A MARRIED

MAN DEALING IN HIS SOLE AND
SEPARATE
57968
PROPERTY
ST. MARY LAND &

EXPLORATION
COMPANY
3/31/2010 284M
497021B MARY C. AUSTIN, A MARRIED

WOMAN DEALING IN HER SOLE
AND SEPARATE
57968
PROPERTY
ST. MARY LAND &

EXPLORATION
COMPANY
3/31/2010 284M
497021C KATHLEEN A. CYPHER, A

57968
PROPERTY
ST. MARY LAND &

EXPLORATION
COMPANY
3/31/2010 284M
497070A DELORES C. TUBBS, AKA

ST. MARY LAND &
DELORES CLARA SEYFERT TUBBS, EXPLORATION
A WIDOW
COMPANY
58305
5/10/2010 288M

said lease covers
Divide,
ND
194
249358 T163N R101W
SEC 10: S/2
said lease covers
Divide,
ND
174
249352 T163N R101W
SEC 10: S/2
said lease covers
Divide,
ND
170
249351 T163N R101W
SEC 10: S/2
said lease covers
182
250439 T163N R101W
SEC 11: NW/4
Divide,
ND
497070B MIDGE SEYFERT, AKA EMANUEL

F. SEYFERT, AKA EMANUEL
FREDERICK SEYFERT
58305
AND SANDRA SEYFERT,
HUSBAND AND WIFE
ST. MARY LAND &

EXPLORATION
COMPANY
5/10/2010 288M
497070C DONALD A. SEYFERT, AKA

DONALD ALFRED SEYFERT AND
THELMA SEYFERT,
58305
HUSBAND AND WIFE
ST. MARY LAND &

EXPLORATION
COMPANY
5/10/2010 288M
497076A JOHN FREDERICK SEYFERT, A

MARRIED MAN DEALING IN HIS
SOLE AND SEPARATE
58308
PROPERTY
ST. MARY LAND &

EXPLORATION
COMPANY
4/26/2010 287M
497076B LETA MARLENE FISHER, A SINGLE ST. MARY LAND &

WOMAN
EXPLORATION
COMPANY
58308
4/26/2010 290M
497076C BARBARA PETERSON AND JAMES SM ENERGY

K. PETERSON, WIFE AND
COMPANY
HUSBAND
58308
6/2/2010
678

said lease covers
Divide,
ND
250670 T163N R101W

SEC 11: NW/4
said lease covers
Divide,
ND
173
250436 T163N R101W
SEC 11: NW/4
said lease covers
Divide,
ND
102
250139 T163N R101W
SEC 11: NE/4
said lease covers
Divide,
ND
659
251273 T163N R101W
SEC 11: NE/4
290M

said lease covers
210
251055 T163N R101W
SEC 11: NE/4
Divide,
ND
497076D DEWEY WRIGHT, A SINGLE MAN

58308
497891A KASMER & AAFEDT OIL INC.

61771
495078C FRED SEYFERT AND CHERYL

SEYFERT, HUSBAND AND WIFE
52207
495078D DENNIS SEYFERT AND BEVERLY

52207
ST. MARY LAND &

EXPLORATION
COMPANY
4/26/2010 294M
SM ENERGY
COMPANY
7/28/2011 318M
ST. MARY LAND &

EXPLORATION
COMPANY
4/9/2010
ST. MARY LAND &

EXPLORATION
COMPANY
4/12/2010 287M

said lease covers
Divide,
ND
344
252311 T163N R101W
SEC 11: NE/4
said lease covers
632
259720 T163N R101W
SEC 3: S/2
Divide,
ND
286M
Divide,
ND

said lease covers

249866 T163N R 101W
SEC 12: N/2NW/4,
SW/4NW/4
said lease covers
91
250136 T163N R 101W
SEC 12: N/2NW/4,
SW/4NW/4
Divide,
ND
495078E PAMELA HULME, A MARRIED

AND SEPARATE
52207
PROPERTY
ST. MARY LAND &

EXPLORATION
COMPANY
4/12/2010 287M
495078F ELAINE LACASSE, EXECUTOR OF

THE ESTATE OF GLADYS IRENE
SEYFERT, AKA
52207
GLADYS SEYFERT, DECEASED
ST. MARY LAND &

EXPLORATION
COMPANY
4/12/2010 294M
495080H PATSY BROWN, A WIDOW
ST. MARY LAND &

EXPLORATION
COMPANY
3/31/2010 285M
ST. MARY LAND &

EXPLORATION
COMPANY
4/1/2010
60591
495080I
60591
MARTIN L. BROWN, A MARRIED

SEPARATE
PROPERTY

said lease covers
Divide,
ND
343
250241 T163N R101W
SEC 12: N/2NW/4,
SW/4NW/4
said lease covers
Divide,
ND
336
252309 T163N R101W
SEC 12: N/2NW/4,
SW/4NW/4
said lease covers
Divide,
ND
534
249719 T163N R101W
SEC 12: NW/4NE/4,
S/2NE/4, SE/4NW/4
284M

said lease covers
642
249532 T163N R101W
SEC 12: NW/4NE/4,
S/2NE/4, SE/4NW/4
Divide,
ND
495080J KATHLEEN C. HOLT, FKA

KATHLEEN C. LIETZKE, A
6591
PROPERTY
ST. MARY LAND &

EXPLORATION
COMPANY
495080K HELEN B. RYDER AND CHARLES

RYDER, WIFE AND HUSBAND
ST. MARY LAND &

EXPLORATION
COMPANY
3/31/2010 285M
ST. MARY LAND &

EXPLORATION
COMPANY
4/1/2010
60591
495080L STEPHEN P. BROWN, A MARRIED

SEPARATE
60591
PROPERTY
4/1/2010
286M

said lease covers
Divide,
ND

249869 T163N R101W
SEC 12: NW/4NE/4,
S/2NE/4, SE/4NW/4
said lease covers
Divide,
ND
431
249680 T163N R101W
SEC 12: NW/4NE/4,
S/2NE/4, SE/4NW/4
285M

said lease covers
412
249675 T163N R101W
SEC 12: NW/4NE/4,
S/2NE/4, SE/4NW/4
Divide,
ND
495080M ERIN A. SARDINAS, A MARRIED

AND SEPARATE
60591
PROPERTY
ST. MARY LAND &

EXPLORATION
COMPANY
4/1/2010
495091B ARCHIE R. KRESS, AKA ARCHIE

KRESS AND ELAINE M. KRESS,
HUSBAND AND
52309
WIFE
52205
ST. MARY LAND &

EXPLORATION
COMPANY
3/26/2010 284M
495091C RUSSELL E. KRESS AND DONNA

M. KRESS, HUSBAND AND WIFE
ST. MARY LAND &

EXPLORATION
COMPANY
3/26/2010 284M
ST. MARY LAND &

EXPLORATION
COMPANY
4/8/2010
52309
52205
495091F BEULAH E. MAHANY, A WIDOW

52205
285M

said lease covers
Divide,
ND
612
249752 T163N R101W
SEC 12: NW/4NE/4,
S/2NE/4, SE/4NW/4
said lease covers
Divide,
ND
159
249348 T163N R101W
SEC 11: SW/4
SEC 12: SW/4
said lease covers
Divide,
ND
166
249350 T163N R101W
SEC 11: SW/4
SEC 12: SW/4
284M

said lease covers
609
249509 T163N R101W
SEC 12: SW/4
Divide,
ND
495091G DONALD E. BUSCH, A SINGLE

MAN
52205
495116C FRED SEYFERT AND CHERYL

52380
495116D DENNIS SEYFERT AND BEVERLY

52380
495116E PAMELA HULME, A MARRIED

AND SEPARATE
52380
PROPERTY
ST. MARY LAND &

EXPLORATION
COMPANY
4/8/2010
287M
ST. MARY LAND &

EXPLORATION
COMPANY
4/9/2010
ST. MARY LAND &

EXPLORATION
COMPANY
4/12/2010 287M
ST. MARY LAND &

EXPLORATION
COMPANY
4/12/2010 287M

said lease covers
Divide,
ND
88
250135 T163N R101W
SEC 12: SW/4
286M

said lease covers
Divide,
ND
162
249867 T163N R101W
SEC 11: SE/4
said lease covers
Divide,
ND
95
250137 T163N R101W
SEC 11: SE/4
said lease covers
339
250240 T163N R101W
SEC 11: SE/4
Divide,
ND
495116F ELAINE LACASSE, EXECUTOR OF

THE ESTATE OF GLADYS IRENE
SEYFERT, AKA
52380
GLADYS SEYFERT, DECEASED
ST. MARY LAND &

EXPLORATION
COMPANY
4/12/2010 294M
495116G SANDRA JEAN MEYER, TRUSTEE

OF THE ARVIE TERNQUIST
FAMILY MINERAL TRUST
52380
DATED THE 11TH DAY OF JULY,
2007
SM ENERGY
COMPANY
9/2/2010

said lease covers
Divide,
ND
340
252310 T163N R101W
SEC 11: SE/4
296M

said lease covers
692
Divide,
ND
253093 T163N R101W

SEC 11: SE/4
495116H EVELYN TERNQUIST, TRUSTEE OF SM ENERGY

THE CLAYTON TERNQUIST
COMPANY
FAMILY MINERAL
52380
TRUST DATED 12/6/07
9/2/2010
498363A LINDA ST. AORO, A MARRIED

AND SEPARATE
62118
PROPERTY
SM ENERGY
COMPANY
8/4/2011
498363B BLANCHE B. LESTER, A MARRIED

AND SEPARATE
62118
PROPERTY
SM ENERGY
COMPANY
299M

said lease covers
Divide,
ND
268
253882 T163N R101W
SEC 11: SE/4
319M

said lease covers
Divide,
ND
684
260093 T163N R101W
SEC 12: SE/4
8/4/2011
321M

said lease covers
441
260646 T163N R101W
SEC 12: SE/4
Divide,
ND
498363C RONALD BROCKAMP, A MARRIED SM ENERGY

COMPANY
SEPARATE
62118
PROPERTY
8/4/2011
498363D BRIAN BROCKAMP, A SINGLE

MAN
62118
SM ENERGY
COMPANY
8/4/2011
318M
Divide,
ND
497574A WILLIAM J. WITHERSPOON III, A

SINGLE MAN
60628
SM ENERGY
COMPANY
3/31/2011 310M
Divide,
ND
497574B KASMER & AAFEDT OIL INC.
SM ENERGY
COMPANY
7/28/2011 318M
Divide,
ND
60628
322M

said lease covers
Divide,
ND
172
260856 T163N R101W
SEC 12: SE/4
said lease covers
610
259710 T163N R101W
SEC 12: SE/4
said lease covers
70
257040 T163N R101W
SEC 10: N/2
said lease covers
629
259719 T163N R101W
SEC 10: N/2
497813A RED CROWN ROYALTIES LLC

61608
SM ENERGY COMPANY 8/1/2011 318M

said lease covers
647
259735 T163N R101W
SEC 3: Lots 1-4, S/2N/2
Divide,
ND
SECURITY AGREEMENT
This SECURITY AGREEMENT (as amended, restated, supplemented or otherwise modified from time to time, the Agreement) is
made and entered into as of December 27, 2012, (the Effective Date), by American Eagle Energy Corporation, a Nevada corporation
(AEEC), with its principal office in Littleton, Colorado, and the address for purposes hereof being 2549 West Main Street, Suite 202,
Littleton, Colorado 80120, and AMZG, INC., a Nevada corporation with its principal office in Littleton, Colorado, and the address for
purposes hereof being 2549 West Main Street, Suite 202, Littleton, Colorado 80120 (AMZG; together with AEEC, collectively the
Debtors, and each individually Debtor), in favor of MACQUARIE BANK LIMITED, a bank incorporated under the laws of Australia
(Secured Party). The address for Secured Party for purposes hereof is Level 1, 1 Martin Place, Energy Markets Division, Sydney, New
South Wales, 2000 Australia, Attention: Legal Risk Management.
RECITALS
A.
Debtors and Secured Party have entered into that certain ISDA Master Agreement dated as of December 27, 2012, together
with all schedules, annexes and confirmations in respect thereof (together, as amended, restated, supplemented or otherwise modified from
time to time, the ISDA).
B.
Debtors executed and delivered to Secured Party that certain Mortgage, Security Agreement, Fixture Filing, Financing
Statement and Assignment of Production and Revenue (as amended, restated, supplemented or otherwise modified from time to time,
collectively, the Mortgage), of even date hereof granting liens, security interests and other rights in favor of Secured Party in certain of
Debtors properties.
C.
Debtors executed certain other Credit Support Documents (as defined in the ISDA) of even date hereof in favor of Secured
Party, including, without limitation, the Three Party Lockbox Agreement Amendment to Cash Management Terms and Conditions and
Lockbox Management Agreement (collectively, the Lockbox Documents), Deposit Account Control Agreement, Notices of Assignment of
Proceeds and Letters in Lieu.
D.
To further secure the obligations under the ISDA Documents, Debtors have agreed to assign and grant to Secured Party,
and is assigning and granting, a security interest in and lien upon all right, title and interest of Debtors in and to the property hereinafter
described.
E.
Secured Party has conditioned its obligation to enter into and extend credit under the ISDA upon, among other things, the
execution and delivery of this Agreement by Debtors, and Debtors have agreed to enter into this Agreement.
AGREEMENTS
NOW, THEREFORE, (i) in order to comply with the terms and conditions of the ISDA and the other ISDA Documents, (ii) for and
in consideration of the premises and the agreements herein contained, and (iii) for other good and valuable consideration, the receipt and
sufficiency of all of which being hereby acknowledged, Debtors hereby agree with Secured Party as follows:
ARTICLE I
DEFINITIONS
1.1
Terms Defined Above. As used in this Agreement, each of the terms defined in the preamble hereto and the above recital
paragraphs shall have the meaning assigned to such term above.
1.2
Definitions Contained in the ISDA or the Code. Each capitalized term used in this Agreement and not defined in this
Agreement shall have the meaning assigned such term in the ISDA, and if not therein defined, such capitalized term shall have the meaning
assigned such term in the Code.
1.3
Certain Definitions. As used in this Agreement, each of the following terms shall have the meaning set forth for such term
below, unless the context otherwise requires:
Person.
Assets means any interest in any kind of property or assets (whether real, personal, or mixed, tangible or intangible) of any
Code means the Uniform Commercial Code as presently in effect in the State of Texas, and as amended from time to time;
provided that if by mandatory provisions of law the perfection or the effect of perfection or non-perfection of the security interests
granted pursuant to Article II, as well as all other security interests created or assigned as additional security for the Secured
Indebtedness pursuant to the provisions of this Agreement in any Collateral is governed by the Uniform Commercial Code as in effect
in a jurisdiction other than the State of Texas, Code means the Uniform Commercial Code as in effect in such other jurisdiction for
purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection. Except as otherwise defined or
indicated by the context herein, all terms which are defined in the Code shall have their respective meanings as used in Articles 8 and 9
of the Code.
Collateral means all Assets, including, without limitation, cash or other proceeds, in which Secured Party shall have a
security interest pursuant to Article II of this Agreement.
Event of Default means (i)(A) the occurrence of any payment default by any Debtor hereunder or (B) any other default by
any Debtor hereunder which is not cured within ten (10) business days following any Debtors default or the occurrence of (ii)(X) an
Event of Default, (Y) a Termination Event or (Z) an Additional Termination Event, each as defined in the ISDA.
2
Hydrocarbons shall have the meaning set forth in the ISDA.

ISDA Documents means this Agreement, the ISDA, the Mortgage, and the other Credit Support Documents, including,
without limitation, the Lockbox Documents, Deposit Account Control Agreement, Notices of Assignment of Proceeds and Letters in
Lieu (each of the foregoing as amended, supplemented, restated, extended or replaced from time to time), and all other documents,
instruments, agreements, financing statements, certificates and consents executed and delivered in connection with the foregoing, and
all amendments, supplements, restatements, and modifications of, or substitutions for, any of the foregoing.
Related Rights means all chattel papers, documents and instruments relating to Accounts or General Intangibles and all
rights now or hereafter existing in and to all security agreements, leases, and other contracts securing or otherwise relating to any
Accounts or General Intangibles or any such chattel papers, documents or instruments.
Secured Indebtedness means (i) all payments owing by any Debtor to Secured Party in respect of the ISDA, and (ii) all
other present and future liabilities and obligations of any Debtor to Secured Party arising under the ISDA and the other ISDA
Documents, including (A) reasonable attorneys fees and expenses, and (B) any obligations in respect of interest, fees, or expenses
that accrue after the filing of any proceeding under applicable bankruptcy or other debtor relief laws, regardless of whether allowed or
allowable in whole or in part as a claim in such proceeding.
ARTICLE II
SECURITY INTEREST
To secure the Secured Indebtedness, Debtors hereby grant to Secured Party a continuing security interest in, a general lien upon, and
a right of set-off against all of Debtors right, title and interest in the following described Assets, but, only to the extent any of the following
described Assets relate, or are attributable, directly or indirectly, to the Debtors oil and gas properties described on Exhibit A attached here to
and incorporated herein for all purposes:
(a)
all now existing and hereafter arising or acquired Accounts, Goods, General Intangibles, Payment Intangibles,
Deposit Accounts that are subject to the Lockbox Documents and a Deposit Account Control Agreement, among Debtors, Secured
Party and the applicable depository bank), Chattel Paper (including, without limitation, Electronic Chattel Paper and Tangible Chattel
Paper), Documents, Records, Instruments, advances of credit, money, As-extracted collateral (including As-extracted collateral from
any Debtors ownership from its oil and gas properties described on Exhibit A attached hereto), Equipment, Inventory, Fixtures and
Supporting Obligations, together with all products of and Accessions to any of the foregoing and all Proceeds of any of the foregoing
(including without limitation all insurance policies and proceeds thereof);
3
(b)
to the extent, if any, not included in clause (a) above, any Debtors now existing or hereafter arising or acquired
contracts, agreements, arrangements or understandings (i) for the sale, supply, provision or disposition of any Hydrocarbons or other
minerals by any Debtor or any one or more of its agents, representatives, successors or assigns to any purchaser or acquirer thereof,
and all products, replacements and proceeds thereof (including, without limitation, all sales contracts for Hydrocarbons) and (ii)
relating to the mining, drilling or recovery of any mineral or Hydrocarbon reserves for the benefit of or on behalf of any Debtor or any
one or more of its agents, representatives, successors or permitted assigns (including, without limitation, all contract mining, drilling or
recovery agreements and arrangements), and all products and Proceeds thereof and payments thereunder, together with all products
and Proceeds (including, without limitation, all insurance policies and proceeds) of and any Accessions to any of the foregoing;
(c)
to the extent not included in clause (a) above, all Hydrocarbons and other minerals severed or extracted from the
ground (specifically including all As-extracted collateral of any Debtor and all severed or extracted Hydrocarbons and other minerals
severed or extracted from the ground purchased from other parties), and all Accounts, General Intangibles and products and Proceeds
thereof or related thereto, regardless of whether any such Hydrocarbons or other minerals are in raw form or processed for sale to the
extent that such Debtor had an interest in the Hydrocarbons or other minerals before extraction or severance;
(d)
to the extent not included above, each and every other item of personal property and fixtures, including, without
limitation, all licenses, contracts and agreements, (including, without limitation, commodity hedge agreements and interest rate hedge
agreements), and all collateral for the payment or performance of any contract or agreement, together with all products and Proceeds
(including all insurance policies and proceeds) and any Accessions to any of the foregoing;
(e)
all now existing and hereafter arising or acquired business records and information (including, without limitation,
seismic, geological and geophysical data and interpretations), including further, without limitation, computer tapes and other storage
media containing the same and computer programs and software (including, without limitation, source code, object code and related
manuals and documentation and all licenses to use such software) for accessing and manipulating such information; and
(f)
any additional property of any Debtor from time to time delivered to or deposited with Secured Party or its agent as
security for the Secured Indebtedness or otherwise pursuant to the terms of this Agreement or the other ISDA Documents.
4
ARTICLE III
REPRESENTATIONS AND WARRANTIES
In order to induce Secured Party to enter into this Agreement, Debtors represent and warrant to Secured Party (which representations
and warranties will survive the creation of the Secured Indebtedness and the entry into the ISDA) that:
3.1
Ownership and Liens. Except for the security interest of Secured Party granted in this Agreement or in any of the other
ISDA Documents and any Permitted Lien (as defined in the Mortgage and in the ISDA), Debtors own Defensible Title to the Collateral free
and clear of any other Liens and adverse claims. Debtors have full right, power and authority to grant to Secured Party the security interests,
liens and other rights in the Collateral in the manner provided herein, free and clear of any other Liens and adverse claims other than Permitted
Liens. No other Lien or adverse claim has been created by any Debtor or is known by any Debtor to exist with respect to any Collateral; and to
the knowledge of Debtors, no financing statement or other security instrument is on file in any jurisdiction covering such Collateral (including
with regard to Permitted Liens), other than those in favor of Secured Party.
3.2
Status of Accounts. Each Account of each Debtor now existing represents, and each Account of each Debtor hereafter
arising will represent, the valid and legally enforceable indebtedness of a bona fide account debtor arising from the sale or lease or rendition by
each Debtor of goods and/or services and is not and will not be subject to contra accounts, set-offs, defenses or counterclaims by or available
to account debtors obligated on the Accounts of each Debtor except as disclosed to Secured Party in writing. Such goods will have been
delivered to, or be in the process of being delivered to, and such services will have been rendered by each Debtor to the account debtor and
accepted by the account debtor. The amount shown as to each Account of each Debtor on each Debtors books will be the true and undisputed
amount owing and unpaid thereon, subject to any discounts, allowances, rebates, credits and adjustments to which the account debtor has a
right and which are in the ordinary course of business and properly accounted for in each Debtors financial statements that have been
delivered or are hereafter delivered to Secured Party.
3.3
Status of Related Rights. All Related Rights of Debtor are, and those hereafter arising will be, valid and genuine. Any
chattel paper included in the Related Rights has, and those hereafter arising will have, only one duplicate original counterpart which constitutes
chattel paper or collateral within the meaning of the Code or the law of any applicable jurisdiction.
3.4
Location. Each Debtors chief executive office and chief place of business is located at the address set forth in the preamble
of this Agreement. The office where each Debtor keeps its records concerning the Accounts of Debtor and the General Intangibles of Debtor
and the original of all the Related Rights of Debtor are located at the same address as such Debtors address set forth in the preamble of this
Agreement. The jurisdiction of organization for each Debtor is the State of Nevada.
5
3.5
Secured Partys Security Interest. This Agreement creates a valid and binding security interest in the Collateral securing the
Secured Indebtedness. All filings (which filings are described in Section 4.7 of this Agreement) and other actions necessary or desirable to
perfect or protect such security interest have been duly or will be immediately taken by Debtors. No further or subsequent filing, recording,
registration or other public notice of such security interest is necessary in any office or jurisdiction in order to perfect such security interest or
to continue, preserve or protect such security interest except for continuation statements or for filings upon the occurrence of any of the events
stated in Section 4.7 of this Agreement. To the extent such security interest can be perfected under the Code, such perfected security interest in
the Collateral constitutes a first-priority (except as to Permitted Liens) security interest under the Code.
ARTICLE IV
COVENANTS AND AGREEMENTS
Debtors will at all times comply with the covenants contained in this Article IV, from the date hereof and for so long as the ISDA is
in effect (other than the indemnity obligations and other continuing obligations under the ISDA Documents that survive termination thereof).
4.1
Title. Debtors agree to protect the Defensible Title to the Collateral.
4.2
Possession of Collateral. Secured Party shall be deemed to have possession of any of the Collateral in transit to it or set
apart for it or its agent. Otherwise the Collateral shall remain in the possession or control of Debtors at all times at the risk of loss of Debtors.
4.3
Inspection of Collateral. Secured Party may from to time (but it shall not be obligated to) inspect each Debtors records
concerning the Collateral; provided that such inspection shall during reasonable business hours upon three (3) business days prior written
notice by Secured Party and its duly accredited representatives, but not as to unreasonably interfere with the business of such Debtors.
4.4
Further Assurances. Debtors will (i) from time to time sign, execute, deliver and file, at the reasonable request of Secured
Party, such financing statements, security agreements or other documents as are necessary to confirm, perfect, preserve and protect the security
interests intended to be granted hereby; (ii) procure any instruments or documents as may be reasonably requested by Secured Party as are
necessary to confirm, perfect, preserve and protect the security interests intended to be granted hereby; and (iii) take all action that may be
necessary or desirable, at the reasonable request of Secured Party, to confirm, perfect, preserve and protect the security interests intended to be
granted hereby. In addition, Debtors hereby authorize Secured Party to file such financing statements without the signature of any Debtor
either in Secured Partys name or in the name of any Debtor and as agent and attorney-in-fact for any Debtor. Debtors shall do all additional
and further acts or things, give assurances and execute documents or instruments as Secured Party reasonably requires to vest more
completely in and assure to Secured Party its rights under this Agreement.
6
4.5
Filing Reproductions. At the option of Secured Party, a carbon, photographic or other reproduction of this Agreement shall
be sufficient as a financing statement and may be filed as a financing statement.
4.6
Expenses. Each Debtor agrees to pay to Secured Party, all advances, charges, out-of-pocket costs and expenses (including,
without limitation, reasonable attorneys fees and expenses) incurred by Secured Party in connection with the transaction which gives rise to
this Agreement, in connection with confirming, perfecting and preserving the security interest and other rights created under this Agreement,
in connection with protecting Secured Party against any claims or interests of any Person against the Collateral, and in exercising any right,
power or remedy conferred by this Agreement or by law or in equity (including, without limitation, reasonable attorneys fees and legal
expenses incurred by Secured Party in the collection of instruments deposited with or purchased by Secured Party and amounts incurred in
connection with the operation, maintenance or foreclosure of any or all of the Collateral). The amount of all such advances, charges, costs and
expenses shall be due and payable by Debtors to Secured Party upon demand together with interest thereon as provided in the ISDA.
4.7
Financing Statement Filings; Notifications. Debtors recognize that one or more financing statements pertaining to the
Collateral will be filed in one or more filing offices. Debtors will promptly notify Secured Party of any condition or event that may change the
proper location for the filing of any financing statements or other public notice or recordings for the purpose of perfecting a security interest in
the Collateral. Without limiting the generality of the foregoing, Debtors will (a) promptly notify Secured Party of any change (i) in the location
of the office where any Debtor keeps its records concerning its Accounts or (ii) in the location of any Debtor within the meaning set forth in
the Code or the jurisdiction in which any Debtor is incorporated, organized or formed; (b) prior to any of the Collateral becoming so related to
any particular real estate so as to become a fixture on such real estate, notify Secured Party of the description of such real estate and the name
of the record owner thereof, to the extent such real estate is not already encumbered in favor or for the benefit of Secured Party; and
(c) promptly notify Secured Party of any change in any Debtors name, identity or structure. In any notice furnished pursuant to this Section
4.7, such Debtor will expressly state that the notice is required by this Agreement and contains facts that will or may require additional filings
of financing statements or other notices for the purpose of continuing perfection of Secured Partys security interest in the Collateral. Further,
Debtors authorize Secured Party to file (but it shall not be obligated to file), at the expense of Debtors, any and all financing statements,
pursuant to Article 9 of the Code, as Secured Party deems necessary in its sole discretion in conjunction with this Agreement.
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ARTICLE V
RIGHTS, REMEDIES AND WARRANTIES
5.1
With Respect to Collateral. If an Event of Default has occurred and is continuing, Secured Party is hereby fully authorized
and empowered (without the necessity of any further consent or authorization from, or notice to, any Debtor) and the Secured Party is
expressly granted the power and right, and Debtors hereby constitute, appoint and make Secured Party, as its true and lawful attorney-in-fact
and agent in its name, place and stead, with full power of substitution, in Secured Partys name or any Debtors name or otherwise, for the
sole use and benefit of Secured Party, but at Debtors cost and expense, to exercise all or any of the following rights and powers at any time
with respect to all or any of the Collateral:
(a)
to notify account debtor or the obligors on the Accounts, the General Intangibles and the Related Rights to make and
deliver payment to Secured Party;
(b)
to demand, sue for, collect, receive and give acquittance for any and all funds due or to become due under such
Accounts, General Intangibles and Related Rights and otherwise deal with proceeds;
(c)
to receive, take, endorse, assign and deliver any and all checks, notes, drafts, Documents and other negotiable and
non-negotiable Instruments and Chattel Paper taken or received by Secured Party in connection therewith;
(d)
to settle, compromise, compound, prosecute or defend any action or proceeding with respect thereto;
(e)
to sell, transfer, assign or otherwise deal in or with the same or the Proceeds or avails thereof or the relative goods,
as fully and effectively as if Secured Party were the absolute owner thereof; and
(f)
to extend the time of payment of any or all thereof and to grant waivers and make any allowance or other adjustment
with reference thereto;
provided, however that Secured Party shall be under no obligation or duty to exercise any of the powers hereby conferred upon it and shall be
without liability for any act or failure to act in connection with the collection of, or the preservation of any rights under, any Collateral.
5.2
Default Remedies. Upon the occurrence and during the continuance of any Event of Default, Secured Party may then, or at
any time thereafter and from time to time, apply, set-off, collect, sell in one or more sales, lease, or otherwise dispose of, any or all of the
Collateral, in its then condition or following any commercially reasonable preparation or processing, in such order as Secured Party may elect,
and any such sale may be made either at public or private sale at its place of business or elsewhere, or at any brokers board or securities
exchange, either for cash or upon credit or for future delivery, at such price as Secured Party may deem fair, and Secured Party may be the
purchaser of any or all Collateral so sold and may hold the same thereafter in its own right free from any claim of Debtors or right of
redemption. No such purchase or holding by Secured Party shall be deemed retention by Secured Party in satisfaction of the Secured
Indebtedness. All demands, notices and advertisements, and the presentment of Assets at sale are hereby waived. If, notwithstanding the
foregoing provisions, any applicable provision of the Code or other law requires Secured Party to give reasonable notice of any such sale or
disposition or other action, Debtors hereby agree that twenty calendar days prior written notice shall constitute commercially reasonable
notice. Secured Party may require Debtors to assemble the Collateral and make it available to Secured Party at a place designated by Secured
Party which is reasonably convenient to Secured Party. Any sale hereunder may be conducted by an auctioneer or any officer or agent of
Secured Party.
8
5.3
Right of Set-Off. Upon the occurrence and during the continuance of any Event of Default, Secured Party is hereby
authorized to then, or at any time thereafter and from time to time, without notice to Debtors (any such notice being expressly waived by
Debtors), apply and set-off (i) any and all deposits (general or special, time or demand, provisional or final) of Debtors at any time held by
Secured Party; (ii) any and all other claims of Debtors against Secured Party, now or hereafter existing, (iii) any and all other indebtedness at
any time owing by Secured Party to or for the account of Debtors; (iv) any and all money, Instruments, securities, Documents, Chattel Paper,
credits, claims, demands and other Assets, rights or interests of Debtors which at any time shall come into the possession or custody or under
the control of Secured Party, for any purpose; and (v) the Proceeds of any of the foregoing Assets against the Secured Indebtedness as if the
same were included in the Collateral, and Debtors hereby grant to Secured Party a security interest in, a general lien upon, and a right of set-off
against the foregoing described Assets as security for the Secured Indebtedness. Secured Party shall have the right to so set-off and apply
such Assets against the Secured Indebtedness regardless of whether or not Secured Party shall have made any demand for payment of any of
the Secured Indebtedness or shall have given any other notice. Secured Party agrees to promptly notify Debtors after any such set-off and
application; provided that the failure of Secured Party to give any such notice shall not affect the validity of such set-off and application. The
rights of Secured Party under this Section 5.3 are in addition to Secured Partys other rights and remedies (including, without limitation, other
rights of set-off).
5.4
Proceeds. After the occurrence and during the continuance of any Event of Default, the Proceeds of any sale or other
disposition of the Collateral and all sums received or collected by Secured Party from or on account of the Collateral shall be applied by
Secured Party as follows:
FIRST: to the payment of all necessary costs and expenses incident to the execution and enforcement of this Agreement;
SECOND: to any and all Secured Indebtedness until paid in full, application to be made in such order and in such manner as
the holder of said Secured Indebtedness may, in its discretion, elect; and
THIRD: the balance, if any, to Debtors or their successors or assigns.
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5.5
Secured Partys Duties. The powers conferred upon Secured Party by this Agreement are solely to protect its interest in the
Collateral and shall not impose any duty upon Secured Party to exercise any such powers. Secured Party shall be under no duty whatsoever to
make or give any presentment, demand for performance, notice of nonperformance, protest, notice of protest, notice of dishonor or other
notice or demand in connection with any Collateral or the Secured Indebtedness, or to take any steps necessary to preserve any rights against
prior parties. Secured Party shall not be liable for failure to collect or realize upon any or all of the Secured Indebtedness or Collateral, or for
any delay in so doing, nor shall Secured Party be under any duty to take any action whatsoever with regard thereto. Secured Party shall use
reasonable care in the custody and preservation of any Collateral in its possession, but need not take any steps to keep the Collateral
identifiable. Secured Party shall have no duty to comply with any recording, filing or other legal requirements necessary to establish or
maintain the validity, priority or enforceability of, or Secured Partys rights in or to, any of the Collateral.
5.6
Secured Partys Actions. To the extent permitted by applicable law, each Debtor waives any right to require Secured Party
to proceed against any Person, exhaust any Collateral or pursue any other remedy in Secured Partys power, and each Debtor waives any and
all notice of acceptance of this Agreement or of creation, modification, rearrangement, renewal or extension for any period of any of the
Secured Indebtedness from time to time. All dealings between Debtors and Secured Party, whether or not resulting in the creation of the
Secured Indebtedness, shall conclusively be presumed to have been had or consummated in reliance upon this Agreement. Upon the
occurrence and during the continuance of an Event of Default, Debtors authorize Secured Party, without notice or demand and without any
reservation of rights against Debtors and without affecting Debtors liability hereunder or on the Secured Indebtedness, from time to time to
(a) take and hold any other Assets as collateral, other than the Collateral, as security for any or all of the Secured Indebtedness and exchange,
enforce, waive and release any or all of the Collateral or such other Assets; and (b) apply the Collateral or such other Assets and direct the
order or manner of sale thereof as Secured Party in its discretion may determine.
5.7
Transfer of Secured Indebtedness and Collateral. Any of the Secured Indebtedness may be transferred, in whole or in part,
in accordance with the provisions of the ISDA Documents, and, upon any such transfer, Secured Party may transfer any or all of the
Collateral and shall be fully discharged thereafter from all liability with respect to the Collateral so transferred, and the transferee shall be
vested with all rights, powers and remedies of Secured Party hereunder with respect to Collateral so transferred; but with respect to any
Collateral not so transferred Secured Party shall retain all rights, powers and remedies hereby given. Secured Party may at any time deliver any
or all of the Collateral to Debtors whose receipt shall be a complete and full acquittance for the Collateral so delivered, and Secured Party shall
thereafter be discharged from any liability therefor.
5.8
Cumulative Security. The execution and delivery of this Agreement in no manner shall impair or affect any other security
(by endorsement or otherwise) for the Secured Indebtedness. No security taken hereafter as security for the Secured Indebtedness shall impair
in any manner or affect this Agreement. All such now existing security and hereafter arising or acquired additional security is to be considered
as cumulative security.
5.9
Continuing Agreement. This is a continuing Agreement and the grant of the security interests, liens and other rights
hereunder shall remain in full force and effect and all the rights, powers and remedies of Secured Party hereunder shall continue to exist until
the Secured Indebtedness is paid in full as the same become due and payable and the ISDA has been fully satisfied and discharged in
accordance with its terms (other than the indemnity obligations and other continuing obligations under the ISDA that survive).
10
5.10
Cumulative Rights. The rights, powers and remedies of Secured Party hereunder shall be in addition to all rights, powers
and remedies given by statute or rule of law and are cumulative. The exercise of any one or more of the rights, powers and remedies provided
herein shall not be construed as a waiver of any other rights, powers and remedies of Secured Party. Furthermore, regardless of whether or
not the Code is in effect in the jurisdiction where such rights, powers and remedies are asserted, Secured Party shall have the rights, powers
and remedies of a secured party under the Code. Secured Party may exercise its lien or right of set-off with respect to the Secured
Indebtedness in the same manner as if the Secured Indebtedness was unsecured.
5.11
Non-Judicial Remedies. Secured Party may (but shall not be obligated to) enforce its rights hereunder without prior judicial
process or judicial hearing, and each Debtor expressly waives, renounces and knowingly relinquishes any and all legal rights which might
otherwise require Secured Party to enforce its rights by judicial process. In so providing for non-judicial remedies, each Debtor recognizes and
concedes that such remedies are consistent with the usage of the trade, are responsive to commercial necessity and are the result of bargain at
arms length. Nothing herein is intended to prevent Secured Party from resorting to judicial process at its option.
ARTICLE VI
MISCELLANEOUS
6.1
Exercise of Rights; Waivers; Amendments. Time shall be of the essence for the performance by Debtors of any act under
this Agreement or in connection with the Secured Indebtedness, but Secured Partys acceptance of partial or delinquent payments nor any
forbearance, failure or delay by Secured Party in exercising any right, power or remedy shall not be deemed a waiver of any obligation of
Debtors or of any right, power or remedy of Secured Party or preclude any other or further exercise thereof; and no single or partial exercise
of any right, power or remedy shall preclude any other or further exercise thereof. Secured Party may remedy any default hereunder or in
connection with the Secured Indebtedness without waiving the default so remedied, or waive any default hereunder or in connection with the
Secured Indebtedness without waiving any other default including, without limitation, other occurrences of the same default, nor shall such
action by Secured Party waive any prior or subsequent default. Each Debtor hereby agrees that if Secured Party agrees to a waiver of any
provision hereunder, or an exchange of or release of the Collateral, or the addition to or release of any obligor or other person or entity, any
such action shall not constitute a waiver of any of Secured Partys other rights or of each Debtors obligations hereunder. This Agreement
may be amended only by an instrument in writing executed by Debtors and Secured Party.
6.2
Liability for Deficiency. Neither the acceptance of this Agreement by Secured Party nor any action taken pursuant hereto
shall be construed as relieving any party liable for the Secured Indebtedness or from any other liability or deficiency thereon. The execution
and delivery of this Agreement shall not in any manner affect any other security for the Secured Indebtedness, nor shall any security taken
hereafter as security for the Secured Indebtedness impair or affect this Agreement.
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6.3
Governing Law. THIS AGREEMENT AND THE SECURITY INTEREST AND LIEN GRANTED BY AND
UNDER THIS AGREEMENT WILL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF
THE STATE OF TEXAS (EXCEPT TO THE EXTENT THAT THE LAWS OF ANY OTHER JURISDICTION GOVERN THE
PERFECTION AND PRIORITY OF THE SECURITY INTERESTS GRANTED HEREBY) WITHOUT REGARD TO ITS
CONFLICTS OF LAWS PRINCIPLES.
6.4
Severability. If any provision of this Agreement or of any ISDA Document is invalid, illegal or unenforceable in any
jurisdiction, the other provisions hereof or of any other ISDA Documents shall remain in full force and effect in such jurisdiction, and the
remaining provisions hereof shall be liberally construed in favor of the Secured Party in order to effectuate the provisions hereof, and the
invalidity of any provision hereof in any jurisdiction shall not affect the validity, legality or enforceability of any such provision in any other
jurisdiction.
6.5
Subrogation. The Secured Indebtedness shall conclusively be presumed to have been entered into in reliance upon this
Agreement. All dealings between Debtors and Secured Party, whether or not resulting in the creation of the Secured Indebtedness, shall be
conclusively presumed to have been had or consummated in reliance upon this Agreement. Until all of the Secured Indebtedness shall have
been paid in full and the ISDA terminated, Debtors shall have no right to subrogation, and Debtor shall have no right to enforce any remedy or
participate in any Collateral or security whatsoever now or hereafter held by Secured Party.
6.6
Successors and Assigns. All representations and warranties of each Debtor herein, and the covenants and agreements
herein contained by or on behalf of each Debtor, (a) shall bind each Debtor and each Debtors legal representatives, successors, permitted
assigns and all persons who become bound as debtor to this Agreement and (b) shall inure to the benefit of Secured Party, its successors and
assigns. Debtors shall not assign or transfer any of its rights or delegate any of its duties or obligations under this Agreement without the prior
written consent of Secured Party.
6.7
Continuing Security Agreement.
(a) This Agreement shall constitute a continuing security agreement, and all representations and warranties, covenants and
agreements shall, as applicable, apply to all future as well as existing transactions contemplated by the ISDA and the other ISDA
Documents. Provisions of this Agreement, unless by their terms exclusive, shall be in addition to other agreements between the parties.
12
(b) Except as may be applicable pursuant to Section 9.620 of the Code, no action taken or omission to act by Secured Party
hereunder, including, without limitation, any action taken or inaction pursuant to Article V, shall be deemed to be in full satisfaction of
the Secured Indebtedness, and the Secured Indebtedness shall remain in full force and effect, until Secured Party shall have applied
payments (including, without limitation, collections from Collateral) towards the Secured Indebtedness in the full amount then
outstanding or until such subsequent time as is hereinafter provided in this Section 6.7. To the extent that any payments on the Secured
Indebtedness or proceeds of the Collateral are subsequently invalidated, declared to be fraudulent or preferential, set aside or required
to be repaid to a trustee, debtor in possession, receiver or other party under any debtor relief law, common law or in equity, then to
such extent, the Secured Indebtedness so satisfied shall be revived and continue as if such payment or proceeds had not been received
by Secured Party, and Secured Partys security interests, rights, powers and remedies hereunder shall continue in full force and effect.
(c) In the event that the Secured Indebtedness is structured such that there are times when no indebtedness is owing
thereunder, this Agreement shall remain valid and in full force and effect as to all subsequent indebtedness included in the Secured
Indebtedness.
6.8
Survival of Agreements. All covenants and agreements of each Debtor herein not fully performed before the Effective Date,
shall survive such date.
6.9
Termination. This Agreement, including the grant of a security interests, liens and other rights hereunder and all of Secured
Partys rights, powers and remedies in connection therewith, will remain in full force and effect regardless of whether the liability of any other
obligor may have ceased, or irrespective of the validity or enforceability of any other instrument executed in connection with the Secured
Indebtedness, and notwithstanding the reorganization, incapacity or bankruptcy of any obligor, or the reorganization, or bankruptcy of any
Debtor, or any other event or proceeding affecting any Debtor or any other obligor, but this Agreement shall terminate and be of no further
force and effect upon the earlier of (A) the date Secured Party has (i) retransferred and delivered all Collateral in its possession to Debtors and
(ii) executed a written release or termination statement of the liens and security interests against any remaining Collateral and all rights
conveyed hereby, and (B) the date when all Secured Indebtedness has been indefeasibly paid in full and the ISDA has terminated (other than
the indemnity obligations and other continuing obligations under the ISDA Documents that survive).
6.10
Titles of Articles, Sections and Subsections. All titles or headings to articles, sections, subsections or other divisions of this
Agreement are only for the convenience of the parties and shall not be construed to have any effect or meaning with respect to the other
content of such articles, sections, subsections or other divisions, such other content being controlling as to the agreement between the parties
hereto.
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6.11
Counterparts; Effectiveness. This Agreement may be executed by one or more of the parties hereto in any number of
separate counterparts, and all of such counterparts taken together shall be deemed an original and constitute one and the same instrument and
shall be enforceable as of the Effective Date hereof upon the execution of one or more counterparts by each of the parties hereto. In this regard,
each of the parties hereto acknowledges that a counterpart of this Agreement containing a set of counterpart execution pages reflecting the
execution of each party hereto shall be sufficient to reflect the execution of this Agreement by each party hereto and shall constitute one
instrument. Any signature delivered by a party by facsimile or other form of electronic transmission shall be deemed an original signature
hereto; provided that such party shall promptly deliver an original signature to the other party to replace such signature delivered by electronic
transmission.
6.12
Notices. Any record, notice, demand or document under this Agreement or in connection with this Agreement shall be in
writing and shall or may, as the case may be, be given in the same manner as notice is given in the ISDA.
6.13
Drafting of Agreement. Each party declares that it has contributed to the drafting of this Agreement or has had the
opportunity to have it reviewed by its counsel before signing it and agrees that it has been purposefully drawn and correctly reflects its
understanding of the transaction that it contemplates.
6.14
Benefits of the ISDA. In connection with its execution and acting hereunder, Secured Party is entitled to all rights,
privileges, protections, immunities, benefits and indemnities provided to it under the ISDA.
6.15
WAIVER OF JURY TRIAL AND DAMAGES. (a) AS PERMITTED BY APPLICABLE LAW, EACH PARTY
WAIVES THEIR RESPECTIVE RIGHTS TO A TRIAL BEFORE A JURY IN CONNECTION WITH ANY CLAIM, DISPUTE, OR
CONTROVERSY ARISING BETWEEN THE PARTIES HERETO WITH RESPECT TO THIS AGREEMENT, AND ALL SUCH
CLAIMS, DISPUTES OR CONTROVERSIES SHALL BE RESOLVED BY A JUDGE SITTING WITHOUT A JURY.
(b)
EACH DEBTOR EXPRESSLY AND IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT
PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH ACTION AGAINST SECURED
PARTY UNDER THIS AGREEMENT, ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR
DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES.
6.16
ENTIRE AGREEMENT. THIS AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES WITH RESPECT TO THE MATTERS ADDRESSED HEREIN AND WILL NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN
ORAL AGREEMENTS BETWEEN THE PARTIES.
6.17
Conflict. If any term hereof conflicts with any provision of the Mortgage, the terms of the Mortgage shall control. In the
event of a conflict between the terms of the Mortgage and the ISDA, the terms of the ISDA shall control. Notwithstanding the foregoing, to
the extent any item of Collateral hereunder also constitutes Mortgaged Property (as defined in the Mortgage) and the provisions in this
Agreement describing the Collateral and granting a security interest in the Collateral conflict with such provisions set forth in the Mortgage
regarding Mortgaged Property constituting personal property, the provisions of this Agreement shall control.
[Signatures are on the following pages]
14
Date.
IN WITNESS WHEREOF, this Agreement has been executed by Debtors and Secured Party on and effective as of the Effective
DEBTORS:
AMERICAN EAGLE ENERGY CORPORATION,
a Nevada corporation
By:
Brad Colby
President
AMZG, INC.,
By:
Brad Colby
President
Signature Page to Security Agreement
SECURED PARTY:
MACQUARIE BANK LIMITED,
a bank incorporated under the laws of Australia
By:
Name:
Title:
By:
Name:
Title:
Macquarie POA Ref: #938 dated 22 November 2012 expiry 30
November 2014, signed in Sydney
Signature Page to Security Agreement
EXHIBIT A
OIL AND GAS PROPERTIES OF DEBTORS
DIVIDE COUNTY, NORTH DAKOTA
RECORDING REQUESTED BY
AND WHEN RECORDED MAIL DOCUMENT
TO:
Porter Hedges LLP
1000 Main Street, 36th Floor
Houston, TX 77002
Attn: Ephraim del Pozo
Space Above This Line for Recorder's Use Only

