Document:

Exhibit 10.19

 

AMENDED AND RESTATED CONSULTING
AGREEMENT

 

This AMENDED AND RESTATED CONSULTING AGREEMENT (the “Agreement”)
is made and entered into as of the 11th day of March 2009 by and between
Gabriele M. Cerrone (“Consultant”) and Callisto Pharmaceuticals, Inc., a
Delaware corporation (the “Company”).

 

WHEREAS, the Consultant has and will continue to serve
as a consultant and Chairman of the Board of Synergy Pharmaceuticals, Inc.,
a majority owned subsidiary of the Company (“Synergy”);

 

WHEREAS, the Consultant has previously entered into a
consulting agreement with the Company as of December 27, 2004 and an
extension and amendment agreement dated as of January 25, 2007
(collectively, the “Consulting Agreement”);

 

WHEREAS, the parties wish to
amend and restate the Consulting Agreement between the Consultant and the
Company in its entirety, on the terms and conditions contained in this
Agreement;

 

NOW, THEREFORE, in consideration of the mutual
covenants and agreements contained herein, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:

 

1.                                       Purpose: The Company hereby engages
Consultant for the term specified in Paragraph 2 hereof to render consulting
advice to the Company relating to business development, corporate finance and
capital markets matters upon the terms and conditions set forth herein.

 

2.                                       Effective Date and Term:

 

2.1                                 Effective Date.  This
Agreement shall become effective as of August 1, 2008 (the “Effective Date”)

 

2.2                                 Term.  Unless earlier terminated
pursuant to Section 10 hereof, the term of this Agreement shall commence
on the Effective Date and shall continue from the Effective Date to December 31,
2011 (the “Initial Term”).  This
Agreement shall thereafter be automatically renewed for successive one year
periods unless either party shall notify the other in writing of its intention
not to renew this Agreement (a “Non-renewal Notice”), which notice shall be
given at least 90 days prior to the end of the then current term (the “Expiration
Date”).  The period from the Effective
Date to the Expiration Date, including the Renewal Term, if any, is referred to
herein as the “Term.”

 

 

3.                                      Duties of Consultant: 
During the term of
this Agreement, the Consultant shall devote such portion of his business time
and attention to affairs of the Company reasonably necessary to provide the
Company with such regular and customary business development, strategic
planning, capital markets and corporate finance consulting advice as is
reasonably requested by the Company’s management and Board of Directors,
provided that Consultant agress to spend at least 75% of his business time and
attention to affairs of the Company and Synergy (such percentage to be measured
over a rolling three (3) month period during the Term) and provided,
further, Consultant shall not be required to undertake duties not reasonably
within the scope of this Agreement.   So
long as the Consultant serves as a member of the Company’s Board of Directors, Consultant
shall serve as Chairman of the Board; provided, at the request of all of
the members of the Board of Directors (not counting the Consultant), the
Consultant will relinquish his title as Chairman to the Company’s duly
appointed chief executive officer, and accept the title of Vice Chairman.

 

3.1.                              Permissible
Services.      The Consultant’s services will
include advising the Company’s Board of Directors and senior management on the
following matters:

 

(i)                                     in-licensing
and out-licensing technologies and compounds;

(ii)                                  capitalization
and corporate organization of the Company;

(iii)                               structure
and pricing of offerings of the Company’s securities in public and private
transactions;

(iv)                              alternative
uses of corporate assets;

(v)                                 structure
and use of debt;

(vi)                              application
and maintenance of listing of the Company’s stock in securities exchanges and
other appropriate markets;

(vii)                           strategic
planning

(viii)                        management
recruitment and compensation; and

(ix)                                presentations
to institutional and professional individual investors in the U.S. and Europe.

 

3.2                                 Prohibited
Services.  The services to be
rendered by the Consultant to the Corporation shall not (unless the Consultant
is appropriately licensed, registered or there is an exemption available from
such licensing or registration) include, directly or indirectly: any activities
which require the Consultant to register as a broker-dealer under the
Securities Exchange Act of 1934.

 

 

4.                                       Compensation:  :

 

4.1.                                                      Base
Compensation.

 

(a)           In consideration for the services
rendered by Consultant to the Company pursuant to this Agreement, the Company
agrees to pay Consultant the annual sum of $295,000 at the rate of $24,583.33
per month commencing on the Effective Date (“Base Compensation”). The
Consultant’s Base Compensation may be increased, but not decreased by the
Compensation Panel.  Once increased, such
increased amount shall constitute the Consultant’s Base Compensation and shall
not be decreased. The Company will include the shares of equity securities of
the Company which may be issued upon the exercise of the options held by
Consultant in any registration statement under the Securities Act of 1933 which
includes securities issuable to any other executive officer of the Company.

 

(b)           It is expressly acknowledged that
Consultant’s Base Compensation shall be allocated between the Company and
Synergy, so that the aggregate Base Compensation payable to the Consultant
during the Employment Term from the Company and Synergy will not exceed
$295,000 (or such higher amount as is determined by the committee of Synergy’s
and/or the Company’s Board of Directors empowered to fix or review compensation
of the other executive officers of the Company (the “Compensation Panel”).  The current estimate of such allocation is
that 75% of the Consultant’s Base Compensation shall be payable by Synergy and
25% of such Base Compensation shall be paid by the Company, however such
allocation may change, no more frequently than once each fiscal quarter as
determined in good faith by the Company’s Chief Financial Officer.  At any time if Synergy is not obligated to or
does not pay its allocated share of Consultant’s Base Compensation, the Company
shall pay Consultant’s Base Compensation in full, irrespective of any
accounting allocation.   The overall cap
of $295,000 shall not be diminished by any bonus or accelerated payment benefit
given to Consultant by Synergy.

 

(c)           In the event Synergy is obligated to
pay any item of compensation or reimburse expenses to Consultant under this
Agreement, Synergy fails to do so and the Company makes payment to the
Consultant pursuant to Section 4.1(b) of this Agreement, the Company
shall be subrogated to all claims of the Consultant against Synergy arising
from Synergy’s failure to make payment to the extent of such payments made to
the Consultant.

 

 

4.2.                                                      Incentive
Compensation.

 

(a)                                  Annual
Bonus.       Consultant shall be
eligible to earn a cash bonus of up to 50% of his Base Compensation per full
calendar year during the Term (and a pro rated bonus for the period from August 1,
2008 to December 31, 2008) based on meeting performance objectives and
bonus criteria to be mutually identified by Consultant and the Compensation
Panel.  Bonuses, if any, shall be subject
to all applicable tax and payroll withholdings.

 

(b)                                 Realization
Bonus.

 

(i)            In the event during the Term of this
Agreement the Company enters into either a out-license agreement for any
technology relating to cancer or rheumatoid arthritis that grants exclusive
marketing rights to a third party, engages in a merger transaction or a sale of
substantially all of the assets of the Company that relate to the treatment of
cancer or rheumatoid arthritis or enters into a joint venture in which the
Company contributes such rights to the joint venture, in each case where the
Enterprise Value (defined below) equals or exceeds the minimum value of $150
million, $200 million and $250 million in the first, second, third years of the
Term or any years beyond the third year of the Term, respectively, (each, a “
Realization Transaction”) and, in the case of a financing transaction, the
Company receives not less than $20 million of gross proceeds; or the license
fees the Company contracts to receive (disregarding any contingencies to such
payment) equal or exceeds $50 million, the Consultant shall accrue a bonus in
an amount determined by multiplying the Enterprise Value (defined below) in the
case of a merger, sale, or financing or the sum of the license fees actually
received, in the case of an out-license, as the case may be, by 0.5% (one half
percent).

