Document:

caagmt_112009.htm

    CONTRIBUTION
AND ASSIGNMENT AGREEMENT

    

     

    THIS
CONTRIBUTION AND ASSIGNMENT AGREEMENT (this “Agreement”), dated as of
November 14, 2009, is by and among International Three Crown Petroleum LLC, a
Colorado limited liability company (“ITC”), Bontan Oil & Gas
Corporation, an Ontario corporation (“Bontan”), Bontan Corporation
Inc., an Ontario corporation (“Bontan Parent”), Allied
Ventures Incorporated, a Belize corporation (“2.5% Holder”) and Israel
Petroleum Company, Limited, a Cayman Islands limited company (the “Company”), individually
sometimes referred to as a “Party” and collectively as the
“Parties.”

     

    

    RECITALS

    

    A.           ITC
has previously entered into that certain Option Agreement for Purchase and Sale
(the “Option
Agreement”), dated October 15, 2009, between ITC and PetroMed
Corporation, a Belize corporation (“PetroMed”), pursuant to which
ITC obtained, among other things, an exclusive option to purchase PetroMed’s
interest in the Offshore Israel Project.  Capitalized terms used but
not defined herein shall have the meanings ascribed to such terms in the Option
Agreement.

    

    B.           ITC,
Bontan and 2.5% Holder have formed the Company for the purpose of, among other
things, acquiring PetroMed’s interest in the Offshore Israel Project, and each
of ITC, Bontan and 2.5% Holder now desire to contribute, and, in the case of
Bontan, to commit to contribute, certain assets to the Company in exchange for
2,250 ordinary voting shares of the Company (“Ordinary Shares”),
representing a 22.5% equity interest in the Company, 7,500 Ordinary Shares,
representing a 75% equity interest in the Company, and 250 Ordinary Shares,
representing a 2.5% equity interest in the Company, respectively, on the terms
and subject to the conditions set forth herein.

    

    C.           In
consideration of the benefit Bontan Parent will receive from its ownership of
all of the outstanding equity interests of Bontan, Bontan Parent is willing to
enter into this Agreement.

    

    AGREEMENT

    

    NOW,
THEREFORE, for good and valuable consideration, the receipt and sufficiency of
which is acknowledged, the Parties agree as follows:

    

    1. Contribution, Assignment and
Assumption of Option Agreement.  Concurrently with the
execution of this Agreement, ITC and the Company shall execute and deliver an
assignment agreement in the form attached hereto as Exhibit A (the “Assignment Agreement”),
pursuant to which ITC shall contribute, assign and transfer to the Company all
of ITC’s right, title and interest in, to, and under the Option Agreement, and
the Company will accept such contribution and assignment, and assume and agree
to perform all obligations of ITC under the Option Agreement.  Upon
the execution and delivery of the Assignment Agreement by ITC and the Company,
ITC shall be relieved of all liability under the Option Agreement that arises or
accrues after the date hereof.

     

     

     

    
      
        
        

      

      
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    2. Contributions by
Bontan.

    

    (a) Initial
Contributions.  Conditioned upon ITC’s or the Company’s
election to exercise the Option under the Option Agreement, Bontan shall
contribute the following to the Company on the date of Closing under the Option
Agreement (the “Initial
Contribution Date”);   except that as an administrative
convenience to Bontan and the Company, Bontan Parent shall pay and deliver the
following directly to PetroMed, with all such deliverables (i) being first
deemed a contribution to Bontan by Bontan Parent, (ii) next being deemed a
subsequent contribution by Bontan to the Company and (iii) thereafter
constituting a subsequent payment and distribution by the Company to PetroMed
under the Option Agreement:

    

    (i)           US$850,000
by wire transfer of immediately available funds to the account or accounts
designated by PetroMed in the Option Agreement;

    

    (ii)           8,617,686
shares of common stock of Bontan Parent (the “Contributed Shares”),
evidenced by a Stock Certificate, issued to and in the name of PetroMed;
and

    

    (iii)           a
warrant to purchase up to 22,853,058 shares of common stock of Bontan Parent in
the form attached hereto as Exhibit B and duly
executed by Bontan Parent.

    

    (b)           Contributions Upon
Closing.  Immediately following the Closing under the Option
Agreement, Bontan Parent shall contribute to Bontan, which in turn shall
contribute to the Company, US$1,500,000 by wire transfer of immediately
available funds to the account or accounts designated by the Company, which
amounts shall be used to, among other things, (i) pay a monthly fee of US$20,000
to ITC for managing the Company pursuant to the Shareholder Agreement, (ii)
reimburse ITC for any expenses incurred after the Closing under the Option
Agreement in connection with the management of the Offshore Israel Project, and
(iii) pay the Company’s expenses following the Closing under the Option
Agreement.

    

    (c)           Contribution of Financing
Proceeds.  As soon as practicable after its receipt thereof,
Bontan Parent shall contribute to Bontan, which in turn shall contribute to the
Company, the net proceeds of each closing under the Financings (as defined
below).

    

    (d)           Proceeds from Prior
Financing.  If Bontan Parent receives any proceeds from a
Financing prior to the execution of the Agreement, it will hold the net proceeds
for contribution to Bontan, and for subsequent contribution to the Company, for
the purposes described in Sections 2(a)(i) and 2(b) above.

    

    3. Issuance of Ordinary Shares;
Execution of Stockholders Agreement.  Upon execution of this
Agreement, the Company shall issue 7,500 Ordinary Shares to Bontan, 2,250
Ordinary Shares to ITC and 250 Shares to 2.5% Holder (collectively, the “Shares”).  Concurrently
with the execution of this Agreement, ITC, Bontan, Bontan Parent and 2.5% Holder
shall execute and deliver, the Stockholders Agreement of the Company, in the
form attached hereto as Exhibit C (the “Stockholders
Agreement”).

     

    
 

    
      
        
        

      

      
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    4. Distribution of Over-Riding
Royalty.  Immediately following the Closing under the Option
Agreement, the Company shall execute the Assignment of Overriding Royalty to H.
Howard Cooper or its designee in the form attached hereto as Exhibit D conveying a
gross 1% over-riding royalty of all oil, gas and associated hydrocarbons
produced, saved and sold from the area covered by the Offshore Israel Project,
exclusive of existing burdens, and which shall not be reduced by subsequent
farmouts or transfers of other interests in the Offshore Israel
Project.