MORTGAGE, SECURITY AGREEMENT, FIXTURE FILING,
FINANCING STATEMENT AND ASSIGNMENT OF PRODUCTION AND REVENUE
FROM
AND
AMZG, INC.
(Mortgagor(s) and Debtor(s))
TO
MACQUARIE BANK LIMITED
(Mortgagee and Secured Party)
FOR PURPOSES OF FILING THIS INSTRUMENT AS A FINANCING STATEMENT, THE MAILING ADDRESS OF EACH
MORTGAGOR/DEBTOR IS 2549 WEST MAIN STREET, SUITE 202, LITTLETON, COLORADO 80120. THE MAILING ADDRESS
OF MORTGAGEE/SECURED PARTY IS LEVEL 1, 1 MARTIN PLACE, ENERGY MARKETS DIVISION, SYDNEY, NEW SOUTH
WALES, 2000 AUSTRALIA.
THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS, AND COVERS FUTURE ADVANCES AND
PROCEEDS. INTERESTS IN OIL, GAS, MINERALS AND OTHER AS-EXTRACTED COLLATERAL OR IN ACCOUNTS
RESULTING FROM THE SALE THEREOF, WHICH ARE INCLUDED IN THE MORTGAGED PROPERTY, WILL BE FINANCED
AT WELLHEADS LOCATED ON THE OIL AND GAS LEASES OR LANDS DESCRIBED IN EXHIBIT A-1 HERETO.
PERSONAL PROPERTY CONSTITUTING A PORTION OF THE MORTGAGED PROPERTY MAY BE OR MAY IN THE
FUTURE BE AFFIXED TO THE LANDS OR LANDS ASSOCIATED WITH PIPELINES DESCRIBED IN EXHIBIT A-1 AND
EXHIBIT A-2 HERETO.
THIS INSTRUMENT IS, AMONG OTHER THINGS, A FINANCING STATEMENT UNDER THE UNIFORM COMMERCIAL
CODE COVERING AS-EXTRACTED COLLATERAL THAT IS RELATED TO, AND GOODS WHICH ARE, OR ARE TO BECOME
FIXTURES ON, THE REAL PROPERTY HEREIN DESCRIBED. A CARBON, PHOTOGRAPHIC, OR OTHER REPRODUCTION
OF THIS INSTRUMENT IS SUFFICIENT AS A FINANCING STATEMENT. MORTGAGORS HAVE AN INTEREST OF RECORD
IN THE LANDS CONCERNED, WHICH INTEREST IS DESCRIBED IN EXHIBIT A-1 AND EXHIBIT A-2 HERETO.
THIS FINANCING STATEMENT IS TO BE FILED, AMONG OTHER PLACES, IN THE REAL ESTATE RECORDS.
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This instrument was prepared by Ephraim del Pozo, PORTER HEDGES LLP, 1000 Main Street, 36th Floor, Houston, Texas 77002.
ATTENTION OF RECORDING OFFICER: This instrument is a mortgage of both real and personal property and is, among other things, a
Security Agreement and Financing Statement under the Uniform Commercial Code. This instrument creates a lien on rights in or relating to,
among other things, lands and oil and gas interests of Mortgagors which are described, referred to, or referred to in the documents described
in Exhibit A-1 and Exhibit A-2 hereto.
RECORDED DOCUMENT SHOULD BE RETURNED TO:
PORTER HEDGES LLP
1000 Main Street, 36th Floor
Attn: Ephraim del Pozo
MORTGAGE, SECURITY AGREEMENT, FIXTURE FILING,

FINANCING STATEMENT AND ASSIGNMENT OF PRODUCTION AND REVENUE
(THIS INSTRUMENT CONTAINS AFTER ACQUIRED PROPERTY PROVISIONS)
ARTICLE I
GRANT OF LIENS AND SECURITY INTERESTS
KNOW ALL MEN BY THESE PRESENTS: That the undersigned AMERICAN EAGLE ENERGY CORPORATION, a Nevada
corporation (AEEC), and AMZG, Inc., a Nevada corporation (AMZG; together with AEEC, each a Mortgagor and collectively,
Mortgagors), in each case, whose mailing address is 2549 West Main Street, Suite 202, Littleton, Colorado 80120, for valuable
consideration, the receipt of which is hereby acknowledged, and in consideration of the debt and trust hereinafter mentioned, effective as of
December 27, 2012 (the Effective Date), has granted, bargained, sold, conveyed, mortgaged, pledged, transferred, assigned, and set over
and by these presents does hereby GRANT, BARGAIN, SELL, CONVEY, MORTGAGE, PLEDGE, TRANSFER, ASSIGN AND SET
OVER to MACQUARIE BANK LIMITED, a bank incorporated under the laws of Australia, whose address is Level 1, 1 Martin Place,
Energy Markets Division, Sydney, New South Wales, 2000 Australia (Mortgagee), the following property, whether real, personal or mixed,
whether now owned or hereafter acquired under law or in equity (collectively, the Mortgaged Property); the inclusion of certain specific
types and items of property and interests in one or more of the following Paragraphs are not intended in any way to limit the effect of the more
general descriptions:
A.
All of each Mortgagors rights, titles, interests and estates, now owned or hereafter acquired by such Mortgagor, in and to
those certain oil, gas and mineral leases, mineral interests, mineral servitudes, royalty interests, overriding royalty interests, production
payments, net profits interests, fee interests, carried interests, reversionary interests and all other rights, titles, interests or estates including,
without limitation, such of the foregoing described on Exhibit A-1 attached hereto and made a part hereof or in, on or under any lands
described or referred to on Exhibit A-1 (the Lands), whether such rights, titles, interests or estates or such Lands are correctly described
therein or not (all of which rights, titles, interests and estates described in this Paragraph A are hereinafter included within the term Subject
Interests). The term oil, gas and mineral leases, as used in this instrument and in Exhibit A-1 includes, in addition to oil, gas and mineral
leases, oil and gas leases, oil, gas and sulphur leases, other mineral leases, co-lessors agreements and extensions, amendments, ratifications
and subleases of all or any of the foregoing, all as may be appropriate and are hereinafter referred to, collectively, as the Oil and Gas Leases.
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B.
All of each Mortgagors rights, titles, interests and estates, now owned or hereafter acquired by such Mortgagor, in and to
drilling, spacing, proration or production units, as created by the terms of any unitization, communitization and pooling agreements and orders,
and all properties, property rights and estates created thereby which include, belong or appertain to the Subject Interests, including, without
limitation, all such units formed voluntarily or under or pursuant to any Law relating to any of the Subject Interests (collectively, Units). As
used herein, the term Law means any current or future law, statute, code, ordinance, order, determination, rule, regulation, judgment, decree,
injunction, franchise, permit, certificate, license, authorization or other directive or requirement enacted, promulgated, adopted or imposed by
any Tribunal, and the term Tribunal means any court or governmental department, commission, board, bureau, agency, or instrumentality of
the United States or of any state, commonwealth, nation, territory, possession, county, parish, or municipality, whether now or hereafter
constituted or existing.
C.
All crude oil and natural gas, including all As-extracted collateral (as defined in the Uniform Commercial Code as enacted,
amended and in effect in the State of North Dakota (the UCC)), all casinghead gas, drip gasoline, natural gasoline, distillate, all other liquid
or gaseous hydrocarbons produced or to be produced in conjunction therewith, all products, by-products and all other substances derived
therefrom or the processing thereof, and all other similar minerals, now owned or hereafter acquired by each Mortgagor, now or hereafter
accruing to, attributable to or produced from the Subject Interests and the Units or to which such Mortgagor now or hereafter may be entitled
as a result or by virtue of such Mortgagors ownership of the Subject Interests (collectively, Hydrocarbons).
D.
All sulphur, lignite, coal, uranium, thorium, iron, geothermal steam, water, carbon dioxide, helium and all other minerals,
ores or substances of value (whether similar to the foregoing or not), and the products and proceeds therefrom now owned or hereafter
acquired by each Mortgagor, including, without limitation, all gas resulting from the in situ combustion of coal or lignite now or hereafter
accruing to, attributable to or produced from the Subject Interests and the Units or to which such Mortgagor now or hereafter may be entitled
as a result of or by virtue of such Mortgagors ownership of the Subject Interests (collectively, Other Minerals).
E.
All rights, titles, interests and estates now owned or hereafter acquired by each Mortgagor in and to oil and gas wells, salt
water disposal wells, injection wells, water supply wells (collectively, Wells), including, without limitation, such of the foregoing described
on Exhibit A-1 attached hereto and made a part hereof, and all rigs, improvements, fixtures, machinery and other equipment, inventory and
articles of personal property of any kind or character (excluding drilling rigs, trucks, automotive equipment or other personal property which
may be taken to the premises for the purpose of drilling a Well or for other similar temporary uses), in each case appurtenant to, or used or
held for use in connection with the production of Hydrocarbons or Other Minerals from the Subject Interests and Units, and any of the
foregoing, wherever located, now owned or hereafter acquired by such Mortgagor, including, without limitation, connection apparatus and
flow lines from Wells to tanks, Wells, pipelines, gathering lines, trunk lines, lateral lines, flow lines, compressor, dehydration and pumping
equipment, pumping plants, gas plants, processing plants, pumps, dehydration units, separators, heater treaters, valves, gauges, meters,
derricks, rig substructures, buildings, tanks, reservoirs, tubing, rods, liquid extractors, engines, boilers, tools, appliances, cables, wires, tubular
goods, machinery, supplies and any and all other equipment, inventory and articles of personal property of any kind or character whatsoever
appurtenant to, or used or held for use in connection with the production of Hydrocarbons or Other Minerals from the Subject Interests, or
now or hereafter located on any of the Lands encumbered by or pooled with any of the Subject Interests or Units, or used on or about the
Lands in connection with the operations thereon, together with all improvements or products of, accessions, attachments and other additions
to, tools, parts and equipment used in connection with, and substitutes and replacements for, all or any part of the foregoing (all of the types or
items of property and interests described in this Paragraph E, excluding any of the foregoing that constitutes fixtures, are hereinafter
collectively referred to as the Personal Property).
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F.
All rights, titles, interests and estates now owned or hereafter acquired by each Mortgagor (including, without limitation, all
rights to receive payments) under or by virtue of all easements, permits, licenses, rights-of-way, surface leases, surface use agreements,
franchises, servitudes, division orders, transfer orders and other agreements relating or pertaining to purchasing, exchanging, exploring for,
developing, operating, treating, processing, storing, marketing or transporting Hydrocarbons or Other Minerals now or hereafter found in, on
or under, or produced from, any of the Subject Interests, or under or by virtue of any contract relating in any way to all or any part of the
Mortgaged Property otherwise described herein, including, without limitation, the Basic Documents (as defined in the ISDA), farmout
contracts, farmin contracts, participation agreements, operating or joint operating agreements, trade letter agreements and all agreements
creating rights-of-way for ingress and egress to and from the Subject Interests and Units (all of such rights, titles, interests and estates referred
to or described in this Paragraph F are hereinafter collectively referred to as the Subject Contracts), and all rights, titles and interests in and to
all surface fees and fee estates described in Exhibit A-1, compressor sites, settling ponds, equipment or pipe yards, office sites, office
buildings and all property and fixtures affixed thereon, whether such surface fees, fee estates, compressor sites, settling ponds, equipment or
pipe yards, office sites or office buildings are fee simple estates, leasehold estates or otherwise, together with all rights, titles and estates now
owned or hereafter acquired by such Mortgagor under or in connection with such interest.
G.
All accounts (including, but not limited to, all open accounts receivable and accounts receivable arising under or pursuant to
any joint operating agreements, division orders, purchase and/or sale agreements or other agreements, documents or instruments relating to
any of the Subject Interests), general intangibles (including, without limitation, rights to proceeds under swap and hedge agreements; and
including without limitation all seismic data, geological and geophysical data and interpretations) of any of the foregoing, chattel paper,
documents, instruments, cash and noncash proceeds and other rights, now owned or hereafter acquired by each Mortgagor, arising from or by
virtue of, or from the voluntary or involuntary sale or other disposition of, or collections with respect to, or insurance proceeds payable with
respect to, or proceeds payable by virtue of warranty or other claims against manufacturers of, or claims against any other person or entity
with respect to, all or any part of the Mortgaged Property described in this Paragraph G or otherwise (all of which types and items of property
and interests described in this Paragraph G are hereinafter collectively referred to as the Accounts).
H.
All tenements, hereditaments, appurtenances, profits and properties in anyway appertaining, belonging, affixed or incidental
to, or used or useful in connection with, all or any part of the property and interests described in Paragraphs A, B, C, D, E, F, and G preceding
now owned or hereafter acquired by each Mortgagor, including, without limitation, all reversions, remainders, carried interests, tolls, rents,
revenues, issues, proceeds, earnings, income, products, profits, deposits, easements, permits, licenses, servitudes, surface leases, rights-ofway and franchises relating to all or any part of the property and interests described in Paragraphs A, B, C, D, E, F, and G preceding.
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I.
All other interests of every kind and character which each Mortgagor now has or at any time hereafter acquires in and to the
types and items of property and interests described in Paragraphs A, B, C, D, E, F, G and H insofar as such interests relate to the Lands, the
Oil and Gas Leases, the Subject Interests, the Wells, the Hydrocarbons, the Other Minerals, the Subject Contracts and all property which is
used or useful in connection with the Mortgaged Property and the proceeds and products of all of the foregoing, whether now owned or
hereafter acquired.
J.
To further secure the full and complete payment and performance of the Secured Indebtedness (defined below), each
Mortgagor, as debtor, hereby grants to Mortgagee and Mortgagees successors in title and assigns, as secured party, a first and prior security
interest in and to the following types and items of property and interests now owned or hereafter acquired by such Mortgagor (all of which are
included within the term Mortgaged Property): (a) all present and future Personal Property, Subject Contracts and Accounts; (b) all present
and future Subject Interests, Hydrocarbons and Other Minerals and all As-extracted collateral as defined in and subject to the UCC (including
Accounts), and for which the creation and perfection of a security interest or lien therein is governed by the provisions of the UCC; (c) all
present and future other Mortgaged Property described in A through I above consisting of Accounts, contract rights, general intangibles,
chattel paper, documents, instruments, inventory, equipment, fixtures and other goods and articles of personal property of any kind or
character defined in and subject to the UCC; (d) all present and future increases, profits, combinations, reclassifications, improvements and
products of, accessions, attachments and other additions to, tools, parts and equipment used in connection with, and substitutes and
replacements for, all or any part of the Mortgaged Property described in this or any other clause of this paragraph; (e) all present and future
Accounts, contract rights, general intangibles, chattel paper, documents, instruments, cash and noncash proceeds and other rights arising from
or by virtue of, or from the voluntary or involuntary sale or other disposition of, or collections with respect to, or insurance proceeds payable
with respect to, or proceeds payable by virtue of warranty or other claims against manufacturers of, or claims against any other person or
entity with respect to, all or any part of the Hydrocarbons, the Other Minerals or the Mortgaged Property described in this or any other clause
of this paragraph; and (f) all present and future security for the payment to such Mortgagor of any of the Mortgaged Property described in this
or any other clause of this paragraph and goods which gave or will give rise to any of such Mortgaged Property or are evidenced, identified,
or represented therein or thereby; provided that nothing in this paragraph shall be deemed to permit any action prohibited by this instrument or
by terms incorporated in this instrument.
In the event that the any Mortgagor acquires additional interests in some or all of the Subject Interests, this Mortgage shall
automatically encumber such additions or increases to such Mortgagors interest in the Subject Interests and other related Mortgaged Property
without need of further act or document.
For the same consideration, each Mortgagor hereby grants to Mortgagee any and all rights of such Mortgagor to liens, security
interests and other rights in the Mortgaged Property securing payment of proceeds from the sale of production from the Mortgaged Property.
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Notwithstanding any provision in this Mortgage to the contrary, in no event is any Excluded Structure included in the definition of
Mortgaged Property. As used herein, the term Excluded Structures means, collectively, any Building (as defined in the applicable Flood
Insurance Regulation) or Manufactured (Mobile) Home (as defined in the applicable Flood Insurance Regulation) located on the real property
described on Exhibits A-1 attached hereto. As used herein, the term Flood Insurance Regulations means (i) the National Flood Insurance
Act of 1968 as now or hereafter in effect or any successor statute thereto, (ii) the Flood Disaster Protection Act of 1973 as now or hereafter in
effect or any successor statue thereto, (iii) the National Flood Insurance Reform Act of 1994 (amending 42 USC 4001, et seq.), as the same
may be amended or recodified from time to time, and (iv) the Flood Insurance Reform Act of 2004 and any regulations promulgated
thereunder.
TO HAVE AND TO HOLD all and singular the Mortgaged Property and all other property which, by the terms hereof, has or may
hereafter become subject to the liens, security interests and other rights of this Mortgage, Security Agreement, Fixture Filing, Financing
Statement and Assignment of Production and Revenue (the Mortgage), together with all rights, hereditaments and appurtenances in anywise
belonging to the Mortgagee or assigns forever. Any additional right, title or interest which any Mortgagor may hereafter acquire or become
entitled to in all assets of the types described above shall inure to the benefit of and be covered by this Mortgage and constitute Mortgaged
Property, the same as if expressly described and conveyed herein. Each Mortgagor hereby binds itself, its successors and assigns, to warrant
and forever defend all and singular the above described property, rights, and interests constituting the Mortgaged Property to the Mortgagee
and to its assigns forever, against every person whomsoever lawfully claiming or to claim the same or any part thereof.
ARTICLE II
SECURED INDEBTEDNESS
Section 2.1
and liabilities:
ISDA; Etc. This Mortgage is made to secure and enforce the payment of the following indebtedness, obligations
(a)
All indebtedness, obligations and liabilities of Mortgagors owed to Mortgagee, under that certain ISDA Master
Agreement dated as of December 27, 2012 between Mortgagors and Mortgagee, together with all schedules, annexes and
confirmations in respect thereof (as amended, supplemented, restated or otherwise modified from time to time, the ISDA), and all
Credit Support Documents (as defined in the ISDA) (each as amended, supplemented, restated or otherwise modified from time to
time, collectively with the ISDA, the ISDA Documents);
(b)
All indebtedness, obligations and liabilities of any obligor owed to Mortgagee under any Credit Support Document,
executed and delivered by such obligor;
(c)
Payment of any sums which may be advanced or paid by Mortgagee under the terms hereof or any ISDA
Document on account of the failure of any Mortgagor to comply with the covenants of Mortgagors contained herein; and all other
indebtedness of Mortgagors arising pursuant to the provisions of this Mortgage; and
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(d)
All renewals, extensions, replacements and modifications of indebtedness, obligations and/or liabilities described,
referred to or mentioned in paragraphs (a) through (c) above, and all substitutions therefor, in whole or in part.
Section 2.2
Present and Future. The term Secured Indebtedness wherever used in this Mortgage shall refer to all present and
future indebtedness, obligations and liabilities described or referred to in this ARTICLE II.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
By execution of this Mortgage, each Mortgagor does hereby adopt and ratify all of such Mortgagors warranties and representations
set forth in the other ISDA Documents; and all the warranties and representations set forth in the other ISDA Documents as they relate to the
Mortgaged Property are hereby made and adopted with respect to the properties listed on Exhibit A-1 attached hereto. In addition, each
Mortgagor hereby represents and warrants as follows:
Section 3.1
Organization and Good Standing. Each Mortgagor is a corporation duly organized, validly existing and in good
standing under the Laws of Nevada, having all powers necessary to carry on its businesses and to enter into and consummate the transactions
contemplated by the other ISDA Documents and hereunder. Each Mortgagor is authorized to do business in all other jurisdictions wherein the
character of the properties owned or held by them or the nature of the business transacted by them makes such qualification necessary.
Section 3.2
No Conflicts or Consents.
(a)
The execution and delivery by Mortgagors of this Mortgage, the performance of its obligations under this
Mortgage, and the consummation of the transaction contemplated by this Mortgage does not and will not (i) conflict, in any material
respect, with any provision of (A) any domestic or, to Mortgagors knowledge, foreign Laws, (B) the governing documents of
Mortgagor, or (C) any agreement, judgment, license, order or permit applicable to or binding upon Mortgagor, (ii) result in the
acceleration of any Specified Indebtedness (as defined in the ISDA) owed by Mortgagor, or (iii) result in or require the creation of
any liens, security interests or other rights upon any assets or properties of Mortgagor, except as expressly contemplated in the
ISDA Documents. No consent, approval, authorization or order of, and no notice to or filing with, any court or governmental
authority or third party is required in connection with the execution, delivery or performance by Mortgagors of this Mortgage or to
consummate any transactions contemplated by this Mortgage.
(b)
The execution and delivery of any assignment of the Mortgaged Property from the applicable assignors to
Mortgagors is not subject to any preferential right under and does not require any consent under any joint operating agreement or
similar agreement which relates to such Mortgaged Property, except such waivers and consents as have been obtained or waived by
operation of time.
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Section 3.3
Enforceable Obligations. This Mortgage, when executed and delivered by Mortgagors, will be legal, valid and
binding obligations of Mortgagors enforceable in accordance with its terms except as such enforcement may be limited by bankruptcy,
insolvency or similar Laws of general application relating to the enforcement of creditors rights or by principles of equity applicable to the
enforcement of creditors rights generally.
Section 3.4
Title. Each Mortgagor has Defensible Title (as defined in the ISDA) to and is possessed of the Mortgaged
Property and has full power and lawful authority to grant, pledge, transfer, mortgage, assign and convey a lien, security interest and other
rights in all of the Mortgaged Property in the manner and form herein provided; the Mortgaged Property is free of any and all liens, security
interests and other rights, except for (i) the liens, security interests and other rights granted to Mortgagee under the ISDA Documents, (ii)
minor irregularities in title which do not (a) materially interfere with the occupation, use and enjoyment by such Mortgagor of any of the
Mortgaged Property in the normal course of business as presently conducted, or (b) materially impair the value of such Mortgaged Property;
and (iii) liens, security interests and other rights arising in the ordinary course of business or incidental to the ownership of the Mortgaged
Property (including, liens of landlords, vendors, carriers, warehousemen, taxing authorities, mechanics, laborers and material men arising by
applicable Law, and of operators arising by contract) for sums not yet due or being contested in good faith by appropriate action promptly
initiated and diligently conducted, if such reserves as may be required by GAAP, consistently applied, have been made; provided that any such
liens, security interests and other rights do not materially interfere with the occupation, use and enjoyment by such Mortgagor of any of the
Mortgaged Property or the proceeds and Hydrocarbons to be attributable thereto (herein called, Permitted Liens). For avoidance of doubt,
there is no intent to subordinate Mortgagees liens, security interests and other rights hereunder or under the other ISDA Documents.
Section 3.5
Oil and Gas Leases. All of the Oil and Gas Leases constituting all or part of the Mortgaged Property are in full
force and effect. All covenants, express or implied, in respect thereof of any Oil and Gas Leases, or of any assignment thereof, which may
affect the validity of any of the Oil and Gas Leases, have been performed in all material respects.
Section 3.6
Revenue and Cost Bearing Interest. Mortgagors ownership of the Subject Interests and the undivided interests
therein to the extent specified on attached Exhibit A-1 will, after giving full effect to all Permitted Liens, afford Mortgagors not less than those
Net Revenue Interests in the production from or allocated to such Subject Interests and such undivided interests therein to the extent such
interests are so specified on attached Exhibit A-1 and will cause Mortgagors to bear not more than that portion of the Working Interests in
and to the Wells or Units to the extent such interests are so specified on Exhibit A-1, unless there is a proportionate increase in Mortgagors
Net Revenue Interest in such property. As used herein, the term Net Revenue Interests means, with respect to any Mortgage Property, the
decimal or percentage share of Hydrocarbons produced and saved from or allocable to such Mortgaged Property, after deduction of royalty
interests and other burdens on or paid out of such production; provided that if any Mortgagors ownership is in the form of a mineral fee or
interest, such decimal or percentage share shall be equal to such mineral fee or interest. As used herein, the term Working Interests means
the property interest which entitles the owner thereof to explore and develop certain land for oil and gas production purposes, whether under
an oil and gas lease or unit, a compulsory pooling order or otherwise.
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Section 3.7
Power to Create Lien. Each Mortgagor has full power and lawful authority to bargain, grant, sell, mortgage,
assign, transfer, convey, pledge and hypothecate and grant a lien, security interest and other rights in its interests in the Mortgaged Property all
in the manner and form herein provided and without obtaining the waiver, consent or approval of any lessor, sublessor, governmental agency
or entity or other party whomsoever or whatsoever, except for waivers, consents or approvals obtained in the ordinary course of business and
except to the extent the approval or consent of any Tribunal of the State of North Dakota or the Department of the Interior, United States of
America, as the case may be, is required by applicable Law to the transfer, deed or assignment of an interest in any of the Mortgaged Property.
Section 3.8
Taxes. All (a) Property Taxes, (b) Severance Taxes, (c) ad valorem taxes, (d) conservation taxes, and (e) any other
taxes of any kind, excluding only income taxes and franchise taxes, imposed on Mortgagors or, to the best of Mortgagors knowledge, any
producer in connection with or as a result of its ownership of interests in the Mortgaged Property have been paid prior to delinquency. For
purposes of this Paragraph, Property Taxes means taxes imposed annually on any Mortgagor which are based on or measured by the
estimated value (at the time such taxes are assessed) of any Hydrocarbons situated within the Mortgaged Property as calculated by the
governing authority where located and Severance Taxes means taxes imposed at the time Hydrocarbons are produced from a Well which are
based on or measured by the amount or value of such production.
Section 3.9
Rentals Paid; Oil and Gas Leases in Effect. All rentals and royalties due and payable in accordance with the terms
of the Oil and Gas Leases comprising a part of the Subject Interest have been duly paid or provided for prior to delinquency and all Oil and
Gas Leases comprising a part of the Subject Interest are in full force and effect.
Section 3.10
Operation of Mortgaged Property. The Mortgaged Property (and properties unitized or pooled therewith) has been
maintained, operated and developed in a good and workmanlike manner according to practices and procedures that are standard in the
petroleum industry and in conformity, in all material respects, with all applicable Laws (other than Environmental Laws (as defined in the
ISDA) which are subject to Section 3.11 below) of all duly constituted authorities having jurisdiction and in material conformity with the
provisions of all Oil and Gas Leases or Subject Contracts comprising a part of the Subject Interests and other material contracts and
agreements forming a part of the Mortgaged Property. Specifically, (i) no Mortgaged Property is subject to having allowable production
reduced below the full and regular allowable (including the maximum permissible tolerance) because of any overproduction (whether or not
the same was permissible at the time) and (ii) none of the Wells comprising a part of the Mortgaged Property or Units are deviated from the
vertical more than the maximum permitted by applicable Laws, and such Wells are, in fact, bottomed under and are producing from, and the
Well bores are wholly within, the Mortgaged Property (or, in the case of Wells located on properties unitized or pooled therewith, such Units).
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Section 3.11
Environmental Laws. Each Mortgagor (a) is in material compliance with all Environmental Laws (as defined in the
ISDA) and all permits, requests and notifications relating to health, safety or the environment applicable to such Mortgagor or any of its
properties, assets, operations and businesses; (b) where applicable, has obtained or caused to be obtained and adhered to and currently
possesses all necessary permits and other approvals necessary to store, dispose of and otherwise handle Hazardous Materials (as defined in
the ISDA) and to operate, where applicable, its properties, assets and businesses; (c) where applicable, will report or cause to be reported, to
the extent required by any Laws, all sites owned and/or operated by such Mortgagor where any Hazardous Materials are released, treated,
stored or disposed of and (d) has not used, stored, or released any Hazardous Materials in excess of amounts allowed by Environmental Law.
There is (x) no location on any property currently or previously owned or operated by the any Mortgagor where Hazardous Materials have
entered or are likely to enter into the soil or groundwater or such property, other than immaterial releases of oil or natural gas in the ordinary
course of business, none of which releases (i) either individually, or in the aggregate, has had or may be expected to have a Material Adverse
Effect (as defined in the ISDA) on such Mortgagors business or (ii) has violated or reasonably may be expected to violate any Environmental
Laws, and (y) no on-site or off-site location to which such Mortgagor has released or transported Hazardous Materials or arranged for the
transportation or disposal of Hazardous Materials, which is or is likely to be the subject of any federal, state, local or foreign enforcement
action or any investigation which could lead to any claims against any such entity for any clean-up cost, remedial work, damage to natural
resources, common law or legal liability, including, but not limited to, claims under CERCLA.
Section 3.12
No Intent to Limit. Any fractions or percentages specified on attached Exhibit A-1 in referring to any Mortgagors
Working Interests and Net Revenue Interests are solely for the purposes of the warranties made by such Mortgagor above and shall in no
manner limit the quantum of interest with respect to any Subject Interests or with respect to any Unit or Well identified on Exhibit A-1. If any
of the Lands covered by the Subject Interests or other instrument mentioned on Exhibit A-1 is incorrectly described, then nevertheless this
Mortgage shall cover each Mortgagors interest in such Subject Interests and other instrument as to all of the lands covered thereby.
Section 3.13
Suspense of Proceeds. All proceeds, other than a minor amount pending title curative actions that has been
disclosed to Mortgagee in writing, from the sale of Hydrocarbons from each Mortgagors Working Interest or Net Revenue Interest in the
Mortgaged Property are being received by such Mortgagor in a timely manner and are not being held in suspense for any reason.
Section 3.14
Insurance. Prior to the date hereof, each Mortgagor has obtained and will maintain, for as long as any obligations
remain owing to Mortgagee under the ISDA Documents, insurance coverage of the types required hereunder and under the other ISDA
Documents. No Mortgagor has received from any insurer a notice of termination or non-renewal regarding such insurance policies.
Section 3.15
No Material Adverse Effect. No material adverse change in the business, operations or condition (financial or
otherwise) of any Mortgagor, since the date of the most recent form 10-Q filed by AEEC, has occurred as of the date hereof.
Section 3.16
Restriction on Liens. No Mortgagor is a party to any agreement or arrangement, or subject to any known order,
judgment, writ or decree, which either restricts or purports to restrict its ability to grant liens, security interests or other rights to Mortgagee on
or in respect of the Mortgaged Property.
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Section 3.17
Priority. Subject to Permitted Liens, the liens, security interests and other rights created by this Mortgage have or
will have first ranking priority, and such liens, security interests and other rights are not subject to any prior ranking or pari passu ranking
lien, security interest or other right.
ARTICLE IV
COVENANTS OF MORTGAGORS
follows:
In consideration of the Secured Indebtedness, each Mortgagor, for itself and its successors and assigns, covenants and agrees as
Section 4.1
Payment of Indebtedness. Each Mortgagor will duly and punctually pay or cause to be paid all of the Secured
Indebtedness in accordance with the terms of the ISDA or any other ISDA Documents.
Section 4.2
Defend Title. No Mortgagor will create or suffer to be created or permit to exist any liens, security interests or
other rights senior to, junior to, or on a parity with, liens, security interests and other rights of this Mortgage upon the Mortgaged Property or
any part thereof or upon the rents, issues, revenues, profits and other income therefrom, except Permitted Liens. Each Mortgagor will warrant
and defend the title to the Mortgaged Property against the claims and demands of all other persons whomsoever and will maintain and
preserve the liens, security interests and other rights created hereby so long as any of the Secured Indebtedness remains unpaid. Except for the
Permitted Liens, should an adverse claim be made against or a cloud develop upon the title to any part of the Mortgaged Property, each
Mortgagor agrees it will immediately defend against such adverse claim or take appropriate action to remove such cloud which would cause
title to the Mortgaged Property not to be Defensible Title at such Mortgagors cost and expense, and such Mortgagor further agrees that
Mortgagee may take such other action as Mortgagee reasonably deems advisable to protect and preserve its interests in the Mortgaged
Property, and in such event EACH MORTGAGOR WILL INDEMNIFY, PROTECT, DEFEND AND HOLD HARMLESS
MORTGAGEE AGAINST ANY AND ALL COSTS, REASONABLE ATTORNEYS FEES AND OTHER EXPENSES WHICH IT
MAY REASONABLY INCUR IN DEFENDING AGAINST ANY SUCH ADVERSE CLAIM OR TAKING ACTION TO REMOVE
ANY SUCH CLOUD.
Section 4.3
Correct Defects. Upon request of Mortgagee, each Mortgagor will promptly correct any defect which may be
discovered after the execution and delivery of this Mortgage, in the other ISDA Documents, in the execution or acknowledgment hereof or
thereof or in the description of the Mortgaged Property, and will execute, acknowledge, and deliver such division orders, transfer orders and
other assurances and instruments as shall, in the reasonable opinion of Mortgagee, be necessary or proper to convey and assign to the
Mortgagee all of the Mortgaged Property herein conveyed or assigned, or intended to be so.
Section 4.4
Notifications. Each Mortgagor will promptly notify Mortgagee of the destruction, loss, termination or acquisition
of any Mortgaged Property justifying a material claim under any insurance policy.
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Section 4.5
Pooling. Except (i) to the extent any voluntarily pooling or unitization would not have an adverse effect on
Mortgagees rights hereunder and (ii) for any voluntary pooling or unitization in effect as of the effective date of this Mortgage and
specifically described in Exhibit A-1 hereto, no Mortgagor will, without the prior written consent of Mortgagee, which consent shall not be
unreasonably withheld, delayed, denied or conditioned voluntarily pool or unitize all or any part of the Mortgaged Property where the pooling
or unitization would result in the diminution of such Mortgagors Net Revenue Interest in production from the pooled or unitized lands.
Promptly after the formation of any pool or unit in accordance herewith, each Mortgagor will furnish to Mortgagee a conformed copy of the
pooling agreement, declaration of pooling, or other instrument creating the pool or unit. The interest of any Mortgagor included in any pool or
unit attributable to the Mortgaged Property or any part thereof shall become a part of the Mortgaged Property and shall be subject to liens,
security interests and other rights hereof in the same manner and with the same effect as though the pool or unit and the interest of such
Mortgagor therein were specifically described in Exhibit A-1 hereto. In the event any proceedings of any governmental body which could
result in pooling or unitizing all or any part of the Mortgaged Property are commenced, each Mortgagor shall give prompt written notice
thereof to Mortgagee.
Section 4.6
Maintenance and Operation of Mortgaged Property.
(a)
Each Mortgagor will, from time to time, pay or cause to be paid before they become delinquent and payable all
taxes, assessments and governmental charges lawfully levied or assessed upon the Mortgaged Property or any part thereof, or upon
or arising from any of the rents, issues, revenues, profits and other income from the Mortgaged Property, or incident to or in
connection with the production of Hydrocarbons or other minerals therefrom, or the operation and development thereof; provided,
that so long as no Event of Default has occurred and is continuing, such Mortgagor may diligently contest in good faith by
appropriate proceedings the amount, applicability or validity of any such charges, provided that such Mortgagor shall have set up
reserves therefor which are adequate under GAAP.
(b)
Each Mortgagor will at its own expense do or cause to be done all things reasonably necessary to preserve and keep
in full repair, working order and efficiency (subject to reasonable wear and tear) all of the Mortgaged Property as would a
reasonably prudent operator that are needed and proper so that the business carried on in connection therewith may be conducted
properly and efficiently at all times, including, without limitation, all equipment, machinery and other tangible or movable Personal
Property (but excluding worn-out, surplus or obsolete equipment or assets which such Mortgagor in its commercially reasonable
judgment may, in the ordinary course of its business, elect not to repair), and from time to time will make or cause to be made all the
needful and proper repairs, renewals and replacements to the extent required to ensure that at all times the state and condition of the
Mortgaged Property will be preserved and maintained in accordance with the standards of a prudent operator.
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(c)
Each Mortgagor will promptly pay and discharge before delinquency, or cause to be promptly paid or discharged
before delinquency, all rentals, delay rentals, royalties and indebtedness accruing under, and in all material respects perform or cause
to be performed each and every material act, matter or thing required by, each and all of the assignments, deeds, leases, sub-leases,
contracts and agreements described or referred to herein and relating to the Mortgaged Property or affecting such Mortgagors
interests in the Mortgaged Property, and will do or cause to be done all other things necessary to keep unimpaired such
Mortgagors rights with respect thereto and prevent any forfeiture thereof or default thereunder. Each Mortgagor will operate or
cause to be operated the Mortgaged Property in a careful and efficient manner in accordance with the practices of the industry and in
compliance in all material respects with all applicable contracts and agreements and in compliance with all applicable proration and
conservation Laws of the jurisdiction in which the Mortgaged Property is situated, and, in all material respects, all applicable Laws
of every other agency and authority from time to time constituted to regulate the development and operation of the Mortgaged
Property and the production and sale of Hydrocarbons and Other Minerals therefrom.
(d)
If any tax is levied or assessed against the Secured Indebtedness or any part thereof, or against this Mortgage, or
against the Mortgagee with respect to said Secured Indebtedness or any part thereof or this Mortgage (excluding, however, any
income tax payable by Mortgagee), Mortgagors will promptly pay, or cause to be paid, the same prior to delinquency, provided, that
so long as no Event of Default has occurred and is continuing, such Mortgagor may diligently contest in good faith by appropriate
proceedings the amount, applicability or validity of any such tax, provided that such Mortgagor shall have set up reserves therefor
which are adequate under GAAP.
Section 4.7
Insurance/Taxes. Each Mortgagor shall comply in all respects with all covenants regarding insurance and taxes set
forth in the ISDA Documents.
Section 4.8
Operation by Third Parties. All or portions of the Mortgaged Property may be comprised of interests in the
Subject Interest which are other than Working Interests or which may be operated by a party or parties other than Mortgagors and with respect
to all or any such Subject Interests and properties as may be comprised of interests other than Working Interests or which may be operated by
parties other than Mortgagors, each Mortgagors covenants set forth in as expressed in Section 4.6 are modified to require that such
Mortgagor use commercially reasonable efforts to obtain compliance with such covenants by the Working Interest owners or the operator or
operators of such Subject Interest; provided that no Mortgagor will contract for operation of any of the Mortgaged Property except with an
operator approved by Mortgagee. Mortgagee will, in its sole and absolute discretion, have the right to approve or disapprove any action taken
by any Mortgagor to appoint, remove or replace any operator(s) of any of the Mortgaged Property.
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Section 4.9
Labor/Materials. Each Mortgagor agrees to promptly pay before delinquent, or use commercially reasonable
efforts to cause to be paid before delinquent, all bills for labor and materials incurred in the operation of the Mortgaged Property, except any
that is being contested in good faith and as to which satisfactory accruals have been provided; will promptly pay its share of all costs and
expenses incurred under any joint operating agreement affecting the Mortgaged Property or any portion thereof; will furnish Mortgagee, as
and when requested, full information as to the status of any joint account maintained with others under any such operating agreement; will not
take any action to incur any liability or lien thereunder; and will not enter into any new operating agreement or amendment of existing
operating agreement affecting the Mortgaged Property that would diminish or alter such Mortgagors Net Revenue Interest therein, all without
prior written consent of the Mortgagee.
Section 4.10
Books and Records; Inspections. Each Mortgagor will keep accurate books and records in accordance with GAAP
in which full, true and correct entries shall be promptly made with respect to operations on the Mortgaged Property, and all such books and
records shall during reasonable business hours upon three (3) business days prior written notice be subject to inspection by Mortgagee and its
duly accredited representatives, but not as to unreasonably interfere with the business of such Mortgagor. In addition, Mortgagee and its duly
accredited representatives shall have the right to visit the Mortgage Property during reasonable business hours upon three (3) business days
prior written notice, but not as to unreasonably interfere with the business of Mortgagors; provided further, however, that Mortgagee executes
a form of release and indemnity satisfactory to Mortgagors with respect to Mortgagees visit to the Mortgaged Property. Subject to the
foregoing, each Mortgagor will, and will use commercially reasonable efforts to cause operator to, permit Mortgagee and its duly accredited
representatives at all times to go upon, examine, inspect and remain on the Mortgaged Property.
Section 4.11
Legal Proceedings. Each Mortgagor will promptly notify Mortgagee or other holder or holders of the Secured
Indebtedness, in writing, of the commencement of any legal proceedings affecting the Mortgaged Property or any part thereof, and will take
such action as may be necessary to preserve its and Mortgagees rights affected thereby; and should Mortgagors fail or refuse to take any such
action, Mortgagee may at its election take such action on behalf and in the name of Mortgagors and at Mortgagors cost and expense.
Section 4.12
Existence. Each Mortgagor will maintain its corporate existence and will maintain and procure all necessary
permits to the end that such Mortgagor shall be and continue to be a corporation in good standing in the state of its organization and in the state
wherein such Mortgagors Mortgaged Property is located, with full power and authority to own and operate all of the Mortgaged Property as
contemplated herein until this Mortgage shall have been fully satisfied.
Section 4.13
Releases of Mortgaged Property. Mortgagee at all times shall have the right to release any part of the Mortgaged
Property now or hereafter subject to the liens, security interests and other rights of this Mortgage, any part of the proceeds of production or
other income herein or hereafter assigned or pledged, or any other security it now has or may hereafter have securing the Secured
Indebtedness, without releasing any other part of the Mortgaged Property, proceeds or income, and without affecting the liens, security
interests and other rights hereof as to the part or parts thereof not so released, or the right to receive future proceeds and income.
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Section 4.14
Legal and Other Expenses. Upon demand of Mortgagee, Mortgagors will promptly pay all reasonable and
customary costs and expenses heretofore or hereafter incurred by Mortgagee for legal, accounting, engineering or geological services rendered
to it in connection with Secured Indebtedness secured in whole or in part by the liens, security interests and other rights hereof or in the
enforcement of any of Mortgagees rights hereunder. The obligations of Mortgagors hereunder shall survive the non-assumption of this
Mortgage in a case commenced under Title 11 of the United States Code or other similar Laws of the United States of America, the States of
North Dakota or Nevada or any other jurisdiction and be binding upon the Mortgagors, or a trustee, receiver, custodian or liquidator of any
Mortgagor appointed in any such case.
Section 4.15
Disposition. Without prior approval and written consent of Mortgagee, no Mortgagor will sell, assign, lease,
transfer or otherwise dispose of all or any portion of the Mortgaged Property except as expressly provided in the ISDA or any other ISDA
Document, nor shall any Mortgagor mortgage, pledge or otherwise encumber the Mortgaged Property or any part thereof, regardless of
whether the lien, security interest or other right is senior, coordinate, junior, inferior or subordinate to the liens, security interests and other
rights created hereby.
Section 4.16
Notice of Assignments; Letters in Lieu. Upon request of Mortgagee, each Mortgagor will execute and deliver
written notices of assignments to any persons, corporations or other entities owing or which may in the future owe to such Mortgagor monies
or accounts arising in connection with any of the following matters: (i) any oil, gas or mineral production, including As-extracted collateral,
from the Mortgaged Property; (ii) any gas contracts, processing contracts or other contracts relating to the Mortgaged Property; or (iii) the
operation of or production from any part of the Mortgaged Property. The notices of assignments shall advise the third parties that all of the
monies or accounts described above have been assigned to Mortgagee, and if required by Mortgagee, shall also require and direct that future
payments thereof, including amounts then owing and unpaid, be paid to an account designated by Mortgagee. Following an Event of Default,
Mortgagors authorizes Mortgagee to deliver letters in lieu of transfer orders to any persons, corporations or other entities owing or which may
in the future owe to Mortgagors monies or accounts arising in connection with any of the foregoing.
Section 4.17
Prohibitions Ineffective. Any (i) mortgage, pledge, or encumbrance, or (ii) unitization, pooling, or communitization
or other action or instrument in violation of the prohibitions contained in this Article IV shall be of no force or effect against Mortgagee
(except as required by Law).
Section 4.18
Environmental Laws.
(a)
Each Mortgagor shall comply in all respects with the covenants regarding environmental matters set forth in the
ISDA Documents.
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(b)
To the full extent permitted by applicable Law, each Mortgagor agrees to defend, indemnify and hold
harmless Mortgagee and its directors, officers, employees, attorneys and agents (Indemnified Parties) from and against
any and all loss, cost, expense or liability (including attorneys fees and court costs) incurred by any Indemnified Party in
connection with or otherwise arising out of any and all claims or proceedings (whether brought by a private party,
governmental agency or otherwise) for bodily injury, property damage, abatement, remediation, environmental damage
or impairment or any other injury or damage resulting from or relating to any hazardous or toxic substance or
contaminated material located upon, migrating into, from or through or otherwise relating to the Mortgaged Property
(whether or not the release of such materials was caused by any Mortgagor, a tenant or subtenant of any Mortgagor, a
prior owner, a tenant or subtenant of any prior owner or any other party and whether or not the alleged liability is
attributable to the handling, storage, generation, transportation or disposal of such substance or the mere presence of the
substance on the Mortgaged Property), which any Indemnified Party may incur due to the extension of the Secured
Indebtedness, the exercise of any of its rights under this Mortgage, or otherwise. The foregoing indemnification shall
apply whether or not such losses, costs, expenses and liabilities are in any way or to any extent caused, in whole or in
part, by any negligent act or omission of any kind by Indemnified Parties provided only that no person shall be entitled
under this paragraph to receive indemnification for that portion, if any, of any losses, costs, expenses and liabilities which
are caused by such persons, or such persons agents, employees, officers, directors, partners, trustees or advisors,
gross negligence or willful misconduct. For the purposes of the indemnity contained in this Section 4.18(b), hazardous or
toxic substances or contaminated material include but are not limited to asbestos and those substances within the scope
of all Environmental Laws, including the Resource Conservation and Recovery Act, the Comprehensive Environmental
Response, Compensation and Liability Act and the Superfund Amendment and Reauthorization Act of 1986. The
provisions of this Section 4.18(b) shall survive any foreclosure of the liens, security interests and other rights created by
this Mortgage, conveyance in lieu of foreclosure and the repayment of the Secured Indebtedness and the discharge and
release of this Mortgage.
Section 4.19
Amendments to Oil and Gas Leases. Except as required by Law, no Mortgagor will, without the prior written
consent of Mortgagee, enter into any material amendments to the Oil and Gas Leases, except any amendments that (i) are in the ordinary
course of business and (ii) do not adversely affect Mortgagees rights hereunder; and provided that Mortgagors provide Mortgagee an
executed version of any such amendment.
Section 4.20
Further Assurances. Each Mortgagor will execute and deliver such other and further instruments and will do such
other and further acts as in the opinion of the Mortgagee may be necessary or desirable to carry out more effectively the purposes of this
Mortgage, including, without limiting the generality of the foregoing, (a) prompt correction of any defect which may hereafter be discovered in
the title to the Mortgaged Property or in the execution and acknowledgment of this Mortgage or the other ISDA Documents, and (b) prompt
execution and delivery of all division or transfer orders that in the opinion of the Mortgagee are needed to transfer effectively the assigned
proceeds of production from the Mortgaged Property to the Mortgagee, if required by this Mortgage.
Section 4.21
Taxes. Subject to the Mortgagors right to contest the same in good faith and by appropriate proceedings, the
Mortgagors will promptly pay, prior to delinquency, all taxes, assessments and governmental charges legally imposed upon this Mortgage or
upon the Mortgaged Property or upon the interest of the Mortgagee therein, or upon the income, profits, proceeds and other revenues thereof.
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Section 4.22
Recording. Mortgagors will promptly and at the Mortgagors expense, record, register, deposit and file this
Mortgage and every other instrument in addition or supplemental hereto in such offices and places and at such times and as often as may be
necessary to preserve, protect and renew the liens, security interests and other rights hereof as a first lien and security interest (subject to the
Permitted Liens) on real or Personal Property, as the case may be, and the rights and remedies of the Mortgagee, and otherwise will do and
perform all matters or things necessary or expedient to be done or observed by reason of any Law of any state or of the United States or of
any other competent authority, for the purpose of effectively creating, maintaining and preserving the liens, security interests and other rights
hereof on the Mortgaged Property.
Section 4.23
Delivery of Instruments. Each Mortgagor shall deliver to Mortgagee upon its request copies of all contracts,
statements, invoices, notices, receipts and vouchers under which such Mortgagor has incurred or is to incur costs in excess of Twenty-Five
Thousand Dollars ($25,000), and deliver to Mortgagee all other data or documents in connection with such Mortgagors operations as
Mortgagee may from time to time reasonably request.
Section 4.24
Purchasers of Hydrocarbons. Each Mortgagor shall in the event that any purchaser of Hydrocarbons has its seniormost unsecured debt assigned a rating of less than investment grade by either Standard & Poors Ratings Group or Moodys Investors
Services, Inc., upon the request of Mortgagee, (i) use all reasonable efforts to cause such purchaser to provide one or more letters of credit, in
form and substance and from a bank satisfactory to Mortgagee in connection with its purchase of Hydrocarbons from the Mortgaged Property
or (ii) to the extent allowed under applicable contracts, sell Hydrocarbons only to purchasers who are creditworthy in Mortgagees reasonable
judgment or who prepay, all to the extent such Mortgagor is legally entitled to take such action.
Section 4.25
Access to Seismic and Geophysical Data. To the maximum extent allowed under applicable seismic licenses, each
Mortgagor shall provide Mortgagee and its respective engineering consultants with access to all engineering, seismic, geological and
geophysical data, studies and evaluations which such Mortgagor or any of its affiliates possess or to which any of them has access. Mortgagee
will, upon reasonable notice to Mortgagors, have access to these records during Mortgagors regular business hours; provided that, to the
extent the information to be made available to Mortgagee under this section is subject to a confidentiality agreement, Mortgagors may require
Mortgagee to execute and deliver to it a mutually acceptable confidentiality agreement prior to being allowed access to the confidential
information.
Section 4.26
Liens on Collateral. Each Mortgagor will at all times cause all Mortgaged Property to be subject to a first-priority
perfected lien or security interest, subject only to Permitted Liens, in favor of or for the benefit of Mortgagee pursuant to this Mortgage and the
other ISDA Documents.
Section 4.27
Accounts. No Mortgagor will sell, discount or factor its accounts, instruments, intangibles, Oil and Gas Leases or
chattel paper, except for accounts that are settled for less than the amount thereof, discounted or extended in each case in the ordinary course of
business so long as no Event of Default has occurred and is continuing.
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Section 4.28
Modifications. No mortgagor shall alter, amend or cause the alteration or amendment of any of the ISDA
Documents or any material Basic Document without the prior written consent of Mortgagee.
Section 4.29
Pricing of Hydrocarbons. The sale of Hydrocarbons by any Mortgagor to any Person shall, under any agreement,
be for no less than prevailing market prices for such Hydrocarbons in the geographical areas for similar quantities and quality and on terms
acceptable to Mortgagee. Subject in all respects to restrictions on the sale of Mortgaged Property set forth in the ISDA Documents,
Mortgagors shall not enter into any purchase and sale transaction the terms of which value the Mortgage Property at prices below prevailing
market prices.
ARTICLE V
ADDITIONS TO MORTGAGED PROPERTY
Section 5.1
Additions to Mortgaged Property. It is understood and agreed that the Mortgagors may periodically subject
additional properties to the liens, security interests and other rights of this Mortgage. In the event that additional properties are to be subjected
to the liens, security interests and other rights hereof, the parties hereto agree to execute a supplemental mortgage, satisfactory in form and
substance to the Mortgagee, together with any security agreement, financing statement or other security instrument required by the Mortgagee,
all in form and substance satisfactory to the Mortgagee and in a sufficient number of executed (and, where necessary or appropriate,
acknowledged) counterparts for recording purposes. Upon execution of such supplemental mortgage, all additional properties thereby
subjected to the liens, security interests and other rights of this Mortgage shall become part of the Mortgaged Property for all purposes.
ARTICLE VI
DEFEASANCE, EVENTS OF DEFAULT, FORECLOSURE
AND OTHER REMEDIES
Section 6.1
Defeasance. If the Secured Indebtedness shall be paid and discharged in full and the Mortgagee has terminated the
ISDA, then, and in that case only, this Mortgage shall become null and void and the interests of the Mortgagors in the Mortgaged Property
shall become wholly clear of the liens, security interests and other rights created hereby, and such liens, security interests and other rights shall
be released in due course at the cost of the Mortgagors. The Mortgagee will, at the Mortgagors expense, execute and deliver to the
Mortgagors all releases and other instruments reasonably requested by the Mortgagors for the purpose of evidencing the release and discharge
of the liens, security interests and other rights created hereunder. Otherwise this Mortgage shall remain and continue in full force and effect.
Section 6.2
Events of Default. As used herein Event of Default shall mean the occurrence of any payment default by any
Mortgagor hereunder, any other default hereunder which is not cured within ten (10) business days following Mortgagors actual notice of
such default or an Event of Default, a Termination Event or an Additional Termination Event, each as defined in the ISDA.
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Section 6.3
General Remedies; No Additional Duties Created.
(a)
If an Event of Default shall occur and be continuing, the Mortgagee shall have the right and option to proceed with
foreclosure and to sell, to the extent permitted by Law, all or any portion of the Mortgaged Property at one or more sales, as an entirety
or in parcels, at such place or places and otherwise in such manner and upon such notice as may be required by applicable Law or, in
the absence of any such requirements, as the Mortgagee may deem appropriate, and to make conveyance to the purchaser or
purchasers.
(b)
Notwithstanding any other provision of this Article VI, if any of the Secured Indebtedness shall not be paid when
due, Mortgagee shall have the right and power to proceed by a suit or suits in equity or at law, whether for the specific performance of
any covenant or agreement herein contained or in aid of the execution of any power herein granted and in the other ISDA Documents,
or for any foreclosure hereunder or for the sale of the Mortgaged Property under the judgment or decree of any court or courts of
competent jurisdiction, or for the appointment of a receiver pending any foreclosure hereunder or the sale of the Mortgaged Property
under the order of a court or courts of competent jurisdiction or under executory or other legal process, or for the enforcement of any
other appropriate legal or equitable remedy. Any money advanced by Mortgagee in connection with any such receivership shall be a
demand obligation (which obligation Mortgagors hereby expressly promises to pay) owing by Mortgagors to Mortgagee.
(c)
Mortgagee shall also have the option to proceed with foreclosure in satisfaction of any installments of the Secured
Indebtedness which have not been paid when due, either through the courts or by non-judicial foreclosure proceedings allowed by the
Laws of the state in which the Mortgaged Property is located in satisfaction of the matured but unpaid portion of the Secured
Indebtedness as if under a full foreclosure, conducting the sale as herein provided and without declaring the entire principal balance
and accrued interest due; such sale may be made subject to the unmatured portion of the Secured Indebtedness, and any such sale shall
not in any manner affect the unmatured portion of the Secured Indebtedness, but, as to such unmatured portion of the Secured
Indebtedness, this Mortgage shall remain in full force and effect just as though no sale had been made hereunder. It is further agreed
that several sales may be made hereunder without exhausting the right of sale for any unmatured part of the Secured Indebtedness, it
being the purpose hereof to provide for a foreclosure and sale of the security for any matured portion of the Secured Indebtedness
without exhausting the power to foreclose and sell the Mortgaged Property for any subsequently maturing portion of the Secured
Indebtedness.
(d)
The Mortgaged Property may be sold in one or more parcels and in such manner and order as Mortgagee, in his sole
discretion, may elect, it being expressly understood and agreed that the right of sale arising out of any Event of Default shall not be
exhausted by any one or more sales.
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(e)
Upon the occurrence and during the continuance of any of the Events of Default, Mortgagee shall be entitled to all of
the rights, powers and remedies afforded a secured party by the UCC with reference to the Personal Property, As-extracted collateral
and fixtures in which Mortgagee has been granted a security interest hereby, or Mortgagee may proceed as to both the real and
Personal Property covered hereby. Without limiting the generality of the foregoing, Mortgagee may exercise the right to take
possession of all Personal Property constituting a part of the Mortgaged Property, and for this purpose the Mortgagee may enter upon
any premises on which any or all of such Personal Property is situated and take possession of and operate such Personal Property (or
any portion thereof) or remove it therefrom. The Mortgagee may require the Mortgagors to assemble such Personal Property and make
it available to the Mortgagee at a place to be designated by the Mortgagee which is reasonably convenient to all parties. Unless such
Personal Property is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, the
Mortgagee will give the Mortgagors notice in accordance with applicable Law of the time and place of any public sale or of the time
after which any private sale or other disposition of such Personal Property is to be made. Mortgagee agrees to provide notice by firstclass mail, postage prepaid, to the Mortgagors at the Mortgagors address set forth in Article I, at least ten (10) business days before
the time of the sale or disposition.
(f)
Each Mortgagor agrees to the full extent it lawfully may, that, in case one or more of the Events of Default shall have
occurred and shall not have been remedied, then, and in every such case, Mortgagee shall have the right and power to enter into and
upon and take possession of all or any part of the Mortgaged Property in the possession of such Mortgagor, its successors or assigns,
or its or their agents or servants, and may exclude such Mortgagor, its successors or assigns, and all persons claiming under such
Mortgagor, and its or their agents or servants wholly or partly therefrom. All costs, expenses and liabilities of every character incurred
by Mortgagee in administering, managing, operating, and controlling the Mortgaged Property shall constitute a demand obligation
(which obligation such Mortgagor hereby expressly promises to pay) owing by any Mortgagor to Mortgagee and shall bear interest
from date of expenditure until paid at the rate agreed upon in the ISDA Documents, all of which shall constitute a portion of the
Secured Indebtedness and shall be secured by this Mortgage and all other ISDA Documents.
(g)
Every right, power and remedy herein given to Mortgagee shall be cumulative and in addition to every other right,
power and remedy herein specifically given or now or hereafter existing in equity, at law or by statute (including specifically those
granted by the UCC in effect and applicable to the Mortgaged Property or any portion thereof) each and every right, power and remedy
whether specifically herein given or otherwise existing may be exercised from time to time and so often and in such order as may be
deemed expedient by Mortgagee, and the exercise, or the beginning of the exercise, of any such right, power or remedy shall not be
deemed a waiver of the right to exercise, at the same time or thereafter any other right, power or remedy. No delay or omission by
Mortgagee in the exercise of any right, power or remedy shall impair any such right, power or remedy or operate as a waiver thereof or
of any other right, power or remedy then or thereafter existing. No security subsequently taken by Mortgagee shall in any manner
impair or affect the security given by this Mortgage or any security by endorsement or otherwise presently or previously given, and all
security shall be taken, considered and held as cumulative.
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(h)
Mortgagee shall also have the right to exercise any and all other rights or remedies granted to the Mortgagee
pursuant to the provisions of any of the ISDA Documents or by Law.
(i)
Each Mortgagor hereby expressly waives any and all rights or privileges of marshaling of assets, sale in inverse
order of alienation, notices, appraisements, redemption and any prerequisite to the full extent permitted by applicable Law, in the event
of foreclosure of the liens, security interests and other rights created herein.
Notwithstanding the foregoing, the Mortgagee shall have no obligation to do or refrain from doing any of the acts, or to make or
refrain from making any payment, referred to in this Section 6.3.
Section 6.4
Specific Remedial Provisions. Notwithstanding any provision of this Article VI or any other provision of this
Mortgage, with respect to that portion of the Mortgaged Property located in the State of North Dakota, the Mortgagees rights and remedies
hereunder upon the occurrence of an Event of Default shall include, without limitation, the fullest range and benefit of the rights and remedies
made available to a Mortgagee pursuant to North Dakota Century Code, and specifically Chapters 32-19 and 32-19.1 thereof, as such statutes
may be amended from time to time. In the event that Mortgagee elects to exercise its remedies under such statutes, or any of such remedies, the
terms of provisions of such statutes, as amended, governing the exercise of such remedies shall govern, control, and take precedence over any
contrary terms contained in this Mortgage. The exercise by Mortgagee of the statutory remedies referenced in this paragraph shall not
constitute Mortgagee as a Mortgagee-in-Possession under North Dakota Law, or give rise to any liability which might otherwise attach to
Mortgagee as a Mortgagee-in-Possession.
Section 6.5
Valuation. In the event the waiver under Section 6.12 is determined by a court of competent jurisdiction to be
unenforceable, the following shall be the basis for the finder of facts determination of the fair market value of the Mortgaged Property as of
the date of the foreclosure sale in all proceedings:
(a)
The Mortgaged Property shall be valued in an as is condition as of the date of the foreclosure sale, without any
assumption or expectation that the Mortgaged Property will be repaired or improved in any manner before a resale of the Mortgaged
Property after foreclosure;
(b)
The valuation shall be based upon an assumption that the foreclosure purchaser desires a prompt resale of the
Mortgaged Property for cash promptly (but no later than twelve months) following the foreclosure sale;
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(c)
All reasonable closing costs customarily borne by the seller should be deducted from the gross fair market value of
the Mortgaged Property, including, without limitation, reasonable attorneys fees;
(d)
The gross fair market value of the Mortgaged Property shall be further discounted to account for any estimated
holding costs associated with maintaining the Mortgaged Property pending sale, including, without limitation, utilities expenses,
taxes and assessments, and other reasonable maintenance expenses; and
(e)
Any expert opinion testimony given or considered in connection with a determination of the fair market value of the
Mortgaged Property must be given by persons having at least five years experience in appraising property similar to the Mortgaged
Property and who have conducted and prepared a complete written appraisal of the Mortgaged Property taking into consideration
the factors set forth above.
Section 6.6
Rights of the Mortgagee With Respect to Fixtures. The Mortgagee may elect to treat the fixtures constituting a part
of the Mortgaged Property as either real property collateral or personal property collateral and proceed to exercise such rights as apply to such
type of collateral.
Section 6.7
Possession of the Mortgaged Property. It shall not be necessary for the Mortgagee to have physically present or
constructively in its possession at any sale held by the Mortgagee or by any court, receiver or public officer any or all of the Mortgaged
Property, and the Mortgagors shall deliver to the purchaser at such sale on the date of sale the Mortgaged Property purchased by such
purchasers at such sale, and if it should be impossible or impracticable for any of such purchasers to take actual delivery of the Mortgaged
Property, then the title and right of possession to the Mortgaged Property shall pass to the purchaser at such sale as completely as if the same
had been actually present and delivered.
Section 6.8
Effect of Sale. Any sale or sales of the Mortgaged Property shall operate to divest all right, title, interest, claim and
demand whatsoever either at law or in equity, of the Mortgagors, in and to the premises and the property sold, and shall be a perpetual bar,
both at law and in equity, against the Mortgagors, and the Mortgagors successors or assigns, and against any and all persons claiming or who
shall thereafter claim all or any of the property sold from, through or under the Mortgagors, or the Mortgagors successors or assigns.
Nevertheless, the Mortgagors, if reasonably requested by the Mortgagee to do so, shall join in the execution and delivery of all proper
conveyances, assignments and transfers of the properties so sold.
Section 6.9
same as follows:
Application of Proceeds. The Mortgagee is authorized to receive the proceeds of said sale or sales and apply the
FIRST: to the payment of all necessary costs and expenses incident to the execution and enforcement of this Mortgage;
SECOND: to any and all Secured Indebtedness, application to be made in such order and in such manner as the holder of said
Secured Indebtedness may, in its discretion, elect; and
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THIRD: the balance, if any, to Mortgagors or their respective successors or assigns.