 

(ii)           The accrued bonuses shall be payable
to Consultant: (a) in cash in full 5 business days after the closing of
any Realization Transaction involving a sale or merger or financing,
notwithstanding that the consideration for such merger or sale consists in
whole or in part of securities of the acquiring company; or (b) in cash 5
full business days after the Company’s receipt of license fees at the rate of
0.5% of license fees actually received. 
The expiration or termination of this Agreement shall not terminate or
diminish the Consultant’s right to receive bonus payments with respect to out
licenses fees collected after the termination or expiration of this Agreement

 

(iii)          The “Enterprise Value” in the case of
a Change in Control in which consideration is payable to the Company in respect
of its assets or business, shall mean the total cash and non-cash (including,
without limitation, the assumption of debt) consideration received by the
Company or in the case of a Change in Control in which consideration is payable
to the Company’s stockholders, the total cash and 

 

 

non-cash (including, without limitation, the
assumption of debt) consideration payable to the Company’s stockholders. “Enterprise
Value” shall also include, if applicable, any cash or non-cash consideration
payable to the Company or to the Company’s stockholders on a contingent,
earnout or deferred basis. To the extent that any consideration in a
transaction is not received in cash upon the consummation of the Change in
Control, the value of such non-cash consideration for purposes of calculating
the Enterprise Value will be determined by the Board of Directors of the
Company prior to the Change in Control in good faith. In the event that less
than 100% of the stock or assets of the Company is purchased in the Change in
Control transaction, the Enterprise Value shall be extrapolated from the
percentage of the Company’s capital stock or assets impacted in such Change in
Control transaction to determine if the $400 million threshold was exceeded,
but the Transaction Fee shall be calculated based on the actual consideration
received by the Company or shareholders, as the case may be. Section 4.2(b)(i),
however, shall not apply to any event resulting in a Change in Control in which
neither the Company nor its stockholders receives consideration either upon, or
in connection with, the occurrence or consummation of the event resulting in a
Change in Control.

 

(iv)          The Enterprise Value in a financing
transaction shall be determined on the basis of the pre-money valuation of the
Company for financing purposes, provided the Realization Bonus shall accrue in
full but only be payable to the extent of 3% of the gross proceeds received by
the Company in the financing.

 

(c)                                  Options.        The
Compensation Panel will consider grants of options to the Consultant no less
frequently than annually commencing February 1, 2010.

 

5.                                       Expenses and Services:

 

5.1                                 Consultant
is authorized to incur reasonable expenses in carrying out his duties and
responsibilities under this Agreement, including, without limitation, expenses
for travel (at the fare class no less favorable than that of other executive
officers of the Company), cellular telephone (including access charges and
business calls), electronic market data services consisting of a full office-based and portable Bloomberg
information services, the cost associated with accessing office
facilities and administrative assistance outside of the Company’s principal
executive offices at such times that the Consultant is attending to matters
within the scope of this Agreement and business entertainment.  Additionally, the Consultant is authorized to
incur reasonable expenses for the attendance of conferences in fields relate to
technology of interest 

 

 

to the Company, finance of biotechnology ventures, and
similar events related to Consultant’s duties and responsibilities as
Consultant deems necessary.  Company will
reimburse Consultant for all such expenses upon presentation by Consultant of
appropriately itemized accounts of such expenditures or the Company will pay
such expenses directly.

 

5.2           During
the Term, the Company will at its sole expense provide the Consultant with
computing hardware and software tools, office facilities and qualified, access
to Company information and financial records and an experienced administrative
assistant and such legal and accounting
support services as is deemed appropriate by the Consultant.  Such services and facilities will not be
diminished without the Consultant’s prior consent.

 

5.3           In
the event this Agreement is terminated other than for Cause or voluntarily by
the Consultant, the Company, in addition to any other termination benefit, will
make a lump sum payment to Consultant equal to the amount of reimbursable
expenses accrued for the services and accommodations set forth in Sections 5.1
and 5.2 during the 12 full calendar months preceding the date of
termination.  In the event 12 full
calendar months of the Term shall not have elapsed as of the date of
termination, the lump sum payment shall equal the average monthly expenses
accrued for the full calendar months of the Term completed as of the date of
termination times 12.  Such lump sum
payments shall be made no later than 30 days after termination. In the event of
a disagreement between the Company as to the amount of such lump sum payment,
the Company shall pay the amount as to which there is no dispute, pending the
settlement of any amounts as to which there is a dispute.

 

6.                                       Liability of Consultant:  The Company acknowledges that all opinions
and advice (written or oral) given by Consultant to the Company in connection
with Consultant’s engagement are intended solely for the benefit and use of the
Company in considering the transaction to which they relate, and the Company
agrees that no person or entity other than the Company shall be entitled to
make use of or rely upon the advice of Consultant to be given hereunder, and no
such opinion or advice shall be used for any other purpose or reproduced,
disseminated, quoted or referred to at any time, in any manner or for any
purpose, nor may the Company make any public references to Consultant, or use
Consultant’s name in any annual reports or any other reports or releases of the
Company without Consultant’s prior written consent.  Consultant’s maximum liability shall not
exceed the cash compensation received from the Company.

 

 

7.                                       Consultant’s Services to Others:  The Company acknowledges that Consultant and
its affiliates are in the business of investing and providing financial
services and consulting advice to others. 
Nothing herein contained shall be construed to limit or restrict
Consultant in conducting such business with respect to others, or in rendering
such advice to others.

 

8.                                       Company Information:

 

a.             The
Company recognizes and confirms that, in advising the Company and in fulfilling
his engagement hereunder, Consultant will use and rely on data, material and
other information furnished to Consultant by the Company.  The Company acknowledges and agrees that in
performing his services under this engagement, Consultant may rely upon the
data, material and other information supplied by the Company without
independently verifying the accuracy, completeness or veracity of same.  The Company agrees to notify Consultant in
writing via overnight courier, facsimile or e-mail of any material event and/or
change with in twenty-four hours of its occurrence.

 

b.             Consultant
recognizes and acknowledges that by reason of Consultant’s retention by and
service to the Company before, during and, if applicable, after the Term,
Consultant will have access to certain confidential and proprietary information
relating to the Company’s business, which may include, but is not limited to,
trade secrets, trade “know-how,” product development techniques and plans,
formulas, customer lists and addresses, financing services, funding programs,
cost and pricing information, marketing and sales techniques, strategy and
programs, computer programs and software and financial information relating to the field of in which the Company
is actually engaged in research, development, collaboration or sales at the
time of such disclosure (collectively referred to as “Confidential
Information”).  Consultant acknowledges
that such Confidential Information is a valuable and unique asset of the
Company and Consultant covenants that it will not, unless expressly authorized
in writing by the Company, at any time during the Consulting Term use any
Confidential Information or divulge or disclose any Confidential Information to
any person, firm or corporation except in connection with the performance of
Consultant’s duties for the Company and in a manner consistent with the Company’s
policies regarding Confidential Information. 
Consultant also covenants that at any time after the termination of this
Agreement, directly or indirectly, it will not use any Confidential Information
or divulge or disclose any Confidential Information to any person, firm or
corporation, unless such information is in the public domain through no fault
of Consultant or except when required to do so by a court of law, by any
governmental agency having supervisory authority over the business of the
Company or by any administrative or legislative body (including a committee
thereof) with apparent jurisdiction to order Consultant to divulge, disclose or
make accessible such information.  All
written Confidential Information (including, without limitation, in any
computer or other electronic format) which comes into Consultant’s possession
during the Consulting Term shall remain the 

 

 

property of the Company.  Except
as required in the performance of Consultant’s duties for the Company, or
unless expressly authorized in writing by the Company, Consultant shall not
remove any written Confidential Information from the Company’s premises, except
in connection with the performance of Consultant’s duties for the Company and
in a manner consistent with the Company’s policies regarding Confidential
Information.  Upon termination of this
Agreement, the Consultant agrees to return immediately to the Company all
written Confidential Information (including, without limitation, in any
computer or other electronic format) in Consultant’s possession.

 

9.                                       Consultant an Independent Contractor:  Consultant shall perform its services hereunder
as an independent contractor and not as an employee of the Company or an
affiliate thereof.  It is expressly
understood and agreed to by the parties hereto that Consultant shall have no
authority to act for, represent or bind the Company or any affiliate thereof in
any manner, except as may be agreed to expressly by the Company in writing from
time to time.

 

10.                                 Termination:

 

10.1                           Termination Without Cause or for Good Reason.

 

(a)                                  If this Agreement is terminated by the
Company other than for Cause (as defined in Section 10.4 hereof) or as a
result of Consultant’s death or Permanent Disability (as defined in Section 10.2
hereof), or if Consultant terminates his employment for Good Reason (as defined
in Section 10.1 (b) hereof) prior to the Expiration Date, Consultant
shall receive or commence receiving as soon as practicable in accordance with
the terms of this Agreement:

 

(i)                                     a severance payment (the “Severance
Payment”), which amount shall be paid in a cash lump sum within ten (10) days
of the date of termination, in an amount equal to the higher of the aggregate
amount of the Consultant’s Base Compensation for the then remaining term of
this Agreement or twelve times the average monthly Base Compensation paid or
accrued during the three full months immediately preceding such termination;

 

(ii)                                  expense compensation, which shall be paid
in a lump sum payment within ten (10) days of the date of termination, in
an amount equal to twelve times the sum of average monthly cost during the
three full months immediately preceding such termination of providing the
services to Consultant set forth in Section 5.1 and Consultant’s
reimbursed expenses set forth in Section 5.2;

 

 

(ii)           immediate vesting of all unvested stock
options and the extension of the exercise period of such options to the later
of the longest period permitted by the Company’s stock option plans or ten
years following the Termination Date;

 

(iii)          payment in respect of compensation earned
but not yet paid (the “Compensation Payment”) which amount shall be paid in a
cash lump sum within ten (10) days of the date of termination; and

 

(iv)          payment of the cost of comprehensive
medical insurance for consultant for a period of twelve months following the
termination.