    

    5. Warrant
Plan.  As promptly as reasonably practicable following the
Closing, the Company and Bontan Parent shall enter into an agreement (the “Warrant Plan”), pursuant to
which Bontan Parent will be obligated to issue warrants, over a period to be
defined in the Warrant Plan, to purchase, in the aggregate, up to 500,000 shares
of common stock of Bontan Parent, which warrants shall be issued to officers,
employees, agents and consultants of the Company (other than Howard Cooper) in
accordance with the Warrant Plan.  The warrants issued or issuable
pursuant to the Warrant Plan shall be in a form mutually agreeable to the
Company and Bontan Parent, shall have an exercise price of $US0.35 or such other
price (which may be based on a formula) as is agreed to in the Warrant Plan, and
shall have such other terms, including vesting provisions, as shall be set forth
in the Warrant Plan.  Bontan Parent agrees to use its best efforts to
register the common shares underlying all such warrants on Form S-8 (or such
other available form) prior to the first warrants to vest.

    

    6. Financings.

    

    (a)           Financings.  ITC
has assisted, and will endeavor to continue to assist, Bontan Parent, subject to
the limitations in Section 6(e), in identifying investors and/or lenders to
provide Bontan Parent with up to US$18,000,000 in financing (whether through one
or more debt or equity securities offerings or any other financing transactions)
to cover the cost of seismic and other technical work and other expenses
incurred, or expected to be incurred, in connection with the Offshore Israel
Project (the “Financings”), and Bontan
Parent shall use its best efforts to consummate the Financings.

    

    (b)           $850,000
Financing.  It is anticipated that Bontan Parent will raise at
least US$850,000, net of expenses, through a Financing, the proceeds of which
will used by Bontan Parent and Bontan to satisfy the US$850,000 cash closing
obligation referred to in paragraph 2(a)(i) above and to cover related costs and
expenses.  The proceeds from such Financing that are received prior to
the Closing under the Option Agreement shall be placed in escrow with Bontan
Parent’s counsel, and shall be delivered to the Company immediately following
such Closing. In the event such Closing shall not occur, such proceeds shall be
returned to the participants in the Financing.  Subject to ITC’s
consent, Bontan Parent agrees to include the shares of Bontan Parent common
stock issued in such Financing, along with the shares underlying any warrants
issued in such Financing, in the first registration statement it files with the
U.S. Securities and Exchange Commission covering the resale of the Bontan Parent
stock underlying the warrants issued pursuant to Section 7(b)
below.

    

    (c)           $5,500,000
Financing.  It is anticipated that Bontan Parent will also
raise an aggregate of US$5,500,000, net of expenses, through a Financing, the
net proceeds of which will be applied towards the remaining cash contributions
required to be made by Bontan pursuant to paragraph 2 and for the Company’s
general working capital purposes.  Bontan Parent agrees to contribute
the proceeds, net of expenses, of the Financing contemplated by this Section
6(c) to Bontan for subsequent contribution to the Company pursuant
hereto.  Not later than 60 days following completion of the Financing
contemplated by this Section 6(c), Bontan Parent agrees to file a registration
statement with the U.S. Securities and Exchange Commission covering the resale
of the shares of Bontan Parent common stock sold in such Financing, along with
the shares underlying any accompanying warrants, and to use its best efforts to
obtain effectiveness of such registration statement within 60 days thereafter
(and to maintain the effectiveness of such registration statement while any
shares are issuable pursuant to such warrants); provided, however, that to the
extent such Financing has closed prior to the effectiveness of the registration
statement required to be filed pursuant to Section 7(b) below, such shares may,
subject to ITC’s consent, be registered under such registration
statement.

     

     

    
      
        
        

      

      
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    (d)           Additional
Financings.  Upon the Closing, the Company will have assumed
certain obligations under the Material Agreements.  Bontan Parent
shall use its best efforts to complete additional Financings in order to raise
at least $12,500,000, and shall contribute the proceeds of any such Financing,
net of expenses, to Bontan for subsequent contribution to the Company as shall
be necessary to permit the Company (by virtue of the contribution of the
Financing proceeds) to perform all obligations of the Company under the Material
Agreements and any other obligations relating to the conduct of exploratory
operations on the Licenses and Permit, unless the Company is able to obtain the
payment of such obligations by third parties in exchange for farmouts or other
acquisitions of interests in the Offshore Israel Project; provided, however,
that Bontan and/or Bontan Parent shall be entitled to keep up to $500,000 (in
aggregate) of such proceeds, if and only if, Bontan Parent has raised and
contributed to the Company not less than $5,500,000 of proceeds from the
Financings.  Not later than 60 days following completion of any such
Financing, Bontan Parent agrees to file a registration statement with the U.S.
Securities and Exchange Commission covering the resale of the shares of Bontan
Parent common stock sold in any such Financing, along with the shares underlying
any accompanying warrants, and to use its best efforts to obtain the
effectiveness of such registration statement within 60 days thereafter and to
maintain the effectiveness of such registration statement while any shares are
issuable pursuant to such warrants.

    

    (e)           ITC
Services.  ITC shall agree to provide, and shall obtain the
agreement of its manager Howard Cooper to provide, reasonable assistance to
Bontan Parent with respect to providing information on the Offshore Israel
Project and shall introduce prospective investors and lenders for the Financings
to Bontan Parent but shall not be involved in any meetings with potential
investors or other Bontan Parent selling efforts.

    

    (f)           Market
Stand-Off.  Bontan Parent shall not file any registration
statement covering any shares other than the shares required to be registered
pursuant to this Agreement, or sell, dispose of, transfer, grant any option for
the purchase of, or enter into any transaction with the same economic effect as
a sale of, any such shares (other than pursuant to this Agreement, the
Financings or the Warrant Plan) prior to the earlier of (i) 120 days following
the effectiveness of the last registration statement required to be filed by
Bontan Parent pursuant to this Section 6 or Section 7(b), or (ii) 9 months
following the Closing under the Option Agreement.

     
 

    
      
        
        

      

      
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    7. Additional
Agreements.

    

    (a)           Reimbursement.  Upon
execution of this Agreement, Bontan Parent shall contribute to Bontan and Bontan
shall pay to ITC US$125,000 as a completion of reimbursement of ITC for the
Option Payment delivered to PetroMed and for expenses already incurred and
anticipated to be incurred by ITC in negotiation of the Option Agreement, travel
to Israel, due diligence, preparation for assuming operation of the Offshore
Israel Project, and accomplishing the Closing under the Option Agreement, and
for Howard Cooper’s time in connection with the foregoing.  Such
payment shall be nonrefundable regardless of the actual amount of such expenses
and regardless whether the Option is exercised or the acquisition of the
Offshore Israel Project is consummated provided that ITC duly performs its
Obligations under the Option Agreement.

