Calvalley Petroleum Inc. : January 11, 2013 Advisory Agreement - Jennings Capital Inc. Engagement Letter

January 11,2013

Private and Confidential

ADVISORY AGREEMENT

Calvalley Petroleum lnc.

Suite 700, 600- 61

Avenue SW

Calgary, Alberta, Canada T2P 0$5

Attention: Edmund M. Shimoon, Chairman, President and CEO Dear Mr. Shimoon:

Jennings Capitai Inc. ("Jennings") understands that Calvalley Petroleum Inc. ("Calvalley" or the

"Company'') intends to purchase approximately 16% of the Company's common shares currently outstanding ("Shares") by way of a substantial issuer bid (the "Substantial Issuer Bid") and conducted through an Issuer Bid Circular (the "Circular"). Jennings further understands that the Company wishes to retain Jennings to act as its exclusive financial advisor and dealer manager ("Dealer Manager") to assist the Company in its Substantial lssuer Bid (the "Engagement"). The Engagement may also include Jennings Capitai Inc. USA, a wholly owned subsidiary of Jennings, as the United States Dealer Manager.

As Dealer Manager, Jennings shall, subject to the terms and conditions of this Engagement herein, assist in determining strategies to maximize the response to the Substantiallssuer Bid.

Upon Calvalley's acceptance hereof, this letter shall constitute the agreement between Calvalley and Jennings in respect of the matters herein referred to.

Jennings' services in connection with the Engagement will be m the areas set out below. Jennings will:

a) familiarize itself with the business, financial condition, and trading activity (the volumes and price history ofthe Shares on the Toronto Stock Exchange) ofthe Company;

IJ) vwviJc dllVil-è Jegdtlliug !>llUdUIC fui lhe SuiJMdlllidl b!>Uèl DiJ, iuduJiug lJIU(JU!>èll offer price or price range and increments thereof (in the event of a modified Dutch auction and upon conclusion of such, assist in determining the number of Shares to be acquired and the fina] settlement price);

Suite 2700. 308 • 4"' Avenue SW. Calgary. Alberta, Canada T2P OH7 Phone [phone] Fax [phone]

c) assist in soliciting the tender of Shares through communicating with materia! brokers holding Shares or directly with materia!individuai holders of Shares to ensure they are aware of the Substantiallssuer Bid;

d) conduct shareholder base analysis to detenni ne residence of shareholders;

e) ifrequested, assist in organizing and coordinating a soliciting dealer group;

f) provide communication support for shareholders who may bave questions regarding the Substantial lssuer Bid (whether through direct communication, preparing background information (e.g. a greensheet for internai distribution), andlor setting up a cali-in number);

g) provide periodic updates, generai market intelligence, and shareholder feedback regarding responses to the Substantial lssuer Bid (including coordinating with the depository); and

h) if requested, prepare for the board of directors of the Company an optmon (the "Opinion"), as to whether or not, as at the date thereof, (i) there exists a liquid market for the Shares, and (ii) it is reasonable to conclude that following the completion of the Substantial lssuer Bid, there will be a market for holders of the Shares who do not tender to the Substantiallssuer Bid that is not materially less liquid than the market that existed at the ti me of the making of the Substantial lssuer Bid. For the purpose of the Opinion, "liquid market"shall have the meaning ascribed thereto in MI 61-1O l.

Other than the Opinion, which may be part of ali disclosing documents with regards to the Circular, and may be filed with any stock exchange or other regulatory authority, ali documents and reports of any nature provided by JeiUlings in perfonning its obligations under this engagement are for the exclusive use of Calvalley and its directors and officers, and are not to be disclosed (except to Calvalley's legai counsel) publicly or otherwise, in whole or in part, except as permitted by paragraph 11, without the prior written consent of JeiUlings.

Jennings will provide such services to Calvalley as per the tenns and conditions set forth below:

l. Calvalley shall arrange for access by JeiUlings to ali information on the Company (where appropriate) and Calvalley agrees to promptly notify JeiUlings of any materia!changes conceming the Company.

2. Calvalley has obtained ali necessary regulatory, stock exchange and other third party approvals required to complete the Substantiallssuer Bid.

3. In consideration of the services to be provided by JeiUlings herein, Calvalley will pay

Jennings the following fees:

a. Advisory Fcc: thc prodw;L uf $50,000 and thc numbcr uf Shan::s Lt::ndcrcd (ur aggregated dollar amount tendered as the case may be) divided by the maximum Shares allowable (or maximum dollar amount allowable as the case may be) under the Substantiallssuer Bid,

