Lilis Energy
Annual Report 2011

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-K x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2011 or oo TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________to_________ Commission file number: 333-152571 Recovery Energy, Inc.(Name of registrant as specified in its charter) NEVADA 74-3231613(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)1515 Wynkoop Street, Suite 200, Denver, CO 80202(Address of principal executive offices, including zip code)Registrant’s telephone number including area code: (303)-951-7920 Securities registered under Section 12(b) of the Act:NoneSecurities registered under Section 12(g) of the Act: Title of each class $0.0001 par value Common Stock Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes o No x Indicate by check mark if the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepast 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 thepast 90 days. Yes x No o Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to thebest of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment tothis Form 10-K. o  Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as definedin Rule 12b-2 of the Act): Large accelerated filer oAccelerated filerxNon-accelerated filer oSmaller reporting companyo Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes oNo x State the aggregate market value of voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equitywas last sold, or the average bid and asked price of such common equity, as of the last business day of the fiscal quarter ending June 30, 2011: $91,409,723As of March 9, 2012, 17,532,711 shares of the registrant’s common stock were issued and outstanding.  FORM 10-K ANNUAL REPORTFISCAL YEAR ENDED DECEMBER 31, 2011RECOVERY ENERGY, INCItem PagePART I 1 2.Business and Properties 4 1A.Risk Factors 191B.Unresolved Staff Comments 323.Legal Proceedings 324.Mine Safety Disclosures 32 PART II 5.Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 326.Selected Financial Data 347.Management’s Discussion and Analysis of Financial Condition and Results of Operations 357A.Quantitative and Qualitative Disclosures About Market Risk 458.Financial Statements and Supplementary Data 469.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 469A.Controls and Procedures 469B.Other Information 47 PART III 10.Directors, Executive Officers and Corporate Governance 4811.Executive Compensation 4812.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 4813.Certain Relationships and Related Transactions, and Director Independence 4814.Principal Accountant Fees and Services 48 48 PART IV 15.Exhibits and Financial Statement Schedules 48 2 FORWARD-LOOKING STATEMENTS This annual report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements otherthan statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, anyprojections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; anystatements concerning future production, reserves or other resource development opportunities, any projected well performance or economics, or potential jointventures or strategic partnerships; any statements regarding future economic conditions or performance; any statements of belief; and any statements ofassumptions underlying any of the foregoing.Forward-looking statements may include the words “may,” “should,” “could,” “estimate,” “intend,” “plan,” “project,” “continue,” “believe,” “expect” or“anticipate” or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this presentation. Except asrequired by law, we do not intend, and undertake no obligation, to update any forward-looking statement.Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from thoseprojected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-lookingstatements, are subject to change and inherent risks and uncertainties. The factors impacting these risks and uncertainties include, but are not limited to:• estimated quantities and quality of oil and natural gas reserves;• exploration, exploitation and development results;• fluctuations in the price of oil and natural gas, including reductions in prices that would adversely affect our revenue, cash flow, liquidity and accessto capital;• availability of capital on an economic basis, or at all, to fund our capital needs;• availability of, or delays related to, drilling, completion and production, personnel, supplies and equipment;• the timing and amount of future production of oil and gas;• the completion, timing and success of our drilling activity;• the inability of management to effectively implement our strategies and business plans;• potential default under our secured obligations or material debt agreements;• lower oil and natural gas prices negatively affecting our ability to borrow or raise capital, or enter into joint venture arrangements;• declines in the values of our natural gas and oil properties resulting in write-downs;• inability to hire or retain sufficient qualified operating field personnel;• increases in interest rates or our cost of borrowing;• deterioration in general or regional (especially Rocky Mountain) economic conditions;• the strength and financial resources of our competitors;• the occurrence of natural disasters, unforeseen weather conditions, or other events or circumstances that could impact our operations or couldimpact the operations of companies or contractors we depend upon in our operations;• inability to acquire or maintain mineral leases at a favorable economic value that will allow us to expand our development efforts;• delays, denials or other problems relating to our receipt of operational consents and approvals from governmental entities and other parties• unanticipated recovery or production problems, including cratering, explosions, fires and uncontrollable flows of oil, gas or well fluids;• environmental liabilities;• loss of senior management or technical personnel;• adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existingoperations;• changes in U.S. GAAP or in the legal, regulatory and legislative environments in the markets in which we operate; and• other factors, many of which are beyond our control. 3 Many of these factors are beyond our ability to control or predict. These factors are not intended to represent a complete list of the general or specific factorsthat may affect us.For a detailed description of these and other factors that could cause actual results to differ materially from those expressed in any forward-looking statement,we urge you to carefully review and consider the disclosures made in the “Risk Factors” sections of our SEC filings, available free of charge at the SEC’swebsite (www.sec.gov). PART IItems 1. and 2. BUSINESS and PROPERTIES Industry terms used in this report are defined in the Glossary of Oil and Natural Gas Terms located at the end of this Item 1 and 2. GeneralRecovery Energy Inc. is a Denver based independent oil and gas company engaged in the acquisition, drilling and production of oil and natural gas propertiesand prospects within the Denver-Julesburg (“DJ”) Basin. Our business strategy is designed to create maximum shareholder value by leveraging the knowledge,expertise and experience of our management team and via the future exploration and development of the approximate 130,000 net acres of developed andundeveloped leases that are currently held by the Company, primarily in the northern DJ Basin. Our executive offices are located at 1515 Wynkoop Street, Suite 200, Denver, Colorado 80202, and our telephone number is (303) 951-7920. Our web site iswww.recoveryenergyco.com. Additional information which may be obtained through our web site does not constitute part of this annual report on Form 10-K. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports are accessible free ofcharge at our website. The SEC also maintains an internet site that contains reports, proxy and information statements and other information regarding ourfilings at www.sec.gov. Company Overview & StrategyWe have developed and acquired an oil and natural gas base of proved reserves, as well as a portfolio of exploration and development prospects with high-impact conventional and non-conventional reservoir opportunities with an emphasis on multiple producing horizons and the Niobrara shale resource play. Webelieve these prospects offer the possibility of repeatable success allowing for meaningful production and reserve growth. Our acquisition and explorationpursuits of oil and natural gas properties are principally located in Colorado, Nebraska, and Wyoming. Since early 2010 we have acquired and/or developed21 producing wells. As of December 31, 2011 we owned interests in approximately 144,000 gross (130,000 net) leasehold acres, of which 134,000 gross(121,000 net) acres are classified as undeveloped acreage and all of which are located in Colorado, Wyoming and Nebraska in the DJ Basin. We intend tocontinue to evaluate and invest in acquisitions and internally generated prospects. It is our long-term goal to maximize our DJ Basin acreage position throughdevelopment drilling of our conventional horizons as well as development of our Niobrara shale potential. We have invested, and intend to continue to invest, primarily in oil and natural gas interests, including producing properties, prospects, leases, wells, mineralrights, working interests, royalty interests, overriding royalty interests, net profits interests, production payments, farm-ins, drill to earn arrangements,partnerships, easements, rights of way, licenses and permits, in the DJ Basin in Colorado, Nebraska, and Wyoming.As of December 31, 2009, we had not successfully acquired any properties; therefore our total production was 0 Mboe net. Subsequent to December 31, 2009,we successfully completed a number of acquisitions which resulted in 136 Mboe of production for the year ended December 31, 2010. In 2011, we drilledand completed 6 gross, 5 net wells and recorded net production of 101 Mboe during the year. It is our belief that the exploration and production industry’s most significant value creation occurs through the drilling of successful development wells andthe enhancement of oil recovery in mature fields given appropriate economic conditions. Our goal is to create significant value while maintaining a low coststructure. To this end, our business strategy includes the following elements: 4 Participation in development prospects in known producing basin. We pursue prospects in one known producing onshore basin, the DJ Basin, where wecan capitalize on our development and production expertise. We intend to operate the majority of our properties and evaluate each prospect based on itsgeological and geophysical merits. Negotiated acquisitions of properties. We acquire producing properties based on our view of the pricing cycles of oil and natural gas and availableexploration and development opportunities of proved, probable and possible reserves. Retain Operational Control and Significant Working Interest. In our principal development targets, we typically seek to maintain operational control of ourdevelopment and drilling activities. As operator, we retain more control over the timing, selection and process of drilling prospects and completion design,which enhances our ability to maximize our return on invested capital and gives us greater control over the timing, allocation and amounts of our capitalexpenditures. We have continued to maintain high working interest in our DJ Basin properties which maximizes our exposure to generated cash flows andincreases in value as the properties are developed. With operational control, we can also schedule our drilling program to satisfy most of our lease stipulationsand continue to put our acreage into “held by production” status, thus eliminating expirations. The majority of our acreage is contiguous which will permitefficiencies in drilling and production operations.Leasing of Prospective Acreage. In the course of our business, we identify drilling opportunities on properties that have not yet been leased. At times, wetake the initiative to lease Prospective Acreage and we may sell all or any portion of the leased acreage to other companies that want to participate in the drillingand development of the prospect acreage. Controlling Costs. We maximize our returns on capital by minimizing our expenditures on general and administrative expenses. We also minimize initialcapital expenditures on geological and geophysical overhead, seismic data, hardware and software by partnering with cost efficient operators that have alreadyinvested capital in such. Historically, we also outsourced some of our geological, geophysical, reservoir engineering and land functions in order to help reducecapital requirements. We recently brought many of these functions in-house to provide us with greater ability to maximize the value of our growing leaseholdposition.We use commodity price hedging instruments to reduce our exposure to oil and natural gas price fluctuations and to help ensure that we have adequate cashflow to fund our debt service costs and capital programs. From time to time, we will enter into futures contracts, collars and basis swap agreements, as well asfixed price physical delivery contracts. We intend to use hedging primarily to manage price risks and returns on certain acquisitions and drilling programs.Our policy is to consider hedging an appropriate portion of our production at commodity prices we deem attractive. In the future we may also be required byour lenders to hedge a portion of production as part of any financing. We currently own interest in 144,000 gross, 130,000 net developed and undeveloped acres in DJ basin leases, and will require access to substantial capital inorder to fully assess and develop our inventory of undeveloped acreage.Principal Oil and Gas Interests As of December 31, 2011 we owned 21 producing wells, 7 shut-in wells, 2 injection wells, and 2 wells in progress in the Wyoming, Nebraska and Coloradoportions of the DJ Basin, as well as approximately 144,000 gross (130,000 net) acres, of which 134,000 gross (121,000 net) acres are classified as undevelopedacreage. Our primary targets within the DJ Basin are the conventional Dakota and Muddy ‘J’ formations, in addition to the developing unconventionalNiobrara shale play. Additional horizons include the Coddell, Greenhorn and Pierre Shale. During 2011, we made capital expenditures of approximately $16.4 million, including $9.4 million for the purchase of unevaluated leases and $7.4 millionrelated to drilling and completion operations where we drilled 4 gross (3.25 net) wells and completed 3 gross (2.25 net) wells; also, as of December 31, 2011we had 2 gross (1.75 net) wells in progress. 5 As of December 31, 2011 we had net proved reserves of 633 Mboe, and for the year ending December 21, 2011 we produced 101 Mboe. 2012 Capital BudgetOur anticipated 2012 capital expenditure budget is $10-15 million, which is allocated primarily to the drilling and completion of oil and gas wells in the DJBasin in Wyoming, Nebraska and Colorado targeting the conventional Dakota ‘D’ sand and Muddy ‘J’ sand targets. In addition, approximately 1/3 of thisbudget may be directed toward additional development procedures on certain unconventional Niobrara shale properties. We estimate the completed cost foreach conventional well to be between $800,000 and $900,000. Specific allocations of the 2012 budget directed at Niobrara shale properties have not beendetermined at this time.Our 2012 capital expenditure budget is subject to various factors, including market conditions, availability of capital, oilfield services and equipmentavailability, commodity prices and drilling results. While we continue to explore opportunities to expand our acreage position, our current budget is allocated todrilling and completing wells. Any leasehold acquisitions that we choose to pursue would require us to adjust our budget. Results from the wells identified inthe capital budget may lead to additional adjustments to the capital budget as the cash flow from the wells could provide additional capital which we may useto increase our capital budget.Other factors that could cause us to further increase our level of activity and adjust our capital expenditure budget include a reduction in service and materialcosts, the formation of joint ventures with other exploration and production companies, the divestiture of non-strategic assets, a further improvement incommodity prices or well performance that exceeds our forecasts, any of which could positively impact our operating cash flow. Factors that could cause us toreduce level of activity and adjust our capital budget include, but are not limited to, increases in service and materials costs, reductions in commodity pricesor under-performance of wells relative to our forecasts, any of which could negatively impact our operating cash flow. Capital Resources Our 2012 drilling program is designed to provide flexibility to accommodate both the timing of the securing of adequate capital, and to identify suitable welllocations. We anticipate funding the 2012 capital program through a combination of the issuance of additional equity or debt securities, cash flow fromfuture operations and from cash provided by potential joint venture participants. We may also choose to sell certain non-strategic assets in order to supplementthe funding of our 2012 capital budget. We cannot give assurances that our working capital on hand, our cash flow from operations or any available borrowings, equity offerings or other financings,or sales of non-strategic assets will be sufficient to fund our anticipated capital expenditures. If our existing and potential sources of investment capital are notsufficient to undertake our planned 2012 capital expenditures, we may be required to reduce our 2012 drilling capital budget, curtail our expenditures and/orrestructure our operations.Reserves The table below presents summary information with respect to the estimates of our proved oil and gas reserves for the year ended December 31, 2011. Prior toJanuary 2010, we did not own any reserves nor did we have any production. We engaged Ralph E Davis Associates, Inc. (“RE Davis”) to audit internalengineering estimates for 100 percent of the PV-10 value of our proved reserves in 2011. The prices used in the calculation of proved reserve estimates as ofDecember 31, 2011 were $88.16 per Bbl and $3.96 per Mcf and as of December 31, 2010, were $78.93 per Bbl and $4.39 per Mcf for oil and natural gas,respectively. The prices were adjusted for basis differentials, pipeline adjustments, and BTU content. 6 We emphasize that reserve estimates are inherently imprecise and that estimates of all new discoveries and undeveloped locations are more imprecise thanestimates of established producing oil and gas properties. Accordingly, these estimates are expected to change as new information becomes available. The PV-10 values shown in the following table are not intended to represent the current market value of the estimated proved oil and gas reserves owned by us. Neitherprices nor costs have been escalated. The following table should be read along with the section entitled “Risk Factors — Risks Related to Our Company - Theactual quantities and present values of our proved oil and natural gas reserves may be less than we have estimated.” No estimates of our proved reserves havebeen filed with or included in reports to any federal authority or agency, other than the Securities and Exchange Commission ("SEC"), since the beginning ofthe last fiscal year. We did not have third party engineers review probable, possible and resource based reserves as of December 31, 2011. These reservecategories are currently being determined across our substantial acreage position and are expected to identify significant potential in all unproven classificationsand from multiple horizons. As of December 31, 2011 2010 (1) 2009 (1) Reserve data: Proved developed Oil (MBbl) 216 278 - Gas (MMcf) 148 308 - MBOE 240 329 - Proved undeveloped Oil (MBbl) 392 415 - Gas (MMcf) - - MBOE 392 415 - Total Proved Oil (MBbl) 608 693 - Gas (MMcf) 148 308 - MBOE 633 744 - Proved developed reserves % 38% 44% -%%Proved undeveloped reserves % 62% 56% -%% Reserve value data : Proved developed PV-10 $10,204,160 $11,377,009 $- Proved undeveloped PV-10 9,809,885 12,217,798 - Total proved PV-10 $20,014,045 $23,594,807 $- Standardized measure of discounted future cash flows $20,014,045 $23,594,807 $- Reserve life (years) 22.58 21.92 - (1) Prior to January 2010, the Company did not own any oil and gas propertiesAs we currently do not expect to pay income taxes in the future, there is no difference between the PV-10 value and the standard measure of future net cashflows. Please see the definitions of standardized measure of discounted future net cash flows and PV-10 value in the Glossary.Internal Controls Over Reserves EstimateOur policy regarding internal controls over the recording of reserves is structured to objectively and accurately estimate our oil and gas reserve quantities andvalues in compliance with the regulations of the SEC. Responsibility for compliance in reserve bookings is delegated to our Senior Reservoir Engineer.Technical reviews are performed throughout the year by engineering and geologic staff who evaluate all available geological and engineering data. This data, inconjunction with economic data and ownership information, is used in making a determination of estimated proved reserve quantities. The reserve process isoverseen by Kent Lina, Senior Reserve Engineer. Mr. Lina joined us in October 2010. Mr. Lina was employed by Delta Petroleum Company from March2002 to September 2010 in various operations and reservoir engineering capacities culminating as the Senior V.P. of Corporate Engineering. Mr. Lina received aBachelor of Science degree in Civil Engineering from University of Missouri at Rolla in 1981. 7 Third-party Reserves StudyAn independent third party reserve study as of December 31, 2011 was performed by RE Davis using their own engineering assumptions and other economicdata provided by us. One-hundred percent of our total calculated proved reserve PV-10 value was audited by RE Davis. RE Davis is an independentpetroleum engineering consulting firm that has been providing petroleum engineering consulting services for over 20 years. The technical person at RE Davisprimarily responsible for overseeing our reserve audit is the President and CEO who received a Bachelor of Science degree in Chemical and PetroleumEngineering from the University of Houston and is a registered Professional Engineer in the States of Texas. He is also a member of the Society of PetroleumEngineers. The RE Davis report dated March 5, 2012 is included as Exhibit 99.1 to this annual report.Oil and gas reserves and the estimates of the present value of future net revenues therefrom were determined based on prices and costs as prescribed by SECand FASB guidelines. Reserve calculations involve the estimate of future net recoverable reserves of oil and gas and the timing and amount of future netrevenues to be received therefrom. Such estimates are not precise and are based on assumptions regarding a variety of factors, many of which are variable anduncertain. Proved oil and gas reserves are the estimated quantities of oil and gas that geological and engineering data demonstrate with reasonable certainty to berecoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed oil and gas reserves are those expectedto be recovered through existing wells with existing equipment and operating methods. Proved reserves were estimated in accordance with guidelinesestablished by the SEC and the FASB, which require that reserve estimates be prepared under existing economic and operating conditions with no provisionfor price and cost escalations except by contractual arrangements. For the year ended December 31, 2011, commodity prices over the prior 12-month periodand year end costs were used in estimating net cash flows. In addition to a third party reserve study, our reserves are reviewed by senior management and the audit committee of our board of directors. Our chiefexecutive officer is responsible for reviewing and verifying that the estimate of proved reserves is reasonable, complete, and accurate. The audit committeereviews the final reserves estimate in conjunction with RE Davis’s audit letter. Production The following table summarizes the average volumes and realized prices, including and excluding the effects of our economic hedges, of oil and gas producedfrom properties in which we held an interest during the periods indicated. Also presented is a production cost per BOE summary: For the Year Ended December 31, 2011 2010 2009 (1) Net production Oil (MMBbl) 81,433 133.709 - Gas (MMcf) 115,583 14.914 - MBOE 100,707 136.195 - Average net daily production Oil (Bbl) 223 366 - Gas (Mcf) 317 41 - BOE 275 373 - Average realized sales price, excluding the effects of our economic hedges Oil (per Bbl) $87.77 $71.08 $- Gas (per Mcf) $4.73 $4.56 $- Per BOE $76.41 $70.29 $- Average realized sales price, including the effects of our economic hedges Oil (per Bbl) $95.44 $75.27 $- Gas (per Mcf) $4.73 $4.56 $- Per BOE $82.62 $74.47 $- Production costs per BOE Lease operating expense $15.19 $6.33 $- DD&A $42.25 $36.98 $- Production taxes $8.18 $7.76 $- (1) Prior to January 2010, the Company did not own any oil and gas properties 8 Productive Wells As of December 31, 2011, we had working interests in 17 gross (16.2 net) productive oil wells, and 4 gross (2.4 net) productive gas wells. Productive wellsare either wells producing in commercial quantities or wells capable of commercial production although currently shut-in. Multiple completions in the samewellbore are counted as one well. A well is categorized under state reporting regulations as an oil well or a gas well based on the ratio of gas to oil producedwhen it first commenced production, and such designation may not be indicative of current production.Acreage As of December 31, 2011 we owned 21 producing wells in the Wyoming, Nebraska and Colorado portion of the DJ Basin, as well as approximately 144,000gross (130,000 net) acres, of which 134,000 gross (121,000 net) acres were classified as undeveloped acreage.As of December 31, 2011 our primary assets included acreage located in Laramie County and Goshen counties Wyoming, Banner, Kimball, and Scotts BluffCounties, Nebraska, and Weld, Arapahoe and Elbert Counties, Colorado. The following table sets forth certain information with respect to our developed and undeveloped acreage as of December 31, 2011. Undeveloped Developed Gross Net Gross Net DJ Basin 134,191 121,071 9,937 9,118 Total 134,191 121,071 9,937 9,118 Drilling Activity The following table describes the development and exploratory wells we drilled during the years ended December 31, 2011, 2010, and 2009. For the Year Ended December 31, 2011 2010 2009 (1) Gross Net Gross Net Gross Net Development: - - - - Productive wells 3.0 2.25 2.0 1.4 - - Dry wells 1.0 1.0 1.0 0.7 - - 4.0 3.25 3.0 2.1 - - Exploratory: Productive wells - - - - - - Dry wells - - - - - - - - - - - - Total 4.0 3.25 3.0 2.1 - - (1) Prior to January 2010, the Company did not own any oil and gas assets 9 A productive well is an exploratory, development or extension well that is not a dry well. A dry well (hole) is an exploratory, development, or extension wellthat proves to be incapable of producing either oil or gas in sufficient quantities to justify completion as an oil or gas well.As defined in the rules and regulations of the SEC, an exploratory well is a well drilled to find a new field or to find a new reservoir in a field previously foundto be productive of oil or gas in another reservoir. A development well is part of a development project, which is defined as the means by which petroleumresources are brought to the status of economically producible. The number of wells drilled refers to the number of wells completed at any time during therespective year, regardless of when drilling was initiated. Completion refers to the installation of permanent equipment for production of oil or gas, or, in thecase of a dry well, to the reporting to the appropriate authority that the well has been abandoned.As of December 31, 2011 we had 2 gross (1.75 net) wells in progress. Major Customers During 2011 and 2010, the Company had one customer, Shell Trading (US), individually accounting for approximately 76 percent and 64 percent,respectively, of our revenues. During 2009, the Company did not have any production or customers. Employees As of March 15, 2012 we had 10 employees, including two part time employees. For the foreseeable future, we intend to only add additional personnel as ouroperational requirements grow. In the interim, we plan to continue to use the services of independent consultants and contractors to perform variousprofessional services, including land, legal, environmental and tax services. We believe that by limiting our management and employee costs, we are able tobetter control total costs and retain flexibility in terms of project management. Title to Properties Substantially all of our interests are held pursuant to leases from third parties. The majority of our producing properties are subject to mortgages securingindebtedness under our credit facility that we believe do not materially interfere with the use of or affect the value of such properties. We typically performonly minimal title investigation before acquiring undeveloped leasehold acreage.Seasonality Generally, but not always, the demand and price levels for natural gas increase during colder winter months and decrease during warmer summer months. Tolessen seasonal demand fluctuations, pipelines, utilities, local distribution companies, and industrial users utilize natural gas storage facilities and forwardpurchase some of their anticipated winter requirements during the summer. However, increased summertime demand for electricity has placed increaseddemand on storage volumes. Demand for crude oil and heating oil is also generally higher in the winter and the summer driving season — although oil pricesare much more driven by global supply and demand. Seasonal anomalies, such as mild winters, sometimes lessen these fluctuations. The impact ofseasonality on crude oil has been somewhat magnified by overall supply and demand economics attributable to the narrow margin of production capacity inexcess of existing worldwide demand for crude oil. 10 Competition The oil and gas industry is intensely competitive, particularly with respect to acquiring prospective oil and natural gas properties. We believe our leaseholdposition provides a sound foundation for a solid drilling program and our future growth. Our competitive position also depends on our geological,geophysical, and engineering expertise, and our financial resources. We believe the location of our acreage; our exploration, drilling, operational, andproduction expertise; available technologies; our financial resources and expertise; and the experience and knowledge of our management and technical teamsenable us to compete effectively in our core operating areas. However, we face intense competition from a substantial number of major and independent oil andgas companies, which, in some cases, have larger technical staffs and greater financial and operational resources than we do. Many of these companies notonly engage in the acquisition, exploration, development, and production of oil and natural gas reserves, but also have refining operations, market refinedproducts, own drilling rigs, and generate electricity.We also compete with other oil and gas companies in attempting to secure drilling rigs and other equipment and services necessary for the drilling, completion,and maintenance of wells. Consequently, we may face shortages or delays in securing these services from time to time. The oil and gas industry also facescompetition from alternative fuel sources, including other fossil fuels such as coal and imported liquefied natural gas. Competitive conditions may also beaffected by future new energy, climate-related, financial, and other policies, legislation, and regulations. In addition, we compete for people, including experienced geologists, geophysicists, engineers, and other professionals and consultants. Throughout the oiland gas industry, the need to attract and retain talented people has grown at a time when the number of talented people available is constrained. We are notinsulated from this resource constraint, and we must compete effectively in this market in order to be successful.Recent Developments In December 2011, we sold 2,840 net undeveloped acres in Weld County, Colorado to a third party. The sale included one marginally producing oil well inwhich the Company owned a 25% net working interest. The purchase price was approximately $4.5 million (approximately $1,600 per net acre). Marketing and Pricing We will derive revenue principally from the sale of oil and natural gas. As a result, our revenues are determined, to a large degree, by prevailing prices forcrude oil and natural gas. We will sell our oil and natural gas on the open market at prevailing market prices or through forward delivery contracts. Themarket price for oil and natural gas is dictated by supply and demand, and we cannot accurately predict or control the price we may receive for our oil andnatural gas. Our revenues, cash flows, profitability and future rate of growth will depend substantially upon prevailing prices for oil and natural gas. Prices may alsoaffect the amount of cash flow available for capital expenditures and our ability to borrow money or raise additional capital. Lower prices may also adverselyaffect the value of our reserves and make it uneconomical for us to commence or continue production levels of natural gas and crude oil. Historically, theprices received for oil and natural gas have fluctuated widely. Among the factors that can cause these fluctuations are: ● changes in global supply and demand for oil and natural gas;● the actions of the Organization of Petroleum Exporting Countries, or OPEC;● the price and quantity of imports of foreign oil and natural gas;● acts of war or terrorism;● political conditions and events, including embargoes, affecting oil-producing activity;● the level of global oil and natural gas exploration and production activity;● the level of global oil and natural gas inventories;● weather conditions;● technological advances affecting energy consumption; and● the price and availability of alternative fuels. 11 From time to time, we enter into derivative contracts. These contracts economically hedge our exposure to decreases in the prices of oil and natural gas. Hedgingarrangements may expose us to risk of significant financial loss in some circumstances including circumstances where: ● our production and/or sales of natural gas are less than expected;● payments owed under derivative hedging contracts come due prior to receipt of the hedged month’s production revenue; or● the counter party to the hedging contract defaults on its contract obligations. In addition, hedging arrangements may limit the benefit we would receive from increases in the prices for oil and natural gas. We cannot assure you that anyhedging transactions we may enter into will adequately protect us from declines in the prices of oil and natural gas. On the other hand, where we choose not toengage in hedging transactions in the future, we may be more adversely affected by changes in oil and natural gas prices than our competitors who engage inhedging transactions.Government Regulations General. Our operations covering the exploration, production and sale of oil and natural gas are subject to various types of federal, state and local laws andregulations. The failure to comply with these laws and regulations can result in substantial penalties. These laws and regulations materially impact ouroperations and can affect our profitability. However, we do not believe that these laws and regulations affect us in a manner significantly different than ourcompetitors. Matters regulated include permits for drilling operations, drilling and abandonment bonds, reports concerning operations, the spacing of wellsand unitization and pooling of properties, restoration of surface areas, plugging and abandonment of wells, requirements for the operation of wells, andtaxation of production. At various times, regulatory agencies have imposed price controls and limitations on production. In order to conserve supplies of oiland natural gas, these agencies have restricted the rates of flow of oil and natural gas wells below actual production capacity, generally prohibit the venting orflaring of natural gas and impose certain requirements regarding the ratability of production. Federal, state and local laws regulate production, handling,storage, transportation and disposal of oil and natural gas, by-products from oil and natural gas and other substances and materials produced or used inconnection with oil and natural gas operations. While we believe we will be able to substantially comply with all applicable laws and regulations, therequirements of such laws and regulations are frequently changed. We cannot predict the ultimate cost of compliance with these requirements or their effect onour actual operations. Federal Income Tax. Federal income tax laws significantly affect our operations. The principal provisions that affect us are those that permit us, subject tocertain limitations, to deduct as incurred, rather than to capitalize and amortize, our domestic “intangible drilling and development costs” and to claimdepletion on a portion of our domestic oil and natural gas properties based on 15% of our oil and natural gas gross income from such properties (up to anaggregate of 1,000 barrels per day of domestic crude oil and/or equivalent units of domestic natural gas). Environmental, Health, and Safety Regulations. Our operations are subject to stringent federal, state, and local laws and regulations relating to the protectionof the environment and human health and safety. Environmental laws and regulations may require that permits be obtained before drilling commences, restrictthe types, quantities, and concentration of various substances that can be released into the environment in connection with drilling and production activities,govern the handling and disposal of waste material, and limit or prohibit drilling activities on certain lands lying within wilderness, wetlands, and otherprotected areas, including areas containing endangered animal species. As a result, these laws and regulations may substantially increase the costs ofexploring for, developing, or producing oil and gas and may prevent or delay the commencement or continuation of certain projects. In addition, these lawsand regulations may impose substantial clean-up, remediation, and other obligations in the event of any discharges or emissions in violation of these laws andregulations. Further, legislative and regulatory initiatives related to global warming or climate change could have an adverse effect on our operations and thedemand for oil and natural gas. See “Risk Factors — Risks Related to Oil and Gas Industry — Legislative and regulatory initiatives related to global warmingand climate change could have an adverse effect on our operations and the demand for oil and natural gas.” 12 Hydraulic fracturing is an important and common practice that is used to stimulate production of hydrocarbons, particularly natural gas, from tightformations. For additional information about hydraulic fracturing and related regulatory matters, see “Risk Factors — Risks Related to OurCompany”. Federal and state legislation and regulatory initiatives related to hydraulic fracturing could result in increased costs and additional operatingrestrictions or delays in the completion of oil and gas wells.Federal and state occupational safety and health laws require us to organize and maintain information about hazardous materials used, released, or producedin our operations. Some of this information must be provided to our employees, state and local governmental authorities, and local citizens. We are alsosubject to the requirements and reporting framework set forth in the federal workplace standards.The discharge of oil, gas or other pollutants into the air, soil or water may give rise to liabilities to the government and third parties and may require us to incurcosts to remedy discharges. Natural gas, oil or other pollutants, including salt water brine, may be discharged in many ways, including from a well or drillingequipment at a drill site, leakage from pipelines or other gathering and transportation facilities, leakage from storage tanks and sudden discharges fromdamage or explosion at natural gas facilities of oil and gas wells. Discharged hydrocarbons may migrate through soil to water supplies or adjoining property,giving rise to additional liabilities. A variety of federal and state laws and regulations govern the environmental aspects of natural gas and oil production, transportation and processing and may,in addition to other laws, impose liability in the event of discharges, whether or not accidental, failure to notify the proper authorities of a discharge, and othernoncompliance with those laws. Compliance with such laws and regulations may increase the cost of oil and gas exploration, development and production,although we do not anticipate that compliance will have a material adverse effect on our capital expenditures or earnings. Failure to comply with therequirements of the applicable laws and regulations could subject us to substantial civil and/or criminal penalties and to the temporary or permanentcurtailment or cessation of all or a portion of our operations. The Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, also known as the “superfund law,” imposes liability,regardless of fault or the legality of the original conduct, on some classes of persons that are considered to have contributed to the release of a “hazardoussubstance” into the environment. These persons include the owner or operator of a disposal site or sites where the release occurred and companies that disposeor arrange for disposal of the hazardous substances found at the time. Persons who are or were responsible for releases of hazardous substances underCERCLA may be subject to joint and severable liability for the costs of cleaning up the hazardous substances that have been released into the environment andfor damages to natural resources, and it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and propertydamage allegedly caused by the hazardous substances released into the environment. We could be subject to liability under CERCLA because our jointlyowned drilling and production activities generate relatively small amounts of liquid and solid waste that may be subject to classification as hazardoussubstances under CERCLA. The Resource Conservation and Recovery Act of 1976, as amended, or RCRA, is the principal federal statute governing the treatment, storage and disposal ofhazardous wastes. RCRA imposes stringent operating requirements, and liability for failure to meet such requirements, on a person who is either a “generator”or “transporter” of hazardous waste or an “owner” or “operator” of a hazardous waste treatment, storage or disposal facility. At present, RCRA includes astatutory exemption that allows most oil and natural gas exploration and production waste to be classified as nonhazardous waste. A similar exemption iscontained in many of the state counterparts to RCRA. As a result, we are not required to comply with a substantial portion of RCRA’s requirements becauseour operations generate minimal quantities of hazardous wastes. At various times in the past, proposals have been made to amend RCRA to rescind theexemption that excludes oil and natural gas exploration and production wastes from regulation as hazardous waste. Repeal or modification of the exemption byadministrative, legislative or judicial process, or modification of similar exemptions in applicable state statutes, would increase the volume of hazardous wastewe are required to manage and dispose of and would cause us to incur increased operating expenses. 13 The Oil Pollution Act of 1990, or OPA, and regulations thereunder impose a variety of regulations on “responsible parties” related to the prevention of oil spillsand liability for damages resulting from such spills in United States waters. The OPA assigns liability to each responsible party for oil removal costs and avariety of public and private damages. While liability limits apply in some circumstances, a party cannot take advantage of liability limits if the spill wascaused by gross negligence or willful misconduct or resulted from violation of federal safety, construction or operating regulations. Few defenses exist to theliability imposed by OPA. In addition, to the extent we acquire offshore leases and those operations affect state waters, we may be subject to additional stateand local clean-up requirements or incur liability under state and local laws. OPA also imposes ongoing requirements on responsible parties, including proof offinancial responsibility to cover at least some costs in a potential spill. We cannot predict whether the financial responsibility requirements under the OPAamendments will adversely restrict our proposed operations or impose substantial additional annual costs to us or otherwise materially adversely affect us.The impact, however, should not be any more adverse to us than it will be to other similarly situated owners or operators. The Federal Water Pollution Control Act Amendments of 1972 and 1977, or Clean Water Act, imposes restrictions and controls on the discharge of producedwaters and other wastes into navigable waters. Permits must be obtained to discharge pollutants into state and federal waters and to conduct constructionactivities in waters and wetlands. Certain state regulations and the general permits issued under the Federal National Pollutant Discharge Elimination Systemprogram prohibit the discharge of produced waters and sand, drilling fluids, drill cuttings and certain other substances related to the crude oil and natural gasindustry into certain coastal and offshore waters. Further, the Environmental Protection Agency, or EPA, has adopted regulations requiring certain crude oiland natural gas exploration and production facilities to obtain permits for storm water discharges. Costs may be associated with the treatment of wastewater ordeveloping and implementing storm water pollution prevention plans. The Clean Water Act and comparable state statutes provide for civil, criminal andadministrative penalties for unauthorized discharges of crude oil and other pollutants and impose liability on parties responsible for those discharges for thecosts of cleaning up any environmental damage caused by the release and for natural resource damages resulting from the release. We believe that ouroperations comply in all material respects with the requirements of the Clean Water Act and state statutes enacted to control water pollution. Underground injection is the subsurface placement of fluid through a well, such as the reinjection of brine produced and separated from crude oil and naturalgas production. The Safe Drinking Water Act of 1974, as amended, establishes a regulatory framework for underground injection, with the main goal beingthe protection of usable aquifers. The primary objective of injection well operating requirements is to ensure the mechanical integrity of the injection apparatusand to prevent migration of fluids from the injection zone into underground sources of drinking water. Hazardous-waste injection well operations are strictlycontrolled, and certain wastes, absent an exemption, cannot be injected into underground injection control wells. Failure to abide by our permits could subjectus to civil or criminal enforcement. We believe that we are in compliance in all material respects with the requirements of applicable state underground injectioncontrol programs and our permits. The Clean Air Act of 1963 and subsequent extensions and amendments, known collectively as the Clean Air Act, and state air pollution laws adopted to fulfillits mandate provide a framework for national, state and local efforts to protect air quality. Our operations utilize equipment that emits air pollutants whichmay be subject to federal and state air pollution control laws. These laws require utilization of air emissions abatement equipment to achieve prescribedemissions limitations and ambient air quality standards, as well as operating permits for existing equipment and construction permits for new and modifiedequipment. We believe that we are in compliance in all material respects with the requirements of applicable federal and state air pollution control laws. Overthe next several years, we may be required to incur capital expenditures for air pollution control equipment or other air emissions-related issues. For example,on July 28, 2011, the EPA proposed a range of new regulations that would establish new air emission controls for oil and natural gas production, including,among other things, the application of reduced emission completion techniques, referred to as “green completions,” for completion of newly drilled andfractured wells in addition to establishing specific requirements regarding emissions from compressors, dehydrators, storage tanks and other productionequipment. Final action on the proposed rules is expected no later than April 3, 2012. If this action is finalized, we do not believe that such requirements willhave a material adverse effect on our operations. 14 There are numerous state laws and regulations in the states in which we operate which relate to the environmental aspects of our business. These state laws andregulations generally relate to requirements to remediate spills of deleterious substances associated with oil and gas activities, the conduct of salt water disposaloperations, and the methods of plugging and abandonment of oil and gas wells which have been unproductive. Numerous state laws and regulations also relateto air and water quality. We do not believe that our environmental risks will be materially different from those of comparable companies in the oil and gas industry. We believe ourpresent activities substantially comply, in all material respects, with existing environmental laws and regulations. Nevertheless, we cannot assure you thatenvironmental laws will not result in a curtailment of production or material increase in the cost of production, development or exploration or otherwiseadversely affect our financial condition and results of operations. Although we maintain liability insurance coverage for liabilities from pollution,environmental risks generally are not fully insurable. In addition, because we have acquired and may acquire interests in properties that have been operated in the past by others, we may be liable for environmentaldamage, including historical contamination, caused by such former operators. Additional liabilities could also arise from continuing violations orcontamination not discovered during our assessment of the acquired properties. Federal Leases. For those operations on federal oil and gas leases, such operations must comply with numerous regulatory restrictions, including variousnon-discrimination statutes, and certain of such operations must be conducted pursuant to certain on-site security regulations and other permits issued byvarious federal agencies. In addition, on federal lands in the United States, the Minerals Management Service, or MMS, prescribes or severely limits the typesof costs that are deductible transportation costs for purposes of royalty valuation of production sold off the lease. In particular, MMS prohibits deduction ofcosts associated with marketer fees, cash out and other pipeline imbalance penalties, or long-term storage fees. Further, the MMS has been engaged in aprocess of promulgating new rules and procedures for determining the value of crude oil produced from federal lands for purposes of calculating royaltiesowed to the government. The natural gas and crude oil industry as a whole has resisted the proposed rules under an assumption that royalty burdens willsubstantially increase. We cannot predict what, if any, effect any new rule will have on our operations.Some of our operations are conducted on federal lands pursuant to oil and gas leases administered by the Bureau of Land Management, or BLM. These leasescontain relatively standardized terms and require compliance with detailed regulations and orders, which are subject to change. In addition to permits requiredfrom other regulatory agencies, lessees must obtain a permit from the BLM before drilling and comply with regulations governing, among other things,engineering and construction specifications for production facilities, safety procedures, the valuation of production and payment of royalties, the removal offacilities, and the posting of bonds to ensure that lessee obligations are met. Under certain circumstances, the BLM may require our operations on federalleases to be suspended or terminated. In May 2010, the BLM adopted changes to its oil and gas leasing program that require, among other things, a more detailed environmental review prior toleasing oil and natural gas resources, increased public engagement in the development of master leasing and development plans prior to leasing areas whereintensive new oil and gas development is anticipated, and a comprehensive parcel review process. These changes may increase the amount of time andregulatory costs necessary to obtain oil and gas leases administered by the BLM.Other Laws and Regulations. Various laws and regulations often require permits for drilling wells and also cover spacing of wells, the prevention of waste ofnatural gas and oil including maintenance of certain gas/oil ratios, rates of production and other matters. The effect of these laws and regulations, as well asother regulations that could be promulgated by the jurisdictions in which we have production, could be to limit the number of wells that could be drilled on ourproperties and to limit the allowable production from the successful wells completed on our properties, thereby limiting our revenues.To date we have not experienced any materially adverse effect on our operations from obligations under environmental, health, and safety laws andregulations. We believe that we are in substantial compliance with currently applicable environmental, health, and safety laws and regulations, and thatcontinued compliance with existing requirements would not have a materially adverse impact on us. 15 Glossary of Oil and Natural Gas Terms The following is a description of the meanings of some of the oil and natural gas industry terms used in this report. bbl. Stock tank barrel, or 42 U.S. gallons liquid volume, used in this report in reference to crude oil or other liquid hydrocarbons. Bcf. Billion cubic feet of natural gas. boe. Barrels of crude oil equivalent, determined using the ratio of six mcf of natural gas to one bbl of crude oil, condensate or natural gas liquids. boe/d. boe per day. Completion. The process of treating a drilled well followed by the installation of permanent equipment for the production of natural gas or oil, or in the case ofa dry hole, the reporting of abandonment to the appropriate agency. Condensate. Hydrocarbons which are in the gaseous state under reservoir conditions and which become liquid when temperature or pressure is reduced. Amixture of pentanes and higher hydrocarbons. Development well. A well drilled within the proved area of a natural gas or oil reservoir to the depth of a stratigraphic horizon known to be productive. Drilling locations. Total gross locations specifically quantified by management to be included in our multi-year drilling activities on existing acreage. Ouractual drilling activities may change depending on the availability of capital, regulatory approvals, seasonal restrictions, oil and natural gas prices, costs,drilling results and other factors. Dry hole. A well found to be incapable of producing either oil or gas in sufficient quantities to justify completion as an oil or gas well. Exploratory well. A well drilled to find and produce natural gas or oil reserves not classified as proved, to find a new reservoir in a field previously found tobe productive of natural gas or oil in another reservoir or to extend a known reservoir. Field. An area consisting of either a single reservoir or multiple reservoirs, all grouped on or related to the same individual geological structural feature and/orstratigraphic condition. Formation. An identifiable layer of rocks named after its geographical location and dominant rock type. Lease. A legal contract that specifies the terms of the business relationship between an energy company and a landowner or mineral rights holder on aparticular tract of land. Leasehold. Mineral rights leased in a certain area to form a project area. Mbbls. Thousand barrels of crude oil or other liquid hydrocarbons. 16 Mboe. Thousand barrels of crude oil equivalent, determined using the ratio of six mcf of natural gas to one bbl of crude oil, condensate or natural gas liquids. Mcf. Thousand cubic feet of natural gas. Mcfe. Thousand cubic feet equivalent, determined using the ratio of six mcf of natural gas to one bbl of crude oil, condensate or natural gas liquids. MMbbls. Million barrels of crude oil or other liquid hydrocarbons. MMboe. Million barrels of crude oil equivalent, determined using the ratio of six mcf of natural gas to one bbl of crude oil, condensate or natural gas liquids. MMbtu. Million British Thermal Units. MMcf. Million cubic feet of natural gas. Net acres, net wells, or net reserves. The sum of the fractional working interest owned in gross acres, gross wells, or gross reserves, as the case may be. Net barrel of production. The sum of the fractional revenue interest in gross production owned by the company. ngl. Natural gas liquids, or liquid hydrocarbons found in association with natural gas. Overriding royalty interest. Is similar to a basic royalty interest except that it is created out of the working interest. For example, an operator possesses astandard lease providing for a basic royalty to the lesser or mineral rights owner of 1/8 of 8/8. This then entitles the operator to retain 7/8 of the total oil andnatural gas produced. The 7/8 in this case is the 100% working interest the operator owns. This operator may assign his working interest to another operatorsubject to a retained 1/8 overriding royalty. This would then result in a basic royalty of 1/8, an overriding royalty of 1/8 and a working interest of 3/4.Overriding royalty interest owners have no obligation or responsibility for developing and operating the property. The only expenses borne by the overridingroyalty owner are a share of the production or severance taxes and sometimes costs incurred to make the oil or gas salable. Plugging and abandonment. Refers to the sealing off of fluids in the strata penetrated by a well so that the fluids from one stratum will not escape intoanother or to the surface. Regulations of all states require plugging of abandoned wells. Present value of future net revenues (PV-10). The present value of estimated future revenues to be generated from the production of estimated net provedreserves, net of estimated production and future development costs, using the simple 12 month first of month average price and current costs (unless suchprices or costs are subject to change pursuant to contractual provisions), without giving effect to non-property related expenses such as general andadministrative expenses, debt service and future income tax expenses or to depreciation, depletion and amortization, discounted using an annual discount rateof 10%. While this measure does not include the effect of income taxes as it would in the use of the standardized measure calculation, it does provide anindicative representation of the relative value of Recovery Energy on a comparative basis to other companies and from period to period. Production. Natural resources, such as oil or gas, taken out of the ground. Proved reserves. The quantities of oil, natural gas and natural gas liquids, which, by analysis of geosciences and engineering data, can be estimated withreasonable certainty to be economically producible – from a given date forward, from known reservoirs under existing economic conditions and operatingconditions. Proved developed oil and gas reserves. Proved developed oil and gas reserves are reserves that can be expected to be recovered through existing wells withexisting equipment and operating methods. Additional oil and gas expected to be obtained through the application of fluid injection or other improved recoverytechniques for supplementing the natural forces and mechanisms of primary recovery should be included as “proved developed reserves” only after testing bya pilot project or after the operation of an installed program has confirmed through production response that increased recovery will be achieved. Proved undeveloped reserves. Proved undeveloped oil and gas reserves are reserves that are expected to be recovered from new wells on undrilled acreage, orfrom existing wells where a relatively major expenditure is required for recompletion. Reserves on undrilled acreage shall be limited to those drilling unitsoffsetting productive units that are reasonably certain of production when drilled. Proved reserves for other undrilled units can be claimed only where it can bedemonstrated with certainty that there is continuity of production from the existing productive formation. Under no circumstances should estimates for provedundeveloped reserves attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless suchtechniques have been proved effective by actual tests in the area and in the same reservoir. 