    

    (b)           Issuance of
Warrants.  Upon the completion of the Closing under the Option
Agreement, Bontan Parent shall issue to ITC a warrant to purchase up to
5,000,000 shares of common stock of Bontan Parent and shall issue to 2.5% Holder
a warrant to purchase up to 2,000,000 shares of common stock of Bontan Parent,
each in the form attached hereto as Exhibit D, which
warrants shall be exercisable for a period of five years and shall have an
initial exercise price of US$0.35 per share (which shall be subject to
adjustment as provided for therein).  Bontan Parent agrees to file a
registration statement with the U.S. Securities and Exchange Commission covering
such warrants and the underlying shares within 60 days of the Closing under the
Option Agreement and to use its best efforts to obtain the effectiveness thereof
within 60 days of such filing and to maintain the effectiveness of such
registration statement while any shares are issuable pursuant to such warrants.
The company may also include in such registration statement any shares issued
(i) in a Financing (the net proceeds of which have been contributed to the
Company pursuant hereto), (ii) pursuant to the warrants issued in any such
Financing or (iii) pursuant to this Agreement, but no other shares may be
included in such registration statement.

    

    (c)           Joinder and
Deliveries.  Bontan Parent and Bontan shall execute and
deliver, prior to the Closing under the Option Agreement, a joinder to the
Option Agreement for the limited purposes stated in Section 5.2(d) of the Option
Agreement, in form and substance satisfactory to the Company and PetroMed, and
shall deliver and perform, when required under the Option Agreement, all other
items required to be delivered and performed by Pubco under the Option
Agreement.

     
 

    8. Representations and
Warranties.

    

    (a)             Company Representations and
Warranties.  The Company represents and warrants to the other
parties, as of the date hereof, as follows:

    

    (i)           The
Company is an exempt company duly organized, validly existing and in good
standing under the laws of the Cayman Islands;

     

     

    
      
        
        

      

      
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         (ii)           All
action on the part of the Company necessary for the authorization of the
execution, delivery and performance of this Agreement and the Shareholder
Agreement by the Company has been taken;

    

    (iii)           Each
of this Agreement and the Stockholders Agreement, when executed and delivered,
will be the valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors’ rights and general principles of
equity that restrict the availability of equitable remedies; and

    

    (iii)           Immediately
following the issuance thereof, the Equity Interests will be the only
outstanding equity interests in the Company.

    

    (b)           ITC Representations and
Warranties.  ITC represents and warrants to the other parties,
as of the date hereof, as follows:

    

    (i)           ITC
is a limited liability company duly organized, validly existing and in good
standing under the laws of the State of Colorado;

    

    (ii)           All
action on the part of ITC, its managers and member necessary for the
authorization of the execution, delivery and performance of this Agreement and
the Shareholder Agreement by ITC has been taken;

    

    (iii)           Each
of this Agreement and the Stockholders Agreement, when executed and delivered,
will be the valid and binding obligation of ITC enforceable against ITC in
accordance with its terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
affecting enforcement of creditors’ rights and general principles of equity that
restrict the availability of equitable remedies;

    

    (iv)           ITC
has the full right, power and authority to assign the Option Agreement to the
Company, and to take any and all other actions required to be taken by it
hereunder, and no consent of any third party is required to assign the Option
Agreement to the Company or to take any and all other actions required to be
taken by it hereunder that has not been obtained.

    

    (v)           ITC
has performed, and will continue to perform, due diligence on the Offshore
Israel Project and will share all such information with Bontan and Bontan Parent
as requested and will otherwise cooperate with Bontan and Bontan Parent to
assist them and their counsel and advisors in their own due diligence of the
Option Agreement and the Offshore Israel Project.  To the best of
ITC’s knowledge, the representations and warranties of PetroMed in the Option
Agreement are true and correct as of the date hereof in all material
respects.  ITC shall not have changed its understanding regarding the
foregoing representations of PetroMed at the time of Closing under the Option
Agreement and will reconfirm this at the time of Closing under the Option
Agreement.

     

     

    
      
        
        

      

      
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    (vi)           Upon
making the contribution of the Option Agreement to the Company under Section 1
above, ITC will vest in the Company all of the right, title and interest in, to
and under the Option Agreement as originally conveyed by PetroMed to ITC under
the Option Agreement, free and clear of any mortgages, liens, pledges, charges,
claims, security interests, agreements, and encumbrances whatsoever, other than
those imposed by law, arising as a result of ITC’s ownership of the rights under
the Option Agreement.

     

    (vii)           All
of the equity owners of ITC are “accredited investors” within the meaning of
Regulation D of the U.S. Securities Act of 1933, as amended (the “Securities Act”).

     

    (viii)           ITC,
through its manager, Howard Cooper, is experienced in making investments in
highly speculative investments, such as the warrants being acquired from Bontan
Parent and the Offshore Israel Project.  ITC has had access to full
and complete information regarding Bontan and Bontan Parent and has used such
access to its satisfaction for the purpose of obtaining information about Bontan
and Bontan Parent.  ITC has had the opportunity to ask questions of,
and to receive answers from, the officers of Bontan and Bontan Parent concerning
Bontan and Bontan Parent and the Bontan Parent warrants and underlying shares
and to obtain any additional information concerning Bontan and Bontan
Parent.  ITC has received all information it considers necessary or
advisable in order to make an investment decision, and acknowledges that the
entire investment in Bontan Parent and the Company may be lost.

    

    (ix)           ITC
acknowledges that the warrants it is acquiring from Bontan Parent have not been
registered under the Securities Act or the securities laws of any state, and
that the warrants are offered in a transaction not involving a public offering
in accordance with Section 4(2) of the Securities Act and Rule 506 of Regulation
D.  Accordingly, ITC recognizes that the warrants, and the shares
issuable upon their exercise, are “restricted securities” within the meaning of
Rule 144(a)(3) of the Securities Act.  ITC understands that
Bontan Parent cannot assure that the shares underlying the warrants will
ultimately be registered under the Securities Act.  ITC is acquiring
the warrants, and the shares in the Company, for investment and not with a view
to their distribution in whole or in part.

     

    (x)           ITC
agrees not to assign, sell, pledge, transfer or otherwise dispose of or transfer
the warrants, or the shares issuable upon their exercise, except in compliance
with the Securities Act and applicable state securities laws.  ITC is
also aware that any resale inconsistent with applicable securities laws in the
Province of Ontario (“Canadian
Securities Laws”) may create liability on ITC’s part and/or the part of
Bontan Parent, and agrees not to assign, sell, pledge, transfer or otherwise
dispose of or transfer the warrants or the shares underlying them except in
compliance with Canadian Securities Laws.