 

(b)                                 For purposes of this Agreement, “Good
Reason” shall mean any of the following (without Consultant’s express prior
written consent):

 

(i)            Any material breach by Company of any
provision of this Agreement, including any material reduction by Company of
Consultant’s duties or responsibilities (except in connection with the
termination of Consultant’s employment for Cause, as a result of Permanent
Disability, as a result of Consultant’s death or by Consultant other than for
Good Reason);

 

(ii)           A reduction by the Company in Consultant’s
Base Compensation or any failure of the Company to reimburse Consultant for
material expenses described in Section 5.1 or provide the services
described in Section 5.2 of this Agreement;

 

(iii)          The failure by the Company to obtain the
specific assumption of this Agreement by any successor or assign of Company as
provided for in Section 11 hereof;

 

(iv)          Moving the principal offices of Company
to a location outside of the Metropolitan New York Area; or

 

(v)           Upon a Change of Control of Company (as
such term is hereinafter defined).

 

(c)                                  The following provisions shall apply in
the event compensation provided in Section 10.1 (a) becomes payable
to the Consultant:

 

(i)            In the event the severance compensation
provided for in subsection 10.1(a)  above cannot be finally determined on
or before the tenth day following such termination, the 

 

 

Company shall pay to the Consultant on such day an estimate, as
determined in good faith by the Company of the minimum amount of such
compensation and shall pay the remainder of such compensation (together with
interest at the Federal short-term rate provided in Section 1274(d)(7)(C)(1) of
the Code) as soon as the amount thereof can be determined but in no event later
than the thirtieth day after the Date of Termination. In the event the amount
of the estimated payment exceeds the amount subsequently determined to have
been due, such excess shall constitute a loan by the Company to the Consultant payable
on the fifth day after demand by the Company (together with interest at the
Federal short-term rate provided in Section 1274(d)(7)(C)(1) of the
Code).

 

(ii)           If the payment of the Total Payments (as
defined below) will be subject to the tax (the “Excise Tax”) imposed by Section 4999
of the Code, the Company shall pay the Consultant on or before the tenth day
following the Date of Termination, an additional amount (the “Gross-Up Payment”)
such that the net amount retained by the Consultant, after deduction of any
Excise Tax on Total Payments and any federal and state and local income tax and
Excise Tax upon the payment provided for by this paragraph, shall be equal to
the Total Payments. For purposes of determining whether any of the payments
will be subject to the Excise Tax and the amount of such Excise Tax, (A) any
payments or benefits received or to be received by the Consultant in connection
with a Change in Control of the Company or the Consultant’s termination of
employment, whether payable pursuant to the terms of Section 10 of this
Agreement or any other plan, arrangement or agreement with the Company, its
successors, any person whose actions result in a Change in Control of the
Company or any corporation affiliated (or which, as a result of the completion
of transaction causing such a Change in control, will become affiliated) with
the Company within the meaning of Section 1504 of Code (the “Total
Payments”) shall be treated as “parachute payments” within the meaning of Section 28OG(b)(2) of
the Code, and all “excess parachute payments” within the meaning of Section 28OG(b)(1) shall
be treated as subject to the Excise Tax, unless, in the opinion of tax counsel
selected by the Company’s independent auditors and acceptable to the
Consultant, the Total Payments (in whole or in part) do not constitute
parachute payments, or such excess parachute payments (in whole or in part)
represent reasonable 

 

 

compensation for services actually rendered within the meaning of Section 28OG(b)(4) of
the Code either in their entirety or in excess of the base amount within the
meaning of Section 28OG(b)(3) of the Code, or are otherwise not
subject to the Excise Tax, (B) the amount of the Total Payments that shall
be treated as subject to the Excise Tax shall be equal to the lesser of (I) the
total amount of the Total Payments or (II) the amount of excess parachute
payments or benefit shall be determined by the Company’s independent auditors
in accordance with the principles of Section 28OG(d)(3) and (4) of
the Code. For purposes of determining the amount of the Gross-Up Payment, the
Consultant shall be deemed to pay federal income taxes at the highest marginal
rate of federal income taxation in the calendar year in which the Gross-Up
Payment is to be made and state and local income taxes at the highest marginal
rate of taxation in the state and locality of the Consultant’s residence an the
Date of Termination, net of the maximum reduction in federal income taxes which
could be obtained from deduction of such state and local taxes. In the event
the Excise Tax is subsequently determined to be less than the amount taken into
account hereunder at the time of termination of the Consultant’s employment,
the Consultant shall repay to the Company at the time the amount of such reduction
in Excise Tax is finally determined the portion of the Gross-Up Payment that
can be repaid such that the Consultant remains whole on an after-tax basis
following such repayment (taking into account any reduction in income or excise
taxes to the Consultant from such repayment) plus interest on the amount of
such repayment at the Federal short-term rate provided in Section 1274(d)(1)(C)(i) of
the Code. In the event the Excise Tax is determined to exceed the amount taken
into account hereunder at the time of the termination of the Consultant’s
employment (including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), the Company shall
make an additional gross-up payment in respect of such excess (plus any
interest payable with respect to such excess) at the time that the amount of
such excess is finally determined.

 

10.2                           Permanent Disability.                               If Consultant becomes totally and permanently
disabled (as defined in the Company’s disability benefit plan applicable to
senior executive officers as in effect on the date thereof) (“Permanent
Disability”), Company or Consultant may terminate this Agreement 

 

 

on
written notice thereof, and Consultant shall receive or commence receiving, as
soon as practicable:

 

(i)            amounts payable pursuant to the terms of
the disability insurance policy or similar arrangement which Company maintains
for the Consultant, if any, during the term hereof;

 

(ii)           the Compensation Payment which shall be
paid to Consultant as a cash lump sum within 30 days of such termination; and

 

(iii)          immediate vesting of all unvested stock
options.

 

10.3                           Death.             In the event of Consultant’s death during the
term of his employment hereunder, Consultant’s estate or designated
beneficiaries shall receive or commence receiving, as soon as practicable in
accordance with the terms of this Agreement:

 

(i)            compensation equal to one year’s Base
Compensation which shall be paid within 30 days of such termination;

 

(ii)           any death benefits provided under the
Consultant benefit programs, plans and practices in which the Consultant has an
interest, in accordance with their respective terms;

 

(iii)          the Compensation Payment which shall be
paid to Consultant’s estate as a cash lump sum within 30 days of such termination;
and

 

(iv)          such other payments under applicable
plans or programs to which Consultant’s estate or designated beneficiaries are
entitled pursuant to the terms of such plans or programs.

 

10.4                           Voluntary Termination by Consultant:
Discharge for Cause.       The Company shall have the right to
terminate this Agreement for Cause (as hereinafter defined). In the event that
Consultant’s employment is terminated by Company for Cause, as hereinafter
defined, or by Consultant other than for Good Reason or other than as a result
of the Consultant’s Permanent Disability or death, prior to the Termination
Date, Consultant shall be entitled only to receive, as a cash lump sum within
30 days of such termination, the Compensation Payment.  As used herein, the term “Cause” shall be
limited to (i) willful malfeasance or willful misconduct by Consultant in
connection with the services to the Company in a matter of material importance
to the conduct of the Company’s affairs which has a material adverse affect on
the business of the Company, or (ii) the conviction of Consultant for
commission of a felony.  For purposes of
this subsection, no act or failure to act on the Consultant’s part shall be
considered “willful” unless done, or omitted to be done, by the Consultant not
in good faith 

 

 

and
without reasonable belief that his action or omission was in the best interest
of the Company.  Termination of this
Agreement pursuant to this Section 10.4 shall be made by delivery to
Consultant of a copy of a resolution duly adopted by the affirmative vote of
all of the members of the Board of Directors called and held for such purpose
(after 30 days prior written notice to Consultant and reasonable opportunity
for Consultant to be heard before the Board of Directors prior to such vote),
finding that in the good faith business judgment of such Board of Directors,
Consultant was guilty of conduct set forth in any of clauses (i) through (ii) above
and specifying the particulars thereof.