17 Probable Reserves. Probable reserves are those additional reserves which analysis of geoscience and engineering data indicate are less likely to be recoveredthan proved reserves but more certain to be recovered than possible reserves. It is equally likely that actual remaining quantities recovered will be greater thanor less than the sum of the estimated proved plus probable reserves (2P). In this context, when probabilistic methods are used, there should be at least a 50-percent probability that the actual quantities recovered will equal or exceed the 2P estimate. Possible Reserves. Possible reserves are those additional reserves which analysis of geoscience and engineering data suggest are less likely to be recoverablethan probable reserves. The total quantities ultimately recovered from the project have a low probability to exceed the sum of proved plus probable pluspossible reserves (3P), which is equivalent to the high estimate scenario. In this context, when probabilistic methods are used, there should be at least a 10-percent probability that the actual quantities recovered will equal or exceed the 3P estimate. Productive well. A well that is found to be capable of producing either oil or gas in sufficient quantities to justify completion as an oil or gas well. Project. A targeted development area where it is probable that commercial gas can be produced from new wells. Prospect. A specific geographic area which, based on supporting geological, geophysical or other data and also preliminary economic analysis usingreasonably anticipated prices and costs, is deemed to have potential for the discovery of commercial hydrocarbons. Recompletion. The process of re-entering an existing well bore that is either producing or not producing and completing new reservoirs in an attempt toestablish or increase existing production. Reserves. Oil, natural gas and gas liquids thought to be accumulated in known reservoirs. Reservoir. A porous and permeable underground formation containing a natural accumulation of producible nature gas and/or oil that is confined byimpermeable rock or water barriers and is separate from other reservoirs. Secondary Recovery. A recovery process that uses mechanisms other than the natural pressure of the reservoir, such as gas injection or water flooding, toproduce residual oil and natural gas remaining after the primary recovery phase. Shut-in. A well that has been capped (having the valves locked shut) for an undetermined amount of time. This could be for additional testing, could be towait for pipeline or processing facility, or a number of other reasons. Standardized measure. The present value of estimated future cash inflows from proved oil and natural gas reserves, less future development, abandonment,production and income tax expenses, discounted at 10% per annum to reflect timing of future cash flows and using the same pricing assumptions as were usedto calculate PV-10. Standardized measure differs from PV-10 because standardized measure includes the effect of future income taxes. Successful. A well is determined to be successful if it is producing oil or natural gas, or awaiting hookup, but not abandoned or plugged. Undeveloped acreage. Lease acreage on which wells have not been drilled or completed to a point that would permit the production of commercial quantitiesof oil and natural gas regardless of whether such acreage contains proved reserves. Water flood. A method of secondary recovery in which water is injected into the reservoir formation to displace residual oil and enhance hydrocarbon recovery. Working interest. The operating interest that gives the owner the right to drill, produce and conduct operating activities on the property and receive a share ofproduction and requires the owner to pay a share of the costs of drilling and production operations. 18 Item 1A. RISK FACTORS In addition to other matters identified or described by us from time to time in filings with the SEC, there are several important factors that could cause ourfuture results to differ materially from historical results or trends, results anticipated or planned by us, or results that are reflected from time to time in anyforward-looking statement. Some of these important factors, but not necessarily all important factors, include the following: Risks related to our company We have historically incurred losses and cannot assure investors as to future profitability. We have historically incurred losses from operations duringour history in the oil and natural gas business. As of December 31, 2011, we had a cumulative deficit of approximately $68.0 million. Many of our propertiesare in the exploration stage, and to date we have established a limited volume of proved reserves on our properties. Our ability to be profitable in the future willdepend on successfully implementing our acquisition, exploration, development and production activities, all of which are subject to many risks beyond ourcontrol. Even if we become profitable on an annual basis, we cannot assure you that our profitability will be sustainable or increase on a periodic basis. Inaddition, should we be unable to continue as a going concern, realization of assets and settlement of liabilities in other than the normal course of business maybe at amounts significantly different from those in the financial statements included in this annual report. Our credit agreements mature on June 30, 2013, and our lender can foreclose on several of our properties if we do not pay off or refinance ourapproximately $21 million of loans. Some of our oil and gas properties are pledged as collateral for our credit agreements. Failure to repay these loans atmaturity or refinance them could cause a default under the credit agreements and allow the lender to foreclose on these properties. Currently, the majority of our revenue after field level operating expenses is required to be paid to our lender as debt service and our lenders haveallowed us to defer some of these payments. In 2011, our lender has deferred the payment of approximately $2 million of revenue toward debt service, andthere can be no assurance that our lender will continue to permit deferrals. As of December 31, 2011, we had working capital of $1.3 million. We sold ourGrover field property for $4.5 million in January 2012 and will seek to obtain additional capital through the sale of our securities, the successful deploymentof our cash on hand, bank lines of credit, joint ventures, and project financing. Consequently, there can be no assurance we will be able to obtain continuedaccess to capital as and when needed or, if so, that the terms of any available financing will be subject to commercially reasonable terms. If we are unable toaccess additional capital in significant amounts as needed, we may not be able to develop our current prospects and properties, may have to forfeit our interestin certain prospects and may not otherwise be able to develop our business. In such an event, our stock price could be materially adversely affected. We will require additional capital in order to achieve commercial success and, if necessary, to finance future losses from operations as weendeavor to build revenue, but we do not have any commitments to obtain such capital and we cannot assure you that we will be able to obtainadequate capital as and when required. The business of oil and gas acquisition, drilling and development is capital intensive and the level of operationsattainable by an oil and gas company is directly linked to and limited by the amount of available capital. We believe that our ability to achieve commercialsuccess and our continued growth will be dependent on our continued access to capital either through the additional sale of our equity or debt securities, banklines of credit, project financing, joint ventures or cash generated from oil and gas operations. We do not have a significant operating history and, as a result, there is a limited amount of information about us on which to make an investmentdecision. In January 2010, we acquired our first oil and gas prospects and received our first revenues from oil and gas production in February 2010.Accordingly, there is little operating history upon which to judge our business strategy, our management team or our current operations. 19 We have limited management and staff and will be dependent upon partnering arrangements. We have ten employees. We intend to use the services ofindependent consultants and contractors to perform various professional services, including reservoir engineering, land, legal, environmental and tax services.We will also pursue alliances with partners in the areas of geological and geophysical services and prospect generation, evaluation and prospect leasing. Ourdependence on third party consultants and service providers creates a number of risks, including but not limited to: ● the possibility that such third parties may not be available to us as and when needed; and● the risk that we may not be able to properly control the timing and quality of work conducted with respect to our projects. If we experience significant delays in obtaining the services of such third parties or poor performance by such parties, our results of operations and stock pricecould be materially adversely affected. The loss of our chief executive officer could adversely affect us. We are dependent on the extensive experience of our chief executive officer to implementour acquisition and growth strategy. The loss of the services of this individual could have a negative impact on our operations and our ability to implement ourstrategy. We experienced a material weakness in our disclosure controls and systems. In our quarterly report on Form 10-Q for the quarter ended June 30, 2011,we noted the following material weaknesses in our disclosure controls and systems: ● Review of contracts for financial implications was not being performed timely.● Independent, internal reviews and approvals of critical accounting schedules used to prepare financial statements were not performed timely duringthe second quarter. Although since the date of that report, we have designed and implemented new controls surrounding the review of material contracts, the review of criticalaccounting schedules and our quarter closing process, we are currently in the process of testing and evaluating these controls, and until we complete our testingwe cannot provide assurance that the new controls are fully functional or will be sufficient to prevent future material weaknesses in our disclosure controls andsystems. In addition to acquiring producing properties, we may also grow our business through the acquisition and development of exploratory oil and gasprospects, which is the riskiest method of establishing oil and gas reserves. In addition to acquiring producing properties, we may acquire, drill anddevelop exploratory oil and gas prospects that are profitable to produce. Developing exploratory oil and gas properties requires significant capital expendituresand involves a high degree of financial risk. The budgeted costs of drilling, completing, and operating exploratory wells are often exceeded and can increasesignificantly when drilling costs rise. Drilling may be unsuccessful for many reasons, including title problems, weather, cost overruns, equipment shortages,and mechanical difficulties. Moreover, the successful drilling or completion of an exploratory oil or gas well does not ensure a profit on investment.Exploratory wells bear a much greater risk of loss than development wells. We cannot assure you that our exploration, exploitation and development activitieswill result in profitable operations. If we are unable to successfully acquire and develop exploratory oil and gas prospects, our results of operations, financialcondition and stock price may be materially adversely affected. 20 Hedging transactions may limit our potential gains or result in losses. In order to manage our exposure to price risks in the marketing of our oil andnatural gas, from time to time we may enter into derivative contracts that economically hedge our oil and gas price on a portion of our production. Thesecontracts may limit our potential gains if oil and natural gas prices were to rise substantially over the price established by the contract. In addition, suchtransactions may expose us to the risk of financial loss in certain circumstances, including instances in which: ● there is a change in the expected differential between the underlying price in the hedging agreement and actual prices received;● our production and/or sales of oil or natural gas are less than expected;● payments owed under derivative hedging contracts come due prior to receipt of the hedged month’s production revenue; or● the other party to the hedging contract defaults on its contract obligations. Hedging transactions we may enter into may not adequately protect us from declines in the prices of oil and natural gas. Further, where we choose not to engagein hedging transactions, we may be more adversely affected by changes in oil and natural gas prices than our competitors who engage in hedging transactions.In addition, the counterparties under our derivatives contracts may fail to fulfill their contractual obligations to us. We may have difficulty managing growth in our business, which could adversely affect our financial condition and results of operations.Significant growth in the size and scope of our operations could place a strain on our financial, technical, operational and management resources. The failureto continue to upgrade our technical, administrative, operating and financial control systems or the occurrences of unexpected expansion difficulties, includingthe failure to recruit and retain experienced managers, geologists, engineers and other professionals in the oil and gas industry could have a material adverseeffect on our business, financial condition and results of operations and our ability to timely execute our business plan. The actual quantities and present value of our proved reserves may be lower than we have estimated. In addition, the present value of future netrevenues from our proved reserves will not necessarily be the same as the current market value of our estimated oil and natural gas reserves. Thisannual report contains estimates of our proved oil and natural gas reserves and the estimated future net revenues from these reserves contained in our filingswith the SEC. The December 31, 2011, reserve estimate was prepared by our Senior Reserve Engineer and audited by RE Davis. The process of estimating oiland natural gas reserves is complex and requires significant decisions and assumptions in the evaluation of available geological, geophysical, engineering andeconomic data for each reservoir. Accordingly, these estimates are inherently imprecise. Actual future production, oil and natural gas prices, revenues, taxes,development and operating expenses, and quantities of recoverable oil and natural gas reserves most likely will vary from these estimates and vary over time.Such variations may be significant and could materially affect the estimated quantities and present value of our proved reserves. In addition, we may adjustestimates of proved reserves to reflect production history, results of exploration and development drilling, results of secondary and tertiary recoveryapplications, prevailing oil and natural gas prices and other factors, many of which are beyond our control. You should also not assume that our initial ratesof production of our wells will lead to greater overall production over the life of the wells, or that early results suggesting lack of reservoir continuity will proveto be accurate. 21 You should not assume that the present value of future net revenues referred to in this annual report is the current market value of our estimated oil and naturalgas reserves. In accordance with SEC requirements, the estimated discounted future net cash flows from proved reserves are generally based on the un-weighted average of the closing prices during the first day of each of the twelve months preceding the end of the fiscal year. Actual future prices and costs maybe materially higher or lower than the prices and costs as of the date of the estimate. Any change in consumption by oil or natural gas purchasers or ingovernmental regulations or taxation will also affect actual future net cash flows. The timing of both the production and the expenses from the development andproduction of our oil and natural gas properties will affect the timing of actual future net cash flows from proved reserves and their present value. In addition,the 10% discount factor, which is required by the SEC to be used in calculating discounted future net cash flows for reporting purposes, is not necessarily themost appropriate discount factor nor does it reflect discount factors used in the market place for the purchase and sale of oil and natural gas. Properties that we acquire may not produce oil or natural gas as projected, and we may be unable to determine reserve potential, identify liabilitiesassociated with the properties or obtain protection from sellers against them, which could cause us to incur losses. One of our growth strategies is topursue selective acquisitions of undeveloped leaseholder oil and natural gas reserves. If we choose to pursue an acquisition, we will perform a review of thetarget properties; however, these reviews are inherently incomplete. Generally, it is not feasible to review in depth every individual property involved in eachacquisition. Even a detailed review of records and properties may not necessarily reveal existing or potential problems, nor will it permit a buyer to becomesufficiently familiar with the properties to assess fully their deficiencies and potential. We may not perform an inspection on every well, and environmentalproblems, such as groundwater contamination, are not necessarily observable even when an inspection is undertaken. Even when problems are identified, wemay not be able to obtain effective contractual protection against all or part of those problems, and we may assume environmental and other risks andliabilities in connection with the acquired properties. Our large inventory of undeveloped acreage and large percentage of undeveloped proved reserves may create additional economic risk. Oursuccess is largely dependent upon our ability to develop our large inventory of future drilling locations, undeveloped acreage and undeveloped reserves. As ofDecember 31, 2011, approximately 47% of our total proved reserves were undeveloped. To the extent our drilling results are not as successful as we anticipate,natural gas and oil prices decline, or sufficient funds are not available to drill these locations and reserves, we may not capture the expected or projected valueof these properties. In addition, delays in the development of our reserves or increases in costs to drill and develop such reserves will reduce the PV-10 value ofour estimated proved undeveloped reserves and future net revenues estimated for such reserves and may result in some projects becoming uneconomic. Our revenue, profitability, cash flow, future growth and ability to borrow funds or obtain additional capital, as well as the carrying value of ourproperties, are substantially dependent on prevailing prices of oil and natural gas. If oil and natural gas prices decrease, we may be required to takewrite-downs of the carrying values of our oil and natural gas properties, negatively impacting the trading value of our securities. There is a risk that we will berequired to write down the carrying value of our oil and gas properties, which would reduce our earnings and stockholders’ equity. We follow the full costmethod of accounting for oil and gas operations whereby all costs related to exploration and development of oil and gas properties are initially capitalized into asingle cost center, known as a full cost pool. We record all capitalized costs into a single cost center as all operations are conducted within the United States.Such costs include land acquisition costs, geological and geophysical expenses, carry charges on non-producing properties, and costs of drilling directlyrelated to acquisition and exploration activities. Proceeds from property sales are generally credited to the full cost pool, with no gain or loss recognized, unlesssuch a sale would significantly alter the relationship between capitalized costs and the proved reserves attributable to these costs. A significant alteration wouldtypically involve a sale of 25% or more of the proved reserves related to a single full cost pool. Additional write downs could occur if oil and gas prices decline or if we have substantial downward adjustments to our estimated proved reserves, increasesin our estimates of development costs or deterioration in our drilling results. 22 All of our producing properties and operations are located in the DJ Basin region, making us vulnerable to risks associated with operating in onemajor geographic area. All of our estimated proved reserves at December 31, 2011, and our 2010 and 2011 sales were generated in the DJ Basin insoutheastern Wyoming, northeastern Colorado and southwestern Nebraska. As a result, we may be disproportionately exposed to the impact of delays orinterruptions of production from these wells caused by transportation capacity constraints, curtailment of production, availability of equipment, facilities,personnel or services, significant governmental regulation, natural disasters, adverse weather conditions, plant closures for scheduled maintenance orinterruption of transportation of oil or natural gas produced from the wells in this area. In addition, the effect of fluctuations on supply and demand maybecome more pronounced within specific geographic oil and gas producing areas such as the DJ Basin, which may cause these conditions to occur with greaterfrequency or magnify the effect of these conditions. Due to the concentrated nature of our portfolio of properties, a number of our properties could experienceany of the same conditions at the same time, resulting in a relatively greater impact on our results of operations than they might have on other companies thathave a more diversified portfolio of properties. Such delays or interruptions could have a material adverse effect on our financial condition and results ofoperations. Unless we find new oil and gas reserves, our reserves and production will decline, which would materially and adversely affect our business,financial condition and results of operations. Producing oil and gas reservoirs generally are characterized by declining production rates that varydepending upon reservoir characteristics and other factors. Thus, our future oil and gas reserves and production and, therefore, our cash flow and revenue arehighly dependent on our success in efficiently obtaining reserves and acquiring additional recoverable reserves. We may not be able to develop, find or acquirereserves to replace our current and future production at costs or other terms acceptable to us, or at all, in which case our business, financial condition andresults of operations would be materially and adversely affected. Part of our strategy involves drilling in existing or emerging shale plays using available horizontal drilling and completion techniques. The resultsof our planned exploratory and development drilling in these plays are subject to drilling and completion technique risks and drilling results maynot meet our expectations for reserves or production. As a result, we may incur material write-downs and the value of our undeveloped acreagecould decline if drilling results are unsuccessful. Operations in the Niobrara shale involve utilizing drilling and completion techniques as developed byourselves and our service providers. Risks that we face while drilling include, but are not limited to, landing our wellbore in the desired drilling zone, stayingin the desired drilling zone while drilling horizontally through the formation, running our casing the entire length of the wellbore and being able to run tools andother equipment consistently through the horizontal wellbore. Risks that we face while completing our wells include, but are not limited to, being able tofracture stimulate the planned number of stages, being able to run tools the entire length of the wellbore during completion operations and successfully cleaningout the wellbore after completion of the final fracture stimulation stage. Our experience with horizontal drilling utilizing the latest drilling and completion techniques specifically in the Niobrara is limited. Ultimately, the success ofthese drilling and completion techniques can only be evaluated over time as more wells are drilled and production profiles are established over a sufficientlylong time period. If our drilling results are less than anticipated or we are unable to execute our drilling program because of capital constraints, leaseexpirations, access to gathering systems and limited takeaway capacity or otherwise, and/or natural gas and oil prices decline, the return on our investment inthese areas may not be as attractive as we anticipate and we could incur material write-downs of unevaluated properties and the value of our undevelopedacreage could decline in the future. 23 The unavailability or high cost of drilling rigs, equipment supplies or personnel could adversely affect our ability to execute our exploration anddevelopment plans. The oil and gas industry is cyclical and, from time to time, there are shortages of drilling rigs, equipment, supplies or qualifiedpersonnel. During these periods, the costs of rigs, equipment and supplies may increase substantially and their availability may be limited. In addition, thedemand for, and wage rates of, qualified personnel, including drilling rig crews, may rise as the number of rigs in service increases. The higher prices of oiland gas during the last several years have resulted in shortages of drilling rigs, equipment and personnel, which have resulted in increased costs and shortagesof equipment in the areas where we operate. If drilling rigs, equipment, supplies or qualified personnel are unavailable to us due to excessive costs or demandor otherwise, our ability to execute our exploration and development plans could be materially and adversely affected and, as a result, our financial conditionand results of operations could be materially and adversely affected. Covenants in our credit agreements impose significant restrictions and requirements on us. Our three credit agreements contain a number of covenantsimposing significant restrictions on us, including restrictions on our repurchase of, and payment of dividends on, our capital stock and limitations on ourability to incur additional indebtedness, make investments, engage in transactions with affiliates, sell assets and create liens on our assets. These restrictionsmay affect our ability to operate our business, to take advantage of potential business opportunities as they arise and, in turn, may materially and adverselyaffect our business, financial conditions and results of operations. We could be required to pay liquidated damages to some of our investors if we fail to maintain the effectiveness of a prior registration statement.We could default and accrue liquidated damages under registration rights agreements covering approximately 3.2 million shares of our common stock if we failto maintain the effectiveness of a prior registration statement as required in the agreements. In such case, we would be required to pay monthly liquidateddamages of up to $228,050. The maximum aggregate liquidated damages are capped at $1,368,300. If we do not make a monthly payment within seven daysafter the date payable, we are required to pay interest at an annual rate of 18% on the unpaid amount. If we default under the registration rights agreement andaccrue liquidated damages, we could be required to either raise additional outside funds through financing or curtail or cease operations. We are exposed to operating hazards and uninsured risks. Our operations are subject to the risks inherent in the oil and natural gas industry, includingthe risks of: ● fire, explosions and blowouts;● pipe failure;● abnormally pressured formations; and● environmental accidents such as oil spills, natural gas leaks, ruptures or discharges of toxic gases, brine or well fluids into the environment(including groundwater contamination). These events may result in substantial losses to us from: ● injury or loss of life;● severe damage to or destruction of property, natural resources and equipment;● pollution or other environmental damage;● clean-up responsibilities;● regulatory investigation;● penalties and suspension of operations; or● attorney's fees and other expenses incurred in the prosecution or defense of litigation. 24 We maintain insurance against some, but not all, of these risks. We cannot assure you that our insurance will be adequate to cover these losses or liabilities.We do not carry business interruption insurance. Losses and liabilities arising from uninsured or underinsured events may have a material adverse effect onour financial condition and operations. The producing wells in which we have an interest occasionally experience reduced or terminated production. These curtailments can result from mechanicalfailures, contract terms, pipeline and processing plant interruptions, market conditions and weather conditions. These curtailments can last from a few daysto many months. We may be subject to risks in connection with acquisitions, and the integration of significant acquisitions may be difficult. We periodically evaluateacquisitions of reserves, properties, prospects and leaseholds and other strategic transactions that appear to fit within our overall business strategy. Thesuccessful acquisition of producing properties requires an assessment of several factors, including: ● recoverable reserves;● future oil and natural gas prices and their appropriate differentials;● development and operating costs; and● potential environmental and other liabilities. The accuracy of these assessments is inherently uncertain. In connection with these assessments, we perform a review of the subject properties. Our reviewwill not reveal all existing or potential problems nor will it permit us to become sufficiently familiar with the properties to fully assess their deficiencies andpotential recoverable reserves. Inspections may not always be performed on every well, and environmental problems are not necessarily observable even whenan inspection is undertaken. Even when problems are identified, the seller may be unwilling or unable to provide effective contractual protection against all orpart of the problems. We often are not entitled to contractual indemnification for environmental liabilities and acquire properties on an "as is" basis. Significant acquisitions and other strategic transactions may involve other risks, including: ● diversion of our management's attention to evaluating, negotiating and integrating significant acquisitions and strategic transactions;● challenge and cost of integrating acquired operations, information management and other technology systems and business cultures with those ofours while carrying on our ongoing business;● difficulty associated with coordinating geographically separate organizations;● challenge of attracting and retaining personnel associated with acquired operations; and● failure to realize the full benefit that we expect in estimated proved reserves, production volume, cost savings from operating synergies or otherbenefits anticipated from an acquisition, or to realize these benefits within the expected time frame. 25 The process of integrating operations could cause an interruption of, or loss of momentum in, the activities of our business. Members of our seniormanagement may be required to devote considerable amounts of time to this integration process, which will decrease the time they will have to manage ourbusiness. If our senior management is not able to effectively manage the integration process, or if any significant business activities are interrupted as a resultof the integration process, our business could suffer. Prospects that we decide in which to participate may not yield oil or natural gas in commercially viable quantities or quantities sufficient to meetour targeted rate of return. A prospect is a property in which we own an interest and have what we believe, based on available seismic and geologicalinformation, to be indications of oil or natural gas. Our prospects are in various stages of evaluation, ranging from a prospect that is ready to be drilled to aprospect that will require substantial additional seismic data processing and interpretation. There is no way to predict in advance of drilling and testingwhether any particular prospect will yield oil or natural gas in sufficient quantities to recover drilling or completion cost or to be economically viable. The useof seismic data and other technologies and the study of producing fields in the same area will not enable us to know conclusively prior to drilling whether oil ornatural gas will be present or, if present, whether oil or natural gas will be present in commercial quantities. We cannot assure you that the analysis weperform using data from other wells, more fully explored prospects or producing fields will be useful in predicting the characteristics and potential reservesassociated with our drilling prospects. Our reserve estimates will depend on many assumptions that may turn out to be inaccurate. Any material inaccuracies in our reserve estimates orunderlying assumptions will materially affect the quantities and present value of our reserves. The process of estimating oil and natural gas reserves iscomplex. It requires interpretations of available technical data and many assumptions, including assumptions relating to economic factors. Any significantinaccuracies in these interpretations or assumptions could materially affect the estimated quantities and the calculation of the present value of reserves shownin these reports. In order to prepare reserve estimates in its reports, our independent petroleum consultant projected production rates and timing of development expenditures.Our independent petroleum consultant also analyzed available geological, geophysical, production and engineering data. The extent, quality and reliability ofthis data can vary and may not be in our control. The process also requires economic assumptions about matters such as oil and natural gas prices, drillingand operating expenses, capital expenditures, taxes and availability of funds. Therefore, estimates of oil and natural gas reserves are inherently imprecise. Actual future production, oil and natural gas prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable oil andnatural gas reserves will most likely vary from our estimates. Any significant variance could materially affect the estimated quantities and present value of ourreserves. In addition, our independent petroleum consultant may adjust estimates of proved reserves to reflect production history, drilling results, prevailing oiland natural gas prices and other factors, many of which are beyond our control. Risks relating to the oil and gas industry Oil and natural gas prices are highly volatile, and lower prices will negatively affect our financial condition, planned capital expenditures andresults of operations. Historically, the markets for oil and natural gas have been volatile. These markets will likely continue to be volatile in the future. Theprices we receive for our production and the levels of our production depend on numerous factors beyond our control. These factors include the following: 26 ● changes in global supply and demand for oil and natural gas;● the actions of the Organization of Petroleum Exporting Countries, or OPEC;● the price and quantity of imports of foreign oil and natural gas;● acts of war or terrorism;● political conditions and events, including embargoes, affecting oil-producing activity;● the level of global oil and natural gas exploration and production activity;● the level of global oil and natural gas inventories;● weather conditions;● technological advances affecting energy consumption;● the price and availability of alternative fuels; and● market concerns about global warming or changes in governmental policies and regulations due to climate change initiatives. Volatile oil and natural gas prices make it difficult to estimate the value of producing properties for acquisition and often cause disruption in the market for oiland natural gas producing properties, as buyers and sellers have difficulty agreeing on such value. Price volatility also makes it difficult to budget for andproject the return on acquisitions and development and exploitation projects. Our revenues, operating results, profitability and future rate of growth depend primarily upon the prices we receive for oil and, to a lesser extent, natural gasthat we sell. Prices also affect the amount of cash flow available for capital expenditures and our ability to borrow money or raise additional capital. Inaddition, we may need to record asset carrying value write-downs if prices fall. A significant decline in the prices of natural gas or oil could adversely affectour financial position, financial results, cash flows, access to capital and ability to grow. Our industry is highly competitive which may adversely affect our performance, including our ability to participate in ready to drill prospects inour core areas. We operate in a highly competitive environment. In addition to capital, the principal resources necessary for the exploration and production ofoil and natural gas are: ● leasehold prospects under which oil and natural gas reserves may be discovered;● drilling rigs and related equipment to explore for such reserves; and● Knowledgeable personnel to conduct all phases of oil and natural gas operations. We must compete for such resources with both major oil and natural gas companies and independent operators. Virtually all of these competitors havefinancial and other resources substantially greater than ours. We cannot assure you that such materials and resources will be available when needed. If we areunable to access material and resources when needed, we risk suffering a number of adverse consequences, including: 27 ● the breach of our obligations under the oil and gas leases by which we hold our prospects and the potential loss of those leasehold interests; ● loss of reputation in the oil and gas community;● a general slow down in our operations and decline in revenue; and● decline in market price of our common shares. Legislative and regulatory initiatives related to global warming and climate change could have an adverse effect on our operations and the demandfor oil and natural gas. In December 2009, the EPA determined that emissions of carbon dioxide, methane and other ‘‘greenhouse gases’’ present anendangerment to public health and the environment because emissions of such gases are, according to the EPA, contributing to warming of the earth’satmosphere and other climatic changes. Based on these findings, the EPA has begun adopting and implementing regulations to restrict emissions ofgreenhouse gases under existing provisions of the Clean Air Act, or CAA. The EPA recently adopted two sets of rules regulating greenhouse gas emissionsunder the CAA, one of which requires a reduction in emissions of greenhouse gases from motor vehicles and the other of which regulates emissions ofgreenhouse gases from certain large stationary sources, effective January 2, 2011. The EPA has also adopted rules requiring the reporting of greenhouse gasemissions from specified large greenhouse gas emission sources in the United States, including petroleum refineries, on an annual basis, beginning in 2011for emissions occurring after January 1, 2010, as well as certain onshore oil and natural gas production facilities, on an annual basis, beginning in 2012 foremissions occurring in 2011. In addition, the United States Congress has from time to time considered adopting legislation to reduce emissions of greenhouse gases and almost one-half ofthe states have already taken legal measures to reduce emissions of greenhouse gases, primarily through the planned development of greenhouse gas emissioninventories and/or regional greenhouse gas cap and trade programs. Most of these cap and trade programs work by requiring major sources of emissions, suchas electric power plants, or major producers of fuels, such as refineries and gas processing plants, to acquire and surrender emission allowances. The numberof allowances available for purchase is reduced each year in an effort to achieve the overall greenhouse gas emission reduction goal. The adoption of legislation or regulatory programs to reduce emissions of greenhouse gases could require us to incur increased operating costs, such as costs topurchase and operate emissions control systems, to acquire emissions allowances or comply with new regulatory or reporting requirements. Any suchlegislation or regulatory programs could also increase the cost of consuming, and thereby reduce demand for, the oil, NGLs, and natural gas we produce.Consequently, legislation and regulatory programs to reduce emissions of greenhouse gases could have an adverse effect on our business, financial conditionand results of operations. Finally, it should be noted that some scientists have concluded that increasing concentrations of greenhouse gases in the Earth’satmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, droughts, and floods andother climatic events. If any such effects were to occur, they could have an adverse effect on our financial condition and results of operations. Federal and state legislative and regulatory initiatives relating to hydraulic fracturing could result in increased costs and additional operatingrestrictions or delays in the completion of oil and natural gas wells. Hydraulic fracturing is an important and common practice that is used to stimulate production of natural gas and/or oil from dense subsurface rockformations. The process involves the injection of water, sand and chemicals under pressure into the formation to fracture the surrounding rock and stimulateproduction. We routinely use hydraulic fracturing techniques in many of our drilling and completion programs. The process is typically regulated by state oiland natural gas commissions, but the EPA has asserted federal regulatory authority over certain hydraulic fracturing activities involving diesel under thefederal Safe Drinking Water Act. In addition, legislation has been introduced before Congress to provide for federal regulation of hydraulic fracturing under theSafe Drinking Water Act and to require disclosure of the chemicals used in the hydraulic fracturing process. Under the proposed legislation, this informationwould be available to the public via the internet, which could make it easier for third parties opposing the hydraulic fracturing process to initiate legalproceedings based on allegations that specific chemicals used in the fracturing process could adversely affect groundwater. At the state level, some states haveadopted, and other states are considering adopting legal requirements that could impose more stringent permitting, public disclosure or well constructionrequirements on hydraulic fracturing activities. If new or more stringent federal, state, or local legal restrictions relating to the hydraulic fracturing process areadopted in areas where we operate, we could incur potentially significant added costs to comply with such requirements, experience delays or curtailment in thepursuit of exploration, development, or production activities, and perhaps even be precluded from drilling wells. 28 In addition, certain governmental reviews are either underway or being proposed that focus on environmental aspects of hydraulic fracturing practices. TheWhite House Council on Environmental Quality is coordinating an administration-wide review of hydraulic fracturing practices, and a committee of theUnited States House of Representatives has conducted an investigation of hydraulic fracturing practices. The EPA has commenced a study of the potentialenvironmental effects of hydraulic fracturing on drinking water and groundwater, with initial results expected to be available by late 2012 and final results by2014. Moreover, the EPA has announced that it will develop effluent limitations for the treatment and discharge of wastewater resulting from hydraulicfracturing activities by 2014. Other governmental agencies, including the U.S. Department of Energy and the U.S. Department of the Interior, are evaluatingvarious other aspects of hydraulic fracturing. These ongoing or proposed studies, depending on their degree of pursuit and any meaningful results obtained,could spur initiatives to further regulate hydraulic fracturing under the federal Safe Drinking Water Act or other regulatory mechanisms. We are subject to numerous laws and regulations that can adversely affect the cost, manner or feasibility of doing business. Our operations aresubject to extensive federal, state and local laws and regulations relating to the exploration, production and sale of oil and natural gas, and operating safety.Future laws or regulations, any adverse change in the interpretation of existing laws and regulations or our failure to comply with existing legal requirementsmay result in substantial penalties and harm to our business, results of operations and financial condition. We may be required to make large andunanticipated capital expenditures to comply with governmental regulations, such as: ● land use restrictions;● lease permit restrictions;● drilling bonds and other financial responsibility requirements, such as plugging and abandonment bonds;● spacing of wells;● unitization and pooling of properties;● safety precautions;● operational reporting; and● taxation. 29 Under these laws and regulations, we could be liable for: ● personal injuries;● property and natural resource damages;● well reclamation cost; and● governmental sanctions, such as fines and penalties. Our operations could be significantly delayed or curtailed and our cost of operations could significantly increase as a result of regulatory requirements orrestrictions. We are unable to predict the ultimate cost of compliance with these requirements or their effect on our operations. It is also possible that a portion ofour oil and gas properties could be subject to eminent domain proceedings or other government takings for which we may not be adequately compensated. See“Business--Government Regulations” for a more detailed description of our regulatory risks. Our operations may incur substantial expenses and resulting liabilities from compliance with environmental laws and regulations. Our oil andnatural gas operations are subject to stringent federal, state and local laws and regulations relating to the release or disposal of materials into the environment orotherwise relating to environmental protection. These laws and regulations: ● require the acquisition of a permit before drilling commences;● restrict the types, quantities and concentration of substances that can be released into the environment in connection with drilling and productionactivities, including new environmental regulations governing the withdrawal, storage and use of surface water or groundwater necessary forhydraulic fracturing of wells;● limit or prohibit drilling activities on certain lands lying within wilderness, wetlands and other protected areas; and● impose substantial liabilities for pollution resulting from our operations. Failure to comply with these laws and regulations may result in: ● the assessment of administrative, civil and criminal penalties;● incurrence of investigatory or remedial obligations; and● the imposition of injunctive relief. Changes in environmental laws and regulations occur frequently and any changes that result in more stringent or costly waste handling, storage, transport,disposal or cleanup requirements could require us to make significant expenditures to reach and maintain compliance and may otherwise have a materialadverse effect on our industry in general and on our own results of operations, competitive position or financial condition. Under these environmental laws andregulations, we could be held strictly liable for the removal or remediation of previously released materials or property contamination regardless of whether wewere responsible for the release or contamination or if our operations met previous standards in the industry at the time they were performed. Our permitsrequire that we report any incidents that cause or could cause environmental damages. See “Business—Government Regulations” for a more detaileddescription of our environmental risks. 30 Risks relating to our common stock There is a limited public market for our shares and we cannot assure you that an active trading market or a specific share price will be establishedor maintained. Our common stock trades on the Nasdaq Global Market, generally in small volumes each day. The value of our common stock could be affected by: ● actual or anticipated variations in our operating results;● changes in the market valuations of other oil and gas companies;● announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;● Adoption of new accounting standards affecting our industry;● Additions or departures of key personnel;● sales of our common stock or other securities in the open market;● changes in financial estimates by securities analysts;● conditions or trends in the market in which we operate;● changes in earnings estimates and recommendations by financial analysts;● our failure to meet financial analysts’ performance expectations; and● other events or factors, many of which are beyond our control. In a volatile market, you may experience wide fluctuations in the market price of our securities. These fluctuations may have an extremely negative effect onthe market price of our common stock and may prevent you from obtaining a market price equal to your purchase price when you attempt to sell our commonstock in the open market. In these situations, you may be required either to sell at a market price which is lower than your purchase price, or to hold ourcommon stock for a longer period of time than you planned. An inactive market may also impair our ability to raise capital by selling shares of capital stockand may impair our ability to acquire other companies or oil and gas properties by using common stock as consideration. Securities analysts may not initiate coverage of our shares or may issue negative reports, which may adversely affect the trading price of theshares. We cannot assure you that securities analysts will cover our company. If securities analysts do not cover our company, this lack of coverage may adverselyaffect the trading price of our shares. The trading market for our shares will rely in part on the research and reports that securities analysts publish about usand our business. If one or more of the analysts who cover our company downgrades our shares, the trading price of our shares may decline. If one or more ofthese analysts ceases to cover our company, we could lose visibility in the market, which, in turn, could also cause the trading price of our shares to decline.Further, because of our small market capitalization, it may be difficult for us to attract securities analysts to cover our company, which could significantlyand adversely affect the trading price of our shares. 31 Item 1B. UNRESOLVED STAFF COMMENTS None Item 3. LEGAL PROCEEDINGSThere are no material pending legal proceedings to which we or our properties are subject. Item 4. MINE SAFETY DISCLOSURES Not applicablePART II Item 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITYSECURITIES Recent Market Prices On November 2, 2011 our common stock began trading on the Nasdaq Capital Market under the symbol "RECV." Between September 25, 2009 andNovember 1, 2011 our stock traded on the OTC Market under the symbol "RECV.OB." The following table shows the high and low reported sales prices of our common stock for the periods indicated. Effective October 19, 2011 we completed a1:4 reverse stock split, and stock prices prior to such date have been adjusted to reflect the effect of the stock split. High Low 2011 Fourth Quarter $7.00 2.99 Third Quarter $11.00 4.88 Second Quarter $13.00 8.80 First Quarter $15.56 $7.80 2010 Fourth Quarter $10.00 $7.24 Third Quarter $10.00 $6.00 Second Quarter $16.00 $1.00 First Quarter $22.00 $8.20 2009 Fourth Quarter $23.00 $12.00 September 25, 2009 through September 30, 2009 $24.00 $17.00 On March 13, 2012, there were approximately 28 owners of record of our common stock. Dividend Policy We have never paid any cash dividends on our common stock and do not anticipate paying any dividends in the foreseeable future. Our current business planis to retain any future earnings to finance the expansion and development of our business. Any future determination to pay cash dividends will be at thediscretion of our board of directors, and will be dependent upon our financial condition, results of operations, capital requirements and other factors as ourboard may deem relevant at that time. 32 Stock Performance Graph The following performance graph compares the cumulative total stockholder return on Recovery Energy, Inc. common stock with the SPDR S &P 500 StockIndex and the Dow Jones US Oil and Gas Production index for the period from September 25, 2009 through December 31, 2011, assuming an initialinvestment of $100 and the reinvestment of all dividends, if any. This historic stock price performance is not necessarily indicative of future stockperformance. Recent Sales of Unregistered Securities We have previously disclosed by way of quarterly reports on Form 10-Q and current reports on Form 8-K filed with the SEC all sales by us of ourunregistered securities during 2011, except as follows:In December 2011, we issued 66,330 shares of unregistered common stock to purchase oil and gas interests covering 884 net acres in Weld County,Colorado. Issuance of the shares described above was not registered under the Securities Act of 1933. The issuance of these shares was exempt from registration, pursuant to Section 4(2) of the Securities Act of 1933. These securities qualified for exemptionsince the issuance of the securities by us did not involve a public offering and the purchasers are all accredited investors as defined in Regulation D under theSecurities Act. The offering was not a “public offering” as defined in Section 4(2) due to the insubstantial number of persons involved in the sale, size of theoffering, manner of the offering and number of securities offered. In addition, these shareholders have the necessary investment intent as required by Section4(2) since each agreed to and received share certificates bearing a legend stating that such securities are restricted pursuant to Rule 144 of the 1933 SecuritiesAct. This restriction ensures that these securities would not be immediately redistributed into the market and therefore not be part of a “public offering.” Basedon an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act for this transaction. 33 Item 6. SELECTED FINANCIAL DATA The table below contains selected consolidated financial data. The statement of operations, cash flow, balance sheet and other financial data for each year hasbeen derived from our consolidated financial statements. You should read this information together with “Management’s Discussion and Analysis of FinancialCondition and Results of Operation” and our consolidated financial statements and the related notes included elsewhere in this report. Shares and per sharedata has been adjusted for the effects of a 1:4 reverse stock split completed in the 4th quarter of 2011. The Company owned no oil and gas properties prior to2010, and had no significant operations prior to 2009. Years Ended December 31, 2011 2010 2009 REVENUES AND OTHER INCOME: Oil sales 7,148,110 9,504,737 - Gas sales 547,190 68,075 - Other 666,794 184,880 - Total Revenues 8,362,094 9,757,692 - COSTS AND EXPENSES: Production Costs 1,514,784 862,042 - Production Taxes 838,714 1,056,244 - General and administrative 10,544,347 15,530,248 1,057,306 Impairment of oil and natural gas properties 2,821,176 - 2,750,000 Depreciation depletion and amortization 4,347,117 5,036,648 - Common stock and warrants issued in aborted property transactions - - 8,404,106 Restructuring and related consulting 17,700,000 Bad debt expense - 400,000 - Total costs and expenses 20,066,138 22,885,182 29,911,412 Income (loss) from continuing operations (11,704,044) (13,127,490) (29,911,412)Interest expense (8,218,225) (6,640,209) 31 Convertible notes derivative gain 3,821,792 - - Debt inducement expense (2,800,000) - - Other 71,253 28,666 - Net loss (18,829,225) (19,739,033) (29,911,381) Net loss per common share: Basic and Diluted $(1.21) $(2.15) $(12.19) Weighted average common shares outstanding: Basic and Diluted 15,543,758 9,167,803 2,453,921 Cash flow data: Cash flow provided by (used in) operations (570,247) 3,758,694 (381,239)Cash flow provided by /(used in) investing activities (13,308,468) (46,809,758) 639,639 Cash flow provided by/(used in) financing activities 11,057,693 48,471,408 (150,000) Balance sheet data: Cash and cash equivalents 2,707,722 6,679,285 129,276 Property, plant and equipment, net of depletion and impairment 72,137,035 56,129,467 - Total assets 81,287,860 68,121,929 895,026 Total liabilities 31,619,635 (23,865,327) (328,754)Common stock subject to redemption - (86,257) (172,516)Total shareholders’ equity 49,668,225 44,170,344 393,756 34 Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with our financial statements included elsewhere in this annual report. This discussioncontains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in theseforward-looking statements as a result of various factors including those set forth under Item 1A “Risk Factors”. General We are an independent oil and gas company engaged in the acquisition, drilling and production of oil and natural gas properties and prospects within the DJBasin. Our business strategy is designed to create shareholder value by leveraging the knowledge, expertise and experience of our management team along withthat of our operating partners. We principally target low to medium risk projects that have the potential for multiple producing horizons, and offer repeatable success allowing for meaningfulproduction and reserve growth. Our acquisition and exploration pursuits of oil and natural gas properties are principally located in Colorado, Nebraska, andWyoming. It is our belief that the exploration and production industry’s most significant value creation occurs through the drilling of successful development wells andthe enhancement of oil recovery in mature fields given appropriate economic conditions. We intend to acquire producing properties and develop propertiesbased on our view of the pricing cycles of oil and natural gas and available exploration and development opportunities of proved, probable and possiblereserves. Results of Operations 2011 compared to 2010The following table compares operating data for the fiscal year ended December 31, 2011 to December 31, 2010: 2011 2010 REVENUES AND OTHER INCOME: Oil sales 7,148,110 9,504,737 Gas sales 547,190 68,075 Realized gains on commodity hedges 625,043 570,233 Other 41,751 (385,353) 8,362,094 9,757,692 EXPENSES: Production Costs 1,514,784 862,042 Production Taxes 838,714 1,056,244 General and administrative 10,544,347 15,530,248 Impairment of oil and natural gas properties 2,821,176 - Depreciation depletion and amortization 4,347,117 5,036,648 Bad debt expense - 400,000 20,066,138 22,885,182 Income (loss) from continuing operations (11,704,044) (13,127,490)Interest expense (8,218,225) (6,640,209)Other 71,253 28,666 Debt Inducement Expense (2,800,000) - Conversion Note Derivative Gain 3,821,792 - Net income (18,829,224) (19,739,033) 35 Total revenues in 2011 declined from $9.8 million in 2010 to $8.4 million in 2011 due primarily to a decrease in net oil production due to natural reservoirproduction declines. This reduction in oil sales was partially offset by an increase in net gas production, but also affected by changes in the average unitprices received by the Company for the sale of its oil and gas products. The following table shows the comparison of production volume and average prices: Year Ended December 31, 2011 2010 Oil Sales (net bbls) 81,443 133,709 Gas Sales (net mcf) 115,583 14,914 Average Oil Price $87.77 $71.08 Average Gas Price $4.73 $4.56 Average Price per BOE 76.41 74.47 Production Costs 15.19 6.33 Production Taxes 8.18 7.76 Depreciation and Amortization 42.25 36.98 Total Operating Costs 65.62 51.07 Gross Margin 10.79 23.40 Gross Margin % 14.12% 31.42% As shown in the table, oil volumes declined 39%, gas volume increased by 675%, and prices for both oil and gas increased. The gas volume increase can beattributed to the production of one gas well that produced during the entirety of 2011, but only for part of 2010. The decline in oil volume is due almostentirely to natural production declines.Other revenues in 2010 included an unrealized loss on commodity hedges of $399,000. Unrealized losses on commodity hedges in 2011 were nominal. 36 Production taxes in 2011 decreased by 22% in 2011 as a result in the overall decrease in oil and gas sales. Production costs increased by 77%. This increaseis due primarily to an increase in the number of workovers, property improvements and other onsite work that was performed on our producing propertiesduring the year.Depletion expense declined in 2011 by 16% as a result of lower unit volumes of oil and gas sales, and a declining cost center, even though the cost per BOEincreased by 14%.An impairment expense of $2.8 million was recorded in 2011 as a result of capitalized costs exceeding the standardized measure of reserve values.General and administrative expenses declined 32% in 2011 as compared to 2010. 2011 general and administrative expenses included non-cash stockcompensation expense of $6.7 million compared to $13.1 million in 2010. Excluding these non-cash components, cash general and administrative expenseswere $3.9 million in 2011 compared to $2.23 million in 2010. Cash general and administrative expenses in 2011 increased primarily as a result of anincrease in payroll, and legal and third party fees related to transactions, as well as general increases in other general and administrative expense areas.Interest expense increased by $1.6 million in 2011 as compared to 2010. 