    

    (c)           Bontan and Bontan Parent
Representations and Warranties.  Bontan and Bontan Parent each
represent and warrant to the other Parties, as of the date hereof, as
follows:

    

    (i)           Each
is a corporation duly organized, validly existing and in good standing under the
laws of the province of Ontario;

    

    (ii)           All
action on the part of each, and its respective officers, directors and
stockholders necessary for the authorization of the execution, delivery and
performance by each of this Agreement, the Stockholders Agreement and the
warrants to be issued pursuant hereto (the “Warrants”) has been
taken;

     

    
 

    
      
        
        

      

      
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        (iii)           Each
of this Agreement, the Stockholders Agreement and the Warrants, when executed
and delivered, will be the valid and binding obligation of Bontan and Bontan
Parent enforceable, respectively, against each in accordance with its terms,
except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors’ rights and general principles of equity that restrict the
availability of equitable remedies;

    

    (iv)           Bontan
Parent has the full right, power and authority to issue and deliver the
Contributed Shares and the shares issuable upon exercise of the Warrants (the
“Warrant Shares”), and
to take any and all other actions required to be taken by it hereunder, and no
consent of any third party is required to issue the Contributed Shares or the
Warrant Shares, or to take any and all other actions required to be taken by it
hereunder, that has not been obtained; and

    

    (v)           The
Contributed Shares and the Warrant Shares, when issued, will be duly authorized,
validly issued and outstanding, fully paid and nonassessable, and free of all
preemptive rights, rights of first refusal or similar rights, and the recipient
of such shares will acquire good, valid, and marketable title thereto, free and
clear of all mortgages, liens, pledges, charges, claims, security interests,
agreements, and encumbrances whatsoever, other than those imposed by
law.

    

    (vi)           Bontan
Parent is experienced in making investments in highly speculative investments,
such as the investment in the Company and the Offshore Israel
Project.  Bontan Parent has had access to full and complete
information regarding the Company and the Offshore Israel Project as provided by
the Company or ITC and has used such access to its satisfaction for the purpose
of obtaining information.  Bontan Parent has had the opportunity to
ask questions of, and to receive answers from, the officers of the Company and
ITC concerning the Company, the Offshore Israel Project and the shares of the
Company and to obtain any additional information concerning the Company or the
Offshore Israel Project.  Bontan Parent has received all information
it considers necessary or advisable in order to make an investment decision, and
acknowledges that the entire investment in the Company may be lost.

    

    (vii)           Bontan
and Bontan Parent acknowledges that the shares Bontan is acquiring in the
Company have not been registered under the Securities Act or the securities laws
of any state, and that such shares are offered in a transaction not involving a
public offering in accordance with Section 4(2) of the Securities Act and Rule
506 of Regulation D.  Accordingly, Bontan and Bontan Parent recognize
that such shares of the Company are “restricted securities” within the meaning
of Rule 144(a)(3) of the Securities Act.  Bontan and Bontan
Parent understand that those shares will not be registered under the Securities
Act.  Bontan is acquiring such shares for investment and not with a
view to their distribution in whole or in part.

    

     

    
      
        
        

      

      
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    (d)           2.5% Holder Representations
and Warranties.  The 2.5% Holder represents and warrants to the
other parties, as of the date hereof, as follows:

    

    (i)           2.5%
Holder is a corporation duly organized, validly existing and in good standing
under the laws of Belize;

    

    (ii)           All
action on the part of 2.5% Holder, its managers and member necessary for the
authorization of the execution, delivery and performance of this Agreement and
the Stockholders Agreement by 2.5% Holder has been taken;

    

    (iii)           Each
of this Agreement and the Stockholders Agreement, when executed and delivered,
will be the valid and binding obligation of 2.5% Holder enforceable against 2.5%
Holder in accordance with its terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
affecting enforcement of creditors’ rights and general principles of equity that
restrict the availability of equitable remedies;

    

    (iv)           All
of the equity owners of 2.5% Holder are “accredited investors” within the
meaning of Regulation D of the Securities Act.

    

    (v)           2.5%
Holder, through its manager, is experienced in making investments in highly
speculative investments, such as the warrants being acquired from Bontan Parent
and the Offshore Israel Project.  2.5% Holder has had access to full
and complete information regarding Bontan Parent and has used such access to its
satisfaction for the purpose of obtaining information about Bontan
Parent.  2.5% Holder has had the opportunity to ask questions of, and
to receive answers from, the officers of Bontan Parent concerning Bontan Parent
and the warrants and underlying shares and to obtain any additional information
concerning Bontan Parent.  2.5% Holder has received all information it
considers necessary or advisable in order to make an investment decision, and
acknowledges that the entire investment in Bontan Parent and the Company may be
lost.

    

    (vi)           2.5%
Holder acknowledges that the warrants it is acquiring from Bontan Parent have
not been registered under the Securities Act or the securities laws of any
state, and that the warrants are offered in a transaction not involving a public
offering in accordance with Section 4(2) of the Securities Act and Rule 506 of
Regulation D.  Accordingly, 2.5% Holder recognizes that the warrants,
and the shares issuable upon their exercise, are “restricted securities” within
the meaning of Rule 144(a)(3) of the Securities Act.  2.5% Holder
understands that Bontan Parent cannot assure that the shares underlying the
warrants will ultimately be registered under the Securities Act.  2.5%
Holder is acquiring the warrants, and the shares in the Company, for investment
and not with a view to their distribution in whole or in part.

    

    (vii)           2.5%
Holder agrees not to assign, sell, pledge, transfer or otherwise dispose of or
transfer the warrants, or the shares issuable upon their exercise, except in
compliance with the Securities Act and applicable state securities
laws.  2.5% Holder is also aware that any resale inconsistent with
Canadian Securities Laws may create liability on 2.5% Holder’s part and/or the
part of Bontan, and agrees not to assign, sell, pledge, transfer or otherwise
dispose of or transfer the warrants or the shares underlying them except in
compliance with Canadian Securities Laws.