 

11.                               Assignment:

 

This
Agreement shall be binding upon and inure to the benefit of the heirs and
representatives of Consultant and the assigns and successors of Company, but
neither this Agreement nor any rights or obligations hereunder shall be
assignable or otherwise subject to hypothecation by Consultant (except by will
or by operation of the laws of intestate succession or by Consultant notifying
the Company that cash payment be made to an affiliated investment partnership
in which Consultant is a control person) or by Company, except that Company may
assign this Agreement to any successor (whether by merger, purchase or
otherwise) to all or substantially all of the stock, assets or businesses of
Company, if such successor expressly agrees to assume the obligations of
Company hereunder.

 

12.                               Change In Control:

 

12.1                           Definition.                                        For purposes of this Agreement, a “Change in
Control” shall be deemed to have occurred if (i) there shall be
consummated (A) any consolidation or merger of the Company in which the
Company is not the continuing or surviving corporation or pursuant to which
shares of the Company’s Common Stock would be converted into cash, securities
or other property, other than a merger of the Company in which the holders of
the Company’s Common Stock immediately prior to the merger have substantially
the same proportionate ownership of common stock of the surviving corporation
immediately after the merger, or (B) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all or
substantially all the assets of the Company, or (ii) the stockholders of
the Company shall approve any plan or proposal for the liquidation or
dissolution of the Company, or (iii) any person (as such term is used in
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934
(the “Exchange Act”)), other than the Company or any Consultant benefit plan
sponsored by the Company, or such person on the Effective Date hereof is a 20%
or more beneficial owner, shall become the beneficial owner (within the meaning
of Rule 13d-3 under the Exchange Act) of securities of the Company
representing 20% or more of the combined voting power of the Company’s then
outstanding securities ordinarily (and apart from rights accruing in special
circumstances) having the right to vote in the election of directors, as a
result of a tender or exchange offer, open market purchases, privately
negotiated purchases or 

 

 

otherwise,
or (iv) at any time during a period of two consecutive years, individuals
who at the beginning of such period, constituted the Board of Directors of the
Company shall cease for any reason to constitute at least a majority thereof,
unless the election or the nomination for election by the Company’s
stockholders of each new director during such two-year period was approved by a
vote of at least two-thirds of the directors then still in office, who were
directors at the beginning of such two-year period.

 

12.2                           Rights and Obligations.                  If a Change in Control of the Company shall
have occurred while the Consultant is director of the Company, the Consultant
shall be entitled to the compensation provided in Section 10.1 of this
Agreement upon the subsequent termination of this Agreement by either the
Company, or the Consultant within two years of the date upon which the Change
in Control shall have occurred, unless such termination is a result of (i) the
Consultant’s death; (ii) the Consultant’s Disability; (iii) the
Consultant’s Retirement; or (iv) the Consultant’s termination for Cause.

 

13.                               Indemnification:

 

Consultant,
as such and as a Director of the Company, shall be indemnified by the Company
against all liability incurred by the Consultant in connection with any
proceeding, including, but not necessarily limited to, the amount of any
judgment obtained against Consultant, the amount of any settlement entered into
by the Consultant and any claimant with the approval of the Company, attorneys’
fees, actually and necessarily incurred by him in connection with the defense
of any action, suit, investigation or proceeding or similar legal activity,
regardless of whether criminal, civil, administrative or investigative in
nature (“Claim”), to which he is made a party or is otherwise subject to, by
reason of his being or having been a director, officer, agent or employee of
the Company, to the full extent permitted by applicable law and the Certificate
of Incorporation of the Company.  Such
right of indemnification will not be deemed exclusive of any other rights to
which Consultant may be entitled under Company’s Certificate of Incorporation or
By-laws, as in effect from time to time, any agreement or otherwise.

 

14.                                 Miscellaneous:

 

(a)                                  This
Agreement between the Company and Consultant constitutes the entire agreement
and understanding of the parties hereto, and supersedes any and all previous
agreements and understandings, whether oral or written, between the parties
with respect to the matters set forth herein.

 

(b)                                 Any
notice or communication permitted or required hereunder shall be in writing and
shall be deemed sufficiently given if hand-delivered or sent (i) postage
prepaid by registered mail, return receipt requested, or (ii) by 

 

 

facsimile, to the
respective parties as set forth below, or to such other address as either party
may notify the other in writing.

 

	
  If to the Company, to:

  	
   

  	
  Callisto
  Pharmaceuticals, Inc.

  
	
   

  	
   

  	
  420 Lexington Avenue,
  Suite 1609

  
	
   

  	
   

  	
  New York, New York
  10170

  
	
   

  	
   

  	
  Attention: Gary S.
  Jacob, CEO

  
	
   

  	
   

  	
   

  
	
  If to Consultant, to:

  	
   

  	
  Gabriele M. Cerrone

  
	
   

  	
   

  	
  c/o Panetta Partners Ltd.

  
	
   

  	
   

  	
  1275 First Avenue,
  Suite 296

  
	
   

  	
   

  	
  New York, New York
  10021

  
	
   

  	
   

  	
  Attention: Gabriele M.
  Cerrone, Managing Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  With a required copy
  to:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Sommer &
  Schneider LLP

  
	
   

  	
   

  	
  595 Stewart Avenue,
  Suite 710

  
	
   

  	
   

  	
  Garden City, NY 11530

  
	
   

  	
   

  	
  Attention: Herb Sommer,
  Partner

  

 

(c)                                  This
Agreement may be executed in any number of counterparts, each of whom together
shall constitute one and the same original document.

 

(d)                                 This Agreement may not be changed orally,
but only by an agreement in writing signed by the party against whom any
waiver, change, amendment, modification or discharge is sought.

 

(e)                                  The invalidity of all or any part of any
provision of this Agreement shall not render invalid the remainder of this
Agreement or the remainder of such provision. 
If any provision of this Agreement is so broad as to be unenforceable,
such provision shall be interpreted to be only so broad as is enforceable.

 

(f)                                    This
Agreement shall be governed by and construed in accordance with the law of the
State of New York without giving effect to the principles of conflicts of law thereof.  The parties hereto each hereby submits
herself or itself for the sole purpose of this Agreement and any controversy
arising hereunder to the exclusive jurisdiction of the state courts in the
State of New York.

 

(d)                                 Any
amounts due hereunder to Consultant which remain unpaid after their due date,
shall bear interest from the due date until paid at a rate of the prime rate
(in effect on the date thereof for Citibank).

 

(e)                                  The
Company’s obligations to make payments under Section 10 and 12 shall survive
termination or expiration of this Agreement.

 

 

(f)                                    Consultant
shall not be required to mitigate damages or the amount of any payment provided
for under this Agreement by seeking other employment or otherwise after the
termination of this Agreement.

 

IN
WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the date first above written.

 

	
   

  	
  CONSULTANT

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Gabriele M. Cerrone

  
	
   

  	
  Gabriele M. Cerrone

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CALLISTO PHARMACEUTICALS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Gary S. Jacob

  
	
   

  	
   

  	
  Name: Gary S. Jacob

  
	
   

  	
   

  	
  Title: CEOFiled by sedaredgar.com - Crown Oil and Gas Inc. - Exhibit 10.4

CROWN OIL AND GAS INC. 

Stock Option Plan 

DATED: May 30, 2008 

This Stock Option Plan (the "Plan") provides for the
grant of stock options to acquire shares in the common stock (the "Common
Shares") of Crown Oil and Gas Inc. (the "Company"), a corporation
organized under the laws of the State of Nevada. Stock options granted under
this Plan that qualify under Section 422 of the Internal Revenue Code of
1986 (United States), as amended (the "Code") are referred to in this
Plan as "Incentive Stock Options" and stock options that do not qualify
under Section 422 of the Code are referred to as "Non-Qualified Stock
Options". Incentive Stock Options and Non-Qualified Stock Options granted
under this Plan are collectively referred to as "Options". 

1.          
 PURPOSE 

1.1         
The purpose of this Plan is to retain the services of valued key
employees and consultants of the Company and such other persons as the Plan
Administrator (as defined in Section 2.1 hereof) shall select in accordance with
Section 2 hereof, and to encourage such persons to acquire a greater proprietary
interest in the Company, thereby strengthening their incentive to achieve the
objectives of the shareholders of the Company, and to serve as an aid and
inducement in the hiring of new employees and to provide an equity incentive to
consultants and other persons selected by the Plan Administrator. 