n Fee: $0.01 per Share deposited and acquired by Calvalley under the

Substantial lssuer Bid. The aggregate amount payable to any single beneficiai

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owner account whose Shares were deposited will be mm1mum $25 and a maximum of $500, provided the minimum fee shall only be payable in respect of l ,500 Shares or more deposited by any one beneficiai owner. lt is agreed amongst the parties that solicitation fees associated with odd lot shareholders (those with less than 100 shares) shall be adjusted so tbat tbe fee will equa!10% oftbe gross value or sucb otber value tbat is to be mutually agreed upon between tbe parties. Calvalley will not be required to pay a Solicitation Fee to more tban one soliciting dealer. Tbe Dealer Manager will receive the Soliciting Fee wbere tbey are tbe soliciting dealer or no soliciting dealer is named in tbe letter of transmittal; and
c. Opinion Fee: $50,000 payable upon tbe delivery oftbe Opinion.
Future engagements sball be negotiated separately and shall be reflected in a separate agreement.
Jennings will invoice tbe Advisory Fee and Solicìting Fees to tbe Company upon tbe Company's purcbase of tbe Sbares under tbe Substantia!Issuer Bid, and tbe Opinìon Fee upon delivery of said Opinion. Fees payable bereunder will bave tbe Canadian goods and servìces tax added as prescribed by law. Ali dollar amounts referred to bereìn are Canadian dollars.
4. Calvalley sball reimburse Jennings fortbwitb upon presentation of invoices of ali reasonable out-of-pocket expenses, including, long distance telepbone, telecopy, courier expense and reasonable cost of our own counsel. Calvalley shall a1so reimburse Jennìngs, subject to tbe prior approvai of Ca1valley in respect of incurring same, for printing and travel expenses and tbe reasonable cost incurred by Jennings in retaining any outside professìonal services tbat Calvalley bas requested Jennings to engage on Calvalley's behalf, including engineers, accountants and lawyers. The total out-of-pocket expenses will be limited to $5,000 without the prior written consent of Calvalley, such consent not to be unreasonably withhe1d.

5. Neitber Jennìngs nor its directors, officers, employees or agents sball bave any obligation to Calvalley other than the performance by Jennings of its services expressly agreed to be provided hereunder, the due compliance by Jennìngs with its obligations hereunder and Jennings' compliance witb laws and regulations app1ìcable to Jennings' conduct and Jennings sball bave no responsibì1ìty for any determination with respect to the app1icabi1ìty or meaning of any legis1ation or rules, domestic or foreign, regu1ating the activities ofCalvalley.

6. Jennings or Calvalley may terminate this agreement and tbe engagement bereunder at any time by giving written notice of termination to tbe otber party (collectively, witb tbe term of this agreement, the "Termination Date"). Notwithstanding the termination of this agreement for any reason, tbe provisions ofparagraphs 3, 4, 7, 8, IO, Il, 12, 13 and this para rapb 6 sball survive such termination. Anv fees or out-of-pocket expenses paid or payable to Jennings as of tbe date of termination shall be retained by, or paid to, Jennings as tbe case may be. If requested by the board of directors of the Company and upon delivery of tbe Opinion, Ca1valley shall compensate Jennings as per paragraph 3b regard1ess of whether the Substantial Issuer Bid is comp1eted.

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7. In consideration of Jennings entering into this agreement, Calvalley agrees to indemnify and hold Jennings, its affiliates and each and every one of its directors, officers, employees, shareholders and agents (an "lndemnified Party" or collectively, the "Indemnified Parties") hannless from and against any and ali fees, costs, expenses, losses, actions, suits, proceedings, investigations, claims, damages, fines, penalties or liabilities of any nature whatsoever, joint or several, (including without limiting the generality of the foregoing: (i) the aggregate amount paid in settlement of any actions, suits, proceedings, investigations or claims (collectively, "Claims"); and (ii) ali fees, costs and expenses incurred by an Indemnified Party in investigating, preparing for, defending against, providing evidence in, producing documents or taking any action in respect of any commenced or threatened Claim, including without limiting the generality of the foregoing to the fees, but subject to the provisions below regarding the use of counsel, reasonable charges, and disbursements of its or bis counsel (on an as between a solicitor and bis own client basis) that may be incurred in advising an Indemnified Party with respect to or defending any Claim that may be made or threatened against an Indemnified Party orto which an lndemnified Party may become subject or otherwise involved in any capacity under any state, common law, rule of equity or otherwise) insofar as such fees, costs, expenses, losses, claims, damages, fines, penalties or liabilities arise out of or are based, directly or indirectly, upon the performance of services rendered by Jennings pursuant to the terms of this agreement; provided, however, that Calvalley shall not be liable under the foregoing indemnification provisions to the extent that any fee, cost, expense, loss, claim, damage, fine, penalty or liability is found in a final judgment to bave resulted from Jennings', or any Indemnified Party's, bad faith, dishonesty, fraud or negligence.
Jennings agrees to notify Calvalley forthwith in writing of the assertion against it or any other Indemnified Party of any Claim; provided that Jennings' failure to so notify Calvalley shall not relieve Calvalley from any obligation or liability hereunder except to the extent Calvalley has been prejudiced by such failure.
In the event of any Claim, Calvalley shall be entitled to participate in the investigation and defense thereof and, after written notice to Jennings, to assume the investigation and defense of such Claim with counsel of its choice; provided that Jennings shall bave the right to employ separate counsel at the expense of Calvalley if in the reasonable opinion of Jennings' counsel a conflict of interest exists or may subsequently exist which makes such representation by counsel chosen by Calvalley inappropriate, but further provided that in no event shall Calvalley be liable for the reasonable fees and disbursements of more than one finn of separate counsel (plus one firm of local counsel in each relevant jurisdiction) on behalf of all Indemnified Parties.
In no event will Calvalley be liable for indemnification in respect of any Claim settled without Calvalley's prior written consent, such consent not to be unreasonably withheld.