     

     

    
      
        
        

      

      
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    9.           Risk
Acknowledgment.  Bontan, Bontan Parent and 2.5% Holder each
acknowledge and agree that all information provided by or on behalf of ITC or
the Company is being provided solely for the purpose of assisting Bontan, Bontan
Parent and 2.5% Holder in conducting their own independent evaluations and
analysis and the recipient’s reliance on or use of the same is at the
recipient’s sole risk.  Bontan, Bontan Parent and 2.5% Holder
acknowledge and agree that ITC and its representatives, officers, directors,
employees, agents, affiliates and controlling persons expressly disclaim any and
all liability and responsibility for the quality, accuracy, completeness or
materiality of the information, including, without limitation: (i) the existence
of any and all prospects or potential upside opportunities referenced in the
information, (ii) the geological or geophysical characteristics associated with
any and all prospects or potential upside opportunities referenced in the
information, (iii) the existence, quality, quantity, or recoverability of
hydrocarbon reserves associated with the property, (iv) the costs, expenses,
revenues or receipts associated with the property, (v) the ownership of or title
to the property, (vi) the contractual, economic or financial data associated
with the property, (vii) the present or future value, financial viability or
productivity of the property, (viii) regulatory matters that may bear on the
ability to conduct operations on the Licenses and Permit or on the cost or
profitability thereof; and/or (ix) the environmental, security or physical
condition of the property or of the surrounding area.

    

    10.           Further Assurances;
Access.  The parties shall promptly execute and deliver any
additional instruments or documents which may be reasonably necessary to
evidence or better effect the transactions contemplated
hereby.  Without limiting the foregoing, each Party agrees to give the
other Parties and their respective management personnel, legal counsel,
accountants, and technical and financial advisors, access and opportunity before
the Closing under the Option Agreement to inspect and investigate the books,
records, contracts, and other documents of such Party as it relates to its
respective business and all of its assets and liabilities (actual or contingent)
(except that ITC shall not be obligated to provide confidential information
regarding its investors) and further agrees to provide the other with such
additional information as may be reasonably requested pertaining to its
respective business and assets to the extent reasonably necessary to complete
the transactions contemplated herein.

    

    11.           Counterparts.  This
Agreement may be executed in any number of counterparts and by each party on a
separate counterpart or counterparts, each of which when so executed and
delivered shall be deemed an original and all of which taken together shall
constitute but one and the same instrument.

    

    12.           Governing
Law.  This Agreement shall be deemed to be an agreement made
under the laws of the State of Delaware and for all purposes shall be governed
by and construed in accordance with such laws.

    

    13.           Binding
Effect.  This Agreement shall be binding upon and inure to the
benefit of each of the parties and its successors and assigns.

    

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    14.           No-Shop;
Confidentiality.

     

    (a)           Bontan,
Bontan Parent and 2.5% Holder, directly or indirectly, in any manner,
specifically agree not to contact the Israeli government, PetroMed or any party
involved with the Offshore Israel Project or the Option Agreement without ITC’s
prior written consent and without ITC being present for the
communication.  Bontan Parent agrees that it will not, for the period
from execution of this Contribution Agreement through the Closing under the
Option Agreement (or, if the Closing does not occur, through November
16,  2009), without the prior written consent of ITC, take any action
to solicit, initiate, encourage or assist the submission of any proposal,
negotiation or offer from any person or entity other than ITC relating to the
sale or issuance, of any of the capital stock of Bontan Parent (other than in
furtherance of the Financings) or the acquisition, sale, lease, other
disposition of Bontan Parent or any material part of the stock or assets of
Bontan Parent and shall notify ITC promptly of any inquiries by any third
parties in regards to the foregoing.

     

    (b)           Without
the prior written consent of the other Parties, no Party will disclose the terms
of this Contribution Agreement to any person other than its respective officers,
members of the Board, accountants and attorneys, investors, or advisors, all of
whom will agree to maintain the confidentiality hereof.  Despite the
foregoing, the Parties acknowledge that Bontan Parent plans to publicly announce
this Agreement and its terms on the earlier of five days from execution and
delivery of the Agreement or the Closing under the Option Agreement and to file
a copy of the Agreement with the U.S. Securities and Exchange
Commission.  Bontan Parent shall cooperate with the Company in seeking
confidential treatment for any information that may be appropriately kept
confidential.  All Parties agree that they will not issue a press
release until Bontan Parent issues the press release referred to above, without
the prior written consent of the Company and Bontan Parent.

     

    (c)           In
addition, no Party shall assign any of its rights or obligations under this
Contribution Agreement without the prior written consent of the other Parties,
which may be withheld in their absolute discretion, and any purported assignment
by a Party without such prior consent shall be void.

     

    [Signature Page
Follows]

    
      
        
           0812351.02

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        Signature
Page to Contribution and Assignment Agreement

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    IN
WITNESS WHEREOF, Assignor and Sundance have executed this Agreement as of the
date first hereinabove written.

    

    INTERNATIONAL
THREE CROWN PETROLEUM LLC, a Colorado limited liability company

    

    By:_________________________________

    Name: H. Howard Cooper

    Title: Manager

    

    

    BONTAN
OIL & GAS CORPORATION, an

    Ontario
corporation

    

    By:_________________________________

    Name:
______________________________

    Title:
_______________________________

    

    

    BONTAN
CORPORATION, INC., an Ontario corporation

    

    By:_________________________________

    Name:
______________________________

    Title:
_______________________________

    

    

    ALLIED
VENTURES INCORPORATED, a Belize corporation

    

    By:_________________________________

    Name:
______________________________

    Title:
_______________________________

    

    

    ISRAEL
PETROLEUM COMPANY, LIMITED, a Cayman Islands limited company

    

    
      	
               
      

            	
              By:
      INTERNATIONAL THREE CROWN PETROLEUM LLC, a Colorado limited liability
      company

            

    

    

    By:___________________________

    Name: H.
Howard Cooper

    Title:
Manager

    
      
        
          -- 0812351.02

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        12stockholdersagmt_112009.htm

    STOCKHOLDERS
AGREEMENT

    

    ISRAEL
PETROLEUM COMPANY, LIMITED

    

    

    This
STOCKHOLDERS AGREEMENT
(this “Agreement”) is
entered into as of November 14, 2009, by and among Israel Petroleum Company,
Limited, a Cayman Islands limited company (the “Company”), Bontan Oil &
Gas Corporation, an Ontario corporation (“Bontan”), Allied Ventures
Incorporated, a Belize corporation (“2.5% Holder”) and
International Three Crown Petroleum LLC, a Colorado limited liability company
(“ITC” and together with
Bontan and 2.5% Holder, the “Stockholders”, and each
individually, a “Stockholder”).  In
addition, Bontan Corporation Inc., an Ontario corporation and owner of 100% of
the shares of Bontan (“Bontan
Parent”), is joining this Agreement for the purposes identified
within.