Section 6.10
Evidence. It is agreed that in any deed or deeds given by Mortgagee any and all statements of fact or other recitals
therein made as to the identity of the holder or holders of the Secured Indebtedness, or as to the default in the payments thereof or any part
thereof, or as to the breach of any covenants herein contained, or as to the request to sell, notice of sale, time, place, terms and manner of sale,
and receipt, application, and distribution of the money realized therefrom, and, without being limited by the foregoing, as to any other
additional act or thing having been done by Mortgagee, shall be taken by all courts of law and equity as prima facie evidence that the
statements or recitals state facts and are without further question to be so accepted; and Mortgagors do hereby ratify and confirm any and all
acts that the Mortgagee may lawfully do in the premises by virtue of the terms and conditions of this Mortgage.
Section 6.11
Purchaser. It is expressly understood that the Mortgagee may be a purchaser of the Mortgaged Property, or of any
part thereof, at any sale thereof, upon foreclosure of the liens, security interests and other rights hereof, or otherwise; and the Mortgagee so
purchasing shall, upon any such purchase, acquire good title to the Mortgaged Property so purchased, free of the liens, security interests and
other rights of this Mortgage and free of all rights of redemption in Mortgagors.
Section 6.12
Appraisement, Etc. To the full extent any Mortgagor may do so, each Mortgagor agrees that such Mortgagor will
not at any time insist upon, plead, claim or take the benefit or advantage of any Law now or hereafter in force providing for any appraisement,
valuation, stay, extension or redemption, and such Mortgagor, for such Mortgagor and such Mortgagors successors and assigns, and for any
and all persons ever claiming any interest in the Mortgaged Property, to the extent permitted by Law, hereby waives and releases all rights of
redemption, valuation, appraisement, stay of execution, notice of intention to mature or declare due the whole of the Secured Indebtedness,
notice of election to mature or declare due the whole of the Secured Indebtedness and all rights to a marshaling of the assets of such
Mortgagor, including the Mortgaged Property liens, security interests and other rights hereby created. No Mortgagor shall have or assert any
right under any Law pertaining to the marshaling of assets, sale in inverse order of alienation, or other matters whatever to defeat, reduce or
affect the right of the Mortgagee under the terms of this Mortgage to a sale of the Mortgaged Property for the collection of the Secured
Indebtedness without any prior or different resort for collection, or the right of the Mortgagee under the terms of this Mortgage to the payment
of such indebtedness out of the proceeds of sale of the Mortgaged Property in preference to every other claimant whatever. If any Law
referred to in this Section 6.12 and now in force, of which Mortgagors or Mortgagors successors and assigns and such other persons
claiming any interest in the Mortgaged Property might take advantage despite this paragraph, shall hereafter be repealed or cease to be in force,
such Law shall not thereafter be deemed to preclude the application of this paragraph.
Section 6.13
Deficiency.
(a)
To the extent permitted by Law, each Mortgagor agrees that Mortgagee shall be entitled to seek a deficiency
judgment from such Mortgagor and any other party obligated on the Secured Indebtedness equal to the difference between the
amount owing on the Secured Indebtedness and the amount for which the Mortgaged Property was sold pursuant to a judicial or
nonjudicial foreclosure sale;
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(b)
Each Mortgagor expressly recognizes that this section will constitute a waiver of any such applicable Law which
might otherwise permit such Mortgagor and other persons against whom recovery of deficiencies is sought or guarantors
independently (even absent the initiation of deficiency proceedings against them) to present competent evidence of the fair market
value of the Mortgaged Property as of the date of foreclosure and offset against any deficiency the amount by which the foreclosure
sale price is determined to be less than fair market value; and
(c)
Each Mortgagor further recognizes and agrees that this waiver will create an irrebuttable presumption that the
foreclosure sale price is equal to the fair market value of the Mortgaged Property for purposes of calculating deficiencies owed by
such Mortgagor, other obligors on the Secured Indebtedness, guarantors, and others against whom recovery of a deficiency is
sought.
Section 6.14
Recitals in Deeds. It is agreed that in any deed or deeds given by Mortgagee any and all statements of fact or other
recitals therein made as to the identity of the holder or holders of the Secured Indebtedness or as to the occurrence or existence of any default,
or as to the acceleration of the maturity of the Secured Indebtedness, or as to the request to sell, notice of sale, time, place, terms, and manner
of sale, and receipt, distribution and application of the money realized therefrom and without being limited by the foregoing, as to any act or
thing having been duly done by the holder of the Secured Indebtedness, or any of them if there be more than one shall be taken by all courts of
law and equity as prima facie evidence that the said statements and recitals state facts and are without further question to be so accepted, and
the Mortgagors do hereby ratify and confirm any and all acts that Mortgagee may lawfully do in the premises by virtue hereof.
Section 6.15
Operation of the Mortgaged Property by the Mortgagee. Upon the occurrence and during the continuance of an
Event of Default and, in addition to all other rights herein conferred on the Mortgagee, the Mortgagee (or any person designated by the
Mortgagee) shall have the right and power, but shall not be obligated, to enter upon and take possession of any of Mortgagors interest in the
Mortgaged Property, and to exclude the Mortgagors, and the Mortgagors agents or servants, wholly therefrom, and to hold, use, administer,
manage and operate the same to the extent that the Mortgagors shall be at the time entitled and in its place and stead. Subject to the compliance
with the terms of any applicable operating agreement, the Mortgagee (or any person designated by the Mortgagee) may operate the same
without any liability to the Mortgagors in connection with such operations, except to use ordinary care in the operation of such properties, and
Mortgagee (or any person designated by the Mortgagee) shall have the right to collect, receive and receipt for all Hydrocarbons produced and
sold from said properties, to make reasonable and necessary repairs, purchase machinery and equipment, and conduct such work-over
operations that a reasonably prudent operator would make, purchase or conduct to maintain the Mortgaged Property. When and if the expenses
of such operation and development (including costs of unsuccessful work-over operations or additional Wells) have been paid and the
indebtedness paid, said properties shall, if there has been no sale or foreclosure, be returned to the Mortgagors.
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Section 6.16
Power of Attorney and Agent to Mortgagee. Each Mortgagor does hereby designate Mortgagee as the agent and
attorney in fact of such Mortgagor to act in the name, place, and stead of such Mortgagor in the exercise of each and every remedy set forth
herein, including rights to liens, security interests and other rights in the Mortgaged Property, and in conducting any and all operations and
taking any and all action reasonably necessary to do so, recognizing such agency in favor of Mortgagee to be coupled with the interests of
Mortgagee under this Mortgage and, thus, irrevocable so long as this Mortgage is in force and effect.
ARTICLE VII
ASSIGNMENT OF PRODUCTION AND REVENUES
(this Assignment)
Section 7.1
Production. In addition to the conveyance to the Mortgagee herein made, each Mortgagor does hereby transfer,
assign, deliver and convey unto Mortgagee, its successors and assigns, all Hydrocarbons and Other Minerals produced, saved or sold from
the Mortgaged Property and attributable to the interest of such Mortgagor therein commencing on the Effective Date, together with the
proceeds of any sale thereof (Hydrocarbon Proceeds); each Mortgagor hereby directs any purchaser now or hereafter taking any production
from the Mortgaged Property to pay to Mortgagee such Hydrocarbon Proceeds derived from the sale thereof, and to continue to make
payments directly to Mortgagee until notified in writing by Mortgagee to discontinue the same; and the purchaser of any such production shall
have no duty or obligation to inquire into the right of Mortgagee to receive the same, what application is made thereof, or as to any other
matter; and the payment made to Mortgagee shall be binding and conclusive as between such purchaser and such Mortgagor. Each Mortgagor
further agrees to perform all such acts, and to execute all such further assignments, transfer and division orders, and other instruments as may
be required or desired by Mortgagee or any other party to have such Hydrocarbon Proceeds so paid to Mortgagee.
Section 7.2
Revenues. In addition to the conveyance to the Mortgagee herein made, each Mortgagor does hereby transfer,
assign, deliver and convey unto Mortgagee, its successors and assigns, all the income, revenues, rents, issues, profits and proceeds arising
from the Pipelines relating to the Mortgaged Property whether due, payable or accruing (collectively, the Revenues) under any and all
present and future contracts or other agreements relating to the transmission of the Hydrocarbons or the ownership of all or any portion of the
Mortgaged Property. Each Mortgagor hereby directs any payor to pay to Mortgagee such Revenues derived from such contracts and
agreements, and to continue to make payments directly to Mortgagee until notified in writing by Mortgagee to discontinue the same; and the
payor shall have no duty or obligation to inquire into the right of Mortgagee to receive the same, what application is made thereof, or as to any
other matter; and the payment made to Mortgagee shall be binding and conclusive as between such payor and such Mortgagor. Each
Mortgagor agrees to perform all such acts, and to execute all such further assignments, transfers and other instruments as may be required or
desired by the Mortgagee or any party in order to have said Revenues so paid to the Mortgagee.
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Section 7.3
General. The Mortgagee is fully authorized to (i) receive and receipt for said Revenues and Hydrocarbon
Proceeds; (ii) to endorse and cash any and all checks and drafts payable to the order of any Mortgagor or the Mortgagee for the account of any
Mortgagor received from or in connection with said Revenues and Hydrocarbon Proceeds and apply the proceeds thereof to the payment of
the Secured Indebtedness, when received, regardless of the maturity of any of the Secured Indebtedness, or any installment thereof, and (iii)
execute any instrument in the name of any Mortgagor to facilitate any of the foregoing. Upon receipt of written instructions from Mortgagors,
Mortgagee agrees to promptly release to Mortgagors any Revenues and Hydrocarbon Proceeds belonging to third parties; provided that the
Mortgagee shall not be liable for any delay, neglect, or failure to effect collection of any Revenues and Hydrocarbon Proceeds or to take any
other action in connection therewith or hereunder (other than failure to timely release to Mortgagors any Revenues and Hydrocarbon Proceeds
belonging to third parties); but shall have the right, at its election, in the name of Mortgagors or otherwise, to prosecute and defend any and all
actions or legal proceedings deemed advisable by the Mortgagee in order to collect such funds and to protect the interests of the Mortgagee
and/or Mortgagors, with all costs, expenses and attorneys fees incurred in connection therewith being paid by Mortgagors. Unless
Mortgagee has claimed or is claiming, for its benefit Revenues and Hydrocarbon Proceeds belonging to third parties and not
attributable to the Mortgaged Property, Each Mortgagor hereby agrees to indemnify, protect, defend and hold harmless the
Mortgagee against all claims, actions, liabilities, judgments, costs, charges and attorneys fees made against or incurred by it, based
on an assertion that it received Revenues or Hydrocarbon Proceeds claimed by third persons either before or after the payment in
full of the Secured Indebtedness; provided that no person shall be entitled under this paragraph to receive indemnification for that
portion, if any, of any losses, costs, expenses and liabilities which are caused by such persons, or such persons agents,
employees, officers, directors, partners, trustees or advisors, gross negligence, fraud, or willful misconduct. Mortgagee shall
have the right to defend against any such claims, actions and judgments, employing its attorneys therefor, and if it is not furnished
with reasonable indemnity, it shall have the right to compromise and adjust any such claims, actions and judgments. Each
Mortgagor agrees to indemnify, protect, defend and hold harmless the Mortgagee against any and all such claims, judgments, costs,
charges and reasonable attorneys fees as may be paid in any judgment, release or discharge thereof or as may be adjudged against
the Mortgagee. Each Mortgagor hereby appoints Mortgagee as its attorney-in-fact to pursue any and all rights of such Mortgagor to liens,
security interests and other rights in the Mortgaged Property. Each Mortgagor hereby further transfers and assigns to Mortgagee any and all
such liens, security interests and other rights of such Mortgagor attributable to its interest in the Mortgaged Property and Revenues and
Hydrocarbon Proceeds arising under or created by any applicable Law. The power of attorney granted to Mortgagee in this Section 7.3, being
coupled with an interest, shall be irrevocable so long as the Secured Indebtedness or any part thereof remains unpaid. Notwithstanding the
foregoing, Mortgagors will have no obligation to indemnify Mortgagee for any claims, actions, liabilities, judgments, costs, charges and
attorneys fees arising out of the gross negligence or willful misconduct by Mortgagee.
Section 7.4
Failure of Payments. Should any purchaser or other party taking the production from the Mortgaged Property or
owing payment to any Mortgagor fail to make prompt payment to Mortgagee in accordance with this Assignment, Mortgagee shall, if
permitted by Law and applicable contractual relations, have the right at Mortgagors expense to demand a change of connection and to
designate another purchaser or other party with whom a new connection may be made, without any liability on the part of Mortgagee in
making such selection, so long as ordinary care is used in the making thereof; and failure of Mortgagors to consent to and promptly effect
such change of connection shall constitute an Event of Default hereunder.
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Section 7.5
Receiving, Holding Monies. Each Mortgagor authorizes and empowers Mortgagee to receive, hold and collect all
sums of money paid to Mortgagee in accordance with this Assignment, and to apply the same as hereinafter provided, all without any liability
or responsibility on the part of Mortgagee, save and except as to good faith in so receiving and applying such sums. All payments provided
for in this Assignment shall be paid promptly to Mortgagee, and Mortgagee may apply the same or so much thereof as provided under the
ISDA and following an Event of Default, as it elects to the payment of the Secured Indebtedness, application to be made in accordance of
Section 6.09 hereof, regardless of whether the application so made shall exceed the payments of principal and interest then due on the Secured
Indebtedness, but in no event in excess of the total Secured Indebtedness outstanding. After such application has been so made by Mortgagee,
the balance of any such payment or payments remaining shall be paid to Mortgagors. Mortgagee agrees to give Mortgagors written notice
simultaneously with its notice to the purchaser that such payments are to be paid to Mortgagee in accordance with the terms of this Article.
Section 7.6
Right to Possess, Operate. The parties agree that if payments provided for by this Assignment are less than the
sum or sums then due on the Secured Indebtedness, such sum or sums then due shall nevertheless be paid by Mortgagors in accordance with
the provisions of the ISDA Documents evidencing the Secured Indebtedness, and neither this Assignment nor any provisions hereof shall in
any manner be construed to affect the terms and provisions of such ISDA Documents. Likewise, neither this Assignment nor any provisions
hereof shall in any manner be construed to affect the liens, security interests, other rights, title and remedies herein granted securing the
Secured Indebtedness or Mortgagors liability therefor. The rights under this Assignment are cumulative of all other rights, remedies, and
powers granted under this Mortgage, and are cumulative of any other security which Mortgagee now holds or may hereafter hold to secure the
payment of the Secured Indebtedness.
Section 7.7
Remittance of Monies. Should any Mortgagor receive any of the proceeds which under the terms hereof should
have been remitted to Mortgagee, such Mortgagor will promptly remit same in full to Mortgagee.
Section 7.8
No Liability. Mortgagee shall not be liable for any failure to collect, or for any failure to exercise diligence in
collecting, any funds assigned hereunder. Mortgagee shall be accountable only for funds actually received.
Section 7.9
Unconditional. Each Mortgagor hereby acknowledges that this Assignment is intended to be presently,
unconditionally and immediately effective subject to the terms of this Mortgage. Furthermore, each Mortgagor agrees that Mortgagee is not
required to assert any affirmative act, including the institution of any legal proceedings, to enforce this Assignment.
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ARTICLE VIII
ADDITIONAL REMEDIES
Section 8.1
Mortgagee May Act. If any Mortgagor should fail to comply with any of the covenants or obligations of
Mortgagors hereunder, then Mortgagee may perform the same for the account and at the expense of Mortgagors but shall not be obligated so
to do, and any and all reasonable out-of-pocket expenses incurred or paid in so doing shall be payable by Mortgagors to Mortgagee, with
interest at the rate agreed upon in the ISDA Documents, from the date when same was so incurred or paid, and the amount thereof shall be
payable on demand and shall be secured by and under this Mortgage, and the amount and nature of such expense and the time when paid shall
be presumptively established by the affidavit of Mortgagee or any officer or agent thereof; provided, however, that the exercise of the
privileges granted in this Section 8.1 shall not be considered or constitute a waiver of the right of Mortgagee upon the occurrence and
continuance of an Event of Default hereunder to declare the Secured Indebtedness at once due and payable but shall be cumulative of such
right and all other rights herein given.
ARTICLE IX
MISCELLANEOUS
Section 9.1
Articles, Etc. This Mortgage, for convenience only, has been divided into Articles and paragraphs, and it is
understood that the rights, powers, privileges, duties and other legal relations of the Mortgagors and the Mortgagee, shall be determined from
this Mortgage as an entirety and without regard to the aforesaid division into Articles and paragraphs and without regard to headings prefixed
to such Articles.
Section 9.2
Successors and Assigns. The terms used to designate any of the parties herein shall be deemed to include the
successors and assigns of such parties; the term successors shall include the heirs, trustees and legal representatives; and the term
Mortgagee shall also include any lawful owner, holder or pledgee of any Secured Indebtedness. Whenever the context requires, reference
herein made to the single number shall be understood to include the plural and the plural shall likewise be understood to include the singular.
Words denoting sex shall be construed to include the masculine, feminine, and neuter when such construction is appropriate, and specific
enumeration shall not exclude the general, but shall be construed as cumulative.
Section 9.3
Assignment. Without the prior written consent of Mortgagee, no Mortgagor may assign any rights, duties or
obligations hereunder. In the event of an assignment or pledge of all or part of the Secured Indebtedness by Mortgagee in accordance with the
ISDA Documents, the assignee shall be entitled to all the rights, privileges and remedies granted in this Mortgage to Mortgagee. The
covenants and agreements herein contained by or on behalf of Mortgagors shall bind Mortgagors and Mortgagors successors or permitted
assigns and all persons who become bound as a mortgagor to this Mortgage and shall inure to the benefit of Mortgagee and its successors and
assigns, and the covenants and agreements herein contained shall constitute covenants running with the land.
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Section 9.4
Amendments and Supplements. It is contemplated by the parties hereto that from time to time additional interests
and properties may or will be added to the interests and properties on Exhibit A-1 and Exhibit A-2 attached hereto by means of supplements or
amendments identifying this Mortgage and describing such interests and properties to be so added and included, and upon the execution of
any such supplements or amendments, liens, security interests, other rights, titles and interests created herein shall immediately attach to and be
effective as of the date of such supplemental indenture in respect to any such interests and properties so described, and the same being
included in the term Mortgaged Property, as used herein. This Mortgage, and any provisions hereof, may be modified or amended only by
an agreement in writing signed by Mortgagors and Mortgagee.
Section 9.5
Multiple Effect. This Mortgage shall be deemed, and may be enforced from time to time, as a chattel mortgage, real
estate mortgage, deed of trust, security agreement, assignment or contract, or as one or more thereof.
Section 9.6
Fixtures. Without in any manner limiting the generality of any of the foregoing hereof, some portions of the
Personal Property described hereinabove are or are to become fixtures on the Lands or Lands Associated with Pipeline described herein or to
which reference is made herein. In addition, the security interest created hereby under applicable provisions of the UCC attaches to minerals,
including oil, gas and other As-extracted collateral, or accounts resulting from the sale thereof, at the wellhead or minehead located on the
Lands or Lands Associated with Pipelines.
Section 9.7
Financing Statements. This Mortgage may be filed as provided in the UCC relating to the perfecting of security
interests in fixtures and As-extracted collateral. In this connection, this instrument may also be presented to a filing officer under the UCC to
be filed in the county real estate or official public records as a Financing Statement covering fixtures and As-extracted collateral, pursuant to
Section 9-502 of the UCC. For purposes of filing this Mortgage as a financing statement, the addresses for each Mortgagor, as the debtor, and
Mortgagee, as the secured party, are as set forth hereinabove. The organizational number for AEEC is C17822-2003, and the organizational
number for AMZG is E0181062007-5.
Section 9.8
Multiple Counterparts. For the convenience of the parties, this Mortgage may be executed in multiple counterparts.
For recording purposes, various counterparts have been executed and there may be attached to each such counterpart an Exhibit A-1 and
Exhibit A-2 containing only the description of the Mortgaged Property, or portions thereof, which relates to the county or state in which the
particular counterpart is to be recorded. A complete, original counterpart of this Mortgage with a complete Exhibit A-1 and Exhibit A-2 may
be obtained from the Mortgagee. Each of the counterparts hereof so executed shall for all purposes be deemed to be an original, and all such
counterparts shall together constitute but one and the same Mortgage.
Section 9.9
No Waivers. The failure or delay of Mortgagee to file or give any notice as to this Mortgage, or to exercise any
right, remedy or option to declare the maturity of the principal debt, or any other sums hereby secured, or the payment by Mortgagee of any
taxes, liens, charges or assessments, shall not be taken or deemed a waiver of any rights to exercise such right or option or to declare any such
maturity as to any past or subsequent violations of any of such covenants or stipulations, and shall not waive or prejudice any liens, security
interests and other rights hereunder. Mortgagees failure to exercise any rights, remedies or options hereunder shall not constitute a waiver or
prejudice the exercise of other rights or remedies existing hereunder.
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Section 9.10
Controlling Provisions. In the event of a conflict between the terms and provisions of this Mortgage and those of
the ISDA, the terms and provisions of the ISDA shall govern and control.
Section 9.11
Benefits Conferred. By Mortgagees acceptance of this Mortgage, Mortgagee acknowledges and accepts the
benefits conferred on Mortgagee and agrees to be bound by the agreements of Mortgagee set forth herein.
Section 9.12
Interest. Mortgagors and Mortgagee intend to contract in strict compliance with applicable usury law from time to
time in effect. In furtherance thereof, the parties stipulate and agree that none of the terms and provisions contained in this Mortgage or any
other ISDA Document shall ever be construed to create a contract to pay, for the use, forbearance or detention of money, interest in excess of
the maximum amount of interest permitted to be charged by applicable Law from time to time in effect. Neither Mortgagors nor any other
persons now or hereafter becoming liable for payment of the Secured Indebtedness shall ever be liable for unearned interest thereon or shall
ever be required to pay interest thereon in excess of the maximum amount that may be lawfully charged under applicable Law from time to
time in effect. Mortgagee expressly disavows any intention to charge or collect excessive unearned interest or finance charges in the event the
maturity of any Secured Indebtedness is accelerated. If (a) the maturity of any Secured Indebtedness is accelerated for any reason, (b) any
Secured Indebtedness is prepaid and as a result any amounts held to constitute interest are determined to be in excess of the legal maximum, or
(c) Mortgagee or any other holder of any or all of the Secured Indebtedness shall otherwise collect moneys which are determined to constitute
interest which would otherwise increase the interest on any or all of the Secured Indebtedness to an amount in excess of that permitted to be
charged by applicable Law then in effect, then all such sums determined to constitute interest in excess of such legal limit shall, without
penalty, be promptly applied to reduce the then outstanding principal of the related Secured Indebtedness or, at Mortgagors or such holders
option, promptly returned to Mortgagors or the other payor thereof upon such determination. In determining whether or not the interest paid or
payable under any specific circumstance exceeds the maximum amount permitted under applicable Law, Mortgagors or Mortgagee (and any
other payors thereof) shall to the greatest extent permitted under applicable Law, (x) characterize any non principal payment as an expense, fee
or premium rather than as interest, (y) exclude voluntary prepayments and the effects thereof, and (z) amortize, prorate, allocate and spread the
total amount of interest throughout the entire contemplated term of the instruments evidencing the Secured Indebtedness in accordance with the
amounts outstanding from time to time thereunder and the maximum legal rate of interest from time to time in effect under applicable Law in
order to lawfully charge the maximum amount of interest permitted under applicable Law.
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Section 9.13
Defense of Claims. Mortgagors will notify the Mortgagee, in writing, promptly of the commencement of any legal
proceedings materially adversely affecting or which could materially adversely affect the liens, security interests and other rights hereof or the
status of or title to the Mortgaged Property, or any part thereof, and will take such action, employing attorneys agreeable to the Mortgagee, as
may be necessary to preserve the Mortgagors and the Mortgagees rights affected thereby; and should the Mortgagors fail or refuse to take
any such action, the Mortgagee may take such action on behalf and in the name of the Mortgagors and at the Mortgagors expense. Moreover,
the Mortgagee may take such independent action in connection therewith as it may in its discretion deem proper without any liability or duty to
the Mortgagors except to use ordinary care, the Mortgagors hereby agreeing that all sums advanced or all expenses incurred in such actions,
will, on demand, be reimbursed to the Mortgagee or any receiver appointed hereunder.
Section 9.14
Renewals, Amendments and Other Security. Renewals and extensions of the Secured Indebtedness may be given
at any time and amendments may be made to the Mortgage and the other ISDA Documents, and the Mortgagee may take or may hold other
security for the Secured Indebtedness without notice to or consent of the Mortgagors. The Mortgagee may resort first to such other security or
any part thereof or first to the security herein given or any part thereof, or from time to time to either or both, even to the partial or complete
abandonment of either security, and such action shall not be a waiver of any rights conferred by this Mortgage, which shall continue as a first
lien and security interest upon the Mortgaged Property not expressly released until all Secured Indebtedness secured hereby is fully paid.
Section 9.15
Instrument as an Assignment, Etc. This Mortgage shall be deemed to be and may be enforced from time to time as
an assignment, chattel mortgage, contract, deed of trust, financing statement, real estate mortgage, pledge, or security agreement, and from time
to time as any one or more thereof.
Section 9.16
Unenforceable or Inapplicable Provisions. If any provision of this Mortgage or in any other ISDA Document is
invalid or unenforceable in any jurisdiction, the other provisions hereof or of any other ISDA Document shall remain in full force and effect in
such jurisdiction, and the remaining provisions hereof shall be liberally construed in favor of the Mortgagee in order to effectuate the
provisions hereof, and the invalidity of any provision hereof in any jurisdiction shall not affect the validity or enforceability of any such
provision in any other jurisdiction. Any reference herein contained to any Law of a state in which no part of the Mortgaged Property is
situated shall be deemed inapplicable to, and not used in, the interpretation hereof.
Section 9.17
Waiver of Covenants by Mortgagee. Any and all covenants in this Mortgage may from time to time by instrument
in writing signed by the Mortgagee be waived to such extent and in such manner as the Mortgagee may desire, but no such waiver shall ever
affect or impair the Mortgagees rights and remedies or liens, security interests and other rights hereunder, except to the extent specifically
stated in such written instrument.
Section 9.18
Notices. Whenever this Mortgage requires or permits any consent, approval, notice, request, or demand from one
party to another, the consent, approval, notice, or demand must be in writing to be effective and shall be delivered as required under the ISDA.
Section 9.19
Drafting of Mortgage. Each Mortgagor declares that it has contributed to the drafting of this Mortgage or has had
the opportunity to have it reviewed by its counsel before signing it and agrees that it has been purposefully drawn and correctly reflects its
understanding of the transaction that it contemplates.
30
Section 9.20
GOVERNING LAW. THIS MORTGAGE SHALL BE GOVERNED BY THE SUBSTANTIVE LAWS OF
THE STATE OF NORTH DAKOTA (AND WHERE APPLICABLE, THE UNITED STATES OF AMERICA) REGARDING THE
VALIDITY, CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF THE TERMS HEREOF, UNLESS THE LAWS OF
ANOTHER STATE SHALL MANDATORILY APPLY.
Section 9.21
WAIVER OF JURY TRIAL. EACH OF MORTGAGORS AND MORTGAGEE WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY SUIT, ACTION OR PROCEEDING RELATING TO THIS MORTGAGE OR ANY TRANSACTION CONTEMPLATED
THEREBY. EACH OF MORTGAGORS AND MORTGAGEE (I) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY
WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF ANY SUCH SUIT, ACTION OR
PROCEEDING, AND (II) ACKNOWLEDGES THAT IT AND THE OTHER PARTY HAVE ENTERED INTO THIS MORTGAGE, IN
RELIANCE ON, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS OF THIS PROVISION.
Section 9.22
Termination. This Mortgage, including the grant of a lien hereunder and all of Mortgagees rights, powers and
remedies in connection therewith, will remain in full force and effect regardless of whether the liability of any other obligor may have ceased,
or irrespective of the validity or enforceability of any other instrument executed in connection with the Secured Indebtedness, and
notwithstanding the reorganization, incapacity or bankruptcy of any obligor, or the reorganization, or bankruptcy of any Mortgagor, or any
other event or proceeding affecting any Mortgagor or any obligor, but shall terminate and be of no further force and effect (other than the
indemnity obligations and other continuing obligations hereunder and under the other ISDA Documents that survive) upon the earlier of (A)
the date Mortgagee has executed a written release or termination statement regarding this Mortgage and (B) the date when all Secured
Indebtedness has been indefeasibly paid in full and the ISDA has terminated.
Section 9.23
Carry Agreement. Specific reference is hereby made to that certain Carry Agreement dated April 16, 2012, but
effective as of January 1, 2012, by and between Mortgagors and NextEra Energy Gas Producing, LLC, a Delaware limited liability company
(NEGP), as amended by that certain First Amendment to Carry Agreement dated as of July 15, 2012, but effective as of August 1, 2012
(collectively, as amended, restated, supplemented or otherwise modified from time to time, the Carry Agreement). Mortgagors and
Mortgagee hereby acknowledge that the Carry Agreement relates to and affects certain Subject Interests covered by this Mortgage (the
Carried Interests). Mortgagee acknowledges that, from time to time, the Mortgagors Working Interests and the Net Revenue Interests in
and to the Carried Interests may be subject to fluctuation based on before payout and after payout status pursuant to the terms and provisions
of the Carry Agreement. Mortgagee also acknowledges that Mortgagors may be required to assign a portion of each such Mortgagors
Working Interest and Net Revenue Interest, from time to time, to NEGP in or to the Carried Interest. To the extent Mortgagors are required to
make any such assignment to NEGP, Mortgagee disclaims any lien, security interest or other interest under this Mortgage in and to any such
assigned interest in the Carried Interests; provided that Mortgagee does not consent to Mortgagors amending or otherwise modifying any
terms under the Carry Agreement in its form as of the Effective Date, and any amendment or modification, without Mortgagees consent, shall
be null and void as to Mortgagee.
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Section 9.24
Final Agreement. THIS DOCUMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES
WITH RESPECT TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
MORTGAGE-COLLATERAL REAL ESTATE MORTGAGE
THE PARTIES AGREE THAT THIS MORTGAGE, SECURITY AGREEMENT, FIXTURE FILING, FINANCING
STATEMENT AND ASSIGNMENT OF PRODUCTION AND REVENUE CONSTITUTES A COLLATERAL REAL ESTATE
MORTGAGE PURSUANT TO NORTH DAKOTA CENTURY CODE CHAPTER 35-03.
DEFICIENCY JUDGMENT
THE MORTGAGE, SECURITY AGREEMENT, FIXTURE FILING, FINANCING STATEMENT AND ASSIGNMENT OF
PRODUCTION AND REVENUE GRANTED HEREBY COVERS COMMERCIAL REAL PROPERTY AS DEFINED IN
NORTH DAKOTA CENTURY CODE SECTION 32-19-06.1 AND THEREFORE THE MORTGAGEE HAS THE RIGHT TO
PROCEED TO OBTAIN AND COLLECT A DEFICIENCY JUDGMENT, TOGETHER WITH FORECLOSURE OF THE
REAL PROPERTY MORTGAGED HEREBY UNDER APPLICABLE LAW.
[Signatures and acknowledgments appear on following pages.]
32
EXECUTED as of the date set forth in the notary blocks below, but effective for all purposes as of the Effective Date.
MORTGAGORS/DEBTORS:
AMERICAN EAGLE ENERGY CORPORATION,
By:
Brad Colby
President
AMZG, INC.,
By:
Brad Colby
President
(Signature Page to Mortgage)
ACKNOWLEDGMENTS
STATE OF COLORADO
COUNTY OF ARAPAHOE
)
) ss
)
On this ___ day of December in the year 2012, before me, personally appeared Brad Colby, President of American Eagle Energy
Corporation, a Nevada corporation, the corporation that is described in and that executed the within instrument, and acknowledged to me that
such corporation executed the same.
NOTARY PUBLIC IN AND FOR
THE STATE OF _____________
STATE OF COLORADO
COUNTY OF ARAPAHOE
)
) ss
)
On this ___ day of December in the year 2012, before me, personally appeared Brad Colby, President of AMZG, Inc., a Nevada
corporation, the corporation that is described in and that executed the within instrument, and acknowledged to me that such corporation
executed the same.
NOTARY PUBLIC IN AND FOR
THE STATE OF _____________
(Acknowledgement Page to Mortgage)
EXHIBIT A-1
TO MORTGAGE
Oil and Gas Properties
EXHIBIT A-2
TO MORTGAGE
Pipelines
All rights, titles and interests of Mortgagors in all existing and future pipelines, gathering systems and other transportation assets, and all
assets, equipment, rights and interests related thereto located on the Mortgaged Property described on Exhibit A-1.
PURCHASE AND SALE AGREEMENT