2011 interest includes non-cash loan costs amortization of $5.0 million, and cashinterest expense of $3.2 million, compared to cash interest expense in 2010 of $2.7 million. Cash interest increased in 2011 primarily as a result of anincrease in the average level of debt.In 2011, we recorded inducement expense of $2.8 million related to an amendment of our convertible debentures that reduced the conversion price from $9.40to $4.25 per share. The inducement related to a request to the holders of the convertible debentures to release certain collateral so that it could be sold. We alsorecorded derivative gains of $3.8 million related to the reduction of liability attributed to the conversion feature recorded as of the original transaction date in thefirst quarter of 2011, versus the liability related to this conversion feature as of the end of the year.2010 compared to 2009In general our revenues and expenses were significantly higher in 2010 when compared to inception through December 31, 2009 as during 2009 we were adevelopment stage company with minimal activities. In January 2010, we acquired our first producing oil and gas assets and incurred interest expense withthe associated debt utilized to acquire the property. Therefore, results are generally not comparable for the year ended December 31, 2010 to the period ofinception through December 31, 2009. We have presented the results for each period below. Revenue and other income:For the twelve month period ended December 31, 2010, we had $9,504,737 in oil sales and $68,075 in natural gas sales, respectively.Average daily net production for the twelve month period ended December 31, 2010 was 373 BOEPD. Miscellaneous Income and Operating FeesWe earned net operating fees of $13,487 during the twelve months ended December 31, 2010. We realized a mark-to-market gain of $28,666 during the twelvemonths ended December 31, 2010 on a put agreement associated with 85,000 shares of stock placed in conjunction with our reverse merger in September2009. Price Risk Management Activities We recorded a net loss on our derivative contracts that do not qualify for cash flow hedge accounting of $(398,840) for the year ended December 31,2010. This amount represents an unrealized non-cash loss which represents a change in the fair value of our mark-to-market derivative instruments atDecember 31, 2010 as detailed in “Note 5 – Financial Instruments and Derivatives” and “Note 6 – Fair Value of Financial Instruments”. We realized a gainon our derivative contracts that do not qualify for cash flow hedge accounting $570,233 for the year ended December 31, 2010. This amount represents arealized cash gain from the settlement of our forward sale contracts for the quarter ended December 31, 2010 as detailed in “Note 5 – Financial Instrumentsand Derivatives” and “Note 6 – Fair Value of Financial Instruments”. 37 Oil and Gas Production Expenses, Depreciation, Depletion and Amortization Years ended December 31, 2010 2009 (1) Net production Oil (Bbl) 133,709 - Gas (Mcf) 14,914 - MBOE 136,195 - Average net daily production Oil (Bbl) 366 - Gas (Mcf) 41 - BOE 373 - Average realized sales price, excluding the effects of hedging Oil (per Bbl) $71.08 $- Gas (per Mcf) $4.56 $- Per BOE $70.29 $- Average realized sales price, including the effects of hedging Oil (per Bbl) $75.27 $- Gas (per Mcf) $4.56 $- Per BOE $74.47 $- Production costs per BOE Lease operating expense (2) $6.33 $- DD&A $36.98 $- Production taxes $7.76 $- Total operating costs $51.07 $- Gross margin percentage 31% $-% (1) Prior to January 2010, the Company did not own any oil and gas properties. (2) Approximately $2.35/BOE of lease operating expense relates to surface, subsurface, road repairs and work-over activities. General and Administrative Expenses General and administrative expenses were $15,530,248 for the year ended December 31, 2010. Our general and administrative expenses twelve months endedDecember 31, 2010 included $1,464,990 in professional fees (financial advisors, attorneys, accountants, and reserve engineers) of which $372,393 werenoncash, and $9,958,300 in non-cash compensation expense. We also incurred a non-cash expense of $54,500 in rental expense for our office lease for theyear ending December 31, 2010 and a non-cash warrant modification expense of $2,953,450 for the year ended December 31, 2010. Total non-cash generaland administrative expenditures for the year ended December 31, 2010 was approximately $13,300,000. This compares to approximately $1,057,306 ingeneral and administrative expenditures from inception through December 31, 2009 which included non-cash expenditures of $690,000.Depreciation ExpenseDepreciation and amortization expense were $5,036,648 for the twelve months ended December 31, 2010. 38 Interest ExpenseTotal interest expense was $6,640,209 for the year ended December 31, 2010. The interest expense was comprised of $3,989,649 in non-cash amortizationof expenses for the year ended December 31, 2010 related to warrants issued and overriding royalty interests assigned to our lender in conjunction with theclosing of the three credit agreements and the extension of the credit agreements. We incurred $2,655,131 in cash interest expense for the year ended December31, 2010. We, nor our predecessor business, did not incur interest expense from inception through December 31, 2009. We incurred a net loss to common shareholders of $19,739,033 for the year ended December 31, 2010.From inception through December 31, 2009 General and administrative expense for the period ended December 31, 2009 totaled $1,057,306, including non-cash expense $684,778 in compensationexpense for outstanding restricted common stock grants issued to executive officers and board members. Our expense for impairment of equipment held for sale was $2,750,000 for the period ended December 31, 2009. Non-cash expenses related to the fair value of common stock issued in an attempted property transaction for the period ended December 31, 2009 totaled$5,075,000. Additional non-cash expenses for the period ended December 31, 2009 included $3,329,106 in fair value for warrants issued to third parties fora commitment to finance a property transaction which did not close, $200,000 related to 85,000 shares issued in conjunction with the merger and $17,500,000related to 5 million shares acquired by our controlling shareholder group subsequent to the reverse merger. Income for the period ended December 31, 2009 totaled $31 and was comprised of interest income. We incurred a net loss to common shareholders of $29,911,381 for the period ended December 31, 2009. Plan of Operations Our plan of operations for the next twelve months is to identify and develop oil and natural gas prospects from our existing inventory of undeveloped acreage.In this regard, we have gradually added structure and staffing to our company as we become the operator of an increasing number of acquired properties. Byacting as the operator, we have greater control over operating, drilling and developmental decisions, and would expect to generally better control our overallfinding costs as we increase our exploration and development activities.We anticipate the investment of substantial capital during the next few years to evaluate, assess and develop our existing inventory of developed andundeveloped oil and gas leases. The following table summarizes our inventory of developed and undeveloped oil and gas leases by expiration date:Summary of Leases Held: Net Acres Held by production and continuous operations 19,126.40 Expired 2/2012 3,462.44 Expires 2012 805.89 Expires 2013 13,944.80 Expires 2014 25,530.36 Expires 2015 61,361.21 Expires 2016 5,957.95 Total Leased Acreage 130,189.04 39 Our existing producing properties currently extend the termination dates of leases that comprise 9,739 net acres indefinitely, until such time as commercialproduction ceases with respect to a well that is holding a respective lease tract. While these net acres are categorized as developed, many of these leases alsohave potential for future development in other zones known to be productive, such as the Niobrara. In addition, we are also currently conducting completionand/or evaluation procedures on two wells in progress. Operations that are being conducted on these two wells are extending the primary terms of leases thatcomprise approximately 9,387 net acres. Absent successful completions of one or both of these wells, the lease terms of some or all of these acres mayexpire. The Company’s current investment in these leases is approximately $9.0 million.Approximately 64% of our remaining inventory of undeveloped leases provide for extension of lease terms from two to five years, at the option of theCompany, via payment of varying, but typically nominal, extension amounts.The acquisition and development of properties and prospects and the pursuit of fresh opportunities require that we maintain access to adequate levels ofcapital. We will strive for an optimal balance between our property portfolio and our capital structuring that will allow for growth designed to buildshareholder value and profitability. The decisions around the balancing of capital needs and property holdings will be a challenge to us as well as allcompanies in the entire energy industry during this time of continued disruption in the financial markets and an increasingly complex global economicpicture. As a function of balancing properties and capital, we may decide to monetize certain properties to reduce debt or to allow us to acquire interests in newprospects or producing properties that may be better suited to the current economic and energy industry environment. The business of oil and natural gas acquisition, exploration and development is capital intensive and the level of operations attainable by an oil and gascompany is directly linked to and limited by the amount of available capital. Therefore, a principal part of our plan of operations is to raise the additionalcapital required to finance the exploration and development of our current oil and natural gas prospects and the acquisition of additional properties. Asexplained under “Financial Condition and Liquidity” below, based on our present working capital and current rate of cash flow from operations, we will needto raise additional capital to partially fund our overhead, and fund our exploration and development budget through, at least, December 31, 2012. We willseek additional capital through the sale of our securities and we will endeavor to obtain additional capital through debt and project financing. However, asdescribed further below, under the terms of our $21 million in credit facilities, we are prohibited from incurring any additional debt from third parties withoutprior consent from our lender. Our ability to obtain additional capital through new debt instruments and project financing may be subject to the repayment ofour $21 million credit facility.We intend to use the services of independent consultants and contractors to perform various professional services, including land, legal, environmental,investor relations and tax services. We believe that by limiting our management and employee costs, we may be able to better control total costs and retainflexibility in terms of project management. Financial Condition and Liquidity Cash used in operating activities during the year ended December 31, 2011 was $.6 million, and cash used in investing activities exceeded cash provided byfinancing activities by approximately $2.2 million. This net cash use contributed to a substantial decrease in our net working capital as of December 31,2011. Expenditures subsequent to December 31, 2011 have continued to exceed cash receipts, causing a further reduction of the Company’s working capitalposition.In the immediate term, the Company expects that additional capital will be required to fund its capital budget for 2012, to partially fund some of its ongoingoverhead, and to provide additional capital to generally improve its working capital position. We anticipate that these capital requirements will be funded by acombination of capital raising activities, including the selling of additional debt and/or equity securities and the selling of certain assets. If we are notsuccessful in obtaining sufficient cash sources to fund the aforementioned capital requirements, we may be required to curtail our expenditures, restructure ouroperations, sell assets on terms which may not be deemed favorable and/or curtail other aspects of our operations, including deferring portions of our 2012capital budget. 40 Pursuant to our credit agreements with Hexagon, a substantial portion of our monthly net revenues derived from our producing properties is required to be usedfor debt and interest payments. In addition, our debt instruments contain provisions that, absent consent of the lenders, may restrict our ability to raiseadditional capital.Since inception, we have raised approximately $72 million in cash generally through private placements of debt and equity securities. In December 2011, wesold certain undeveloped acreage for total proceeds of $4.5 million. During 2011, Hexagon agreed to temporarily suspend for five months the requirement toremit monthly net revenues of approximately $2,000,000 in the aggregate as payment on the Hexagon debt. In November 2011, Hexagon extended the maturitydate of their notes to January 1, 2013, and also advanced an additional $309,000 to us. We repaid the $309,000 advance in February 2012. In March 2012,Hexagon extended the maturity date of their Notes to June 30, 2013, and in connection therewith we agreed to make minimum monthly note payments of$325,000, effective immediately. We will continue to pursue alternatives to shore up our working capital position and to provide funding for our planned2012 expenditures.On March 19, 2012, we entered into agreements with our existing convertible debenture holders to extend the amount of the convertible debenture debt by up toan additional $5.0 million. Proceeds resulting from the increase in the convertible debentures will be used to partially fund the 2012 Capital Budget. The initialclosing related to these agreements will be in the amount of $1.5 million and is expected to occur prior to March 23, 2012. On or before September 15, 2012,convertible debenture holders may elect to purchase up to an additional $3.5 million in additional convertible debentures. All terms of the expansion convertibledebentures are substantively identical to the existing convertible debentures. 2012 Capital BudgetOur anticipated 2012 capital expenditure budget is $10-15 million, which is allocated primarily to the drilling and completion of oil and gas wells in the DJBasin in Wyoming, Nebraska and Colorado targeting the conventional Dakota ‘D’ sand and Muddy ‘J’ sand targets. In addition, approximately one-third ofthis budget may be directed toward additional development procedures on certain unconventional Niobrara shale properties. We estimate the completed costfor each conventional well to be between $800,000 and $900,000. Specific allocations of the 2012 budget directed at Niobrara shale properties have not beendetermined at this time.Our 2012 capital expenditure budget is subject to various factors, including the availability of capital, market conditions, oilfield services and equipmentavailability, commodity prices and drilling results. While we continue to explore opportunities to expand our acreage position, our current budget is allocated todrilling and completing wells. Any leasehold acquisitions that we choose to pursue would require us to adjust our budget. Results from the wells identified inthe capital budget may lead to additional adjustments to the capital budget as the cash flow from the wells could provide additional capital which we may useto increase our capital budget.Other factors that could cause us to further increase our level of activity and adjust our capital expenditure budget include a reduction in service and materialcosts, the formation of joint ventures with other exploration and production companies, the divestiture of non-strategic assets, a further improvement incommodity prices or well performance that exceeds our forecasts, any of which could positively impact our operating cash flow. Factors that could cause us toreduce level of activity and adjust our capital budget include, but are not limited to, increases in service and materials costs, reductions in commodity pricesor under-performance of wells relative to our forecasts, any of which could negatively impact our operating cash flow. Our 2012 drilling program is designed to provide flexibility to accommodate both the timing of the securing of adequate capital, and to identify suitable welllocations. We anticipate funding the 2012 capital program through a combination of the issuance of additional equity or debt securities, use of existingworking capital and operating cash flows, and from cash provided by potential joint venture participants. We may choose to sell certain non-strategic assetsin order to supplement the funding of our 2012 capital budget. We cannot give assurances that our working capital on hand, our cash flow from operations or any available capital or borrowings, equity offerings or otherfinancings, or sales of non-strategic assets will be sufficient to fund our anticipated capital expenditures. If our existing and potential sources of investmentcapital are not sufficient to undertake our planned 2012 capital expenditures, we may be required to reduce our 2012 drilling capital budget, curtail ourexpenditures and/or restructure our operations. On March 19, 2012, we entered into agreements with our existing convertible debenture holders to extend the amount of the convertible debenture debt by up toan additional $5.0 million. Proceeds resulting from the increase in the convertible debentures will be used to partially fund the 2012 Capital Budget. The initialclosing related to these agreements will be in the amount of $1.5 million and is expected to occur prior to March 23, 2012. On or before September 15, 2012,convertible debenture holders may elect to purchase up to an additional $3.5 million in additional convertible debentures. All terms of the expansion convertibledebentures are substantively identical to the existing convertible debentures. During the year ended December 31, 2011, our working capital decreased to $1.3 million compared to $4.4 million at December 31, 2010. This lower level ofworking capital is primarily of the result of cash used in opertions, and cash investing activities that exceeded cash provided by financing activities. During the year ended December 31, 2011, net cash used in operating activities was $570,000. The primary changes in operating cash during the year endedDecember 31, 2010 were $18.8 million of net loss, adjusted for non-cash charges of $ 4.3 million of depreciation, depletion and amortization expenses andaccretion expense, $6.5 million of stock-based compensation and stock paid for services, $4.4 million of amortization of deferred financing costs, $2.8million of impairment expense, $2.8 million of debt inducement expense, and offset by $3.3 million in non-cash gains on derivatives. 41 During the year ended December 31, 2011, net cash used by investing activities was $13.3 million. The primary changes in investing cash during the yearended December 31, 2011 was $9.4 million in expenditures related to our acquisitions which consisted primarily of the unevaluated acreage, and $7.0 millionin drilling capital expenditures, offset by $3.0 million in proceeds received from the sale of certain undeveloped acreage. During the year ended December 31, 2011, net cash provided by financing activities was $11.0 million. The primary changes in financing cash during theyear ended December 31, 2011 were $8.0 million related to the issuance of convertible debt, $2.1 million derived from the issuance of common stock, and $.9million in other changes in debt. Our primary term debt of $21 million is currently due on June 30, 2013. We will very likely need to replace or refinance this debt prior to its due date. Whilewe believe we have sufficient liquidity and other sources of capital available to us that will allow us to conduct our current operations for the next 12 months,we will need to find additional sources of capital to fund our drilling budget and, if necessary, to replace our existing debt facility. We will seek to obtain thisadditional capital through a combination of the issuance of additional equity or debt securities, use of existing working capital and operating cash flows, andfrom cash provided by potential joint venture participants. We may also choose to sell certain non-strategic assets in order to supplement the funding of our2012 capital budget.Currently, we have no agreements or understandings with any third parties at this time for additional working capital. Further, under the terms of our creditagreements, we are prohibited from incurring any additional debt from third parties without prior consent from our lender. Our ability to obtain additionalworking capital through bank lines of credit and project financing may be subject to the repayment of the approximately $21 million debt related to ourprimary credit facility. Consequently, there can be no assurance we will be able to obtain continued access to capital as and when needed or, if so, that theterms of any available financing will be subject to commercially reasonable terms. If we are unable to access additional capital in significant amounts asneeded, we may not be able to develop our current prospects and properties, may have to forfeit our interest in certain prospects and may not otherwise be ableto develop our business. In such an event, our stock price will be materially adversely affected. Obligations and Commitments We have the following contractual obligations and commitments as of December 31, 2011 (in thousands): Payments due by period Contractual obligations Total Within 1year 2-3 years 4-5 years More than5 years Secured debt $21,280,637 $1,150,967 $20,129,670 $— $— Interest on secured debt 4,725,000 3,150,000 1,575,000 — — Convertible debentures 8,400,000 8,400,000 — — Interest on convertible debentures 1,428,000 672,000 756,000 Operating leases 72,000 72,000 — — — Total contractual cash obligations (1) $35,905,637 $5,044,967 $30,860,670 $— $— (1) We could be liable for liquidated damages under registration rights agreements covering approximately 3.2 million shares of our common stock ifwe fail to maintain the effectiveness of a prior registration statement as required in the agreements. In such case, we would be required to pay monthlyliquidated damages of up to $228,050. The maximum aggregate liquidated damages are capped at $1,368,300 42 Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements.Critical Accounting Policies and Estimates The preparation of our consolidated financial statements in conformity with generally accepted accounting principles in the United States, or GAAP, requiresour management to make assumptions and estimates that affect the reported amounts of assets, liabilities, revenues and expenses, as well as the disclosure ofcontingent assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting period. Thefollowing is a summary of the significant accounting policies and related estimates that affect our financial disclosures.Critical accounting policies are defined as those significant accounting policies that are most critical to an understanding of a company’s financial conditionand results of operation. We consider an accounting estimate or judgment to be critical if (i) it requires assumptions to be made that were uncertain at the timethe estimate was made, and (ii) changes in the estimate or different estimates that could have been selected could have a material impact on our results ofoperations or financial condition. Use of EstimatesThe financial statements included herein were prepared from the records of Recovery in accordance with generally accepted accounting principles in the UnitedStates, or GAAP, and reflect all normal recurring adjustments which are, in the opinion of management, necessary to provide a fair statement of the results ofoperations and financial position for the interim periods. The preparation of the financial statements in conformity with GAAP requires management to makeestimates and assumptions that affect the reported amounts of oil and gas reserves, assets and liabilities and disclosure of contingent assets and liabilities atthe date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We evaluate our estimates on an on-goingbasis and base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances. Although actualresults may differ from these estimates under different assumptions or conditions, we believe that our estimates are reasonable. Our most significant financialestimates are associated with our estimated proved oil and gas reserves as well as valuation of common stock used in various issuances of common stock,options and warrants and estimated fair value of the asset held for sale.Oil and Natural Gas Reserves We follow the full cost method of accounting. All of our oil and gas properties are located within the United States, and therefore all costs related to theacquisition and development of oil and gas properties are capitalized into a single cost center referred to as a full cost pool. Depletion of exploration anddevelopment costs and depreciation of production equipment is computed using the units-of-production method based upon estimated proved oil and gasreserves. Under the full cost method of accounting, capitalized oil and gas property costs less accumulated depletion and net of deferred income taxes may notexceed an amount equal to the present value, discounted at 10%, of estimated future net revenues from proved oil and gas reserves less the future cash outflowsassociated with the asset retirement obligations that have been accrued on the balance sheet plus the cost, or estimated fair value if lower, of unprovedproperties. Should capitalized costs exceed this ceiling, impairment would be recognized. Under the SEC rules, we prepared our oil and gas reserve estimatesas of December 31, 2011, using the average, first-day-of-the-month price during the 12-month period ending December 31, 2011. 43 Estimating accumulations of gas and oil is complex and is not exact because of the numerous uncertainties inherent in the process. The process relies oninterpretations of available geological, geophysical, engineering and production data. The extent, quality and reliability of this technical data can vary. Theprocess also requires certain economic assumptions, some of which are mandated by the SEC, such as gas and oil prices, drilling and operating expenses,capital expenditures, taxes and availability of funds. The accuracy of a reserve estimate is a function of the quality and quantity of available data; theinterpretation of that data; the accuracy of various mandated economic assumptions; and the judgment of the persons preparing the estimate. We believe estimated reserve quantities and the related estimates of future net cash flows are the most important estimates made by an exploration andproduction company such as ours because they affect the perceived value of our company, are used in comparative financial analysis ratios, and are used asthe basis for the most significant accounting estimates in our financial statements, including the quarterly calculation of depletion, depreciation andimpairment of our proved oil and natural gas properties. Proved oil and natural gas reserves are the estimated quantities of crude oil, natural gas, and naturalgas liquids that geological and engineering data demonstrate with reasonable certainty to be recoverable in future periods from known reservoirs under existingeconomic and operating conditions. We determine anticipated future cash inflows and future production and development costs by applying benchmark pricesand costs, including transportation, quality and basis differentials, in effect at the end of each quarter to the estimated quantities of oil and natural gasremaining to be produced as of the end of that quarter. We reduce expected cash flows to present value using a discount rate that depends upon the purpose forwhich the reserve estimates will be used. For example, the standardized measure calculation required by ASC Topic 932, Extractive Activities—Oil and Gas,requires us to apply a 10% discount rate. Although reserve estimates are inherently imprecise, and estimates of new discoveries and undeveloped locations aremore imprecise than those of established proved producing oil and natural gas properties, we make considerable effort to estimate our reserves, includingthrough the use of independent reserves engineering consultants. We expect that quarterly reserve estimates will change in the future as additional informationbecomes available or as oil and natural gas prices and operating and capital costs change. We evaluate and estimate our oil and natural gas reserves as ofDecember 31 of each year and quarterly throughout the year. For purposes of depletion, depreciation, and impairment, we adjust reserve quantities at allquarterly periods for the estimated impact of acquisitions and dispositions. Changes in depletion, depreciation or impairment calculations caused by changesin reserve quantities or net cash flows are recorded in the period in which the reserves or net cash flow estimate changes. Oil and Natural Gas Properties—Full Cost Method of Accounting We use the full cost method of accounting whereby all costs related to the acquisition and development of oil and natural gas properties are capitalized into asingle cost center referred to as a full cost pool. These costs include land acquisition costs, geological and geophysical expenses, carrying charges on non-producing properties, costs of drilling and overhead charges directly related to acquisition and exploration activities. Capitalized costs, together with the costs of production equipment, are depleted and amortized on the unit-of-production method based on the estimated grossproved reserves as determined by independent petroleum engineers. For this purpose, we convert our petroleum products and reserves to a common unit ofmeasure. Costs of acquiring and evaluating unproved properties are initially excluded from depletion calculations. These unevaluated properties are assessed quarterly toascertain whether impairment has occurred. When proved reserves are assigned or the property is considered to be impaired, the cost of the property or theamount of the impairment is added to the full cost pool and becomes subject to depletion calculations. Proceeds from the sale of oil and natural gas properties are applied against capitalized costs, with no gain or loss recognized, unless the sale would alter the rateof depletion by more than 25%. Royalties paid, net of any tax credits received, are netted against oil and natural gas sales. 44 In applying the full cost method, we perform a ceiling test on properties that restricts the capitalized costs, less accumulated depletion, from exceeding anamount equal to the estimated undiscounted value of future net revenues from proved oil and natural gas reserves, as determined by independent petroleumengineers. The estimated future revenues are based on sales prices achievable under existing contracts and posted average reference prices in effect at the end ofthe applicable period, and current costs, and after deducting estimated future general and administrative expenses, production related expenses, financingcosts, future site restoration costs and income taxes. Under the full cost method of accounting, capitalized oil and natural gas property costs, less accumulateddepletion and net of deferred income taxes, may not exceed an amount equal to the present value, discounted at 10%, of estimated future net revenues fromproved oil and natural gas reserves, plus the cost, or estimated fair value if lower, of unproved properties. Should capitalized costs exceed this ceiling, wewould recognize impairment. Revenue Recognition The Company derives revenue primarily from the sale of produced natural gas and crude oil. The Company reports revenue as the gross amount receivedbefore taking into account production taxes and transportation costs, which are reported as separate expenses and are included in oil and gas productionexpense in the accompanying consolidated statements of operations. Revenue is recorded in the month the Company’s production is delivered to the purchaser,but payment is generally received between 30 and 90 days after the date of production. No revenue is recognized unless it is determined that title to the producthas transferred to the purchaser. At the end of each month, the Company estimates the amount of production delivered to the purchaser and the price theCompany will receive. The Company uses its knowledge of its properties, their historical performance, NYMEX and local spot market prices, quality andtransportation differentials, and other factors as the basis for these estimates.Share Based Compensation The Company accounts for share-based compensation by estimating the fair value of share-based payment awards made to employees and directors, includingrestricted stock grants, on the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as an expense ratably overthe requisite service periods. Derivative Instruments During 2011, the Company entered into swaps to reduce the effect of price changes on a portion of our future oil production. We reflect the fair market value ofour derivative instruments on our balance sheet. Our estimates of fair value are determined by obtaining independent market quotes as well as utilizing avaluation model that is based upon underlying forward curve data and risk free interest rates. Changes in commodity prices will result in substantially similarchanges in the fair value of our commodity derivative agreements. We do not apply hedge accounting to any of our derivative contracts, therefore we recognizemark-to-market gains and losses in earnings currently.Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk represents the risk of loss that may impact our financial position, results of operations, or cash flows due to adverse changes in financial marketprices, including interest rate risk, foreign currency exchange rate risk, commodity price risk, and other relevant market or price risks. Commodities Price Risk. Our financial condition, results of operations and capital resources are dependent upon the prevailing market prices of oil andnatural gas. These commodity prices are subject to wide fluctuations and market uncertainties due to a variety of factors that are beyond our control. Factorsinfluencing oil and natural gas prices include the level of global demand for crude oil, the foreign supply of oil and natural gas, the establishment of andcompliance with production quotas by oil exporting countries, weather conditions which determine the demand for natural gas, the price and availability ofalternative fuels and overall economic conditions. It is impossible to predict future oil and natural gas prices with any degree of certainty. Sustained weaknessin oil and natural gas prices may adversely affect our financial condition and results of operations, and may also reduce the amount of oil and natural gasreserves that we can produce economically. Any reduction in our oil and natural gas reserves, including reductions due to price fluctuations, can have anadverse effect on our ability to obtain capital for our development activities. 45 In order to protect the Company from uncertainty associated with oil and natural gas prices we entered into the following: On December 21, 2011, we entered into a Commodity Fixed Price Swap contract that covers approximately 40% of our forecasted 2012 oil production. Thiscontract covers 100 bopd throughout 2012, or a total of 36,600 barrels, and establishes a fixed sales price per barrel of $96.25. At the end of each month in2012, the fixed price is compared to a floating price equal to the average of settlement prices of the Nymex Prompt month WTI crude oil contract. If the fixedprice is less than the floating price, then the Company will make an immediate payment to the swap counterparty equal to the difference in the fixed andfloating prices multiplied by the monthly oil volume (3,000 barrels in a 30 day month). Alternatively, if the fixed price is more than the floating price, then wewill receive a payment from the swap counterparty equal to the difference between the fixed and floating prices multiplied by the monthly volume. As of December 31, 2011, the estimated forward floating price was approximately $2 per barrel higher than the fixed price. As a result, we recorded anunrealized loss accrual related to this Swap contract of approximately $76,000. We may, from time to time, enter into other similar agreements in order to hedge oil prices from future substantial price swings. Interest Rate Risk. We have minimal interest rate risk as all of our debt currently provides for fixed interest rates. However, we may enter into futuretransactions that could result in higher interest rates, or in floating or adjustable interest rates that could expose the Company to additional interest rate risks. Foreign Currency Risk. We do not currently have any substantial exposure to foreign currency risk. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Our financial statements appear immediately after the signature page of this report. See "Index to Financial Statements" included in this report. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENone. Item 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures. We conducted an evaluation of the effectiveness of the design and operation of our disclosure controlsand procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of December 31, 2011. This evaluation wasconducted under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. Based on thisevaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2011, our disclosure controls and procedureswere effective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed,summarized and reported within the time periods specified by the rules and forms of the SEC, and that information required to be disclosed by us in suchreports is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allowtimely decisions regarding required disclosure. 46 Management’s Annual Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequateinternal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) to provide reasonable assurance regarding thereliability of our financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally acceptedaccounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that inreasonable detail accurately and fairly reflect the transactions and dispositions of assets of the company, (ii) provide reasonable assurance that transactions arerecorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts andexpenditures of the company are being made only in accordance with authorizations of management and directors of the company and (iii) provide reasonableassurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect onthe financial statements. We have not completed our assessment of the effectiveness of our internal control over financial reporting as of December 31, 2011, the end of our fiscal year,and have filed an extension on Form 12B-25 in order to allow us time to complete this assessment. Our independent registered public accounting firm has also not completed its audit of the effectiveness of our internal control over financial reporting as ofDecember 31, 2011. We expect this audit to be completed prior to the expiration date of the extension referenced above, and also expect that both this audit andthe management’s report will conclude that our controls are ineffective. Changes in Internal Control over Financial Reporting. There have been changes in our internal control over financial reporting during the three months ended December 31, 2011 that have improved our internalcontrol over financial reporting. As described in Item 4T, “Controls and Procedures” in our quarterly reports on Form 10-Q dated June 30, 2011 andSeptember 30, 2011, we identified material weaknesses in our internal controls over financial reporting with regard to having sufficient control over the timelyreview of contracts with financial implications and the review of critical accounting schedules. During the 4th quarter of 2011, a plan was introduced and implemented to address the material weakness described above. Specifically, managementimplemented financial procedures designed to improve the documentation of internal controls and closing procedures. Additionally, management implementedseveral entity-specific controls designed to devote resources to the improvement of our internal control over financial reporting and in particular, provide anoverall company-wide financial review to ensure all critical accounting schedules are properly and timely prepared and reviewed.Also, during the three months ended December 31, 2011, management began the process of implementing a new accounting system (software) to improve andsolidify our procedures and to help mitigate the risk of material misstatements within the financial reporting process. The implementation was not completedas of December 31, 2011. Management believes that it is likely that a material weakness exists as of December 31, 2011 because the implementation was notcompleted in time to be used in conjunction with this report. The effects of the changes in internal control over financial reporting cannot be fully assessed until such time as management completes its assessment ofinternal controls over financial reporting as of December 31, 2011. Item 9B. OTHER INFORMATION None. 47 PART III Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information relating to this item will be included in an amendment to this report or in the proxy statement for our 2012 annual shareholders meeting and isincorporated by reference in this report.Item 11. EXECUTIVE COMPENSATION Information relating to this item will be included in an amendment to this report or in the proxy statement for our 2012 annual shareholders meeting and isincorporated by reference in this report.Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS Information relating to this item will be included in an amendment to this report or in the proxy statement for our 2012 annual shareholders meeting and isincorporated by reference in this report. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Information relating to this item will be included in an amendment to this report or in the proxy statement for our 2012 annual shareholders meeting and isincorporated by reference in this report. Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Information relating to this item will be included in an amendment to this report or in the proxy statement for our 2012 annual shareholders meeting and isincorporated by reference in this report. PART IVItem 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES INDEX TO FINANCIAL STATEMENTS a) Report of Independent Registered Public Accounting Firm F-1 Consolidated Balance Sheets F-2 Consolidated Statements of Operations F-4 Consolidated Statements of Shareholders' Equity F-6 Consolidated Statements of Cash Flows F-10 Notes to Financial Statements F-13 b) Financial statement schedules Not applicable. 48 c) Exhibits The following exhibits are either filed herewith or incorporated herein by reference: 2.1Membership Unit Purchase Agreement by and among Recovery Energy, Lanny M. Roof, Judith Lee and Michael Hlvasa dated as of September 21,2009 (incorporated herein by reference to Exhibit 2.1 from our current report filed on form 8-K filed on September 22, 2009). 3.1Articles of Incorporation (incorporated herein by reference to Exhibit 3.1 to Company's form S-1 filed on July 28, 2008). 3.2Amended and Restated Bylaws (incorporated herein by reference to Exhibit 3.2 to Company's periodic report on form 8-K filed on June 18, 2010). 4.1Warrant to Purchase Common Stock dated December 11, 2009 (incorporated by reference to Exhibit 4.2 to Company's current report filed on form 8-K filed on December 17, 2009). 10.1Cancellation agreements, dated September 21, 2009 between Universal Holdings, Inc. and two former shareholders (incorporated herein by reference toExhibit 10.1 to the Company's annual report on form 10-K for the year ended December 31, 2010).. 10.2Lock-Up Agreement with Tryon Capital Ventures, LLC as of September 21, 2009 (incorporated herein by reference to Exhibit 10.2 to Company'scurrent report filed on form 8-K filed on September 22, 2009). 10.3Equipment Purchase Agreement, dated May 31, 2009 (incorporated herein by reference to Exhibit 10.3 to Company's current report filed on form 8-Kfiled on September 22, 2009). 10.4Agreement with New Century Capital Partners dated as of November 16, 2009 (incorporated herein by reference to Exhibit 10.4 to Company's currentreport filed on form 8-K filed on November 23, 2009). 10.5Purchase and Sale Agreement with Edward Mike Davis, L.L.C. for purchase of 100% interest in Church field dated as of October 1, 2009(incorporated herein by reference to Exhibit 10.5 to Company's current report filed on form 8-K filed on November 13, 2009). 10.6Purchase and Sale Agreement with Duane M. Freund Irrevocable Trust 2 for purchase of 50% interest in Church field dated as of October 1, 2009(incorporated herein by reference to Exhibit 10.6 to Company's current report filed on form 8-K filed on November 13, 2009). 10.7Purchase and Sale Agreement with Roger A. Parker for Church field dated effective as of October 1, 2009 (incorporated herein by reference to Exhibit10.11 to Company's current report filed on form 8-K filed on January 21, 2010). 10.8Purchase and Sale Agreement with Edward Mike Davis, L.L.C. for Wilke Field dated effective as of January 1, 2010 (incorporated herein by referenceto Exhibit 10.8 to Company's annual report on form 10-K for the year ended December 31, 2009). 10.9Credit Agreement with Hexagon Investments, LLC dated effective as of January 29, 2010 (incorporated herein by reference to Exhibit 10.12 toCompany's current report filed on form 8-K filed on March 4, 2010). 10.10Promissory Note for financing with Hexagon Investments, LLC dated as of January 29, 2010 (incorporated herein by reference to Exhibit 10.13 toCompany's current report filed on form 8-K filed on March 4, 2010). 10.11Nebraska Mortgage to Hexagon Investments, LLC dated as of January 29, 2010 (incorporated herein by reference to Exhibit 10.14 to Company'scurrent report filed on form 8-K filed on March 4, 2010). 10.12Colorado Mortgage to Hexagon Investments, LLC dated as of January 29, 2010 (incorporated herein by reference to Exhibit 10.15 to Company'scurrent report filed on form 8-K filed on March 4, 2010). 49 10.13Purchase and Sale Agreement with Edward Mike Davis, L.L.C. dated effective as of April 1, 2010 (incorporated herein by reference to Exhibit 10.16to Company's current report filed on form 8-K filed on March 25, 2010). 10.14Credit Agreement with Hexagon Investments, LLC dated effective as of March 25, 2010 (incorporated herein by reference to Exhibit 10.17 toCompany's current report filed on form 8-K filed on March 25, 2010). 10.15Promissory Note for financing with Hexagon Investments, LLC dated as of March 25, 2010 (incorporated herein by reference to Exhibit 10.18 toCompany's current report filed on form 8-K filed on March 25, 2010). 10.16Nebraska Mortgage to Hexagon Investments, LLC dated as of March 25, 2010 (incorporated herein by reference to Exhibit 10.19 to Company'scurrent report filed on form 8-K filed on March 25, 2010). 10.17Wyoming Mortgage to Hexagon Investments, LLC dated as of March 25, 2010 (incorporated herein by reference to Exhibit 10.20 to Company's currentreport filed on form 8-K filed on March 25, 2010). 10.18Purchase and Sale Agreement with Edward Mike Davis, L.L.C. for purchase of oil and gas properties dated as of April 1, 2010 (incorporated hereinby reference to Exhibit 10.1 to the Company's current report filed on form 8-K filed on April 20, 2010). 10.19Credit Agreement with Hexagon Investments, LLC dated as of April 14, 2010 (incorporated herein by reference to Exhibit 10.2 to the Company'scurrent report filed on form 8-K filed on April 20, 2010). 10.20Promissory Note with Hexagon Investments, LLC dated April 14, 2010 (incorporated herein by reference to Exhibit 10.3 to the Company's currentreport filed on form 8-K filed on April 20, 2010). 10.21Warrant to Purchase Common Stock by Hexagon Investments, LLC dated April 14, 2010 (incorporated herein by reference to Exhibit 10.4 to theCompany's current report filed on form 8-K filed on April 20, 2010). 10.22Wyoming Mortgage to Hexagon Investments, LLC dated April 14, 2010 (incorporated herein by reference to Exhibit 10.5 to the Company's currentreport filed on form 8-K filed on April 20, 2010). 10.23Securities Purchase Agreement dated as of April 26, 2020 (incorporated herein by reference to Exhibit 10.1 to the Company's current report filed onform 8-K filed on April 30, 2010). 10.24Agreement with C.K. Cooper dated April 8, 2010 (incorporated herein by reference to Exhibit 10.1 to the Company's current report filed on form 8-Kfiled on May 4, 2010). 10.25Purchase Agreement dated May 6, 2010 (incorporated herein by reference to Exhibit 10.1 to the Company's current report filed on form 8-K filed onMay 12, 2010). 10.26Promissory Note dated May 6, 2010 (incorporated herein by reference to Exhibit 10.2 to the Company's current report filed on form 8-K filed on May12, 2010). 10.27Security Agreement dated May 6, 2010 (incorporated herein by reference to Exhibit 10.3 to the Company's current report filed on form 8-K filed onMay 12, 2010). 10.28Purchase Agreement with Edward Mike Davis, L.L.C. and Spottie, Inc. dated May 15, 2010 (incorporated herein by reference to Exhibit 10.1 to theCompany's current report filed on form 8-K filed on May 20, 2010). 10.29Employment Agreement with Roger A. Parker. 10.30Employment Agreement with Jeffrey A. Beunier (incorporated herein by reference to Exhibit 10.2 to the Company's current report filed on form 8-Kfiled on December 23, 2010). 50 10.31Director Appointment Agreement with James Miller (incorporated herein by reference to Exhibit 10.3 to the Company's current report filed on form 8-Kfiled on May 20, 2010). 10.32Form of Warrant Issued in Private Placement (incorporated herein by reference to Exhibit 4.1 to the Company's current report filed on form 8-K filed onJune 4, 2010). 10.33Warrant issued to Hexagon Investments, LLC (incorporated herein by reference to Exhibit 4.2 to the Company's current report filed on form 8-K filedon June 4, 2010). 10.34Form of Securities Purchase Agreement (incorporated herein by reference to Exhibit 10.1 to the Company's current report filed on form 8-K filed onJune 4, 2010). 10.35Form of Registration Rights Agreement (incorporated herein by reference to Exhibit 10.2 to the Company's current report filed on form 8-K. 10.36Form of Lockup Agreement (incorporated herein by reference to Exhibit 10.3 to the Company's current report filed on form 8-K filed on June 4, 2010). 10.37Letter Agreement with Hexagon Investments, LLC (incorporated herein by reference to Exhibit 10.4 to the Company's current report filed on form 8-Kfiled on June 4, 2010). 10.38Independent Director Appointment Agreement with Timothy N. Poster (incorporated herein by reference to Exhibit 10.1 to the Company's current reportfiled on form 8-K filed on June 7, 2010). 10.39Independent Director Appointment Agreement with Conway J. Schatz (incorporated herein by reference to Exhibit 10.2 to the Company's current reportfiled on form 8-K filed on June 7, 2010). 10.40Consulting Agreement with Market Development Consulting Group, Inc. (incorporated herein by reference to Exhibit 10.1 to the Company's currentreport filed on form 8-K filed on June 18, 2010). 10.41Five Year Warrant to Market Development Consulting Group, Inc. (incorporated herein by reference to Exhibit 10.2 to the Company's current reportfiled on form 8-K filed on June 18, 2010). 10.42Three Year Warrant to Market Development Consulting Group, Inc. (incorporated herein by reference to Exhibit 10.3 to the Company's current reportfiled on form 8-K filed on June 18, 2010). 10.43Warrant to Globe Media (incorporated herein by reference to Exhibit 10.4 to the Company's current report filed on form 8-K filed on June 18, 2010). 10.44Registration Rights Agreement with Hexagon Investments, Inc. (incorporated herein by reference to Exhibit 10.5 to the Company's current report filedon form 8-K filed on June 18, 2010). 10.45Stockholders Agreement with Hexagon Investments Incorporated (incorporated herein by reference to Exhibit 10.1 to the Company's current report filedon form 8-K filed on June 29, 2010). 10.46Form of $2.20 Warrant Issued to Persons Exercising $1.50 Warrants (incorporated herein by reference to Exhibit 10.1 to the Company's current reporton form 8-K filed on October 8, 2010). 10.47Purchase Agreement with Edward Mike Davis, L.L.C. and Spottie, Inc. dated November 19, 2010 (incorporated herein by reference to Exhibit 10.1 tothe Company's current report on form 8-K filed on November 26, 2010). 10.48Put Option Agreement with Grandhaven Energy, LLC dated November 19, 2010 (incorporated herein by reference to Exhibit 10.2 to the Company'scurrent report on form 8-K filed on November 26, 2010). 51 10.49Warrant Issued to Hexagon Investments, LLC on January 1, 2011 (incorporated herein by reference to Exhibit 10.1 to the Company's current report onform 8-K filed on January 4, 2011). 10.50Amendments to Hexagon Investments, LLC Promissory Notes (incorporated herein by reference to Exhibit 10.2 to the Company's current report onform 8-K filed on January 4, 2011). 10.51Form of Convertible Debenture Securities Purchase Agreement dated February 2, 2011 (incorporated herein by reference to Exhibit 10.1 to theCompany's current report on form 8-K filed on February 3, 2011). 10.52 Form of Convertible Debenture (incorporated herein by reference to Exhibit 10.2 to the Company's current report on form 8-K filed on February 3,2011). 10.53Purchase Agreement with Wapiti Oil & Gas, L.L.C. (incorporated herein by reference to Exhibit 10.1 to the Company's current report on form 8-Kfiled on February 24, 2011). 10.54Termination Agreement dated as of December 15, 2009 with Edward Mike Davis, L.L.C. (incorporated herein by reference to Exhibit 10.54 to theCompany's annual report on form 10-K for the year ended December 31, 2010). 10.55Amendments to three Credit Agreements with Hexagon, LLC, dated March 15, 2012. 10.56Second Amendment to 8% Senior Secured Convertible Debentures dated March 19, 2012. 10.57Securities Purchase Agreement for additional 8% Senior Secured Convertible Debentures dated March 19, 2012. 10.58Form of 8% Senior Secured Convertible Debentures dated March 19, 2012. 14.1Code of Ethics (incorporated herein by reference to Exhibit 14.1 to the Company's annual report on form 10-K for the year ended December 31, 2009). 16.1Letter from Jewett, Schwartz, Wolfe & Associates to the U.S. Securities and Exchange Commission dated January 19, 2010 (incorporated herein byreference to Exhibit 16.1 to the Company's periodic report on form 8-K dated January 21, 2010). 21.1List of subsidiaries of the registrant (incorporated herein by reference to Exhibit 21.1 to the Company's registration statement on Form S-1 (333-164291). 23.1Consent of Hein & Associates, LLP (included in their report on page F-1) 23.2Consent of RE Davis. 31.1Certifications Pursuant to Section 302 of Sarbanes Oxley Act of 2002 31.2Certifications Pursuant to Section 302 of Sarbanes Oxley Act of 2002 32.1Certifications Pursuant to Section 906 of Sarbanes Oxley Act of 2002 32.2Certifications Pursuant to Section 906 of Sarbanes Oxley Act of 2002 99.1Report of RE Davis. 52 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalfby the undersigned, thereunto duly authorized. RECOVERY ENERGY INC Date: March 19, 2012By:/s/ Roger A Parker Roger A. Parker President, Chief Executive Officer and Chairman ofthe Board of Directors(Authorized Signatory) Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrantand the capacities and on the dates indicated.Signature Title Date /s/ Roger A. Parker President, Chief Executive Officer andChairman of March 19, 2012Roger A Parker the Board of Directors /s/ A. Bradley Gabbard Chief Financial and Accounting Officer March 19, 2012A. Bradley Gabbard /s/ Eric Ulwelling Principal Accounting Officer March 19, 2012Eric Ulwelling /s/ Tim Poster Director March 19, 2012Tim Poster /s/ W. Phillip Marcum Director March 19, 2012W. Phillip Marcum 53 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders Recovery Energy, Inc. We have audited the accompanying consolidated balance sheets of Recovery Energy, Inc. and subsidiaries (the “Company”) as of December 31, 2011 and2010, and the related consolidated statements of operations, shareholders’ equity, and cash flows for the years ended December 31, 2011 and December 31,2010 and for the period from March 6, 2009 (Inception) through December 31, 2009. These financial statements are the responsibility of the Company’smanagement. 