     

    RECITALS

     

    A.           ITC
has previously entered into that certain Option Agreement for Purchase and Sale
(the “Option
Agreement”), dated October 15, 2009, between ITC and PetroMed
Corporation, a Belize corporation (“PetroMed”), pursuant to which
ITC obtained, among other things, an exclusive option to purchase PetroMed’s
interest in the Offshore Israel Project.

    

    B.           The
Stockholders have formed the Company for the purpose of, among other things,
acquiring PetroMed’s interest in the Offshore Israel Project, and each of ITC,
Bontan and 2.5% Holder have contributed, and, in the case of Bontan, committed
to contribute, certain assets to the Company in exchange for ordinary voting
shares of the Company (“Shares”) representing a 22.5%
equity interest, a 75% equity interest and a 2.5% equity interest in the
Company, respectively, as set forth in that certain Contribution and Assignment
Agreement, dated as of November 14, 2009, by and among ITC, Bontan, 2.5% Holder,
Bontan Parent and the Company.

    

    C.           The
Memorandum of Association of the Company was filed with the Registrar of the
Cayman Islands on November 11, 2009, and the Company was formed pursuant to and
in accordance with the Companies Law (2009 Revision) of the Cayman Islands (the
“Companies
Law”).

    

    D.           The
parties hereto desire to enter into this Agreement in order to provide for the
management of the Company and to provide certain rights of first refusal,
information rights and other rights to the respective Stockholders as set forth
herein.

     

    
 

    
      
        
        

      

      
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    AGREEMENT

    

    NOW, THEREFORE, for good and valuable
consideration, the receipt and sufficiency of which is acknowledged, the parties
hereto agree as follows:

    

    1.           Contributions.  Each
of the Parties acknowledges and agrees that the fair market value of ITC’s and
Bontan’s initial capital contributions represent all of the initial capital
contributed to the Company, that Bontan’s initial capital contribution
represents 75% of the total initial capital of the Company and ITC’s initial
capital contribution represents 25% of the total initial capital of the Company,
and that for U.S. partnership tax and accounting purposes the Stockholders’
capital accounts shall reflect the foregoing. The Stockholders may make
additional contributions to the capital of the Company from time to time, but
the Stockholders shall not be required or obligated to make any contributions to
the capital of the Company other than as set forth in the Contribution
Agreement.

     

    2.           Management.

     

    (a)           Management Vested in a
Single Director.  Responsibility for the management of the
business and affairs of the Company shall be vested in a single Director (the
“Director”).  Except
as otherwise provided in this Agreement, the Director shall have all right,
power and authority to conduct the business and manage the affairs of the
Company.  The Director may, in the Director’s sole discretion, appoint
any officers of the Company that the Director deems appropriate and may delegate
to such officer or officers any responsibilities for the day-to-day operation
and conduct of the business of the Company that the Director deems
appropriate.  In conducting the business and managing the affairs of
the Company, the Director shall have all rights, duties and powers conferred by
the Companies Law, and, except as otherwise provided in this Agreement, is
hereby expressly authorized, on behalf of the Company, to make all decisions
with respect to the Company’s business and affairs and to take all actions
necessary to carry out such decisions, including, except as otherwise provided
in the this Agreement, the right, power and authority to cause the Company to
take any action that would otherwise require the consent or approval of the
Stockholders of the Company.  Except as otherwise provided in this
Agreement, the Stockholders, in their capacity as stockholders of the Company,
shall take no part in the control, management, direction or operation of the
business and affairs of the Company, and the Stockholders shall have no right,
power or authority to vote on or consent to any action of the Company or any
other matter. No Stockholder shall have the power or authority to bind the
Company.

     

    (b)           Additional Responsibilities
of the Director:  In addition to the responsibilities, rights,
powers and authority granted to the Director in Section 2(a), the Director shall
have the responsibility, right, power and authority to make all elections
provided in the Option Agreement, including, but not limited to, whether to
exercise the Option, and such elections shall bind the Company and Bontan Parent
The Director shall also have authority to execute and deliver all instruments
and documents, perform all acts, and cause the Company to make all payments
necessary or appropriate to consummate the Closing under the Option Agreement
and to obtain all approvals, transfers, or documents necessary or appropriate to
vesting ownership of the Licenses and Permit in the Company, all on such terms
and conditions as the Director shall deem appropriate in its good faith
judgment.

     

     

     

    
      
        
        

      

      
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     (c)           Appointment and Removal of
Director.

     

    (i)           The
initial Director shall be ITC (the “Initial Director”) and the
Initial Director shall serve in such capacity until its resignation or
removal.  The Initial Director may not be removed by the Stockholders
other than:

     

     (A)           for
willful misconduct of the Initial Director that materially and adversely affects
the Offshore Israel Project (as defined below), which shall include the
conviction of the manager of the Initial Director for a crime in connection with
the operation or management of the Offshore Israel Project; or

     

    (B)           in
the event that a controlling interest in ITC is transferred to a Person who is
not a Qualified Buyer (as defined below) and thereafter the management team of
ITC is not substantially the same as the management team of ITC prior to such
transfer.

     

    The
Initial Director may be removed pursuant to this clause (i) only by the
resolution or the written consent of the Stockholders holding a majority of the
Shares.  Subject to clause (iii) below, in the event of the removal of
the Initial Director pursuant to the preceding sentence, the Stockholders may
replace the Initial Director and remove and replace any subsequent Director at
any time and from time to time by the vote of the Stockholders holding at least
80% of the Shares.

     

    (ii)           The
Director (including the Initial Director) may resign at any time by giving
written notice of its or his resignation to each of the Stockholders, and the
Director shall have no liability to the Company or the Stockholders as a result
of such resignation. Subject to clause (iii) below, upon any Director’s
resignation, the Stockholders holding at least 80% of the Shares shall replace
the Director by their resolution or written consent.

     

    (iii)           Subject
to ITC’s prior compliance with Section 5 hereof, in the event that ITC transfers
a majority of the Shares held by ITC on the date hereof to any Person that has
experience in the oil and gas industry substantially equivalent to, or greater
than, that of ITC  (a “ Qualified Buyer”), then such
Qualified Buyer (and only such Qualified Buyer) shall have the sole authority to
appoint and remove the Director; provided, however, that any such Director may
be removed by Stockholders holding a majority of the Shares in the event of such
Director’s willful misconduct that materially and adversely affects the Offshore
Israel Project), which shall include the conviction of the Director, or any
officer, director or manager of the Director, for a crime in connection with the
operation or management of the Offshore Israel Project.  In the event
of the removal of the then serving Director pursuant to the preceding sentence,
the Stockholders may replace such Director and remove and replace any subsequent
Director at any time and from time to time by the vote of the Stockholders
holding at least 80% of the Shares.