This Purchase and Sale Agreement (this Agreement) is entered into as of December 20, 2012, by and between USG Properties
Bakken I, LLC, a Delaware limited liability company (Seller), and American Eagle Energy Corporation, a Nevada corporation (Buyer).
WHEREAS, Seller owns the Property (as defined below) and desires to sell the Property to Buyer, and Buyer desires to purchase the
Property from Seller, upon the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the mutual covenants contained in this Agreement and other valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Buyer and Seller agree as follows:
1.
The Property. Buyer agrees to purchase, and Seller agree to sell, convey and assign, all of Sellers right, title and interest in and to the
below-described property (such right, title and interest, the Property), subject to the terms and conditions of this Agreement:
A.
The oil, gas and mineral leases described in Exhibit A and any and all other leases owned by Seller covering any of the belowreferenced units or fields (the Leases), insofar as they cover the lands situated within the Nomad and Thomte Spacing and Drilling
Units located in Divide County, North Dakota (the Lands), together with all rights, privileges and obligations appurtenant thereto;
B.
All oil, gas and condensate wells (whether producing, not producing or abandoned), and all water source, water injection and other
injection and disposal wells and systems located on the Leases or the Lands, or used in connection therewith, including without
limitation those described in Exhibit A (collectively the Wells), together with all equipment, facilities, and fixtures located on or
used in developing or operating the Leases, the Lands, or the Wells, or producing, storing, treating or transporting oil, gas, water, or
other products or byproducts, including pipelines, flow lines, gathering systems, tank batteries, improvements, fixtures, inventory,
movables and immovables. (collectively the Lease Property and Equipment);
C.
To the extent assignable or transferable, all permits, licenses, easements, rights-of-way, servitudes, surface leases, surface use
agreements, and similar rights and interests applicable to or used in operating the Leases, the Lands, the Wells, or the Lease Property
and Equipment (collectively the Permits and Easements);
D.
To the extent assignable or transferable, all contracts and contractual rights, obligations and interests, insofar as they relate to the
Leases, the Lands, the Wells, the Lease Property and Equipment, or the Permits and Easements (the Related Contracts); and
E.
To the extent assignable or transferable, all other tangibles, miscellaneous interests and other assets on or used in connection with the
Leases, the Lands, the Wells, the Lease Property and Equipment, or the Permits and Easements (collectively the Miscellaneous
Personal Property), including records, files, and other data that relate to the Leases, the Lands, the Wells, the Lease Property and
Equipment, the Permits and Easements, or the Related Contracts, and lease, land and well files, production records, title opinions,
contract, regulatory and environmental files, and geological and geophysical information (collectively the Property Records).
1
2.
3.
Purchase Price.
A.
The purchase price for the Property (the Purchase Price), to be paid by Buyer to Seller is $8,000,000, subject to adjustment as
provided in Section 3 below (as so adjusted, the Adjusted Purchase Price) and payable as provided in Section 2B. The Purchase
Price shall be allocated among the respective Properties and as to type of asset as set forth in Schedule 2A attached hereto. Buyer and
Seller agree to use such allocations in all tax and related filings with respect to the transactions contemplated hereby.
B.
Thirty percent (30%) of the Purchase Price shall be paid to Seller by Buyer at Closing and seventy percent (70%) of the Purchase
Price shall be paid to Seller by Buyer on or before June 28, 2013, each of such payments to be paid by wire transfer of immediately
available funds to an account designated by Seller in writing. If the second payment described in the first sentence of this Section 2B
is not made on or before the date set forth for such payment above, Buyer shall pay Seller interest on such late payment at a rate per
annum equal to the 90-day LIBOR rate as shown in The Wall Street Journal money market section, as such rate may change from
time to time, calculated on the basis of the actual number of days elapsed from the date on which such payment was due to the date
of late payment.
Purchase Price Adjustments.

The Purchase Price will be adjusted as follows to reflect the allocation of expenses and revenues attributable to the Property as of the
Effective Time such that Seller shall bear all expenses and receive all the proceeds related to the Property before the Effective Time and
Buyer shall bear all expenses and receive all the proceeds related to the Property after the Effective Time. No less than one day before
Closing, Seller will submit for Buyers review and approval a preliminary settlement statement identifying estimates of all such
adjustments.
A.
The Purchase Price will be adjusted upward by: (i) all proceeds attributable to the operation of the Property not yet received by Seller
to the extent they are attributable to times before the Effective Time; (ii) all operating and capital expenses actually paid by Seller with
respect to the operation of the Property after the Effective Time (but specifically excluding all portions of capital expenses incurred
prior to the Effective Time) and, (iii) any property taxes and excise, severance and other taxes attributable to the Property or on or
measured by the production therefrom (collectively Production Taxes) paid by Seller, to the extent relating to times on and after
the Effective Time, based upon the assessment rates for the most recent calendar year or other time period then available.
B.
The Purchase Price will be adjusted downward by: (i) all proceeds attributable to the operation of the Property received by Seller to
the extent they are attributable to times after the Effective Time; and (ii) any Production Taxes paid by Buyer, to the extent relating to
times prior to the Effective Time, based upon the assessment rates for the most recent calendar year or other time period then
available; and, any other decreases in the Purchase Price pursuant to Section 9 below.
2
Within 90 days after Closing, Seller will provide a final settlement statement for Buyers review and approval containing a final calculation
of the adjustments to the Purchase Price. If Buyer does not submit a notice of disagreement with respect to such adjustments within 15 days
after receipt thereof, such adjustments shall become final and binding. If Buyer submits a notice of disagreement with respect to such
adjustments within such 15 day period, the parties shall negotiate in good faith to resolve such disagreement as soon as possible. If the
Adjusted Purchase Price is greater than the Purchase Price, then Buyer shall pay the amount by which the Adjusted Purchase Price exceeds
the Purchase Price to Seller. If the Purchase Price is greater than the Adjusted Purchase Price, then Seller shall pay the amount by which the
Purchase Price exceeds the Adjusted Purchase Price to Seller. Such payment shall be made within 10 days after the parties agree upon the
Adjusted Purchase Price by wire transfer of immediately available funds. Notwithstanding the foregoing, if either party receives revenues
that belong to the other party based on an Effective Time allocation, the receiving party will promptly remit those revenues to the other
party, and if either party pays an expense that is the responsibility of the other party based on the Effective Time allocation described above,
the party on whose behalf the expenses were paid agrees to promptly reimburse the other party. Without limiting the foregoing, Seller shall
file all returns and pay all Production Taxes relating to times prior to the Effective Time.
4.
Effective Time. The Effective Time shall mean 12:01 a.m. local time in Divide County, North Dakota, on November 1, 2012. If the
Closing does not occur on the first day of a calendar month, costs and expenses for that month shall be allocated as if the revenues and
expenses for that calendar month were produced or incurred on an equal daily basis for that calendar month.
5.
Reciprocal Representations, Warranties and Covenants. Buyer and Seller each represents and warrants to the other that, as to itself,
the following statements are true and accurate as of the date hereof through the Closing Date:
6.
A.
It is duly organized and in good standing under the laws of its state of incorporation or organization, is (or, as of the date of Closing
hereunder, will be) duly qualified to carry on its business in the State of North Dakota, and has all the requisite power and authority
to enter into and perform this Agreement.
B.
This Agreement has, and all other documents it is to execute and deliver on or before the Closing Date have been (or will be) duly
executed by its authorized representatives, constitute its valid and legally binding obligations, and subject to applicable law, are
enforceable against it in accordance with their respective terms. Except as would not result in a material adverse effect on the
Property taken as a whole, execution, delivery, and performance of this Agreement and such documents does not conflict with or
violate any agreement or instrument to which it is a party or by which it is bound, or any law, rule, regulation, ordinance, judgment,
decree or order to which it or the Property is subject.
C.
There is no action, suit, proceeding, claim or investigation pending or, to the best of its knowledge, threatened, against it that seeks to
restrain or prohibit, or to obtain damages from it, with respect to this Agreement or the consummation of all or part of the transaction
contemplated by this Agreement.
D.
It has not incurred any obligation for brokers, finders or similar fees for which the other party would be liable.
E.
Prior to Closing, it will give the other party prompt written notice of any matter materially affecting the accuracy of any of its
representations or warranties under this Agreement.
Sellers Representations, Warranties and Covenants. Seller represents and warrants to Buyer that the following statements are true and
accurate, as of the date hereof through the Closing Date:
A.
Except for burdens that have been taken into account in determining the Working Interests (as defined below) and Net Revenue
Interests (as defined below) included in the Property and for liens, encumbrances and other burdens that will be released
contemporaneously with the Closing, the Property is free and clear of all mortgages, deeds of trust, liens, and other encumbrances
created by, through or under Seller and Seller has made no dispositions or elections or taken any other action that would increase its
share of costs to greater than the Working Interest or decrease its net share of production to less than the Net Revenue Interest set
forth on Exhibit A. To Sellers knowledge, there are no preferential rights, consents to assignment or other restrictions on alienation
of the Property, except as heretofore disclosed in writing by Seller to Buyer.
3
7.
B.
Except as previously disclosed by Seller to Buyer, to Sellers knowledge there is no demand or lawsuit, nor any compliance order,
notice of probable violation or other private or governmental action, pending or, to the best of Sellers knowledge, threatened against
Seller of which Seller has knowledge but Buyer does not have knowledge, that would result in an impairment or loss of title to any
part of the Property, or impairment of the value thereof, or would hinder or impede the operation or transfer of the Property.
C.
Except as required by applicable law or the Related Contracts, Seller will not commence or consent to commencement of, or elect to
participate in, any operation to drill any new well on the Leases or the Lands or to frac, re-complete, deepen, rework, plug back, plug
and abandon, or conduct other significant operations with respect to any Well without the prior written consent of Buyer, not to be
unreasonably withheld.
D.
From the date hereof through Closing, Seller will pay when due all expenses coming due and payable in connection with the
Property. Without the prior written consent of Buyer, which shall not be unreasonably withheld, and except as required by applicable
law or Related Contracts, Seller will not do any of the following with respect to the Property, except to the extent resulting from the
actions of the operator of the Property: (i) enter into any new agreements or commitments; (ii) incur any liabilities other than in the
ordinary course of business for normal operating expenses; (iii) release, surrender, modify or terminate all or any portion of the
Leases or the Related Contracts; or (iv) encumber, sell or otherwise dispose of any of the Property other than hydrocarbons sold in
the ordinary course of business.
E.
All taxes, assessments and other governmental charges payable with respect to the Property have been properly paid in a timely
manner.
F.
From the date hereof through Closing, Seller will immediately notify Buyer of any material change in the condition of the Property
of which Seller is aware, including without limitation any casualty loss.
G.
Promptly after the execution and delivery of this Agreement, Seller will give written notice to Buyer of any condition or occurrence
of which Seller has actual knowledge relating to any or all of the Property that could constitute an Environmental Issue (as defined
below). Seller shall have the right, up to the day prior to the Closing, to supplement its original notice by giving one or more
additional written notices to Buyer, if Seller later becomes aware of any additional conditions or occurrences of the type referred to
above. Any and all notices given by Seller to Buyer under this Section 6.G shall be herein referred to, collectively, as the
Environmental Disclosure.
Buyers Representations, Warranties and Covenants. Buyer represents and warrants to Seller that the following statements are true
and accurate, as of the date hereof and the Closing Date:
A.
Buyer is acquiring the Property for investment purposes only and not with a view toward resale or distribution thereof in violation of
applicable securities laws. Buyer acknowledges that it can bear the economic risk of its investment in the Property, Buyer has such
knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of an investment in
the Property, and Buyer is sophisticated in the evaluation, purchase, ownership and operation of oil and gas properties. Buyer is an
accredited investor as such term is defined in Regulation D under the Securities Act of 1933, as amended (the Securities Act).
Buyer understands that none of the Property will have been registered pursuant to the Securities Act or any applicable state securities
laws, that the Property will be characterized as restricted securities under federal securities laws, and that the Property may not be
sold or otherwise disposed of without registration under the Securities Act or an exemption therefrom.
4
B.
Buyer hereby acknowledges and affirms that (i) it has completed its own independent investigation, analysis, and evaluation of the
Property, (ii) it has made all such reviews and inspections of the Leases, Lands and Wells, their results of operation, their condition
(financial or otherwise), and as to their prospects as it has deemed necessary or appropriate and (iii) in making its decision to enter
into this Agreement and to consummate the transactions contemplated hereby, Buyer has relied solely on the representations and
warranties set forth in this Agreement and its own independent investigation, analysis and evaluation.
8.
Due Diligence. From the date hereof through Closing, Seller will allow Buyer full access to the Related Contracts and the Property
Records. Buyer may photocopy records at its sole expense and shall keep confidential all information made available to it until the Closing.
In the event that the purchase/sale of the Property as contemplated by this Agreement does not close, Buyer shall at its expense promptly
return to Seller all original information and certify that it has destroyed and retained no copies of all other information it obtained from
Seller.
9.
Notice of Defect. For the purposes of this Agreement: (a) references to a Title Issue shall be deemed to refer to any lien, encumbrance or
other defect that causes Seller to be entitled to receive a Net Revenue Interest with respect to a Lease or Well less than the Net Revenue
Interest set forth in Exhibit A for such Lease or Well, or that causes Seller to be obligated to bear a Working Interest with respect to a
Lease or Well greater than the Working Interest set forth in Exhibit A for such Lease or Well, except for any such excess Working
Interest accompanied by a proportionate increase in the Net Revenue Interest for such Lease or Well, and (b) references to an
Environmental Issue shall be deemed to refer to any condition of the Leases, Lands, Wells or Lease Property and Equipment that could
reasonably be expected, under any applicable environmental or other law, either to require remediation efforts or to expose the owner of the
Property to liability for any fine, penalty or other monetary obligation. If Buyer becomes aware prior to Closing of any Title Issue or
Environmental Issue that Buyer reasonably deems sufficiently material as to require curative action prior to Closing, Buyer shall promptly
notify Seller in writing of such Title Issue or Environmental Issue, and Buyer and Seller shall attempt to reach agreement on curative action,
Purchase Price adjustment, or other appropriate steps. If agreement cannot be reached, Buyer or Seller may elect to terminate this
Agreement.
For purposes of this Agreement, Working Interest shall mean, with respect to a Lease or Well, the percentage interest in such Lease or
Well that is burdened with the obligation to bear and pay costs and expenses of maintenance, development and operations in connection
with such Lease or Well, without regard to royalties, overriding royalties, net profits interests or other similar burdens.
For purposes of this Agreement, Net Revenue Interest shall mean, with respect to a Lease or Well, the interest in and to all
hydrocarbons produced, saved, and sold from or allocated to such Lease or Well, after giving effect to all royalties, overriding royalties,
production payments, carried interests, net profits interests, reversionary interests, and other burdens upon, measured by, or payable out of
production therefrom.
10. Closing. The actions and events described in Section 11 below are the Closing of this transaction, which shall be held on at 1:00 p.m.
local time on December 28, 2012 or at such other date and time as to which Buyer and Seller may hereafter mutually agree in writing.
Closing will be held at Buyers offices located at 2549 W. Main Street, Suite 202, Littleton, Colorado 80120, or at such other place as the
parties may mutually agree. All events of Closing shall be deemed to have occurred simultaneously, and each shall be a condition precedent
to the others. The date of the Closing determined pursuant to this Section 9 shall herein be referred to as the Closing Date.
5
11. Conditions to Closing.

A.
B.
Seller shall not be obligated to close the transaction described in this Agreement, and will have the right to terminate this Agreement,
if any of the following conditions to its performance is not satisfied as of the Closing:
(i)
If, as of the Closing Date, any matter represented or warranted in this Agreement by Buyer is untrue in any material respect,
or if Buyer has not performed in all material respects the obligations under this Agreement that Buyer is required to perform
on or before Closing.
(ii)
If, as of the Closing Date, any suit or other proceeding instituted by a person or entity other than Buyer or Seller is pending or
threatened before any court or governmental agency seeking to restrain, prohibit, or declare illegal, or seeking substantial
damages in connection with, the transaction that is the subject of this Agreement.
Buyer shall not be obligated to close the transaction described in this Agreement, and will have the right to terminate this Agreement,
if any of the following conditions to its performance is not satisfied as of the Closing:
(i)
If, as of the Closing Date, any matter represented or warranted in this Agreement by Seller is untrue in any material respect,
or if Seller has not performed in all material respects the obligations under this Agreement that Seller is required to perform
on or before Closing.
(ii)
If, as of the Closing Date, any suit or other proceeding instituted by a person or entity other than Buyer or Seller is pending or
threatened before any court or governmental agency seeking to restrain, prohibit, or declare illegal, or seeking substantial
damages in connection with, the transaction that is the subject of this Agreement.
12. Events of Closing. At Closing, the following events shall occur, the term delivery to include all appropriate executions and
acknowledgments:
A.
Buyer and Seller will deliver the preliminary settlement statement, showing adjustments to the Purchase Price.
B.
Buyer will deliver thirty-percent (30%) of the Purchase Price by wire transfer in immediately available funds to the account of Seller,
as provided in account and wire transfer instructions designated in writing by Seller at least 3 business days prior to Closing.
C.
Seller will deliver to Buyer one or more assignments and conveyances of the Property in the form attached as Exhibit B and, if the
Property includes State or Federal leases, the appropriate state or federal forms required for filing in the applicable State or Federal
records.
D.
Seller will deliver to Buyer all other instruments necessary or advisable to transfer the rights, obligations and interests in applicable
Related Contracts and other Property, including all third-party waivers, consents, approvals and permits.
E.
Buyer and Seller will each deliver to the other any additional assignments, bills of sale, deeds or instruments necessary to transfer the
Property to Buyer or to otherwise effect and support the transaction contemplated in this Agreement.
F.
Buyer and Seller will each deliver to the other, a statement that, to the best of its knowledge, all of its representations are true in all
material respects as of the Closing.
6
13. Post-Closing Obligations and Other Agreements.