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 thatwe plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonablebasis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Recovery Energy, Inc.and subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for the years ended December 31, 2011 andDecember 31, 2010 and for the period from March 6, 2009 (Inception) through December 31, 2009, in conformity with U.S. generally accepted accountingprinciples. /s/ HEIN & ASSOCIATES LLP Denver, Colorado March 19, 2012 F-1 RECOVERY ENERGY, INC.CONSOLIDATED BALANCE SHEETS December 31, December 31, 2011 2010 ASSETS Current assets: Cash $2,707,722 $5,528,744 Restricted cash 932,165 1,150,541 Accounts receivable 2,227,466 857,554 Prepaid assets 75,376 27,772 Total current assets 5,942,729 7,564,611 Oil and gas properties (full cost method), at cost: Unevaluated properties 45,697,481 33,605,594 Evaluated properties 32,113,143 26,307,975 Wells in progress 6,425,509 1,219,397 Total oil and gas properties, at cost 84,236,133 61,132,966 Less accumulated depreciation, depletion and amortization (12,099,098) (5,003,499)Net oil and gas properties, at cost 72,137,035 56,129,467 Other assets: Office equipment, net 106,286 51,129 Prepaid advisory fees 574,160 979,449 Deferred financing costs 2,341,595 3,211,566 Restricted cash and deposits 186,055 185,707 Total other assets 3,208,096 4,427,851 Total Assets $81,287,860 $68,121,929 The accompanying notes are an integral part of these financial statements. F-2 RECOVERY ENERGY, INC.CONSOLIDATED BALANCE SHEETS December 31, December 31, 2011 2010 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $2,050,768 $968,295 Commodity price derivative liability 75,609 398,840 Related party payable 16,475 11,638 Accrued expenses 1,354,204 1,540,592 Short-term note 1,150,967 208,881 Total current liabilities 4,648,023 3,128,246 Asset retirement obligation 612,874 507,280 Term-note payable 20,129,670 20,229,801 Convertible notes payable, net of discount 4,929,068 - Convertible notes conversion derivative liability 1,300,000 - Total long-term liabilities 26,971,612 20,737,081 Total liabilities 31,619,635 23,865,327 Commitments and contingencies – Note 8 - - Preferred stock, 10,000,000 authorized, none issued and outstanding as of December 31, 2011 and 2010. - - Common stock subject to redemption rights, $0.0001 par value; 0 and 10,625 shares issued andoutstanding as of December 31, 2011 and December 31, 2010, respectively - 86,257 Common Stock, $0.0001 par value: 100,000,000 shares authorized; 17,436,825 and 14,453,592 sharesissued and outstanding (excluding 0 and 10,625 shares subject to redemption) as of December 31, 2011 andDecember 31, 2010, respectively 1,744 1,445 Additional paid-in capital 118,146,119 93,819,314 Accumulated deficit (68,479,638) (49,650,414)Total shareholders' equity 49,668,225 44,170,345 Total liabilities and shareholders' equity $81,287,860 $68,121,929 The accompanying notes are an integral part of these financial statements. F-3 RECOVERY ENERGY, INC.CONSOLIDATED STATEMENTS OF OPERATIONS Year EndedDecember 31, 2011 Year Ended December 31,2010 March 6, 2009(Inception) throughDecember 31, 2009 Revenues: Oil sales $7,148,110 $9,504,737 $- Gas sales 547,190 68,075 - Operating fees 117,360 13,487 - Realized gain on price hedges 625,043 570,233 - Unrealizedlosses price hedges (75,609) (398,840) - Total revenues 8,362,094 9,757,692 - Costs and expenses: Production costs 1,514,784 862,042 - Production taxes 838,714 1,056,244 - General and administrative (includes non-cash consideration of $6,656,152,$13,097,346, and $684,778 for the periods ended December 31, 2011, 2010 and2009) 10,544,347 15,530,248 1,057,306 Depreciation, depletion,accretion, and amortization 4,347,117 5,036,648 - Impairment of equipment - - 2,750,000 Impairment of evaluated properties 2,821,176 - - Bad debt expense - 400,000 - Fair value of common stock and warrants issued in aborted property acquisitions - - 8,404,106 Restructuring and related consulting costs - - 17,700,000 Total costs and expenses 20,066,138 22,885,182 29,911,412 Loss from operations (11,704,044) (13,127,490) (29,911,412) Other income 71,253 - - Convertible notes conversion derivative gain 3,821,792 - - Interest expense (includes non-cash interest expense of $ 4,993,997,$3,989,649, and $0 for the periods ended December 31, 2011, 2010 and 2009) (8,218,225) (6,640,209) 31 Unrealized gain on lock-up - 28,666 - Debt inducement expense (2,800,000) - - Net loss $(18,829,224) $(19,739,033) $(29,911,381) Earnings per common share Basic and diluted $(1.21) $(2.15) $(12.19) Weighted average shares outstanding: Basic and diluted 15,543,758 9,167,803 2,453,921 The accompanying notes are an integral part of these financial statements. F-4 RECOVERY ENERGY, INC.CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITYFor the year ended December 31, 2011, December 31, 2010 and from March 6, 2009 (Inception) through December 31, 2009 Common Stock Subject to Redemption Common Stock Shares Amount Shares Amount AdditionalPaid-InCapital AccumulatedDeficit Total Balance, March6, 2009(Inception) $- - - $- $- $- $- Common stockissued in reversemerger - - 524,750 52 (33,957) - (33,905) Common stockissued inexchange of debt - - 525,000 53 3,249,790 - 3,249,843 Common stockissued in lock-upagreement 21,250 172,516 - - - - - Common stockissued inrestructuring - - 1,250,000 125 17,499,500 - 17,499,625 Common stockissued inattemptedacquisition - - 425,000 43 5,824,830 - 5,824,873 Common stockissued for cash - - 31,250 3 499,988 - 499,991 Restricted stockand performanceoptions issued toemployees anddirectors - - - - 684,778 - 684,778 Warrants issuedfor financingcommitment - - - - 3,329,106 - 3,329,106 Common stockreacquired inattemptedacquisition - - (62,500) (6) (749,975) - (749,981) 1:4 Reverse stocksplit - - - - 808 - 808 Net loss - - - - - (29,911,381) (29,911,381) Balance,December 31,2009 21,250 172,516 2,693,500 269 30,304,868 (29,911,381) 393,756 Common stockissued forpropertyacquisitions - - 2,929,167 293 15,786,328 - 15,786,621 Common stockissued inconnection withfinancingpropertyacquisitions - - 1,250,000 125 5,249,500 - 5,249,625 Common stockissued for cash - - 3,978,789 398 14,924,142 - 14,924,540 Common stockissued forservices - - 502,216 50 2,256,038 - 2,256,088 Restricted stockissued toemployees anddirectors - - 2,235,797 223 8,375,327 - 8,375,550 Warrantsexercised forcash - - 853,500 85 5,120,658 - 5,120,743 Warrants issuedfor cash,services and fees - - - - 11,712,671 - 11,712,671 Common stockno longer subjectto redemption (10,625) (86,258) 10,625 1 86,258 - 86,258 1:4 Reverse stocksplit - - - - 3,525 - 3,525 Net loss - - - - - (19,739,033) (19,739,033) Balance,December 31,2010 10,625 86,258 14,453,593 1,444 93,819,315 (49,650,414) 44,170,344 1:4 Reverse stocksplit - - - - 387 - 387 Common stockissued forpropertyacquisitions - - 2,269,543 228 10,895,665 - 10,895,893 Common stockno longer subjectto redemption (1) (10,625) (86,258) 10,625 1 86,254 - 86,255 Common stockissued inconnection withinterest paymentof the financing - - 78,982 8 559,863 - 559,872 Common stockissued forservices - - 10,000 1 81,996 - 81,997 Restricted stockissued toemployees anddirectors - - 238,750 24 6,161,041 - 6,161,065 Warrants issuedfor cash - - 375,333 38 2,129,801 - 2,129,804 Warrants issuedfor debt extension - - - - 1,611,797 1,611,832 Debt conversionexpense - - - - 2,800,000 - 2,800,000 Net loss - - - - - (18,829,224) (18,829,224) Balance,December 31,2011 - - 17,436,825 $1,744 $118,146,119 $(68,479,638) $49,668,225 The accompanying notes are an integral part of these financial statements. F-5 RECOVERY ENERGY, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31,2011 Year Ended December 31,2010 March 6, 2009(Inception) throughDecember 31, 2009 Cash flows from operating activities: Net loss $(18,829,224) $(19,739,033) $(29,911,381)Adjustments to reconcile net loss to net cash provided by operating activities: Impairment of equipment - - 2,750,000 Impairment of evaluated properties 2,821,176 - - Debt inducement and warrant modification expense 2,800,000 2,953,450 - Common stock issued for convertible note interest 559,873 - - Bad debt expense - 400,000 - Common stock for services and compensation 6,566,152 8,701,263 884,778 Fair value of warrants issued - - 3,329,106 Non-cash restructuring costs - - 17,500,000 Loss on aborted property acquisitions - - 5,075,000 Changes in the fair value of commodity price derivatives (549,434) 398,840 - Compensation expense recognized for assignment of overrides - 1,578,080 - Amortization of deferred financing costs 4,446,911 3,989,649 - Change in fair value of convertible notes conversion derivative (3,821,792) - Depreciation, depletion, and amortization and accretion of asset retirement obligation 4,347,117 5,036,648 - Changes in operating assets and liabilities: Accounts receivable 73,940 (757,554) (100,000)Restricted cash 218,376 (1,129,665) (20,876)Other assets 39,451 (34,066) 15,627 Accounts payable and other accrued expenses 757,207 2,361,082 96,507 Net cash provided by (used in) operating activities (570,247) 3,758,694 (381,239) Cash flows from investing activities: Additions of evaluated properties and equipment (net of purchase price adjustment) - (25,580,793) - Acquisition of unevaluated properties (9,433,073) (18,560,412) - Drilling capital expenditures (7,017,523) (4,637,111) - Sale of unevaluated property interests 3,000,000 2,000,000 1,500,000 Sale of drilling rigs - 100,000 - Additions of office equipment (83,727) (55,767) (750,470)Proceeds from hedge settlement 226,203 - - Investment in operating bonds (348) (75,675) (109,891)Net cash provided by (used in) investing activities (13,308,468) (46,809,758) 639,639 Cash flows from financing activities: Proceeds from sale of common stock, units and exercise of warrants 2,129,870 28,132,727 500,000 Proceeds from debt 9,411,597 28,500,000 - Common stock reacquired in attempted Church acquisition - - (750,000)Common stock issuable - (100,000) 100,000 Payment of debt (483,774) (8,061,319) - Net cash provided by (used in) financing activities 11,057,693 48,471,408 (150,000) Net increase in cash and cash equivalents (2,821,023) 5,420,344 108,400 Cash and cash equivalents, beginning of period 5,528,744 108,400 - Cash and cash equivalents, end of period $2,707,722 $5,528,744 $108,400 F-6 Supplemental disclosure of non-cash investing and financing activities: Cash paid for interest $3,201,312 $2,655,131 $- Cash paid for income taxes $- $- $- Non-cash transactions: Purchase of rigs for note payable $- $- $3,250,000 Sale of property for receivable $1,443,852 $- $- Debt issuance cost $400,000 $- $- Purchase of properties for common stock $10,895,893 $15,787,500 $8,025,000 Stock and warrants issued for deferred financing costs $1,611,832 $6,867,735 $- Stock and warrants issued for prepaid financial advisory fees $- $1,234,510 $- Stock and warrants issued for prepaid financial office rent $81,997 $- $- Default on note in property acquisition $- $- $(2,200,000)Property additions for asset retirement obligation $61,469 $479,238 $- Stock issued for payment on long-term debt $559,872 $- $- The accompanying notes are an integral part of these financial statements. F-7 RECOVERY ENERGY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 1 – ORGANIZATIONOn September 21, 2009, Universal Holdings, Inc. (“Universal”), a Nevada corporation, completed the acquisition of Coronado Acquisitions, LLC(“Coronado”). Under the terms of the acquisition, Coronado was merged into Universal. On October 12, 2009, Universal changed its name to RecoveryEnergy, Inc. (“Recovery”, “Recovery Energy”, “we”, “our”, and the “Company”). The Agreement was accounted for as a reverse acquisition with Coronadobeing treated as the acquirer for accounting purposes. Accordingly, the financial statements of Coronado have been adopted as the historical financialstatements of Recovery.The Company is an independent oil and gas exploration and production company focused on the Denver-Julesburg Basin (“DJ Basin”) where it holds 130,000net acres. Recovery drills for, operates and produces oil and natural gas wells through the Company’s land holdings located in Wyoming, Colorado, andNebraska.All common stock share information is retroactively adjusted for the effect of a 4:1 reverse stock split that was effective October 19, 2011.NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Principles of ConsolidationThe financial statements included herein were prepared from the records of the Company in accordance with generally accepted accounting principles in theUnited States ("GAAP") and reflect all normal recurring adjustments which are, in the opinion of management, necessary to provide a fair statement of theresults of operations and financial position for the interim periods. Certain amounts in the December 31, 2010 consolidated financial statements have been reclassified to conform to the December 31, 2011 consolidatedfinancial statement presentation. Such reclassifications had no effect on net income.Use of Estimates in the Preparation of Financial StatementsThe preparation of the financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reportedamounts of oil and gas reserves, assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates based on historical experience and onvarious other factors that the Company believes to be reasonable under the circumstances. Actual results could differ from those estimates.Our most significant financial estimates are associated with our estimated proved oil and gas reserves as well as valuation of common stock used in variousissuances of common stock, options and warrants. Significant financial estimates are also required for the analysis of impairment of oil and gas properties. Principle of ConsolidationThe accompanying consolidated financial statements include Recovery Energy, Inc. and its wholly−owned subsidiaries Recovery Oil and Gas, LLC, andRecovery Energy Services, LLC. All intercompany accounts and transactions have been eliminated in consolidation. Both subsidiaries were inactive and weredissolved in the 4th quarter of 2011.Liquidity Cash used in operating activities during the year ended December 31, 2011 was $.6 million and cash used in investing activities exceeded cash provided byfinancing activities by approximately $2.2 million. This net cash use contributed to a substantial decrease in our net working capital as of December 31,2011. Expenditures subsequent to December 31, 2011 have continued to exceed cash receipts, causing a further reduction of the Company’s working capitalposition. F-8 In the immediate term, the Company expects that additional capital will be required to fund its capital budget for 2012, partially to fund some of its ongoingoverhead, and to provide additional capital to generally improve its working capital position. We anticipate that these capital requirements will be funded by acombination of capital raising activities, including the selling of additional debt and/or equity securities and the selling of certain assets. If we are notsuccessful in obtaining sufficient cash sources to fund the aforementioned capital requirements, we may be required to curtail our expenditures, restructure ouroperations, sell assets on terms which may not be deemed favorable and/or curtail other aspects of our operations, including deferring portions of our 2012capital budget.Pursuant to our credit agreements with Hexagon, a substantial portion of our monthly net revenues derived from our producing properties is required to be usedfor debt and interest payments. In addition, our debt instruments contain provisions that, absent consent of the Lenders, may restrict our ability to raiseadditional capital.Since inception, the Company raised approximately $72 million in cash generally through private placements of debt and equity securities. In December 2011,the Company sold certain undeveloped acreage for total proceeds of $4.5 million. During 2011, Hexagon agreed to temporarily suspend for five months therequirement to remit monthly net revenues of approximately $2,000,000 in the aggregate as payment on the Hexagon debt. In November 2011, Hexagonextended the maturity date of their notes to January 1, 2013, and also advanced an additional $309,000 to the Company. The Company repaid the $309,000advance in February 2012. In March 2012, Hexagon extended the maturity date of their notes to June 30, 2013, and in connection therewith, the Companyagreed to make minimum note payments of $325,000, effective immediately. The Company will continue to pursue alternatives to shore up its workingcapital position and to provide funding for its planned 2012 expenditures. Cash and Cash Equivalents Cash and cash equivalents include cash in banks and highly liquid debt securities which have original maturities of 90 days or less at the purchase date.Restricted CashRestricted cash consists of severance and ad valorem tax proceeds which are payable to various tax authorities and amounts restricted pursuant to our loanagreements.Accounts ReceivableThe Company records estimated oil and gas revenue receivable from third parties at its net revenue interest. The Company also reflects costs incurred onbehalf of joint interest partners in accounts receivable. Management periodically reviews accounts receivable amounts for collectability and records itsallowance for uncollectible receivables under the specific identification method. The Company did not record any allowance for uncollectible receivables foryears ended December 31, 2011or December 31, 2010. Receivables which derive from sales of certain oil and gas production are collateral for our LoanAgreements (see Note 7).During the year ended December 31, 2010, the Company wrote off a note receivable for $400,000 as a bad debt expense (see Note 13). During the year endedDecember 31, 2011 and period ended December 31, 2009, no receivable amounts were written off to bad debt expense.Assets Held For Sale Assets held for sale are recorded at the lower of cost or estimated net realizable value. As of December 31, 2011 and 2010, the Company did not have anyassets held for sale. F-9 Concentration of Credit Risk The Company's cash, cash equivalents and short-term investments are invested at major financial institutions primarily within the United States. AtDecember 31, 2011 and December 2010, the Company’s cash and cash equivalents were maintained in accounts that are insured up to the limit determined bythe federal governmental agency. The Company may at times have balances in excess of the federally insured limits. The Company's receivables are comprised of oil and gas revenue receivables and joint interest billings receivable. The amounts are due from a limited numberof entities. Therefore, the collectability is dependent upon the general economic conditions of the few purchasers and joint interest owners. The receivables arenot collateralized. However, to date the Company has had minimal bad debts.Significant Customers During the year ended December 31, 2011 and December 31, 2010, approximately 76% and 64%, respectively, of the Company's revenue sold to onecustomer, Shell Trading (US). However, the Company does not believe that the loss of a single purchaser, including Shell Trading (US), would materiallyaffect the Company's business because there are numerous other purchasers in the area in which the Company sells its production.Oil and Gas Producing Activities The Company follows the full cost method of accounting for oil and gas operations whereby all costs related to the exploration, development and acquisition ofoil and natural gas reserves are capitalized. Such costs include land acquisition costs, geological and geophysical expenses, carrying charges on non-producingproperties, costs of drilling, developing and completing productive wells and/or plugging and abandoning non-productive wells, and any other costs directlyrelated to acquisition and exploration activities. Proceeds from property sales are generally applied as a credit against capitalized exploration and developmentcosts, with no gain or loss recognized, unless such a sale would significantly alter the relationship between capitalized costs and the proved reservesattributable to these costs. A significant alteration would typically involve a sale of 25% or more of proved reserves. Depletion of exploration and development costs and depreciation of production equipment is computed using the units-of-production method based uponestimated proved oil and gas reserves. Costs included in the depletion base to be amortized include (a) all proved capitalized costs including capitalized assetretirement costs net of estimated salvage values, less accumulated depletion, (b) estimated future development cost to be incurred in developing provedreserves, and (c) estimated dismantlement and abandonment costs, net of estimated salvage values, that are not otherwise included in capitalized costs. Under the full cost method of accounting, capitalized oil and gas property costs less accumulated depletion and net of deferred income taxes may not exceed anamount equal to sum of i.) the present value, discounted at 10%, of estimated future net revenues from proved oil and gas reserves, plus ii.) the cost ofunproved properties not subject to amortization (without regard to estimates of fair value), or estimated fair value, if lower, of unproved properties that are notsubject to amortization. Should capitalized costs exceed this ceiling, an impairment expense is recognized. As of December 31, 2011, the Company recognizedan impairment of $2,821,176. During the year ended December 31, 2010 and period ended December 31, 2009, no impairment charges were recognized.The present value of estimated future net revenues was computed by applying a twelve month average of the first day of the month price of oil and gas toestimated future production of proved oil and gas reserves as of period-end, less estimated future expenditures to be incurred in developing and producing theproved reserves (assuming the continuation of existing economic conditions), less any applicable future taxes.Unproved PropertiesThe costs of unproved properties are withheld from the depletion base until it is determined whether or not proved reserves can be assigned to the properties.The properties are reviewed quarterly for impairment. When proved reserves are assigned to such properties or one or more specific properties are deemed to beimpaired, the cost of such properties or the amount of the impairment is added to costs subject to depletion calculations. During the year ended December 31,2011, the Company impaired $3,861,875 of unproved property value. During the years ending December 31, 2010 and December 31, 2009, no impairmentwas recorded. F-10 Wells in Progress Wells in progress represent wells that are currently in the process of being drilled or completed or otherwise under evaluation as to their potential to produce oiland gas reserves in commercial quantities. Such wells continue to be classified as wells in progress and withheld from the depletion calculation and the ceilingtest until such time as either proved reserves can be assigned, or the wells are otherwise abandoned. Upon either the assignment of proved reserves orabandonment, the costs for these wells are then transferred to exploration and development costs and become subject to both depletion and the ceiling testcalculations in future periods. At December 31, 2011, the Company had two wells in progress, both of which have been drilled and completed and are pendingevaluation as to their potential to produce commercial quantities of oil and gas reserves.Deferred Financing Costs As of December 31, 2011 and December 31, 2010, the Company recorded unamortized deferred financing costs of approximately $2.3 million and $3.2million, respectively, related to the closing of its loans and credit agreements (see Note 7). Deferred financing costs include origination (warrants issued andoverriding royalty interests assigned to our lender), legal and engineering fees incurred in connection with the Company's credit facility, which are beingamortized over the term of the credit facility. The Company recorded amortization expense of approximately $5.0 million and $4.0 million, respectively, in theyears ended December 31, 2011 and December 31, 2010.Prepaid Advisory Fees The Company accounts for prepaid advisory services with the total consideration amortized over the underlying service agreement period. As of December 31,2011 and 2010 prepaid financial advisory fees were approximately $574,000 and $979,000, respectively. The prepaid fees were paid with non-cashconsideration (shares of our common stock and warrants exercisable for shares of our common stock issued to our financial advisors) initially issued in 2010in the amount of $1,234,000. This amount is being amortized over the term of the underlying agreement. The Company amortized $405,000 and $247,000,respectively of prepaid fees during the years ended December 31, 2011 and December 31, 2010. The following schedule details the future expense of the prepaid advisory fees.2012 $405,289 2013 168,871 Total $574,160 Property and EquipmentProperty and equipment (other than the full cost pool) are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful livesof the assets. The estimated useful lives of property and equipment range from one to 7 years. The Company recorded $34,000 and $5,000 of depreciation forthe years ended December 31, 2011 and December 31, 2010, respectively.Impairment of Long-lived Assets The Company accounts for long-lived assets (other than the full cost pool), which include property and equipment, prepaid advisory fees, and identifiableintangible assets with finite useful lives (subject to amortization, depletion, and depreciation), whenever events or changes in circumstances indicate that thecarrying amount of an asset may not be recoverable. Recoverability is measured by comparing the carrying amount of an asset to the expected undiscountedfuture net cash flows generated by the asset. If it is determined that the asset may not be recoverable, and if the carrying amount of an asset exceeds itsestimated fair value, an impairment charge is recognized to the extent of the difference. F-11 For the period ended December 31, 2009, the Company recorded impairment expense of $2,750,000 related to the two medium depth drilling rigs. As ofDecember 31, 2011 and 2010, no impairment has been recorded for long lived assets other than the impairment of its capitalized oil and gas property costsduring 2011 as discussed above.Fair Value of Financial InstrumentsAs of December 31, 2011 and 2010, the carrying value of cash and cash equivalents, short-term investments, accounts receivable, accounts payable, accruedexpenses, interest payable and customer deposits approximates fair value due to the short-term nature of such items. The carrying value of other long-termliabilities approximates fair value as the related interest rates approximate rates currently available to Recovery Energy, certain other assets and liabilities aremeasured at fair value as discussed in Note 6.Commodity Derivative InstrumentThe Company utilizes swaps to reduce the effect of price changes on a portion of our future oil production. On a monthly basis, a swap requires us to pay thecounterparty if the settlement price exceeds the strike price and the same counterparty is required to pay us if the settlement price is less than the strike price.The objective of the Company's use of derivative financial instruments is to achieve more predictable cash flows in an environment of volatile oil and gasprices and to manage its exposure to commodity price risk. While the use of these derivative instruments limits the downside risk of adverse price movements,such use may also limit the Company's ability to benefit from favorable price movements. The Company may, from time to time, add incremental derivativecontracts to hedge additional production, restructure existing derivative contracts or enter into new transactions to modify the terms of current contracts inorder to realize the current value of the Company's existing positions (see Note 5). The use of derivatives involves the risk that the counterparties to such instruments will be unable to meet the financial terms of such contracts. TheCompany's derivative contracts are currently with one counterparty. The Company has netting arrangements with the counterparty that provide for the offsetof payables against receivables from separate derivative arrangements with the counterparty in the event of contract termination. The derivative contracts maybe terminated by a non-defaulting party in the event of default by one of the parties to the agreement (see Note 5). Revenue Recognition The Company recognizes oil and gas revenues from its interests in producing wells when production is delivered to, and title has transferred to, the purchaserand to the extent the selling price is reasonably determinable.Asset Retirement Obligation The Company incurs retirement obligations for certain assets at the time they are placed in service. The fair values of these obligations are recorded asliabilities on a discounted basis. The costs associated with these liabilities are capitalized as part of the related assets and depreciated. Over time, the liabilitiesare accreted for the change in their present value.For purposes of depletion calculations, the Company also includes estimated dismantlement and abandonment costs, net of salvage values, associated withfuture development activities that have not yet been capitalized as asset retirement obligations.Asset retirement obligations incurred are classified as Level 3 (unobservable inputs) fair value measurements. The asset retirement liability is allocated tooperating expense using a systematic and rational method. As of December 31, 2011 and 2010, the Company recorded a net asset of $592,150 and $540,707and a related liability of $612,874 and $507,280 (see Note 6). F-12 The information below reconciles the value of the asset retirement obligation for the periods presented: For the years ended December 31, 2011 2010 Balance, beginning of period $507,280 - Liabilities incurred 61,469 478,208 Accretion expense 44,125 28,042 Change in estimate - 1,030 Balance, end of period $612,874 $507,280 Share Based Compensation The Company measures the fair value of share-based compensation expense awards made to employees and directors, including stock options, restrictedstock and employee stock purchases related to employee stock purchase plans, on the date of grant using an option-pricing model. The value of the portion ofthe award that is ultimately expected to vest is recognized as an expense ratably over the requisite service periods. The measurement of share-basedcompensation expense is based on several criteria, including but not limited to the valuation model used and associated input factors, such as expected term ofthe award, stock price volatility, risk free interest rate, dividend rate and award cancellation rate. These inputs are subjective and are determined usingmanagement’s judgment. If differences arise between the assumptions used in determining share-based compensation expense and the actual factors, whichbecome known over time, Recovery may change the input factors used in determining future share-based compensation expense.Recovery accounts for option grants to non-employees whereby the fair value of such options is determined using the Black-Scholes option pricing model at theearlier of the date at which the non-employee’s performance is complete or a performance commitment is reached (Note 12).Warrant Modification Expense The Company accounts for the modification of warrants as an exchange of the old award for a new award. The incremental value is measured as the excess, ifany, of the fair value of the modified award over the fair value of the original award immediately before modification, and is either expensed as a periodexpense or amortized over the performance or vesting date. We estimate the incremental value of each warrant using the Black-Scholes option pricing model.The Black-Scholes model is highly complex and dependent on key estimates by management. The estimate with the greatest degree of subjective judgment isthe estimated volatility of our stock price (Note 12).Loss per Common Share Basic earnings (loss) per share is based on the weighted average number of common shares outstanding during the period presented. In addition to commonshares outstanding, diluted loss per share is computed using the weighted-average number of common shares outstanding plus the number of common sharesthat would be issued assuming exercise or conversion of all potentially dilutive common shares. Potentially dilutive securities, such as stock grants and stockpurchase warrants, are excluded from the calculation when their effect would be anti-dilutive. For the years ended December 31, 2011 and December 31, 2010,outstanding warrants and derivatives of 5,638,900 and 5,764,233, respectively, have been excluded from the diluted share calculations as they were anti-dilutive as a result of net losses incurred. Accordingly, basic shares equal diluted shares for all periods presented. On October 16, 2011, the Companyaffected a 4:1 reverse stock split. F-13 Income Taxes For tax reporting, the Company continues to file its tax returns on an April 30 year end, which is the legal tax year end of its predecessor. The Company uses the asset liability method in accounting for income taxes. Deferred tax assets and liabilities are recognized for temporary differencesbetween financial statement carrying amounts and the tax bases of assets and liabilities, and are measured using the tax rates expected to be in effect when thedifferences reverse. Deferred tax assets are also recognized for operating loss and tax credit carry forwards. The effect on deferred tax assets and liabilities of achange in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is used to reduce deferred taxassets when uncertainty exists regarding their realization.We recognize tax benefits only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized ismeasured as the largest amount of benefit that is greater than 50 percent likely to be realized upon settlement. A liability for “unrecognized tax benefits” isrecorded for any tax benefits claimed in our tax returns that do not meet these recognition and measurement standards. As of December 31, 2011, theCompany has determined that no liability is required to be recognized.Our policy is to recognize any interest and penalties related to unrecognized tax benefits in income tax expense. However, we did not accrue interest or penaltiesat December 31, 2011 and December 31, 2010, because the jurisdiction in which we have unrecognized tax benefits does not currently impose interest onunderpayments of tax and we believe that we are below the minimum statutory threshold for imposition of penalties. We do not expect that the total amount ofunrecognized tax benefits will significantly increase or decrease during the next 12 months. The earliest years remaining subject to examination are April 30,2010 and 2009.Recently Issued Accounting Pronouncements The Company did not adopt any new authoritative guidance for the year ended December 31, 2011 that had a material impact on its financial statements.NOTE 3 – OIL AND GAS PROPERTIES & OIL AND GAS PROPERTIES ACQUISITIONS AND DIVESTITURESDJ Basin Properties Acquisitions – Accounted for as a Business CombinationDuring the fourth quarter of 2009, the Company pursued a number of acquisition opportunities. The Company entered into two purchase and sale agreementswith Edward Mike Davis, LLC and affiliates (“Davis”) for the purchase of multiple oil and gas properties. The Company was not successful in fulfilling therequirements under the purchase and sale agreements and forfeited 1,450,000 shares of our common stock with an estimated fair value of $5,075,000.In January 2010, the Company acquired the Wilke Field from Davis for $4,500,000. The Company simultaneously entered into a credit agreement withHexagon to finance 100% of the purchase of the Wilke Field properties. Hexagon received 1,000,000 shares of the Company's common stock in connectionwith the financing. The Company recorded $2.25 million in deferred financing costs related to the shares issued in conjunction with the loan (see Note 7). In March 2010, the Company acquired the Albin Field properties from Davis for $6,000,000 and 550,000 shares of common stock with an estimated fairvalue of $412,500. The Company simultaneously entered into a loan agreement with Hexagon to finance 100% of the cash portion of the purchase price. TheCompany recorded approximately $737,822 in deferred financing costs related to 750,000 shares of the Company’s common stock and a one-half percentoverriding royalty in the leases and wells in connection with the financing from Hexagon (see Note 7). F-14 In April 2010, the Company acquired the State Line Field properties from Davis for $15,000,000 and 2,500,000 shares of common stock with an approximatefair value of $1,875,000. The Company simultaneously entered into a loan agreement with Hexagon to finance 100% of the cash portion of the purchaseprice. The Company recorded approximately $2,780,775 in deferred financing costs related to 3,250,000 shares of the Company’s common stock,2,000,000 warrants to acquire the Company’s common stock at $2.50 per share and a one percent overriding royalty interest in connection with the financingfrom Hexagon (see Note 7).All three of the acquisitions above were recorded at their fair values as of the acquisition date. The following table summarizes the fair values of assetsacquired and liabilities assumed for each acquisition as of the related acquisition date: Wilke Field Albin Field State Line Field Consideration given: Cash payment funded by debt $4,500,000 $6,000,000 $15,000,000 Stock - 412,500 1,875,000 Total consideration attributable to allocation $4,500,000 $6,412,500 $16,875,000 Allocation of purchase price: Proved oil and gas properties $4,418,267 $4,675,099 $15,529,268 Unproved oil and gas properties 83,200 1,791,619 1,070,975 Total fair value of oil and gas properties acquired 4,501,467 6,466,718 16,600,243 Oil and gas revenue receivable 195,594 - - Total assets 4,697,061 6,466,718 16,600,243 Accounts payable - - (52,147)Asset retirement obligation (197,061) (54,218) (149,151) Total liabilities acquired (197,061) (54,218) (201,298) Net assets acquired $4,500,000 $6,412,500 $16,398,945 Supplemental information: Value attributable to ORRI paid to lender $- $(175,322) $(158,685)Value attributable to ORRI awarded to management $(125,220) $(701,290) $(317,370) The following unaudited supplemental pro forma information presents the results of operations for the years ended December 31, 2010 and 2009, as if theWilke, Albin, and State Line acquisitions had occurred as of the earliest period presented, January 1, 2009. These unaudited pro forma results of operationsare based on the historical financial statements and related notes of the Company, and the related historical audited statements of revenue and direct expensesfor the Wilke, Albin and State Line acquisitions included in the related filings on Form 8-K. These pro forma results of operations contain adjustments todepreciation, depletion and amortization for the effects of purchase price allocation, and to interest expense and amortization of deferred financing costs relatedto financing the acquisitions. The pro forma results are presented for informational purposes only and are not necessarily indicative of what actually wouldhave occurred if the acquisitions had been completed as of the beginning of the period, nor are they necessarily indicative of future results. F-15 For the Year Ended December 31, 2010 2009 (Unaudited) (Unaudited) Operating revenues $12,941,108 $6,070,500 Operating loss $(10,599,304) $(29,001,745) Net loss $(19,063,015) $(33,489,536) Pro forma loss per common share: Basic and diluted $(2.08) $(12.92) Also in May 2010, the Company acquired additional undeveloped leasehold acreage and certain overriding royalty interests on existing Company ownedacreage and wells in the DJ Basin from Davis for 2,000,000 shares of common stock valued at $1,500,000 and a cash payment of $20 million.In August 2010, the Company farmed into approximately 240 net acres in exchange for carrying Davis, the lease owner, for a 26% working interest in onewell, which has been drilled. The Company also farmed into approximately 533 net acres in the state of Nebraska in exchange for carrying Davis, the leaseowner, for a 33% working interest in one well which has been drilled.In November 2010, the Company purchased certain oil and gas interests of approximately 33,800 net acres located in Laramie County and Goshen County,Wyoming, and Banner County, Kimball County, and Scotts Bluff County, Nebraska from Davis. Additionally, the Company acquired rights below the baseof the Greenhorn on approximately 23,000 net acres in Laramie County and Goshen County, Wyoming, and Banner County and Kimball County, Nebraska. The Company issued 6,666,667 shares of our common stock to acquire the property with an estimated fair value of approximately $12,000,000.In December 2010, the Company entered into an acquisition and development agreement with TRW Exploration, LLC (a related party, see note 9) wherebyTRW paid $2,000,000 for the purchases of an interest in approximately 2,000 net undeveloped acres and also agreed to carry the Company’s 40% interest intwo horizontal wells to be drilled on lands defined by the agreement. TRW subsequently funded the drilling and completion costs of two horizontal wells on thelands covered by the leases, at a total cost of approximately $7 million. This agreement was terminated in December, 2011 and TRW sold back its interest inthe wells along with all of its rights to the undeveloped acreage, in consideration for the issuance by the Company of 1,500,000 shares of unregistered commonstock valued at $4,875,000. Additional amounts were incurred in drilling the wells and were paid by the Company. The Company allocated $2 million of thispurchase price to the undeveloped leases, and the remainder to the purchase of the two wells.The two wells are in progress and currently being evaluated as to their potential to establish commercial production of oil and gas. These wells are carried aswells in progress as of December 31, 2011 at a total cost of $6.4 million. F-16 In February 2011, the Company purchased undeveloped oil and gas leases from various private individuals for $1,253,780 in cash and $653,449 in stockin the Grover Field and surrounding area in Weld County, Colorado, and Goshen County, Wyoming.In March 2011, the Company purchased undeveloped oil and gas interests located in Laramie County, Wyoming. The purchase price was $6,469,552 cashand shares of common stock valued at $5,798,546 in stock. The Company also closed on two acquisitions of undeveloped oil and gas leases from variousprivate individuals for a combined $551,519 in cash in Goshen County, Wyoming.DJ Basin Properties DivestituresEffective December 31, 2011 the Company sold 2,838 net acres of undeveloped leases for consideration of approximately $4.5 million. A gain of $1.8 millionrelated to the sale of this acreage was applied as a credit to the carrying costs of evaluated oil and gas properties. Depreciation, depletion and amortization (“DD&A”) expenses related to the proved properties were approximately $4,274,215 and $5,036,000 for the yearsended December 31, 2011 and December 31, 2010, respectively. During the year ended December 31, 2011, the company impaired the carrying costs of itsevaluated oil and gas properties by $2.8 million as a result of an excess of carrying costs above the applicable ceiling threshold. Prior to January 1, 2010, theCompany did not own any oil and gas properties therefore we did not incur DD&A expense in 2009.The following table sets forth a summary of oil and gas property costs (net of divestitures) not being amortized as of December 31, 2011: As of December 31, 2011 Leasehold acquisitions 2010 $33,605,594 2011 12,091,887 Unevaluated properties 45,697,481 Wells in progress exploration 2011 6,425,509 Total $52,122,990 The Company plans to evaluate exploration costs (wells-in progress) in 2012 and will likely develop, sell or reclassify to evaluated properties its inventory ofunevaluated leasehold over the next three years. Included in its inventory of unevaluated leases are certain undeveloped leases with an approximate carryingvalue of $11 million that are being held and extended by the conducting of continuous operations on the two wells in progress. If commercial production is noteventually established in one or both of the two wells in progress, some or all of these leases may expire, and require such cases to be reclassified to evaluatedproperty and subject to the Company’s full cost lid calculation. NOTE 4 – WELLS IN PROGRESS The following table reflects the net changes in capitalized additions to wells in progress during 2010 and 2009: F-17 For the Year Ended December 31, 2011 2010 Beginning balance $1,219,254 - Additions to capital wells in progress costs 8,904,532 1,219,254 Reclassifications to proved properties (3,698,563) - Ending balance $6,425,509 $1,219,254 All wells in progress have been capitalized for less than one year.NOTE 5 - FINANCIAL INSTRUMENTS AND DERIVATIVESPeriodically, the Company enters into various commodity derivative financial instruments intended to hedge against exposure to market fluctuations of oilprices. During the year ended December 31, 2011, the Company terminated and settled certain future commodity swaps resulting in a realized gain ofapproximately $625,000.As of December 31, 2011, the Company maintained an active commodity swap for 100 barrels per day through December 31, 2012, at a price of $96.25 perbarrel. The amount of gain (loss) recognized in income related to our derivative financial instruments was as follows: For the Year Ended December 31, 2011 2010 2009(1) Realized gain on oil price hedges $625,043 $570,233 $- Unrealized loss oil price hedges $(75,609) $(398,840) $- (1) Prior to January 1, 2010, the Company did not enter any derivative financial instruments. Unrealized gains and losses resulting from derivatives are recorded at fair value on the consolidated balance sheet and changes in fair value are recognized inthe unrealized gain (loss) on hedge contracts line on the consolidated statement of operations. Realized gains and losses resulting from the contract settlement ofderivatives are recorded in the realized gain (loss) line on the consolidated statement of income. As of December 31, 2011, the Company recorded an unrealizedloss on its only active swap of $75,609. NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTSThe Company measures fair value of its financial assets on a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies inmeasuring fair value: ● Level 1 – Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.● Level 2 – Include other inputs that are directly or indirectly observable in the marketplace.● Level 3 – Unobservable inputs which are supported by little or no market activity. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fairvalue. F-18 The Company measures its cash equivalents and investments at fair value. The Company’s cash equivalents, short-term investments, accounts receivable,accounts payable, accrued expenses, interest payable and customer deposits are primarily classified within Level 1. Cash equivalents and short-terminvestments are valued primarily using quoted market prices utilizing market observable inputs.Derivative InstrumentsThe Company determines its estimate of the fair value of derivative instruments using a market approach based on several factors, including quoted marketprices in active markets, quotes from third parties, and the credit rating of its counterparty. The Company also performs an internal valuation to ensure thereasonableness of third-party quotes. In evaluating counterparty credit risk, the Company assessed the possibility of whether the counterparty to the derivative would default by failing to make anycontractually required payments. The Company considered that the counterparty is of substantial credit quality and has the financial resources andwillingness to meet its potential repayment obligations associated with the derivative transactions.At December 31, 2011, the types of derivative instruments utilized by the Company included commodity swaps (see Note 5). The oil derivative markets arehighly active. Although the Company’s economic hedges are valued using public indices, the instruments themselves are traded with third-party counterpartiesand are not openly traded on an exchange. As such, the Company has classified these instruments as Level 2.Asset Retirement ObligationThe income valuation technique is utilized determine the fair value of its asset retirement obligation liability at the point of inception by taking into account 1)the cost of abandoning oil and gas wells, which is based on the Company’s historical experience for similar work, or estimates from independent third-parties;2) the economic lives of its properties, which is based on estimates from reserve engineers; 3) the inflation rate; and 4) the credit adjusted risk-free rate, whichtakes into account the Company’s credit risk and the time value of money. Given the unobservable nature of the inputs, the initial measurement of the assetretirement obligation liability is deemed to use Level 3 inputs.Convertible Notes Payable Conversion FeatureIn February 2011, the Company issued in a private placement $8,400,000 aggregate principal amount of three year 8% Senior Secured Convertible Debentures(“Debentures”) with a group of accredited investors. As of December 31, 2011, the Debentures are convertible at any time at the holders' option into shares ofRecovery Energy common stock at $4.25 per share, subject to certain adjustments, including the requirement to reset the conversion price based upon anysubsequent equity offering at a lower price per share amount. The Company engaged a third party to complete a valuation of this conversion feature as ofDecember 31, 2011 (see Note 7). The valuation was completed using Level 3 inputs.The following table provides a summary of the fair values of assets and liabilities measured at fair value: December 31, 2011 Level 1 Level 2 Level 3 Total Liability Derivative instruments $- $(75,609) $- $(75,609)Convertible notes payable Conversion feature - - (1,300,000) (1,300,000)Total liability at fair value $- $(75,609) $(1,300,000) $(1,375,609) F-19 December 31, 2010 Level 1 Level 2 Level 3 Total Liability Derivative instruments $- $(398,840) $- $(398,840)Total liability at fair value $- $(398,840) $- $(398,840) The following table provides a summary of changes in fair value of the Company’s Level 3 financial assets and liabilities as of December 31, 2011: Convertible debtfeature (1) Beginning balances, December 31, 2010 - Additions of convertible debt feature (1,300,000)Ending balance as of December 31, 2011 (1,300,000)(1) The Company entered into the convertible debt during the year ended December 31, 2011.The Company did not have any transfers of assets or liabilities between Level 1, Level 2 or Level 3 of the fair value measurement hierarchy during the twelvemonths ended December 31, 2011 and December 31, 2010. NOTE 7 - LOAN AGREEMENTSTerm NotesThe Company entered into three separate loan agreements with Hexagon Investments, LLC (“Hexagon”) during 2010. All three loans bear annual interest of15% and mature on June 30, 2013.Effective January 29, 2010, the Company entered into a $4.5 million loan agreement, with an original maturity date of December 1, 2010. Effective March25, 2010, the Company entered into a $6.0 million loan agreement, with an original maturity date of December 1, 2010. Effective April 14, 2010, theCompany entered into a $15.0 million loan agreement, with an original maturity date of December 1, 2010. All three loan agreements have similar terms,including customary representations and warranties and indemnification, and require the Company to repay the notes with the proceeds of the monthly netrevenues from the production of the acquired properties. The loans contain cross collateralization and cross default provisions and are collateralized bymortgages against a portion of the Company’s developed and undeveloped leasehold acreage as well as all related equipment purchased in the Wilke Field,Albin Field, and State Line Field acquisitions.The Company entered into a loan modification agreement on May 28, 2010, which extended the maturity date of the loans to December 1, 2011. Inconsideration for extending the maturity of the loans, Hexagon received 250,000 warrants with an exercise price of $6.00 per share. The loan modificationagreement also required the Company to issue 250,000 five year warrants to purchase common stock at $6.00 per share to Hexagon if the Company did notrepay the loans in full by January 1, 2011. Since the loans were not paid in full by January 1, 2011, the Company issued 250,000 additional warrants withan exercise price of $6.00 per share to Hexagon which was valued at approximately $1,600,000. This amount was recorded as a deferred financing cost and isbeing amortized over the remaining term of the loan. F-20 In December 2010, Hexagon extended the maturity to September 1, 2011. During the last half of 2011, Hexagon agreed to temporarily suspend for five monthsthe requirement to remit monthly net revenues in the total amount of approximately $2 million as payment on the notes. In November 2011, Hexagon extendedthe maturity to January 1, 2013. In March 2012, Hexagon agreed to extend the maturity of the notes to June 30, 2013, and in connection there with, theCompany agreed to make minimum monthly note payments of $325,000, effective immediately. In November 2011, Hexagon also temporarily advanced theCompany an additional amount of $309,000, which was repaid in full in February 2012.The Company is subject to certain financial and non-financial covenants with respect to the Hexagon loan agreements. As of December 31, 2011, theCompany was in compliance with all covenants under the facilities. If any of the covenants are violated, and the Company is unable to negotiate a waiver oramendment thereof, the lender would have the right to declare an event of default and accelerate all principal and interest outstanding.Convertible Notes PayableIn February 2011, the Company completed a private placement of $8,400,000 aggregate principal amount of three year 8% Senior Secured ConvertibleDebentures (the "Debentures") with a group of accredited investors. Initially, the Debentures were convertible at any time at the holders' option into shares ofRecovery Energy common stock at $9.40 per share, subject to certain adjustments, including the requirement to reset the conversion price based upon anysubsequent equity offering at a lower price per share amount. Interest on the Debentures is payable quarterly on each May 15, August 15, November 15 andFebruary 15 in cash or at the Company's option in shares of common stock, valued at 95% of the volume weighted average price of the common stock for the10 trading days prior to an interest payment date. The Company can redeem some or all of the Debentures at any time. The redemption price is 115% ofprincipal plus accrued interest. If the holders of the Debentures elect to convert the Debentures, following notice of redemption, the conversion price will includea make-whole premium equal to the remaining interest through the 18 month anniversary of the original issue date of the Debentures, payable in commonstock. T.R. Winston & Company LLC acted as placement agent for the private placement and received $400,000 of Debentures equal to 5% of the grossproceeds from the sale. The Company is amortizing the $400,000 over the life of the loan as deferred financing costs. The Company amortized $88,888 ofdeferred financing costs into interest expense during the year ended December 31, 2011 and has $311,112 of deferred financing costs to be amortized over astraight-line basis until January 2014.In December, 2011, the Company agreed to amend the Debentures to lower the conversion price to $4.25 from $9.40 per share. Therefore, the Debenture arecurrently convertible into shares of common stock. This amendment was consideration to the Debenture holders in exchange for their agreement to release amortgage on certain properties so the properties could be sold. The sale of these properties was completed effective December 31, 2011.The Company engaged a third party valuation firm to complete a valuation of both the conversion feature and the inducement. This valuation resulted in anestimate of the inducement expense of $2.8 million and estimate of the derivative liability as of December 31, 2011 of $1.3 million. A previous independentvaluation of the derivative liability estimated the derivative liability as of March 31, 2011 at approximately $5.1 million. The reduction in the derivative valuefrom $5.1 million as of March 31, 2011 to $1.3 million as of December 31, 2011 resulted in a derivative gain of $3.8 million during the year ended December31, 2011. As of December 31, 2011, the convertible debt is recorded as follows: As of December 31, 2011 Convertible debt 8,400,000 Debt discount (3,470,932)Total convertible debt, net 4,929,068 F-21 Annual debt maturities for our debt under our term notes and convertible notes payable obligations as of December 31, 2011 are as follows:2012 1,150,966 2013 20,129,670 2014 8,400,000 Thereafter -- Total 29,680,636 Interest ExpenseFor the years ending December 31, 2011 and December 31, 2010, the Company incurred interest expense of approximately $8,218,000 and $6,600,000,respectively, of which approximately $5.0 million and $4.0 million, respectively, were non-cash interest expense related to the amortization of the deferredfinancing costs, accretion of the convertible notes payable discount, and convertible notes payable interest paid in stock.NOTE 8 - COMMITMENTS and CONTINGENCIESEnvironmental and Governmental RegulationAt December 31, 2011, there were no known environmental or regulatory matters which are reasonably expected to result in a material liability to the Company.Many aspects of the oil and gas industry are extensively regulated by federal, state, and local governments in all areas in which the Company has operations.Regulations govern such things as drilling permits, environmental protection and pollution control, spacing of wells, the unitization and pooling of properties,reports concerning operations, royalty rates, and various other matters including taxation. Oil and gas industry legislation and administrative regulations areperiodically changed for a variety of political, economic, and other reasons. As of December 31, 2011, the Company had not been fined or cited for anyviolations of governmental regulations that would have a material adverse effect upon the financial condition of the Company.Legal ProceedingsThe Company may from time to time be involved in various other legal actions arising in the normal course of business. In the opinion of management, theCompany’s liability, if any, in these pending actions would not have a material adverse effect on the financial positions of the Company. The Company’sgeneral and administrative expenses would include amounts incurred to resolve claims made against the Company.Potential Stock Grants Under Employment/Appointment AgreementsUntil May 2010, the employment agreements for our chief executive officer and former chief financial officer contained provisions which provided theseindividuals additional stock grants if the Company achieved certain market capitalization milestones. In May 2010, the employment agreements were modifiedand our chief executive officer and former chief financial officer were no longer entitled to stock grants based on market capitalization milestones.Operating LeasesThe Company leases an office space under a one year operating lease in Denver, Colorado. Rent expense for the years ended December 31, 2011 and December31, 2010, was $82,068 and $54,500, respectively. The Company will have minimum lease payments of $72,000 for the year ending December 31, 2012. F-22 NOTE 9 - RELATED PARTY TRANSACTIONSSince its inception, five property acquisitions the Company completed have been with the same seller, Davis. As of December 31, 2011, Davis ownedapproximately 19.1 % of the common stock of the Company. The cash portion of the purchase price for the first three acquisitions was financed with loansfrom Hexagon, which owned approximately 15.7% of the stock issued and outstanding at December 31, 2011. Hexagon received overriding royalty interestsin both the Albin Field assets and the State Line Field assets. Hexagon also received warrants to purchase 500,000 shares of the Company’s common stock at$10.00 per share in connection with the financing of an acquisition and warrants to purchase 250,000 shares the Company’s common stock for $6.00 pershare in connection with amendments to the loan agreements. A representative of Hexagon also served on the Company’s Board of Directors, until hisresignation on January 31, 2012.The Company entered into an exploration and development agreement with TRW to drill two wells. The joint venture partners of TRW are also shareholders ofthe Company.NOTE 10 - INCOME TAXES The tax effects of temporary differences that gave rise to the deferred tax liabilities and deferred tax assets as of December 31, 2011 and 2010 were: 2011 2010 Deferred tax assets: Oil and gas properties and equipment $(515,123) $(1,335,490)Net operating loss carry-forward 11,291,513 7,285,426 Share based compensation 4,675,241 3,902,007 Abandonment obligation 205,145 188,728 Derivative instruments 176,514 148,384 Other (91,304) (30,896)Total deferred tax asset 15,741,986 10,158,159 Valuation allowance (15,741,986) (10,158,159)Net deferred tax asset $- $- Reconciliation of the Company’s effective tax rate to the expected federal tax rate is: 2011 2009 Effective federal tax rate 35.00% 35.00%Effect of permanent differences -7.54% -21.78%State tax rate 2.20% 2.20%Change in rate 0.00% -0.23%Other 0.00% 3.07%Valuation allowance -29.66% -18.26%Net 0% 0% F-23 At December 31, 2011 and 2010, the Company had net operating loss carry-forwards for federal income tax purposes of approximately $25,957,000 and$19,582,000, respectively,that may be offset against future taxable income. The Company has established a valuation allowance for the full amount of thedeferred tax assets as management does not currently believe that it is more likely than not that these assets will be recovered in the foreseeable future. To theextent not utilized, the net operating loss carry-forwards as of December 31, 2011 will expire in 2031.NOTE 11 - SHAREHOLDERS’ EQUITYAs of December 31, 2011, the Company had 100,000,000 shares of common stock and 10,000,000 shares of preferred stock authorized, of which17,436,825 shares of common stock were issued and outstanding. No preferred shares were issued or outstanding. Preferred shares may be issued in suchseries as Preferred as determined by the Board of Directors. No lock-up or restricted shares were outstanding as of December 31, 2011.Effective October 19, 2011, the Company completed a four-for-one reverse stock split on its common shares. All references to common stock, restrictedstock, stock warrants, and common stock prices have been adjusted to reflect the effects of the reverse stock split.In December 2011, the Company provided the 8% convertible debenture holders an inducement to convert their conversion price from $9.40 to $4.25. Aninducement expense of $2.8 million was recognized in 2011. This transaction also increased additional paid-in capital by $2.8 million. This reduction inconversion price also increased potential dilutive shares outstanding as of December 31, 2011 by 1,082,854 shares from 893,617 to 1,926,471 sharesreserved for possible conversion.In connection with this inducement, the Company entered into an amendment to our 8% senior secured convertible debentures whereby, in addition to theinducement, the mortgage on certain of the Company's oil and gas leases was released and in substitution, we granted a lien on certain replacement oil and gasleases in Nebraska and Wyoming. As partial consideration for the substitution of this collateral, the amendment also provides the holders of the debentureswith the first right of refusal to purchase up to 15% of any common stock, preferred stock or convertible debt offering by Recovery through December 31,2012 at the offering price.During the year ending December 31, 2011, the Company issued 2,983,233 shares of common stock. The stock issuances were comprised of 2,983,233shares issued for acquisitions valued at $10,896,071, 10,000 shares issued for services valued at $82,000, 238,824 shares issued as restricted stock grantsto employees valued at $6,161,111, 78,972 shares is for interest expense on the convertible notes payable valued at $559,860, 375,333 shares issued inconnection with warrant exercises for $2,903,794 of cash.In addition to the shares of common stock issued during the period, the Company issued convertible notes payable with a face value of $8.4 million. Basedupon the current conversion price of $4.25 per share, these notes would convert into 1,976,471 shares of common stock. The conversion price is subject toother adjustments (See Note 7).During the year ended December 31, 2010, the Company issued 11,749,467 shares of common stock. The stock issuances were comprised of 2,929,167shares issued for acquisitions valued at $15,787,500, 502,216 shares issued for services valued at $2,256,239, 1,250,000 shares issued in connectionwith the loan agreements valued at $5,250,000, 2,235,797 shares issued as restricted stock grants to employees valued at $10,283,622, and 3,978,788shares issued for $20,046,733 of cash. During the year ended December 31, 2010, the Company issued common shares for cash. Included in these shares was a private placement of 3,975,300 unitsat $1.50 per unit, which included one share of common stock and one common stock purchase warrant. The warrants are exercisable at $1.50 per sharethrough May 23, 2015. Warrants of 853,500 were subsequently exercised during 2010 for $5,121,000 of cash. In connection with the exercise, the Companygranted a new warrant for each warrant exercised. The new warrants have an exercise price of $8.80 per share, which was slightly greater than the concurrentmarket price of the Company's common stock, and expire on September 29, 2015. The value of the new warrants, calculated at $2,953,450 using the BlackScholes method, was expensed as a warrant modification and included in general and administrative expenses. F-24 Temporary EquityAs part of the reverse merger in 2009, 5,313 shares of common stock were issued and outstanding under a lock-up agreement that has terms which may resultin the Company reacquiring the shares due to circumstances outside of the Company’s control and therefore the shares are preferential to common shares. The5,313 shares, which were valued at $172,516, covered by the lock-up agreement were treated as temporary equity and reported separately from othershareholders’ equity. The lock-up period for 2,658 shares ended on September 21, 2010, with the other lock-up period ending on March 21, 2011. As aresult, on March 21, 2011, the final 2,658 shares covered under the lock-up agreement were moved to permanent on equity. WarrantsDuring 2010, the Company issued common shares for cash. Included in these shares was a private placement of 15,901,200 units at $1.50 per unit, whichincluded one share of common stock and one common stock purchase warrant. The warrants are exercisable at $1.50 per share through May 23, 2015.3,414,000 of these warrants were subsequently exercised during 2010 for $5,121,000 of cash. In connection with the exercise, the Company granted a newwarrant for each warrant exercised. The new warrants have an exercise price of $2.20 per share, which was slightly greater than the concurrent market price ofthe Company's common stock, and expire on September 29, 2015. The value of the new warrants, calculated at $2,953,450 using the Black Scholesmethod, was expensed as a warrant modification and included in general and administrative expensesOn January 1, 2011, the Company issued 250,000 warrants with an exercise price of $6.00 per share to Hexagon which was valued at approximately$1,600,000 (See Note7).A summary of warrant activity for the years ended December 31, 2011 and December 31, 2010 is presented below: Warrants(1) Weighted-Average Exercise Price(1) Outstanding at December 31, 2009 187,500 $14.00 Granted 6,430,233 6.68 Exercised, forfeited, or expired (853,500) 6.00 Outstanding at December 31, 2010 5,764,233 7.04 Granted 250,000 6.00 Exercised, forfeited, or expired (375,333) 6.16 Outstanding at December 31, 2011 5,638,900 $6.33 (1) On October 17, 2011, the Company performed a 4:1 reverse stock split. The values shown are reflecting the reverse stock split.The aggregate intrinsic value of warrants was approximately $0 and $6,687,000 based on the Company’s closing common stock price of $5.20 and $8.20 asof December 31, 2011 and December 31, 2010, respectively, and the weighted average remaining