     

     

    
      
        
        

      

      
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    (d)           Actions Requiring the
Approval of the Stockholders.  Notwithstanding the power and
authority granted to the Director hereunder, the Director shall have no
authority to cause the Company to, and the Company shall not, either directly or
indirectly by amendment, merger, consolidation or otherwise, take any of the
following actions unless the same is approved by the resolution or the written
consent of the Stockholders holding a majority of the Shares:

     

    (i)           expand
the scope of the Company’s business beyond the acquisition, development and
potential farmout or sale of the Israeli Drilling Licenses Nos. 347 (Sarah) and
348 (Myra) and Exploration Permit No. 199 (Benjamin) and any License that may be
issued in lieu of such permit (collectively, the “Licenses and Permit”) and the
exploitation and commercialization of the Licenses and Permit, including the
exploration, operation and development of thereof (the “Offshore Israel
Project”);

     

    (ii)           enter
into any transaction involving the sale, conversion or merger of the Company
with or into any other Person or the sale or other disposition of all or
substantially all of the Company’s assets to any other Person (other than a sale
or farmout to an industry partner that is not affiliated with ITC, Cooper, 2.5%
Holder or the Director in connection with a commitment to conduct exploratory or
development operations on the Licenses and Permit, if such arrangement does not
affect Bontan’s interest in the Company differently than such arrangement
affects ITC’s and 2.5% Holder’s interests in the Company other than by virtue of
Bontan’s proportionately larger equity interest in the Company or resulting from
ITC’s Success Fees as described below or other compensation arrangements in
effect between the Company and ITC, Cooper or the Director or any affiliate of
ITC, Cooper or the Director);

     

    (iii)           
issue any Shares or other equity interest (including any securities directly or
indirectly convertible or exchangeable for Shares or other equity interests) in
the Company to any Person or otherwise admit any additional Person as a
stockholder of the Company, provided that this clause (iii) shall not apply to a
Transfer (as defined below) of Shares complying with the provisions of Section 5
hereof;

     

    (iv)           liquidate,
dissolve or wind-up the business and affairs of the Company;

     

    (v)           enter
into any contract or agreement between the Company and ITC, Cooper, 2.5% Holder
or the Director, or any affiliate of ITC, Cooper, 2.5% Holder or the
Director;

     

    (vi)           modify
any compensation arrangement between the Company and ITC, Cooper, 2.5% Holder or
the Director, or any affiliate of ITC, Cooper, 2.5% Holder or the
Director;

     

    (vii)           amend,
alter, terminate or repeal the Memorandum of Association;

     

    (viii)           amend,
alter, terminate or repeal this Agreement; or

     

    (ix)           redeem
any Shares or other equity interests (including any securities directly or
indirectly convertible or exchangeable for Shares or other equity interests) in
the Company, including pursuant to Section 5(b)(iv) below.

     

     

    
      
        
        

      

      
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    (e)           Certain Actions Not
Requiring the Approval of the Stockholders:  In furtherance of
Section 2(a) and notwithstanding the foregoing Section 2(d), the following
actions shall be subject to the Director’s sole authority as Director; provided
that (1) with respect to clauses (i), (ii) and (iii) only, such action does not
involve a transaction between the Company and any of ITC, Cooper, 2.5% Holder,
the Director, or any of their respective affiliates, and (2) such arrangement
does not affect Bontan’s interest in the Company differently than such
arrangement affects ITC’s and 2.5% Holder’s interests in the Company (other than
by virtue of Bontan’s proportionately larger equity interest in the Company or
resulting from ITC’s Success Fees (as described below) or other compensation
arrangements in effect between the Company and ITC, Cooper or the Director or
any affiliate of ITC, Cooper or the Director):

     

    (i)           the
farmout, option, sale, assignment, mortgage, or other transfer of all or a
portion of the Offshore Israel Project for the purpose of conducting exploratory
or development operations on the Licenses or Permit;

     

    (ii)           seeking
any additional debt or equity financing for the Company or the Offshore Israel
Project; provided,
however, the actual approval of any equity financing that entails the
issuance of Shares or any other equity interest (including any securities
directly or indirectly convertible or exchangeable for Shares or other equity
interests) in the Company to any Person, or the admittance of any Person as a
stockholder of the Company, requires approval by the resolution or the written
consent of the Stockholders holding a majority of the Shares, except with
respect to a Transfer (as defined below) of Shares complying with the provisions
of Section 5 hereof;

     

    (iii)           entry
into consulting agreements and broker agreements on behalf of the
Company;

     

    (iv)           the
indemnification by the Company of any officer, employee or agent of the Company
or any other Person in accordance with this Agreement;

     

    (v)           the
authorization, making, payment or distribution of any distribution or dividend
to the Stockholders; or

     

    (vi)           payment
to ITC or the Director of the Success Fees and Management Fee as provided below
or reimbursements as provided in this Agreement or in the Contribution
Agreement.

     

    
      
        
        

      

      
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    (f)           Action of the
Stockholders.

     

    (i)           Unless
otherwise provided by the rights and preferences of the Shares held by a
Stockholder, each Stockholder shall have one vote for each Share
held.  However, if Shares are designated by percentages, then each
Stockholder shall have the number of votes corresponding to his or its
percentage interest of voting Shares.  Whenever a matter referred to
in this Agreement requires approval by resolution of the Stockholders, the
Director shall promptly give written notice to all Stockholders entitled to vote
of the purpose of the meeting and the action to be taken and the date, time and
place of a meeting of the Stockholders to consider and vote upon such
action.  A Stockholder entitled to vote that holds at least 10% of the
outstanding voting Shares may also demand the holding of a meeting of the
Stockholders for a purpose provided hereunder by giving written notice to the
Company.  In such case, the Director shall give written notice of such
meeting within ten (10) business days.  If the Director fails to
timely call such meeting, the demanding Stockholder(s) may call the meeting by
providing written notice to the Stockholders as otherwise provided
herein.  All meetings of Stockholders shall be held on at least ten
(10) days’ prior written notice.  A quorum of the Stockholders is
required to take action at any meeting, which shall constitute the holders of a
majority of the Shares entitled to vote at such meeting.  Stockholders
may participate in meetings by teleconference or by
proxy.  Stockholders may waive notice before or after a meeting in
writing, or by participation at a meeting (other than to object to the holding
of a meeting for lack of adequate notice).