A.
After the Closing, Buyer will have access, during normal business hours and upon reasonable prior notice, to the Property Records
at Sellers offices. Buyer shall have the right, at Buyers sole cost, risk and expense, to copy any or all of such Property Records.
B.
Within 15 days after Closing, Buyer will, at Buyers cost, record all assignments and all other instruments that must be recorded to
effect the transfer of the Property and file for approval with any government agencies required to effect the transfer of the Property.
C.
The representations, warranties, and related covenants and agreements made in this Agreement or any certificate, agreement or
document delivered at the Closing shall survive the Closing for a period of six months.
D.
Each party will be responsible for its own state and federal income taxes, if any, relating to this transaction. Buyer will be
responsible for any transfer, sales or similar taxes levied on the transfer of the Property to Buyer.
E.
Effective as of the Closing, Buyer assumes and agrees to fully perform all of Sellers express or implied covenants under the Leases
and other Property; provided, however, Buyer shall not assume any obligations or liabilities to the extent they are (i) costs allocated
to Seller under this Agreement, or (ii) attributable to the gross negligence or willful misconduct of Seller in connection with the
Properties (collectively, the Seller Retained Liabilities).
F.
Effective as of the Closing, Seller shall defend, indemnify and hold harmless Buyer and its shareholders, directors, officers,
managers, employees, agents and representatives (collectively, Buyer Indemnified Parties) from and against any and all claims,
causes of actions, payments, charges, judgments, assessments, liabilities, losses, damages, penalties, fines, costs and expenses,
including any attorneys fees and legal or other expenses incurred in connection therewith and including liabilities, costs, losses and
damages for personal injury or death or property damage (all of the foregoing collectively known as Liabilities), arising from,
based upon, related to or associated with:
G.
H.
(a)
any breach by Seller of its representations, warranties or covenants contained in this Agreement; or
(b)
the Seller Retained Liabilities.
Effective as of the Closing, Buyer shall defend, indemnify and hold harmless Seller and its members, directors, officers, employees,
agents and representatives (collectively, Seller Indemnified Parties) from and against any and all any and all Liabilities arising
from, based upon, related to or associated with:
(a)
any breach by Buyer of its representations, warranties or covenants contained in this Agreement; or
(b)
the ownership or operation of the Property after the Effective Time.
Notwithstanding anything to the contrary in this Agreement, (i) no Buyer Indemnified Party shall be entitled to assert any right to
indemnification under Section 13.F., (A) with respect to any individual claim unless the Liabilities resulting from such individual
claim exceed $25,000 (each such individual claim that exceeds $25,000, a Qualified Claim), and then only to the extent such
Liabilities exceed $25,000, and (B) until the aggregate amount of all Liabilities actually suffered by the Buyer Indemnified Parties in
respect of Qualified Claims exceeds an amount equal to four percent of the Purchase Price, and then only to the extent such
Liabilities exceed such amount, and (ii) in no event shall Sellers aggregate liability under this Agreement or in respect of the
transactions contemplated exceed an amount equal to 20 percent of the Adjusted Purchase Price.
7
I.
All disputes arising from or relating to this Agreement shall be adjudicated in the federal and state courts sitting in Harris County,
Texas, and each party hereby consents to such courts jurisdiction and to such venue.
J.
Buyer and Seller agree to execute and deliver from time to time such further instruments and do such other acts as may be reasonably
requested to effectuate the purposes of this Agreement.
K.
NO PARTY NOR ANY OF ITS AFFILIATES SHALL BE LIABLE UNDER THIS AGREEMENT OR ANY OTHER
DOCUMENT ENTERED INTO OR OTHERWISE RELATED TO THIS TRANSACTION FOR EXEMPLARY, SPECIAL,
PUNITIVE, INDIRECT, REMOTE, SPECULATIVE, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS,
OPPORTUNITY COSTS, OR DAMAGES BASED UPON MULTIPLES OF EARNINGS), WHETHER IN TORT
(INCLUDING NEGLIGENCE OR GROSS NEGLIGENCE), STRICT LIABILITY, BY CONTRACT OR STATUTE, AND
WHETHER FORESEEABLE OR UNFORESEEABLE.
L.
Notwithstanding anything to the contrary contained in this Agreement, indemnification pursuant to this Section 13 is the Parties
exclusive remedy against each other with respect to breaches of the representations and warranties of the Parties contained in this
Agreement.
M.
EACH PARTY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY WITH RESPECT TO ANY ACTION, SUIT, OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT.
14. Disclaimers.
A.
EXCEPT AS AND TO THE EXTENT EXPRESSLY SET FORTH IN SECTION 5 (AS TO SELLER), SECTION 6 OR THE
SPECIAL WARRANTIES OF TITLE CONTAINED IN THE ASSIGNMENTS PER SECTION 12, (I) SELLER MAKES NO
REPRESENTATIONS OR WARRANTIES, EXPRESS, STATUTORY OR IMPLIED AND (II) SELLER EXPRESSLY
DISCLAIMS ALL LIABILITY AND RESPONSIBILITY FOR ANY REPRESENTATION, WARRANTY, STATEMENT OR
INFORMATION MADE OR COMMUNICATED (ORALLY OR IN WRITING) TO BUYER OR ANY OF ITS
AFFILIATES, EMPLOYEES, AGENTS, CONSULTANTS OR REPRESENTATIVES (INCLUDING ANY OPINION,
INFORMATION, PROJECTION OR ADVICE THAT MAY HAVE BEEN PROVIDED TO BUYER BY ANY OF SELLERS
REPRESENTATIVES, INCLUDING WITH RESPECT TO ANY SEISMIC DATA AND INFORMATION).
8
B.
EXCEPT AS EXPRESSLY SET FORTH IN SECTION 5 (AS TO SELLER), SECTION 6 OR THE SPECIAL WARRANTIES
OF TITLE CONTAINED IN THE ASSIGNMENTS PER SECTION 12, AND WITHOUT LIMITING THE GENERALITY OF
THE FOREGOING, SELLER EXPRESSLY DISCLAIMS ANY REPRESENTATION OR WARRANTY, EXPRESS,
STATUTORY OR IMPLIED, AS TO (I) TITLE TO ANY OF THE PROPERTIES, (II) THE CONTENTS, CHARACTER OR
NATURE OF ANY REPORT OF ANY PETROLEUM ENGINEERING CONSULTANT, OR ANY ENGINEERING,
GEOLOGICAL OR SEISMIC DATA OR INTERPRETATION, INCLUDING THE SEISMIC DATA AND INFORMATION,
RELATING TO THE PROPERTY, (III) THE QUANTITY, QUALITY OR RECOVERABILITY OF HYDROCARBONS IN
OR FROM THE PROPERTY, (IV) ANY ESTIMATES OF THE VALUE OF THE PROPERTY OR FUTURE REVENUES
GENERATED BY THE PROPERTY, (V) THE PRODUCTION OF HYDROCARBONS FROM THE PROPERTY, (VI) THE
MAINTENANCE, REPAIR, CONDITION, QUALITY, SUITABILITY, DESIGN OR MARKETABILITY OF THE
PROPERTY, (VII) THE CONTENT, CHARACTER OR NATURE OF ANY INFORMATION, MEMORANDUM,
REPORTS, BROCHURES, CHARTS OR STATEMENTS PREPARED BY SELLER OR THIRD PARTIES WITH RESPECT
TO THE PROPERTY, (VIII) ANY OTHER MATERIALS OR INFORMATION THAT MAY HAVE BEEN MADE
AVAILABLE TO BUYER OR ITS AFFILIATES, OR ITS OR THEIR EMPLOYEES, AGENTS, CONSULTANTS,
REPRESENTATIVES OR ADVISORS IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT OR ANY DISCUSSION OR PRESENTATION RELATING THERETO AND (IX) ANY IMPLIED OR
EXPRESS WARRANTY OF FREEDOM FROM PATENT OR TRADEMARK INFRINGEMENT. EXCEPT AS
EXPRESSLY REPRESENTED OTHERWISE IN SECTION 5 (AS TO SELLER) AND SECTION 6, SELLER FURTHER
DISCLAIMS ANY REPRESENTATION OR WARRANTY, EXPRESS, STATUTORY OR IMPLIED, OF
MERCHANTABILITY, FREEDOM FROM LATENT VICES OR DEFECTS, FITNESS FOR A PARTICULAR PURPOSE
OR CONFORMITY TO MODELS OR SAMPLES OF MATERIALS OF ANY PROPERTIES, RIGHTS OF A PURCHASER
UNDER APPROPRIATE STATUTES TO CLAIM DIMINUTION OF CONSIDERATION OR RETURN OF THE
PURCHASE PRICE, IT BEING EXPRESSLY UNDERSTOOD AND AGREED BY THE PARTIES THAT BUYER SHALL
BE DEEMED TO BE OBTAINING THE PROPERTY IN ITS PRESENT STATUS, CONDITION, AND STATE OF REPAIR,
AS IS AND WHERE IS WITH ALL FAULTS OR DEFECTS (KNOWN OR UNKNOWN, LATENT, DISCOVERABLE
OR UNDISCOVERABLE), AND THAT BUYER HAS MADE OR CAUSED TO BE MADE SUCH INSPECTIONS OF THE
PROPERTY AS BUYER DEEMS APPROPRIATE.
C.
OTHER THAN THOSE REPRESENTATIONS SET FORTH IN SECTION 6.H, SELLER HAS NOT AND WILL NOT MAKE
ANY REPRESENTATION OR WARRANTY REGARDING ANY MATTER OR CIRCUMSTANCE RELATING TO
ENVIRONMENTAL LAWS, THE RELEASE OF MATERIALS INTO THE ENVIRONMENT OR THE PROTECTION OF
HUMAN HEALTH, SAFETY, NATURAL RESOURCES OR THE ENVIRONMENT OR ANY OTHER ENVIRONMENTAL
CONDITION OF THE PROPERTIES, AND NOTHING IN THIS AGREEMENT OR OTHERWISE SHALL BE
CONSTRUED AS SUCH A REPRESENTATION OR WARRANTY, AND BUYER SHALL BE DEEMED TO BE TAKING
THE PROPERTY AS IS AND WHERE IS WITH ALL FAULTS FOR PURPOSES OF ITS ENVIRONMENTAL
CONDITION AND THAT BUYER HAS MADE OR CAUSED TO BE MADE SUCH ENVIRONMENTAL INSPECTIONS
AS BUYER DEEMS APPROPRIATE.
D.
SELLER AND BUYER AGREE THAT, TO THE EXTENT REQUIRED BY APPLICABLE LAW TO BE EFFECTIVE, THE
DISCLAIMERS OF CERTAIN REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS SECTION 14 ARE
CONSPICUOUS DISCLAIMERS FOR THE PURPOSE OF ANY APPLICABLE LAW.
15. Notices. All notices under this Agreement must be in writing and may be given by personal delivery, facsimile or electronic transmission,
U.S. Mail (postage prepaid), or commercial delivery service, and will be deemed duly given when received by the party charged with such
notice and addressed as follows:
9
If to Seller:
USG Properties Bakken I, LLC

601 Travis Street, Suite 1900
Attention: Michael Jessop
Facsimile: (713) 751-0375
Email: michael.jessop@nee.com
If to Buyer:

Littleton, Colorado 80120
Attention: Steve Dille
Facsimile: 303 798 5767
Email: stevedille@amzgcorp.com
16. Entire Agreement and Amendment. This Agreement constitutes the entire understanding between the parties, replacing and superseding
all prior negotiations, discussions, arrangements, agreements and understandings between the parties regarding the subject transaction and
subject matter hereof. This Agreement can be supplemented, amended or revoked only in writing, signed by the parties.
17. Assignment; Binding Effect. Prior to the Closing Date, neither party may assign its rights or obligations under this Agreement without
the prior written consent of the other, which consent may not be unreasonably withheld or delayed; provided that no consent shall be
required for Buyer to assign its rights to any subsidiary, affiliate or other entity so long as Buyer remains liable to Seller for the payment
and performance of any and all of Buyers obligations hereunder. If Buyer sells, transfers or assigns all or a portion of its rights hereunder,
in addition to Buyer remaining liable to Seller for the payment and performance of any and all related obligations as set forth above, Buyer
shall require its successors and assigns to expressly assume its obligations under this Agreement, to the extent related or applicable to the
Property or portion thereof acquired by them, and Seller shall be considered a third party beneficiary under any such assumption. This
Agreement shall be binding upon the parties hereto and their permitted successors and assigns.
18. Interpretation. This Agreement shall be considered for all purposes to have been jointly prepared by the parties, and shall not be
construed against any one party (nor shall any inference or presumption be made) on the basis of who drafted this Agreement or any other
event of the negotiation, drafting or execution of this Agreement. The omission of provisions of this Agreement from the assignment
documents described in Section 12 is not a conflict or inconsistency with this Agreement and will not effect a merger of the omitted
provisions. To the fullest extent permitted by law, all provisions of this Agreement are hereby incorporated into such assignment
documents by reference. Headings and titles in this Agreement are for convenience only and shall have no significance in interpreting this
Agreement. The plural shall be deemed to include the singular, and vice versa. The word including shall be construed not as a limitation,
but as the phrase including, but not limited to.
19. Severability. If any provision of this Agreement is found by a court of competent jurisdiction to be invalid or unenforceable, that provision
will be deemed modified to the extent necessary to make it valid and enforceable, and if it cannot be so modified, it shall be deemed deleted
and the remainder of the Agreement shall continue and remain in full force and effect.
20. Governing Law. This Agreement shall be governed, construed and enforced in accordance with the laws of Texas without regard to
conflicts of law.
21. Exhibits and Schedules. The Exhibits and Schedules attached to this Agreement are incorporated into and made a part of this Agreement.
22. Waiver. No provision of this Agreement may be waived except by written instrument executed by the party charged with such waiver.
Except as otherwise expressly provided, the failure of any party to require performance of any provision hereof shall not affect such partys
right to enforce the same. Waiver by a party of a provision in this Agreement in one or more instances shall not be deemed to be or
construed as a further or continuing waiver of such provision.
10
23.
Execution. This Agreement may be executed in counterparts, each of which will constitute an original and all of which will
constitute one document. This Agreement may be executed and delivered by either or both of the parties by facsimile transmission or email of
a PDF version (with confirmation of transmission) of a signed counterpart of the signature page hereof to the other at the applicable facsimile
number or email address shown in Section 15 above. After execution and delivery by facsimile or electronic transmission or email, the parties
agree to follow up with two originally executed counterparts and signature pages so that each party will have a counterpart with original
signature pages from both parties.
IN CONFIRMATION OF THE ABOVE, Buyer and Seller execute this Agreement as of the date first stated above, and the representatives
executing on behalf of Buyer and Seller each attests to his or her authorization by such execution.
SELLER:
BUYER:
By:
By:
Brad Colby, President
11
EXHIBIT A
LEASES AND WELLS
EXHIBIT B
ASSIGNMENT, BILL OF SALE AND CONVEYANCE
THIS ASSIGNMENT, BILL OF SALE AND CONVEYANCE (this Assignment), effective as of November 1, 2012 at 12:01
a.m., local time in Divide County, North Dakota (the Effective Time), is from USG Properties Bakken I, LLC a Delaware limited liability
company (ASSIGNOR), with an address at 601 Travis Street, Suite 1900, Houston, Texas 77002 to American Eagle Energy Corporation, a
Nevada corporation (ASSIGNEE), with an address at 2549 W. Main Street, Suite 202, Littleton, Colorado 80120.
For and in consideration of the sum of ten dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, ASSIGNOR does hereby sell, convey, assign and transfer to ASSIGNEE, all of Sellers right, title and
interest in and to the following (such right, title and interest, the Property):
(a)
The oil, gas and mineral leases described in Exhibit A, insofar as they cover any or all of the lands described in Exhibit A (the
Lands), together with all rights, privileges and obligations appurtenant thereto, including rights in any unit in which said leases or Lands are
included (collectively the Leases);
(b)
All oil, gas and condensate wells (whether producing, not producing or abandoned), and all water source, water injection and other
injection and disposal wells and systems located on the Leases or the Lands, or used in connection therewith, including without limitation
those described in Exhibit A (collectively the Wells), together with all equipment, facilities, and fixtures located on or used in developing or
operating the Leases, the Lands, or the Wells, or producing, storing, treating or transporting oil, gas, water, or other products or byproducts,
including pipelines, flow lines, gathering systems, tank batteries, improvements, fixtures, inventory, movables and immovables (collectively
the Lease Property and Equipment);
(c)
To the extent assignable or transferable, all permits, licenses, easements, rights-of-way, servitudes, surface leases, surface use
agreements, and similar rights and interests applicable to or used in operating the Leases, the Lands, the Wells, or the Lease Property and
Equipment (collectively the Permits and Easements);
(d)
To the extent assignable or transferable, all contracts and contractual rights, obligations and interests, insofar as they relate to the
Leases, the Lands, the Wells, the Lease Property and Equipment or the Permits and Easements (the Related Contracts); and
(e)
To the extent assignable or transferable, all other tangibles, miscellaneous interests and other assets on or used in connection with the
Leases, the Lands, the Wells, the Lease Property and Equipment, or the Permits and Easements (collectively the Miscellaneous Personal
Property), including records, files, and other data that relate to the Leases, the Lands, the Wells, the Lease Property and Equipment, the
Permits and Easements, or the Related Contracts, and lease, land and well files, production records, title opinions, contract, regulatory and
environmental files, and geological and geophysical information (collectively the Property Records).
ASSIGNOR warrants that it has not granted, created or reserved any burden, claim or title defect that would cause its Net Revenue
Interest in a Lease or Well to be less than the Net Revenue Interest for such Lease or Well set forth in Exhibit A or its Working Interest in a
Lease or Well to be greater than the Working Interest for such Lease or Well set forth in Exhibit A, except for any such excess Working
Interest accompanied by a proportionate increase in the Net Revenue Interest for such Lease or Well. ASSIGNOR quitclaims to ASSIGNEE
the benefit of all previous warranties in ASSIGNORs chain of title, insofar as they may cover the Property.
For purposes of this Assignment, Working Interest shall mean, with respect to a Lease or Well the percentage interest in a Lease or
Well that is burdened with the obligation to bear and pay costs and expenses of maintenance, development and operations in connection with
such Lease or Well, without regard to royalties, overriding royalties, net profits interests or other similar burdens.
For purposes of this Assignment, Net Revenue Interest shall mean, with respect to a Lease or Well, the interest in and to all
hydrocarbons produced, saved, and sold from or allocated to such Lease or Well, after giving effect to all royalties, overriding royalties,
production payments, carried interests, net profits interests, reversionary interests, and other burdens upon, measured by, or payable out of
production therefrom.
Except for the special warranty of title set forth above, ASSIGNOR CONVEYS THE PROPERTY TO ASSIGNEE WITHOUT
AND EXPRESSLY DISCLAIMS ANY EXPRESS, STATUTORY OR IMPLIED WARRANTY OR REPRESENTATION OF ANY
KIND, INCLUDING WARRANTIES RELATING TO (i) THE CONDITION OR MERCHANTABILITY OF THE PROPERTY, (ii)
THE FITNESS OF THE PROPERTY FOR ANY PARTICULAR PURPOSE, OR (iii) CONFORMITY TO MODELS OR SAMPLES
OF MATERIALS. ASSIGNEE HAS INSPECTED (OR HAS BEEN GIVEN THE OPPORTUNITY TO INSPECT), THE PROPERTY
AND IS SATISFIED AS TO THE PHYSICAL, OPERATING, REGULATORY COMPLIANCE, SAFETY AND ENVIRONMENTAL
CONDITION (BOTH SURFACE AND SUBSURFACE) OF THE PROPERTY AND EXPRESSLY AND KNOWINGLY ACCEPTS
THE PROPERTY AS IS, WHERE IS, AND WITH ALL FAULTS AND DEFECTS AND IN ITS PRESENT CONDITION AND
STATE OF REPAIR. Without limiting the generality of the foregoing, ASSIGNOR makes no representation or warranty as to (i) the amount,
value, quality, quantity, volume or deliverability of any oil, gas or other minerals or reserves (if any) in, under or attributable to the Property,
(ii) the physical, operating, regulatory compliance, safety or environmental condition of the Property, (iii) the geological or engineering
condition of the Property or any value thereof; (iv) the ability of the Property to generate income or profits; or (v) the cost of owning or
operating the Property.
ASSIGNOR AND ASSIGNEE AGREE THAT, TO THE EXTENT REQUIRED BY APPLICABLE LAW TO BE EFFECTIVE,
THE DISCLAIMERS OF CERTAIN REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS ASSIGNMENT ARE
CONSPICUOUS DISCLAIMERS FOR THE PURPOSE OF ANY APPLICABLE LAW.
To the extent that the Leases cover state or federal leases, separate assignments on the appropriate state or federal forms required for
filing in the applicable state or federal records are being delivered contemporaneously herewith. Such separate assignments are intended to
cover the same interests that are being conveyed hereby.
This Agreement shall be governed, construed and enforced in accordance with the laws of Texas without regard to conflicts of law.
This Assignment shall extend to and shall be binding upon the successors and assigns of ASSIGNOR and ASSIGNEE.
THIS ASSIGNMENT is executed by the parties as of the Effective Time.

ASSIGNOR:
By:
,
ASSIGNEE:
By:
,
STATE OF
COUNTY OF
ss.
This instrument was acknowledged before me on _____________, 2012, by _____________, as ____________ of

____________________, a ____________________, on behalf of said _____________________________. Witness my hand and official
seal.
NOTARY PUBLIC
(SEAL)
My commission expires: _________________, 20___
STATE OF
ss.
COUNTY OF
This instrument was acknowledged before me on _____________, 2012, by _____________, as ____________ of

____________________, a ____________________, on behalf of said ______________________________. Witness my hand and official
seal.
NOTARY PUBLIC
(SEAL)
My commission expires: _________________, 20___
EXHIBIT A
TO THE ASSIGNMENT, BILL OF SALE AND CONVEYANCE
LEASES AND WELLS
See attached
SCHEDULE 2A
PURCHASE PRICE ALLOCATIONS
PURCHASE AND SALE AGREEMENT

BETWEEN
SM ENERGY COMPANY
and
DATED NOVEMBER 20, 2012
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS; INTERPRETATION
1.1
Definitions.
1.2
Interpretation.
1
1
1
ARTICLE II Purchase and Sale

2.1
Purchase and Sale.
2.2
Purchase Price.
2.3
Deposit.
2.4
Adjustments to Purchase Price.
2.5
Allocated Value.
2.6
Settlement; Disputes.
2.7
Section 1031 Like-Kind Exchange.
1
1
1
2
2
3
4
5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SM ENERGY

3.1
Organization, Existence.
3.2
Authorization.
3.3
No Conflicts.
3.4
Bankruptcy.
3.5
Foreign Person.
3.6
Litigation.
3.7
Material Contracts.
3.8
No Violation of Laws.
3.9
Royalties, Etc.
3.10
Imbalances.
3.11
Current Commitments.
3.12
Environmental.
3.13
Asset Taxes.
3.14
Brokers Fees.
3.15
Advance Payments.
3.16
Partnerships.
3.17
No Other Representations or Warranties; Disclosed Materials.
5
5
5
5
5
5
6
6
6
6
6
7
7
7
7
7
7
7
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER

4.1
Organization; Existence.
4.2
Authorization.
4.3
No Conflicts.
4.4
Consents.
4.5
Bankruptcy.
4.6
Litigation.
4.7
Financing.
4.8
Independent Evaluation.
4.9
Brokers Fees.
4.10
Accredited Investor.
8
8
8
8
8
8
8
8
8
9
9
ARTICLE V ACCESS / DISCLAIMERS

5.1
Access.
5.2
Confidentiality.
5.3
Disclaimers.
9
9
10
10
ARTICLE VI TITLE MATTERS; CASUALTIES

6.1
SM Energys Title.
6.2
Notice of Title Defects; Defect Adjustments.
6.3
Casualty or Condemnation Loss.
6.4
Preferential Rights and Consents to Assign.
11
11
11
15
15
ARTICLE VII ENVIRONMENTAL MATTERS

7.1
Environmental Defects.
7.2
NORM, Wastes and Other Substances.
17
17
19
ARTICLE VIII CERTAIN AGREEMENTS

8.1
Conduct of Business.
8.2
Governmental Bonds.
8.3
Notifications.
19
19
20
20
ARTICLE IX CONDITIONS TO CLOSING

9.1
Buyers Conditions to Closing.
9.2
SM Energys Conditions to Closing.
20
20
20
ARTICLE X Tax Matters

10.1
Asset Tax Liability.
10.2
Transfer Taxes.
10.3
Asset Tax Reports and Returns.
10.4
Tax Cooperation.
21
21
22
22
22
ARTICLE XI CLOSING
11.1
Date of Closing.
11.2
Place of Closing.
11.3
Closing Obligations.
11.4
Records.
22
22
22
22
23
ARTICLE XII ACQUISITION TERMINATION AND REMEDIES

12.1
Right of Termination.
12.2
Effect of Termination.
12.3
Return of Documentation and Confidentiality.
23
23
23
24
ARTICLE XIII ASSUMPTION; SURVIVAL; INDEMNIFICATION

13.1
Assumption by Buyer.
13.2
Indemnities of SM Energy.
13.3
Indemnities of Buyer.
13.4
Limitation on Liability.
13.5
Express Negligence.
13.6
Exclusive Remedy for Agreement.
13.7
Indemnification Procedures.
13.8
Survival.
13.9
Non-Compensatory Damages.
24
24
24
24
25
25
25
25
27
27
ARTICLE XIV MISCELLANEOUS