contract life was 3.68 years and 4.15 years. Assumptions used in estimating the fair value of the warrants issued for the periods indicated are presented below: F-25 For the years ended December 31, 2011 2010 Weighted-average volatility 97% 80%Expected dividends 0.00% 0.00%Expected term (in years) 3 – 5 3 – 5 Risk-free rate 2.02% 1.49% The Company has not adopted a stock incentive plan for its management team. Members of the board of directors and the management team are periodicallyawarded restricted stock grants. NOTE 12 - SHARE BASED COMPENSATIONThe costs of employee services received in exchange for an award of equity instruments are based on the grant-date fair value of the award, recognized over theperiod during which an employee is required to provide services in exchange for such award.During the year ended December 31, 2011, the Company granted 238,750 shares of restricted common stock to employees of which 207,016, vest during theyear ended December 31, 2011. The Company will vest restricted stock of 192,000, 120,000, and 2,500 for the years ending December 31, 2012, 2013, and2014, respectively. The fair value of these share grants was calculated to be approximately $4,370,808.The Company recognized stock compensation expense of approximately $6,161,000, $917,000 and $2,714,000 for the years ended December 31, 2011,2010 and 2009, respectively. During the year ended December 31, 2011, the Company had a one-time charge of $3,551,000 for stock compensation expensewith the grant of 481,250 shares included in the separation agreement of the former chief financial officer, which was accounted for as a cancellation of anaward and issuance of a new award.A summary of restricted stock grant activity for the year ended December 31, 2011 is presented below Shares (1) Outstanding at March 6,2009 $- Granted 371,050 Vested - Outstanding at December 31, 2009 371,050 Granted 1,864,747 Vested - Outstanding at December 31, 2010 2,235,797 Granted 932,500 Vested (828,062)Outstanding at December 31, 2011 $2,340,235 (1) On October 17, 2011, the Company affected a 4:1 reverse stock split. The values shown are reflecting the reverse stock split.The Company will recognize $1,066,000, $366,615 and $12,478 for the years ending December 31, 2012, 2013, and 2014, respectively. F-26 NOTE 13 – DRILLING RIGS In May 2009, two drilling rigs were contributed to the Company for a note of $3,250,000. These rigs were recorded at estimated fair value as this was lowerthan their predecessor cost basis. The note holder subsequently converted the note for 2,100,000 shares of common stock (Note 3). These rigs required certaincapital improvements prior to their ability to be functional in operations. In 2009, management determined that future drilling operations were not part of their strategic plans. Management estimated the net realizable value to be$500,000; therefore, an impairment of $2,750,000 was recorded for the period ending December 31, 2009. In May 2010, the Company entered into a purchase and sale agreement for the rigs. The Company sold the rigs for $700,000 under which the Companyreceived $100,000 in cash and the balance in a five-year secured note. The acquirer defaulted on the note and the Company is now pursuing the remediesafforded to it under the note and security agreement. The Company believes it is in a first lien position on the underlying collateral, however, in 2010 theCompany elected to fully reserve the $400,000 note receivable as the ability to recover the amount and the value of the underlying collateral was uncertain. NOTE 14: SUBSEQUENT EVENTS On March 19, 2012, the Company entered into agreements with its existing convertible debenture holders to extend the amount of its debenture debt by up toan additional $5.0 million. Proceeds resulting from the increase in the debentures will be used principally for the development of certain of the Company'sproved undeveloped properties, and other undeveloped leases currently targeted by the Company for exploration, as well as for other working capital purposes.Any new producing properties that are developed from the proceeds of this offering will be pledged as collateral to secure the expanded debt. The initial closing related to these agreements will be in the amount of $1.5 million and is expected to occur prior to March 23, 2012. On or before September15, 2012, convertible debenture holders may elect to purchase up to an additional $3.5 million in additional debentures. All terms of the expansion convertibledebentures are substantively identical to the existing convertible debentures (see Note 7). NOTE 15- SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (UNAUDITED) The following table sets forth information for the years ended December 31, 2011, 2010 and 2009 with respect to changes in the Company's proved(i.e. proved developed and undeveloped) reserves: Crude Oil (Bbls) Natural Gas (Mcf) December 31, 2009 - - Purchase of reserves 643,955 - Revisions of previous estimates 123,679 - Extensions and discoveries 58,463 323,493 Sale of reserves - - Production (133,709) (14,914)December 31, 2010 692,388 308,579 Purchase of reserves - - Revisions of previous estimates (268,718) (44,919)Extensions, discoveries 266,000 - Sale of reserves Production (81,433) (115,583)December 31, 2011 608,237 148,077 Proved Developed Reserves, included above: Balance, December 31, 2009 - - Balance, December 31, 2010 277,669 308,579 Balance, December 31, 2011 215,693 148,077 Proved Undeveloped Reserves, included above: Balance, December 31, 2009 - - Balance, December 31, 2010 414,719 - Balance, December 31, 2011 392,545 - F-27 The Company did not have any reserves as of December 31, 2009. As of December 31, 2011 and December 31, 2010, we had estimated proved reserves of 608,237 and 692,388 barrels of oil, respectively and 24,680 and308,579 thousand cubic feet ("MCF") of natural gas, respectively. Our reserves are comprised of 96% and 93% crude oil and 4% and 7% natural gas on anenergy equivalent basis. The following values for the December 31, 2011 and December 31, 2010 oil and gas reserves are based on the 12 month arithmetic average first of month priceJanuary through December 31 natural gas price of $3.96 and $4.39 per MMBtu (NYMEX price) and crude oil price of $88.16 and $77.78 per barrel (WestTexas Intermediate price). All prices are then further adjusted for transportation, quality and basis differentials. During the years ended December 31, 2010, the Company completed multiple acquisitions which included proved reserves associated with producingproperties. Included in the Company's December 31, 2010 proved reserves classified as 'Purchase of reserves' in the table above, are $3,760,000 and643,955 barrels of crude oil attributable to the acquisitions. The following summary sets forth the Company's future net cash flows relating to proved oil and gas: For the Year Ended December 31,(in thousands) 2011 2010 2009 (1) Future oil and gas sales $55,295 $51,816 $- Future production costs (16,579) (11,614) - Future development costs (8,481) (8,063) - Future income tax expense (2) - - - Future net cash flows 30,235 32,139 - 10% annual discount (10,221) (8,544) - Standardized measure of discounted future net cash flows $20,014 $23,595 $- (1)Prior to January 2010, the Company did not own any oil and gas assets. (2)Our calculations of the standardized measure of discounted future net cash flows include the effect of estimated future income tax expenses for all yearsreported. We expect that all of our Net Operating Loss’ (“NOL”) will be realized within future carry forward periods. All of the Company's operations, andresulting NOLs, are attributable to our oil and gas assets. There were no taxes in any year as the tax basis and NOL's exceeded the future net revenue. F-28 The principle sources of change in the standardized measure of discounted future net cash flows are: 2011 2010 2009 (1) Balance at beginning of period $23,595 $- $- Sales of oil and gas, net (5,342) (7,655) - Net change in prices and production costs 8,006 3,084 - Net change in future development costs - (4,563) - Extensions and discoveries 5,883 5,067 - Acquisition of reserves 18,967 - Sale of reserves - - Revisions of previous quantity estimates (14,804) 5,245 - Previously estimated development costs incurred - - Net change in income taxes - - Accretion of discount 2,360 2,043 - Other 316 1,407 - Balance at end of period $20,014 $23,595 $- Revisions in 2011 of previous quantity estimates relate principally to the exclusion of certain proven undeveloped well locations that were included in thereserve estimates dated December 31, 2010. A variety of methodologies are used to determine our proved reserve estimates. The principal methodologies employed are reservoir simulation, decline curveanalysis, volumetric, material balance, advance production type curve matching, petro-physics/log analysis and analogy. Some combination of these methodsis used to determine reserve estimates in substantially all of our fields. F-29 NOTE 16- QUARTERLY RESULTS (UNAUDITED) The following tables contain selected unaudited statement of operations information for each quarter of 2011 and 2010. The Company believes that thefollowing information reflects all normal recurring adjustments necessary for a fair presentation of the information for the periods presented. The operatingresults for any quarter are not necessarily indicative of results for any future period. Year Ended December 31, 2011 Fourth Third Second First Quarter Quarter Quarter Quarter Revenues $1,944,454 $2,630,933 $2,811,429 $1,273,675 Income (loss) from operations (6,297,854) (939,330) (4,069,541) (2,052,133) Net earnings (loss) (7,295,537) (3,027,618) (4,762,881) (3,743,187) Net earnings per common share: Basic and diluted $(0.47) $(0.19) $(0.30) $(0.25) Weighted average shares outstanding Basic and diluted 15,543,758 15,775,135 15,635,346 14,778,206 F-30 Year Ended December 31, 2010 Fourth Third Second First Quarter Quarter Quarter Quarter Revenues $1,519,702 $2,552,790 $5,194,849 $490,351 Income (loss) from operations (4,191,728) (5,900,630) (792,880) (2,242,252) Net earnings (loss) (6,230,293) (7,491,246) (3,196,779) (2,820,715) Net earnings per common share: Basic and diluted $(1.47) $(2.53) $(1.99) $(1.04) Weighted average shares outstanding Basic and diluted 9,167,803 2,962,882 6,362,922 2,927,759 F-31Exhibit 10.29 Sixth Amended and Restated Employment AgreementSixth Amended and Restated Employment Agreement (this "Agreement") dated as of March 14, 2012 by and between Recovery Energy, Inc a Nevadacorporation (the "Company"), and Roger A. Parker (the “Executive”).WHEREAS, the Company and the Executive have previously entered an Employment Agreement dated as of May 1, 2010 (the "Effective Date"), anAmended and Restated Employment Agreement dated as of September 20, 3010, a Second Amended and Restated Employment Agreement dated as ofDecember 20, 2010, a Third Amended and Restated Employment Agreement dated as of April 19, 2011, a Fourth Amended and Restated EmploymentAgreement dated as of June 27, 2011, a Fifth Amended and Restated Employment Agreement dated as of August 31, 2011 (together, the "Original Agreement")and prior to that a Non-Executive Director Appointment Agreement entered into and made effective November 16, 2009, an Amended and Restated Non-Executive Director Appointment Agreement dated as of December 31, 2009 and a Second Amended and Restated Director Appointment Agreement dated as ofMay 1, 2010 (together, the "Previous Agreement"); andWHEREAS, the Company and the Executive wish to amend and restate the Original Agreement; andWHEREAS, the Company recognizes that the Executive's talents and abilities are unique, and are integral to the success of Recovery Energy, Inc.,and thus wishes to secure the ongoing services of the Executive on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth below, the Original Agreement is hereby amended andrestated as follows:1. Employment: The Company hereby agrees to employ the Executive as the Chairman of the Company's Board of Directors ("Chairman") and ChiefExecutive Officer and President (“CEO”) of the Company, and the Executive hereby accepts such employment, on the terms and conditions set forthbelow.2. Compensation and Related Matters:a. Base Salary. During the Executive's term of service (the "Employment Period"), the Company shall pay the Executive a base salary at the rate ofnot less than $240,000 per year (“Base Salary”). The Executive’s base Salary shall be paid in approximately equal installments every twoweeks. If the Executive’s Base Salary is increased by the Company, such increased Base Salary shall then constitute the Base Salary for allpurposes of this Agreement.b. Stock Compensation: The Executive has previously been granted an aggregate of 1,000,000 shares (the "Initial Grant") of the Company'scommon stock ("Common Stock") pursuant to the Previous Agreement and 4,500,000 shares (the "Second Grant" and, together with theInitial Grant, the "Granted Shares") of Common Stock pursuant to the Original Agreement. Notwithstanding the vesting provisions of theOriginal Agreement, subject to acceleration as provided below, 100,000 of the Granted Shares shall vest on January 1, 2011, and theremaining Granted Shares will vest on April 15, 2012, in each case so long as the Executive either (i) is employed as the Company'sChairman and CEO on such date or (ii) has died or become permanently disabled prior to such date and was employed as the Company'sChairman and CEO at the time of death or disability. 1 Notwithstanding any provision to the contrary, the Granted Shares shall vest upon the earlier to occur of a “Change in Control” orthe termination of the Executive’s services as Chairman and CEO by the Company other than for "Cause" or by the Executive’s voluntaryresignation for "Good Reason" (as each term is defined below). For purposes of this Agreement, “Change in Control” shall mean the occurrence, subsequent to the Effective Date, of any of thefollowing: (A) by a transaction or series of transactions, any “person” or “group” (within the meaning of Section 13(d) and 14(d)(2) of theSecurities Exchange Act of 1934, as amended (the “Exchange Act”)) becomes the “beneficial owner” (as defined in Rule 13d-3 under theExchange Act), directly or indirectly, of more than 35% of the combined voting power of the Company’s then outstanding securities (providedsuch person or group was not a beneficial owner of more than 35% of the combined voting power of the Company’s then outstandingsecurities as of the Effective Date); (B) as a result of any merger, consolidation, combination or sale or issuance of securities of the Company,or as a result of or in connection with a contested election of directors, the persons who were directors of the Company as of the Effective Datecease to constitute a majority of the Board of Directors of the Company (the "Board"); (C) by a transaction or series of transactions, theauthority of the Board over any activities of the Company becomes subject to the consent, agreement or cooperation of a third party other thanshareholders of the Company. For purposes of this Agreement, "Good Reason" shall mean the occurrence of any of the following without the written consent of theExecutive: (A) the assignment to the Executive of duties inconsistent with this Agreement or a change in his titles or authority; (B) any failureby the Company to comply with Section 2 or Section 3 hereof in any material way; (C) the requirement of the Executive to relocate to locationsother than those provided in Section 6 hereof; or (D) any material breach of this Agreement by the Company. For purposes of this Agreement, “Cause” shall mean (A) the Executive’s conviction by a court of competent jurisdiction as to whichno further appeal can be taken of a felony (other than a violation based on operation of a vehicle) or entering the plea of nolo contendere to suchcrime by the Executive; (B) the Executive’s commission of a crime involving fraud or intentional dishonesty, which results in the Executive’ssubstantial personal enrichment and material adverse effect to the Company; or (C) the Executive becoming subject to any securities relatedsanctions related to the Company other than those based on an act of the Company itself for which the Executive is charged solely as a resultof his position with the Company. 2 c. Annual Bonus: For each full fiscal year of the Company that begins and ends during the Employment Period, and for the portion of the fiscal yearof the Company that begins in 2010 ("Fiscal Year 2010"), the Executive shall be eligible to earn an annual cash bonus in such amount as shall bedetermined by the Compensation Committee of the Board (the "Compensation Committee") (the "Annual Bonus") based on the achievement by theCompany of performance goals established by the Compensation Committee for each such fiscal year (or portion of Fiscal Year 2010), which mayinclude targets related to the earnings before interest, taxes, depreciation and amortization ("EBITDA"), hydrocarbon production level,hydrocarbon reserve amounts of the Company; provided, that the Annual Bonus shall be targeted no less than $100,000 (with Board approval).The Compensation Committee shall establish objective criteria to be used to determine the extent to which performance goals have been satisfied.d. Over Riding Royalty Interests: The Executive has received as compensation a 1% overriding royalty interest (“ORRI”) on all wells and leasesacquired by the Company prior to the date hereof other than the Church Field as contemplated by the Previous Agreement and the OriginalAgreement. The Executive shall not be entitled to receive additional ORRIs under this Agreement. e. Vacation: The Executive shall be entitled to four weeks of vacation per fiscal year. Vacation not taken during the applicable fiscal year shall becarried over to successive fiscal years.f. Expenses: The Executive shall receive from the Company a monthly, non-accountable, expense reimbursement as of the first of each month of$7,500 for all expenses related to Company business, including, but not limited to travel, marketing and communication. If in any month thereasonable expenses the Executive incurs on the Company’s behalf exceed the amounts advanced, the Company shall, within 30 days afterreceiving documentation of the reimbursable expenses incurred in that month, reimburse the Executive for the amount in excess of $7,500 that heincurred in such month.g. Welfare, Pension and Incentive Benefit Plans: During the Employment Period and for a period of 12 months thereafter in the event that theEmployment Period is terminated other than by the Executive's voluntary resignation or for Cause, the Executive (and his eligible spouse anddependents) shall be entitled to participate in all the welfare benefit plans and programs maintained by the Company from time to time for thebenefit of its senior executives including, without limitation, all medical, hospitalization, dental, disability, accidental death and dismembermentand travel accident insurance plans and programs. In addition, during the Employment Period, the Executive shall be eligible to participate in allpension, retirement, savings and other employee benefit plans and programs maintained from time to time by the Company for the benefit of itssenior executives. The Company will provide the Executive with family health insurance coverage including medical, dental, and vision coverage,comparable to the coverage currently held by the Executive.h. Professional Development. The Company will reimburse the Executive for education and professional development expenses related to courses orprograms selected by the Executive in the energy sector up to $25,000 per calendar year. The Executive may take such courses during normalbusiness hours and will not be required to utilize vacation time. 3 i. Registration of Shares. Upon request of the Executive from time to time, the Company will promptly file a registration statement with theSecurities and Exchange Commission covering the Granted Shares, provided, that each such registration statement must cover a minimum of100,000 shares of Common Stock. The Company may include shares of Common Stock owned by other persons or to be issued by theCompany in each such registration statement.3. Dedication of Time/Conflict of Interests: During the Employment Period, the Executive shall serve as the Chairman and CEO of the Company,with such duties, authority and responsibilities as are normally associated with and appropriate for such a position. The Executive shall report directlyto the Board. The Company acknowledges that the Executive is currently active in a number of activities related to the energy industry and willremain active in activities not associated with the Company. In addition, the Executive shall be entitled to undertake such outside activities (e.g.,charitable, educational, personal interests, board of directors membership, and so forth) as do not unreasonably or materially interfere with theperformance of his duties hereunder. 4. Responsibilities: As the Chairman and CEO, the Executive will be responsible for developing and implementing the Company’s business plan,locating and reviewing prospective acquisition targets, negotiating any and all required contracts and agreements, overseeing the development plan of allacquired properties, executing any and all documents required to implement the Company’s business plan, and legally binding the Company to anyagreement or contract. As such, the Executive will have the authority to reject or modify any acquisition or development plan.5. At-Will Employment: The Executive’s employment with the Company is on an at-will basis. If terminated for any reason other than Cause or if theExecutive terminates this agreement for Good Reason, the Company will be responsible to provide the Executive a minimum of one year's Base Salaryas severance payable immediately upon termination as well as any reimbursement of all business expenses incurred but not yet reimbursed. TheExecutive may terminate his employment for Good Reason after giving the Company detailed written notice thereof, if the Company shall have failed tocure the event or circumstance constituting Good Reason within five business days after receiving such notice. Furthermore, the Company will releaseany and all claims to any vested Common Stock, ORRI or other compensation provided through the date of termination or to which the Executive isentitled at the date of termination. The Executive's right to terminate his employment hereunder for Good Reason shall not be affected by his incapacitydue to physical or mental illness. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act orfailure to act constituting Good Reason hereunder.The provisions of Section 8 will continue in full force for a minimum period of five years after termination.6. Location: You will be based in Denver, Colorado. During the Employment Period, the Company shall provide the Executive with an office. Uponmutual agreement of the Executive and the Company, offices maybe relocated to a different location. 4 7. Representations and Warranties: Company represents and warrants to Executive that this Agreement has been duly authorized, executed anddelivered by the Company and, assuming the due execution by the Executive, constitutes a legal, valid and binding agreement of the Company,enforceable against the Company in accordance with its terms.8. Indemnity: The Company agrees that if the Executive is made a party or is threatened to be made a party to any action, suit or proceeding, whethercivil, criminal, administrative or investigative (a "Proceeding") by reason of the fact that the Executive is or was a trustee, director or officer of theCompany or any predecessor to the Company or any of their affiliates or is or was serving at the request of the Company, any predecessor to theCompany or any of their affiliates as a trustee, director, officer, member, employee or agent of another corporation or a partnership, joint venture,limited liability company, trust or other enterprise, including, without limitation, service with respect to employee benefit plans, whether or not thebasis of such Proceeding is alleged action in an official capacity as a trustee, director, officer, member, employee or agent while serving as a trustee,director, officer, member, employee or agent, the Executive shall be indemnified and held harmless by the Company to the fullest extent authorized byNevada law, as the same exists or may hereafter be amended, against all Expenses incurred or suffered by the Executive in connection therewith, andsuch indemnification shall continue as to the Executive even if the Executive has ceased to be an officer, director, trustee or agent, or is no longeremployed by the Company and shall inure to the benefit of his heirs, executors and administrators.a. Expenses. As used in Section 8, the term "Expenses" shall include, without limitation, damages, losses, judgments, liabilities, fines, penalties,excise taxes, settlements, and costs, attorneys' fees, accountants' fees, and disbursements and costs of attachment or similar bonds,investigations, and any expenses of establishing a right to indemnification under this Agreement.b. Enforcement. If a claim or request under this Section 8 is not paid by the Company or on its behalf, within 30 days after a written claim or requesthas been received by the Company, the Executive may at any time thereafter bring suit against the Company to recover the unpaid amount of theclaim or request and if successful in whole or in part, the Executive shall be entitled to be paid also the expenses of prosecuting such suit. Allobligations for indemnification hereunder shall be subject to, and paid in accordance with, applicable Nevada law.c. Advances of Expenses. Expenses incurred by the Executive in connection with any Proceeding shall be paid by the Company in advance uponrequest of the Executive that the Company pay such Expenses, but only in the event that the Executive shall have delivered in writing to theCompany (i) an undertaking to reimburse the Company for Expenses with respect to which the Executive is not entitled to indemnification and (ii)a statement of his good faith belief that the standard of conduct necessary for indemnification by the Company has been met.d. Insurance. The Company will maintain a Director’s and Officer’s Insurance Policy naming the Executive as a covered party in an amount deemedmutually sufficient to the Company and the Executive. 5 9. Survival of Certain Provisions: The representations, warranties and covenants and indemnity provisions contained in Sections 2, 7 and 8 of thisAgreement and the Company’s obligation to pay the Executive any compensation earned pursuant hereto shall remain operative and in full force andeffect regardless of any completion or termination of this Agreement and shall be binding upon, and shall inure to the benefit of, any successors,assigns, heirs and personal representatives of the Company, the indemnified parties and any such person.10. Notices: Notice given pursuant to any of the provisions of this Agreement shall be in writing and shall be mailed or delivered (a) if to the Company, atits offices at 1515 Wynkoop, Suite 200, Denver CO 80202, and (b) if to the Executive, at his offices at 1515 Wynkoop, Suite 200, Denver CO80202.11. Counterparts: This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all ofwhich shall constitute one and the same instrument.12. Third Party Beneficiaries: This Agreement has been and is made solely for the benefit of the parties hereto, and their respective successors andassigns, and no other person shall acquire or have any right under or by virtue of this Agreement.13. Validity: The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any otherprovision of this Agreement, which shall remain in full force and effect.14. Dispute Resolution: If a dispute arises out of or relating to this Agreement or the breach of this Agreement, and if the dispute cannot be settled throughdirect discussions, the parties agree to first endeavor to settle the dispute in an amicable manner by mediation. Mediation shall consist of an informal,nonbinding conference or conferences between the parties and the mediator jointly, and at the discretion of the mediator, then in separate caucuses inwhich the mediator will seek to guide the parties to a resolution of the case. The parties shall attempt to select a mutually acceptable mediator. If theparties cannot agree upon a mediator, the parties shall seek assistance in the appointment of a mediator from a District Judge in the State of Colorado.a. Legal Fees and Expenses: If any contest or dispute shall arise between the Company and the Executive regarding any provision of thisAgreement, the Company shall reimburse the Executive for all legal fees and expenses incurred by the Executive in connection with such contest ordispute unless an unlawful act has preceded, but only if the Executive prevails to a substantial extent with respect to the Executive's claimsbrought and pursued in connection with such contest or dispute. Such reimbursement shall be made as soon as practicable following theresolution of such contest or dispute (whether or not appealed) to the extent the Company receives reasonable written evidence of such fees andexpenses. 6 15. Choice of Law, Jurisdiction and Venue: This Agreement shall be governed by, construed, and enforced in accordance with the laws of the State ofColorado. Any and all actions, suits, or judicial proceedings upon any claim arising from or relating to this Agreement shall be instituted andmaintained in the State of Colorado. Each party waives the right to change of venue, or to file any action, suit or judicial proceeding in federal court.Notwithstanding this provision, if it is judicially determined that either party may file an action, suit or judicial proceeding in federal court, suchaction, suit or judicial proceeding shall be in the Federal District Court for the District of Colorado.16. Miscellaneous: No provisions of this Agreement may be amended, modified, or waived unless such amendment or modification is agreed to inwriting signed by the Executive and by a duly authorized officer or a director of the Company, and such waiver is set forth in writing and signed bythe party to be charged. No waiver by either party hereto at any time of any breach by the other party hereto of any condition or provision of thisAgreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior orsubsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made byeither party which are not set forth expressly in this Agreement. The respective rights and obligations of the parties hereunder of this Agreement shallsurvive the Executive's termination of employment and the termination of this Agreement to the extent necessary for the intended preservation of suchrights and obligations.17. Section Headings: The section headings in this Agreement are for convenience of reference only, and they form no part of this Agreement and shall notaffect its interpretation.The parties’ authorized representatives have executed this Agreement as of the Effective Date, as defined above. Roger A. Parker Recovery Energy, Inc. /s/Roger A. Parker By :/s/ Timothy N. Poster Name:Timothy N. Poster Title :Director, Chairman of Compensation Committee 6 Exhibit 10.55 AMENDMENT TO CREDIT AGREEMENT(First Credit Agreement) This AMENDMENT TO CREDIT AGREEMENT (this “Amendment”), dated March 15, 2012 (the “Effective Date”), is between Recovery Energy, Inc., aNevada corporation (“Borrower”), and Hexagon, LLC, a Colorado limited liability company, formerly known as Hexagon Investments, LLC (“Lender”). RECITALS A. Borrower and Lender have entered into a Credit Agreement, dated as of January 29, 2010 (as modified by that certain Amendment to PromissoryNote, dated December 29, 2010, that certain Second Amendment to Promissory Note, dated November 14, 2011, and as further amended, modified,supplemented substituted or replaced, the “Credit Agreement”), providing for a term loan in the original principal amount of $4,500,000. Defined terms usedherein and not defined herein shall have the meanings set forth in the Credit Agreement. B. Borrower has asked Lender, and Lender has agreed to amend the terms and conditions of the Credit Agreement to extend the Maturity Date untilJune 30, 2013, subject to and as more fully set forth in this Amendment. AGREEMENT In consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrowerand Lender agree as follows: 1. Amendment to Credit Agreement. Effective as of the Effective Date and upon the terms and subject to the conditions set forth in this Amendment: (a) Section 1.1 of the Credit Agreement is hereby amended by deleting “January 1, 2013” in the definition of “Maturity Date” and replacing it with“June 30, 2013”. (b) Section 2.2 of the Credit Agreement is hereby deleted in its entirety and replaced with the following: “Section 2.2 MandatoryPrepayments. Each month, commencing with March, 2012, Borrower shall repay the Loan and the Loans made under the Other Credit Agreements (asdefined below) with the greater of: (a) the sum of 100% of the Net Proceeds from the Oil and Gas Properties as defined in the Credit Agreement plus 100% theNet Proceeds from the Oil and Gas Properties as defined in the Credit Agreement dated March 25, 2010 and the Credit Agreement dated April 14, 2010, eachbetween Borrower and Lender (the “Other Credit Agreements”), and (b) $325,000.” (c) A new Section 2.4 and a new Section 2.5 of the Credit Agreement are hereby added as follows: Section 2.4 Extension Option. Borrower, pursuant to a written notice from Borrower to Lender, delivered on or before June 30, 2013 (the“Extension Notice”), may request an extension of the Maturity Date (the “Extension”), which Extension shall be granted or rejected at Lender’s solediscretion, and, without limiting Lender’s sole discretion, shall be on the terms and conditions set forth in Section 2.5. 1 Section 2.5 Extension Conditions. The effectiveness of the Extension shall be subject to satisfaction of the following conditions: (a) no Default or Event of Default shall have occurred and be continuing at the time the Extension Notice is delivered toLender; (b) Borrower shall have commenced actual drilling operations on the Palm Well (the “Palm Well”), located inSection 20: NE/4, T. 17N., R. 58W., 6th P.M., Banner County, Nebraska; and on or before July 31, 2012, Borrower shall have (i) conducted suchdrilling operations with reasonable diligence to, drill the Palm Well to a subsurface depth of at least 7,500 feet (the “Target Depth”), or to a depthsufficient to test the J Sand formation if the J Sand is encountered in the Palm Well above the Target Depth, and (ii) the Palm Well shall have beenevaluated, tested, completed and equipped through the tanks as a producing well, or such well shall have been properly plugged and abandoned inaccordance with applicable law and regulations. (c) the documentation in respect to the Extension shall provide that, in addition to payments made pursuant to Section 2.2,50% of the Net Proceeds from the Palm Well will be required to be used to collectively repay the Loan, and each of the Loans made under the OtherCredit Agreements, each calendar month; and (d) all documentation in respect of the Extension shall be on terms and conditions and in form and substance satisfactoryto Lender in its sole discretion. 2. Other Agreements. (a) Borrower and Lender agree that all of the Loan Documents are hereby amended to reflect the amendments set forth herein and that nofurther amendments to any Loan Documents are required to reflect the foregoing; and (b) all references in any document to “Credit Agreement” or any “LoanDocument” shall refer to the Credit Agreement or any such Loan Document, as amended pursuant to this Amendment. 3. Representations and Warranties. Borrower hereby certifies to Lender that as of the date of this Amendment and as of the Effective Date (taking intoconsideration the transactions contemplated by this Amendment) all of Borrower’s representations and warranties contained in the Credit Agreement and eachof the Loan Documents are true, accurate and complete, and no Default or Event of Default has occurred under the Credit Agreement or any of the LoanDocuments. Without limiting the generality of the foregoing, Borrower represents and warrants that (i) the execution and delivery of this Amendment has beenauthorized by all necessary action on the part of Borrower, (ii) the person executing this Amendment on behalf of Borrower is duly authorized to do so, and(iii) this Amendment constitutes the legal, valid, binding and enforceable obligation of Borrower. 4. Additional Documents. Borrower shall execute and deliver, and shall cause to be executed and delivered, to Lender at any time and from time to time suchdocuments and instruments, including without limitation additional amendments to the Credit Agreement and the Loan Documents, as Lender may reasonablyrequest to confirm and carry out the transactions contemplated hereby or by any other Loan Documents executed in connection herewith. 5. Continuation of the Credit Agreement and Loan Documents. Except as specified in this Amendment, the provisions of the Credit Agreement and the LoanDocuments shall remain in full force and effect, and if there is a conflict between the terms of this Amendment and those of the Credit Agreement or the LoanDocuments, the terms of this Amendment shall control. This Amendment is a Loan Document. 2 6. Ratification and Reaffirmation of Obligations by Borrower. Borrower hereby (a) ratifies and confirms all of its Obligations under the Credit Agreement andeach of the other Loan Documents, and acknowledges and agrees that such Obligations remain in full force and effect, and (b) ratifies, reaffirms andreapproves in favor of Lender the terms and provisions of the Credit Agreement and each of the other Loan Documents, including (without limitation), itspledges and other grants of Liens and security interests pursuant to the Loan Documents. 7. Release and Indemnification. (a) Borrower hereby fully, finally, and forever releases and discharges Lender, and its successors, assigns, directors, officers, employees, agentsand representatives, from any and all causes of action, claims, debts, demands and liabilities, of whatever kind or nature, in law or equity, of Borrower,whether now known or unknown to Borrower in respect of (i) the Obligations under the Credit Agreement and each of the other Loan Documents or (ii) theactions or omissions of Lender in any manner related to the Obligations under the Credit Agreement and each of the other Loan Documents; provided that thisSection shall only apply to and be effective with respect to events or circumstances existing or occurring prior to and including the date of this Amendment. (b) Without limiting Section 7.3 of the Credit Agreement, Borrower hereby agrees to indemnify, defend, and hold harmless Lender and itssuccessors, assigns, directors, officers, employees, agents and representatives (each an “Indemnified Party” and collectively the “Indemnified Parties”) fromand against any and all accounts, covenants, agreements, obligations, claims, debts, liabilities, offsets, demands, costs, expenses, actions or causes of actionof every nature, character and description, whether arising at law or equity or under statute, regulation or otherwise, and whether liquidated or unliquidated,contingent or noncontingent, known or unknown, suspected or unsuspected (“Claims”), arising from or made under any legal theory, which any ofIndemnified Parties may incur as a direct or indirect consequence of or in relation to any acts or omissions of Borrower arising from or relating to any of: (i)the Credit Agreement; (ii) the Loan Documents; (iii) this Amendment; or (iv) any documents executed by Borrower in connection with thisAmendment. Should any Indemnified Party incur any such Claims, or defense of or response to any Claims or demand related thereto, the amount thereof,including costs, expenses and attorneys’ fees, shall be added to the amounts due under the Loan Documents, and shall be secured by any and all liens createdunder and pursuant to the Loan Documents. This indemnity shall survive until the Obligations have been indefeasibly paid in full and the termination,release or discharge of Borrower. To the extent permissible under applicable law, this indemnity shall not limit any other rights of indemnification,subrogation or assignment, whether explicit, implied, legal or equitable, that any Indemnified Party may have. 8. No Waiver. This Amendment does not constitute a waiver by Lender of Borrower’s compliance with any covenants, or a waiver of any Defaults or Eventsof Default, under the Credit Agreement or any of the Loan Documents, and shall not entitle the Borrower to any amendments or waivers in the future. 9. Miscellaneous. Article VIII of the Credit Agreement is hereby incorporated by reference into this Amendment. [Signature Pages Follow] 3 Borrower and Lender have executed this Amendment to Credit Agreement as of the date first above written. HEXAGON, LLC RECOVERY ENERGY, INC. By: Hexagon, Inc., its Manager By:/s/ Brian Fleischmann By:/s/ A. Bradley Gabbard Brian Fleischmann A. Bradley Gabbard Executive Vice President Chief Financial Officer [Signature Page to Amendment to Credit Agreement #1] 4 AMENDMENT TO CREDIT AGREEMENT(Second Credit Agreement) This AMENDMENT TO CREDIT AGREEMENT (this “Amendment”), dated March 15, 2012 (the “Effective Date”), is between Recovery Energy, Inc., aNevada corporation (“Borrower”), and Hexagon, LLC, a Colorado limited liability company, formerly known as Hexagon Investments, LLC (“Lender”). RECITALS A. Borrower and Lender have entered into a Credit Agreement, dated as of March 25, 2010 (as modified by that certain Amendment toPromissory Note, dated December 29, 2010, that certain Second Amendment to Promissory Note, dated November 14, 2011, and as further amended,modified, supplemented substituted or replaced, the “Credit Agreement”), providing for a term loan in the original principal amount of $6,000,000. Definedterms used herein and not defined herein shall have the meanings set forth in the Credit Agreement. B. Borrower has asked Lender, and Lender has agreed to amend the terms and conditions of the Credit Agreement to extend the Maturity Dateuntil June 30, 2013, subject to and as more fully set forth in this Amendment. AGREEMENT In consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrowerand Lender agree as follows: 1. Amendment to Credit Agreement. Effective as of the Effective Date and upon the terms and subject to the conditions set forth in this Amendment: (a) Section 1.1 of the Credit Agreement is hereby amended by deleting “January 1, 2013” in the definition of “Maturity Date” and replacing it with“June 30, 2013”. (b) Section 2.2 of the Credit Agreement is hereby deleted in its entirety and replaced with the following: “Section 2.2 MandatoryPrepayments. Each month, commencing with March, 2012, Borrower shall repay the Loan and the Loans made under the Other Credit Agreements (asdefined below) with the greater of: (a) the sum of 100% of the Net Proceeds from the Oil and Gas Properties as defined in the Credit Agreement plus 100% theNet Proceeds from the Oil and Gas Properties as defined in the Credit Agreement dated April 14, 2010 and the Credit Agreement dated January 29, 2010, eachbetween Borrower and Lender (the “Other Credit Agreements”), and (b) $325,000.” (c) A new Section 2.4 and a new Section 2.5 of the Credit Agreement are hereby added as follows: Section 2.4 Extension Option. Borrower, pursuant to a written notice from Borrower to Lender, delivered on or before June 30, 2013 (the“Extension Notice”), may request an extension of the Maturity Date (the “Extension”), which Extension shall be granted or rejected at Lender’s solediscretion, and, without limiting Lender’s sole discretion, shall be on the terms and conditions set forth in Section 2.5. 1 Section 2.5 Extension Conditions. The effectiveness of the Extension shall be subject to satisfaction of the following conditions: (a) no Default or Event of Default shall have occurred and be continuing at the time the Extension Notice is delivered toLender; (b) Borrower shall have commenced actual drilling operations on the Palm Well (the “Palm Well”), located inSection 20: NE/4, T. 17N., R. 58W., 6th P.M., Banner County, Nebraska; and on or before July 31, 2012, Borrower shall have (i) conducted suchdrilling operations with reasonable diligence to, drill the Palm Well to a subsurface depth of at least 7,500 feet (the “Target Depth”), or to a depthsufficient to test the J Sand formation if the J Sand is encountered in the Palm Well above the Target Depth, and (ii) the Palm Well shall have beenevaluated, tested, completed and equipped through the tanks as a producing well, or such well shall have been properly plugged and abandoned inaccordance with applicable law and regulations. (c) the documentation in respect to the Extension shall provide that, in addition to payments made pursuant to Section 2.2,50% of the Net Proceeds from the Palm Well will be required to be used to collectively repay the Loan, and each of the Loans made under the OtherCredit Agreements, each calendar month; and (d) all documentation in respect of the Extension shall be on terms and conditions and in form and substance satisfactoryto Lender in its sole discretion. 2. Other Agreements. (a) Borrower and Lender agree that all of the Loan Documents are hereby amended to reflect the amendments set forth herein and that nofurther amendments to any Loan Documents are required to reflect the foregoing; and (b) all references in any document to “Credit Agreement” or any “LoanDocument” shall refer to the Credit Agreement or any such Loan Document, as amended pursuant to this Amendment. 3. Representations and Warranties. Borrower hereby certifies to Lender that as of the date of this Amendment and as of the Effective Date (taking intoconsideration the transactions contemplated by this Amendment) all of Borrower’s representations and warranties contained in the Credit Agreement and eachof the Loan Documents are true, accurate and complete, and no Default or Event of Default has occurred under the Credit Agreement or any of the LoanDocuments. Without limiting the generality of the foregoing, Borrower represents and warrants that (i) the execution and delivery of this Amendment has beenauthorized by all necessary action on the part of Borrower, (ii) the person executing this Amendment on behalf of Borrower is duly authorized to do so, and(iii) this Amendment constitutes the legal, valid, binding and enforceable obligation of Borrower. 4. Additional Documents. Borrower shall execute and deliver, and shall cause to be executed and delivered, to Lender at any time and from time to time suchdocuments and instruments, including without limitation additional amendments to the Credit Agreement and the Loan Documents, as Lender may reasonablyrequest to confirm and carry out the transactions contemplated hereby or by any other Loan Documents executed in connection herewith. 5. Continuation of the Credit Agreement and Loan Documents. Except as specified in this Amendment, the provisions of the Credit Agreement and the LoanDocuments shall remain in full force and effect, and if there is a conflict between the terms of this Amendment and those of the Credit Agreement or the LoanDocuments, the terms of this Amendment shall control. This Amendment is a Loan Document. 2 6. Ratification and Reaffirmation of Obligations by Borrower. Borrower hereby (a) ratifies and confirms all of its Obligations under the Credit Agreement andeach of the other Loan Documents, and acknowledges and agrees that such Obligations remain in full force and effect, and (b) ratifies, reaffirms andreapproves in favor of Lender the terms and provisions of the Credit Agreement and each of the other Loan Documents, including (without limitation), itspledges and other grants of Liens and security interests pursuant to the Loan Documents. 7. Release and Indemnification. (a) Borrower hereby fully, finally, and forever releases and discharges Lender, and its successors, assigns, directors, officers, employees, agentsand representatives, from any and all causes of action, claims, debts, demands and liabilities, of whatever kind or nature, in law or equity, of Borrower,whether now known or unknown to Borrower in respect of (i) the Obligations under the Credit Agreement and each of the other Loan Documents or (ii) theactions or omissions of Lender in any manner related to the Obligations under the Credit Agreement and each of the other Loan Documents; provided that thisSection shall only apply to and be effective with respect to events or circumstances existing or occurring prior to and including the date of this Amendment. (b) Without limiting Section 7.3 of the Credit Agreement, Borrower hereby agrees to indemnify, defend, and hold harmless Lender and itssuccessors, assigns, directors, officers, employees, agents and representatives (each an “Indemnified Party” and collectively the “Indemnified Parties”) fromand against any and all accounts, covenants, agreements, obligations, claims, debts, liabilities, offsets, demands, costs, expenses, actions or causes of actionof every nature, character and description, whether arising at law or equity or under statute, regulation or otherwise, and whether liquidated or unliquidated,contingent or noncontingent, known or unknown, suspected or unsuspected (“Claims”), arising from or made under any legal theory, which any ofIndemnified Parties may incur as a direct or indirect consequence of or in relation to any acts or omissions of Borrower arising from or relating to any of: (i)the Credit Agreement; (ii) the Loan Documents; (iii) this Amendment; or (iv) any documents executed by Borrower in connection with thisAmendment. Should any Indemnified Party incur any such Claims, or defense of or response to any Claims or demand related thereto, the amount thereof,including costs, expenses and attorneys’ fees, shall be added to the amounts due under the Loan Documents, and shall be secured by any and all liens createdunder and pursuant to the Loan Documents. This indemnity shall survive until the Obligations have been indefeasibly paid in full and the termination,release or discharge of Borrower. To the extent permissible under applicable law, this indemnity shall not limit any other rights of indemnification,subrogation or assignment, whether explicit, implied, legal or equitable, that any Indemnified Party may have. 8. No Waiver. This Amendment does not constitute a waiver by Lender of Borrower’s compliance with any covenants, or a waiver of any Defaults or Eventsof Default, under the Credit Agreement or any of the Loan Documents, and shall not entitle the Borrower to any amendments or waivers in the future. 9. Miscellaneous. Article VIII of the Credit Agreement is hereby incorporated by reference into this Amendment. [Signature Pages Follow] 3 Borrower and Lender have executed this Amendment to Credit Agreement as of the date first above written. HEXAGON, LLC RECOVERY ENERGY, INC. By: Hexagon, Inc., its Manager By:/s/ Brian Fleischmann By:/s/ A. Bradley Gabbard Brian Fleischmann A. Bradley Gabbard Executive Vice President Chief Financial Officer [Signature Page to Amendment to Credit Agreement #2] 4 AMENDMENT TO CREDIT AGREEMENT(Third Credit Agreement) This AMENDMENT TO CREDIT AGREEMENT (this “Amendment”), dated March 15, 2012 (the “Effective Date”), is between Recovery Energy, Inc., aNevada corporation (“Borrower”), and Hexagon, LLC, a Colorado limited liability company, formerly known as Hexagon Investments, LLC (“Lender”). RECITALS A. Borrower and Lender have entered into a Credit Agreement, dated as of April 14, 2010 (as modified by that certain Amendment toPromissory Note, dated December 29, 2010, that certain Second Amendment to Promissory Note, dated November 14, 2011, and as further amended,modified, supplemented substituted or replaced, the “Credit Agreement”), providing for a term loan in the original principal amount of $15,000,000. Definedterms used herein and not defined herein shall have the meanings set forth in the Credit Agreement. B. Borrower has asked Lender, and Lender has agreed to amend the terms and conditions of the Credit Agreement to extend the Maturity Dateuntil June 30, 2013, subject to and as more fully set forth in this Amendment. AGREEMENT In consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrowerand Lender agree as follows: 1. Amendment to Credit Agreement. Effective as of the Effective Date and upon the terms and subject to the conditions set forth in this Amendment: (a) Section 1.1 of the Credit Agreement is hereby amended by deleting “January 1, 2013” in the definition of “Maturity Date” and replacing it with“June 30, 2013”. (b) Section 2.2 of the Credit Agreement is hereby deleted in its entirety and replaced with the following: “Section 2.2 MandatoryPrepayments. Each month, commencing with March, 2012, Borrower shall repay the Loan and the Loans made under the Other Credit Agreements (asdefined below) with the greater of: (a) the sum of 100% of the Net Proceeds from the Oil and Gas Properties as defined in the Credit Agreement plus 100% theNet Proceeds from the Oil and Gas Properties as defined in the Credit Agreement dated March 25, 2010 and the Credit Agreement dated January 29, 2010,each between Borrower and Lender (the “Other Credit Agreements”), and (b) $325,000.” (c) A new Section 2.4 and a new Section 2.5 of the Credit Agreement are hereby added as follows: Section 2.4 Extension Option. Borrower, pursuant to a written notice from Borrower to Lender, delivered on or before June 30, 2013 (the“Extension Notice”), may request an extension of the Maturity Date (the “Extension”), which Extension shall be granted or rejected at Lender’s solediscretion, and, without limiting Lender’s sole discretion, shall be on the terms and conditions set forth in Section 2.5. 1 Section 2.5 Extension Conditions. The effectiveness of the Extension shall be subject to satisfaction of the following conditions: (a) no Default or Event of Default shall have occurred and be continuing at the time the Extension Notice is delivered toLender; (b) Borrower shall have commenced actual drilling operations on the Palm Well (the “Palm Well”), located inSection 20: NE/4, T. 17N., R. 58W., 6th P.M., Banner County, Nebraska; and on or before July 31, 2012, Borrower shall have (i) conducted suchdrilling operations with reasonable diligence to, drill the Palm Well to a subsurface depth of at least 7,500 feet (the “Target Depth”), or to a depthsufficient to test the J Sand formation if the J Sand is encountered in the Palm Well above the Target Depth, and (ii) the Palm Well shall have beenevaluated, tested, completed and equipped through the tanks as a producing well, or such well shall have been properly plugged and abandoned inaccordance with applicable law and regulations. (c) the documentation in respect to the Extension shall provide that, in addition to payments made pursuant to Section 2.2,50% of the Net Proceeds from the Palm Well will be required to be used to collectively repay the Loan, and each of the Loans made under the OtherCredit Agreements, each calendar month; and (d) all documentation in respect of the Extension shall be on terms and conditions and in form and substance satisfactoryto Lender in its sole discretion. 2. Other Agreements. (a) Borrower and Lender agree that all of the Loan Documents are hereby amended to reflect the amendments set forth herein and that nofurther amendments to any Loan Documents are required to reflect the foregoing; and (b) all references in any document to “Credit Agreement” or any “LoanDocument” shall refer to the Credit Agreement or any such Loan Document, as amended pursuant to this Amendment. 3. Representations and Warranties. Borrower hereby certifies to Lender that as of the date of this Amendment and as of the Effective Date (taking intoconsideration the transactions contemplated by this Amendment) all of Borrower’s representations and warranties contained in the Credit Agreement and eachof the Loan Documents are true, accurate and complete, and no Default or Event of Default has occurred under the Credit Agreement or any of the LoanDocuments. Without limiting the generality of the foregoing, Borrower represents and warrants that (i) the execution and delivery of this Amendment has beenauthorized by all necessary action on the part of Borrower, (ii) the person executing this Amendment on behalf of Borrower is duly authorized to do so, and(iii) this Amendment constitutes the legal, valid, binding and enforceable obligation of Borrower. 4. Additional Documents. Borrower shall execute and deliver, and shall cause to be executed and delivered, to Lender at any time and from time to time suchdocuments and instruments, including without limitation additional amendments to the Credit Agreement and the Loan Documents, as Lender may reasonablyrequest to confirm and carry out the transactions contemplated hereby or by any other Loan Documents executed in connection herewith. 5. Continuation of the Credit Agreement and Loan Documents. Except as specified in this Amendment, the provisions of the Credit Agreement and the LoanDocuments shall remain in full force and effect, and if there is a conflict between the terms of this Amendment and those of the Credit Agreement or the LoanDocuments, the terms of this Amendment shall control. This Amendment is a Loan Document. 2 6. Ratification and Reaffirmation of Obligations by Borrower. Borrower hereby (a) ratifies and confirms all of its Obligations under the Credit Agreement andeach of the other Loan Documents, and acknowledges and agrees that such Obligations remain in full force and effect, and (b) ratifies, reaffirms andreapproves in favor of Lender the terms and provisions of the Credit Agreement and each of the other Loan Documents, including (without limitation), itspledges and other grants of Liens and security interests pursuant to the Loan Documents. 7. Release and Indemnification. (a) Borrower hereby fully, finally, and forever releases and discharges Lender, and its successors, assigns, directors, officers, employees, agentsand representatives, from any and all causes of action, claims, debts, demands and liabilities, of whatever kind or nature, in law or equity, of Borrower,whether now known or unknown to Borrower in respect of (i) the Obligations under the Credit Agreement and each of the other Loan Documents or (ii) theactions or omissions of Lender in any manner related to the Obligations under the Credit Agreement and each of the other Loan Documents; provided that thisSection shall only apply to and be effective with respect to events or circumstances existing or occurring prior to and including the date of this Amendment. (b) Without limiting Section 7.3 of the Credit Agreement, Borrower hereby agrees to indemnify, defend, and hold harmless Lender and itssuccessors, assigns, directors, officers, employees, agents and representatives (each an “Indemnified Party” and collectively the “Indemnified Parties”) fromand against any and all accounts, covenants, agreements, obligations, claims, debts, liabilities, offsets, demands, costs, expenses, actions or causes of actionof every nature, character and description, whether arising at law or equity or under statute, regulation or otherwise, and whether liquidated or unliquidated,contingent or noncontingent, known or unknown, suspected or unsuspected (“Claims”), arising from or made under any legal theory, which any ofIndemnified Parties may incur as a direct or indirect consequence of or in relation to any acts or omissions of Borrower arising from or relating to any of: (i)the Credit Agreement; (ii) the Loan Documents; (iii) this Amendment; or (iv) any documents executed by Borrower in connection with thisAmendment. Should any Indemnified Party incur any such Claims, or defense of or response to any Claims or demand related thereto, the amount thereof,including costs, expenses and attorneys’ fees, shall be added to the amounts due under the Loan Documents, and shall be secured by any and all liens createdunder and pursuant to the Loan Documents. This indemnity shall survive until the Obligations have been indefeasibly paid in full and the termination,release or discharge of Borrower. To the extent permissible under applicable law, this indemnity shall not limit any other rights of indemnification,subrogation or assignment, whether explicit, implied, legal or equitable, that any Indemnified Party may have. 8. No Waiver. This Amendment does not constitute a waiver by Lender of Borrower’s compliance with any covenants, or a waiver of any Defaults or Eventsof Default, under the Credit Agreement or any of the Loan Documents, and shall not entitle the Borrower to any amendments or waivers in the future. 