1.2         
This Plan shall at all times be subject to all legal requirements
relating to the administration of stock option plans, if any, under applicable
corporate laws, applicable federal, state and provincial securities laws, the
Code, the rules of any applicable stock exchange or stock quotation system, and
the rules of any foreign jurisdiction applicable to Options granted to residents
therein (collectively, the "Applicable Laws"). 

2.          
 ADMINISTRATION 

2.1         
This Plan shall be administered initially by the board of directors of the
Company (the "Board"), except that the Board may, in its discretion,
establish a committee composed of two or more members of the Board or two or
more other persons to administer the Plan, which committee (the
"Committee") may be an executive, compensation or other committee,
including a separate committee especially created for this purpose. The Board
or, if applicable, the Committee is referred to herein as the "Plan
Administrator". 

2.2         
If and so long as the Common Shares are registered under Section 12(b) or 12(g)
of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and the Company wishes to grant Incentive Stock Options, then the
Board shall consider in selecting the Plan Administrator and the membership of
any Committee, with respect to any persons subject or likely to become subject
to Section 16 of the Exchange Act, the provisions regarding (a) "outside
directors" as contemplated by Section 162(m) of the Code, and (b) "Non-Employee
Directors" as contemplated by Rule 16b-3 under the Exchange Act. 

2.3         
The Committee shall have the powers and authority vested in the Board hereunder
(including the power and authority to interpret any provision of the Plan or of
any Option). The members of any such Committee shall serve at the pleasure of
the Board. A majority of the members of the Committee shall constitute a quorum,
and all actions of the Committee shall be taken by a majority of the members
present. Any action may be taken by a written instrument signed by all of the
members of the Committee and any action so taken shall be fully effective as if
it had been taken at a meeting. 

2.4         
Subject to the provisions of this Plan and any Applicable Laws, and
with a view to effecting the purpose of the Plan, the Plan Administrator shall
have sole authority, in its absolute discretion, to: 

	 	(a) 	
      construe and interpret this
Plan;

- 2 - 

	 	(b) 	
      define the terms used in the Plan;

	 	 	 
	 	(c) 	
      prescribe, amend and rescind the rules and regulations
      relating to this Plan;

	 	 	 
	 	(d) 	
      correct any defect, supply any omission or reconcile any
      inconsistency in this Plan;

	 	 	 
	 	(e) 	
      grant Options under this Plan;

	 	 	 
	 	(f) 	
      determine the individuals to whom Options shall be
      granted under this Plan and whether the Option is granted as an Incentive
      Stock Option or a Non-Qualified Stock Option;

	 	 	 
	 	(g) 	
      determine the time or times at which Options shall be
      granted under this Plan;

	 	 	 
	 	(h) 	
      determine the number of Common Shares subject to each
      Option, the exercise price of each Option, the duration of each Option and
      the times at which each Option shall become exercisable;

	 	 	 
	 	(i) 	
      determine all other terms and conditions of the Options;
      and

	 	 	 
	 	(j) 	
      make all other determinations and interpretations
      necessary and advisable for the administration of the
  Plan.

2.5         
All decisions, determinations and interpretations made by the Plan Administrator
shall be binding and conclusive on all participants in the Plan and on their
legal representatives, heirs and beneficiaries. 

3.           
ELIGIBILITY 

3.1         
Incentive Stock Options may be granted to any individual who, at the time the
Option is granted, is an employee of the Company or any Related Corporation (as
defined in Section 3.5 hereof) ("Employees"). 

3.2         
Non-Qualified Stock Options may be granted to Employees and to such
other persons who are not Employees as the Plan Administrator shall select,
subject to any Applicable Laws. 

3.3         
Options may be granted in substitution for outstanding Options of
another corporation in connection with the merger, consolidation, acquisition of
property or stock or other reorganization between such other corporation and the
Company or any subsidiary of the Company. Options also may be granted in
exchange for outstanding Options. 

3.4         
Any person to whom an Option is granted under this Plan is referred to
as an "Optionee". Any person who is the owner of an Option is referred to
as a "Holder". 

3.5         
As used in this Plan, the term "Related Corporation" shall mean any
corporation (other than the Company) that is a "Parent Corporation" of the
Company or "Subsidiary Corporation" of the Company, as those terms are defined
in Sections 424(e) and 424(f), respectively, of the Code (or any successor
provisions) and the regulations thereunder (as amended from time to time). 

4.          
 STOCK 

4.1         
The Plan Administrator is authorized to grant Options to acquire, in
aggregate, up to a total of 10% of the issued and outstanding Common Shares from
time to time (the "Option Limit"). The number of Common Shares with
respect to which Options may be granted hereunder is subject to adjustment as
set out in Section 5.1(m) hereof. In the event that any outstanding Option
expires or is terminated for any reason, the Common Shares allocable to the
unexercised portion of such Option may again be subject to an Option granted to
the same Optionee or to a different person eligible under Section 3 hereof;
provided however, that any cancelled Options will be counted against the maximum
number of shares with respect to which Options may be granted to any particular
person as set out in Section 5.1(a) hereof. 

- 3 - 

5.          
 TERMS AND CONDITIONS OF OPTIONS 

5.1         
Each Option granted under this Plan shall be evidenced by an option certificate
in substantially the form attached hereto as Schedule "A" or such written
agreement as may be approved by the Plan Administrator from time to time (each,
an "Agreement"). Agreements may contain such provisions, not inconsistent
with this Plan or any Applicable Laws, as the Plan Administrator in its
discretion may deem advisable. All Options also shall comply with the following
requirements: 

(a)         
Number of Shares and Type of Option 

Each Agreement shall state the number of Common Shares to which
it pertains and whether the Option is intended to be an Incentive Stock Option
or a Non-Qualified Stock Option; provided that: 

	 	(i) 	
      subject to the Option Limit set out in Section 4.1
      hereof, the number of Common Shares that may be reserved pursuant to the
      exercise of Options granted to any person shall not exceed 10% of the
      issued and outstanding Common Shares of the Company;

	 	 	 
	 	(ii) 	
      in the absence of action to the contrary by the Plan
      Administrator in connection with the grant of an Option, all Options shall
      be Non-Qualified Stock Options;

	 	 	 
	 	(iii) 	
      the aggregate fair market value (determined at the Date
      of Grant, as defined in Section 5.1(b) hereof) of the Common Shares with
      respect to which Incentive Stock Options are exercisable for the first
      time by the Optionee during any calendar year (granted under this Plan and
      all other Incentive Stock Option plans of the Company, a Related
      Corporation or a predecessor corporation) shall not exceed US$100,000, or
      such other limit as may be prescribed by the Code as it may be amended
      from time to time (the "Annual Limit"); and

	 	 	 
	 	(iv) 	
      any portion of an Option which exceeds the Annual Limit
      shall not be void but rather shall be a Non-Qualified Stock
  Option.

(b)         
Date of Grant 

Each Agreement shall state the date the Plan Administrator has
deemed to be the effective date of the Option for purposes of this Plan (the
"Date of Grant"). 

(c)         
Option Price 

Each Agreement shall state the price per Common Share at which
it is exercisable. The Plan Administrator shall act in good faith to establish
the exercise price in accordance with Applicable Laws; provided that: 

	 	(i) 	
      the per share exercise price for an Incentive Stock
      Option or any Option granted to a "covered employee" as such term
      is defined for purposes of Section 162(m) of the Code shall not be less
      than the fair market value per Common Share at the Date of Grant as
      determined by the Plan Administrator in good faith;

	 	 	 
	 	(ii) 	
      with respect to Incentive Stock Options granted to
      greater-than-ten percent (>10%) shareholders of the Company (as
      determined with reference to Section 424(d) of the Code), the exercise
      price per share shall not be less than one hundred ten percent (110%) of
      the fair market value per Common Share at the Date of Grant as determined
      by the Plan Administrator in good faith; and

	 	 	 
	 	(iii) 	
      Options granted in substitution for outstanding options
      of another corporation in connection with the merger, consolidation,
      acquisition of property or stock or other reorganization involving such
      other corporation and the Company or any subsidiary of the Company may be
      granted with an exercise price equal to the exercise price for the
      substituted option of the other corporation,
subject

- 4 - 

to any adjustment consistent with the
terms of the transaction pursuant to which the substitution is to occur, and
provided that for Incentive Stock Options: 

	 	A. 	
      the excess of the aggregate fair market value of the
      shares subject to the option immediately after the substitution over the
      aggregate exercise price of such shares is not more than the excess of the
      aggregate fair market value of all shares subject to the option
      immediately before such substitution over the aggregate exercise price of
      such shares, and

	 	 	 
	 	B. 	
      the substituted option does not give the employee
      additional benefits which he did not have under the previously held
      Option; and

	 	(iv) 	
      with respect to Non-Qualified Stock Options, the exercise
      price per share shall be the fair market value of the Common Shares as
      determined by the Plan Administrator in good
faith.