14.1
Counterparts.
14.2
Notices.
14.3
Expenses.
14.4
Waivers; Rights Cumulative.
14.5
Relationship of the Parties.
14.6
Entire Agreement; Conflicts.
14.7
Governing Law.
14.8
Filings, Notices and Certain Governmental Approvals.
14.9
Amendment.
14.10
Parties in Interest.
14.11
Successors and Permitted Assigns.
14.12
Publicity.
14.13
Preparation of Agreement.
14.14
Severability.
27
27
27
28
28
28
29
29
29
29
29
29
29
30
30
Schedules
Schedule 3.6
Schedule 3.7(a)
Schedule 3.8
Schedule 3.10
Schedule 3.11
Schedule 3.12
Schedule 3.13
Schedule 3.16
Schedule 6.4
Schedule 8.1
Litigation
Material Contracts
Violation of Laws
Imbalances
AFEs
Environmental Matters
Asset Taxes
Partnerships
Consents and Preferential Rights
Permitted Operations
Exhibits
Exhibit A
Exhibit B
Exhibit C
Leases
Wells
Form of Assignment
THIS PURCHASE AND SALE AGREEMENT (this Agreement) is made as of November 20, 2012 (the Execution Date)
between SM ENERGY COMPANY, a Delaware corporation (SM Energy) and AMERICAN EAGLE ENERGY CORPORATION, a
Nevada corporation (Buyer). SM Energy and Buyer shall sometimes be referred to herein together as the Parties, and each individually as
a Party.
RECITALS
WHEREAS, SM Energy owns certain oil and gas leases located in Divide County, North Dakota and associated assets as more
fully described below; and
WHEREAS, SM Energy desires to sell and Buyer desires to purchase the Assets (as defined below) upon the terms and conditions
set forth in this Agreement.
NOW THEREFORE, in consideration of the mutual agreements herein contained, the Parties hereby agree as follows:
ARTICLE I
DEFINITIONS; INTERPRETATION
1.1
Definitions. Capitalized terms used in this Agreement shall have the meanings given such terms in Annex I.
1.2
Interpretation. All references in this Agreement to Exhibits, Appendices, Annexes, Articles, Sections, subsections and
other subdivisions refer to the corresponding Exhibits, Appendices, Annexes, Articles, Sections, subsections and other subdivisions of or to
this Agreement unless expressly provided otherwise. Titles appearing at the beginning of any Articles, Sections, subsections and other
subdivisions of this Agreement are for convenience only, do not constitute any part of this Agreement, and shall be disregarded in construing
the language hereof. The words this Agreement, herein, hereby, hereunder and hereof, and words of similar import, refer to this
Agreement as a whole and not to any particular Article, Section, subsection or other subdivision unless expressly so limited. The words this
Article, this Section and this subsection, and words of similar import, refer only to Article, Section or subsection hereof in which such
words occur. The word including (in its various forms) means including without limitation. All references to $ or dollars shall be
deemed references to United States Dollars. Each accounting term not defined herein will have the meaning given to it under GAAP, as in
effect on the Execution Date. Pronouns in masculine, feminine or neuter genders shall be construed to state and include any other gender, and
words, terms and titles (including terms defined herein) in the singular form shall be construed to include the plural and vice versa, unless the
context otherwise requires. Appendices, Annexes and Exhibits referred to herein are attached to and made a part of this Agreement. Unless
expressly stated otherwise, references to any Law or contract shall mean such Law or contract as it may be amended from time to time.
ARTICLE II
PURCHASE AND SALE
2.1
Purchase and Sale.
(a)
Subject to the terms and conditions of this Agreement, Buyer agrees to purchase from SM Energy, and SM Energy
agrees to sell, assign and deliver to Buyer the Assets for the consideration specified in this Article II.
(b)
SM Energy shall reserve and retain all of the Excluded Assets.
2.2
Purchase Price. Subject to the other terms and conditions of this Agreement, the purchase price for the Assets shall be
Nine Million, One Hundred Thousand Dollars ($9,100,000.00) (the Purchase Price). The Purchase Price shall be payable as follows:
(a)
Concurrently with the execution and delivery of this Agreement, Buyer shall deposit by wire transfer in
immediately available funds with SM Energy, to be held in escrow by SM Energy pending Closing, the sum of $455,000 (such amount,
together with any interest earned thereon. the Deposit).
1
(b)
2.3
At Closing, Buyer shall pay SM Energy the Closing Amount by wire transfer in immediately available funds.
Deposit.
(a)
If the transactions contemplated by Section 2.1 are not consummated on or before the Closing Date because of: (i)
the failure of Buyer to materially perform any of its obligations hereunder, or (ii) the failure of any of Buyers representations or warranties
hereunder to be true and correct in all material respects as of the date of this Agreement and as of the Closing, then, in such event, SM Energy
shall have the right to terminate this Agreement and receive the Deposit free of any claims by Buyer thereto.
(b)
If this Agreement is terminated by the mutual written agreement of the Parties, or if the Closing does not occur on
or before the Closing Date for any reason other than as set forth in Section 2.3(a), then Buyer shall be entitled to the delivery of the Deposit,
free of any claims by SM Energy with respect thereto.
(c)
In the event of any termination of this Agreement as contemplated by Section 2.3(a) or Section 2.3(b) above, the
Parties shall, in each case, thereupon have the rights and obligations set forth in Section 12.2 and Section 12.3.
2.4
Adjustments to Purchase Price.
(a)
For purposes of determining the amounts of the adjustments to the Purchase Price provided for in this Section 2.4,
the principles set forth in this Section 2.4(a) shall apply. Buyer shall be entitled to all production of Hydrocarbons from or attributable to the
Units, Leases, and Wells at and after the Effective Time (and all products and proceeds attributable thereto), and to all other income, proceeds,
receipts and credits earned with respect to the Assets at or after the Effective Time, and shall be responsible for (and entitled t o any refunds
with respect to) all Operating Expenses incurred at and after the Effective Time. SM Energy shall be entitled to all Hydrocarbon production
from or attributable to Units, Leases and Wells prior to the Effective Time (and all products and proceeds attributable thereto), and to all other
income, proceeds, receipts and credits earned with respect to the Assets prior to the Effective Time, and shall be responsible for (and entitled to
any refunds with respect to) all Operating Expenses incurred prior to the Effective Time. Earned and incurred, as used in the Agreement
shall be interpreted in accordance with GAAP and Council of Petroleum Accountants Society standards, except as otherwise specified herein.
For purposes of allocating production (and proceeds and accounts receivable with respect thereto), under this Section 2.4, (i) liquid
Hydrocarbons shall be deemed to be from or attributable to the Units, Leases and Wells when they pass through the pipeline connecting
into the storage facilities into which they are run and (ii) gaseous Hydrocarbons shall be deemed to be from or attributable to the Units,
Leases and Wells when they pass through the royalty measurement meters, delivery point sales meters or custody transfer meters on the
gathering lines or pipelines through which they are transported (whichever meter is closest to the well). SM Energy shall utilize reasonable
interpolative procedures, consistent with industry practice, to arrive at an allocation of production when exact meter readings or gauging and
strapping data are not available. As part of the Preliminary Settlement Statement, Buyer shall provide to SM Energy such data as is reasonably
necessary to support any estimated allocation, for purposes of establishing the Closing Amount.
(b)
The Purchase Price shall be adjusted upward by the following amounts (without duplication):
(i)
an amount equal to the value of all Hydrocarbons produced from or attributable to the Assets in storage or
existing in stock tanks, pipelines and/or plants (including inventory) as of the Effective Time, the value to be based upon the contract
price in effect as of the Effective Time (or if there is no contract price, then the market price in effect as of the Effective Time in the
field in which such Hydrocarbons were produced or if actually sold prior to the date of determination, the proceeds actually recovered
by SM Energy attributable to such sale), net of amounts payable as royalties, overriding royalties and other burdens upon, measured
by or payable out of such production and Asset Taxes;
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(ii)
an amount equal to all Operating Expenses and other costs and expenses paid by SM Energy that are
attributable to the Assets during the Interim Period, whether paid before or after the Effective Time;
(iii)
to the extent that SM Energy is under-produced or has over-delivered at the wellhead or into pipelines (in
each case) as of the Effective Time as shown with respect to the net Imbalances set forth in Schedule 3.10, as complete and final
settlement of all such Imbalances, to the extent attributable to the Assets and subject to Section 2.4(d), the sum of $0.00;
Agreement; and
(iv)
(v)
(c)
Subject Transfer Taxes paid by any SM Energy with respect to the transactions contemplated by this
any other amount provided for elsewhere in this Agreement or otherwise agreed upon by the Parties.
The Purchase Price shall be adjusted downward by the following amounts (without duplication):
(i)
an amount equal to all proceeds actually received by SM Energy attributable to the sale of Hydrocarbons
(A) produced from or attributable to the Assets during the Interim Period or (B) contained in storage or existing in stock tanks,
pipelines and/or plants (including inventory) as of the Effective Time for which an upward Purchase Price adjustment was made
pursuant to Section 2.4(b);
(ii)
if SM Energy makes the election under Section 6.2(c)(i) with respect to a Title Defect, the Title Defect
Amount with respect to such Title Defect if the Title Defect Amount has been determined prior to Closing;
(iii)
if SM Energy makes the election under Section 7.1(b)(i) with respect to an Environmental Defect, the
Remediation Amount with respect to such Environmental Defect if the Remediation Amount has been determined prior to Closing;
(iv)
an amount determined pursuant to Section 7.1(b)(iii), Section 6.4(c)(ii) or Section 6.4(d)(i), as applicable,
for any Asset excluded from the transaction contemplated hereby pursuant to such Sections;
(v)
the value of any Casualty Loss pursuant to Section 6.3(b)(B);
(vi)
to the extent that SM Energy is over-produced or has under-delivered at the wellhead or into pipelines (in
each case) as of the Effective Time as shown with respect to the net Imbalances set forth in Schedule 3.10, as complete and final
settlement of all such Imbalances, to the extent attributable to the Assets and subject to Section 2.4(d), the sum of $0.00; and
(vii)
any other amount provided for elsewhere in this Agreement or otherwise agreed upon by the Parties.
(d)
If, prior to Closing, Buyer or SM Energy discovers an error in the Imbalances set forth in Schedule 3.10, then the
Purchase Price shall be further adjusted at Closing (based on a value of $3 per Mcf) pursuant to Section 2.4(b)(iii) or Section 2.4(c)(vi), as
applicable, and Schedule 3.10 will be deemed amended immediately prior to the Closing to reflect the Imbalances for which the Purchase Price
is so adjusted.
2.5
Allocated Value. SM Energy and Buyer have agreed upon an allocation of the unadjusted Purchase Price among each of the
Assets, and such allocations are set forth on Exhibit A and Exhibit B (the Allocated Value). SM Energy and Buyer agree that the
Allocated Values shall be used in calculating adjustments to the Purchase Price as provided herein. Any adjustments to the Purchase Price,
other than the adjustments provided for in Section 2.4, shall be applied on a pro rata basis to the amounts set forth in Exhibit A or Exhibit B,
as applicable, for all Assets. After all such adjustments are made, any adjustments to the Purchase Price made pursuant to Section 2.4 shall be
applied to the amounts set forth on Exhibit A or Exhibit B, as applicable, for the particular affected Assets. For tax purposes, the Parties
agree to report the transactions contemplated by this Agreement in a manner consistent with the terms of this Agreement, including the
allocations set forth above as of the Closing Date, and that neither Party will take any position inconsistent therewith, including in any tax
return, refund claim, litigation, arbitration, or otherwise.
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2.6
Settlement; Disputes.
(a)
Not less than five (5) Business Days prior to the Closing, SM Energy shall prepare and submit to Buyer for
review a draft settlement statement using the best information available to SM Energy (the Preliminary Settlement Statement) that shall set
forth the adjusted Purchase Price reflecting each adjustment made in good faith in accordance with this Agreement as of the date of preparation
of such Preliminary Settlement Statement. Within three (3) Business Days of receipt of the Preliminary Settlement Statement, Buyer has the
right, but not the obligation, to deliver to SM Energy a written report containing all changes with the explanation therefor that Buyer proposes
to be made to the Preliminary Settlement Statement. The Preliminary Settlement Statement, as agreed upon by the Parties, will be used to adjust
the Purchase Price at Closing (such adjusted price, the Preliminary Purchase Price). If the Parties cannot agree on the Preliminary
Settlement Statement prior to the Closing, the Preliminary Settlement Statement as presented by SM Energy will be used to adjust the Purchase
Price at Closing.
(b)
On or before 120 days after the Closing, a final settlement statement (the Final Settlement Statement) will be
prepared by SM Energy, based on actual income and expenses during the Interim Period and which takes into account all final adjustments
made to the Purchase Price and shows the resulting final adjusted Purchase Price (the Final Purchase Price). SM Energy shall, at Buyers
request, supply reasonable documentation in its or its Affiliates possession available to support the actual revenue, expenses and other items
for which adjustments are made. The Final Settlement Statement shall set forth the actual proration of the amounts required by this Agreement.
As soon as practicable, and in any event within 45 days, after receipt of the Final Settlement Statement, Buyer has the right, but not the
obligation, to return a written report containing any proposed changes to the Final Settlement Statement and an explanation of any such
changes and the reasons therefor (the Dispute Notice). If the Final Purchase Price set forth in the Final Settlement Statement is mutually
agreed upon by SM Energy and Buyer, the Final Settlement Statement and the Final Purchase Price shall be final and binding on the Parties.
Once the Final Purchase Price has been agreed upon by the Parties pursuant to this Section 2.6(b) or determined by the Accounting Arbitrator
pursuant to Section 2.6(c), as applicable, the Parties shall execute a certificate setting forth such agreed or determined, as applicable, Final
Purchase Price, which shall be binding on the Parties for all purposes of this Agreement.
(c)
If the Parties are unable to resolve the matters addressed in the Dispute Notice, each of Buyer and SM Energy
shall, within 14 Business Days following the delivery of such Dispute Notice, summarize its position with regard to such dispute in a written
document and submit such summaries to the Houston, Texas office of KPMG LLP or such other Person as the Parties may mutually select
(the Accounting Arbitrator), together with the Dispute Notice, the Final Settlement Statement and any other documentation such Party may
desire to submit. Within 20 Business Days after receiving the Parties respective submissions, the Accounting Arbitrator shall render a
decision choosing either SM Energys position or Buyers position with respect to each matter addressed in any Dispute Notice, based on the
materials described above. Any decision rendered by the Accounting Arbitrator pursuant hereto shall be final, conclusive and binding on the
Parties and will be enforceable against any of the Parties in any court of competent jurisdiction. The costs of such Accounting Arbitrator shall
be borne one-half by Buyer and one-half by SM Energy.
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2.7
Section 1031 Like-Kind Exchange. SM Energy and Buyer hereby agree that SM Energy shall have the right at any time
prior to completion of all the transactions that are to occur at Closing to assign all or a portion of its rights under this Agreement to a Qualified
Intermediary (as that term is defined in Section 1.1031(k)-1(g)(4)(v) of the Treasury Regulations) in order to accomplish the transaction in a
manner that will comply, either in whole or in part, with the requirements of a like-kind exchange pursuant to Section 1031 of the Code.
Likewise, Buyer shall have the right at any time prior to completion of all the transactions that are to occur at Closing to assign all or a portion
of its rights under this Agreement to a Qualified Intermediary for the same purpose. If SM Energy assigns all or any of its rights under this
Agreement for this purpose, Buyer agrees to (a) consent to SM Energys assignment of its rights in this Agreement, which assignment shall
be in a form reasonably acceptable to Buyer, and (b) pay the Purchase Price (or a designated portion thereof as specified by SM Energy) into a
qualified escrow or qualified trust account(s) at Closing as directed in writing. If Buyer assigns all or any of its rights under this Agreement
for this purpose, SM Energy agrees to (i) consent to Buyers assignment of its rights in this Agreement, which assignment shall be in a form
reasonably acceptable to SM Energy, (ii) accept the Purchase Price from the qualified escrow or qualified trust account at Closing, and (iii) at
Closing, convey and assign directly to Buyer the Assets (or any portion thereof) as directed by Buyer. SM Energy and Buyer acknowledge
and agree that any assignment of this Agreement (or any rights hereunder) to a Qualified Intermediary shall not release any Party from any of
its respective liabilities and obligations hereunder, and that neither Party represents to the other Party that any particular tax treatment will be
given to any Party as a result thereof. The Party electing to assign all or any of its rights under this Agreement pursuant to this Section 2.7
shall defend, indemnify, and hold harmless the other Party and its Affiliates from all claims relating to such election, including, without
limitation, any failure by the Qualified Intermediary to perform any obligation under this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SM ENERGY
SM Energy represents and warrants to Buyer as follows:
3.1
Organization, Existence. SM Energy is a corporation duly formed and validly existing under the Laws of the State of
Delaware. SM Energy has all requisite power and authority to own and operate its property (including, without limitation, the Assets) and to
carry on its business as now conducted. SM Energy is duly licensed or qualified to do business as a foreign corporation and is in good
standing in all jurisdictions in which such qualification is required by Law, except where the failure to qualify or be in good standing would
not have a Material Adverse Effect.
3.2
Authorization. SM Energy has full power and authority to enter into and perform this Agreement and the transactions
contemplated herein. The execution, delivery and performance by SM Energy of this Agreement has been, and the execution, delivery and
performance by SM Energy of all other documents delivered pursuant to this Agreement will be when delivered, duly and validly authorized
and approved by all necessary corporate action on the part of SM Energy. Assuming the due authorization, execution and delivery by the other
parties to such documents, this Agreement constitutes, and the other documents delivered pursuant to this Agreement to which SM Energy is a
party will constitute when delivered, SM Energys legal, valid and binding obligations, enforceable against SM Energy in accordance with
their respective terms, subject however to the effects of bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium and similar
Laws relating to or affecting creditors rights, as well as to principles of equity (regardless of whether such enforceability is considered in a
proceeding in equity or at Law).
3.3
No Conflicts. Assuming the receipt of all Consents and the waiver of all Preferential Rights, the execution, delivery and
performance by SM Energy of this Agreement and the consummation of the transactions contemplated hereby does not and will not (a)
conflict with or result in a breach of any provisions of the organizational documents or other governing documents of SM Energy, (b) except
for Permitted Encumbrances, result in a default or the creation of any Encumbrance or give rise to any right of termination, cancellation or
acceleration under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license or other material agreement (other
than the Leases or Applicable Contracts) to which SM Energy is a party or by which SM Energy or the Assets may be bound or (c) violate
any Law applicable to SM Energy or any of the Assets, except in the case of clauses (b) and (c) where such default, Encumbrance,
termination, cancellation, acceleration or violation would not have a material adverse effect upon the ability of SM Energy to consummate the
transactions contemplated by this Agreement.
3.4
Bankruptcy. There are no bankruptcy, reorganization or receivership proceedings pending, being contemplated by or, to
SM Energy Knowledge, threatened in writing against SM Energy.
3.5
Foreign Person. SM Energy is not a disregarded entity or a foreign person within the meaning of Section 1445 of the
Code and its implementing Treasury Regulations.
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3.6
Litigation. Except as set forth in Schedule 3.6, as of the Execution Date, there are no investigations, suits, actions or
litigation by any Person by or before any Governmental Authority, and no legal, administrative or arbitration proceedings, pending or, to SM
Energys Knowledge, threatened in writing against SM Energy with respect to its ownership or operation of the Assets.
3.7
Material Contracts.
(a)
Schedule 3.7(a) sets forth all Applicable Contracts of the type described below (collectively, the Material
Contracts):
(i)
any Applicable Contract that can reasonably be expected to result in aggregate payments by SM Energy of
more than $50,000 during the current or any subsequent fiscal year or $100,000 in the aggregate over the term of such Applicable
Contract (in each case, based solely on the terms thereof and without regard to any expected increase in volumes or revenues) that
cannot be terminated by the SM Energy on not greater than 90 days notice;
(ii)
any Applicable Contract that can reasonably be expected to result in aggregate revenues to SM Energy of
more than $50,000 during the current or any subsequent fiscal year or $100,000 in the aggregate over the term of such Applicable
Contract (in each case, based solely on the terms thereof and without regard to any expected increase in volumes or revenues);
(iii)
any Applicable Contract that (A) is a Hydrocarbon purchase and sale, gathering, transportation, processing,
compression or similar Contract pursuant to which SM Energy received annual revenues or makes annual payments in excess of
$100,000 and (B) is not terminable by SM Energy or its assignee without penalty on 60 days or less notice;
(iv)
any Applicable Contract that is an indenture, mortgage, loan, credit or sale-leaseback, guaranty of any
obligation, bonds, letters of credit or similar financial Contract, except any such Applicable Contract with an aggregate outstanding
principal amount not exceeding $50,000;
(v)
any Applicable Contract that constitutes a lease under which SM Energy is the lessor or the lessee of real,
immovable, personal or movable property which lease (A) cannot be terminated by SM Energy without penalty upon 60 days or less
notice and (B) involves an annual base rental of more than $50,000; and
(vi)
Applicable Contracts with any Affiliate of SM Energy that will be binding on Buyer after the Closing Date
and will not be terminable by Buyer within 30 days or less notice other than joint operating agreements.
(b)
Except for such matters that would not have a Material Adverse Effect, there exist no defaults under the Material
Contracts by SM Energy or, to SM Energys Knowledge, by any other Person that is a party to such Material Contracts.
3.8
No Violation of Laws. Except as set forth on Schedule 3.8 and except where such violations would not have a Material
Adverse Effect, as of the Execution Date, to SM Energys Knowledge, SM Energy and its Affiliates are not in violation of any applicable
Laws with respect to the ownership and operation (where applicable) by SM Energy of the Assets. This Section 3.8 does not include any
matters with respect to Environmental Laws, such matters being addressed exclusively in Section 3.12.
3.9
Royalties, Etc. Except as would not have a Material Adverse Effect and except for such items that are being held in
suspense as permitted pursuant to applicable Law, SM Energy has paid all Burdens due by SM Energy with respect the Assets or, if SM
Energy has not paid any such Burdens, is contesting such unpaid Burdens in good faith.
3.10
Imbalances. Schedule 3.10 sets forth all material Imbalances associated with the Assets as of the Effective Time.
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3.11
Current Commitments. Schedule 3.11 sets forth, as of the Execution Date, all authorities for expenditures relating to the
Assets to drill or rework Wells (AFEs) for which all of the activities anticipated in such AFEs have not been completed by the Execution
Date.
3.12
Environmental.
(a)
With respect to the Assets, SM Energy has not entered into, and is not subject to, any agreement, consent, order,
decree, judgment, license or permit condition or other directive of any Governmental Authority that (i) are in existence as of the Execution
Date, (ii) are based on any Environmental Laws that relate to the future use of any of the Assets and (iii) require any change in the present
conditions of any of the Assets.
(b)
Except as set forth in Schedule 3.12, as of the Execution Date, SM Energy has not received written notice from any
Person of any release, disposal, event, condition, circumstance, activity, practice or incident concerning any land, facility, asset or property
included in the Assets that: (i) interferes with or prevents compliance by SM Energy with any Environmental Law or the terms of any license
or permit issued pursuant thereto or (ii) gives rise to or results in any common Law or other liability of SM Energy to any Person which, in
the case of either clause (i) or (ii) hereof, would have a Material Adverse Effect.
3.13
Asset Taxes. Except as disclosed in Schedule 3.13, all Asset Taxes that have become due and payable by SM Energy prior
to the Effective Time have been properly paid other than any Asset Taxes that are being contested in good faith.
3.14
Brokers Fees. SM Energy has incurred no liability, contingent or otherwise, for brokers or finders fees relating to the
transactions contemplated by this Agreement for which Buyer or any Affiliate of Buyer shall have any responsibility.
3.15
Advance Payments. SM Energy is not obligated by virtue of any take-or-pay payment, advance payment or other similar
payment (other than royalties, overriding royalties and similar arrangements reflected with respect to the Net Revenue Interests for the Wells
set forth in Exhibit B and gas balancing arrangements), to deliver Hydrocarbons attributable to the Assets, or proceeds from the sale thereof,
at some future time without receiving payment therefore at or after the time of delivery.
3.16
Partnerships. Schedule 3.16 sets forth all of the Assets that are deemed by agreement or applicable Law to be held by a
partnership for federal Tax purposes and, to the extent any of the Assets are deemed by agreement or applicable Law to be held by a
partnership for federal Tax purposes.
3.17
No Other Representations or Warranties; Disclosed Materials. Except for the representations and warranties contained in
this Agreement (as qualified by the Schedules), neither SM Energy nor any other Person makes (and Buyer is not relying upon) any other
express or implied representation or warranty with respect to SM Energy (including the value, condition or use of any of the Assets) or the
transactions contemplated by this Agreement, and SM Energy disclaims any other representations or warranties not contained in this
Agreement, whether made by SM Energy, any Affiliate of SM Energy, or any of their respective officers, directors, managers, employees or
agents. Except for the representations and warranties contained in this Agreement (as qualified by the Schedules), SM Energy disclaims all
liability and responsibility for any representation, warranty, projection, forecast, statement or information made, communicated or furnished
(orally or in writing) to Buyer or any of its Affiliates or any of its officers, directors, managers, employees or agents (including any opinion,
information, projection or advice that may have been or may be provided to Buyer by any director, officer, employee, agent, consultant or
representative of SM Energy, or any of its Affiliates). The disclosure of any matter or item in the Schedules shall not be deemed to constitute
an acknowledgement that any such matter is required to be disclosed or is material or that such matter would or would reasonably be expected
to result in a Material Adverse Effect.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to SM Energy the following:
4.1
Organization; Existence. Buyer is a corporation duly formed and validly existing under the Laws of Nevada. Buyer has all
requisite power and authority to own and operate its property (including, at Closing, the Assets) and to carry on its business as now
conducted. Buyer is duly licensed or qualified to do business as a foreign corporation and is in good standing in all jurisdictions in which such
qualification is required by Law except where the failure to qualify or be in good standing would not have a material adverse effect upon the
ability of Buyer to consummate the transactions contemplated by this Agreement.
4.2
Authorization. Buyer has full power and authority to enter into and perform this Agreement to which it is a party and the
transactions contemplated herein and therein. The execution, delivery and performance by Buyer of this Agreement has been, and the
execution, delivery and performance by Buyer of all other documents delivered pursuant to this Agreement will be when delivered, duly and
validly authorized and approved by all necessary corporate action on the part of Buyer. Assuming the due authorization, execution and
delivery by the other parties to such documents, this Agreement constitutes, and the other documents delivered pursuant to this Agreement to
which Buyer is a party will constitute, Buyers legal, valid and binding obligations, enforceable against Buyer in accordance with their
respective terms, subject however to the effects of bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium and similar Laws
relating to or affecting creditors rights, as well as to principles of equity (regardless of whether such enforceability is considered in a
proceeding in equity or at Law).
4.3
No Conflicts. The execution, delivery and performance by Buyer of this Agreement and the consummation of the
transactions contemplated herein will not (a) conflict with or result in a breach of any provisions of the organizational or other governing
documents of Buyer, (b) result in a default or the creation of any Encumbrance or give rise to any right of termination, cancellation or
acceleration under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license or other agreement to which
Buyer is a party or by which Buyer or any of its property may be bound or (c) violate any Law applicable to Buyer or any of its property,
except in the case of clauses (b) and (c) where such default, Encumbrance, termination, cancellation, acceleration or violation would not have a
material adverse effect upon the ability of Buyer to consummate the transactions contemplated by this Agreement.
4.4
Consents. There are no consents or other restrictions on assignment, including requirements for consents from third parties
to any assignment, in each case, that would be applicable in connection with the consummation by Buyer of the transactions contemplated by
this Agreement.
4.5
Bankruptcy. There are no bankruptcy, reorganization or receivership proceedings pending, being contemplated by or, to
Buyers knowledge, threatened in writing against Buyer.
4.6
Litigation. There is no investigation, suit, action or litigation by any Person or by or before any Governmental Authority,
and no legal, administrative or arbitration proceedings pending, or to Buyers knowledge, threatened against Buyer, or to which Buyer is a
party, that would affect the ability of Buyer to consummate the transactions contemplated by this Agreement.
4.7
Financing. Buyer has applied for financing and, upon approval of the lenders of such financing, shall have as of the
Closing Date, sufficient funds with which to pay the Closing Amount and consummate the transactions contemplated by this Agreement.
4.8
Independent Evaluation. Buyer is sophisticated in the evaluation, purchase, ownership and operation of oil and gas
properties and related facilities. In making its decision to enter into this Agreement and to consummate the transaction contemplated herein,
Buyer (a) has relied or shall rely solely on its own independent investigation and evaluation of the Assets and the advice of its own legal, tax,
economic, environmental, engineering, geological and geophysical advisors and the express provisions of this Agreement and not on any
comments, statements, projections or other materials made or given by any representatives or consultants or advisors engaged by SM Energy,
and (b) has satisfied or shall satisfy itself through its own due diligence as to the environmental and physical condition of and contractual
arrangements and other matters affecting the Assets.
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4.9
Brokers Fees. Buyer has incurred no liability, contingent or otherwise, for brokers or finders fees relating to the
transactions contemplated by this Agreement for which SM Energy or any Affiliate of SM Energy shall have any responsibility.
4.10
Accredited Investor. Buyer is an accredited investor, as such term is defined in Regulation D of the Securities Act of
1933, as amended, and will acquire the Assets for its own account and not with a view to a sale or distribution thereof in violation of such
Law and the rules and regulations thereunder, any applicable state blue sky Laws or any other applicable securities Laws.
ARTICLE V
ACCESS / DISCLAIMERS
5.1
Access.
(a)
From and after the Execution Date and up to and including the Closing Date (or earlier termination of this
Agreement), but subject to the other provisions of this Agreement (including this Section 5.1) and obtaining any required consents of third
parties (with respect to which consents SM Energy shall use its commercially reasonable efforts to obtain) and without prejudice to Buyers
existing rights of access as operator of the Assets, SM Energy shall afford to Buyer, its Affiliates and its and their officers, employees, agents,
accountants, attorneys, investment bankers, consultants and other authorized representatives (collectively, Buyers Representatives)
reasonable access, during normal business hours, to the Assets and all Records in SM Energys or any of its Affiliates possession. SM
Energy shall also make available to Buyer and Buyers Representatives, upon reasonable notice during normal business hours, SM Energys
personnel knowledgeable with respect to the Assets in order that Buyer may make such diligence investigation as Buyer considers necessary
or appropriate. All investigations and due diligence conducted by Buyer or any Buyers Representative shall be conducted at Buyers sole
cost, risk and expense; and any conclusions made from any examination done by Buyer or any Buyers Representative shall result from
Buyers own independent review and judgment. Buyer shall give SM Energy reasonable prior written notice before entering onto any of the
Assets and SM Energy shall have the right to have its representatives present at any time any Buyers Representative is present on the Assets.
Buyer shall, and shall cause all of the Buyers Representatives to, abide by Buyers safety rules, regulations and operating policies applicable
to the Assets as currently operated by Buyer while conducting its due diligence evaluation of the Assets including any environmental or other
inspection or assessment of the Assets.
(b)
Buyer shall not conduct any sampling, boring, drilling or other invasive investigation activities (Invasive
Activities) on or with respect to any of the Assets without SM Energys prior written consent, which consent may be withheld in the sole and
absolute discretion of SM Energy for any reason whatsoever.
(c)
Subject to provisions of existing agreements under which Buyer operates the Assets (which shall control in the
event of any conflict), Buyer agrees to defend, indemnify and hold harmless the SM Indemnified Parties from and against any and all
Liabilities arising out of, resulting from or relating to any field visit, environmental property assessment or other due diligence activity
conducted by Buyer or any Buyers Representative (including an Invasive Activity, if any) with respect to the Assets, EVEN IF SUCH
LIABILITIES ARISE OUT OF OR RESULT FROM, SOLELY OR IN PART, THE SOLE, ACTIVE, PASSIVE,
CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OR VIOLATION OF LAW
OF OR BY A MEMBER OF THE SM INDEMNIFIED PARTIES, EXCEPTING ONLY LIABILITIES ACTUALLY
RESULTING ON THE ACCOUNT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF A MEMBER OF THE
SM INDEMNIFIED PARTIES.
(d)
Buyer agrees to promptly provide SM Energy with copies, but in any event within 48 hours after its receipt or
creation thereof, of all final reports and test results prepared by Buyer, any of Buyers Representatives or any third party consultants and
which contain data collected or generated from Buyers due diligence with respect to the Assets (including an Invasive Activity, if any). Buyer
shall not be deemed by providing such documents, and SM Energy shall not be deemed by its receipt of said documents to have made any
representation or warranty, expressed, implied or statutory as to the condition to the Assets or to the accuracy of said documents or the
information contained therein.
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(e)
Upon completion of Buyers due diligence, Buyer shall, at its sole cost and expense and without any cost or
expense to SM Energy or its Affiliates (i) repair all damage done to the Assets in connection with Buyers due diligence, (ii) restore the Assets
to the approximate same or better condition in existence prior to commencement of Buyers due diligence and (iii) remove all equipment, tools
or other property brought onto the Assets in connection with Buyers due diligence. Any disturbance to the Assets (including, without
limitation, the real property associated with such Assets) resulting from Buyers due diligence will be promptly corrected by Buyer.
(f)
During all periods that Buyer and/or any of Buyers Representatives are present on the Assets, Buyer shall
maintain, at its sole expense the policies of insurance of the types and in the amounts currently in force in Buyers capacity as operator of the
Assets.
5.2
Confidentiality. Buyer acknowledges that, pursuant to its right of access to the Records and the Assets, Buyer will become
privy to confidential and other information of SM Energy and that such confidential information shall be held confidential by Buyer and
Buyers Representatives in accordance with the terms of the Confidentiality Agreement. If Closing should occur, (I) the foregoing
confidentiality restriction on Buyer, including the Confidentiality Agreement, shall terminate (except as to (a) any Assets that are excluded
from the transactions contemplated hereby pursuant to the provisions of this Agreement, and (b) the Excluded Assets); and (II) SM Energy
shall be bound by its confidentiality restrictions pursuant to the Confidentiality Agreement.
5.3
Disclaimers.
(a)
EXCEPT AS AND TO THE EXTENT EXPRESSLY SET FORTH IN ARTICLE III, (I) SM ENERGY
MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS, STATUTORY OR IMPLIED, AND (II) SM ENERGY
EXPRESSLY DISCLAIMS ALL LIABILITY AND RESPONSIBILITY FOR ANY REPRESENTATION, WARRANTY,
STATEMENT OR INFORMATION MADE OR COMMUNICATED (ORALLY OR IN WRITING) TO BUYER OR ANY BUYERS
REPRESENTATIVE (INCLUDING, WITHOUT LIMITATION, ANY OPINION, INFORMATION, PROJECTION OR ADVICE
THAT MAY HAVE BEEN PROVIDED TO BUYER BY ANY OFFICER, DIRECTOR, EMPLOYEE, AGENT, CONSULTANT,
REPRESENTATIVE OR ADVISOR OF SM ENERGY OR ANY OF ITS AFFILIATES).
(b)
EXCEPT AS EXPRESSLY SET FORTH IN ARTICLE III, AND WITHOUT LIMITING THE GENERALITY
OF THE FOREGOING, SM ENERGY EXPRESSLY DISCLAIMS ANY REPRESENTATION OR WARRANTY, EXPRESS,
STATUTORY OR IMPLIED, AS TO (I) TITLE TO ANY OF THE ASSETS, (II) THE CONTENTS, CHARACTER OR NATURE OF
ANY REPORT OF ANY PETROLEUM ENGINEERING CONSULTANT, OR ANY ENGINEERING, GEOLOGICAL OR SEISMIC
DATA OR INTERPRETATION, RELATING TO THE ASSETS, (III) THE QUANTITY, QUALITY OR RECOVERABILITY OF
HYDROCARBONS IN OR FROM THE ASSETS, (IV) ANY ESTIMATES OF THE VALUE OF THE ASSETS OR FUTURE
REVENUES GENERATED BY THE ASSETS, (V) THE ABILITY TO PRODUCE HYDROCARBONS FROM THE ASSETS, (VI)
THE MAINTENANCE, REPAIR, CONDITION, QUALITY, SUITABILITY, DESIGN OR MARKETABILITY OF THE ASSETS,
(VII) THE CONTENT, CHARACTER OR NATURE OF ANY INFORMATION MEMORANDUM, REPORTS, BROCHURES,
CHARTS OR STATEMENTS PREPARED BY SM ENERGY OR THIRD PARTIES WITH RESPECT TO THE ASSETS, (VIII) ANY
OTHER MATERIALS OR INFORMATION THAT MAY HAVE BEEN MADE AVAILABLE TO BUYER OR ANY BUYERS
REPRESENTATIVE IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY
DISCUSSION OR PRESENTATION RELATING THERETO AND (IX) ANY IMPLIED OR EXPRESS WARRANTY OF FREEDOM
FROM PATENT OR TRADEMARK INFRINGEMENT. EXCEPT AS EXPRESSLY REPRESENTED OTHERWISE IN ARTICLE III,
S M ENERGY FURTHER DISCLAIMS ANY REPRESENTATION OR WARRANTY, EXPRESS, STATUTORY OR IMPLIED, OF
MERCHANTABILITY, FREEDOM FROM LATENT VICES OR DEFECTS, FITNESS FOR A PARTICULAR PURPOSE OR
CONFORMITY TO MODELS OR SAMPLES OF MATERIALS OF ANY ASSETS, RIGHTS OF A PURCHASER UNDER
APPROPRIATE STATUTES TO CLAIM DIMINUTION OF CONSIDERATION OR RETURN OF CONSIDERATION, IT BEING
EXPRESSLY UNDERSTOOD AND AGREED BY THE PARTIES THAT BUYER SHALL BE DEEMED TO BE OBTAINING THE
ASSETS IN THEIR PRESENT STATUS, CONDITION AND STATE OF REPAIR, AS IS AND WHERE IS WITH ALL FAULTS
OR DEFECTS (KNOWN OR UNKNOWN, LATENT, DISCOVERABLE OR UNDISCOVERABLE), AND THAT BUYER HAS
MADE OR CAUSED TO BE MADE SUCH INSPECTIONS AS BUYER DEEMS APPROPRIATE.
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(c)
OTHER THAN THOSE REPRESENTATIONS SET FORTH IN SECTION 3.12, SM ENERGY HAS NOT
AND WILL NOT MAKE ANY REPRESENTATION OR WARRANTY REGARDING ANY MATTER OR CIRCUMSTANCE
RELATING TO ENVIRONMENTAL LAWS, THE RELEASE OF MATERIALS INTO THE ENVIRONMENT OR THE
PROTECTION OF HUMAN HEALTH, SAFETY, NATURAL RESOURCES OR THE ENVIRONMENT, OR ANY OTHER
ENVIRONMENTAL CONDITION OF THE ASSETS, AND NOTHING IN THIS AGREEMENT OR OTHERWISE SHALL BE
CONSTRUED AS SUCH A REPRESENTATION OR WARRANTY, AND SUBJECT TO BUYERS LIMITED RIGHTS UNDER
SECTION 7.1, BUYER SHALL BE DEEMED TO BE TAKING THE ASSETS AS IS AND WHERE IS WITH ALL FAULTS FOR
PURPOSES OF THEIR ENVIRONMENTAL CONDITION AND THAT BUYER HAS MADE OR CAUSED TO BE MADE SUCH
ENVIRONMENTAL INSPECTIONS AS BUYER DEEMS APPROPRIATE.
(d)
S M ENERGY AND BUYER AGREE THAT, TO THE EXTENT REQUIRED BY APPLICABLE LAW TO
BE EFFECTIVE, THE DISCLAIMERS OF CERTAIN REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS
SECTION 5.3 ARE CONSPICUOUS DISCLAIMERS FOR THE PURPOSE OF ANY APPLICABLE LAW.
ARTICLE VI
TITLE MATTERS; CASUALTIES
6.1
SM Energys Title. Without limiting Buyers remedies for Title Defects set forth in this Article VI, SM Energy makes no
warranty or representation, express, implied, statutory or otherwise with respect to its title to any of the Assets and Buyer hereby
acknowledges and agrees that Buyers sole remedy for any defect of title, including any Title Defect, with respect to any of the Assets shall be
as set forth in Section 6.2.
6.2
Notice of Title Defects; Defect Adjustments.
(a)
Title Defect Notices. On or before 4:00 p.m. (Mountain Time) on December 8, 2012 (the Defect Claim Date),
Buyer shall have the right, but not the obligation, to deliver notices to SM Energy meeting the requirements of this Section 6.2(a) (each, a
Title Defect Notice) setting forth any matters which, in Buyers reasonable opinion, constitute Title Defects and which Buyer asserts as a
Title Defect pursuant to this Section 6.2. For all purposes of this Agreement and notwithstanding anything herein to the contrary, Buyer shall
be deemed to have waived, and SM Energy shall have no liability for, any Title Defect that Buyer fails to assert as a Title Defect pursuant to a
Title Defect Notice delivered in compliance with this Section 6.2(a) and received by SM Energy on or before the Defect Claim Date. To be
effective, each Title Defect Notice shall be in writing and shall include (i) a description of the alleged Title Defect and the Assets affected by
such Title Defect (each a Title Defect Property), (ii) the Allocated Value of each Title Defect Property, (iii) supporting documents
reasonably necessary for SM Energy to verify the existence of the alleged Title Defect(s), (iv) the amount by which Buyer reasonably believes
the Allocated Value of each Title Defect Property is reduced by the alleged Title Defect(s), and (v) the computations upon which Buyers
belief is based. To give SM Energy an opportunity to commence reviewing and curing Title Defects, Buyer agrees to use reasonable efforts to
give SM Energy, on or before the end of each calendar week prior to the Defect Claim Date, written notice of all alleged Title Defects
discovered by Buyer during the preceding calendar week, which notice may be preliminary in nature and supplemented prior to the expiration
of the applicable Defect Claim Date. Buyer shall also promptly furnish SM Energy with written notice of any Title Benefit that is discovered
by Buyer or any Buyers Representative while conducting Buyers due diligence with respect to the Assets prior to the Defect Claim Date.
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(b)
Title Benefit Notices. SM Energy shall have the right, but not the obligation, to deliver to Buyer on or before the
Defect Claim Date, a notice setting forth any matters that, in SM Energys reasonable opinion, constitute Title Benefits and that SM Energy
asserts as a Title Benefit pursuant to this Section 6.2 (each, a Title Benefit Notice) including (i) a description of the Title Benefit and the
Assets affected by the Title Benefit (the Title Benefit Property), (ii) the amount by which SM Energy reasonably believes the Allocated
Value of the Title Benefit Property is increased by the Title Benefit and (iii) the computations upon which SM Energys belief is based. SM
Energy shall be deemed to have waived all Title Benefits of which it, or Buyer pursuant to Section 6.2(a), has not given notice on or before the
Defect Claim Date.
(c)
Remedies for Title Defects. Subject to SM Energys continuing right to dispute the existence of a Title Defect or
the Title Defect Amount asserted with respect thereto and subject to the Individual Title Defect Threshold and the Aggregate Deductible, in the
event that any Title Defect properly asserted by Buyer in accordance with Section 6.2(a) is not waived in writing by Buyer or cured on or
before Closing, SM Energy shall, at its sole option, elect to:
(i)
transfer, convey and assign the entirety of the Title Defect Property that is subject to such Title Defect,
together with all associated Assets, to Buyer at Closing, and reduce the Purchase Price by the Title Defect Amount;
(ii)
together with all associated Assets, to Buyer at Closing, in which event SM Energy shall have the right, for a period of 110 days
following the Closing Date (such period, the Cure Period), to cure any Title Defect relating to such retained Title Defect Property,
and should SM Energy cure such Title Defect during the Cure Period, then the Purchase Price shall not be adjusted. If SM Energy is
unable to cure any such Title Defect during the Cure Period, then the Purchase Price shall be reduced by an amount equal to the Title
Defect Amount; or
(iii)
together with all associated Assets, to Buyer at Closing, and indemnify Buyer against all Liability resulting from such Title Defect with
respect to the Assets pursuant to an indemnity agreement mutually agreeable to the Parties.
(d)
Remedies for Title Benefits. With respect to each Well or Lease affected by Title Benefits reported under this
Section 6.2, the aggregate Title Defect Amounts shall be decreased by an amount equal to the increase in the Allocated Value for such Asset
caused by such Title Benefits, as determined pursuant to Section 6.2(g) (the Title Benefit Amount).
(e)
Exclusive Remedy. The provisions set forth in Section 6.2(c) and Section 6.2(i) shall be the exclusive right and
remedy of Buyer with respect to SM Energys failure to have Defensible Title with respect to any Asset.
(f)
Title Defect Amount. The amount by which the Allocated Value of the affected Title Defect Property is reduced as
a result of the existence of such Title Defect shall be the Title Defect Amount and shall be determined in accordance with the following
terms and conditions:
Amount;
(i)
if Buyer and SM Energy agree on the Title Defect Amount, then that amount shall be the Title Defect
(ii)
if the Title Defect is an Encumbrance that is undisputed and liquidated in amount, then the Title Defect
Amount shall be the amount necessary to be paid to remove the Title Defect from the Title Defect Property;
(iii)
if the Title Defect represents a discrepancy between (A) the Net Revenue Interest for any Title Defect
Property and (B) the Net Revenue Interest for such Title Defect Property stated in Exhibit B, and the Working Interest attributable to
such Title Defect Property has been reduced proportionately, then the Title Defect Amount shall be the product of the Allocated Value
of such Title Defect Property multiplied by a fraction, the numerator of which is the positive difference between such Net Revenue
Interest values, and the denominator of which is the Net Revenue Interest for such Title Defect Property stated in Exhibit B;
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(iv)
if the Title Defect represents a discrepancy between (A) the Net Acres for any Title Defect Property and (B)
the Net Acres for such Title Defect Property stated in Exhibit A then the Title Defect Amount shall be an amount equal to (x) a
fraction, the numerator of which is the Allocated Value attributable to such Title Defect Property and the denominator of which is
number of Net Acres for such Title Defect Property stated in Exhibit A multiplied by (y) such discrepancy between (I) the Net Acres
for such Title Defect Property stated in Exhibit A and (II) the Net Acres for any Title Defect Property;
(v)
if the Title Defect represents an obligation or Encumbrance upon or other defect in title to the Title Defect
Property of a type not described above, including a Title Defect that represents a discrepancy between (A) the Net Revenue Interest for
any Title Defect Property and (B) the Net Revenue Interest for such Title Defect Property stated in Exhibit B, and the Working
Interest attributable to such Title Defect Property has not been reduced proportionately, the applicable Title Defect Amount shall be
determined by taking into account the Allocated Value of the Title Defect Property, the portion of the Title Defect Property affected by
the Title Defect, the legal effect of the Title Defect, the potential economic effect of the Title Defect over the life of the Title Defect
Property, the values placed upon the Title Defect by Buyer and SM Energy and such other reasonable factors as are necessary to make
a proper evaluation; provided, however, that if such Title Defect is reasonably capable of being cured, the Title Defect Amount shall
not be greater than the lesser of (A) the reasonable cost and expense of curing such Title Defect and (B) the Allocated Value of such
Title Defect Property;
(vi)
the Title Defect Amount with respect to a Title Defect Property shall be determined without duplication of
any costs or losses included in any other Title Defect Amount hereunder; and
(vii)
notwithstanding anything to the contrary in this Article VI, the aggregate Title Defect Amounts attributable
to the effects of all Title Defects upon any single Title Defect Property shall not exceed the Allocated Value of such Title Defect
Property.
(g)
Title Benefit Amount. The Title Benefit Amount resulting from a Title Benefit shall be determined in accordance
with the following methodology, terms and conditions:
Amount;
(i)
if Buyer and SM Energy agree on the Title Benefit Amount, then that amount shall be the Title Benefit
(ii)
if the Title Benefit represents an increase between (A) the Net Revenue Interest for any Title Benefit
Property and (B) the Net Revenue Interest for such Title Benefit Property stated in Exhibit B, and the Working Interest has increased
proportionately, then the Title Benefit Amount shall be the product of the Allocated Value of such Title Benefit Property multiplied by
a fraction, the numerator of which is the positive difference between such Net Revenue Interest values, and the denominator of which
is the Net Revenue Interest for such Title Benefit Property stated in Exhibit B, provided that if the Net Revenue increase does not
affect the Title Benefit Property throughout its entire life, the Title Benefit Amount determined under this Section 6.2(g) shall be
reduced to take into account the applicable time period only;
(iii)
if the Title Benefit represents an increase between (A) the Net Acres for any Title Benefit Property and (B)
the Net Acres for such Title Benefit Property stated in Exhibit A, then the Title Benefit Amount shall be an amount equal to (x) a
fraction, the numerator of which is the Allocated Value attributable to such Title Benefit Property and the denominator of which is the
number of Net Acres for such Title Benefit Property stated in Exhibit A multiplied by (y) such discrepancy between (I) the Net Acres
for such Title Benefit Property stated in Exhibit A and (II) the Net Acres for any Title Benefit Property, provided that if the Net Acre
increase does not affect the Title Benefit Property throughout its entire life, the Title Benefit Amount determined under this Section
6.2(g) shall be reduced to take into account the applicable time period only;
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(iv)
if the Title Benefit is of a type not described above, then the applicable Title Benefit Amount shall be
determined by taking into account the Allocated Value of the Title Benefit Property, the portion of the Title Benefit Property affected
by such Title Benefit, the legal effect of the Title Benefit, the potential economic effect of the Title Benefit over the life of such Title
Benefit Property, the values placed upon the Title Benefit by Buyer and SM Energy and such other reasonable factors as are necessary
to make a proper evaluation; and
(v)
the Title Benefit Amount with respect to a Title Benefit Property shall be determined without duplication of
any items or amounts included in any other Title Benefit Amount hereunder.
(h)
Title Threshold and Deductibles. Notwithstanding anything to the contrary, in no event shall there be any
adjustments to the Purchase Price or other remedies provided by SM Energy hereunder or under the Assignment: (i) for any individual Title
Defect for which the Title Defect Amount, or any Subject Special Warranty Claim the amount of which, in either case, does not exceed the
Individual Title Defect Threshold and (ii) for any Title Defect for which the Title Defect Amount or Subject Special Warranty Claim the
amount of which, in either case, exceeds the Individual Title Defect Threshold unless the sum of (A) the aggregate Title Defect Amounts of all
such Title Defects that exceed the Individual Title Defect Threshold (excluding any Title Defect Amounts attributable to Title Defects cured by
SM Energy), plus (B) the aggregate Remediation Amounts of all Environmental Defects that exceed the Individual Environmental Threshold
(excluding any Remediation Amounts attributable to (1) Environmental Defects cured by SM Energy or (2) Environmental Defect Properties
retained by SM Energy pursuant to Section 7.1(b)(iii)), plus (C) the aggregate amount of all Subject Special Warranty Claims that exceed the
Individual Title Defect Threshold (excluding the amounts of any Subject Special Warranty Claims cured by SM Energy), exceeds 5.0% of the
unadjusted Purchase Price (the Aggregate Deductible), after which point Buyer shall be entitled to adjustments to the Purchase Price only
with respect to such Title Defects in excess of the Aggregate Deductible. For the avoidance of doubt, if SM Energy elects to transfer, convey
and assign any Title Defect Property pursuant to Section 6.2(c)(ii), the Purchase Price shall not be reduced by the Title Defect Amount of such
Title Defect Property and the Title Defect Amount relating to such Title Defect Property will not be counted toward the Aggregate Deductible,
unless SM Energy is unable to cure such Title Defect during the Cure Period.
(i)
Title Dispute Resolution. The Parties agree to resolve disputes concerning the following matters pursuant to this
Section 6.2(i): (1) the existence and scope of a Title Defect or Title Defect Amount, and (2) the adequacy of SM Energys Title Defect curative
materials and Buyers reasonable satisfaction thereof (the Title Disputed Matters). The Parties agree to attempt to initially resolve all
disputes through good faith negotiations. If the Parties cannot resolve disputes regarding items (1) and (2) on or before Closing, the Closing
shall be delayed as to only the Assets subject to the Title Disputed Matters until the Parties finally resolve the dispute pursuant to this Section
6.2(i); provided, however, if either Party asserts that the condition in Section 9.1(d) or Section 9.2(d) has not been satisfied due, in whole or in
part, to Title Defects, then the Parties will resolve all Title Disputed Matters pursuant to this Section 6.2(i) prior to Closing. In the event that
neither Party asserts that the condition in Section 9.1(d) or Section 9.2(d) has not been satisfied, it is understood and agreed that the Parties
shall proceed to Closing as contemplated herein as to all Assets not covered by a Title Disputed Matter. The Title Disputed Matters will be
finally determined pursuant to this Section 6.2(i). There shall be a single arbitrator, who shall be an attorney with at least 10 years experience
in oil and gas matters, as selected by mutual agreement of Buyer and SM Energy within 15 days after any Party invokes the provisions of this
Section 6.2(i) to resolve such Dispute, and absent such agreement, by the Houston office of the AAA (the Title Arbitrator). The arbitration
proceeding shall be held in Houston, Texas and shall be conducted in accordance with the AAA Rules to the extent such rules do not conflict
with the terms of this Section 6.2(i). The Title Arbitrators determination shall be made within 20 days after submission by the Parties of the
matters in Dispute and shall be final and binding upon both Parties, without right of appeal. In making his determination, the Title Arbitrator
shall be bound by the rules set forth in Section 6.2(f) and Section 6.2(g) and, subject to the foregoing, may consider such other matters as in
the opinion of the Title Arbitrator are necessary to make a proper determination. The Title Arbitrator, however, may not award (a) Buyer a
greater Title Defect Amount than the Title Defect Amount claimed by Buyer in the applicable Title Defect Notice (which such Title Defect
Amount shall not exceed the Allocated Value of the applicable Title Defect Property) or (b) SM Energy a greater Title Benefit Amount than
the Title Benefit Amount claimed by SM Energy in the applicable Title Benefit Notice. The Title Arbitrator shall act as an expert for the limited
purpose of determining the specific disputed Title Defect, Title Benefit, Title Defect Amount or Title Benefit Amount submitted by either Party
and may not award damages, interest or penalties to either Party with respect to any Dispute. SM Energy and Buyer shall each bear its own
legal fees and other costs of presenting its case to the Title Arbitrator. Each of SM Energy and Buyer shall bear one-half of the costs and
expenses of the Title Arbitrator. To the extent that the award of the Title Arbitrator with respect to any Title Defect Amount was not taken into
account as an adjustment to the Purchase Price or the aggregate Title Defect Amounts, as applicable at Closing pursuant to Section 2.4 and an
adjustment would otherwise be required under the provisions of Section 6.2(c) or Section 6.2(d), as applicable, then, within 10 days after the
Title Arbitrator delivers written notice to Buyer and SM Energy of its award with respect to such Title Defect Amount or a Title Benefit
Amount and subject to Section 6.2(h), the Purchase Price will be adjusted pursuant to Section 2.4 by the amount so awarded by the Title
Arbitrator.
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6.3
Casualty or Condemnation Loss.
(a)
Notwithstanding anything herein to the contrary, from and after the Effective Time, if Closing occurs, Buyer shall
assume all risk of loss with respect to (i) production of Hydrocarbons from the Assets through normal depletion (including watering out of
any well, collapsed casing or sand infiltration of any well) and (ii) the depreciation of personal property due to ordinary wear and tear and, in
each case, Buyer shall not assert such matters as Casualty Losses or Title Defects hereunder.
(b)
If, from and after the Effective Time but prior to the Closing Date, any portion of the Assets is damaged or
destroyed by fire or other casualty or is taken in condemnation or under right of eminent domain (a Casualty Loss), and the resulting loss
from such Casualty Loss exceeds $100,000 based on the Allocated Value of the affected Assets, then (i) Buyer shall nevertheless be required
to close the transactions contemplated by this Agreement and (ii) SM Energy shall elect by written notice to Buyer prior to Closing to either
(A) cause, at SM Energys sole cost and as promptly as reasonably practicable (which work may extend after the Closing Date), each Asset
affected by such Casualty Loss to be repaired or restored to at least its condition prior to such casualty or taking, or (B) reduce the Purchase
Price by the cost to repair or restore each Asset affected by such Casualty Loss to at least its condition prior to such casualty or taking. In each
case, SM Energy shall retain all rights to insurance, condemnation awards and other claims against third parties with respect to the casualty or
taking except to the extent the Parties otherwise agree in writing.
6.4
Preferential Rights and Consents to Assign.
(a)
SM Energy represents and warrants that all consents to assign relating to the Assets (Consents) and preferential
rights to purchase (Preferential Rights) are listed on Schedule 6.4. The remedies set forth in this Section 6.4 are the exclusive remedies
under this Agreement related to the Consents and Preferential Rights.
(b)
From and after the Execution Date up to Closing, SM Energy and Buyer shall use their reasonable efforts to obtain
all Consents and waivers of all Preferential Rights (excluding any Customary Post-Closing Consents); provided, however, that neither Party
shall be required to incur any Liability or pay any money in order to obtain such Consents or waivers.
(c)
Preferential Rights. SM Energy shall, within 10 days after the Execution Date, send to each holder of a Preferential
Right a notice requesting the election or waiver by each such holder of its applicable Preferential Right, in each case in compliance with the
contractual provisions applicable to such Preferential Right, requesting a waiver of such right. Any Preferential Right must be exercised
subject to all terms and conditions set forth in this Agreement, including the successful closing of this Agreement pursuant to Article XI. The
consideration payable under this Agreement for any particular Asset for purposes of Preferential Right notices shall be the Allocated Value of
such Asset.
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(i)
All Assets burdened by Preferential Rights for which (A) the applicable Preferential Right has been waived,
or (B) the period to exercise such Preferential Right has expired prior to the Closing without the applicable holder of such Preferential
Right electing to enforce its Preferential Right, shall, in each case, be assigned to Buyer at the Closing pursuant to the provisions of
this Agreement.
(ii)
If, prior to the Closing (A) any holder of a Preferential Right notifies SM Energy that it intends to
consummate the purchase of the portion of the Assets to which its Preferential Right applies or (B) the time for exercising a
Preferential Right has not expired and the holder of such Preferential Right has not waived such Preferential Right, then, in each case,
such portion of the Assets affected by such Preferential Right shall be excluded from the Assets to be conveyed to Buyer at Closing
and the Purchase Price shall be reduced by the Allocated Value of such excluded portion of the Assets. SM Energy shall be entitled to
all proceeds paid by a Person exercising a Preferential Right prior to the Closing. If, after Closing (1) such holder of such Preferential
Right thereafter fails to consummate the purchase of the portion of the Assets covered by such Preferential Right or (2) the time for
exercising such Preferential Right expires without exercise by the holder thereof, then SM Energy shall (x) so notify Buyer and (y) on
or before 10 days following delivery of such notice, assign such portion of the Assets to Buyer pursuant to an assignment in
substantially the form of the Assignment and the Purchase Price shall be increased by an amount equal to the Allocated Value of the
such portion of the Assets.
(d)
Consents. SM Energy, within 10 days after the Execution Date, shall send to each holder of a Consent a notice
seeking such holders consent to the transactions contemplated hereby.
(i)
If (A) SM Energy fails to obtain a Consent prior to Closing and the failure to obtain such Consent would
cause (1) the assignment to Buyer of any portion of the Assets to be void or (2) the termination of a Lease under the express terms
thereof or (B) a Consent requested by SM Energy is denied in writing, then, in each case, that portion of the Assets affected by such
Consent shall be excluded from the Assets to be conveyed to Buyer at Closing and the Purchase Price shall be reduced by the
Allocated Value of such portion of the Assets. In the event that a Consent that was not obtained prior to Closing is obtained following
Closing or the requirement to obtain such Consent is waived by Buyer then, within 10 days after such Consent is obtained or the
requirement to obtain such Consent is waived by Buyer, (x) SM Energy shall assign such excluded portion of the Assets to Buyer
pursuant to an assignment in substantially the form of the Assignment (and if the requirement to obtain a Consent is waived by Buyer,
Buyer shall have no claim against, and SM Energy shall have no Liability for, the failure to obtain such Consent), and (y) Buyer shall
pay to SM Energy by wire transfer of immediately available funds an amount equal to the amount by the Allocated Value of such
portion of the Assets so assigned.
(ii)
If (A) SM Energy fails to obtain a Consent prior to Closing and the failure to obtain such Consent would
not cause (1) the assignment to Buyer of any portion of the Assets to be void or (2) the termination of a Lease under the express terms
thereof and (B) such Consent requested by SM Energy is not denied in writing, then that portion of the Assets subject to such Consent
shall be assigned by SM Energy to Buyer at Closing pursuant to the Assignment and Buyer shall have no claim against, and SM
Energy shall have no Liability for, the failure to obtain such Consent.
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ARTICLE VII
ENVIRONMENTAL MATTERS
7.1
Environmental Defects.
(a)
Environmental Defects Notice. On or before the Defect Claim Date, Buyer shall have the right, but not the
obligation, to deliver notices to SM Energy meeting the requirements of this Section 7.1(a) (each, an Environmental Defect Notice) setting
forth any matters that, in Buyers reasonable opinion, constitute Environmental Defects and that Buyer asserts as Environmental Defects
pursuant to this Section 7.1. For all purposes of this Agreement, Buyer shall be deemed to have waived any Environmental Defect that Buyer
fails to properly assert as an Environmental Defect pursuant to an Environmental Defect Notice delivered in accordance with this
Section 7.1(a) and received by SM Energy on or before the Defect Claim Date. To be effective, each Environmental Defect Notice shall be in
writing and shall include: (i) a description of the Environmental Condition constituting the alleged Environmental Defect, including the
Environmental Law(s) violated by such Environmental Defect, (ii) each Asset (or portion thereof) affected by the alleged Environmental
Defect (the Environmental Defect Property), (iii) the Allocated Value of each Environmental Defect Property, (iv) supporting documents
reasonably necessary for SM Energy to verify the existence of the alleged Environmental Defect, and (v) a calculation of the Remediation
Amount (itemized in reasonable detail) that Buyer asserts is attributable to such alleged Environmental Defect. Buyers calculation of the
Remediation Amount included in the Environmental Defect Notice must describe in reasonable detail the Remediation proposed for the
Environmental Condition that gives rise to the asserted Environmental Defect and identify all assumptions used by Buyer in calculating the
Remediation Amount, including the standards that Buyer asserts must be met to comply with Environmental Laws. SM Energy shall have the
right, but not the obligation, to cure any claimed Environmental Defect on or before Closing. To give SM Energy an opportunity to commence
reviewing and curing Environmental Defects, Buyer agrees to use reasonable efforts to give SM Energy, on or before the end of each calendar
week prior to the Defect Claim Date, written notice of all alleged Environmental Defects discovered by Buyer during the preceding calendar
week, which notice may be preliminary in nature and supplemented prior to the expiration of the applicable Defect Claim Date.
(b)
Remedies for Environmental Defects. Subject to SM Energys continuing right to dispute the existence of an
Environmental Defect or the Remediation Amount asserted with respect thereto and subject to the Individual Environmental Threshold and the
Aggregate Deductible, in the event that any Environmental Defect timely asserted by Buyer in accordance with Section 7.1(a) is not waived in
writing by Buyer or cured on or before Closing, SM Energy shall, at its sole option, elect to:
(i)
reduce the Purchase Price by the Remediation Amount for such Environmental Defect;
(ii)
assume responsibility for the Remediation of such Environmental Defect;
(iii)
retain the entirety of the Environmental Defect Property subject to such Environmental Defect, together with
all associated Assets, and reduce the Purchase Price by an amount equal to the Allocated Value of the Environmental Defect Property
and associated Assets; or
(iv)
indemnify Buyer against all Liability resulting from such Environmental Defect with respect to the Assets
pursuant to an indemnity agreement in a form mutually agreeable to the Parties.
If SM Energy elects the option set forth in clause (i) above, Buyer shall be deemed to have assumed responsibility for all costs and expenses
attributable to the Remediation of the applicable Environmental Defect (net to the Assets) and all Liabilities (net to the Assets) with respect
thereto, and Buyers obligations with respect to the foregoing shall be deemed to constitute part of the Assumed Obligations. If SM Energy
elects the option set forth in clause (ii) above, SM Energy shall use its reasonable efforts to implement such Remediation in a manner that is
consistent with the requirements of Environmental Laws in a timely fashion for the type of Remediation that SM Energy elects to undertake.
SM Energy will be deemed to have adequately completed the Remediation required in the immediately preceding sentence at such time that SM
Energy reasonably believes that the Remediation has been implemented to the extent necessary to comply with existing regulatory
requirements.
(c)
Exclusive Remedy. Subject to Buyers remedy for a breach of SM Energys representation contained in
Section 3.12, Section 7.1(b) shall be the exclusive right and remedy of Buyer with respect to any Environmental Defect.
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(d)
Environmental Deductibles. Notwithstanding anything to the contrary, in no event shall there be any adjustments to
the Purchase Price or other remedies provided by SM Energy for (i) any individual Environmental Defect for which the Remediation Amount
does not exceed the Individual Environmental Threshold, or (ii) any Environmental Defect for which the Remediation Amount exceeds the
Individual Environmental Threshold, unless the sum of (A) the aggregate Remediation Amounts of all such Environmental Defects that exceed
the Individual Environmental Threshold (excluding any Remediation Amounts attributable to (1) Environmental Defects cured by SM Energy
or (2) Environmental Defect Properties that SM Energy elects to retain pursuant to Section 7.1(b)(iii)), plus (B) the aggregate Title Defect
Amounts of all Title Defects that exceed the Individual Title Defect Threshold (excluding any Title Defect Amounts attributable to Title
Defects cured by SM Energy), exceeds the Aggregate Deductible, after which point Buyer shall only be entitled to adjustments to the Purchase
Price with respect to such Environmental Defects in excess of the Aggregate Deductible. For the avoidance of doubt, if SM Energy elects to
retain any Asset pursuant to Section 7.1(b)(iii), the Purchase Price shall be reduced by the Allocated Value of such retained Asset and the
Remediation Amount for the Environmental Defect relating to such retained Asset will not be counted towards the Aggregate Deductible.
Notwithstanding anything to the contrary in this Article VII, the aggregate Remediation Amounts attributable to the effects of all Environmental
Defects upon any single Environmental Defect Property shall not exceed the Allocated Value of such Environmental Defect Property.
(e)
Environmental Dispute Resolution. The Parties agree to resolve disputes concerning the existence and scope of an
Environmental Defect or Remediation Amount pursuant to this Section 7.1(e) (the Environmental Disputed Matters). The Parties agree to
attempt to initially resolve all disputes through good faith negotiations. If the Parties cannot resolve disputes regarding Environmental
Disputed Matters on or before Closing, the Closing shall be delayed as to only the Assets subject to the Environmental Disputed Matters until
the Parties finally resolve the dispute pursuant to this Section 7.1(e); provided, however, if either Party asserts that the condition in Section
9.1(d) or Section 9.2(d) has not been satisfied due, in whole or in part, to Environmental Defects, then the Parties will resolve all
Environmental Disputed Matters pursuant to this Section 7.1(e) prior to Closing. In the event that neither Party asserts that the condition in
Section 9.1(d) or Section 9.2(d) has not been satisfied, it is understood and agreed that the Parties shall proceed to Closing as contemplated
herein as to all Assets not covered by a Environmental Disputed Matter. The Environmental Disputed Matters will be finally determined
pursuant to this Section 7.1(e). There will be a single arbitrator, who must be an environmental attorney with at least 10 years experience in
environmental matters, as selected by mutual agreement of Buyer and SM Energy within 15 days after any Party invokes the provisions of this
Section 7.1(e) to resolve such Dispute, and absent such agreement, by the Houston office of the AAA (the Environmental Arbitrator). The
arbitration proceeding will be held in Houston, Texas and conducted in accordance with the AAA Rules to the extent such rules do not conflict
with the terms of this Section 7.1(e). The Environmental Arbitrators determination must be made within 20 days after submission of the
matters in Dispute and shall be final and binding upon both Parties, without right of appeal. In making its determination, the Environmental
Arbitrator shall be bound by the rules set forth in this Section 7.1 and, subject to the foregoing, may consider such other matters as in the
opinion of the Environmental Arbitrator are necessary or helpful to make a proper determination. The Environmental Arbitrator, however, may
not award Buyer a greater Remediation Amount than the Remediation Amount claimed by Buyer in the applicable Environmental Defect
Notice (which such award shall not exceed the Allocated Value of the applicable Environmental Defect Property). The Environmental
Arbitrator will act as an expert for the limited purpose of determining the specific disputed Environmental Defects and/or Remediation
Amounts submitted by either Party and may not award damages, interest or penalties to either Party with respect to any matter. SM Energy
and Buyer will each bear its own legal fees and other costs of presenting its case. Each Party will bear one-half of the costs and expenses of
the Environmental Arbitrator. To the extent that the award of the Environmental Arbitrator with respect to any Remediation Amount is not
taken into account as an adjustment to the Purchase Price at Closing pursuant to Section 2.4 and Buyer would otherwise be entitled to an
adjustment under the provisions of Section 7.1(d), then, within 10 days after the Environmental Arbitrator delivers written notice to Buyer and
SM Energy of such award and subject to Section 7.1(d), the Purchase Price will be adjusted pursuant to Section 2.4 by such Remediation
Amount.
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7.2
NORM, Wastes and Other Substances. Buyer acknowledges that the Assets have been used for exploration, development
and production of oil and gas and that there may be petroleum, produced water, wastes or other substances or materials located in, on or under
or associated with the Assets. Equipment and sites included in the Assets may contain asbestos, NORM or other Hazardous Substances.
NORM may affix or attach itself to the inside of wells, materials and equipment as scale, or in other forms. The wells, materials and equipment
located on the Assets or included in the Assets may contain NORM and other wastes or Hazardous Substances. NORM containing material
or other wastes or Hazardous Substances may have come in contact with various environmental media, including without limitation, water,
soils or sediment. Special procedures may be required for the assessment, remediation, removal, transportation or disposal of environmental
media, wastes, asbestos, NORM and other Hazardous Substances from the Assets.
ARTICLE VIII
CERTAIN AGREEMENTS
8.1
Conduct of Business. Except (x) as set forth in Schedule 8.1, (y) as expressly contemplated by this Agreement or (z) as
expressly consented to in writing by Buyer, SM Energy agrees that from and after the Execution Date up to Closing:
(a)
SM Energy will, and will cause its Affiliates to:
(i)
maintain, and if SM Energy is the Operator thereof, operate, the Assets in the usual, regular and ordinary
manner consistent with its past practice;
(ii)
maintain the books of account and records relating to the Assets in the usual, regular and ordinary manner,
in accordance with its usual accounting practices; and
(iii)
give written notice to Buyer as soon as is practicable of any written notice received or given by SM Energy
with respect to any alleged material breach by SM Energy of any Lease or Material Contract;
(b)
SM Energy will not, and will cause its Affiliates not to:
(i)
except for (A) emergency operations, (B) operations required under presently existing AFEs described on
Schedule 3.11, (C) operations undertaken to avoid any penalty provision of any Applicable Contract or Governmental Authority order,
and (D) operations proposed by third parties relating to drilling, sidetracking, reworking or other similar operations with respect to the
Assets operated by third parties, agree to, propose or commence any operations on the Assets anticipated to cost (net to the Assets) in
excess of $1,000,000 per operation; provided that with respect to emergency operations, SM Energy shall notify Buyer of such
emergency as soon as reasonably practicable;
(ii)
listed in Schedule 3.7(a),
enter into an Applicable Contract that, if entered into prior to the Execution Date, would be required to be
(iii)
terminate (unless such Material Contract terminates pursuant to its stated terms) or materially amend the
terms of any Material Contract;
(iv)
settle any suit or litigation or waive any material claims or rights of material value in each case attributable to
the Assets and effecting the period after the Effective Time;
(v)
transfer, sell, mortgage, pledge or dispose of any material portion of the Assets other than the sale or
disposal of Hydrocarbons in the ordinary course of business and sales of equipment that is no longer necessary in the operation of the
Assets or for which replacement equipment of equal or greater value has been obtained; or
(vi)
commit to do any of the foregoing.
Buyer acknowledges that SM Energy does not operate the Assets, and Buyer agrees that the acts or omissions of the other Working Interests
owners who are not SM Energy shall not constitute a breach of the provisions of this Section 8.1, and no action required pursuant to a vote of
Working Interest owners shall constitute a breach of the provisions of this Section 8.1 so long as SM Energy voted its interest in such a
manner that complies with the provisions of this Section 8.1.
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8.2
Governmental Bonds. Buyer acknowledges that none of the bonds, letters of credit and guarantees, if any, posted by SM
Energy or its Affiliates with Governmental Authorities and relating to the Assets are transferable to Buyer. At or prior to Closing, Buyer shall
deliver to SM Energy evidence of the posting of bonds or other security with all applicable Governmental Authorities meeting the
requirements of such Governmental Authorities to own the Assets.
8.3
Notifications. If Buyer develops or possesses information that leads it to believe that SM Energy may have breached a
representation, warranty, covenant or other agreement contained in this Agreement, Buyer shall promptly inform SM Energy of such potential
breach so that SM Energy may attempt to remedy or cure such breach prior to Closing. The provisions of this Agreement relating to
representations, warranties, indemnities and agreements of the Parties shall not be altered or modified by Buyers knowledge or SM Energys
Knowledge, as applicable, of any event or Buyers or SM Energys review of any documents or other matters except as expressly provided
herein to the contrary.
ARTICLE IX
CONDITIONS TO CLOSING
9.1
Buyers Conditions to Closing. The obligations of Buyer to consummate the transactions contemplated by this Agreement
are subject to the fulfillment (or waiver by Buyer) on or prior to the Closing of each of the following conditions:
(a)
Representations. The representations and warranties of SM Energy set forth in Article III shall be true and correct
in all material respects (other than those representations and warranties of SM Energy that are qualified by materiality, which shall be true and
correct in all respects) as of the Closing Date as though made on and as of the Closing Date (other than representations and warranties that
refer to a specified date, which need only be true and correct on and as of such specified date), except for those breaches, if any, of such
representations and warranties that in the aggregate would not have a Material Adverse Effect.
(b)
Performance. SM Energy shall have materially performed or complied with all obligations, agreements and
covenants contained in this Agreement as to which performance or compliance by SM Energy is required prior to or at the Closing Date.
(c)
No Legal Proceedings. No material suit, action or other proceeding instituted by a third party shall be pending
before any Governmental Authority seeking to restrain, prohibit, enjoin or declare illegal, or seeking substantial damages in connection with,
the transactions contemplated by this Agreement. No order, award or judgment shall have been issued by any Governmental Authority or
arbitrator to restrain, prohibit, enjoin, or declare illegal, or awarding substantial damages in connection with, the transactions contemplated by
this Agreement.
(d)
Title Defects; Environmental Defects; Preferential Rights; Consents. The sum of (i) all (A) Title Defect Amounts
determined under Section 6.2(c)(i), plus (B) all potential adjustments to the Purchase Price pursuant to Section 6.2(c)(ii) if SM Energy were to
fail to cure all of the applicable Title Defects not cured as of the Closing in accordance with such section within the Cure Period, less (C) all
Title Benefit Amounts determined under Section 6.2(g), plus (ii) all (A) Remediation Amounts for Environmental Defects determined under
Section 7.1(b)(i), plus (B) all adjustments to the Purchase Price pursuant to Section 7.1(b)(iii), plus (iii) all adjustments to the Purchase Price
made pursuant to Section 6.4(c)(ii) as a result of un-waived or unexpired Preferential Rights and Section 6.4(d)(i) in respect of unobtained or
denied Consents, plus (iv) the amount of all Casualty Losses pursuant to Section 6.3 shall, in the aggregate, be less than 20% of the unadjusted
aggregate Purchase Price.
(e)
Closing Deliverables. SM Energy shall have delivered (or be ready, willing and able to deliver at Closing) to Buyer
the documents and other items required to be delivered by SM Energy under Section 11.3.
9.2
SM Energys Conditions to Closing. The obligations of SM Energy to consummate the transactions contemplated by this
Agreement are subject to the fulfillment (or waiver by SM Energy) on or prior to the Closing of each of the following conditions:
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(a)
Representations. The representations and warranties of Buyer set forth in Article IV shall be true and correct in all
material respects (other than those representations and warranties of Buyer that are qualified by materiality, which shall be true and correct in
all respects) as of the Closing Date as though made on and as of the Closing Date (other than representations and warranties that refer to a
specified date, which need only be true and correct on and as of such specified date).
(b)
Performance. Buyer shall have materially performed or complied with all obligations, agreements and covenants
contained in this Agreement as to which performance or compliance by Buyer is required prior to or at the Closing Date.
(c)
No Legal Proceedings. No material suit, action or other proceeding instituted by a third party shall be pending
before any Governmental Authority seeking to restrain, prohibit, enjoin or declare illegal, or seeking substantial damages in connection with,
the transactions contemplated by this Agreement. No order, award or judgment shall have been issued by any Governmental Authority or
arbitrator to restrain, prohibit, enjoin, or declare illegal, or awarding substantial damages in connection with, the transactions contemplated by
this Agreement.
(d)
Title Defects; Environmental Defects; Preferential Rights; Consents. The sum of (i) all (A) Title Defect Amounts
determined under Section 6.2(c)(i), plus (B) all potential adjustments to the Purchase Price pursuant to Section 6.2(c)(ii) if SM Energy were to
fail to cure all of the applicable Title Defects not cured as of the Closing in accordance with such section within the Cure Period, less (C) all
Title Benefit Amounts determined under Section 6.2(g), plus (ii) all (A) Remediation Amounts for Environmental Defects determined under
Section 7.1(b)(i), plus (B) all adjustments to the Purchase Price pursuant to Section 7.1(b)(iii), plus (iii) all adjustments to the Purchase Price
made pursuant to Section 6.4(c)(ii) as a result of un-waived or unexpired Preferential Rights and Section 6.4(d)(i) in respect of unobtained or
denied Consents, plus (iv) the amount of all Casualty Losses pursuant to Section 6.3 shall, in the aggregate, be less than 20% of the unadjusted
aggregate Purchase Price.
(e)
Closing Deliverables. Buyer shall have delivered (or be ready, willing and able to deliver at Closing) to SM Energy
the documents and other items required to be delivered by Buyer under Section 11.3.
ARTICLE X
TAX MATTERS
10.1
Asset Tax Liability. Subject to the treatment of ad valorem Taxes provided below, all Asset Taxes shall be allocated between
Buyer and SM Energy as of the Effective Time for all taxable periods that include the Effective Time. All Asset Taxes that are not ad valorem
taxes shall be allocated to SM Energy to the extent they relate to production prior to the Effective Time and to Buyer to the extent they relate to
production on or after the Effective Time. No liability for Asset Taxes shall duplicate an adjustment to Purchase Price made pursuant to
Section 2.4. Ad valorem Taxes for each assessment period shall be allocated to SM Energy based on the percentage of the assessment period
occurring before the Effective Time and to Buyer based on the percentage of the assessment period occurring on or after the Effective Time.
Each Party shall promptly furnish to the other copies of any Asset Tax assessments and statements (or invoices therefor from the operator of
the Assets) received by it to the extent such assessment, statement, or invoice relates to an Asset Tax allocable to the other Party under this
Section 10.1. Each Party shall timely pay all Asset Taxes subject to allocation under this Section and shall furnish to the other Party evidence
of such payment. The Parties shall estimate all Asset Taxes asserted against it that are attributable to the ownership or operation of the Assets
to the extent they relate to the period on and after the Effective Time and through the Closing Date and all Subject Transfer Taxes and
incorporate such estimates into the Preliminary Settlement Statement. The actual amounts (to the extent the actual amounts differ from the
estimates included in the Preliminary Settlement Statement and are known at the time of the Final Settlement Statement) shall be accounted for
in the Final Settlement Statement. If the actual amounts are not known at the time of the Final Settlement Statement, the amounts shall be reestimated based on the best information available at the time of the Final Settlement Statement. When the actual amounts are known, Buyer or
SM Energy shall make such payments to the other (if any) as are necessary to effect the allocation of Taxes described in this Section 10.1.
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10.2
Transfer Taxes. All sales, use or other Taxes (other than Taxes on gross income, net income or gross receipts), duties,
levies, recording fees or other governmental charges incurred by or imposed with respect to the property transfers undertaken pursuant to this
Agreement (Subject Transfer Taxes) shall be the responsibility of, and shall be paid by, Buyer. The Parties shall reasonably cooperate in
taking steps that would minimize or eliminate any Subject Transfer Taxes. Buyer agrees to file all Subject Transfer Tax Returns relating to
such Subject Transfer Taxes.
10.3
Asset Tax Reports and Returns. For Asset Tax periods in which the Effective Time occurs, SM Energy agrees to
immediately forward to Buyer copies of any Asset Tax reports and Tax Returns received or filed by SM Energy after Closing and provide
Buyer with any information SM Energy has that is reasonably necessary for Buyer to file any required Tax Return related to the Assets. Buyer
agrees to file all Tax Returns and reports applicable to the Assets that Buyer is required to file after the Closing and, subject to the provisions
of Section 10.1, to pay all required Asset Taxes payable with respect to the Assets.
10.4
Tax Cooperation. Buyer and SM Energy shall cooperate fully as and to the extent reasonably requested by the other party,
in connection with the filing of any Tax Returns and any audit, litigation or other proceeding (each, a Tax Proceeding) with respect to Taxes
relating to or in connection with the Assets. Such cooperation shall include the retention and (upon the other Partys request) the provision of
such records and information which are reasonably relevant to any such Tax Return or Tax Proceeding and making employees available on a
mutually convenient basis to provide additional information and explanation of any material provided hereunder.
ARTICLE XI
CLOSING
11.1
Date of Closing. Subject to the conditions stated in this Agreement, the transfer by SM Energy and the acceptance by Buyer
of the Assets (the Closing) shall occur on December 18, 2012, or, if all conditions to Closing in Article IX (other than those conditions that
are only capable of being satisfied at the Closing) have not yet been satisfied or waived by that date, five (5) Business Days after such
conditions have been satisfied or waived, or such other date as Buyer and SM Energy may agree upon in writing. The date when Closing
actually occurs shall be the Closing Date.
11.2
Place of Closing. Closing shall be held at the offices of SM Energy, at 1775 Sherman Street, Suite 1200, Denver, CO
80203 or such other location as Buyer and SM Energy may agree upon in writing.
11.3
Closing Obligations. At Closing, the following documents shall be delivered and the following events shall occur, the
execution of each document and the occurrence of each event being a condition precedent to the others and each being deemed to have
occurred simultaneously with the others:
(a)
SM Energy and Buyer shall execute and deliver the Assignment, in sufficient counterparts to facilitate recording in
the applicable counties where the Assets are located;
(b)
SM Energy and Buyer shall execute and deliver assignments, on appropriate forms, of state and of federal leases
comprising portions of the Assets, if any;
(c)
SM Energy and Buyer shall execute and deliver the Preliminary Settlement Statement pursuant to Section 2.6(a);
(d)
Buyer shall deliver to SM Energy, to the accounts designated in the Preliminary Settlement Statement, by direct
bank or wire transfer in same day funds, the Closing Amount;
(e)
SM Energy shall deliver on forms supplied by Buyer (and reasonably acceptable to SM Energy) transfer orders or
letters in lieu thereof directing all purchasers of production to make payment to Buyer of proceeds attributable to Hydrocarbon production
from the Assets from and after the Effective Time, for delivery by Buyer to each purchaser of such Hydrocarbon production;
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(f)
SM Energy shall deliver an executed statement described in Treasury Regulation 1.1445-2(b)(2) certifying that
SM Energy is not a foreign person or a disregarded entity;
(g)
Buyer shall execute and deliver a certificate from an authorized officer of Buyer certifying on behalf of Buyer that
the conditions set forth in Section 9.2(a) and Section 9.2(b) have been fulfilled by Buyer;
(h)
SM Energy shall execute and deliver a certificate from an authorized officer of SM Energy certifying on behalf of
SM Energy that the conditions set forth in Section 9.1(a) and Section 9.1(b) have been fulfilled by SM Energy;
(i)
SM Energy shall deliver a recordable release of any trust, mortgages, financing statements, fixture filings and
security agreements made by SM Energy or its Affiliates affecting the Assets; and
(j)
SM Energy and Buyer shall execute and deliver any other agreements, instruments and documents that are required
by other terms of this Agreement to be executed or delivered at Closing.
11.4
Records. In addition to the obligations set forth under Section 11.3 above, as soon as reasonably practicable following
Closing but in any event within 30 days following the Closing Date, SM Energy shall make available to Buyer, during normal business hours
at SM Energys offices, such copies of the Records to which Buyer is entitled pursuant to the terms of this Agreement.
ARTICLE XII
ACQUISITION TERMINATION AND REMEDIES
12.1
Right of Termination. This Agreement and the transactions contemplated herein may be terminated at any time at or prior to
Closing:
(a)
by SM Energy, if any of the conditions set forth in Section 9.2 (other than the conditions set forth in
Section 9.2(d)) have not been satisfied by Buyer on or before January 18, 2013 (the Outside Termination Date);
(b)
by Buyer, if any of the conditions set forth in Section 9.1 (other than the conditions set forth in Section 9.1(d))
have not been satisfied by SM Energy on or before the Outside Termination Date;
(c)
by SM Energy if the condition set forth in Section 9.2(d) is not satisfied on or before the Closing Date or by Buyer
if the condition set forth in Section 9.1(d) has not been satisfied on or before the Outside Termination Date; or
(d)
by the mutual written agreement of Buyer and SM Energy;
provided, however, that no Party shall have the right to terminate this Agreement pursuant to clause (a), (b) or (c) above if such Party or its
Affiliates are at such time in material breach of any provision of this Agreement.
12.2
Effect of Termination. If the obligation to close the transactions contemplated by this Agreement is terminated pursuant to
any provision of Section 12.1, then, except for the provisions of (a) Section 2.3, Sections 5.1(c) through 5.1(f), Section 5.2, Section 5.3, this
Section 12.2 and Section 13.9, and (b) such terms as set forth in this Agreement in order to give context to any of the surviving Sections, this
Agreement shall forthwith become void and the Parties shall have no liability or obligation hereunder except and to the extent such termination
results from the willful breach by a Party of any of its covenants or agreements hereunder, in which case the non-breaching Party shall be
entitled to all remedies available at Law or in equity, including specific performance, and shall be entitled to recover court costs and reasonable
attorneys fees in addition to any other relief to which such Party or Parties may be entitled. The parties acknowledge that Buyer has extended
SM Energys deadline to respond to pending AFEs relating to the Assets. If the obligation to close the transactions contemplated by this
Agreement is terminated pursuant to any provision of Section 12.1, then SM Energy shall have five (5) Business Days after the date of
termination of this Agreement to respond to such AFEs.
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12.3
Return of Documentation and Confidentiality. Upon termination of this Agreement, Buyer shall return to SM Energy all
title, engineering, geological and geophysical data, environmental assessments or reports, maps and other information furnished by SM
Energy to Buyer or, if not destroyed by Buyer, prepared by or on behalf of Buyer in connection with its due diligence investigation of the
Assets, in each case, in accordance with the Confidentiality Agreement, and an officer of Buyer shall certify same to SM Energy in writing.
ARTICLE XIII
ASSUMPTION; SURVIVAL; INDEMNIFICATION
13.1
Assumption by Buyer. Without limiting Buyers rights to indemnity under this Article XIII and subject to any adjustments to
the Purchase Price pursuant to Section 2.4, from and after Closing, Buyer assumes and agrees to fulfill, perform, pay and discharge (or cause
to be fulfilled, performed, paid or discharged) all obligations and Liabilities, known or unknown, with respect to the Assets, regardless of
whether such obligations or Liabilities arose prior to, on or after the Effective Time, including, but not limited to, obligations and Liabilities
relating in any manner to the use, ownership or operation of the Assets, such as obligations to: (a) furnish makeup gas and/or settle
Imbalances attributable to the Assets according to the terms of applicable gas sales, processing, gathering or transportation Contracts, (b) pay
working interests, royalties, overriding royalties and other interest owners revenues or proceeds attributable to sales of Hydrocarbons
produced from the Assets, including those held in suspense, (c) pay the proportionate share attributable to the Assets to properly plug and
abandon any and all wells, including inactive wells or temporarily abandoned wells, located on the Assets, (d) pay the proportionate share
attributable to the Assets to replug any well, wellbore or previously plugged well on the Assets to the extent required or necessary, (e) pay the
proportionate share attributable to the Assets to dismantle or decommission and remove any Personal Property and other property of whatever
kind related to or associated with operations and activities conducted by whomever on the Assets, (f) pay the proportionate share attributable
to the Assets to clean up, restore and/or remediate the Assets in accordance with Applicable Contracts and Laws, and (g) pay the proportionate
share attributable to the Assets to perform all obligations applicable to or imposed on the lessee, owner or operator under the Leases and the
Applicable Contracts, or as required by any Law, including the payment of all Taxes related to the Assets (all of said obligations and
Liabilities, subject to the exclusions below, herein being referred to as the Assumed Obligations); provided, Buyer does not assume any
obligations or Liabilities of SM Energy attributable to the Assets to the extent that such obligations or Liabilities consist of any of the
following (the Retained Obligations):
(i)
attributable to or arise out of the ownership, use or operation of the Excluded Assets; or
(ii)
attributable to any Income Tax Liability or Franchise Tax Liability.
13.2
Indemnities of SM Energy. Effective as of the Closing, subject to the limitations set forth in Section 13.4 and otherwise
contained in this Article XIII, SM Energy is responsible for, shall pay on a current basis and agrees to defend, indemnify and hold harmless
Buyer and its Affiliates, and all of its and their respective stockholders, partners, members, directors, officers, managers, employees, agents
and representatives (collectively, Buyer Indemnified Parties) from and against any and all Liabilities, arising from, based upon, related to or
associated with:
(a)
any breach by SM Energy of its representations or warranties contained in Article III;
(b)
any breach by SM Energy of its covenants and agreements contained in this Agreement; or
(c)
the Retained Obligations.
13.3
Indemnities of Buyer. Effective as of the Closing, Buyer and its successors and assigns shall assume, be responsible for,
shall pay on a current basis and agree to defend, indemnify, hold harmless and forever release SM Energy and its Affiliates, and all of their
respective stockholders, partners, members, directors, officers, managers, employees, agents and representatives (collectively, SM
Indemnified Parties) from and against any and all Liabilities arising from, based upon, related to or associated with:
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13.4
(a)
any breach by Buyer of its representations or warranties contained in Article IV;
(b)
any breach by Buyer of its covenants and agreements contained in this Agreement; or
(c)
the Assumed Obligations.
Limitation on Liability.
(a)
SM Energy shall not have any liability for any indemnification under Section 13.2 unless (i) the individual amount
of any Liability for which a Claim Notice is delivered by Buyer to SM Energy under this Article XIII and for which SM Energy is liable
exceeds $50,000 and (ii) the aggregate amount of such Liabilities for which SM Energy is liable under this Agreement after the application of
the provisions of clause (i) above exceeds 5% of the aggregate unadjusted Purchase Price.
(b)
For purposes of this Article XIII, any breach or inaccuracy in any representations or warranties shall be determined
without regard to any dollar or materiality qualifiers.
(c)
Notwithstanding anything to the contrary contained in this Agreement, SM Energy shall not be required to
indemnify the Buyer Indemnified Parties for aggregate Liabilities under Section 13.2 in excess of 30% of the aggregate unadjusted Purchase
Price.
13.5
Express Negligence. EXCEPT AS OTHERWISE PROVIDED IN SECTION 5.1(c), THE INDEMNIFICATION,
RELEASE, ASSUMED OBLIGATIONS, WAIVER AND LIMITATION OF LIABILITY PROVISIONS PROVIDED FOR IN THIS
AGREEMENT SHALL BE APPLICABLE WHETHER OR NOT THE LIABILITIES, LOSSES, COSTS, EXPENSES AND DAMAGES
IN QUESTION AROSE OR RESULTED SOLELY OR IN PART FROM THE GROSS, SOLE, ACTIVE, PASSIVE, CONCURRENT
OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OR VIOLATION OF LAW OF OR BY ANY
INDEMNIFIED PERSON. BUYER AND SM ENERGY ACKNOWLEDGE THAT THIS STATEMENT COMPLIES WITH THE
EXPRESS NEGLIGENCE RULE AND IS CONSPICUOUS.
13.6
Exclusive Remedy for Agreement. Notwithstanding anything to the contrary contained in this Agreement, from and after
Closing, Section 5.1(c), Section 13.2 and Section 13.3 contain the Parties exclusive remedy against each other with respect to breaches of the
representations, warranties, covenants and agreements of the Parties contained in this Agreement and the affirmations of such representations,
warranties, covenants and agreements contained in the certificate delivered by each Party at Closing pursuant to Section 11.3(g) or
Section 11.3(h), as applicable. Except for (a) the remedies contained in this Article XIII, and (b) other remedies available to the Parties at Law
or in equity for breaches of Section 5.1(c) and Section 5.2, from and after Closing, SM Energy and Buyer each release, remise and forever
discharge the other Party and its Affiliates and all such Persons stockholders, officers, directors, employees, agents, advisors and
representatives from any and all Liabilities in Law or in equity, known or unknown, which such Parties might now or subsequently may have,
based on, relating to or arising out of (i) this Agreement or the consummation of the transactions contemplated by this Agreement, (ii) the
ownership, use or operation of the Assets prior to the Closing, or the condition, quality, status or nature of the Assets prior to the Closing,
including rights to contribution under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended,
(iii) breaches of statutory or implied warranties with respect to this Agreement, (iv) nuisance or other tort actions with respect to this
Agreement, (v) rights to punitive damages with respect to this Agreement, (vi) common Law rights of contribution with respect to this
Agreement, and (vii) rights under insurance maintained by SM Energy or any of its Affiliates with respect to this Agreement.
13.7
Indemnification Procedures. All claims for indemnification under Section 5.1(c), Section 13.2 and Section 13.3 shall be
asserted and resolved as follows:
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(a)
For purposes of this Article XIII, the term Indemnifying Party, when used in connection with particular
Liabilities, shall mean the Party having an obligation to indemnify another Party or Person(s) with respect to such Liabilities pursuant to this
Article XIII, and the term Indemnified Party, when used in connection with particular Liabilities, shall mean the Party or Person(s) having
the right to be indemnified with respect to such Liabilities by another Party pursuant to this Article XIII.
(b)
To make claim for indemnification under Section 5.1(c), Section 13.2 or Section 13.3, an Indemnified Party shall
notify the Indemnifying Party of its claim under this Section 13.7, including the specific details of and specific basis under this Agreement for
its claim (the Claim Notice). In the event that the claim for indemnification is based upon a claim by a third party against the Indemnified
Party (a Third Party Claim), the Indemnified Party shall provide its Claim Notice promptly after the Indemnified Party has actual
knowledge of the Third Party Claim and shall enclose a copy of all papers (if any) served with respect to the Third Party Claim; provided that
the failure of any Indemnified Party to give notice of a Third Party Claim as provided in this Section 13.7 shall not relieve the Indemnifying
Party of its obligations under Section 5.1(c), Section 13.2 or Section 13.3 (as applicable) except to the extent such failure results in insufficient
time being available to permit the Indemnifying Party to effectively defend against the Third Party Claim or otherwise materially prejudices the
Indemnifying Partys ability to defend against the claim. In the event that the claim for indemnification is based upon an inaccuracy or breach
of a representation, warranty, covenant or agreement, the Claim Notice shall specify the representation, warranty, covenant or agreement that
was inaccurate or breached.
(c)
In the case of a claim for indemnification based upon a Third Party Claim, the Indemnifying Party shall have 30
days from its receipt of the Claim Notice to notify the Indemnified Party whether it admits or denies its liability to defend the Indemnified
Party against such Third Party Claim at the sole cost and expense of the Indemnifying Party. The Indemnified Party is authorized, prior to and
during such 30 day period, at the expense of the Indemnifying Party, to file any motion, answer or other pleading that it shall deem necessary
or appropriate to protect its interests or those of the Indemnifying Party and that is not prejudicial to the Indemnifying Party.
(d)
If the Indemnifying Party admits its obligation to indemnify a Third Party Claim, it shall have the right and
obligation to diligently defend, at its sole cost and expense, the Third Party Claim provided that, where the Third Party Claim consists of a
civil, criminal or regulatory proceeding, action, indictment or investigation against the Indemnified Party by any Governmental Authority, the
Indemnified Party shall at its option have the right to control the defense and proceedings. Except as provided in the preceding sentence, the
Indemnifying Party shall have full control of such defense and proceedings, including any compromise or settlement thereof. If requested by
the Indemnifying Party, the Indemnified Party agrees to cooperate in contesting any Third Party Claim that the Indemnifying Party elects to
contest (provided, however, that the Indemnified Party shall not be required to bring any counterclaim or cross-complaint against any Person).
The Indemnified Party may participate in, but not control, at its own expense, any defense or settlement of any Third Party Claim controlled by
the Indemnifying Party pursuant to this Section 13.7(d). An Indemnifying Party shall not, without the written consent of the Indemnified
Party, (i) settle any Third Party Claim or consent to the entry of any judgment with respect thereto which does not result in a final resolution of
the Indemnified Partys Liability in respect of such Third Party Claim (including in the case of a settlement an unconditional written release of
the Indemnified Party from all Liability in respect of such Third Party Claim) or (ii) settle any Third Party Claim or consent to the entry of any
judgment with respect thereto in any manner that may materially and adversely affect the Indemnified Party (other than as a result of money
damages covered by the indemnity).
(e)
If the Indemnifying Party does not admit its obligation to indemnify and bear all expenses associated with a Third
Party Claim or admits its obligation to indemnify and bear all expenses associated with a Third Party Claim but fails to diligently prosecute or
settle the Third Party Claim, then the Indemnified Party shall have the right to defend against the Third Party Claim at the sole cost and
expense of the Indemnifying Party, with counsel of the Indemnified Partys choosing, subject to the right of the Indemnifying Party to admit
its obligation to indemnify and bear all expenses associated with a Third Party Claim and assume the defense of the Third Party Claim at any
time prior to settlement or final determination thereof. If the Indemnifying Party has not yet admitted its obligation to indemnify and bear all
expenses associated with a Third Party Claim, the Indemnified Party shall send written notice to the Indemnifying Party of any proposed
settlement and the Indemnifying Party shall have the option for 10 Business Days following receipt of such notice to (i) admit in writing its
obligation to indemnify and bear all expenses associated with a Third Party Claim and (ii) if such obligation is so admitted, reject, in its
reasonable judgment, the proposed settlement.
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(f)
In the case of a claim for indemnification not based upon a Third Party Claim, the Indemnifying Party shall have 30
days from its receipt of the Claim Notice to (i) cure the Liabilities complained of, (ii) admit its obligation to indemnify for and bear all expenses
associated with such Liability or (iii) dispute the claim for such Liabilities. If the Indemnifying Party does not notify the Indemnified Party
within such 30 day period that it has cured the Liabilities or that it disputes the claim for such Liabilities, the amount of such Liabilities shall
conclusively be deemed a liability of the Indemnifying Party hereunder.
13.8
Survival.
(a)
The representations and warranties of SM Energy contained in Sections 3.1, 3.2, 3.3 and 3.4 shall survive the
Closing for the statute of limitations period applicable to such representation. The covenants and agreements of SM Energy contained in this
Agreement shall survive the Closing without time limit. The representations and warranties of SM Energy contained in Sections 3.5 through
3.17 shall, in each case, survive the Closing for one year. The representations and warranties of Buyer contained in Article IV and the
covenants and agreements of Buyer contained in this Agreement shall, in each case, survive the Closing without time limit. Representations,
warranties, covenants and agreements shall be of no further force and effect after the date of their expiration; provided that there shall be no
termination of any bona fide claim asserted pursuant to this Agreement with respect to such a representation, warranty, covenant or agreement
prior to its expiration date.
(b)
The indemnities in Section 13.2(a) and Section 13.2(b) shall terminate as of the termination date of each respective
representation, warranty, covenant or agreement that is subject to indemnification as set forth in Section 13.8(a). Buyers indemnities contained
herein shall survive Closing without time limit. Notwithstanding the foregoing, there shall be no termination of any bona fide claim asserted
pursuant the indemnities in Section 13.2 prior to the date of termination for such indemnity.
13.9
Non-Compensatory Damages. None of the Buyer Indemnified Parties or SM Indemnified Parties shall be entitled to
recover from SM Energy or Buyer, as applicable, or their respective Affiliates, any indirect, consequential, punitive or exemplary damages or
damages for lost profits of any kind arising under or in connection with this Agreement or the transactions contemplated by this Agreement,
except to the extent any such Party suffers such damages (including costs of defense and reasonable attorneys fees incurred in connection
with defending of such damages) to a third party, which damages (including costs of defense and reasonable attorneys fees incurred in
connection with defending against such damages) shall not be excluded by this provision as to recovery hereunder. Subject to the preceding
sentence, Buyer, on behalf of each of the Buyer Indemnified Parties, and SM Energy, on behalf of each of SM Indemnified Parties, each
waive any right to recover punitive, special, exemplary and consequential damages, including damages for lost profits of any kind, arising in
connection with this Agreement or the transactions contemplated by this Agreement. This Section shall not restrict any Partys right to obtain
specific performance or other equitable remedies (other than rescission) pursuant to Section 12.2.
ARTICLE XIV
MISCELLANEOUS
14.1
Counterparts. This Agreement may be executed in any number of counterparts, and each such counterpart hereof shall be
deemed to be an original instrument, but all of such counterparts shall constitute for all purposes one agreement. Any signature hereto
delivered by a Party by facsimile transmission shall be deemed an original signature hereto.
14.2
Notices. All notices and communications required or permitted to be given hereunder shall be sufficient in all respects if
given in writing and delivered personally, or sent by bonded overnight courier, or mailed by U.S. Express Mail or by certified or registered
United States Mail with all postage fully prepaid, or sent by telex or facsimile transmission (provided any such telex or facsimile transmission
is confirmed either orally or by written confirmation), addressed to the appropriate Party at the address for such Party shown below or at such
other address as such Party shall have theretofore designated by written notice delivered to the Party giving such notice:
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If to SM Energy:
SM Energy Company
1775 Sherman Street, Suite 1200
Denver, CO 80203
Attention:
David W. Copeland Senior Vice President, General
Counsel and Corporate Secretary
Fax:
303.864.2598
SM Energy Company
777 North Eldridge Parkway, Suite 1000
Houston, TX 77079
Attention:
Kenneth J. Knott Vice President, Business Development and Land
Fax:
281.677.2810
If to Buyer:
2549 West Main Street, Suite 202
Littleton, CO 80120
Attention:
Steve Dille, Land Manager
Britton James, Senior Landman
Phone:
303.798.5235
Fax:
303.798.5767
Any notice given in accordance herewith shall be deemed to have been given when (a) delivered to the addressee in person or by courier, (b)
transmitted by facsimile transmission during normal business hours, or (c) upon actual receipt by the addressee after such notice has either
been delivered to an overnight courier or deposited in the United States Mail, as the case may be. The Parties may change the address and
facsimile numbers to which such communications are to be addressed by giving written notice to the other Parties in the manner provided in
this Section 14.2.
14.3
Expenses. Except as otherwise specifically provided, all fees, costs and expenses incurred by the Parties in negotiating this
Agreement shall be paid by the Party incurring the same, including legal and accounting fees, costs and expenses.
14.4
Waivers; Rights Cumulative. Any of the terms, covenants or conditions hereof may be waived only by a written instrument
executed by or on behalf of the Party waiving compliance. No course of dealing on the part of any Party or its respective officers, employees,
agents or representatives, and no failure by a Party to exercise any of its rights under this Agreement shall, in either case, operate as a waiver
thereof or affect in any way the right of such Party at a later time to enforce the performance of such provision. No waiver by any Party of any
condition, or any breach of any term or covenant contained in this Agreement, in any one or more instances, shall be deemed to be or
construed as a further or continuing waiver of any such condition or breach or a waiver of any other condition or of any breach of any other
term or covenant. The rights of the Parties under this Agreement shall be cumulative, and the exercise or partial exercise of any such right shall
not preclude the exercise of any other right.
14.5
Relationship of the Parties. The rights, duties, obligations and liabilities of the Parties under this Agreement shall be
individual, not joint or collective. It is not the intention of the Parties to create, and this Agreement shall not be deemed or construed to create, a
mining or other partnership, joint venture or association or a trust. This Agreement shall not be deemed or construed to authorize any Party to
act as an agent, servant or employee for any other Party for any purpose whatsoever except as explicitly set forth in this Agreement. In their
relations with each other under this Agreement, the Parties shall not be considered fiduciaries.
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14.6
Entire Agreement; Conflicts. THIS AGREEMENT, THE EXHIBITS, SCHEDULES AND APPENDICES HERETO
COLLECTIVELY CONSTITUTE THE ENTIRE AGREEMENT AMONG THE PARTIES PERTAINING TO THE SUBJECT MATTER
HEREOF AND SUPERSEDE ALL PRIOR AGREEMENTS, UNDERSTANDINGS, NEGOTIATIONS AND DISCUSSIONS,
WHETHER ORAL OR WRITTEN, OF THE PARTIES PERTAINING TO THE SUBJECT MATTER OF THIS AGREEMENT. THERE
ARE NO WARRANTIES, REPRESENTATIONS OR OTHER AGREEMENTS AMONG THE PARTIES RELATING TO THE
SUBJECT MATTER OF THIS AGREEMENT EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT, AND NO PARTY
SHALL BE BOUND BY OR LIABLE FOR ANY ALLEGED REPRESENTATION, PROMISE, INDUCEMENT OR STATEMENTS
OF INTENTION NOT SO SET FORTH. IN THE EVENT OF A CONFLICT BETWEEN THE TERMS AND PROVISIONS OF THIS
AGREEMENT AND THE TERMS AND PROVISIONS OF ANY EXHIBIT HERETO; THE TERMS AND PROVISIONS OF THIS
AGREEMENT SHALL GOVERN AND CONTROL; PROVIDED, HOWEVER, THAT THE INCLUSION IN ANY OF THE
EXHIBITS HERETO OF TERMS AND PROVISIONS NOT ADDRESSED IN THIS AGREEMENT SHALL NOT BE DEEMED A
CONFLICT, AND ALL SUCH ADDITIONAL PROVISIONS SHALL BE GIVEN FULL FORCE AND EFFECT.
14.7
Governing Law. THIS AGREEMENT AND THE LEGAL RELATIONS AMONG THE PARTIES SHALL BE
GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCLUDING ANY
CONFLICTS OF LAW RULE OR PRINCIPLE THAT MIGHT REFER CONSTRUCTION OF SUCH PROVISIONS TO THE LAWS
OF ANOTHER JURISDICTION. ALL OF THE PARTIES CONSENT TO THE EXERCISE OF JURISDICTION IN PERSONAM BY
THE COURTS OF THE STATE OF TEXAS FOR ANY DISPUTE. EACH PARTY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY DISPUTE.
14.8
Filings, Notices and Certain Governmental Approvals. Promptly after Closing, Buyer shall (a) record the Assignments
and all state/federal assignments executed at Closing in all applicable real property records and/or, if applicable, all state or federal agencies, (b)
send notices to vendors supplying goods and services for the Assets of the assignment of the Assets to Buyer, (c) actively pursue the approval
of all applicable Governmental Authorities of the assignment of the Assets to Buyer and (d) actively pursue all other consents and approvals
that may be required in connection with the (i) assignment of the Assets to Buyer and (ii) assumption of the Assumed Liabilities by Buyer
hereunder, in each case, that shall not have been obtained prior to Closing. Buyer obligates itself to take any and all action required by any
Governmental Authority in order to obtain such unconditional approval, including but not limited to, the posting of any and all bonds or other
security that may be required in excess of any existing bond.
14.9
Amendment. This Agreement may be amended only by an instrument in writing executed by all of the Parties and expressly
identified as an amendment or modification hereof.
14.10 Parties in Interest. Nothing in this Agreement shall entitle any Person other than the Parties to any claim, cause of action,
remedy or right of any kind.
14.11 Successors and Permitted Assigns. This Agreement shall be binding upon and inure to the benefit of the Parties and their
respective successors and permitted assigns.
14.12
Publicity.
(a)
Without reasonable prior notice to the other Parties, no Party will issue, or permit any of its agents or Affiliates to
issue, any press releases or otherwise make, or cause any of its agents or Affiliates to make, any public statements with respect to this
Agreement or the activities contemplated hereby, except where such release or statement is deemed in good faith by the releasing Party to be
required by Law or under the rules and regulations of a recognized stock exchange on which shares of such Party or any of its Affiliates are
listed.
(b)
Notwithstanding anything to the contrary in Section 14.12(a), any Party or Affiliate of a Party may disclose
information regarding the Assets in investor presentations, industry conference presentations or similar disclosures.
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14.13 Preparation of Agreement. Both SM Energy and Buyer and their respective counsel participated in the preparation of this
Agreement. In the event of any ambiguity in this Agreement, no presumption shall arise based on the identity of the draftsman of this
Agreement.
14.14 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of
Law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is not affected in any adverse manner to any Party. Upon such
determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
[Signature Page Follows]
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IN WITNESS WHEREOF, the Parties have executed this Agreement by their duly authorized representatives on and as of the
Execution Date.
SM ENERGY COMPANY
By:
Name:
Title:
By:
Name:
Title:
Signature Page to Purchase and Sale Agreement
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Annex I
Definitions
Accounting Arbitrator has the meaning set forth in Section 2.6(c).
AFE has the meaning set forth in Section 3.11.
Affiliate means, with respect to any Party, a Person that directly or indirectly, through one or more intermediaries, Controls, is
Controlled by or is under common Control with, such Party.
Aggregate Deductible has the meaning set forth in Section 6.2(h).
Agreement has the meaning set forth in the preamble to this Agreement.
Allocated Value has the meaning set forth in Section 2.5.
Applicable Contracts means all Contracts to which SM Energy is a party that primarily relate to the Assets and that will be binding
on the Assets or Buyer after Closing, including, without limitation; farmin and farmout agreements; bottomhole agreements; crude oil,
condensate and natural gas purchase and sale agreements; gathering, transportation and marketing agreements; hydrocarbon storage
agreements; acreage contribution agreements; operating agreements (including, for the avoidance of doubt, Applicable Operating Agreements);
balancing agreements; pooling declarations or agreements; unitization agreements; processing agreements; crossing agreements and other
similar contracts and agreements, but excluding the Leases and any master service agreements or other agreements held by SM Energy in its
capacity as Operator of the Assets.
Applicable Operating Agreements means, collectively, the joint operating agreements applicable to the Assets, and Applicable
Operating Agreement means any of them.
Asset Taxes means ad valorem, property, excise, severance, production or similar taxes (including any interest, fine, penalty or
additions to tax imposed by Governmental Authorities in connection with such taxes) based upon operation or ownership of the Assets or the
production of Hydrocarbons therefrom, but excluding, for the avoidance of doubt, income, capital gains and franchise taxes.
Assets means SM Energys right, title and interest in and to the following: (a) all oil and gas leases and mineral interests described
on Exhibit A and any leasehold estates, royalty interests, overriding royalty interests, net profits interests, and other rights and interests to the
oil and gas in place covered by such leases (the Leases) and any pooled acreage, communitized acreage or units arising on account of Leases
being pooled, communitized or unitized into such units (Units); (b) the oil, gas, casinghead gas, coal bed methane, condensate and other
gaseous and liquid hydrocarbons or any combination thereof, sulphur extracted from hydrocarbons and all other lease substances
(Hydrocarbons) under the Leases and that may be produced and saved under or otherwise be allocated or attributed to the Leases; (c) the
oil, gas, water or injection wells located on Leases or Units, whether producing, shut-in or temporarily abandoned, including those described
on Exhibit B (the Wells) and including all of the personal property, equipment, fixtures and improvements used in connection therewith; (d)
the unitization, pooling and communitization agreements, declarations, orders and the units created thereby relating to the properties and
interests described in clauses (a) through (c) or to the production, gathering, treatment, processing, storage, sale, disposal and other handling
of Hydrocarbons, if any, attributable to said properties and interests; (e) all equipment, machinery, fixtures and other tangible personal
property and improvements located on or used or held for use in connection with the operation of the interests described in clauses (a) through
(d) or the production, gathering, treatment, processing, storage, sale, disposal, and other handling of Hydrocarbons attributable thereto,
including any wells, tanks, boilers, buildings, fixtures, injection facilities, saltwater disposal facilities, compression facilities, pumping units
and engines, platforms, flow lines, pipelines, gathering systems, gas and oil treating facilities, machinery, power lines, telephone and telegraph
lines, roads, and other appurtenances, improvements and facilities (all of the foregoing, collectively, the Equipment); (f) all surface leases,
permits, rights-of-way, licenses, easements and other surface rights agreements used in connection with the production, gathering, treatment,
processing, storage, sale, disposal and other handling of Hydrocarbons or produced water from the interests described in clauses (a) through
(e) (collectively, the Surface Contracts); (g) all existing contracts and effective sales, purchase contracts, operating agreements, exploration
agreements, development agreements, balancing agreements, farmout agreements, service agreements, transportation, processing, treatment or
gathering agreements, equipment leases and other contracts, agreements and instruments, insofar as they directly relate to the properties and
interests described in clauses (a) through (f) (collectively, the Contracts); and (h) to the extent transferable without payment of additional
consideration, originals, to the extent available, or copies of all the files, records and data relating to the items described in clauses (a) through
(g) above, which records shall include, without limitation: lease records, well records, division order records, well files, title records (including
abstracts of title, title opinions and memoranda, and title curative documents), engineering records, geological and geophysical data (including
seismic data) and all technical evaluations, interpretative data and technical data and information relating to the Assets, correspondence,
electronic data files (if any), maps, production records, electric logs, core data, pressure data, decline curves and graphical production curves,
reserve reports, appraisals and accounting and Asset Tax records (collectively, the Records).
32
Assignment means the Assignment and Bill of Sale from SM Energy to Buyer, pertaining to the Assets, substantially in the form
attached hereto as Exhibit C.
Assumed Obligations has the meaning set forth in Section 13.1.
Burdens means, with respect to any Asset, all royalties, overriding royalties, production payments, carried interests, net profits
interests, reversionary interests and other burdens upon, measured by or payable out of, production therefrom.
Business Day means a day (other than a Saturday or Sunday) on which commercial banks in Texas are generally open for
business.
Buyer has the meaning set forth in the preamble to this Agreement.
Buyer Indemnified Parties has the meaning set forth in Section 13.2.
Buyers Representatives has the meaning set forth in Section 5.1(a).
Casualty Loss has the meaning set forth in Section 6.3(b).
Claim Notice has the meaning set forth in Section 13.7(b).
Closing has the meaning set forth in Section 11.1.
Closing Amount means the Preliminary Purchase Price less the Deposit.
Closing Date has the meaning set forth in Section 11.1.
Code means the Internal Revenue Code of 1986, as amended.
Confidentiality Agreement means that certain Confidentiality Agreement between SM Energy and Buyer, dated as of November
20, 2012.
Consents has the meaning set forth in Section 6.4.
Contract has the meaning set forth in the definition of Assets above.
Control and its derivatives mean, with respect to any Person, the possession, directly or indirectly, of the power to exercise or
determine the voting of more than 50% of the voting rights in a corporation, and, in the case of any other type of entity, the right to exercise or
determine the voting of more than 50% of the equity interests having voting rights, or otherwise to direct or cause the direction of the
management and policies of such Person, whether by contract or otherwise.
Cure Period has the meaning set forth in Section 6.2(c)(ii).
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Customary Post-Closing Consents means those consents and approvals from Governmental Authorities for the assignment of the
Assets to the Buyer that are customarily obtained after the assignment of properties similar to the Assets.
Defect Claim Date has the meaning set forth in Section 6.2(a).
Defensible Title means such title of SM Energy with respect to the Assets that, subject to Permitted Encumbrances:
(a)
with respect to each Well shown in Exhibit B (but limited to any currently producing intervals), entitles SM
Energy to receive not less than the Net Revenue Interest shown in Exhibit B, for such Well throughout the duration of the productive life of
such Well, except for (i) decreases in connection with those operations in which SM Energy may, from and after the Execution Date, be a nonconsenting co-owner (to the extent permitted pursuant to Section 8.1), (ii) decreases resulting from the establishment or amendment from and
after the Execution Date of pools or units, (iii) decreases required to allow other Working Interest owners to make up past underproduction or
pipelines to make up past under deliveries, and (iv) as otherwise stated in Exhibit B;
(b)
with respect to each Well shown in Exhibit B (but limited to any currently producing intervals), obligates SM
Energy to bear the Working Interest for such Well not greater than the Working Interest shown in Exhibit B, for such Well without increase
throughout the productive life of such Well, except (i) increases resulting from contribution requirements with respect to defaults by coowners from and after the Execution Date under Applicable Operating Agreements, (ii) increases to the extent that they are accompanied by a
proportionate increase in the Net Revenue Interest in the Assets, and (iii) as otherwise stated in Exhibit B;
(c)
with respect to each Lease shown in Exhibit A, entitles SM Energy to the Net Acres set forth in Exhibit A, with
respect to such Lease, subject to not more than the Burdens set forth for such Lease in Exhibit A; and
(d)
is free and clear of all Encumbrances.
Deposit has the meaning set forth in Section 2.2(a).