9. Miscellaneous. Article VIII of the Credit Agreement is hereby incorporated by reference into this Amendment. [Signature Pages Follow] 3 Borrower and Lender have executed this Amendment to Credit Agreement as of the date first above written. HEXAGON, LLC RECOVERY ENERGY, INC. By: Hexagon, Inc., its Manager By:/s/ Brian Fleischmann By:/s/ A/ Bradley Gabbard Brian Fleischmann A. Bradley Gabbard Executive Vice President Chief Financial Officer [Signature Page to Amendment to Credit Agreement #3] 4Exhibit 10.56 SECOND AMENDMENTTO8% SENIOR SECURED CONVERTIBLE DEBENTUREThis Amendment (“Amendment”), made as of March 19, 2012, by and between Recovery Energy, Inc., a Nevada corporation (the “Company”),and each holder identified on the signature page hereto (the “Holders”), amends those certain 8% Senior Secured Convertible Debentures due February 8, 2014of the Company, as previously amended December 16, 2011 (“Debentures”). Terms not otherwise defined herein shall have the meanings ascribed to suchterms in the Purchase Agreement (as defined below).RecitalsWHEREAS, the Debentures were issued in connection with the Securities Purchase Agreement, dated as of February 2, 2011, between the Companyand the Holders (the “Purchase Agreement”);WHEREAS, the Debentures were amended pursuant to that certain Amendment to 8% Senior Secured Convertible Debenture, dated as of December16, 2011 (the “First Amendment”);WHEREAS, the Debentures are secured by certain assets of the Company as set forth in the Debentures, as amended by the First Amendment (the“Original Collateral”);WHEREAS, the Company wishes to add the property described in Exhibit A hereto as additional collateral to secure the Debentures (the “AdditionalCollateral” and together with the Original Collateral, the “Collateral”);WHEREAS, the Company wishes to issue additional Debentures, secured by both the Collateral and a first priority lien in wells (the “Wells”) andall Collateral located within the spacing unit designated by the state authorities for the applicable Well (the “Well Liens”), to certain of the Holders or theiraffiliates (the “New Holders”) in exchange for additional cash consideration (the “New Offering”), pursuant to that certain 8% Senior Secured ConvertibleDebenture (the “New Debentures”) and that certain Securities Purchase Agreement (the “New Purchase Agreement”) substantially in the forms attachedhereto as Exhibits B and C respectively;WHEREAS, pursuant to Section 5.5 of the Purchase Agreement, waiver or amendment of any provision in the Purchase Agreement requires awritten instrument signed by the Company and Holders holding at least 51% in interest of the Debentures then outstanding or, in the case of a waiver, by theparty against whom enforcement of any such waived provision is sought; andWHEREAS, pursuant to Section 7(a) of the Debentures, the Company is prohibited from entering into, creating, incurring, assuming or suffering toexist any lien, charge, pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction on the property securing the Debenturesunless the holders of at least 67% in principal amount of the then outstanding Debentures shall have otherwise given prior written consent; 1 NOW THEREFORE, in consideration of the premises and mutual covenants and obligations herein set forth and for other good and valuableconsideration, the receipt, sufficiency and adequacy of which is hereby acknowledged, accepted and agreed to, the parties hereto, intending to be legallybound, hereby agree as follows:Agreement1. Consent of Holders. Each Holder hereby consents to the New Offering for all purposes under the Purchase Agreement and the Debentures,including Section 5.5 of the Purchase Agreement and Section 7(a) of the Debentures.2. Grant of Lien on Additional Collateral. The Company hereby grants Holders a first priority lien in the Additional Collateral as security for theobligations of the Company under the Debentures and the New Debentures, to be reflected in appropriate Security Documents. The Company agrees to usereasonable best efforts to execute and record such Security Documents with respect to the lien by April 15, 2012.3. Release of Lien on Certain Collateral. The Holders hereby release any right or interest they may have with respect to the property described inExhibit D hereto (the “Released Collateral”), and further agree that all references in the Debentures, the New Debentures, the Purchase Agreement, the NewPurchase Agreement and this Amendment to the Collateral shall not include the Released Collateral.4. Agreement to Subordinate Interest in Wells. Each Holder hereby agrees that upon completion or plugging and abandonment of each such Well, tothe extent the Wells are drilled on the Collateral, the Holders’ security interest in such Well and all Collateral located within the spacing unit designated by thestate authorities for such Well will be subordinated to the Well Lien to be granted to the New Holders, and such Holder hereby consents to the filing of aSubordination Agreement, in substantially the form attached hereto as Exhibit E, to effectuate such subordination, with such Subordination Agreement to beexecuted by T.R. Winston & Company, LLC as collateral agent.5. Amendment of Debentures. The Debentures are hereby amended to replace Annex B with a new Annex B substantially in the form attached heretoas Exhibit F.6. Waiver of Preemptive Rights. Each Holder hereby waives any and all rights it may have pursuant to Section 5 of the Amendment with respect tothe New Offering.7. Authority. Each Holder hereby represents and warrants that it is the true and lawful owner of the Debentures and has full power and authority toenter into this Amendment on the term set forth herein. 2 8. Further Assurances. Holders shall from time to time execute such additional instruments and documents, take such additional actions, and givesuch further assurances as are or may be reasonable or necessary to implement this Amendment. 9. Binding Effect. The terms of this Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective heirs,personal representatives, successors and assigns.10. Reaffirmation of Debenture Terms. All terms of the Debentures shall, except as amended hereby, remain in full force and effect, and are herebyratified and confirmed.11. Governing Law. This Amendment shall be governed by and construed and enforced in accordance with the internal laws of the State of NewYork, without regard for principles of conflict of laws thereof.12. Counterparts. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which togethershall constitute one and the same instrument.[Signature page follows] 3 IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment effective as of the date first set forth above. COMPANY Recovery Energy, Inc. By:/s/ Roger A. Parker Name: Roger A. Parker Title: HOLDERS Colony Partners, a California general partnership /s/ Bryan Ezralow Name: Bryan Ezralow as Trustee of the Bryan Ezralow 1994 Trust Title:Managing General Partner Jonathan & Nancy Glaser Family Trust DTD 12/16/1998 Jonathan M.Glaser and Nancy E. Glaser TTEES /s/ Jonathan Glaser Name: Jonathan Glaser Title: Trustee T.R. Winston & Company, LLC /s/ John W. Galuchie, Jr. Name: John W. Galuchie, Jr. Title: President Wallington Investment Holdings, Ltd. /s/ Michael Khoury. Name: Michael Khoury Title: Director Steven B. Dunn and Laura Dunn Revocable Trust DTD 10/28/10, StevenB. Dunn & Laura Dunn TTEES /s/ Steven B. Dunn Name: Steven B. Dunn Title: Trustee 4 EXHIBIT ANew Collateral LEASE DATE:March 2, 2010 LESSOR:Anderson Livestock, Inc. LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE: DESCRIPTION:T16N-R60W B 2158, P 1303-1305Laramie, WY Section 11: Lots 1-4 Section 14: Lots 1-4 Section 15: NW Section 22: SE Section 23: North 130.00 acres of theW/2 T16N-R59W B 210, P 249-252Kimball, NE Section 11: Lots 1-4 Section 14: Lots 1-4, less 14.5 acres Section 26: South 2/3rd and and T16N-R58W Section 17: SE LEASE DATE:January 28, 2010 LESSOR:Alyce Knigge LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE: DESCRIPTION:T16N-R58W B 210, P 4-6Kimball, NE Section 20: ALL LEASE DATE:March 12, 2010 LESSOR:Mattson Ranch Company LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE: DESCRIPTION:T16N-R60W B 2161, P 376-378Laramie, WY Section 32: NW, less a 5 acre tract in the NWNW 5 LEASE DATE:April 9, 2010 LESSOR:Thomas W. Irwin and Thomas W.Irwin Family Trust LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE: DESCRIPTION:T16N-R60W B 2161, P 435-437Laramie, WY Section 32: NW LEASE DATE:March 17, 2010 LESSOR:Juanita Moffitt LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE: DESCRIPTION:T16N-R60W B 2161, P 382-384Laramie, WY Section 32: NE, less a 1 acre tract inthe NWNE LEASE DATE:January 22, 2010 LESSOR:Rex E. West Trust LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE: DESCRIPTION:T16N-R58W B 209, P 542-544Kimball, NE Section 22: ALL LEASE DATE:January 25, 2010 LESSOR:Ray Freeburg and Kathy Freeburg LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE: DESCRIPTION:T16N-R59W B 209, P 793-796Kimball, NE Section 13: SW Section 25: E/2, less a 10.418 acretract and T16N-R58W Section 23: ALL, less a 21.522 acretract LEASE DATE:January 22, 2010 LESSOR:Rex E. West Trust LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE: DESCRIPTION:T16N-R58W B 209, P 548-550Kimball, NE Section 26: ALL LEASE DATE:February 4, 2010 LESSOR:Jack E. Lockwood and Joan L.Lockwood LESSEE:Edward Mike Davis, L.L.C. DESCRIPTION:T16N-R58W RECORDING:COUNTY, STATE: Section 27: ALL B 209, P 567-568Kimball, NE 6 LEASE DATE:January 23, 2010 LESSOR:Scott E. Lockwood and Susan L.Lockwood LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE: DESCRIPTION:T16N-R58W B 209, P 545-547Kimball, NE Section 27: All LEASE DATE:January 26, 2010 LESSOR:Rhonda Marie Duclo LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE: DESCRIPTION:T16N-R58W B 210, P 1-3Kimball, NE Section 29: E/2 LEASE DATE:January 25, 2010 LESSOR:Troy Freeburg and Loretta Freeburg LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE: DESCRIPTION:T16N-R58W B 209, P 797-800Kimball, NE Section 29: E/2 LEASE DATE:March 2, 2010 LESSOR:Jessen Wheat Company LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE: DESCRIPTION:T15N-R60W B 2158, P 1299-Laramie, WY Section 3: SE 1302 andand and B 210, P 79-83Kimball, NE T16N-R60W Section 26: Lots 1-4, W/2W/2 Section 28: SE Section 30: E/2 Section 34: ALL and T16N-R59W Section 14: 14.50 acres in Lots 1-4 inSE Section 28: SE LEASE DATE:July 19, 2010 LESSOR:Rochelle Energy Limited Partnership LESSEE:Edward Mike Davis, L.L.C. DESCRIPTION:T15N-R60W RECORDING:COUNTY, STATE: Section 8: NE B 2179, P 1230Laramie, WY Section 15: ALL Section 21: NE 7 LEASE DATE:December 23, 2009 LESSOR:David Herman LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE: DESCRIPTION:T15N-R60W B 2149, P 503-505Laramie, WY Section 9: E//2 and T16N-R60W Section 20: NE LEASE DATE:January 25, 2010 LESSOR:Phyllis A. Cooney Trust LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE: DESCRIPTION:T15N-R60W B 2158, P 1292-1295Laramie, WY Section 10: N/2 LEASE DATE:March 17, 2010 LESSOR:Emmy Lu Randol LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE: DESCRIPTION:T15 N-R60W B 2158, P 1357-1359Laramie, WY Section 15: ALL Section 17: S/2 Section 20: N/2 Section 21: ALL INSOFAR AND ONLY INSOFAR AS THE LEASES COVER THE LAND DESCRIBED IN THIS EXHIBIT "A" 8 EXHIBIT BForm of 8% Senior Secured Convertible Debenture 9 EXHIBIT CForm of Securities Purchase Agreement 10 EXHIBIT DReleased Collateral LEASE DATE:December 30, 2009 LESSOR:Vrtatko, Inc., a Nebraska corporation Ellen M. Vrtatko, a widow James F. Vrtatko, a single man Rodney J. Vrtatko, a married man LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE: DESCRIPTION:Township 14 North, Range 54 West,6th P.M. BOOK OG 209,Kimball County, Nebraska Section 29: W/2, W/2SE/4; PAGE 430-434 Section 30: ALL; Section 31: ALL Section 32: ALL; Section 33: ALL Township 13 North, Range 54 West,6th P.M. BOOK OG 209,Kimball County, Nebraska Section 5: N/2, SW/4; PAGE 430-434 Section 6: ALL; Section 7: ALL Section 17: SE/4; Section 22: ALL Township 13 North, Range 55 West,6th P.M. BOOK OG 209,Kimball County, Nebraska Section 1: ALL; PAGE 430-434 Section 11: ALL; Section 12: ALL Township 15 North, Range 55 West,6th P.M. BOOK OG 209,Kimball County, Nebraska Section 29: A 3.627 acre tract inSW/4NW/4 PAGE 430-434 Section 32: A tract in the S/2 RECORDING DATA: BOOK OG 209, PAGE 430-434 recorded December 31, 2009 at 10:29am in Kimball County, Nebraska 11 EXHIBIT EForm of Subordination AgreementSUBORDINATION OF MORTGAGEThe parties listed as Lenders on the signature pages hereto (collectively, the “Lenders”) are the owners and holders of that certain indebtedness secured by thefollowing mortgage (the “Subordinated Mortgage”):DescriptionDateRecorded InState/County Book ___, Page ___,Reception No. ___ Recovery Energy, Inc. (the “Debtor”) has sold, executed and delivered a Senior Mortgage to ______________________ (the “Senior Lenders”),dated ___________________, recorded in Book _______, Page _______, Reception No. ____________________, of the records of _____________County, [STATE] (the “Senior Mortgage”). The Senior Mortgage covers the lands described on Exhibit A, attached hereto (the “Mortgage Property”).AGREEMENTIn consideration of the sum of One Dollar ($1.00), and other good and valuable consideration, cash in hand paid, the receipt and sufficiency ofwhich are hereby acknowledged, the Lenders hereby declare and agree as follows:1. The Lenders hereby waive, relinquish and subordinate the priority and superiority of the liens, encumbrances and rights of theSubordinated Mortgage in favor of the Senior Mortgage, specifically only in favor of the Senior Mortgage, and only insofar as said Senior Mortgage affectsproperty described in the Subordinated Mortgage.2. In the event Lender or any purchaser at a foreclosure sale succeeds to the interest of Debtor in the Mortgage Property by reason of anyforeclosure of the Subordinated Mortgage or the acceptance by Lenders of a deed in lieu of foreclosure, it is agreed the Mortgage Property shall remain subject tothe Senior Mortgage. This agreement and subordination shall in no way affect or impair the rights of Lenders or their successors or assigns, to foreclose orsell under the Subordinated Mortgage in any manner prescribed by contract or law, all of the lands, hereditaments and appurtenances and estates described inthe Subordinated Mortgage, subject to the rights of the Senior Lenders and their successors and assigns, under the Senior Mortgage. 3. The agreement contained herein shall run with the land and shall be binding upon and inure to the benefit of successive owners of the MortgageProperty and lessees under the Senior Mortgage and their respective successors and assigns. 12 4. This agreement may not be modified orally or in any manner other than an agreement in writing signed on behalf of Lenders and the current holder ofthe Senior Mortgage at the time of the amendment.Dated this _________ day of _____________, 2012. LENDERS By: Title: STATE OF [STATE] )) ss.COUNTY OF _________________ )The foregoing instrument was acknowledged before me this _____ day of _________, 2012, by _____________________________, as________________ of ______________.Witness my hand and official seal.My commission expires:_____________________________________________________Notary Public 13 EXHIBIT EANNEX Bto 8% Senior Secured Convertible Debentures LEASE DATE:January 1st, 2011 LESSOR:Crossed Arrows Ranch Inc. LESSEE:Recovery Energy, Inc.COUNTY, STATE: Goshen County, WYDESCRIPTION:Township 26 North, Range 62 West, 6th P.M. Section 1: Lots 3, 4, S/2NW/4, SW4 Section 2: Lots 1-4, S/2N/2, S/2 Section 3: Lots 1, 2, S/2NE/4 Township 27 North, Range 61 West, 6th P.M.Goshen County, WY Section 31: Lots 1-4, E/2W/2 Township 27 North, Range 62 West, 6th P.M.Goshen County, WY Section 7: Lots 4 Section 15: SW/4, N/2SE/4 Section 17: SW/4NE/4, NW/4NW/4, S/2NW/4, S/2 Section 18: Lots 1, 4, N/2NE/4, SE/4NE/4, E/2NW/4, NE/4SW/4, Section 19: Lot 1 Section 20: NW/4NE/4, NE/4NW/4 Section 21: SE/4NE/4, E/2SE/4 Section 22: W/2, W/2SE/4 Section 25: W/2 Section 26: ALL Section 27: E/2, N/2NW/4 Section 28: E/2, SE/4SW/4 Section 29: S/2SW/4, SW/4SE/4 Section 30: SE/4SE/4 Section 32: NW/4 Section 34: N/2NE/4 Section 35: N/2NE/4, W/2, SE/4 Township 27 North, Range 63 West, 6th P.M.Goshen County, WY Section 11: SE/4SW/4, SW/4SE/4 Section 12: Lot 4, S/2SW/4, SW/4SE/4 Section 13: Lot 1, W/2NW/4, SW/4, SE/4SE/4 14 Section 14: NW/4NE/4, S/2NE/4, NE/4NW/4, N/2SE/4 Section 23: E/2SE/4 Section 24: N/2, SW/4 Section 25: W/2 Section 26: NE/4NE/4, S/2NE/4, SW/4, NW/4SE/4, S/2SE/4 Section 27: S/2SE/4 Containing 16,299.37 acres more or less LEASE DATE:February 9, 2011 LESSOR:Eric Alan McCallan, a/k/a Alan Claude McCallan, dealing in his sole and separate property, andChristopher P. McCallan, a married man dealing in his sole and separate LESSEE:Recovery Energy, Inc.COUNTY, STATE Goshen County, WYDESCRIPTION:Township 25 North, Range 62 West, 6th P.M. Section 07: N2NE, SENE, NESE Section 08: N2NW, SWNW, NWSW Section 16: SW Section 20: SESE, that part of NESE lying south of railroad Section 28: SWNW, W2SW Section 29: E2E2 Section 32: N2NE Section 26: NW Township 25 North, Range 63 West, 6th P.M.Goshen County, WY Section 18: Lots 1, 2, 3 and 4 Township 25 North, Range 64 West, 6th P.M.Goshen County, WY Section 11: W2SE Section 13: E2, E2W2 Section 14: Lots 1, 2, 3, 5, 6, 7, W2NE, W2, NWSE Section 23: Lots 3, 4, 7, 8, NWNE, N2NW, NWSE Section 24: NWSW LEASE DATE:March 2, 2010 LESSOR:Anderson Livestock, Inc. LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE: DESCRIPTION:T16N-R60W B 2158, P 1303-1305Laramie, WY Section 11: Lots 1-4 15 Section 14: Lots 1-4 Section 15: NW Section 22: SE Section 23: North 130.00 acres of the W/2 T16N-R59W B 210, P 249-252Kimball, NE Section 11: Lots 1-4 Section 14: Lots 1-4, less 14.5 acres Section 26: South 2/3rd and T16N-R58W Section 17: SE LEASE DATE:January 28, 2010 LESSOR:Alyce Knigge LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE: DESCRIPTION:T16N-R58W B 210, P 4-6Kimball, NE Section 20: ALL LEASE DATE:March 12, 2010 LESSOR:Mattson Ranch Company LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE: DESCRIPTION:T16N-R60W B 2161, P 376-378Laramie, WY Section 32: NW, less a 5 acre tract in the NWNW LEASE DATE:April 9, 2010 LESSOR:Thomas W. Irwin and Thomas W. IrwinFamily Trust LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE: DESCRIPTION:T16N-R60W B 2161, P 435-437Laramie, WY Section 32: NW LEASE DATE:March 17, 2010 RECORDING:COUNTY, STATE: LESSOR:Juanita Moffitt B 2161, P 382-384Laramie, WY LESSEE:Edward Mike Davis, L.L.C. DESCRIPTION:T16N-R60W Section 32: NE, less a 1 acre tract in theNWNE 16 LEASE DATE:January 22, 2010 LESSOR:Rex E. West Trust LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE: DESCRIPTION:T16N-R58W B 209, P 542-544Kimball, NE Section 22: ALL LEASE DATE:January 25, 2010 LESSOR:Ray Freeburg and Kathy Freeburg LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE: DESCRIPTION:T16N-R59W B 209, P 793-796Kimball, NE Section 13: SW Section 25: E/2, less a 10.418 acre tract and T16N-R58W Section 23: ALL, less a 21.522 acre tract LEASE DATE:January 22, 2010 LESSOR:Rex E. West Trust LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE: DESCRIPTION:T16N-R58W B 209, P 548-550Kimball, NE Section 26: ALL LEASE DATE:February 4, 2010 LESSOR:Jack E. Lockwood and Joan L. Lockwood LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE: DESCRIPTION:T16N-R58W B 209, P 567-568Kimball, NE Section 27: ALL LEASE DATE:January 23, 2010 LESSOR:Scott E. Lockwood and Susan L. Lockwood LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE: DESCRIPTION:T16N-R58W B 209, P 545-547Kimball, NE Section 27: All LEASE DATE:January 26, 2010 LESSOR:Rhonda Marie Duclo LESSEE:Edward Mike Davis, L.L.C. 17 RECORDING:COUNTY, STATE: DESCRIPTION:T16N-R58W B 210, P 1-3Kimball, NE Section 29: E/2 LEASE DATE:January 25, 2010 LESSOR:Troy Freeburg and Loretta Freeburg LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE: DESCRIPTION:T16N-R58W B 209, P 797-800Kimball, NE Section 29: E/2 LEASE DATE:March 2, 2010 LESSOR:Jessen Wheat Company LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE: DESCRIPTION:T15N-R60W B 2158, P 1299-1302Laramie, WY Section 3: SE andand and B 210, P 79-83Kimball, NE T16N-R60W Section 26: Lots 1-4, W/2W/2 Section 28: SE Section 30: E/2 Section 34: ALL and T16N-R59W Section 14: 14.50 acres in Lots 1-4 in SE Section 28: SE LEASE DATE:July 19, 2010 LESSOR:Rochelle Energy Limited Partnership LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE: DESCRIPTION:T15N-R60W B 2179, P 1230Laramie, WY Section 8: NE Section 15: ALL Section 21: NE LEASE DATE:December 23, 2009 LESSOR:David Herman LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE: DESCRIPTION:T15N-R60W B 2149, P 503-505Laramie, WY Section 9: E//2 and T16N-R60W Section 20: NE 18 LEASE DATE:January 25, 2010 LESSOR:Phyllis A. Cooney Trust LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE: DESCRIPTION:T15N-R60W B 2158, P 1292-1295Laramie, WY Section 10: N/2 LEASE DATE:March 17, 2010 LESSOR:Emmy Lu Randol LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE: DESCRIPTION:T15N-R60W B 2158, P 1357-1359Laramie, WY Section 15: ALL Section 17: S/2 Section 20: N/2 Section 21: ALL INSOFAR AND ONLY INSOFAR AS THE LEASES COVER THE LAND DESCRIBED IN THIS EXHIBIT "A" 19Exhibit 10.57 SECURITIES PURCHASE AGREEMENT This Securities Purchase Agreement (this “Agreement”) is dated as of March 19, 2012, between Recovery Energy, Inc., a Nevada corporation (the“Company”), and each purchaser identified on the signature pages hereto (each, including its successors and assigns, a “Purchaser” and collectively, the“Purchasers”). WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended(the “Securities Act”), and Rule 506 promulgated thereunder, the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and notjointly, desires to purchase from the Company, securities of the Company as more fully described in this Agreement. NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration,the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions. In addition to the terms defined elsewhere in this Agreement: (a) capitalized terms that are not otherwise defined herein have themeanings given to such terms in the Debentures (as defined herein), and (b) the following terms have the meanings set forth in this Section 1.1: “Acquiring Person” shall have the meaning ascribed to such term in Section 4.7. “Action” shall have the meaning ascribed to such term in Section 3.1(j).“Additional Investment” shall have the meaning ascribed to such term in Section 2.4. “Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common controlwith a Person, as such terms are used in and construed under Rule 405 under the Securities Act. “Assignment” shall have the meaning ascribed to such term in Section 4.12(b).“Board of Directors” means the board of directors of the Company. “Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day onwhich banking institutions in the State of New York are authorized or required by law or other governmental action to close.“Carried Working Interest” shall have the meaning ascribed to such term in the Assignment. “Closing” means the closing of the purchase and sale of the Securities pursuant to Section 2.1. 1 “Closing Date” means the Trading Day on which all of the Transaction Documents have been executed and delivered by the applicable partiesthereto, and all conditions precedent to (i) the Purchasers’ obligations to pay the Subscription Amount and (ii) the Company’s obligations to deliver theSecurities, in each case, have been satisfied or waived.“Collateral Agent” means T.R. Winston & Company who acts as collateral agent with respect to the Debentures under the terms of a CollateralAgency Agreement dated February 18, 2011. “Commission” means the United States Securities and Exchange Commission. “Common Stock” means the common stock of the Company, par value $0.001 per share, and any other class of securities into which suchsecurities may hereafter be reclassified or changed. “Common Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any timeCommon Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into orexercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock. “Company Counsel” means Davis Graham & Stubbs, LLP, with offices located at 1550 17th Street, Suite 500, Denver, CO 80202. “Conversion Price” shall have the meaning ascribed to such term in the Debentures. “Debentures” means the 8% Senior Secured Convertible Debentures due February 8, 2014, issued by the Company to the Original Purchasers underthe Purchase Agreement and to the Purchasers hereunder, substantially in the form of Exhibit A attached hereto. “Disclosure Schedules” shall have the meaning ascribed to such term in Section 3.1. “Effective Date” means the earliest of the date that (a) the initial Registration Statement has been declared effective by the Commission, (b) all of theUnderlying Shares have been sold pursuant to Rule 144 or may be sold pursuant to Rule 144 without the requirement for the Company to be in compliancewith the current public information required under Rule 144 and without volume or manner-of-sale restrictions or (c) following the one year anniversary of theClosing Date provided that a holder of Underlying Shares is not an Affiliate of the Company, all of the Registrable Securities may be sold pursuant to anexemption from registration under Section 4(1) of the Securities Act without volume or manner-of-sale restrictions and Company counsel has delivered to suchholders a standing written unqualified opinion that resales may then be made by such holders of the Underlying Shares pursuant to such exemption whichopinion shall be in form and substance reasonably acceptable to such holders. 2 “Evaluation Date” shall have the meaning ascribed to such term in Section 3.1(r). “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.“Exempt Issuance” means the issuance of (a) shares of Common Stock or options as compensation to employees, officers or directors of theCompany which issuance is approved by a majority of the non-employee members of the Board of Directors or a majority of the members of a committee ofnon-employee directors established for such purpose, (b) securities upon the exercise or exchange of or conversion of any Securities issued hereunder and/orother securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, provided thatsuch securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise price, exchange priceor conversion price of such securities, (c) securities issued to vendors or the landlord of the Company’s corporate headquarters which issuance is approved bya majority of the disinterested directors of the Company, and (d) securities issued pursuant to acquisitions or strategic transactions approved by a majority ofthe disinterested directors of the Company, provided that any such issuance shall only be to a Person (or to the equityholders of a Person) which is, itself orthrough its subsidiaries, an operating company or an owner of an asset in a business synergistic with the business of the Company and shall provide to theCompany additional benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarilyfor the purpose of raising capital or to an entity whose primary business is investing in securities. “FCPA” means the Foreign Corrupt Practices Act of 1977, as amended. “GAAP” shall have the meaning ascribed to such term in Section 3.1(h).“Holders” means the Original Purchasers and the Purchasers hereunder. “Indebtedness” shall have the meaning ascribed to such term in Section 3.1(aa). “Intellectual Property Rights” shall have the meaning ascribed to such term in Section 3.1(o). “Legend Removal Date” shall have the meaning ascribed to such term in Section 4.1(c). “Liens” means a lien, charge, pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction. “Material Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b). “Material Permits” shall have the meaning ascribed to such term in Section 3.1(m). “Maximum Rate” shall have the meaning ascribed to such term in Section 5.17. 3 “Original Purchasers” means the purchasers under the Purchaser Agreement. “Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liabilitycompany, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind. “Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding,such as a deposition), whether commenced or threatened.“Properties” means the oil and gas properties which secure the Debentures under the Security Documents, including the Well Liens to be granted toPurchasers in the future.“Purchase Agreement” means the Securities Purchase Agreement dated as of February 2, 2011 between the Company and the Original Purchasers. “Purchaser Party” shall have the meaning ascribed to such term in Section 4.10. “Registration Statement” means a registration statement covering the resale of the Underlying Shares by each Purchaser. “Required Approvals” shall have the meaning ascribed to such term in Section 3.1(e). “Required Minimum” means, as of any date, the maximum aggregate number of shares of Common Stock then issued or potentially issuable in thefuture pursuant to the Series Transaction Documents, including any Underlying Shares issuable upon conversion in full of all Debentures (includingUnderlying Shares issuable as payment of interest on the Debentures), ignoring any conversion or exercise limits set forth therein, and assuming that theConversion Price is at all times on and after the date of determination 75% of the then Conversion Price on the Trading Day immediately prior to the date ofdetermination. “Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or anysimilar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule. “Rule 424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time totime, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule. “Second Amendment” means the Second Amendment to 8% Senior Secured Convertible Debenture dated March 19, 2012 by and between theCompany and the Original Purchasers. “SEC Reports” shall have the meaning ascribed to such term in Section 3.1(h). 4 “Securities” means the Debentures and the Underlying Shares contemplated by this Agreement. “Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. “Security Documents” shall mean evidence of all mortgage or other required filings necessary to perfect the first priority security interest in theProperties, as described on Annex A attached hereto, including a new mortgage or mortgages (the “Lien Filings”) with respect to approximately 7,700 acres ofproperty in Kimball County, Nebraska and Laramie County, Wyoming (the “New Property”). “Series Transaction Documents” shall mean the Purchase Agreement, this Agreement, the Debentures, the Second Amendment, all exhibits andschedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated by the Purchase Agreement andthis Agreement. “Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include thelocation and/or reservation of borrowable shares of Common Stock). “Subscription Amount” means, as to each Purchaser, the aggregate amount to be paid for Debentures purchased hereunder as specified below suchPurchaser’s name on the signature page of this Agreement and next to the heading “Subscription Amount,” in United States dollars and in immediatelyavailable funds. “Trading Day” means a day on which the principal Trading Market is open for trading. “Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date inquestion: the NYSE AMEX, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or theOTC Bulletin Board (or any successors to any of the foregoing). “Transaction Documents” means this Agreement, the Debentures, all exhibits and schedules thereto and hereto and any other documents oragreements executed in connection with the transactions contemplated hereunder. “Transfer Agent” means Corporate Stock Transfer, the current transfer agent of the Company, with a mailing address of 3200 Cherry Creek Drive,Suite 430, Denver CO 80209 and a facsimile number of (303) 282-5800, and any successor transfer agent of the Company. “Underlying Shares” means the shares of Common Stock issued and issuable upon conversion or redemption of the Debentures and issued andissuable in lieu of the cash payment of interest on the Debentures in accordance with the terms of the Debentures. 5 “Variable Rate Transaction” shall have the meaning ascribed to such term in Section 4.13(b). “VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quotedon a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market onwhich the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m.(New York City time)), (b) if the OTC Bulletin Board is not a Trading Market, the volume weighted average price of the Common Stock for such date (or thenearest preceding date) on the OTC Bulletin Board, (c) if the Common Stock is not then listed or quoted for trading on the OTC Bulletin Board and if pricesfor the Common Stock are then reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a similar organization or agency succeeding to itsfunctions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a shareof Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities thenoutstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.“Wells” shall have the meaning ascribed to such term in Section 4.12.“Well Liens” shall have the meaning ascribed to such term in Section 4.12. ARTICLE IIPURCHASE AND SALE 2.1 Closing. On the Closing Date, upon the terms and subject to the conditions set forth herein, substantially concurrent with the execution anddelivery of this Agreement by the parties hereto, the Company agrees to sell, and the Purchasers, severally and not jointly, agree to purchase, an aggregate of$1,500,000 in principal amount of the Debentures. Each Purchaser shall deliver to the Company, via wire transfer or a certified check, immediatelyavailable funds equal to such Purchaser’s Subscription Amount as set forth on the signature page hereto executed by such Purchaser, and the Company shalldeliver to each Purchaser its respective Debenture, as determined pursuant to Section 2.2(a), and the Company and each Purchaser shall deliver the otheritems set forth in Section 2.2 deliverable at the Closing. Upon satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3, the Closingshall occur at the offices of Company Counsel or such other location as the parties shall mutually agree. 2.2 Deliveries. (a) On or prior to the Closing Date, the Company shall deliver or cause to be delivered to each Purchaser the following: (i) this Agreement duly executed by the Company; 6 (ii) the Second Amendment, duly executed by the Company and the Original Purchasers; (iii) a legal opinion of Company Counsel, in a form to be agreed by the parties hereto; (iv) a Debenture with a principal amount equal to such Purchaser’s Subscription Amount, registered in the name of suchPurchaser; (v) written confirmation that all of the Security Documents remain in full force and effect and evidence of the LienFilings. (b) On or prior to the Closing Date, each Purchaser shall deliver or cause to be delivered to the Company the following: (i) this Agreement duly executed by such Purchaser; and (ii) such Purchaser’s Subscription Amount by wire transfer to the account specified by the Company. 2.3 Closing Conditions. (a) The obligations of the Company hereunder in connection with the Closing are subject to the following conditions: (i) the representations and warranties of the Purchasers contained herein shall be accurate in all material respects onthe Closing Date (unless as of a specific date therein in which case they shall be accurate as of such date); (ii) all obligations, covenants and agreements of each Purchaser required to be performed at or prior to the ClosingDate shall have been performed; and (iii) each Purchaser shall have delivered the items set forth in Section 2.2(b) of this Agreement. (b) The respective obligations of the Purchasers hereunder in connection with the Closing are subject to the following conditions: (i) the representations and warranties of the Company contained herein shall be and have been accurate in all materialrespects on the Closing Date and when made (unless as of a specific date therein); (ii) all obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Dateshall have been performed; (iii) the items set forth in Section 2.2(a) of this Agreement shall have been delivered by the Company; 7 (iv) there shall have been no Material Adverse Effect with respect to the Company since the date hereof; (v) the Purchasers shall be satisfied with the valuation of the property subject to the Lien Filings, in their solediscretion; and (vi) from the date hereof to the Closing Date, trading in the Common Stock shall not have been suspended by theCommission or the Company’s principal Trading Market and, at any time prior to the Closing Date, trading in securities generally as reported byBloomberg L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reportedby such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States or New York Stateauthorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of suchmagnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of suchPurchaser, makes it impracticable or inadvisable to purchase the Securities at the Closing. 2.4 Subsequent Closing. The Company agrees to provide the Purchasers with drilling results and data on all wells drilled on the Properties. On orbefore September 15, 2012, the Purchasers, severally and not jointly, may elect to agree to purchase up to an additional $3,500,000 in principal amount of theDebentures on the same terms and conditions contained in the existing Debentures, including, without limitation, a Conversion Price of $4.25 (an “AdditionalInvestment”). Such Additional Investment shall be governed by the terms and conditions set forth in this Agreement. ARTICLE IIIREPRESENTATIONS AND WARRANTIES 3.1 Representations and Warranties of the Company. Except as set forth in the Disclosure Schedules, which Disclosure Schedules shall be deemed apart hereof and shall qualify any representation or otherwise made herein to the extent of the disclosure contained in the corresponding section of the DisclosureSchedules, the Company hereby makes the following representations and warranties to each Purchaser: (a) Subsidiaries. The Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free andclear of any Liens, and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable andfree of preemptive and similar rights to subscribe for or purchase securities. If the Company has no subsidiaries, all other references to the Subsidiaries orany of them in the Transaction Documents shall be disregarded. 8 (b) Organization and Qualification. The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized,validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite power and authority to own anduse its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation nor default of anyof the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and theSubsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature ofthe business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the casemay be, could not have or reasonably be expected to result in: (i) a material adverse effect on the legality, validity or enforceability of any TransactionDocument, (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of the Company and theSubsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligationsunder any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in any such jurisdictionrevoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification. (c) Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate thetransactions contemplated by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder andthereunder. The execution and delivery of this Agreement and each of the other Transaction Documents by the Company and the consummation by it of thetransactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is requiredby the Company, the Board of Directors or the Company’s stockholders in connection herewith or therewith other than in connection with the RequiredApprovals. This Agreement and each other Transaction Document to which it is a party has been (or upon delivery will have been) duly executed by theCompany and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceableagainst the Company in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization,moratorium, fraudulent conveyance and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating tothe availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may belimited by applicable law. (d) No Conflicts. Except as set forth on Schedule 3.1(d), the execution, delivery and performance by the Company of this Agreement andthe other Transaction Documents to which it is a party, the issuance and sale of the Securities and the consummation by it of the transactions contemplatedhereby and thereby do not and will not: (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation,bylaws or other organizational or charter documents, (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both wouldbecome a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rightsof termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or otherinstrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by whichany property or asset of the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict with or result in a violationof any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or aSubsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary isbound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect. 9 (e) Filings, Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give anynotice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with theexecution, delivery and performance by the Company of the Transaction Documents, other than: (i) the filings required pursuant to Section 4.6 of thisAgreement, (ii) the notice and/or application(s) to each applicable Trading Market for the issuance and sale of the Securities and the listing of the UnderlyingShares for trading thereon in the time and manner required thereby and (iii) the filing of Form D with the Commission and such filings as are required to bemade under applicable state securities laws (collectively, the “Required Approvals”). (f) Issuance of the Securities. The Securities are duly authorized and, when issued and paid for in accordance with the applicableTransaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other thanrestrictions on transfer provided for in the Transaction Documents. The Company has reserved from its duly authorized capital stock a number of shares ofCommon Stock for issuance of the Underlying Shares at least equal to the Required Minimum on the date hereof. (g) Capitalization. The capitalization of the Company is as set forth on Schedule 3.1(g), which Schedule 3.1(g) shall also include thenumber of shares of Common Stock owned beneficially, and of record, by Affiliates of the Company as of the date hereof. The Company has not issued anycapital stock since its most recently filed periodic report under the Exchange Act, other than pursuant to the exercise of employee stock options under theCompany’s stock option plans, the issuance of shares of Common Stock to employees as compensation and pursuant to the conversion and/or exercise ofCommon Stock Equivalents outstanding as of the date of the most recently filed periodic report under the Exchange Act. Except for the Original Purchasers,no Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by theTransaction Documents. Except for the Debentures, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of anycharacter whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right tosubscribe for or acquire any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or anySubsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents. The issuance and sale of the Securities willnot obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Purchasers) and will not result in a right of anyholder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities. All of the outstanding shares of capitalstock of the Company are duly authorized, validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securitieslaws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. Nofurther approval or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale of the Securities. There are nostockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to theknowledge of the Company, between or among any of the Company’s stockholders. 10 (h) SEC Reports; Financial Statements. The Company has filed all reports, schedules, forms, statements and other documents required tobe filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding thedate hereof (or such shorter period as the Company was required by law or regulation to file such material) (the foregoing materials, including the exhibitsthereto and documents incorporated by reference therein, being collectively referred to herein as the “SEC Reports”) on a timely basis or has received a validextension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their respective dates, the SECReports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and none of the SEC Reports, whenfiled, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make thestatements therein, in the light of the circumstances under which they were made, not misleading. The financial statements of the Company included in theSEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto asin effect at the time of filing. Such financial statements have been prepared in accordance with United States generally accepted accounting principles appliedon a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified in such financial statements or the notes thereto and exceptthat unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of theCompany and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, inthe case of unaudited statements, to normal, immaterial, year-end audit adjustments. (i) Material Changes; Undisclosed Events, Liabilities or Developments. Since the date of the latest audited financial statements includedwithin the SEC Reports, except as specifically disclosed in a subsequent SEC Report filed prior to the date hereof: (i) there has been no event, occurrence ordevelopment that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities(contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B)liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) theCompany has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to itsstockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued anyequity securities to any officer, director or Affiliate, except pursuant to existing Company stock option plans. The Company does not have pending before theCommission any request for confidential treatment of information. Except for the issuance of the Securities contemplated by this Agreement or as set forth onSchedule 3.1(i), no event, liability, fact, circumstance, occurrence or development has occurred or exists or is reasonably expected to occur or exist with respectto the Company or its Subsidiaries or their respective businesses, properties, operations, assets or financial condition, that would be required to be disclosedby the Company under applicable securities laws at the time this representation is made or deemed made that has not been publicly disclosed at least 1Trading Day prior to the date that this representation is made. 11 (j) Litigation. There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of theCompany, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmentalor administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”) which (i) adversely affects or challenges thelegality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, have or reasonablybe expected to result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject ofany Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. There has not been, and tothe knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or formerdirector or officer of the Company. The Commission has not issued any stop order or other order suspending the effectiveness of any registration statementfiled by the Company or any Subsidiary under the Exchange Act or the Securities Act. (k) Labor Relations. No labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of theCompany, which could reasonably be expected to result in a Material Adverse Effect. None of the Company’s or its Subsidiaries’ employees is a member of aunion that relates to such employee’s relationship with the Company or such Subsidiary, and neither the Company nor any of its Subsidiaries is a party to acollective bargaining agreement, and the Company and its Subsidiaries believe that their relationships with their employees are good. To the knowledge of theCompany, no executive officer of the Company or any Subsidiary, is, or is now expected to be, in violation of any material term of any employment contract,confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant infavor of any third party, and the continued employment of each such executive officer does not subject the Company or any of its Subsidiaries to any liabilitywith respect to any of the foregoing matters. The Company and its Subsidiaries are in compliance with all U.S. federal, state, local and foreign laws andregulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be incompliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (l) Compliance. Neither the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has notbeen waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or anySubsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement orinstrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violationof any judgment, decree or order of any court, arbitrator or other governmental authority or (iii) is or has been in violation of any statute, rule, ordinance orregulation of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental protection,occupational health and safety, product quality and safety and employment and labor matters, except in each case as could not have or reasonably be expectedto result in a Material Adverse Effect. (m) Regulatory Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriatefederal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failureto possess such permits could not reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and neither the Company nor anySubsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit. 12 (n) Title to Assets. Except as set forth on Schedule 3.1(n), the Company and the Subsidiaries have good and marketable title in fee simpleto all real property owned by them and good and marketable title in all personal property owned by them that is material to the business of the Company andthe Subsidiaries, in each case free and clear of all Liens, except for (i) Liens as do not materially affect the value of such property and do not materiallyinterfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and (ii) Liens for the payment of federal, state orother taxes, for which appropriate reserves have been made therefor in accordance with GAAP and, the payment of which is neither delinquent nor subject topenalties. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceableleases with which the Company and the Subsidiaries are in compliance. (o) Intellectual Property. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks,trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights asdescribed in the SEC Reports as necessary or required for use in connection with their respective businesses and which the failure to so have could have aMaterial Adverse Effect (collectively, the “Intellectual Property Rights”). None of, and neither the Company nor any Subsidiary has received a notice (writtenor otherwise) that any of, the Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be abandoned,within two (2) years from the date of this Agreement. Neither the Company nor any Subsidiary has received, since the date of the latest audited financialstatements included within the SEC Reports, a written notice of a claim or otherwise has any knowledge that the Intellectual Property Rights violate or infringeupon the rights of any Person, except as could not have or reasonably be expected to not have a Material Adverse Effect. To the knowledge of the Company, allsuch Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. TheCompany and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties,except where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (p) Insurance. The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses andrisks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged, including, but notlimited to, directors and officers insurance coverage in the amount of $5,000,000. Neither the Company nor any Subsidiary has any reason to believe that itwill not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may benecessary to continue its business without a significant increase in cost. (q) Transactions With Affiliates and Employees. Except as set forth in the SEC Reports, none of the officers or directors of the Companyor any Subsidiary and, to the knowledge of the Company, none of the employees of the Company or any Subsidiary is presently a party to any transactionwith the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangementproviding for the furnishing of services to or by, providing for rental of real or personal property to or from providing for the borrowing of money from orlending of money to, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity inwhich any officer, director, or any such employee has a substantial interest or is an officer, director, trustee, stockholder, member or partner, in each case inexcess of $120,000 other than for: (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of theCompany and (iii) other employee benefits, including stock option agreements under any stock option plan of the Company. 13 (r) Sarbanes-Oxley; Internal Accounting Controls. The Company and the Subsidiaries are in compliance with any and all applicablerequirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and all applicable rules and regulations promulgated by theCommission thereunder that are effective as of the date hereof and as of the Closing Date. Except as set forth on Schedule 3.1(r), the Company and theSubsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance withmanagement’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity withGAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv)the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to anydifferences. The Company and the Subsidiaries have established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and the Subsidiaries and designed such disclosure controls and procedures to ensure that information required to be disclosed by theCompany in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in theCommission’s rules and forms. The Company’s certifying officers have evaluated the effectiveness of the disclosure controls and procedures of the Companyand the Subsidiaries as of the end of the period covered by the most recently filed periodic report under the Exchange Act (such date, the “EvaluationDate”). The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers about theeffectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, except as set forth onSchedule 3.1(r), there have been no changes in the internal control over financial reporting (as such term is defined in the Exchange Act) that have materiallyaffected, or is reasonably likely to materially affect, the internal control over financial reporting of the Company and its Subsidiaries. (s) Certain Fees. No brokerage or finder’s fees or commissions are or will be payable by the Company or any Subsidiaries to any broker,financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by theTransaction Documents. The Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Personsfor fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by the Transaction Documents. (t) Private Placement. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, no registrationunder the Securities Act is required for the offer and sale of the Securities by the Company to the Purchasers as contemplated hereby. The issuance and sale ofthe Securities hereunder does not contravene the rules and regulations of the Trading Market. (u) Investment Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities, willnot be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended. The Company shall conductits business in a manner so that it will not become an “investment company” subject to registration under the Investment Company Act of 1940, as amended. (v) Registration Rights. Other than each of the Holders, no Person has any right to cause the Company to effect the registration under theSecurities Act of any securities of the Company or any Subsidiaries. 14 (w) Listing and Maintenance Requirements. The Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, andthe Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock underthe Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration. The Company has not,in the 12 months preceding the date hereof, received notice from any Trading Market on which the Common Stock is or has been listed or quoted to the effectthat the Company is not in compliance with the listing or maintenance requirements of such Trading Market. The Company is, and has no reason to believethat it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements. (x) Application of Takeover Protections. The Company and the Board of Directors have taken all necessary action, if any, in order torender inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similaranti-takeover provision under the Company’s certificate of incorporation (or similar charter documents) or the laws of its state of incorporation that is or couldbecome applicable to the Purchasers as a result of the Purchasers and the Company fulfilling their obligations or exercising their rights under the TransactionDocuments, including without limitation as a result of the Company’s issuance of the Securities and the Purchasers’ ownership of the Securities. (y) Disclosure. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents,the Company confirms that neither it nor any other Person acting on its behalf has provided any of the Purchasers or their agents or counsel with anyinformation that it believes constitutes or might constitute material, non-public information. The Company understands and confirms that the Purchasers willrely on the foregoing representation in effecting transactions in securities of the Company. All of the disclosure furnished by or on behalf of the Company tothe Purchasers regarding the Company and its Subsidiaries, their respective businesses and the transactions contemplated hereby, including the DisclosureSchedules to this Agreement, is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary inorder to make the statements made therein, in light of the circumstances under which they were made, not misleading. The press releases disseminated by theCompany during the twelve months preceding the date of this Agreement taken as a whole do not contain any untrue statement of a material fact or omit to statea material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made andwhen made, not misleading. The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect tothe transactions contemplated hereby other than those specifically set forth in Section 3.2 hereof. (z) No Integrated Offering. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, neither theCompany, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicitedany offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company forpurposes of (i) the Securities Act which would require the registration of any such securities under the Securities Act, or (ii) any applicable shareholderapproval provisions of any Trading Market on which any of the securities of the Company are listed or designated. 15 (aa) Solvency. Based on the consolidated financial condition of the Company as of the Closing Date, after giving effect to the receipt by theCompany of the proceeds from the sale of the Securities hereunder: (i) the fair saleable value of the Company’s assets exceeds the amount that will be requiredto be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature, (ii) the Company’sassets do not constitute unreasonably small capital to carry on its business as now conducted and as proposed to be conducted including its capital needstaking into account the particular capital requirements of the business conducted by the Company, consolidated and projected capital requirements and capitalavailability thereof, and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets,after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its liabilities when such amounts arerequired to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing andamounts of cash to be payable on or in respect of its debt). The Company has no knowledge of any facts or circumstances which lead it to believe that it willfile for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date. Schedule 3.1(aa)sets forth as of the date hereof all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or anySubsidiary has commitments. For the purposes of this Agreement, “Indebtedness” means (x) any liabilities for borrowed money or amounts owed in excess of$50,000 (other than trade accounts payable incurred in the ordinary course of business), (y) all guaranties, endorsements and other contingent obligations inrespect of indebtedness of others, whether or not the same are or should be reflected in the Company’s consolidated balance sheet (or the notes thereto), exceptguaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the presentvalue of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with GAAP. Neither the Company nor anySubsidiary is in default with respect to any Indebtedness. (bb) Tax Status. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a MaterialAdverse Effect, the Company and its Subsidiaries each (i) has made or filed all United States federal, state and local income and all foreign income andfranchise tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessmentsand charges that are material in amount, shown or determined to be due on such returns, reports and declarations and (iii) has set aside on its books provisionreasonably adequate for the payment of all material taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There areno unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company or of any Subsidiaryknow of no basis for any such claim. (cc) No General Solicitation. Neither the Company nor any person acting on behalf of the Company has offered or sold any of theSecurities by any form of general solicitation or general advertising. The Company has offered the Securities for sale only to the Purchasers and the OriginalPurchasers. 