(d)         
Duration of Options 

At the time of the grant of the Option, the Plan Administrator
shall designate, subject to Section 5.1(g) hereof, the expiration date of the
Option, which date shall not be later than ten (10) years from the Date of
Grant; provided, that the expiration date of any Incentive Stock Option granted
to a greater-than-ten percent (>10%) shareholder of the Company (as
determined with reference to Section 424(d) of the Code) shall not be later than
five (5) years from the Date of Grant. In the absence of action to the contrary
by the Plan Administrator in connection with the grant of a particular Option,
and except in the case of Incentive Stock Options as set out above, all Options
granted under this Section 5 shall expire ten (10) years from the Date of Grant.

(e)         
Vesting Schedule 

No Option shall be exercisable until it has vested. The vesting
schedule for each Option shall be specified by the Plan Administrator at the
time of grant of the Option prior to the provision of services with respect to
which such Option is granted; provided, that if no vesting schedule is specified
at the time of grant, the Option shall vest according to the following schedule:

	Number of Months 
Following Date of
      Grant 	Percentage of Total 
Option
      Vested 
	At grant date
	25%
    
	6 	50%
    
	12 	75%
    
	18 	100%
    

The Plan Administrator may specify a vesting schedule for all
or any portion of an Option based on the achievement of performance objectives
established in advance of the commencement by the Optionee of services related
to the achievement of the performance objectives. Performance objectives shall
be expressed in terms of objective criteria, including but not limited to, one
or more of the following: return on equity, return on assets, share price,
market share, sales, earnings per share, costs, net earnings, net worth,
inventories, cash and cash equivalents, gross margin or the Company's
performance relative to its internal business plan. Performance objectives may
be in respect of the performance of the Company as a whole (whether on a
consolidated or unconsolidated basis), a Related Corporation, or a subdivision,
operating unit, product or product line of either of the foregoing. Performance
objectives may be absolute or relative and may be expressed in terms of a
progression or a range. An Option that is exercisable (in full or in part) upon
the achievement of one or more performance objectives may be exercised only
following written notice to the Optionee and the Company by the Plan
Administrator that the performance objective has been achieved. 

- 5 - 

(f)         
Acceleration of Vesting 

The vesting of one or more outstanding Options may be
accelerated by the Plan Administrator at such times and in such amounts as it
shall determine in its sole discretion. 

(g)         
Term of Option 

	 	(i) 	
      Vested Options shall terminate, to the extent not
      previously exercised, upon the occurrence of the first of the following
      events:

	 	 	 	 
	 		A. 	
      the expiration of the Option, as designated by the Plan
      Administrator in accordance with Section 5.1(d) hereof;

	 	 	 	 
	 		B. 	
      the date of an Optionee's termination of employment or
      contractual relationship with the Company or any Related Corporation for
      cause (as determined by the Plan Administrator, acting
  reasonably);

	 	 	 	 
	 		C. 	
      the date of an Optionee's resignation or termination of
      employment or contractual relationship with the Company or any Related
      Corporation for any reason whatsoever other than cause, death or
      Disability (as defined in Section 5.1(g)(iv) hereof); or

	 	 	 	 
	 		D. 	
      the expiration of one year from termination of an
      Optionee's employment or contractual relationship by reason of death or
      Disability unless, in the case of a Non-Qualified Stock Option, the
      exercise period is extended by the Plan Administrator until a date not
      later than the expiration date of the Option.

	 	 	 	 
	 	(ii) 	
      Notwithstanding Section 5.1(g)(i) hereof, any vested
      Options which have been granted to the Optionee in the Optionee's capacity
      as a director of the Company or any Related Corporation shall terminate
      upon the occurrence of the first of the following events:

	 	 	 	 
	 		A. 	
      the event specified in Section 5.1(g)(i)A
  hereof;

	 	 	 	 
	 		B. 	
      the event specified in Section 5.1(g)(i)D hereof;
    and

	 	 	 	 
	 		C. 	
      the date the Optionee ceases to serve as a director of
      the Company or Related Corporation, as the case may be unless, in the case
      of a Non-Qualified Stock Option, the exercise period is extended by the
      Plan Administrator until a date not later than the expiration date of the
      Option.

	 	 	 	 
	 	(iii) 	
      Upon the death of an Optionee, any vested Options held by
      the Optionee shall be exercisable only by the person or persons to whom
      such Optionee's rights under such Option shall pass by the Optionee's will
      or by the laws of descent and distribution of the Optionee's domicile at
      the time of death and only until such Options terminate as set out
      above.

	 	 	 	 
	 	(iv) 	
      For purposes of the Plan, unless otherwise defined in the
      Agreement, "Disability" shall mean medically determinable physical
      or mental impairment which has lasted or can be expected to last for a
      continuous period of not less than twelve months or that can be expected
      to result in death. The Plan Administrator shall determine whether an
      Optionee has incurred a Disability on the basis of medical evidence
      acceptable to the Plan Administrator. Upon making a determination of
      Disability, the Plan Administrator shall, for purposes of the Plan,
      determine the date of an Optionee's termination of employment or
      contractual relationship.

	 	 	 	 
	 	(v) 	
      Unless accelerated in accordance with Section 5.1(f)
      hereof, unvested Options shall terminate immediately upon termination of
      employment of the Optionee by the Company for any reason whatsoever,
      including death or Disability.

- 6 - 

	 	(vi) 	
      For purposes of this Plan, transfer of employment between
      or among the Company and/or any Related Corporation shall not be deemed to
      constitute a termination of employment with the Company or any Related
      Corporation. Employment shall be deemed to continue while the Optionee is
      on military leave, sick leave or other bona fide leave of absence
      (as determined by the Plan Administrator). The foregoing notwithstanding,
      employment shall not be deemed to continue beyond the first ninety days of
      such leave, unless the Optionee's re-employment rights are guaranteed by
      statute or by contract.

(h)         
Exercise of Options 

	 	(i) 	
      Options shall be exercisable, in full or in part, at any
      time after vesting, until termination. If less than all of the Common
      Shares included in the vested portion of any Option are purchased, the
      remainder may be purchased at any subsequent time prior to the expiration
      of the Option term. Only whole Common Shares may be issued pursuant to an
      Option, and to the extent that an Option covers less than one (1) share,
      it is unexercisable.

	 	 	 
	 	(ii) 	
      Options or portions thereof may be exercised by giving
      written notice, in substantially the form of notice attached as
      Schedule "B" hereto, to the Company and be accompanied by payment
      in the amount of the aggregate exercise price for the Common Shares so
      purchased, which payment shall be in the form specified in Section 5.1(i)
      hereof. The Company shall not be obligated to issue, transfer or deliver a
      certificate representing Common Shares to the Holder of any Option, until
      provision has been made by the Holder, to the satisfaction of the Company,
      for the payment of the aggregate exercise price for all Common Shares for
      which the Option shall have been exercised and for satisfaction of any tax
      withholding obligations associated with such exercise. During the lifetime
      of an Optionee, Options are exercisable only by the
  Optionee.

(i)         
Payment upon Exercise of Option 

Upon the exercise of any Option, the aggregate exercise price
shall be paid to the Company in cash or by certified or cashier's check. In
addition, if pre-approved in writing by the Plan Administrator who may
arbitrarily withhold consent, the Holder may pay for all or any portion of the
aggregate exercise price by complying with one or more of the following
alternatives: 

	 	(i) 	
      by delivering a properly executed exercise notice
      together with irrevocable instructions to a broker promptly to sell or
      margin a sufficient portion of the Common Shares and deliver directly to
      the Company the amount of sale or margin loan proceeds to pay the exercise
      price; or

	 	 	 
	 	(ii) 	
      by complying with any other payment mechanism approved by
      the Plan Administrator at the time of exercise.

(j)          No
Rights as a Shareholder 

A Holder shall have no rights as a shareholder of the Company
with respect to any Common Shares covered by an Option until such Holder becomes
a record holder of such Common Shares, irrespective of whether such Holder has
given notice of exercise. Subject to the provisions of Section 5.1(m) hereof, no
rights shall accrue to a Holder and no adjustments shall be made on account of
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights declared on, or created in, the
Common Shares for which the record date is prior to the date the Holder becomes
a record holder of the Common Shares covered by the Option, irrespective of
whether such Holder has given notice of exercise. 