Dispute means any dispute, controversy or claim (of any and every kind or type, whether based on contract, tort, statute, regulation
or otherwise) arising out of, relating to or connected with this Agreement or the transactions contemplated hereby, including but not limited to
any dispute, controversy or claim concerning the existence, validity, interpretation, performance, breach or termination of this Agreement, the
relationship of the Parties arising out of this Agreement or the transactions contemplated hereby.
Dispute Notice has the meaning set forth in Section 2.6(b).
DOJ means the Department of Justice.
Effective Time means 7:00 a.m. local time at the location of the Assets on September 1, 2012.
Encumbrance means a mortgage, lien, security interest, pledge, charge or other encumbrance, and Encumber and other similar
derivatives shall be construed accordingly.
Environmental Arbitrator has the meaning set forth in Section 7.1(e).
Environmental Condition means (a) a condition existing on the Defect Claim Date with respect to the air, soil, subsurface, surface
waters, ground waters and/or sediments that causes any Asset (or SM Energy with respect to any Asset) not to be in compliance with any
Environmental Law or (b) the existence as of the Execution Date with respect to any Asset or the operation thereof of any environmental
pollution, contamination, degradation, damage or injury caused by, related to such Asset for which remedial or corrective action is presently
required (or if known, would be presently required) under Environmental Laws.
Environmental Defect means an Environmental Condition with respect to an Asset that is not set forth in Schedule 3.12.
34
Environmental Defect Notice has the meaning set forth in Section 7.1(a).
Environmental Defect Property has the meaning set forth in Section 7.1(a).
Environmental Laws means all applicable federal, state and local Laws in effect as of the Execution Date, including common Law,
relating to the protection of the public health, welfare and the environment, including, without limitation, those Laws relating to the generation,
storage, handling, use, processing, treatment, transportation, disposal or other management of chemicals and other Hazardous Substances. The
term Environmental Laws does not include good or desirable operating practices or standards that may be employed or adopted by other oil
and gas well operators or recommended by any Governmental Authority.
Equipment has the meaning set forth in the definition of Assets above.
Execution Date has the meaning set forth in the preamble to this Agreement.
Excluded Assets means (a) all of SM Energys corporate minute books, financial records and other business records that relate to
SM Energys business generally (including the ownership and operation of the Assets); (b) all trade credits, all accounts, receivables and all
other proceeds, income or revenues attributable to the Assets with respect to any period of time prior to the Effective Time; (c) subject to
Section 6.3, all rights and interests relating to the Assets (i) under any existing policy or agreement of insurance, (ii) under any bond or (iii) to
any insurance or condemnation proceeds or awards arising, in each case, from acts, omissions or events, or damage to or destruction of
property; (d) all Hydrocarbons produced and sold from the Assets with respect to all periods prior to the Effective Time; (e) all claims of SM
Energy or its Affiliates for refunds of or loss carry forwards with respect to (i) production or any other Taxes paid by SM Energy or its
Affiliates attributable to any period prior to the Effective Time, (ii) income Taxes paid by SM Energy or its Affiliates or (iii) any Taxes
attributable to the other Excluded Assets; (f) all personal computers and associated peripherals and all radio and telephone equipment; (g) all of
SM Energys proprietary computer software, patents, trade secrets, copyrights, names, trademarks, logos and other intellectual property; (h) all
documents and instruments of SM Energy that may be protected by an attorney-client privilege; (i) all data that cannot be disclosed to Buyer as
a result of confidentiality arrangements under agreements with third parties; (j) all audit rights arising under any of the (i) Applicable Contracts
or otherwise with respect to any period prior to the Effective Time or (ii) other Excluded Assets, except for any Imbalances; (k) all geophysical
and other seismic and related technical data and information relating to the Assets to the extent that such geophysical and other seismic and
related technical data and information is not transferable without payment of a fee or other penalty to any third party under any Contract and
which Buyer has not separately agreed in writing to pay; (l) documents prepared or received by SM Energy or its Affiliates with respect to (i)
lists of prospective purchasers for the Assets, (ii) bids submitted by other prospective purchasers of the Assets, (iii) analyses by SM Energy
or its Affiliates of any bids submitted by any prospective purchaser, (iv) correspondence between or among SM Energy, its representatives
and any prospective purchaser other than Buyer, and (v) correspondence between SM Energy or any of its representatives with respect to any
of the bids, the prospective purchasers or the transactions contemplated by this Agreement; (m) a copy of all Records; (n) any offices, office
leases and any office furniture or office supplies located in or on such offices or office leases; (o) any Applicable Contracts and Records that
are related to Assets that are excluded pursuant to the provisions of Section 6.4(c)(ii), Section 6.4(d)(i) or Section 7.1(b)(iii); (p) any Contracts
that constitute master services agreements or similar contracts; and (q) all rights-of-way and surface leases held or used in connection with the
Assets operated by SM Energy and all other similar rights and interests held or used in connection with the Assets operated by SM Energy
that are commonly held by an operator of properties similar to the Assets operated by SM Energy.
Final Settlement Statement has the meaning set forth in Section 2.6(b).
Franchise Tax Liability means any Tax imposed by a state on SM Energys or any of its Affiliates gross or net income and/or
capital for the privilege of engaging in business in that state that was or is attributable to SM Energys or any of its Affiliates ownership of an
interest in the Assets.
35
GAAP means the generally accepted accounting principles in the United States of America.
Governmental Authority means any federal, state, local, municipal, tribal or other government; any governmental, regulatory or
administrative agency, commission, body or other authority exercising or entitle to exercise any administrative, executive, judicial, legislative,
regulatory or taxing authority or power; and any court or governmental tribunal, including any tribal authority having or asserting jurisdiction.
Hazardous Substances means any pollutants, contaminants, toxics or hazardous or extremely hazardous substances, materials,
wastes, constituents, compounds or chemicals that are regulated by, or may form the basis of any liability under, any Environmental Laws,
including NORM and other substances referenced in Section 7.2.
Hydrocarbons has the meaning set forth in the definition of Assets above.
Imbalance means any imbalance at the (a) wellhead between the amount of Hydrocarbons produced from a Well and allocable to
the interests of SM Energy therein and the shares of production from the relevant Well to which SM Energy is entitled or (b) pipeline flange
between the amount of Hydrocarbons nominated by or allocated to SM Energy and the Hydrocarbons actually delivered on behalf of SM
Energy at that point.
Income Tax Liability means any Liability of SM Energy or any of its Affiliates attributable to any federal, state or local income Tax
measured by or imposed on the net income of SM Energy or any of its Affiliates that was or is attributable to SM Energys or any of its
Affiliates ownership of an interest in or the operation of the Assets.
Indemnified Party has the meaning set forth in Section 13.7(a).
Indemnifying Party has the meaning set forth in Section 13.7(a).
Individual Environmental Threshold means $50,000.
Individual Title Defect Threshold means $50,000.
Interim Period means that period of time from and after the Effective Time up to Closing.
Invasive Activities has the meaning set forth in Section 5.1(b).
Knowledge means with respect to SM Energy, the actual knowledge of the following Persons: Mark Mueller, Kenneth Knott, Ron
Santi, and Rob Diedrich.
Laws means any constitution, decree, resolution, law, statute, act, ordinance, rule, directive, order, treaty, code or regulation and
any injunction or final non-appealable judgment or any interpretation of the foregoing, as enacted, issued or promulgated by any Governmental
Authority.
Leases has the meaning set forth in the definition of Assets above.
Liabilities means any and all claims, causes of actions, payments, charges, judgments, assessments, liabilities, losses, damages,
penalties, fines, costs and expenses, including any attorneys fees and legal or other expenses incurred in connection therewith and including
liabilities, costs, losses and damages for personal injury or death or property damage.
Material Adverse Effect means any change, inaccuracy, effect, event, result, occurrence, condition or fact (for the purposes of this
definition, each, an event) (whether foreseeable or not and whether covered by insurance or not) that has had or would be reasonably likely
to have, individually or in the aggregate with any other event or events, a material adverse effect on the ownership, operation or financial
condition of the Assets, taken as a whole; provided, however, that Material Adverse Effect shall not include such material adverse effects
resulting from (a) general changes in oil and gas prices; (b) general changes in industry, economic or political conditions or markets; (c)
changes in conditions or developments generally applicable to the oil and gas industry in the State of North Dakota; (d) acts of God, including
hurricanes and storms; (e) acts or failures to act of Governmental Authorities; (f) civil unrest or similar disorder, terrorist acts or changes in
Laws; (g) effects or changes that are cured or no longer exist by the earlier of Closing and the termination of this Agreement pursuant to
Section 12.1, without cost to Buyer; (h) changes in GAAP; and (i) changes resulting from the announcement of the transactions contemplated
hereby or the performance of the covenants set forth in Article VIII; provided that, in each case, the changes and effects described in clauses
(a), (b) and (c) of this definition do not disproportionately affect the Assets, taken as a whole.
36
Material Contracts has the meaning set forth in Section 3.7(a).