16 (dd) Foreign Corrupt Practices. Neither the Company nor any Subsidiary, nor to the knowledge of the Company or any Subsidiary, anyagent or other person acting on behalf of the Company or any Subsidiary, has: (i) directly or indirectly, used any funds for unlawful contributions, gifts,entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic governmentofficials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made bythe Company or any Subsidiary (or made by any person acting on its behalf of which the Company is aware) which is in violation of law or (iv) violated inany material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended. (ee) Accountants. The Company’s accounting firm is set forth on Schedule 3.1(ee) of the Disclosure Schedules. To the knowledge andbelief of the Company, such accounting firm: (i) is a registered public accounting firm as required by the Exchange Act and (ii) shall express its opinion withrespect to the financial statements to be included in the Company’s Annual Report for the fiscal year ending December 31, 2010. (ff) Seniority. As of the Closing Date, no Indebtedness or other claim against the Company is senior to the Debentures in right of payment,whether with respect to interest or upon liquidation or dissolution, or otherwise, other than indebtedness secured by purchase money security interests (whichis senior only as to underlying assets covered thereby) and capital lease obligations (which is senior only as to the property covered thereby). (gg) No Disagreements with Accountants and Lawyers. There are no disagreements of any kind presently existing, or reasonablyanticipated by the Company to arise, between the Company and the accountants and lawyers formerly or presently employed by the Company and theCompany is current with respect to any fees owed to its accountants and lawyers which, if unpaid, could affect the Company’s ability to perform any of itsobligations under any of the Transaction Documents. (hh) Acknowledgment Regarding Purchasers’ Purchase of Securities. The Company acknowledges and agrees that each of the Purchasersis acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated thereby. TheCompany further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to theTransaction Documents and the transactions contemplated thereby and any advice given by any Purchaser or any of their respective representatives or agentsin connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Purchasers’ purchase of theSecurities. The Company further represents to each Purchaser that the Company’s decision to enter into this Agreement and the other Transaction Documentshas been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives. (ii) Acknowledgment Regarding Purchaser’s Trading Activity. Anything in this Agreement or elsewhere herein to the contrarynotwithstanding (except for Sections 3.2(f) and 4.15 hereof), it is understood and acknowledged by the Company that: (i) none of the Purchasers has beenasked by the Company to agree, nor has any Purchaser agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or“derivative” securities based on securities issued by the Company or to hold the Securities for any specified term, (ii) past or future open market or othertransactions by any Purchaser, specifically including, without limitation, Short Sales or “derivative” transactions, before or after the closing of this or futureprivate placement transactions, may negatively impact the market price of the Company’s publicly-traded securities, (iii) any Purchaser, and counter-partiesin “derivative” transactions to which any such Purchaser is a party, directly or indirectly, may presently have a “short” position in the Common Stock and(iv) each Purchaser shall not be deemed to have any affiliation with or control over any arm’s length counter-party in any “derivative” transaction. TheCompany further understands and acknowledges that (y) one or more Purchasers may engage in hedging activities at various times during the period that theSecurities are outstanding, including, without limitation, during the periods that the value of the Underlying Shares deliverable with respect to Securities arebeing determined, and (z) such hedging activities (if any) could reduce the value of the existing stockholders' equity interests in the Company at and after thetime that the hedging activities are being conducted. The Company acknowledges that such aforementioned hedging activities do not constitute a breach of anyof the Transaction Documents. 17 (jj) Regulation M Compliance. The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly,any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any ofthe Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to anyPerson any compensation for soliciting another to purchase any other securities of the Company, other than, in the case of clauses (ii) and (iii), compensationpaid to the Company’s placement agent in connection with the placement of the Securities. (kk) Office of Foreign Assets Control. Neither the Company nor any Subsidiary nor, to the Company's knowledge, any director, officer,agent, employee or affiliate of the Company or any Subsidiary is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Controlof the U.S. Treasury Department (“OFAC”). (ll) U.S. Real Property Holding Corporation. The Company is not and has never been a U.S. real property holding corporation within themeaning of Section 897 of the Internal Revenue Code of 1986, as amended, and the Company shall so certify upon Purchaser’s request. (mm) Bank Holding Company Act. Neither the Company nor any of its Subsidiaries or Affiliates is subject to the Bank HoldingCompany Act of 1956, as amended (the “BHCA”) and to regulation by the Board of Governors of the Federal Reserve System (the “FederalReserve”). Neither the Company nor any of its Subsidiaries or, to the knowledge of the Company, Affiliates owns or controls, directly or indirectly, fivepercent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent or more of the total equity of a bank or any entity that issubject to the BHCA and to regulation by the Federal Reserve. Neither the Company nor any of its Subsidiaries or, to the knowledge of the Company,Affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA and to regulation by the FederalReserve. (nn) Money Laundering. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance withapplicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, applicablemoney laundering statutes and applicable rules and regulations thereunder (collectively, the “Money Laundering Laws”), and no action, suit or proceeding byor before any court or governmental agency, authority or body or any arbitrator involving the Company or any Subsidiary with respect to the MoneyLaundering Laws is pending or, to the knowledge of the Company or any Subsidiary, threatened. 18 3.2 Representations and Warranties of the Purchasers. Each Purchaser, for itself and for no other Purchaser, hereby represents and warrants as ofthe date hereof and as of the Closing Date to the Company as follows (unless as of a specific date therein): (a) Organization; Authority. Such Purchaser is either an individual or an entity duly incorporated or formed, validly existing and in goodstanding under the laws of the jurisdiction of its incorporated or formed with full right, corporate, partnership, limited liability company or similar power andauthority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunderand thereunder. The execution and delivery of the Transaction Documents and performance by such Purchaser of the transactions contemplated by theTransaction Documents have been duly authorized by all necessary corporate, partnership, limited liability company or similar action, as applicable, on thepart of such Purchaser. Each Transaction Document to which it is a party has been duly executed by such Purchaser, and when delivered by such Purchaserin accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with itsterms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium fraudulent conveyance andother laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance,injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law. (b) Own Account. Such Purchaser understands that the Securities are “restricted securities” and have not been registered under theSecurities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to or for distributing orreselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing anyof such Securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with anyother persons to distribute or regarding the distribution of such Securities in violation of the Securities Act or any applicable state securities law (thisrepresentation and warranty not limiting such Purchaser’s right to sell the Securities pursuant to the Registration Statement or otherwise in compliance withapplicable federal and state securities laws). Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business. (c) Purchaser Status. At the time such Purchaser was offered the Securities, it was, and as of the date hereof it is, and on each date onwhich it converts any Debentures it will be either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the SecuritiesAct or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act. Such Purchaser is not required to be registered as a broker-dealer under Section 15 of the Exchange Act. (d) Experience of Such Purchaser. Such Purchaser, either alone or together with its representatives, has such knowledge, sophisticationand experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and hasso evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the presenttime, is able to afford a complete loss of such investment. 19 (e) General Solicitation. Such Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or othercommunication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at anyseminar or any other general solicitation or general advertisement. (f) Certain Transactions and Confidentiality. Other than consummating the transactions contemplated hereunder, such Purchaser has notdirectly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser, executed any purchases or sales,including Short Sales, of the securities of the Company during the period commencing as of the time that such Purchaser first received a term sheet (written ororal) from the Company or any other Person representing the Company setting forth the material terms of the transactions contemplated hereunder and endingimmediately prior to the execution hereof. Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle wherebyseparate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investmentdecisions made by the portfolio managers managing other portions of such Purchaser’s assets, the representation set forth above shall only apply with respectto the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement. Other thanto other Persons party to this Agreement, such Purchaser has maintained the confidentiality of all disclosures made to it in connection with this transaction(including the existence and terms of this transaction). Notwithstanding the foregoing, for avoidance of doubt, nothing contained herein shall constitute arepresentation or warranty, or preclude any actions, with respect to the identification of the availability of, or securing of, available shares to borrow in order toeffect Short Sales or similar transactions in the future. The Company acknowledges and agrees that the representations contained in Section 3.2 shall not modify, amend or affect such Purchaser’s right to rely onthe Company’s representations and warranties contained in this Agreement or any representations and warranties contained in any other TransactionDocument or any other document or instrument executed and/or delivered in connection with this Agreement or the consummation of the transactioncontemplated hereby.ARTICLE IVOTHER AGREEMENTS OF THE PARTIES 4.1 Transfer Restrictions. (a) The Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer ofSecurities other than pursuant to an effective registration statement or Rule 144, to the Company or to an Affiliate of a Purchaser or in connection with a pledgeas contemplated in Section 4.1(b), the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferorand reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that suchtransfer does not require registration of such transferred Securities under the Securities Act. As a condition of transfer, any such transferee shall agree inwriting to be bound by the terms of this Agreement and shall have the rights and obligations of a Purchaser under this Agreement. (b) The Purchasers agree to the imprinting, so long as is required by this Section 4.1, of a legend on any of the Securities in the followingform: 20 [NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS [CONVERTIBLE]] HAS [NOT] BEEN REGISTEREDWITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON ANEXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND,ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THESECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THEREGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS ASEVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BEREASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY [AND THE SECURITIES ISSUABLE UPON [CONVERSION] OF THISSECURITY] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OROTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THESECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES. The Company acknowledges and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registeredbroker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accredited investor” as defined in Rule 501(a) underthe Securities Act and who agrees to be bound by the provisions of this Agreement and, if required under the terms of such arrangement, such Purchaser maytransfer pledged or secured Securities to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval of the Company and nolegal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith. Further, no notice shall be required of suchpledge. At the appropriate Purchaser’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party ofSecurities may reasonably request in connection with a pledge or transfer of the Securities. (c) Certificates evidencing the Underlying Shares shall not contain any legend (including the legend set forth in Section 4.1(b) hereof): (i)while a registration statement (including the Registration Statement) covering the resale of such security is effective under the Securities Act, (ii) following anysale of such Underlying Shares pursuant to Rule 144, (iii) if such Underlying Shares are eligible for sale under Rule 144, without the requirement for theCompany to be in compliance with the current public information required under Rule 144 as to such Underlying Shares and without volume or manner-of-sale restrictions or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncementsissued by the staff of the Commission). The Company shall cause its counsel to issue a legal opinion to the Transfer Agent promptly after the Effective Date ifrequired by the Transfer Agent to effect the removal of the legend hereunder. If all or any portion of a Debenture is converted at a time when there is an effectiveregistration statement to cover the resale of the Underlying Shares, or if such Underlying Shares may be sold under Rule 144 and the Company is then incompliance with the current public information required under Rule 144, or if such Underlying Shares may be sold under Rule 144 without the requirementfor the Company to be in compliance with the current public information required under Rule 144 as to such Underlying Shares and without volume ormanner-of-sale restrictions or if such legend is not otherwise required under applicable requirements of the Securities Act (including judicial interpretations andpronouncements issued by the staff of the Commission) then such Underlying Shares shall be issued free of all legends. The Company agrees that followingthe Effective Date or at such time as such legend is no longer required under this Section 4.1(c), it will, no later than three Trading Days following the deliveryby a Purchaser to the Company or the Transfer Agent of a certificate representing Underlying Shares, as applicable, issued with a restrictive legend (suchthird Trading Day, the “Legend Removal Date”), deliver or cause to be delivered to such Purchaser a certificate representing such shares that is free from allrestrictive and other legends. The Company may not make any notation on its records or give instructions to the Transfer Agent that enlarge the restrictions ontransfer set forth in this Section 4. Certificates for Underlying Shares subject to legend removal hereunder shall be transmitted by the Transfer Agent to thePurchaser by crediting the account of the Purchaser’s prime broker with the Depository Trust Company System as directed by such Purchaser. 21 (d) In addition to such Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated damagesand not as a penalty, for each $1,000 of Underlying Shares (based on the average VWAP of the Common Stock for the ten Trading Day period ending on thedate such Securities are submitted to the Transfer Agent) delivered for removal of the restrictive legend and subject to Section 4.1(c), $10 per Trading Day(increasing to $20 per Trading Day five (5) Trading Days after such damages have begun to accrue) for each Trading Day after the Legend Removal Dateuntil such certificate is delivered without a legend. Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Company’s failure todeliver certificates representing any Securities as required by the Transaction Documents, and such Purchaser shall have the right to pursue all remediesavailable to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. (e) Each Purchaser, severally and not jointly with the other Purchasers, agrees with the Company that such Purchaser will sell anySecurities pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemptiontherefrom, and that if Securities are sold pursuant to a Registration Statement, they will be sold in compliance with the plan of distribution set forth therein,and acknowledges that the removal of the restrictive legend from certificates representing Securities as set forth in this Section 4.1 is predicated upon theCompany’s reliance upon this understanding. 4.2 Acknowledgment of Dilution. The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding shares ofCommon Stock, which dilution may be substantial under certain market conditions. The Company further acknowledges that its obligations under theTransaction Documents, including, without limitation, its obligation to issue the Underlying Shares pursuant to the Transaction Documents, areunconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claimthe Company may have against any Purchaser and regardless of the dilutive effect that such issuance may have on the ownership of the other stockholders ofthe Company. 4.3 Furnishing of Information; Public Information. The Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act. Until theearliest of the time that (no Purchaser owns Securities, the Company covenants to maintain the registration of the Common Stock under Section 12(b) or 12(g)of the Exchange Act and to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by theCompany after the date hereof pursuant to the Exchange Act even if the Company is not then subject to the reporting requirements of the Exchange Act. 22 4.4 Integration. The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined inSection 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under theSecurities Act of the sale of the Securities or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of anyTrading Market such that it would require shareholder approval prior to the closing of such other transaction unless shareholder approval is obtained beforethe closing of such subsequent transaction. 4.5 Conversion and Exercise Procedures. Each of the form of Notice of Conversion included in the Debentures set forth the totality of the proceduresrequired of the Purchasers in order to convert the Debentures. No additional legal opinion, other information or instructions shall be required of the Purchasersto convert their Debentures. The Company shall honor exercises of the conversions of the Debentures and shall deliver Underlying Shares in accordance withthe terms, conditions and time periods set forth in the Transaction Documents. 4.6 Securities Laws Disclosure; Publicity. The Company shall (a) by 9:30 a.m. (New York City time) on the Trading Day immediately followingthe date hereof, issue a press release disclosing the material terms of the transactions contemplated hereby, and (b) file a Current Report on Form 8-K,including the Transaction Documents as exhibits thereto, with the Commission within the time required by the Exchange Act. From and after the issuance ofsuch press release, the Company represents to the Purchasers that it shall have publicly disclosed all material, non-public information delivered to any of thePurchasers by the Company or any of its Subsidiaries, or any of their respective officers, directors, employees or agents in connection with the transactionscontemplated by the Transaction Documents. The Company and each Purchaser shall consult with each other in issuing any other press releases with respectto the transactions contemplated hereby, and neither the Company nor any Purchaser shall issue any such press release nor otherwise make any such publicstatement without the prior consent of the Company, with respect to any press release of any Purchaser, or without the prior consent of each Purchaser, withrespect to any press release of the Company, which consent shall not unreasonably be withheld or delayed, except if such disclosure is required by law, inwhich case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication. Notwithstanding theforegoing, the Company shall not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filing with the Commission orany regulatory agency or Trading Market, without the prior written consent of such Purchaser, except: (a) as required by federal securities law in connectionwith the filing of final Transaction Documents (including signature pages thereto) with the Commission and (b) to the extent such disclosure is required bylaw or Trading Market regulations, in which case the Company shall provide the Purchasers with prior notice of such disclosure permitted under this clause(b). 4.7 Shareholder Rights Plan. No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that anyPurchaser is an “Acquiring Person” under any control share acquisition, business combination, poison pill (including any distribution under a rightsagreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by the Company, or that any Purchaser could be deemed to trigger theprovisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between theCompany and the Purchasers. 23 4.8 Non-Public Information. Except with respect to the material terms and conditions of the transactions contemplated by the TransactionDocuments, the Company covenants and agrees that neither it, nor any other Person acting on its behalf, will provide any Purchaser or its agents or counselwith any information that the Company believes constitutes material non-public information, unless prior thereto such Purchaser shall have entered into awritten agreement with the Company regarding the confidentiality and use of such information. The Company understands and confirms that each Purchasershall be relying on the foregoing covenant in effecting transactions in securities of the Company. 4.9 Use of Proceeds. The Company shall use the net proceeds from the sale of the Securities hereunder for dirt work, building of roads andlocations, drilling, testing, completing, reworking, recompleting, deepening, plugging back, abandoning, repairing, perforating, fracturing or dewatering of awell or wells in search of or in an endeavor to obtain, increase, or restore and/or market or render marketable or more valuable production of oil, gas and otherminerals and otherwise for working capital and shall not use such proceeds: (a) for the satisfaction of any portion of the Company’s debt (other than paymentof trade payables in the ordinary course of the Company’s business and prior practices), (b) for the redemption of any Common Stock or Common StockEquivalents, (c) for the settlement of any outstanding litigation or (d) in violation of FCPA or OFAC regulations. 4.10 Indemnification of Purchasers. Subject to the provisions of this Section 4.10, the Company will indemnify and hold each Purchaser and itsdirectors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holdingsuch titles notwithstanding a lack of such title or any other title), each Person who controls such Purchaser (within the meaning of Section 15 of theSecurities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Personswith a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling persons (each, a“Purchaser Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments,amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as aresult of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in theother Transaction Documents or (b) any action instituted against the Purchaser Parties in any capacity, or any of them or their respective Affiliates, by anystockholder of the Company who is not an Affiliate of such Purchaser Party, with respect to any of the transactions contemplated by the TransactionDocuments (unless such action is based upon a breach of such Purchaser Party’s representations, warranties or covenants under the Transaction Documentsor any agreements or understandings such Purchaser Party may have with any such stockholder or any violations by such Purchaser Party of state orfederal securities laws or any conduct by such Purchaser Party which constitutes fraud, gross negligence, willful misconduct or malfeasance). If any actionshall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptlynotify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptableto the Purchaser Party. Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but thefees and expenses of such counsel shall be at the expense of such Purchaser Party except to the 24 extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of timeto assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of counsel, a material conflict on any material issuebetween the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable fees andexpenses of no more than one such separate counsel. The Company will not be liable to any Purchaser Party under this Agreement (y) for any settlement by aPurchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (z) to the extent, but only to theextent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreementsmade by such Purchaser Party in this Agreement or in the other Transaction Documents. The indemnification required by this Section 4.10 shall be made byperiodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or are incurred. The indemnityagreements contained herein shall be in addition to any cause of action or similar right of any Purchaser Party against the Company or others and anyliabilities the Company may be subject to pursuant to law. 4.11 Reservation and Listing of Securities. (a) The Company shall maintain a reserve from its duly authorized shares of Common Stock for issuance pursuant to the TransactionDocuments in such amount as may then be required to fulfill its obligations in full under the Transaction Documents. (b) If, on any date, the number of authorized but unissued (and otherwise unreserved) shares of Common Stock is less than the RequiredMinimum on such date, then the Board of Directors shall use commercially reasonable efforts to amend the Company’s certificate or articles of incorporationto increase the number of authorized but unissued shares of Common Stock to at least the Required Minimum at such time, as soon as possible and in anyevent not later than the 75th day after such date. (c) The Company shall, if applicable: (i) in the time and manner required by the principal Trading Market, prepare and file with suchTrading Market an additional shares listing application covering a number of shares of Common Stock at least equal to the Required Minimum on the date ofsuch application, (ii) take all steps necessary to cause such shares of Common Stock to be approved for listing or quotation on such Trading Market as soonas possible thereafter, (iii) provide to the Purchasers evidence of such listing or quotation and (iv) maintain the listing or quotation of such Common Stock onany date at least equal to the Required Minimum on such date on such Trading Market or another Trading Market. 4.12 Well Liens and Working Interests.(a) The Company agrees that upon completion or plugging and abandonment of each well drilled with the proceedsfrom the sale of the Securities (the “Wells”), it will grant to the Purchasers a first priority lien on such Well and all Property located withinthe spacing unit designated by the state authorities for the applicable Well (the “Well Liens”) and will execute and, where appropriate, file allSecurity Documents related thereto. 25 (b) The Company agrees that upon completion or plugging and abandonment of each Well, it will execute anAssignment and Conveyance of Wellbore Interests in substantially the form attached hereto as Exhibit B (the “Assignment”), granting to thePurchasers a Carried Working Interest in the wellbore of such Well. 4.13 Subsequent Equity Sales. From the date hereof until such time as no Purchaser holds any of the Debentures, the Company shall be prohibitedfrom effecting or entering into an agreement to effect any issuance by the Company or any of its Subsidiaries of Common Stock or Common StockEquivalents for cash consideration (or a combination of units thereof) involving a Variable Rate Transaction. “Variable Rate Transaction” means a transactionin which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive,additional shares of Common Stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, thetrading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion,exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence ofspecified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) enters into anyagreement, including, but not limited to, an equity line of credit, whereby the Company may sell securities at a future determined price. Any Purchaser shallbe entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collectdamages. Notwithstanding the foregoing, this Section 4.13 shall not apply in respect of an Exempt Issuance, except that no Variable Rate Transaction shall bean Exempt Issuance. 4.14. Equal Treatment of Purchasers. No consideration (including any modification of any Series Transaction Document) shall be offered or paid toany Person to amend or consent to a waiver or modification of any provision of any of the Series Transaction Documents unless the same consideration is alsooffered to all of the parties to the Series Transaction Documents. For clarification purposes, this provision constitutes a separate right granted to each Holderby the Company and negotiated separately by each Holder, and is intended for the Company to treat the Holders as a class and shall not in any way beconstrued as the Holders acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise. 4.15 Certain Transactions and Confidentiality. Each Purchaser, severally and not jointly with the other Purchasers, covenants that neither it, nor anyAffiliate acting on its behalf or pursuant to any understanding with it will execute any purchases or sales, including Short Sales, of any of the Company’ssecurities during the period commencing with the execution of this Agreement and ending at such time that the transactions contemplated by this Agreement arefirst publicly announced pursuant to the initial press release as described in Section 4.6. Each Purchaser, severally and not jointly with the other Purchasers,covenants that until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company pursuant to the initial press releaseas described in Section 4.6, such Purchaser will maintain the confidentiality of the existence and terms of this transaction and the information included in theTransaction Documents and the Disclosure Schedules. Notwithstanding the foregoing, and notwithstanding anything contained in this Agreement to thecontrary, the Company expressly acknowledges and agrees that (i) no Purchaser makes any representation, warranty or covenant hereby that it will not engagein effecting transactions in any securities of the Company after the time that the transactions contemplated by this Agreement are first publicly announcedpursuant to the initial press release as described in Section 4.6, (ii) no Purchaser shall be restricted or prohibited from effecting any transactions in anysecurities of the Company in 26 accordance with applicable securities laws from and after the time that the transactions contemplated by this Agreement are first publicly announced pursuantto the initial press release as described in Section 4.6 and (iii) no Purchaser shall have any duty of confidentiality to the Company or its Subsidiaries after theissuance of the initial press release as described in Section 4.6. Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investmentvehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of theinvestment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the covenant set forth above shall only apply withrespect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement. 4.16 Form D; Blue Sky Filings. The Company agrees to timely file a Form D with respect to the Securities as required under Regulation D and toprovide a copy thereof, promptly upon request of any Purchaser. The Company shall take such action as the Company shall reasonably determine isnecessary in order to obtain an exemption for, or to qualify the Securities for, sale to the Purchasers at the Closing under applicable securities or “Blue Sky”laws of the states of the United States, and shall provide evidence of such actions promptly upon request of any Purchaser. 4.17 Capital Changes. Until the one year anniversary of the Effective Date, the Company shall not undertake a reverse or forward stock split orreclassification of the Common Stock without the prior written consent of the Holders holding a majority in principal amount outstanding of the Debentures. 4.18 Proceeds from Sale of Assets. In the event that the Company sell or leases or effects any disposition of the assets and property subject to the liensprovided for in the Security Documents, any such proceeds from such disposition shall be first used to repay the Debentures in full. ARTICLE VMISCELLANEOUS 5.1 Termination. This Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations hereunder only and without any effectwhatsoever on the obligations between the Company and the other Purchasers, by written notice to the other parties, if the Closing has not been consummatedon or before April 30, 2012; provided, however, that such termination will not affect the right of any party to sue for any breach by any other party (orparties). 5.2 Fees and Expenses. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of itsadvisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution,delivery and performance of this Agreement. The Company shall pay all Transfer Agent fees, stamp taxes and other taxes and duties levied in connection withthe delivery of any Securities to the Purchasers. 5.3 Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the partieswith respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, oral or written, with respect to such matters,which the parties acknowledge have been merged into such documents, exhibits and schedules. 27 5.4 Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall bedeemed given and effective on the earliest of: (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number setforth on the signature pages attached hereto at or prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date oftransmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day thatis not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second (2nd) Trading Day following the date of mailing, ifsent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given. The addressfor such notices and communications shall be as set forth on the signature pages attached hereto. 5.5 Amendments; Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrumentsigned, in the case of an amendment, by the Company and the Purchasers holding at least 51% in interest of the Securities then outstanding or, in the case ofa waiver, by the party against whom enforcement of any such waived provision is sought. No waiver of any default with respect to any provision, conditionor requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any otherprovision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise ofany such right. 5.6 Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect anyof the provisions hereof. 5.7 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permittedassigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser (other thanby merger). Any Purchaser may assign any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers anySecurities, provided that such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of the TransactionDocuments that apply to the “Purchasers.” 5.8 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permittedassigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.10. 5.9 Governing Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall begoverned by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of lawthereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreementand any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members,employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits tothe exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunderor in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the TransactionDocuments), and hereby irrevocably waives, and agrees not to assert in any suit, action or 28 proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is aninconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any suchsuit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the addressin effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothingcontained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. If either party shall commence anaction, suit or proceeding to enforce any provisions of the Transaction Documents, then, in addition to the obligations of the Company under Section 4.10, theprevailing party in such action, suit or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expensesincurred with the investigation, preparation and prosecution of such action or proceeding. 5.10 Survival. The representations and warranties contained herein shall survive the Closing and the delivery of the Securities. 5.11 Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the sameagreement and shall become effective when counterparts have been signed by each party and delivered to each other party, it being understood that the partiesneed not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file,such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effectas if such facsimile or “.pdf” signature page were an original thereof. 5.12 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal,void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in noway be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means toachieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared tobe the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such thatmay be hereafter declared invalid, illegal, void or unenforceable. 5.13 Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) anyof the other Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Companydoes not timely perform its related obligations within the periods therein provided, then such Purchaser may rescind or withdraw, in its sole discretion fromtime to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights;provided, however, that in the case of a rescission of a conversion of a Debenture, the applicable Purchaser shall be required to return any shares of CommonStock subject to any such rescinded conversion notice. 29 5.14 Replacement of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shallissue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, anew certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction. The applicant for anew certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with theissuance of such replacement Securities. 5.15 Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of thePurchasers and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not beadequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agree to waive andnot to assert in any action for specific performance of any such obligation the defense that a remedy at law would be adequate. 5.16 Payment Set Aside. To the extent that the Company makes a payment or payments to any Purchaser pursuant to any Transaction Document ora Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof aresubsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwiserestored to the Company, a trustee, receiver or any other Person under any law (including, without limitation, any bankruptcy law, state or federal law,common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall berevived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. 5.17 Usury. To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, andwill resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, inconnection with any claim, action or proceeding that may be brought by any Purchaser in order to enforce any right or remedy under any TransactionDocument. Notwithstanding any provision to the contrary contained in any Transaction Document, it is expressly agreed and provided that the total liabilityof the Company under the Transaction Documents for payments in the nature of interest shall not exceed the maximum lawful rate authorized under applicablelaw (the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated withany other sums in the nature of interest that the Company may be obligated to pay under the Transaction Documents exceed such Maximum Rate. It is agreedthat if the maximum contract rate of interest allowed by law and applicable to the Transaction Documents is increased or decreased by statute or any officialgovernmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to theTransaction Documents from the effective date thereof forward, unless such application is precluded by applicable law. If under any circumstanceswhatsoever, interest in excess of the Maximum Rate is paid by the Company to any Purchaser with respect to indebtedness evidenced by the TransactionDocuments, such excess shall be applied by such Purchaser to the unpaid principal balance of any such indebtedness or be refunded to the Company, themanner of handling such excess to be at such Purchaser’s election. 30 5.18 Independent Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser under any Transaction Document are severaland not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance or non-performance of theobligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action takenby any Purchaser pursuant hereto or thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind ofentity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactionscontemplated by the Transaction Documents. Each Purchaser shall be entitled to independently protect and enforce its rights, including, without limitation,the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as anadditional party in any proceeding for such purpose. Each Purchaser has been represented by its own separate legal counsel in its review and negotiation of theTransaction Documents. 5.19 Liquidated Damages. The Company’s obligations to pay any partial liquidated damages or other amounts owing under the TransactionDocuments is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated damages and other amounts have been paidnotwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages or other amounts are due and payable shall havebeen canceled. 5.20 Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or grantedherein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day. 5.21 Construction. The parties agree that each of them and/or their respective counsel have reviewed and had an opportunity to revise theTransaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall notbe employed in the interpretation of the Transaction Documents or any amendments thereto. In addition, each and every reference to share prices and shares ofCommon Stock in any Transaction Document shall be subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations andother similar transactions of the Common Stock that occur after the date of this Agreement. 5.22 WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTYAGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENTPERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVESFOREVER TRIAL BY JURY. (Signature Pages Follow) 31 IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorizedsignatories as of the date first indicated above. RECOVERY ENERGY, INC. Address for Notice: 1515 Wynkoop Street, Suite 200Denver, CO 80202 By:/s/ Roger A Parker Fax: 303-957-2234 Roger A. Parker Chief Executive Officer With a copy to (which shall not constitute notice) Davis Graham & Stubbs LLPAttention: Ron Levine1550 Seventeenth Street, Suite 500Denver, CO 80202[REMAINDER OF PAGE INTENTIONALLY LEFT BLANKSIGNATURE PAGES FOR PURCHASERS FOLLOW] 32 IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorizedsignatories as of the date first indicated above. Colony Partners, a California general partnership /s/ Bryan EzralowName: Bryan Ezralow as Trustee of the Bryan Ezralow 1994 TrustTitle:Managing General PartnerEmail Address of Authorized Signatory: ____________________________________________Facsimile Number of Authorized Signatory: _________________________________________Address for Notice to Purchaser: _________________________________________________Address for Delivery of Securities to Purchaser (if not same as address for notice): _______________________________________________________________________________________Subscription Amount: $________________EIN Number: _______________________ [SIGNATURE PAGES CONTINUE] 33 IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorizedsignatories as of the date first indicated above. Wallington Investment Holdings, Ltd. /s/ Michael KhouryName: Michael KhouryTitle: DirectorEmail Address of Authorized Signatory: ____________________________________________Facsimile Number of Authorized Signatory: _________________________________________Address for Notice to Purchaser: _________________________________________________Address for Delivery of Securities to Purchaser (if not same as address for notice): _______________________________________________________________________________________Subscription Amount: $________________EIN Number: _______________________ [SIGNATURE PAGES CONTINUE] 34 IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorizedsignatories as of the date first indicated above. G. Tyler Runnels and Jasmine N. Runnels TTEES The Runnels FamilyTrust DTD 1-11-2000 /s/ G. Tyler RunnelsName: G. Tyler RunnelsTitle: TrusteeEmail Address of Authorized Signatory: ____________________________________________Facsimile Number of Authorized Signatory: _________________________________________Address for Notice to Purchaser: _________________________________________________Address for Delivery of Securities to Purchaser (if not same as address for notice): _______________________________________________________________________________________Subscription Amount: $________________EIN Number: _______________________ [SIGNATURE PAGES CONTINUE] 35 EXHIBIT AForm of Debenture 36 EXHIBIT BForm of Assignment and Conveyance of Wellbore Interests This Assignment and Conveyance of Wellbore Interests (“Assignment”), effective as of the Effective Date, is by and among Recovery Energy, Inc.,a Nevada corporation, whose address is __________ (“Assignor”) and __________, a __________, whose address is __________ (“Assignee”). For Ten Dollars and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Assignor grants,bargains, sells, conveys, assigns, transfers, and delivers unto Assignee 5% of Assignor’s right, title, and interest, in and to a leasehold working interest inthe oil, gas, and/or mineral leases specifically described on Exhibit A (the “Leases”) INSOFAR AND ONLY INSOFAR as the Leases cover the wellbore ofthe [___________] well (“Wellbore”) located in the [__] of Section [__], Township [__][__], Range [__][__],[__] County, [__], at a location of [__] feetfrom the [__] line, and [__] feet from the [__] of Section [__], together with all rights, titles and interests in and to all the personal property, fixtures,improvements, well equipment, casing, tubing, tanks, pumps, motors, machinery, appurtenant to or used in connection with the Wellbore (together the“Wellbore Interests”). TO HAVE AND TO HOLD the Wellbore Interests unto Assignee and its successors and assigns forever. This Assignment is made subject to the following terms and conditions: 5.23 SPECIAL WARRANTY OF TITLE. ASSIGNOR WARRANTS TITLE TO THE WELLBORE INTERESTS AGAINST ALL PERSONSCLAIMING BY, THROUGH AND UNDER ASSIGNOR, BUT NOT OTHERWISE, AND EXCEPT FOR THAT WARRANTY, THIS ASSIGNMENTIS MADE WITHOUT WARRANTY OF TITLE OF ANY KIND, EXPRESS, IMPLIED, OR STATUTORY. 5.24 DISCLAIMER. EXCEPT AS SPECIFICALLY DESCRIBED HEREIN, ASSIGNOR EXPRESSLY DISCLAIMS AND NEGATES ANYWARRANTY AS TO THE CONDITION OF ANY PERSONAL PROPERTY, EQUIPMENT, FIXTURES AND ITEMS OF MOVABLE PROPERTYCOMPRISING ANY PART OF THE WELLBORE INTERESTS, INCLUDING (I) ANY IMPLIED OR EXPRESS WARRANTY OFMERCHANTABILITY, (II) ANY IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, (III) ANY IMPLIED OREXPRESS WARRANTY OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS, (IV) ANY RIGHTS OF ASSIGNEE UNDERAPPLICABLE STATUTES TO CLAIM DIMINUTION OF CONSIDERATION, AND (V) ANY CLAIM BY ASSIGNEE FOR DAMAGES BECAUSEOF DEFECTS, WHETHER KNOWN OR UNKNOWN. FURTHER, THE PERSONAL PROPERTY (INCLUDING THE EQUIPMENT)COMPRISING PART OF THE WELLBORE INTERESTS IS BEING CONVEYED BY ASSIGNOR, AND ASSIGNEE ACCEPTS SUCH PERSONALPROPERTY “AS IS, WHERE IS,” WITH ALL FAULTS AND IN ITS PRESENT CONDITION AND STATE OF REPAIR. 37 5.25 Carried Working Interest. As to the interest being assigned from Assignor to Assignee, Assignee shall be entitled to a Carried Working Interestin the Wellbore. The term “Carried Working Interest” means that the Assignor shall bear the Carried Costs (defined below) attributable to Assignee’sWellbore Interest prior to the point of delivery of production from the Wellbore to the tanks for oil and to the first meter on the wellsite for gas. The term“Carried Costs” shall include, but are not be limited to, all costs incurred by Assignor for the drilling, completing, reworking, sidetracking, deepening,recompleting, plugging back, and equipping the Wellbore. 5.26 Rights to Leases. Assignee may plug back, sidetrack, or recomplete the Wellbore in the same formation as the Wellbore, but Assignee shall nothave the right to recomplete in a shallower formation or deepen the Wellbore. Assignor reserves all leasehold rights outside of the Wellbore including withoutlimitation the right to drill additional wells within the lands covered by the drilling or proration unit applicable to the Wellbore. 5.27 Governmental Forms. Separate governmental form assignments of the Wellbore Interests may be executed on officially approved forms byAssignor to Assignee, in sufficient counterparts to satisfy applicable statutory and regulatory requirements. Those assignments shall be deemed to contain allof the exceptions, reservations, warranties, rights, titles, power and privileges set forth herein as fully as though they were set forth in each suchassignment. The interests conveyed by such separate assignments are the same, and not in addition to, the Wellbore Interests conveyed herein. 5.28 Subrogation. To the extent permitted by law, Assignee will be subrogated to Assignor’s rights in and to representations, warranties, andcovenants given with respect to the Wellbore Interests. Assignor hereby grants and transfers to Assignee, its successors and assigns, to the extent sotransferable and permitted by law, the benefit of and the right to enforce the covenants, representations and warranties, if any, which Assignor is entitled toenforce with respect to the Wellbore Interests, but only to the extent not enforced by Assignor. 5.29 Assumption of Contracts. Assignee hereby assumes and agree to be bound by all express and implied terms, covenants, rights, benefits,conditions, obligations, and liabilities under the any contract that is part of the Wellbore Interests. 5.30 [Debenture] Agreement. This Assignment is made subject to the [Debenture Agreement] dated [________] between Assignor and Assignee (“Agreement”). Assignor and Assignee intend that the terms of the Agreement not merge into the terms of this Assignment. 5.31 Successors and Assigns. This Assignment binds and inures to the benefit of Assignor and Assignee and their respective successors andassigns. The provisions of this Assignment shall be deemed to be covenants running with the land. 5.32 Counterpart Execution. This Assignment may be executed in any number of counterparts. All counterparts together constitute only oneAssignment, but each counterpart is considered an original. [Remainder of page left intentionally blank. Signature page follows.] 38 Assignor and Assignee have executed this Assignment as of the date of acknowledgements, but this Assignment shall be effective as of[______________], 2012 (the “Effective Date”). ASSIGNOR RECOVERY ENERGY, INC. By: Its: ASSIGNEE [_________________________________] By: Its: [Remainder of page left intentionally blank. Acknowledgments page follows.] 39 Acknowledgments STATE OF __________ )) ssCOUNTY OF ________ ) This instrument was acknowledged before me this ____ day of _________, 2012, by ________________, as ___________ of Recovery Energy,Inc., a Nevada corporation, on behalf of the corporation. Notary Public My Commission Expires: ______________ STATE OF __________ )) ssCOUNTY OF ________ ) This instrument was acknowledged before me this ____ day of _________, 2012, by ________________, as ___________ of_____________, a _________, on behalf of the _______. Notary Public My Commission Expires: ______________40Exhibit 10.58 NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THESECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTIONFROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOTBE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT ORPURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTSOF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINIONOF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THECOMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED INCONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.Original Issue Date: March ___, 2012Original Conversion Price (subject to adjustment herein): $4.25$_______________ 8% SENIOR SECURED CONVERTIBLE DEBENTUREDUE FEBRUARY 8, 2014THIS 8% SENIOR SECURED CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly issued 8% Senior Secured ConvertibleDebentures of Recovery Energy, Inc., a Nevada corporation, (the “Company”), having its principal place of business at 1515 Wynkoop Street, Suite 200,Denver, Colorado, 80202, designated as its 8% Senior Secured Convertible Debenture due February 8, 2014 (this debenture, the “Debenture” and, collectivelywith the other debentures of such series, the “Debentures”).FOR VALUE RECEIVED, the Company promises to pay to ________________________ or its registered assigns (the “Holder”), or shall have paidpursuant to the terms hereunder, the principal sum of $_______________ on February 8, 2014 (the “Maturity Date”) or such earlier date as this Debenture isrequired or permitted to be repaid as provided hereunder, and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amountof this Debenture in accordance with the provisions hereof. This Debenture is subject to the following additional provisions:Section 1. Definitions.For the purposes hereof, in addition to the terms defined elsewhere in this Debenture, (a) capitalized terms not otherwise defined herein shall have the meaningsset forth in the Purchase Agreement (as defined below) and (b) the following terms shall have the following meanings: “Alternate Consideration” shall have the meaning set forth in Section 5(e). 1 “Bankruptcy Event” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) ofRegulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors,dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary thereof, (b) there is commencedagainst the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement, (c) theCompany or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case orproceeding is entered, (d) the Company or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantialpart of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) the Company or any Significant Subsidiary thereofmakes a general assignment for the benefit of creditors, (f) the Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view toarranging a composition, adjustment or restructuring of its debts or (g) the Company or any Significant Subsidiary thereof, by any act or failure to act,expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any ofthe foregoing.“Base Conversion Price” shall have the meaning set forth in Section 5(b).“Beneficial Ownership Limitation” shall have the meaning set forth in Section 4(d).“Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on whichbanking institutions in the State of New York are authorized or required by law or other governmental action to close.“Buy-In” shall have the meaning set forth in Section 4(c)(v).“Change of Control Transaction” means the occurrence after the date hereof of any of (a) an acquisition by an individual or legal entity or “group” (asdescribed in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of theCompany, by contract or otherwise) of in excess of 33% of the voting securities of the Company (other than by means of conversion or exercise of theDebentures and the Securities issued together with the Debentures), (b) the Company merges into or consolidates with any other Person, or any Person mergesinto or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transactionown less than 66% of the aggregate voting power of the Company or the successor entity of such transaction, (c) the Company sells or transfers all orsubstantially all of its assets to another Person and the stockholders of the Company immediately prior to such transaction own less than 66% of the aggregatevoting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a three year period of more than one-half of themembers of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the Original IssueDate (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved bya majority of the members of the Board of Directors who are members on the date hereof), or (e) the execution by the Company of an agreement to which theCompany is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above. 2 “Conversion” shall have the meaning ascribed to such term in Section 4.“Conversion Date” shall have the meaning set forth in Section 4(a).“Conversion Price” shall have the meaning set forth in Section 4(b).“Conversion Schedule” means the Conversion Schedule in the form of Schedule 1 attached hereto.“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of this Debenture in accordance with the terms hereof.“Debenture Register” shall have the meaning set forth in Section 2(c).“Dilutive Issuance” shall have the meaning set forth in Section 5(b).“Dilutive Issuance Notice” shall have the meaning set forth in Section 5(b).“Equity Conditions” means, during the period in question, (a) the Company shall have duly honored all conversions and redemptions scheduled to occur oroccurring by virtue of one or more Notices of Conversion of the Holder, if any, (b) the Company shall have paid all liquidated damages and other amountsowing to the Holder in respect of this Debenture, (c)(i) there is an effective Registration Statement pursuant to which the Holder is permitted to utilize theprospectus thereunder to resell all of the shares of Common Stock issuable pursuant to the Transaction Documents (and the Company believes, in good faith,that such effectiveness will continue uninterrupted for the foreseeable future) or (ii) all of the Conversion Shares issuable pursuant to the TransactionDocuments (and shares issuable in lieu of cash payments of interest) may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions orcurrent public information requirements as determined by the counsel to the Company as set forth in a written opinion letter to such effect, addressed andacceptable to the Transfer Agent and the Holder, (d) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to theTransaction Documents are listed or quoted for trading on such Trading Market (and the Company believes, in good faith, that trading of the Common Stockon a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized but unissued and otherwiseunreserved shares of Common Stock for the issuance of all of the shares then issuable pursuant to the Transaction Documents, (f) there is no existing Eventof Default and no existing event which, with the passage of time or the giving of notice, would constitute an Event of Default, (g) the issuance of the shares inquestion (or, in the case of an Optional Redemption, the shares issuable upon conversion in full of the Optional Redemption Amount) to the Holder would notviolate the limitations set forth in Section 4(d) herein, (h) there has been no public announcement of a pending or proposed Fundamental Transaction orChange of Control Transaction that has not been consummated and (i) the applicable Holder is not in possession of any information provided by theCompany that constitutes, or may constitute, material non-public information.“Event of Default” shall have the meaning set forth in Section 8(a). 3 “Fundamental Transaction” shall have the meaning set forth in Section 5(e). “Interest Conversion Rate” means 95% of the lesser of (i) the average of the VWAPs for the 10 consecutive Trading Days ending on the Trading Day that isimmediately prior to the applicable Interest Payment Date or (ii) the average of the VWAPs for the 10 consecutive Trading Days ending on the Trading Day thatis immediately prior to the date the applicable Interest Conversion Shares are issued and delivered if such delivery is after the Interest Payment Date.“Interest Conversion Shares” shall have the meaning set forth in Section 2(a).“Interest Notice Period” shall have the meaning set forth in Section 2(a). “Interest Payment Date” shall have the meaning set forth in Section 2(a).“Interest Share Amount” shall have the meaning set forth in Section 2(a).“Late Fees” shall have the meaning set forth in Section 2(d).“Make-Whole Payment” means as to a portion of this Debenture being redeemed by an Optional Redemption, an amount equal to the interest accruable throughthe Maturity Date less the amount of any interest paid on the portion of the Debenture being redeemed before the relevant Optional Redemption Date.“Mandatory Default Amount” means the sum of (a) the greater of (i) the outstanding principal amount of this Debenture, plus all accrued and unpaid interesthereon, divided by the Conversion Price on the date the Mandatory Default Amount is either (A) demanded (if demand or notice is required to create an Eventof Default) or otherwise due or (B) paid in full, whichever has a lower Conversion Price, multiplied by the VWAP on the date the Mandatory Default Amountis either (x) demanded or otherwise due or (y) paid in full, whichever has a higher VWAP, or (ii) 115% of the outstanding principal amount of this Debenture,plus 100% of accrued and unpaid interest hereon, and (b) all other amounts, costs, expenses and liquidated damages due in respect of this Debenture.“New York Courts” shall have the meaning set forth in Section 9(d).“Notice of Conversion” shall have the meaning set forth in Section 4(a).“Optional Redemption” shall have the meaning set forth in Section 6(a).