(k)         
Non-transferability of Options 

	 	(i) 	
      Options granted under this Plan and the rights and
      privileges conferred by this Plan may not be transferred, assigned,
      pledged or hypothecated in any manner (whether by operation of law or
      otherwise) other than by will or by applicable laws of descent and
      distribution or, in the case of a

- 7 - 

Non-Qualified Stock Option, pursuant
to a qualified domestic relations order, and shall not be subject to execution,
attachment or similar process; provided however that, subject to applicable
laws: 

	 	A. 	
      for Non-Qualified Stock Options, any Agreement may
      provide or be amended to provide that a Non-Qualified Stock Option to
      which it relates is transferable without payment of consideration to
      immediate family members of the Optionee or to trusts or partnerships or
      limited liability companies established exclusively for the benefit of the
      Optionee and the Optionee's immediate family members; and

	 	 	 
	 	B. 	
      for all Options, the Optionee's heirs or administrators
      may exercise any portion of the outstanding Options within one year of the
      Optionee's death.

	 	(ii) 	
      Upon any attempt to transfer, assign, pledge, hypothecate
      or otherwise dispose of any Option or of any right or privilege conferred
      by this Plan contrary to the provisions hereof, or upon the sale, levy or
      any attachment or similar process upon the rights and privileges conferred
      by this Plan, such Option shall thereupon terminate and become null and
      void.

(l)         
Securities Regulation and Tax Withholding 

	 	(i) 	
      Common Shares shall not be issued with respect to an
      Option unless the exercise of such Option and the issuance and delivery of
      such Common Shares shall comply with all Applicable Laws, and such
      issuance shall be further subject to the approval of counsel for the
      Company with respect to such compliance, including the availability of an
      exemption from prospectus and registration requirements for the issuance
      and sale of such Common Shares. The inability of the Company to obtain
      from any regulatory body the authority deemed by the Company to be
      necessary for the lawful issuance and sale of any Common Shares under this
      Plan, or the unavailability of an exemption from prospectus and
      registration requirements for the issuance and sale of any Common Shares
      under this Plan, shall relieve the Company of any liability with respect
      to the non-issuance or sale of such Common Shares.

	 	 	 	 
	 	(ii) 	
      As a condition to the exercise of an Option, the Plan
      Administrator may require the Holder to represent and warrant in writing
      at the time of such exercise that the Common Shares are being purchased
      only for investment and without any then-present intention to sell or
      distribute such Common Shares. If necessary under Applicable Laws, the
      Plan Administrator may cause a stop- transfer order against such Common
      Shares to be placed on the stock books and records of the Company, and a
      legend indicating that the Common Shares may not be pledged, sold or
      otherwise transferred unless an opinion of counsel is provided stating
      that such transfer is not in violation of any Applicable Laws, may be
      stamped on the certificates representing such Common Shares in order to
      assure an exemption from registration. The Plan Administrator also may
      require such other documentation as may from time to time be necessary to
      comply with applicable securities laws. THE CORPORATION HAS NO OBLIGATION
      TO UNDERTAKE REGISTRATION OF OPTIONS OR THE COMMON SHARES ISSUABLE UPON
      THE EXERCISE OF OPTIONS.

	 	 	 	 
	 	(iii) 	
      The Holder shall pay to the Company by certified or
      cashier's check, promptly upon exercise of an Option or, if later, the
      date that the amount of such obligations becomes determinable, all
      applicable federal, state, local and foreign withholding taxes that the
      Plan Administrator, in its discretion, determines to result upon exercise
      of an Option or from a transfer or other disposition of Common Shares
      acquired upon exercise of an Option or otherwise related to an Option or
      Common Shares acquired in connection with an Option. Upon approval of the
      Plan Administrator, a Holder may satisfy such obligation by complying with
      one or more of the following alternatives selected by the Plan
      Administrator:

	 	 	 	 
	 		A. 	
      by delivering to the Company Common Shares previously
      held by such Holder or by the Company withholding Common Shares otherwise
      deliverable pursuant to the exercise of the Option, which Common Shares
      received or withheld shall have a fair market value
at

- 8 - 

	 		
      the date of exercise (as determined by the Plan
      Administrator) equal to any withholding tax obligations arising as a
      result of such exercise, transfer or other disposition; or

	 	 	 
	 	B. 	
      by complying with any other payment mechanism approved by
      the Plan Administrator from time to time.

	 	(iv) 	
      The issuance, transfer or delivery of certificates
      representing Common Shares pursuant to the exercise of Options may be
      delayed, at the discretion of the Plan Administrator, until the Plan
      Administrator is satisfied that the applicable requirements of all
      Applicable Laws and the withholding provisions of the Code have been met
      and that the Holder has paid or otherwise satisfied any withholding tax
      obligation as described in Section 5.1(l)(iii)
hereof.

(m)         
Adjustments Upon Changes In Capitalization 

	 	(i) 	
      The aggregate number and class of shares for which
      Options may be granted under this Plan, the number and class of shares
      covered by each outstanding Option, and the exercise price per share
      thereof (but not the total price), and each such Option, shall all be
      proportionately adjusted for any increase or decrease in the number of
      issued Common Shares of the Company resulting from:

	 	 	 	 
	 		A. 	
      a subdivision or consolidation of Common Shares or any
      like capital adjustment, or

	 	 	 	 
	 		B. 	
      the issuance of any Common Shares, or securities
      exchangeable for or convertible into Common Shares, to the holders of all
      or substantially all of the outstanding Common Shares by way of a stock
      dividend (other than the issue of Common Shares, or securities
      exchangeable for or convertible into Common Shares, to holders of Common
      Shares pursuant to their exercise of options to receive dividends in the
      form of Common Shares, or securities convertible into Common Shares, in
      lieu of dividends paid in the ordinary course on the Common
  Shares).

	 	 	 	 
	 	(ii) 	
      Except as provided in Section 5.1(m)(iii) hereof, upon a
      merger (other than a merger of the Company in which the holders of Common
      Shares immediately prior to the merger have the same proportionate
      ownership of common shares in the surviving corporation immediately after
      the merger), consolidation, acquisition of property or stock, separation,
      reorganization (other than a mere re-incorporation or the creation of a
      holding Company) or liquidation of the Company, as a result of which the
      shareholders of the Company, receive cash, shares or other property in
      exchange for or in connection with their Common Shares, any Option granted
      hereunder shall terminate, but the Holder shall have the right to exercise
      such Holder's Option immediately prior to any such merger, consolidation,
      acquisition of property or shares, separation, reorganization or
      liquidation, and to be treated as a shareholder of record for the purposes
      thereof, to the extent the vesting requirements set out in the Option
      agreement have been satisfied.

	 	 	 	 
	 	(iii) 	
      If the shareholders of the Company receive shares in the
      capital of another corporation ("Exchange Shares") in exchange for
      their Common Shares in any transaction involving a merger (other than a
      merger of the Company in which the holders of Common Shares immediately
      prior to the merger have the same proportionate ownership of Common Shares
      in the surviving corporation immediately after the merger), consolidation,
      acquisition of property or shares, separation or reorganization (other
      than a mere re-incorporation or the creation of a holding Company), all
      Options granted hereunder shall be converted into options to purchase
      Exchange Shares unless the Company and the corporation issuing the
      Exchange Shares, in their sole discretion, determine that any or all such
      Options granted hereunder shall not be converted into options to purchase
      Exchange Shares but instead shall terminate in accordance with, and
      subject to the Holder's right to exercise the Holder's Options pursuant
      to, the provisions of Section 5.1(m)(ii) hereof. The amount and price of
      converted options shall be determined by adjusting the amount and price of
      the Options granted hereunder in the same proportion as used for
      determining the number of Exchange Shares the holders of the Common Shares
      receive in such merger, consolidation, acquisition or property or stock,
      separation or reorganization. Unless accelerated by the
  Board,

- 9 - 

	 		
      the vesting schedule set out in the option agreement
      shall continue to apply to the options granted for the Exchange
    Shares.

	 	 	 
	 	(iv) 	
      In the event of any adjustment in the number of Common
      Shares covered by any Option, any fractional shares resulting from such
      adjustment shall be disregarded and each such Option shall cover only the
      number of full shares resulting from such adjustment.

	 	 	 
	 	(v) 	
      All adjustments pursuant to Section 5.1(m) hereof shall
      be made by the Plan Administrator, and its determination as to what
      adjustments shall be made, and the extent thereof, shall be final, binding
      and conclusive.