Month means any of the months of the Gregorian calendar.
Net Acre means, as computed separately with respect to each Lease, (a) the number of gross acres in the lands covered by such
Lease, multiplied by (b) the interest in oil, gas and other minerals covered by such Lease in such lands, multiplied by (c) the Working Interest
to be transferred to Buyer as part of the Assets; provided that if items (b) and/or (c) vary as to different areas of such lands (including depths)
covered by such Lease, a separate calculation shall be done for each such area.
Net Revenue Interest means, with respect to any Well, the interest in and to all Hydrocarbons produced, saved and sold from or
allocated to such Well, after giving effect to all Burdens thereon.
NORM means naturally occurring radioactive material.
Operating Expenses means all operating expenses (including Asset Taxes) and capital expenditures incurred in the ownership and
operation of the Assets in the ordinary course of business and, where applicable, in accordance with the Applicable Operating Agreement, and
overhead costs charged to the Assets under the Applicable Operating Agreement, but excluding Liabilities attributable to (a) personal injury or
death, property damage or violation of any Law, (b) obligations to plug wells and dismantle or decommission facilities, (c) the Remediation of
any Environmental Condition under applicable Environmental Laws, (d) obligations with respect to Imbalances, or (e) obligations to pay
Working Interests, royalties, overriding royalties or other interest owners revenues or proceeds attributable to sales of Hydrocarbons relating
to the Assets, including those held in suspense.
Operator means the Person serving as operator under any Applicable Operating Agreement.
Party and Parties have the meanings set forth in the preamble to this Agreement.
Permitted Encumbrances means:
(a)
lessors royalties, non-participating royalties, overriding royalties, reversionary interests and similar burdens upon,
measured by or payable out of production if the net cumulative effect of such burdens does not (i) operate to reduce the Net Revenue Interest
of SM Energy in any Well to an amount less than the Net Revenue Interest set forth on Exhibit B for such Well, (ii) obligate SM Energy to
bear a Working Interest for such Well in any amount greater than the Working Interest set forth on Exhibit B for such Well (unless the Net
Revenue Interest for such Asset is greater than the Net Revenue Interest set forth on Exhibit B, in the same proportion as any increase in such
Working Interest) or (iii) increase the royalty and overriding royalty burdens for any Lease to an amount greater than that set forth in
Exhibit A;
(b)
Preferential Rights or similar agreements with respect to which (A) waivers are obtained from the appropriate
parties for the transaction contemplated hereby, or (B) required notices have been given for the transaction contemplated hereby to the holders
of such rights and the appropriate period for making an election has expired without an exercise of such rights;
(c)
required third party consents to assignments or similar agreements with respect to which (A) consents have been
obtained from the appropriate parties for the transaction contemplated hereby, or (B) required notices have been given for the transaction
contemplated hereby to the holders of such rights and the applicable period (as specified in the contract, agreement or other instrument granting
or reserving such rights) for giving notice of objection or withholding of consent has expired without an exercise of such rights or the period
within which the failure to respond to such notice is considered under the relevant contract, agreement or other instrument as deemed consent
has expired without SM Energys receipt of a notice of objection or withholding of consent;
37
(d)
liens for Taxes or assessments not yet due or delinquent;
(e)
Customary Post-Closing Consents;
(f)
other than such rights that have already been triggered, conventional rights of reassignment;
(g)
such Title Defects as Buyer may have waived or is deemed to have waived pursuant to the terms of this Agreement
or Title Defects that were not properly asserted by Buyer prior to the Defect Claim Date (other than claims which may be made pursuant to the
special warranty of title set forth in the Assignment);
(h)
all applicable Laws, and rights reserved to or vested in any Governmental Authority (i) to control or regulate any
Asset in any manner; (ii) by the terms of any right, power, franchise, grant, license or permit, or by any provision of Law, to terminate such
right, power, franchise grant, license or permit or to purchase, condemn, expropriate or recapture or to designate a purchaser of any of the
Assets; (iii) to use such property in a manner which does not materially impair the use of such property for the purposes for which it is
currently owned and operated and (iv) to enforce any obligations or duties affecting the Assets to any Governmental Authority, with respect to
any franchise, grant, license or permit;
(i)
rights of a common owner of any interest in rights-of-way or easements currently held by SM Energy and such
common owner as tenants in common or through common ownership to the extent that the same does not materially impair the use or
operation of the Assets as currently used and operated;
(j)
easements, conditions, covenants, restrictions, servitudes, permits, rights-of-way, surface leases and other rights in
the Assets for the purpose of surface operations, roads, alleys, highways, railways, pipelines, transmission lines, transportation lines,
distribution lines, power lines, telephone lines and removal of timber, grazing, logging operations, canals, ditches, reservoirs and other like
purposes, or for the joint or common use of real estate, rights-of-way, facilities and equipment, (in each case) that do not (i) materially impair
the use, ownership or operation of the Assets (as currently owned and operated), (ii) reduce the Net Revenue Interest of SM Energy in any
Well to an amount less than the Net Revenue Interest set forth on Exhibit B, for such Well, (iii) obligate SM Energy to bear a Working
Interest for such Well in any amount greater than the Working Interest set forth on Exhibit B, as applicable, for such Well (unless the Net
Revenue Interest for such Asset is greater than the Net Revenue Interest set forth on Exhibit B, in the same proportion as any increase in such
Working Interest) or (iv) increase the royalty and overriding royalty burdens for any Lease to an amount greater than that set forth in
Exhibit A;
(k)
zoning and planning ordinances and municipal regulations;
(l)
vendors, carriers, warehousemens, repairmens, mechanics, workmens, materialmens, construction or other like
Encumbrances arising by operation of Law in the ordinary course of business or incident to the construction or improvement of any property
in respect of obligations that are not yet due;
(m)
Encumbrances created under Leases and/or Applicable Operating Agreements or by operation of Law in respect
of obligations that are not yet due;
(n)
any Encumbrance affecting the Assets which is discharged by SM Energy at or prior to Closing;
(o)
any Contracts, restrictions or exclusions set forth on Exhibit A o r Exhibit B, as applicable, and all litigation
referenced in Schedule 3.6; and
38
(p)
the Leases and all other Encumbrances, Contracts (including the Applicable Contracts), agreements, instruments,
obligations, defects and irregularities affecting the Assets that (in each case or in the aggregate) do not (i) materially impair the use, ownership
or operation of the Assets (as currently owned and operated), (ii) reduce the Net Revenue Interest of SM Energy in any Well to an amount less
than the Net Revenue Interest set forth on Exhibit B for such Well, (iii) obligate SM Energy to bear a Working Interest for such Well in any
amount greater than the Working Interest set forth on Exhibit B for such Well (unless the Net Revenue Interest for such Asset is greater than
the Net Revenue Interest set forth on Exhibit B, in the same proportion as any increase in such Working Interest) or (iv) increase the royalty
and overriding royalty burdens for any Lease to an amount greater than that set forth in Exhibit A.
Person means any individual, firm, corporation, partnership, limited liability company, joint venture, association, trust,
unincorporated organization, Governmental Authority or any other entity.
Personal Property means equipment, machinery, fixtures, and other real, immovable, personal, movable and mixed property,
including saltwater disposal wells, well equipment, casing, rods, tanks, boilers, buildings, tubing, pumps, motors, fixtures, machinery,
compression equipment, flow lines, and separation facilities, structures, materials, and other items used or held for use in the operation thereof
and located upstream of the outlet flange of the relevant custody transfer meter (or, in the case of Hydrocarbon liquids, upstream of the outlet
flange in the tanks).
Preferential Right has the meaning set forth in Section 6.4.
Preliminary Settlement Statement has the meaning set forth in Section 2.6(a).
Purchase Price has the meaning set forth in Section 2.2, as such amount may be adjusted from time to time pursuant to Section 2.4
and Section 2.6.
Records has the meaning set forth in the definition of Assets above.
Remediation means, with respect to an Environmental Condition, the implementation and completion of any remedial, removal,
response, construction, closure, disposal or other corrective actions required under Environmental Laws to correct or remove such
Environmental Condition.
Remediation Amount means, with respect to an Environmental Condition, the present value as of the Closing Date of the cost (net
to the Asset) of the most cost effective Remediation of such Environmental Condition that is reasonably available.
Schedules means the schedule delivered to Buyer prior to the execution of this Agreement setting forth specific exceptions to SM
Energys representations and warranties set forth in this Agreement.
SM Energy has the meaning set forth in the preamble to this Agreement.
SM Indemnified Parties has the meaning set forth in Section 13.3.
Subject Special Warranty Claims means those claims made by Buyer under the special warranty of title in the Assignment relating
to Title Defects that attached or were created with respect to the Assets prior to the Execution Date.
Surface Contracts has the meaning set forth in the definition of Assets above.
Taxes shall mean any and all federal, state, local, foreign and other taxes or other assessments, including, without limitation, all net
income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, profit share, license, lease, service, service use, value
added, withholding, payroll, employment, excise, estimated severance, stamp, occupation, premium, property, windfall profit or other taxes of
any kind whatsoever, together with any interests, penalties, additions to tax, fines or other additional amounts imposed thereon or related
thereto, and the term Tax means any one of the foregoing Taxes.
Third Party Claim has the meaning set forth in Section 13.7(b).
Title Arbitrator has the meaning set forth in Section 6.2(i).
39
Title Benefit means any right, circumstance or condition that operates to (a) increase the Net Revenue Interest being assigned to
Buyer in any Well above that shown for such Well in Exhibit B, to the extent the same does not cause a greater than proportionate increase in
the Working Interest being assigned to Buyer therein above that shown in Exhibit B, or (b) increase the Net Acres being assigned to the
Buyer in any Lease to greater than that shown therefor in Exhibit A.
Title Benefit Amount has the meaning set forth in Section 6.2(d).
Title Benefit Notice has the meaning set forth in Section 6.2(b).
Title Benefit Property has the meaning set forth in Section 6.2(b).
Title Defect means any Encumbrance, defect or other matter that alone or in combination with any other Encumbrance, defect or
other matter causes SM Energy not to have Defensible Title in and to any Asset; provided that the following shall not be considered Title
Defects:
(a)
defects in the chain of title consisting of the failure to recite marital status in a document or omissions of
successions of heirship or estate proceedings, unless Buyer provides affirmative evidence that such failure or omission could reasonably be
expected to result in another Persons superior claim of title to the relevant Asset;
(b)
defects arising out of lack of survey, unless a survey is expressly required by applicable Laws;
(c)
liens created under deeds of trust, mortgages and similar instruments by the lessor under a Lease covering the
lessors surface and mineral interests in the land covered thereby that would customarily be accepted in taking oil and gas leases or purchasing
undeveloped oil and gas leases and for which the lessee would not customarily seek a subordination of such lien to the oil and gas leasehold
estate prior to conducting drilling activities on the Lease;
(d)
defects arising out of lack of corporate or other entity authorization unless Buyer provides affirmative evidence that
causes Buyer to reasonably believe such corporate or other entity action may not have been authorized and could reasonably be expected to
result in another Persons superior claim of title to the relevant Asset;
(e)
defects based on a gap in SM Energys chain of title in the states records as to state Leases, or in the county
records as to other Leases, unless such gap is affirmatively shown to exist in such records by an abstract of title, title opinion or landmans title
chain or runsheet, which documents shall be included in a Title Defect Notice;
(f)
defects that have been cured by applicable Laws of limitations or prescription; and
(g)
any Encumbrance or loss of title resulting from SM Energys conduct of business after the Execution Date in
compliance with Section 8.1.
Title Defect Amount has the meaning set forth in Section 6.2(f).
Title Defect Notice has the meaning set forth in Section 6.2(a).
Title Defect Property has the meaning set forth in Section 6.2(a).
Title Disputed Matters has the meaning set forth in Section 6.2(i).
Treasury Regulations means the regulations promulgated by the United States Department of the Treasury pursuant to and in
respect of provisions of the Internal Revenue Code. All references herein to sections of the Treasury Regulations shall include any
corresponding provision or provisions of succeeding, similar, substitute, proposed or final Treasury Regulations.
Unit has the meaning set forth in the definition of Assets above.
40
Well has the meaning set forth in the definition of Assets above.
Working Interest means, with respect to any Unit, Well or Lease, the interest in and to such Unit, Well or Lease that is burdened
with the obligation to bear and pay costs and expenses of maintenance, development and operations on or in connection with such Unit, Well
or Lease, but without regard to the effect of any royalties, overriding royalties, production payments, net profits interests and other similar
burdens upon, measured by, or payable out of production therefrom.
41
Exhibit 21.1
Subsidiaries
EERG Energy, ULC (wholly-owned by American Eagle Energy Corporation)
AMZG, Inc. (wholly-owned by American Eagle Energy Corporation)
AEE Canada Inc. (wholly-owned by AMZG, Inc.)
Exhibit 31.1
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a)
or 15d-14(a) under the Securities Exchange Act of 1934
I, Bradley M. Colby, certify that:
1.
I have reviewed this Annual Report on Form 10-K of American Eagle Energy Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4.
I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15f) for the Company and
have:
5.
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
d)
Disclosed in this report any change in the Companys internal control over financial reporting that occurred during the Companys
most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Companys internal control over
financial reporting; and
I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Companys auditors, audit
committee and board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the Companys ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's
internal control over financial reporting.
By: /s/ BRADLEY M. COLBY

Bradley M. Colby
Chief Executive Officer and Treasurer
Exhibit 31.2
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a)
or 15d-14(a) under the Securities Exchange Act of 1934
I, Kirk A. Stingley, certify that:
1.
I have reviewed this Annual Report on Form 10-K of American Eagle Energy Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4.
I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15f) for the Company and
have:
5.
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
d)
Disclosed in this report any change in the Companys internal control over financial reporting that occurred during the Companys
most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Companys internal control over
financial reporting; and
I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Companys auditors, audit
committee and board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the Companys ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's
internal control over financial reporting.
By: /s/ KIRK A. STINGLEY

Kirk A. Stingley
Exhibit 32.1
Certification of the Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350
In connection with the filing of the Annual Report on Form 10-K for the fiscal year ended December 31, 2012 (the Report) by American
Eagle Energy Corporation (Registrant), the undersigned hereby certifies that, to the best of his knowledge:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Registrant.
/s/ BRADLEY M. COLBY
Bradley M. Colby
President, Chief Executive Officer, and Treasurer
A signed original of this written statement required by 18 U.S.C. Section 1350 has been provided to American Eagle Energy Corporation and
will be retained by American Eagle Energy Corporation and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
Certification of the Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350
In connection with the filing of the Annual Report on Form 10-K for the fiscal year ended December 31, 2012 (the Report) by American
Eagle Energy Corporation (Registrant), the undersigned hereby certifies that, to the best of his knowledge:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Registrant.
/s/ KIRK A. STINGLEY
Kirk A. Stingley
A signed original of this written statement required by 18 U.S.C. Section 1350 has been provided to American Eagle Energy Corporation and
will be retained by American Eagle Energy Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

2549 W. Main Street, Suite 202

AMERICAN EAGLE ENERGY CORPORATION

Mine Safety Disclosure.

Managements Discussion and Analysis of Financial Condition and Results of Operations.

Financial Statements and Supplementary Data.

Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.

Controls and Procedures.

Directors, Executive Officers and Corporate Governance.

Certain Relationships and Related Transactions, and Director Independence.

Principal Accountant Fees and Services.

Exhibits, Financial Statement Schedules.

FINANCIAL STATEMENTS AND NOTES

Research and Development

estimates of our oil and gas reserves;

The following is a summary of our undeveloped acreage as of December 31, 2012:

Item 4. Mine Safety Disclosures.

Oil & Gas Wells

August 17, 2012

Samson Resources Company

Samson Resources Company

December 25, 2012

Samson Resources Company

December 21, 2012

Samson Resources Company

February 12, 2011

November 25, 2012

Cody 15-11-163N-101W (1)

American Eagle Energy

March 22, 2012

April 25, 2012

December 23, 2010

December 10, 2012

American Eagle Energy

January 22, 2011

September 13, 2012

October 15, 2011

December 12, 2012

Megan 14-12-163N-101W (1)

American Eagle Energy

September 23, 2012

January 24, 2013

October 10, 2012

December 21, 2010

Mona Johnson 1-3

Murex Petroleum Corporation

February 28, 2011

December 18, 2012

November 22, 2012

August 22, 2011

November 14, 2012

November 27, 2010

Gross exploratory wells:

December 31, 2011

Gross development wells:

Net exploratory wells:

Net development wells:

Lease operating expenses (LOE)

Oil sales volumes (barrels)

Average LOE per BOE

Lease operating expenses

Oil sales volumes (barrels)