“Optional Redemption Amount” means the sum of (a) 115% of the then outstanding principal amount of the portion of the Debenture subject to an OptionalRedemption Notice, (b) accrued but unpaid interest and (c) all liquidated damages and other amounts due in respect of the portion of the Debenture subject toan Optional Redemption Notice.“Optional Redemption Date” shall have the meaning set forth in Section 6(a).“Optional Redemption Notice” shall have the meaning set forth in Section 6(a). 4 “Optional Redemption Notice Date” shall have the meaning set forth in Section 6(a).“Optional Redemption Period” shall have the meaning set forth in Section 6(a).“Original Issue Date” means the date of the first issuance of the Debentures, regardless of any transfers of any Debenture and regardless of the number ofinstruments which may be issued to evidence such Debentures.“Permitted Lien” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental charges or levies notyet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for whichadequate reserves (in the good faith judgment of the management of the Company) have been established in accordance with GAAP or (b) Liens imposed bylaw which were incurred in the ordinary course of the Company’s business, such as carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’Liens, and other similar Liens arising in the ordinary course of the Company’s business, and which (x) do not individually or in the aggregate materiallydetract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Company and its consolidatedSubsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future theforfeiture or sale of the property or asset subject to such Lien. “Purchase Agreement” means the Securities Purchase Agreement, dated as of March 19, 2012 among the Company and the Holders, as amended, modified orsupplemented from time to time in accordance with its terms.“Registration Statement” means a registration statement covering the resale of the Underlying Shares.“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. “Share Delivery Date” shall have the meaning set forth in Section 4(c)(ii).“Successor Entity” shall have the meaning set forth in Section 5(e). “Trading Day” means a day on which the principal Trading Market is open for trading.“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: theNYSE AMEX, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or the OTCBulletin Board (or any successors to any of the foregoing). 5 “VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on aTrading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on whichthe Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (NewYork City time)), (b) if the OTC Bulletin Board is not a Trading Market, the volume weighted average price of the Common Stock for such date (or thenearest preceding date) on the OTC Bulletin Board, (c) if the Common Stock is not then listed or quoted for trading on the OTC Bulletin Board and if pricesfor the Common Stock are then reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a similar organization or agency succeeding to itsfunctions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a shareof Common Stock as determined by an independent appraiser selected in good faith by the Holders of a majority in interest of the Debentures then outstandingand reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.Section 2. Interest.a) Payment of Interest in Cash or Kind. The Company shall pay interest to the Holder on the aggregate unconverted and then outstanding principal amount ofthis Debenture at the rate of 8% per annum, payable quarterly on February 15, May 15, August 15 and November 15, beginning on August 15, 2012, oneach Conversion Date (as to that principal amount then being converted), and on the Maturity Date (each such date, an “Interest Payment Date”) (if any InterestPayment Date is not a Business Day, then the applicable payment shall be due on the next succeeding Business Day), in cash or, at the Company’s option, induly authorized, validly issued, fully paid and non-assessable shares of Common Stock at the Interest Conversion Rate (the dollar amount to be paid inshares, the “Interest Share Amount”) or a combination thereof; provided, however, that payment in shares of Common Stock may only occur if (i) all of theEquity Conditions have been met (unless waived by the Holder in writing) during the 20 Trading Days immediately prior to the applicable Interest PaymentDate (the “Interest Notice Period”) and through and including the date such shares of Common Stock are actually issued to the Holder, (ii) the Company shallhave given the Holder notice in accordance with the notice requirements set forth below and (iii) as to such Interest Payment Date, prior to such Interest NoticePeriod (but not more than five (5) Trading Days prior to the commencement of such Interest Notice Period), the Company shall have delivered to the Holder’saccount with The Depository Trust Company a number of shares of Common Stock to be applied against such Interest Share Amount equal to the quotient of(x) the applicable Interest Share Amount divided by (y) the lesser of the (i) then Conversion Price and (ii) the Interest Conversion Rate assuming for suchpurposes that the Interest Payment Date is the Trading Day immediately prior to the commencement of the Interest Notice Period (the “Interest ConversionShares”). b) Company’s Election to Pay Interest in Cash or Kind. Subject to the terms and conditions herein, the decision whether to pay interest hereunder in cash,shares of Common Stock or a combination thereof shall be at the sole discretion of the Company. Prior to the commencement of any Interest Notice Period, theCompany shall deliver to the Holder a written notice of its election to pay interest hereunder on the applicable Interest Payment Date either in cash, shares ofCommon Stock or a combination thereof and the Interest Share Amount as to the applicable Interest Payment Date, provided that the Company may indicate insuch notice that the election contained in such notice shall apply to future Interest Payment Dates until revised by a subsequent notice. During any InterestNotice Period, the Company’s election (whether specific to an Interest Payment Date or continuous) shall be irrevocable as to such Interest PaymentDate. Subject to the aforementioned conditions, failure to timely deliver such written notice to the Holder shall be deemed an election by the Company to paythe interest on such Interest Payment Date in cash. At any time the Company delivers a notice to the Holder of its election to pay the interest in shares ofCommon Stock, the Company shall timely file a prospectus supplement pursuant to Rule 424 disclosing such election. The aggregate number of shares ofCommon Stock otherwise issuable to the Holder on an Interest Payment Date shall be reduced by the number of Interest Conversion Shares previously issuedto the Holder in connection with such Interest Payment Date. 6 c) Interest Calculations. Interest shall be calculated on the basis of a 360-day year, consisting of twelve 30 calendar day periods, and shall accrue dailycommencing on the Original Issue Date until payment in full of the outstanding principal, together with all accrued and unpaid interest, liquidated damagesand other amounts which may become due hereunder, has been made. Payment of interest in shares of Common Stock (other than the Interest ConversionShares issued prior to an Interest Notice Period) shall otherwise occur pursuant to Section 4(c)(ii) herein and, solely for purposes of the payment of interest inshares, the Interest Payment Date shall be deemed the Conversion Date. Interest shall cease to accrue with respect to any principal amount converted, providedthat, the Company actually delivers the Conversion Shares within the time period required by Section 4(c)(ii) herein. Interest hereunder will be paid to thePerson in whose name this Debenture is registered on the records of the Company regarding registration and transfers of this Debenture (the “DebentureRegister”). Except as otherwise provided herein, if at any time the Company pays interest partially in cash and partially in shares of Common Stock to theholders of the Debentures, then such payment of cash shall be distributed ratably among the holders of the then-outstanding Debentures based on their (or theirpredecessor’s) initial purchases of Debentures; provided, that to the extent that issuance of shares of Common Stock with respect to any holder of a Debenturewould cause such holder to exceed the ownership limitations set forth in Section 4(d) hereof, the Company shall pay cash to such holder.d) Late Fee. All overdue accrued and unpaid interest to be paid hereunder shall entail a late fee at an interest rate equal to the lesser of 18% per annum or themaximum rate permitted by applicable law (the “Late Fees”) which shall accrue daily from the date such interest is due hereunder through and including thedate of actual payment in full. Notwithstanding anything to the contrary contained herein, if, on any Interest Payment Date the Company has elected to payaccrued interest in the form of Common Stock but the Company is not permitted to pay accrued interest in Common Stock because it fails to satisfy theconditions for payment in Common Stock set forth in Section 2(a) herein, then, at the option of the Holder, the Company, shall pay regulartly scheduledinterest payments in cash plus, in the event Interest Conversion Shares were sold prior to notice of failure to meet such conditions and the Holder suffers aBuy-In on such Interest Conversion Shares, compensate the Holder for such Buy-In loss pursuant to Section 4(c)(v). If any Interest Conversion Shares areissued to the Holder in connection with an Interest Payment Date and are not applied against an Interest Share Amount, then the Holder shall promptly returnsuch excess shares to the Company. e) Prepayment. Except as otherwise set forth in this Debenture, the Company may not prepay any portion of the principal amount of this Debenture withoutthe prior written consent of the Holder. 7 Section 3. Registration of Transfers and Exchanges. a) Different Denominations. This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, asrequested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange. b) Investment Representations. This Debenture has been issued subject to certain investment representations of the original Holder set forth in the PurchaseAgreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and state securities laws andregulations.c) Reliance on Debenture Register. Prior to due presentment for transfer to the Company of this Debenture, the Company and any agent of the Company maytreat the Person in whose name this Debenture is duly registered on the Debenture Register as the owner hereof for the purpose of receiving payment as hereinprovided and for all other purposes, whether or not this Debenture is overdue, and neither the Company nor any such agent shall be affected by notice to thecontrary.Section 4. Conversion. a) Voluntary Conversion. At any time after the Original Issue Date until this Debenture is no longer outstanding, this Debenture shall be convertible, in wholeor in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth inSection 4(d) hereof). The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as AnnexA (each, a “Notice of Conversion”), specifying therein the principal amount of this Debenture to be converted and the date on which such conversion shall beeffected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that suchNotice of Conversion is deemed delivered hereunder. To effect conversions hereunder, the Holder shall not be required to physically surrender this Debentureto the Company unless the entire principal amount of this Debenture, plus all accrued and unpaid interest thereon, has been so converted. Conversionshereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable conversion. The Holderand the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s). The Company may deliver anobjection to any Notice of Conversion within one (1) Business Day of delivery of such Notice of Conversion. The Holder, and any assignee by acceptanceof this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Debenture,the unpaid and unconverted principal amount of this Debenture may be less than the amount stated on the face hereof. b) Conversion Price. The conversion price in effect on any Conversion Date shall be equal to $4.25, subject to adjustment herein (the “Conversion Price”).c) Mechanics of Conversion. i. Conversion Shares Issuable Upon Conversion of Principal Amount. The number of Conversion Shares issuable upon a conversion hereunder shallbe determined by the quotient obtained by dividing (x) the outstanding principal amount of this Debenture to be converted by (y) the Conversion Price. 8 ii. Delivery of Certificate Upon Conversion. Not later than three (3) Trading Days after each Conversion Date (the “Share Delivery Date”), the Companyshall deliver, or cause to be delivered, to the Holder (A) a certificate or certificates representing the Conversion Shares which, on or after the earlier of (i) the 6month anniversary of the Original Issue Date (if the Company is then current in its SEC Filings and if not, the 12 month anniversary) or (ii) the EffectiveDate, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement) representing thenumber of Conversion Shares being acquired upon the conversion of this Debenture (including, if the Company has given continuous notice pursuant toSection 2(b) for payment of interest in shares of Common Stock at least 20 Trading Days prior to the date on which the Notice of Conversion is delivered tothe Company, shares of Common Stock representing the payment of accrued interest otherwise determined pursuant to Section 2(a) but assuming that theInterest Notice Period is the 20 Trading Days period immediately prior to the date on which the Notice of Conversion is delivered to the Company andexcluding for such issuance the condition that the Company deliver Interest Conversion Shares as to such interest payment) and (B) a bank check in theamount of accrued and unpaid interest (if the Company has elected or is required to pay accrued interest in cash). On or after the earlier of (i) the six monthanniversary (assuming the Company is current in it periodic SEC Reports) of the Original Issue Date or (ii) the Effective Date, the Company shall use its bestefforts to deliver any certificate or certificates required to be delivered by the Company under this Section 4(c) electronically through the Depository TrustCompany or another established clearing corporation performing similar functions.iii. Failure to Deliver Certificates. If, in the case of any Notice of Conversion, such certificate or certificates are not delivered to or as directed by theapplicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of suchcertificate or certificates, to rescind such Conversion, in which event the Company shall promptly return to the Holder any original Debenture delivered to theCompany and the Holder shall promptly return to the Company the Common Stock certificates issued to such Holder pursuant to the rescinded ConversionNotice. iv. Obligation Absolute; Partial Liquidated Damages. The Company’s obligations to issue and deliver the Conversion Shares upon conversion of thisDebenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, anywaiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff,counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company orany violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit suchobligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operateas a waiver by the Company of any such action the Company may have against the Holder. In the event the Holder of this Debenture shall elect to convert anyor all of the outstanding principal amount hereof, the Company may not refuse conversion based on any claim that the Holder or anyone associated oraffiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder,restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained. In the absence of such injunction, the Companyshall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If the Company fails for any reason to deliver to the Holder suchcertificate or certificates pursuant to Section 4(c)(ii) by the Share Delivery Date, the 9 Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $10 per TradingDay (increasing to $20 per Trading Day on the fifth (5th) Trading Day after such liquidated damages begin to accrue) for each Trading Day after such ShareDelivery Date until such certificates are delivered or Holder rescinds such conversion. Nothing herein shall limit a Holder’s right to pursue actual damages ordeclare an Event of Default pursuant to Section 8 hereof for the Company’s failure to deliver Conversion Shares within the period specified herein and theHolder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performanceand/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof orunder applicable law.v. Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder, if theCompany fails for any reason to deliver to the Holder such certificate or certificates by the Share Delivery Date pursuant to Section 4(c)(ii), and if after suchShare Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firmotherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled toreceive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any otherremedies available to or elected by the Holder) the amount, if any, by which (x) the Holder’s total purchase price (including any brokerage commissions) forthe Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive fromthe conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including anybrokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Debenture in a principal amount equal to the principal amountof the attempted conversion (in which case such conversion shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock thatwould have been issued if the Company had timely complied with its delivery requirements under Section 4(c)(ii). For example, if the Holder purchasesCommon Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Debenture with respect to which theactual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause(A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written noticeindicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing hereinshall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specificperformance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon conversionof this Debenture as required pursuant to the terms hereof. vi. Reservation of Shares Issuable Upon Conversion. The Company covenants that it will at all times reserve and keep available out of its authorizedand unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture and payment of interest on this Debenture, each asherein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of theDebentures), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the PurchaseAgreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the then outstanding principal amount ofthis Debenture and payment of interest hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, beduly authorized, validly issued, fully paid and nonassessable and, if the Registration Statement is then effective under the Securities Act, shall be registeredfor public resale in accordance with such Registration Statement. 10 vii. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Debenture. As to anyfraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay a cashadjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.viii. Transfer Taxes. The issuance of certificates for shares of the Common Stock on conversion of this Debenture shall be made without charge to theHolder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that, theCompany shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate uponconversion in a name other than that of the Holder of this Debenture so converted and the Company shall not be required to issue or deliver such certificatesunless or until the Person or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to thesatisfaction of the Company that such tax has been paid.d) Holder’s Conversion Limitations. The Company shall not effect any conversion of this Debenture, and a Holder shall not have the right to convert anyportion of this Debenture, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with theHolder’s Affiliates, and any Persons acting as a group together with the Holder or any of the Holder’s Affiliates) would beneficially own in excess of theBeneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned bythe Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of this Debenture with respect to which suchdetermination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconvertedprincipal amount of this Debenture beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or unconvertedportion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, withoutlimitation, any other Debentures) beneficially owned by the Holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of thisSection 4(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgatedthereunder. To the extent that the limitation contained in this Section 4(d) applies, the determination of whether this Debenture is convertible (in relation to othersecurities owned by the Holder together with any Affiliates) and of which principal amount of this Debenture is convertible shall be in the sole discretion of theHolder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether this Debenture may be converted (in relationto other securities owned by the Holder together with any Affiliates) and which principal amount of this Debenture is convertible, in each case subject to theBeneficial Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed to represent to the Company each time it delivers aNotice of Conversion that such Notice of 11 Conversion has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy of suchdetermination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the ExchangeAct and the rules and regulations promulgated thereunder. For purposes of this Section 4(d), in determining the number of outstanding shares of CommonStock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Company’s most recentperiodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Company, or (iii) a more recent writtennotice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request ofa Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of theCompany, including this Debenture, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock wasreported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect tothe issuance of shares of Common Stock issuable upon conversion of this Debenture held by the Holder. The Holder, upon not less than 61 days’ priornotice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 4(d), provided that the Beneficial OwnershipLimitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares ofCommon Stock upon conversion of this Debenture held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(d) shall continueto apply. Any such increase or decrease will not be effective until the 61st day after such notice is delivered to the Company. The Beneficial OwnershipLimitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(d)to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein orto make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to asuccessor holder of this Debenture.Section 5. Certain Adjustments.a) Stock Dividends and Stock Splits. If the Company, at any time while this Debenture is outstanding: (i) pays a stock dividend or otherwise makes adistribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance ofdoubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or payment of interest on, the Debentures), (ii) subdividesoutstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares ofCommon Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock ofthe Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excludingany treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of CommonStock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for thedetermination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of asubdivision, combination or re-classification. 12 b) Subsequent Equity Sales. If, at any time while this Debenture is outstanding, the Company or any Subsidiary, as applicable, sells or grants any optionto purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or otherdisposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock at an effective price per share thatis lower than the then Conversion Price (such lower price, the “Base Conversion Price” and such issuances, collectively, a “Dilutive Issuance”) (if the holderof the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions,floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with suchissuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall be deemedto have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then the Conversion Price shall be reduced to equal the BaseConversion Price. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing,no adjustment will be made under this Section 5(b) in respect of an Exempt Issuance. If the Company enters into a Variable Rate Transaction, despite theprohibition set forth in the Purchase Agreement, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowestpossible conversion price at which such securities may be converted or exercised. The Company shall notify the Holder in writing, no later than the TradingDay following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 5(b), indicating therein the applicable issuanceprice, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes ofclarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon the occurrence of any Dilutive Issuance, theHolder is entitled to receive a number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless ofwhether the Holder accurately refers to the Base Conversion Price in the Notice of Conversion. c) Subsequent Rights Offerings. If the Company, at any time while the Debenture is outstanding, shall issue rights, options or warrants to all holders ofCommon Stock (and not to the Holders) entitling them to subscribe for or purchase shares of Common Stock at a price per share that is lower than the VWAPon the record date referenced below, then the Conversion Price shall be multiplied by a fraction of which the denominator shall be the number of shares of theCommon Stock outstanding on the date of issuance of such rights, options or warrants plus the number of additional shares of Common Stock offered forsubscription or purchase, and of which the numerator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights,options or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered (assuming delivery to the Company infull of all consideration payable upon exercise of such rights, options or warrants) would purchase at such VWAP. Such adjustment shall be made wheneversuch rights, options or warrants are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receivesuch rights, options or warrants. 13 d) Pro Rata Distributions. If the Company, at any time while this Debenture is outstanding, distributes to all holders of Common Stock (and not to theHolders) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security (otherthan the Common Stock, which shall be subject to Section 5(b)), then in each such case the Conversion Price shall be adjusted by multiplying suchConversion Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction ofwhich the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such recorddate less the then fair market value at such record date of the portion of such assets or evidence of indebtedness or rights or warrants so distributed applicableto one outstanding share of the Common Stock as determined by the Board of Directors of the Company in good faith. In either case the adjustments shall bedescribed in a statement delivered to the Holder describing the portion of assets or evidences of indebtedness so distributed or such subscription rightsapplicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediatelyafter the record date mentioned above.e) Fundamental Transaction. If, at any time while this Debenture is outstanding, (i) the Company, directly or indirectly, in one or more related transactionseffects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license,assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct orindirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stockare permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of theoutstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization orrecapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged forother securities, cash or property, (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchaseagreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with anotherPerson whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held bythe other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchaseagreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent conversion of this Debenture, the Holder shallhave the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of suchFundamental Transaction (without regard to any limitation in Section 4(d) on the conversion of this Debenture), the number of shares of Common Stock of thesuccessor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”)receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Debenture is convertibleimmediately prior to such Fundamental Transaction (without regard to any limitation in Section 4(d on the conversion of this Debenture). For purposes of anysuch conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount ofAlternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction, and the Company shall apportion theConversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the AlternateConsideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then theHolder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Debenture following such Fundamental 14 Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “SuccessorEntity”) to assume in writing all of the obligations of the Company under this Debenture and the other Transaction Documents (as defined in the PurchaseAgreement) in accordance with the provisions of this Section 5(e) pursuant to written agreements in form and substance reasonably satisfactory to the holdersof at least 67% in principal amount of the Debentures and approved by such holders (without unreasonable delay) prior to such Fundamental Transaction andshall, at the option of the Holder, deliver to the Holder in exchange for this Debenture a security of the Successor Entity evidenced by a written instrumentsubstantially similar in form and substance to this Debenture which is convertible for a corresponding number of shares of capital stock of such SuccessorEntity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Debenture (without regard to anylimitations on the conversion of this Debenture) prior to such Fundamental Transaction, and with a conversion price which applies the conversion pricehereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such FundamentalTransaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose ofprotecting the economic value of this Debenture immediately prior to the consummation of such Fundamental Transaction), and which is reasonablysatisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and besubstituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Debenture and the other Transaction Documentsreferring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of theobligations of the Company under this Debenture and the other Transaction Documents with the same effect as if such Successor Entity had been named asthe Company herein.f) Calculations. All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes ofthis Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares ofCommon Stock (excluding any treasury shares of the Company) issued and outstanding.g) Notice to the Holder.i. Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shallpromptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring suchadjustment. ii. Notice to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the CommonStock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize thegranting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D)the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or mergerto which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby theCommon 15 Stock is converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or windingup of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion ofthis Debenture, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Debenture Register, at least twenty (20) calendar daysprior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of suchdividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to beentitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation,merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock ofrecord shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification,consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall notaffect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes, or contains,material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commissionpursuant to a Current Report on Form 8-K. The Holder shall remain entitled to convert this Debenture during the 20-day period commencing on the date ofsuch notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.Section 6. Redemption.a) Optional Redemption at Election of Company. Subject to the provisions of this Section 6(a), at any time after date hereof, the Company may deliver anotice to the Holder (an “Optional Redemption Notice” and the date such notice is deemed delivered hereunder, the “Optional Redemption Notice Date”) of itsirrevocable election to redeem some or all of the then outstanding principal amount of this Debenture for cash in an amount equal to the Optional RedemptionAmount on the 20th Trading Day following the Optional Redemption Notice Date (such date, the “Optional Redemption Date”, such 20 Trading Day period,the “Optional Redemption Period” and such redemption, the “Optional Redemption”). The Optional Redemption Amount is payable in full on the OptionalRedemption Date. The Company may only effect an Optional Redemption if each of the Equity Conditions shall have been met (unless waived in writing bythe Holder) on each Trading Day during the period commencing on the Optional Redemption Notice Date through to the Optional Redemption Date and throughand including the date payment of the Optional Redemption Amount is actually made in full. If any of the Equity Conditions shall cease to be satisfied at anytime during the Optional Redemption Period, then the Holder may elect to nullify the Optional Redemption Notice by notice to the Company within 3 TradingDays after the first day on which any such Equity Condition has not been met (provided that if, by a provision of the Transaction Documents, the Companyis obligated to notify the Holder of the non-existence of an Equity Condition, such notice period shall be extended to the third Trading Day after proper noticefrom the Company) in which case the Optional Redemption Notice shall be null and void, ab initio. The Company covenants and agrees that it will honor allNotices of Conversion tendered from the time of delivery of the Optional Redemption Notice through the date all amounts owing thereon are due and paid infull. The Company’s determination to pay an Optional Redemption in cash shall be applied ratably to all of the holders of the then outstanding Debenturesbased on their (or their predecessor’s) initial purchases of Debentures. 16 b) Redemption Procedure. The payment of cash or issuance of Common Stock, as applicable, pursuant to an Optional Redemption shall be payable on theOptional Redemption Date. If any portion of the payment pursuant to an Optional Redemption shall not be paid by the Company by the applicable due date,interest shall accrue thereon at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted by applicable law until such amount is paidin full. Notwithstanding anything herein contained to the contrary, if any portion of the Optional Redemption Amount remains unpaid after such date, theHolder may elect, by written notice to the Company given at any time thereafter, to invalidate such Optional Redemption, ab initio, and, with respect to theCompany’s failure to honor the Optional Redemption, the Company shall have no further right to exercise such Optional Redemption. Notwithstandinganything to the contrary in this Section 6, the Company’s determination to redeem in cash or its elections under Section 6(b) shall be applied ratably amongthe Holders of Debentures. The Holder may elect to convert the outstanding principal amount of the Debenture pursuant to Section 4 prior to actual payment incash for any redemption under this Section 6 by the delivery of a Notice of Conversion to the Company and, in addition to the delivery of Conversion Sharesupon conversion thereof, the Company shall be required to issue to the Holder an additional number of shares of duly authorized, validly issued, fully paidand non-assessable shares of Common Stock equal to the Make-Whole Payment divided by the Conversion Price.Section 7. Negative Covenants. As long as any portion of this Debenture remains outstanding, unless the holders of at least 67% in principal amount ofthe then outstanding Debentures shall have otherwise given prior written consent, the Company shall not, and shall not permit any of the Subsidiaries to,directly or indirectly:a) other than Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens on the property securing this Debenture as described in the SecurityDocuments (as defined in the Purchase Agreement), or any interest therein or any income or profits therefrom;b) amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially and adverselyaffects any rights of the Holder;c) repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its Common Stock or Common StockEquivalents other than as to (i) the Conversion Shares as permitted or required under the Transaction Documents and (ii) repurchases of Common Stock orCommon Stock Equivalents of departing officers and directors of the Company, provided that such repurchases shall not exceed an aggregate of $100,000 forall officers and directors during the term of this Debenture;d) pay cash dividends or distributions on any equity securities of the Company;e) enter into any transaction with any Affiliate of the Company which would be required to be disclosed in any public filing with the Commission, unlesssuch transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Company (even if less than aquorum otherwise required for board approval); or 17 f) enter into any agreement with respect to any of the foregoing. Section 8. Events of Default.a) “Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntaryor involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrativeor governmental body):i. any default in the payment of (A) the principal amount of any Debenture or (B) interest, liquidated damages and other amounts owing to a Holder onany Debenture, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise)which default, solely in the case of an interest payment or other default under clause (B) above, is not cured within 3 Trading Days; ii. the Company shall fail to observe or perform any other covenant or agreement contained in the Debentures (other than a breach by the Company of itsobligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause (xi) below) which failure is not cured, ifpossible to cure, within the earlier to occur of (A) 5 Trading Days after notice of such failure sent by the Holder or by any other Holder to the Company and(B) 10 Trading Days after the Company has become or should have become aware of such failure;iii. a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A)any of the Transaction Documents or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is obligated(and not covered by clause (vi) below);iv. any representation or warranty made in this Debenture, any other Transaction Documents, any written statement pursuant hereto or thereto or anyother report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue or incorrect in any material respect as of thedate when made or deemed made;v. the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event; vi. the Company or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement,factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowedmoney or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $150,000, whether such indebtednessnow exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it wouldotherwise become due and payable; vii. the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible to resume listing orquotation for trading thereon within five Trading Days; 18 viii. the Company shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree to sell or dispose of all or in excess of33% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control Transaction);ix. the Company shall fail for any reason to deliver certificates to a Holder prior to the fifth Trading Day after a Conversion Date pursuant to Section4(c) or the Company shall provide at any time notice to the Holder, including by way of public announcement, of the Company’s intention to not honorrequests for conversions of any Debentures in accordance with the terms hereof;x. any Person shall breach any agreement delivered to the Holders pursuant to Section 2.2 of the Purchase Agreement; orxi. any monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respectiveproperty or other assets for more than $50,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a periodof 45 calendar days.b) Remedies Upon Event of Default. If any Event of Default occurs, the outstanding principal amount of this Debenture, plus accrued but unpaid interest,liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due andpayable in cash at the Mandatory Default Amount. Commencing 5 days after the occurrence of any Event of Default that results in the eventual acceleration ofthis Debenture, the interest rate on this Debenture shall accrue at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted underapplicable law. Upon the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Debenture to or as directed by theCompany. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand,protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedieshereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to paymenthereunder and the Holder shall have all rights as a holder of the Debenture until such time, if any, as the Holder receives full payment pursuant to this Section8(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon. Section 9. Miscellaneous.a) Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice ofConversion, shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service, addressed to the Company,at the address set forth above, or such other facsimile number or address as the Company may specify for such purposes by notice to the Holder delivered inaccordance with this Section 9(a). Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing anddelivered personally, by facsimile, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or address ofthe Holder 19 appearing on the books of the Company, or if no such facsimile number or address appears on the books of the Company, at the principal place of businessof such Holder, as set forth in the Purchase Agreement. Any notice or other communication or deliveries hereunder shall be deemed given and effective on theearliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pagesattached hereto prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communicationis delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m.(New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courierservice or (iv) upon actual receipt by the party to whom such notice is required to be given. b) Absolute Obligation. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of the Company, which isabsolute and unconditional, to pay the principal of, liquidated damages and accrued interest, as applicable, on this Debenture at the time, place, and rate, andin the coin or currency, herein prescribed. This Debenture is a direct debt obligation of the Company. This Debenture ranks pari passu with all otherDebentures now or hereafter issued under the terms set forth herein. c) Lost or Mutilated Debenture. If this Debenture shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange andsubstitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new Debenture forthe principal amount of this Debenture so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of suchDebenture, and of the ownership hereof, reasonably satisfactory to the Company.d) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be governed by and construedand enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws thereof. Each party agrees thatall legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whetherbrought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federalcourts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits to the exclusivejurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby ordiscussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert inany suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improperor inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in anysuch suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at theaddress in effect for notices to it under this Debenture and agrees that such service shall constitute good and sufficient service of process and noticethereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. Each partyhereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of orrelating to this Debenture or the transactions contemplated hereby. If any party shall commence an action or proceeding to enforce any provisions of thisDebenture, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys fees and other costs and expensesincurred in the investigation, preparation and prosecution of such action or proceeding. 20 e) Waiver. Any waiver by the Company or the Holder of a breach of any provision of this Debenture shall not operate as or be construed to be a waiver of anyother breach of such provision or of any breach of any other provision of this Debenture. The failure of the Company or the Holder to insist upon strictadherence to any term of this Debenture on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist uponstrict adherence to that term or any other term of this Debenture on any other occasion. Any waiver by the Company or the Holder must be in writing. f) Severability. If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect, and if anyprovision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be foundthat any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shallautomatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully doso) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law orother law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on this Debenture as contemplated herein,wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Debenture, and the Company (to theextent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law,hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such lawhas been enacted.g) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be madeon the next succeeding Business Day.h) Headings. The headings contained herein are for convenience only, do not constitute a part of this Debenture and shall not be deemed to limit or affect anyof the provisions hereof.i) Secured Obligation. The obligations of the Company under this Debenture are secured by the Company’s interests in the properties described on Annex Bhereto and the Well Liens. 21 j) Future Debt or Equity Offerings. The Company hereby grants to the Holder the right to purchase on a pro rata basis, based upon its respective percentageownership of outstanding Debentures, up to 15% of the total offering amount of any newly issued convertible debentures, preferred stock or Common Stock (“New Securities”) issued by the Company prior to December 31, 2012 (a “Preemptive Issuance”), excluding any issuances (i) pursuant to any equityincentive plan or similar issuances to employees, directors and consultants, (ii) pursuant to any financing transaction under bank lines of credit, and(iii) pursuant to the acquisition of another entity by the Company via merger, consolidation, purchase of all or substantially all of the capital stock or assetsof such entity, or any other form of transaction. The Company shall provide written notice of any Preemptive Issuance (a “Notice of Issuance”) to the Holderat least ten (10) days prior to the proposed consummation of a Preemptive Issuance. Any Notice of Issuance shall specify (i) the amount, kind and terms ofthe New Securities to be issued, (ii) the terms of purchase thereof, including the purchase price, the expected timing of the closing, the payment terms and anyadditional terms relevant to the Holders’s decision to purchase and (iii) the total amount of New Securities which each such Holder is entitled to purchase in thePreemptive Issuance (such Holder’s “Pro Rata Share”). If the Holder desiring to accept the offer contained in the Notice of Issuance, it will be required todeliver written notice of such acceptance to the Company within five (5) days after delivery of the Notice of Issuance, indicating (i) the amount of NewSecurities such Holder desires to acquire (not in any event to exceed such Holder’s Pro Rata Share) and (ii) the amount, if any, such Holder desires to acquirebeyond such Holder’s Pro Rata Share, in the event any other Holder does not purchase its own Pro Rata Share. The Company shall determine in good faith theallocation of New Securities among the interested Holders in a manner consistent with the Holders’ responses, with successive allocations of any NewSecurities not so purchased by a Holder, if any, on the same pro rata basis until all such New Securities have been so allocated or until such time as allpurchasing Holders have been allocated all eligible New Securities that they desire to purchase. The Preemptive Issuance shall occur, if at all, (a) on theproposed date of issuance specified in the relevant Notice of Issuance (provided that consummation of any Preemptive Issuance may be extended beyond suchdate to the extent necessary to obtain any applicable governmental approval or to satisfy other conditions) or (b) at such time as the Company shall specify toeach purchasing Holder, provided that in no event shall any purchasing Holder be required, without its consent, to close its particular transaction prior to thedate that is ten (10) days after the Company delivers the applicable Notice of Issuance and (c) at such place as the Company shall specify to such purchasingHolder.*********************(Signature Pages Follow) 22 IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by a duly authorized officer as of the date first above indicated. RECOVERY ENERGY, INC. By: Name: Title: Facsimile No. for delivery of Notices: 23 ANNEX ANOTICE OF CONVERSIONThe undersigned hereby elects to convert principal under the 8% Senior Secured Convertible Debenture due February 8, 2014 of Recovery Energy, Inc., aNevada corporation (the “Company”), into shares of common stock (the “Common Stock”), of the Company according to the conditions hereof, as of the datewritten below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxespayable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No feewill be charged to the holder for any conversion, except for such transfer taxes, if any.By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does notexceed the amounts specified under Section 4 of this Debenture, as determined in accordance with Section 13(d) of the Exchange Act.The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of theaforesaid shares of Common Stock.Conversion calculations:Date to Effect Conversion:Principal Amount of Debenture to be Converted:Payment of Interest in Common Stock __ yes __ noIf yes, $_____ of Interest Accrued on Account of Conversion at Issue.Number of shares of Common Stock to be issued:Signature:Name:Address for Delivery of Common Stock Certificates:OrDWAC Instructions:Broker No: Account No: 24 Schedule 1CONVERSION SCHEDULEThe 8% Senior Secured Convertible Debentures due on February 8, 2014 in the aggregate principal amount of $____________ are issued by RecoveryEnergy, Inc., a Nevada corporation. This Conversion Schedule reflects conversions made under Section 4 of the above referenced Debenture.Dated:Date of Conversion(or for first entry, Original Issue Date) Amount of ConversionAggregate PrincipalAmount RemainingSubsequent to Conversion(or original Principal Amount) Company Attest 25 ANNEX BPROPERTY SUBJECT TO SECURITY INTEREST INSOFAR AND ONLY INSOFAR AS THE LEASES COVER THE LAND DESCRIBED IN THIS ANNEX "B" 1. Goshen County, WYLEASE DATE:January 1st, 2011 LESSOR:Crossed Arrows Ranch Inc. LESSEE:Recovery Energy, Inc.COUNTY, STATE:DESCRIPTION:Township 26 North, Range 62 West, 6th P.M.Goshen County, WY Section 1: Lots 3, 4, S/2NW/4, SW4 Section 2: Lots 1-4, S/2N/2, S/2 Section 3: Lots 1, 2, S/2NE/4 Township 27 North, Range 61 West, 6th P.M.Goshen County, WY Section 31: Lots 1-4, E/2W/2 Township 27 North, Range 62 West, 6th P.M.Goshen County, WY Section 7: Lots 4 Section 15: SW/4, N/2SE/4 Section 17: SW/4NE/4, NW/4NW/4, S/2NW/4, S/2 Section 18: Lots 1, 4, N/2NE/4, SE/4NE/4, E/2NW/4, NE/4SW/4, Section 19: Lot 1 Section 20: NW/4NE/4, NE/4NW/4 Section 21: SE/4NE/4, E/2SE/4 Section 22: W/2, W/2SE/4 Section 25: W/2 Section 26: ALL Section 27: E/2, N/2NW/4 Section 28: E/2, SE/4SW/4 Section 29: S/2SW/4, SW/4SE/4 Section 30: SE/4SE/4 Section 32: NW/4 Section 34: N/2NE/4 Section 35: N/2NE/4, W/2, SE/4 Township 27 North, Range 63 West, 6th P.M.Goshen County, WY Section 11: SE/4SW/4, SW/4SE/4 Section 12: Lot 4, S/2SW/4, SW/4SE/4 Section 13: Lot 1, W/2NW/4, SW/4, SE/4SE/4 Section 14: NW/4NE/4, S/2NE/4, NE/4NW/4, N/2SE/4 Section 23: E/2SE/4 Section 24: N/2, SW/4 Section 25: W/2 Section 26: NE/4NE/4, S/2NE/4, SW/4, NW/4SE/4, S/2SE/4 Section 27: S/2SE/4 Containing 16,299.37 acres more or less 26 LEASE DATE:February 9, 2011 LESSOR:Eric Alan McCallan, a/k/a Alan Claude McCallan, dealing in his sole and separate property,and Christopher P. McCallan, a married man dealing in his sole and separate LESSEE:Recovery Energy, Inc.COUNTY, STATEDESCRIPTION:Township 25 North, Range 62 West, 6th P.M.Goshen County, WY Section 07: N2NE, SENE, NESE Section 08: N2NW, SWNW, NWSW Section 16: SW Section 20: SESE, that part of NESE lying south of railroad Section 28: SWNW, W2SW Section 29: E2E2 Section 32: N2NE Section 26: NW Township 25 North, Range 63 West, 6th P.M.Goshen County, WY Section 18: Lots 1, 2, 3 and 4 Township 25 North, Range 64 West, 6th P.M.Goshen County, WY Section 11: W2SE Section 13: E2, E2W2 Section 14: Lots 1, 2, 3, 5, 6, 7, W2NE, W2, NWSE Section 23: Lots 3, 4, 7, 8, NWNE, N2NW, NWSE Section 24: NWSW Containing in all approximately 7,604.00 acres, more or less.2. Laramie County, WY and Kimball County, NE LEASE DATE:March 2, 2010 LESSOR:Anderson Livestock, Inc. (LEASE #10133) LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE:DESCRIPTION:T16N-R60WSection 11: Lots 1-4Section 14: Lots 1-4Section 15: NW Section 22: SESection 23: North 130.00 acres of the W/2B 2158, P 1303-1305Laramie, WY T16N-R59WSection 11: Lots 1-4Section 14: Lots 1-4, less 14.5 acres Section 26: South 2/3rdsand T16N-R58WSection 17: SEB 210, P 249-252Kimball, NE 27 LEASE DATE:January 28, 2010 LESSOR:Alyce Knigge (LEASE #10135) LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE:DESCRIPTION:T16N-R58W Section 20: ALLB 210, P 4-6Kimball, NELEASE DATE:March 12, 2010 LESSOR:Mattson Ranch Company (LEASE #10191) LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE:DESCRIPTION:T16N-R60WSection 32: NW, less a 5 acre tract in the NWNW andT15N-R60W Section 16: ALL, less a 10.925 acre tractSection 22: ALLSection 23: ALLB 2161, P 376-378Laramie, WYLEASE DATE:March 17, 2010 LESSOR:Juanita Moffitt (LEASE #10212) LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE:DESCRIPTION:T16N-R60WSection 32: NE, less a 1 acre tract in the NWNEB 2161, P 382-384Laramie, WYLEASE DATE:January 6, 2010 LESSOR:Ronald S. Jessen and Brenda L. Jessen (LEASE #10117) LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE:DESCRIPTION:T15N-R59WSection 1: Lots 1 and 2, S/2NE, SE (a/k/a W/2)B 209, P 538-541Kimball, NE 28 LEASE DATE:February 19, 2010 LESSOR:Robert R. Cutler and Joanne S. Cutler (LEASE #10116) LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE:DESCRIPTION:T15N-R59W Section 1: Lots 3 and 4, S/2NW, SW (a/k/aW/2)B 210, P 14-17Kimball, NELEASE DATE:January 26, 2010 LESSOR:Rhonda Marie Duclo (LEASE #10142) LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE:DESCRIPTION:T16N-R58WSection 29: E/2B 210, P 1-3Kimball, NELEASE DATE:January 25, 2010 LESSOR:Troy Freeburg and Loretta Freeburg (LEASE #10143) LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE:DESCRIPTION:T16N-R58WSection 29: W/2B 209, P 797-800Kimball, NE LEASE DATE:April 30, 2010 LESSOR:Dennis L. Goranson (LEASE #10115) LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE:DESCRIPTION:T15N-R59WSection 25: ALLand T15N-R58WSection 30: Lots 1-4, E/2, E/2W/2 (a/k/a ALL)Section 31: Lots 1-4, E/2, E/2W/2 (a/k/a ALL)B 210, P 241-244Kimball, NELEASE DATE:December 23, 2009 LESSOR:David Herman (LEASE #10185) LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE:DESCRIPTION:T15N-R60WSection 9: E//2andT16N-R60WSection 20: NEB 2149, P 503-505Laramie, WY 29 LEASE DATE:January 25, 2010 LESSOR:Phyllis A. Cooney Trust (LEASE #10186) LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE:DESCRIPTION:T15N-R60WSection 10: N/2B 2158, P 1292-1295Laramie, WYLEASE DATE:March 17, 2010 LESSOR:Emmy Lu Randol (LEASE #10187) LESSEE:Edward Mike Davis, L.L.C. RECORDING:COUNTY, STATE:DESCRIPTION:T15N-R60WSection 15: ALLSection 17: S/2 Section 20: N/2Section 21: ALLB 2158, P 1357-1359Laramie, WY The above described leases cover 7,655 net acres. Each of the above described leases has at least 2.5 years remaining in the primary term of the lease andeach lease has a provision that grants to the lessee an option to extend the primary term for an additional five years. 30 Exhibit 23.2 Ralph E. Davis Associates, Inc.1717 St. James Place, Suite 460Houston, TX 77056March 16, 2012Recovery Energy, Inc.1515 Wynkoop Street, Suite 200Denver CO 80202Attention: Brad GabbardDear Brad:RE Davis hereby consents to being named in the Annual Report on Form 10-K being filed by Recovery Energy, Inc. on or about March 16, 2012 and to thefiling of our report dated March 5, 2012 as an exhibit to the Registration Statement. Sincerely, Ralph E. Davis Associates, Inc. /s/ Allen C. Barron Allen C Barron, P.E.President Exhibit 31.1CERTIFICATION OF CHIEF EXECUTIVE OFFICERPURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TO SECTION 302 OFTHE SARBANES-OXLEY ACT OF 2002 I, Roger A. Parker, certify that: 1.I have reviewed this Form 10-K of Recovery Energy, Inc.; 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 thestatements 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 thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange 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-15(f))for the registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, 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 oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principals; c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s 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 reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)Any fraud, whether or not material, that involved management or other employees who have a significant role in the registrant’s internal controlover financial reporting. By: /s/ Roger A. Parker Roger A. Parker Chief Executive Officer March 16, 2011 Exhibit 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICERPURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TO SECTION 302 OFTHE SARBANES-OXLEY ACT OF 2002 I, A. Bradley Gabbard, certify that: 1.I have reviewed this Form 10-K of Recovery Energy, Inc.; 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 thestatements 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 thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange 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-15(f))for the registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, 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 oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principals; c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s 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 reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)Any fraud, whether or not material, that involved management or other employees who have a significant role in the registrant’s internal controlover financial reporting. By: /s/A. Bradley Gabbard A. Bradley Gabbard Chief Financial Officer March 16, 2011 Exhibt 32.1OFFICER'S CERTIFICATIONPURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002(18 U.S.C 1350) The undersigned Roger A. Parker, the Chief Executive Officer of Recovery Energy, Inc., (the "Corporation"), in connection with the Corporation's YearlyReport on Form 10-K for the year ended December 31, 2011, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), doeshereby represent, warrant and certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended, that, to the best of his knowledge: 1.The Report is in full compliance with the reporting 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 operation of the Corporation. By:/s/ Roger A. Parker Roger A. Parker Chief Executive Officer March 16, 2011 Exhibit 32.2 OFFICER'S CERTIFICATIONPURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002(18 U.S.C 1350) The undersigned A. Bradley Gabbard, the Chief Financial Officer of Recovery Energy, Inc., (the "Corporation"), in connection with the Corporation's YearlyReport on Form 10-K for the year ended December 31, 2011, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), doeshereby represent, warrant and certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended, that, to the best of his knowledge: 1.The Report is in full compliance with the reporting 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 operation of the Corporation. By:/s/ A. Bradley Gabbard A. Bradley Gabbard Chief Financial Officer March 16, 2011Exhibit 99.1                                                                                                                

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