	 	 	 
	 	(vi) 	
      The grant of an Option shall not affect in any way the
      right or power of the Company to make adjustments, reclassifications,
      reorganizations or changes of its capital or business structure, to merge,
      consolidate or dissolve, to liquidate or to sell or transfer all or any
      part of its business or assets.

6.           
EFFECTIVE DATE; AMENDMENT; SHAREHOLDER APPROVAL 

6.1         
Options may be granted by the Plan Administrator from time to time on
or after the date on which this Plan is adopted by the Board (the "Effective
Date"). 

6.2         
Unless sooner terminated by the Board, this Plan shall terminate on the
tenth anniversary of the Effective Date. No Option may be granted after such
termination or during any suspension of this Plan. 

6.3         
Any Incentive Stock Options granted by the Plan Administrator prior to
the ratification of this Plan by the shareholders of the Company shall be
granted subject to approval of this Plan by the holders of a majority of the
Company's outstanding voting shares, voting either in person or by proxy at a
duly held shareholders' meeting within twelve months before or after the
Effective Date. If such shareholder approval is sought and not obtained, all
Incentive Stock Options granted prior thereto and thereafter shall be considered
Non-Qualified Stock Options and any Options granted to Covered Employees will
not be eligible for the exclusion set out in Section 162(m) of the Code with
respect to the deductibility by the Company of certain compensation. 

7.           
NO OBLIGATIONS TO EXERCISE OPTION 

7.1         
The grant of an Option shall impose no obligation upon the Optionee to exercise
such Option. 

8.           
NO RIGHT TO OPTIONS OR TO EMPLOYMENT 

8.1         
Whether or not any Options are to be granted under this Plan shall be
exclusively within the discretion of the Plan Administrator, and nothing
contained in this Plan shall be construed as giving any person any right to
participate under this Plan. The grant of an Option shall in no way constitute
any form of agreement or understanding binding on the Company or any Related
Corporation, express or implied, that the Company or any Related Corporation
will employ or contract with an Optionee for any length of time, nor shall it
interfere in any way with the Company's or, where applicable, a Related
Corporation's right to terminate Optionee's employment at any time, which right
is hereby reserved. 

9.           
APPLICATION OF FUNDS 

9.1         
The proceeds received by the Company from the sale of Common Shares
issued upon the exercise of Options shall be used for general corporate
purposes, unless otherwise directed by the Board. 

10.        
 INDEMNIFICATION OF PLAN ADMINISTRATOR 

10.1       
In addition to all other rights of indemnification they may have as members of
the Board, members of the Plan Administrator shall be indemnified by the Company
for all reasonable expenses and liabilities of any type or 

- 10 - 

nature, including attorneys' fees, incurred in connection with
any action, suit or proceeding to which they or any of them are a party by
reason of, or in connection with, this Plan or any Option granted under this
Plan, and against all amounts paid by them in settlement thereof (provided that
such settlement is approved by independent legal counsel selected by the
Company), except to the extent that such expenses relate to matters for which it
is adjudged that such Plan Administrator member is liable for willful
misconduct; provided, that within fifteen days after the institution of any such
action, suit or proceeding, the Plan Administrator member involved therein
shall, in writing, notify the Company of such action, suit or proceeding, so
that the Company may have the opportunity to make appropriate arrangements to
prosecute or defend the same. 

11.         
AMENDMENT OF PLAN 

11.1       
The Plan Administrator may, at any time, modify, amend or terminate
this Plan or modify or amend Options granted under this Plan, including, without
limitation, such modifications or amendments as are necessary to maintain
compliance with the Applicable Laws. The Plan Administrator may condition the
effectiveness of any such amendment on the receipt of shareholder approval at
such time and in such manner as the Plan Administrator may consider necessary
for the Company to comply with or to avail the Company and/or the Optionees of
the benefits of any securities, tax, market listing or other administrative or
regulatory requirements. 

SCHEDULE "A" 

CROWN OIL AND GAS INC. 

Stock Option Plan 
Option
Certificate 

This Certificate is issued pursuant to the provisions of the
stock option plan of CROWN OIL AND GAS INC. (the "Company") dated May 30, 2008
(the "Plan") and evidences that ____________________ is the holder of a
stock option (the "Option") to purchase up to ____________________ shares
in the common stock of the Company (the "Common Shares") at a purchase
price of US$__________ per Common Share. (the "Exercise Price"). Subject
to the provisions of the Plan: 

	 	(a) 	
      the Option is intended to be [an Incentive Stock
      Option] OR [a Non-Qualified Stock Option] [Pick one] within the
      meaning of Section 422 of the Internal Revenue Code of 1986 (United
      States), as amended ;

	 	 	 
	 	(b) 	
      the award date of this Option is ____________________
      (the "Award Date"); and

	 	 	 
	 	(c) 	
      the expiry date of this Option is ____________________
      (the "Expiry Date").

The right to purchase Common Shares under the Option will vest
in the holder in increments over the term of the Option as follows: 

	Date 	Cumulative Number of Common
      Shares which may be Purchased 
	 	 
	 	 

This Option may be exercised in accordance with its terms at
any time and from time to time from and including the Award Date through to and
including up to 5:00 p.m. (Seattle, Washington time) on the Expiry Date, by
delivery to the Administrator of the Plan an exercise notice, in the form
provided in the Plan, together with this Certificate and a certified cheque or
bank draft payable to CROWN OIL AND GAS INC. in an amount equal to the aggregate
of the Exercise Price of the Shares in respect of which this Option is being
exercised. 

This Certificate and the Option evidenced hereby are not
assignable, transferable or negotiable and are subject to the detailed terms and
conditions contained in the Plan. This Certificate is issued for convenience
only and in the case of any dispute with regard to any matter in respect hereof,
the provisions of the Plan and the records of the Company shall prevail. 

The foregoing Option has been awarded this ______ day of
_______________________. 

CROWN OIL AND GAS INC. 

Per: 
__________________________________________

SCHEDULE "B" 

CROWN OIL AND GAS INC. 

Stock Option Plan 

  Exercise Notice

	TO: 	The Administrator, Stock Option
      Plan 
	  	Crown Oil and Gas Inc. 
	 	400 - 225 West
      Magnolia Street 
	  	Bellingham, WA 98225
  

The undersigned hereby irrevocably gives notice, pursuant to
the terms of the stock option plan of CROWN OIL AND GAS INC (the "Company")
dated May 30, 2008 (the "Plan"), of the exercise of certain stock options
granted under the Plan to acquire, and hereby subscribes for, the following
shares in the common stock of the Company (the "Common Shares") (strike
out the inapplicable item): 

	 	(a) 	
      all of the Common Shares which are set out in the option
      certificate attached hereto ; OR

	 	 	 
	 	(b) 	
      of the Common Shares which are set out in the certificate
      attached hereto, _____________ Common Shares

CALCULATION OF TOTAL EXERCISE PRICE: 

	 	Number of Common Shares to be acquired on exercise: 	 	__________________Common Shares
    
	 	 	 	 
	 	MULTIPLIED BY the Exercise Price per Common Share: 	US$ 	
	 	 	 	 
	 	EQUALS the total Exercise Price, as enclosed herewith: 	US$ 	 

If the undersigned is a "U.S. person", as such term is defined
in Regulation S under the United States Securities Act of 1933 (the
"Securities Act"), the undersigned represents and warrants to the Company
that, at the time of the exercise of the Option, the undersigned is an
"accredited investor", as such term defined in Regulation D under the Securities
Act. 

The undersigned tenders herewith a cheque or bank draft (circle
one) in the amount of US$____________, payable to CROWN OIL AND GAS INC. in an
amount equal to the total Exercise Price of the Common Shares, as calculated
above, and directs the Company to issue, register and deliver the certificates
representing the Common Shares as follows: 

	Registration Information: 	 	Delivery Instructions: 
	 	 	 
	 	 	 
	Name to appear on
      certificates 	 	Name
  
	 	 	 
	 	 	 
	Address 	 	Address
    
	 	 	 
	 	 	 
	  	 	  
	 	 	 
	  	 	Telephone Number 

All capitalized terms, unless otherwise defined in this
exercise notice, will have the meaning provided in the Plan. 

DATED the ______ day of _______________________. 

	 	 	 
	Witness 	 	Signature of Option Holder 
	 	 	 
	 	 	 
	Name of Witness (Print) 	 	Name of Option Holder (Print) 
	 	 	 
	 	 	 
	  	 	(Fax Number)

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