The covenants and indemnities contained in this agreement shall be in addition to any llablllty whleh Calvalley may otherwlse have to any Indemnifled Party, shall be available notwithstanding any investigation made by Jennings or on Jennings' behalf, shall extend upon the same terms and conditions to ali Indemnified Parties, shall be binding upon Calvalley and, in addition to the Indemnified Parties, shall enure to the benefit of any successors, assigns, heirs, executors and administrators of any such Indemnified Party.

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8. Calvalley agrees that in case any legai or other claim shall be brought involving Calvalley or if any goverrunental commission or regulatory authority or any stock exchange or other entity having regulatory authority, either domestic or foreign, shall investigate Calvalley or its subsidiaries or affiliates or its or their activities and Jennings or any Indemnified Party is required to testify in connection therewith or is required to respond to procedures designed to discover information regarding, in connection with, or by reason of, the performance of Jennings' services rendered to Calvalley hereunder, then unless such claim or investigation is found in a final judgment to bave resulted from Jennings', or any Indemnified Party's, bad faith, dishonesty, fraud or negligence, Calvalley will pay to any lndemnified Party a per diem amount for the services of such person in relation to such claim or investigation based on Jennings' norma! consulting fees, together with reasonable out-of-pocket expenses. In addition, an Indernnified Party will be entitled to employ separate legai counsel at Calvalley 's expense (on an as between a solicitor and bis own client basis) if in the reasonable opinion of its or his counsel a conflict of interest exists or may subsequently exist where it makes such representation by counsel chosen by Calvalley inappropriate and subject to the limitations on the number of counsel set out in paragraph 7 above.

9. Any provision of this agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, Jennings and Calvalley hereby waive any provision of law, which renders any provision hereofprohibited or unenforceable in any respect.

l O. This agreement shall be binding upon the parties hereto and shall enure to the benefit of the parties hereto, the additional persons indemnified hereunder and their respective successors, assigns, heirs, executors, administrators and other legai representatives. Calvalley acknowledges that the covenants of Jennings hereunder are good consideration given by Jennings on behalf of alllndemnified Parties, each of whom shall be entitled to directly enforce their rights hereunder.

Il . Other than the written Opinion, a summary thereof and a description of the services provided by Jennings hereunder, which may be part of disclosing documents with regards to the Substantial lssuer Bid, and may be filed with any stock exchange or other regulatory body, Calvalley will not publish or distribute or permit the publishing or distribution of Jennings' name, opinions, valuations, materials, reports or letters, unless required by law or regulatory authority, without Jennings' express prior written consent, such consent not to be unreasonably withheld or delayed.

12. Neither Jennings nor its directors, officers, employees or agents will disclose or use for any purpose, other than providing services to Calvalley hereunder, any confidential information prepared or derived in connection with the performance by Jennings of its servlces hereunder, and ali such lnformatlon shall be held in confldence by Jc.:nnings unless it is required by law to disclose same. The term "confidential information" includes all information of, or pertaining to, Calvalley made available to Jennings by or through Calvalley but does not include information which: (i) is or becomes generally available to the public at or prior to the time of disclosure or use by Jennings other than as a result of disclosure in violation ofthis agreement; (ii) was available to Jennings on a non-confidential basis prior to its disclosure to Jennings by Calvalley; or (iii) becomes

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available to Jennings on a non-confidential basis provided that such infonnation is not to Jennings' knowledge disclosed by such source to Jennings in violation of a confidentiality agreement between such source and Calvalley. Notwithstanding the provisions of paragraph 6 hereof, the provisions of this paragraph will terminate one year after the Terrnination Date.

13. This agreement shall be construed and enforced in accordance with, and the rights of the parties shall be govemed by, the laws of the Province of Alberta, Canada. Each of the parties hereto irrevocably submits to the jurisdiction of the courts of the Province of Alberta over any action or proceeding arising out of or relating to this agreement and the parties hereto irrevocably agree that ali claims in respect of such action or proceeding may be heard and determined in such courts of the Province of Alberta and all courts competent to bear appeals there from. The parties hereto agree that a final judgment in any such action or proceeding after all appeals are exhausted shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.

14. This agreement constitutes the entire agreement between Calvalley and Jennings on the matters herein set forth and supersedes ali prior discussions and understandings on such matters.

If the foregoing is in accordance with the Company's understanding, kindly confirm Calvalley's agreement by signing the enclosed duplicate at the piace indicated, and retum the duplicate to Jennings, whereupon this letter shall constitute a binding agreement between Calvalley and Jennings in respect of the matters herein referred to.

Sincerely,

ior Managing Director, lnvestment Banking

Accepted and agreed to as ofthe _....::{ -day of January, 2013.

CALVALLEY PETROLEUM INC.

Per:

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