     

    (ii)           The
Stockholders may also take action in writing at any time on any matter in lieu
of a meeting of the Stockholders.  The written approval of the holders
of a majority of the outstanding voting Shares of the Company shall constitute
action of the Stockholders.  The Company shall give prompt written
notice of the taking of any action in writing to those Stockholders who did not
consent to the action so taken.

     

    3.           Reimbursements; Fees;
Royalties and Commissions.

     

    (a)           Reimbursement.  The
Director shall be reimbursed by the Company for the reasonable out-of-pocket
costs incurred by the Director on behalf of the Company, including legal
expenses, consulting fees and costs, travel expenses to Israel and living
expenses in Israel, and expenses of copying, telephone, internet and similar
items or services.  The Director shall submit invoices to the Company,
with a copy to the other Stockholders, on a periodic basis, but no less often
than monthly, for its costs and expenses, and shall include with each such
invoice a brief description of the work performed by the Director and the
Company and the costs and expenses incurred, together with such supporting
documentation as shall be reasonably requested by the
Stockholders.  The Company shall pay each invoice within fifteen (15)
days of its receipt thereof.  Notwithstanding the foregoing, the
Director shall not be entitled to reimbursement by the Company for any overhead
costs or costs or fees of employees of the Company without the prior written
consent of the Stockholders holding a majority of the Shares.

     

    (b)           Management
Fee.  The Company shall pay to the Director a monthly
management fee of $20,000.00, payable in advance, beginning December __, 2009,
and on the first day of each subsequent month, for the Director’s services as
manager of the Company.  The management fee shall be pro-rated for the
month of November 2009, starting with November __, 2009, and this pro-rated
amount shall be payable within thirty (30) days after the date of this
Agreement.

     

     

    
      
        
        

      

      
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    (c)           Success
Fees.

     

    (i)           Upon
receipt by Bontan Parent of at least $900,000 pursuant to any Financing (as
defined in the Contribution and Assignment Agreement of even date herewith
between the Parties), the Company shall pay to ITC the sum of $42,500 for
services predating the execution of this Agreement.

     

    (ii)           Following
the Closing under the Option Agreement, for any farmout, option, sale,
assignment, mortgage or other transfer of all or a portion of the Offshore
Israel Project (each an “Offshore Israel Project
Transfer”), (A) the Company shall upon closing of such transaction pay to
ITC an amount equal to the Calculated Percentage (as defined below) of the gross
cash proceeds received by the Company or its Stockholders with respect to such
Offshore Israel Project Transfer (the “Cash Proceeds”) and (B) Bontan
Parent shall issue to ITC a warrant in substantially the form attached to the
Contribution Agreement as Exhibit D to purchase that number of shares of common
stock of Bontan Parent equal to (x) the Calculated Percentage of the fair market
value of all consideration received by the Company, including the cash proceeds
and any other consideration (calculated by reference to the estimated cost of
drilling wells to be undertaken by the transferee or of performing such other
work to be done by the transferee and provided for in any agreement made in
connection with the Offshore Israel Project Transfer, or as shall otherwise be
appropriate), divided by (y) the Market Price (as defined in the form of
Warrant) as of the date of issuance of the Warrant.  Such warrants
shall have an initial exercise price equal to such Market Price and shall have a
term of five (5) years.  The “Calculated Percentage” is
equal to 5% of the percentage ownership interest of Bontan in the Company at the
time of the triggering event in (A) or (B) above.  For clarification,
the Calculated Percentage, based on the initial ownership interests of the
Parties at the date of this Agreement, is 3.75% (i.e., 75% of 5%).

     

    (iii)           ITC
shall also receive an amount equal to $50,000 for every $1,000,000 increase in
current assets received by the Company or Bontan Parent (without double
counting) from investors or other parties introduced by ITC to the Company or
Bontan Parent, calculated for each increase of current assets.  Such
amount shall be payable to ITC within 15 days following such increase in current
assets, and shall be payable by whichever of the Company or Bontan Parent
receives the additional current assets.

     

    (d)           Director Benefits and
Taxes.  The Director shall not be entitled to any unemployment
insurance, medical, disability or life insurance, bonus, or other benefits
provided by the Company to its employees by virtue of the Director’s service as
the Director of the Company.  The Company shall not withhold taxes,
FICA or other payments out of any consideration payable to the Director
hereunder.  The Company shall furnish the Director on a timely basis,
a Form 1099 covering the payments made to it hereunder, and the Director shall
pay all required foreign, federal, state and local taxes on the payments made to
it hereunder, including income tax, self-employment tax, Social Security tax and
other payroll taxes, as may be applicable.  The Director will
indemnify and hold the Company harmless against any claim relating to such
taxes.

     

     

    
      
        
        

      

      
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    4.          Information.

     

    (a)           The
Director shall cause the Company to provide all Stockholders and Bontan Parent
with such information as the Stockholders or Bontan Parent shall reasonably
request in connection with the management of the business and financial affairs
of the Company, including but not limited to, information reasonably requested
by Bontan Parent in order for Bontan Parent to satisfy its public reporting
obligations under U.S. and Canadian securities law, its obligations under the
Ontario Business Corporations Act and its internal controls documentation
requirements under the U.S. Sarbanes-Oxley Act of 2002 and the regulations
thereunder (“SOX”).  In
furtherance of the foregoing, the Director shall advise Bontan Parent as soon as
reasonably practicable of (i) the Company’s execution or termination of any
material contract, (ii) the Company’s acquisition or disposition of a
significant amount of assets other than in the ordinary course of business, or
(iii) if a material charge to any of the Company’s assets is required under
United States generally accepted accounting principals.  The Director
also shall use commercially reasonable efforts to cause the Company to maintain
its financial records in accordance with Bontan’s reasonable requests, and, if
requested to do so by Bontan Parent, the Company will appoint the same firm of
independent accountants as Bontan Parent utilizes to serve as the Company’s
independent accountants and will cooperate with such firm as to any quarterly
reviews or annual audit of financial statements.  No less than
quarterly, the Company shall provide to the Stockholders unaudited operating
financial information.  Unless Bontan Parent has otherwise arranged
for an annual audit of the Company’s financial statements, the Company shall
deliver audited financial statements to each Stockholder not later than 90 days
after the end of each calendar year.  Each Stockholder and Bontan
Parent shall have the right, at its own expense, and upon at least seven
business days written notice to the Company, to inspect and audit the books and
records of the Company, such inspection to occur at reasonable times and shall
be subject to any applicable confidentiality restrictions in effect on the
Company.  On a quarterly basis, the Company shall otherwise keep the
Stockholders and Bontan Parent reasonably informed of all material developments
affecting the Company and the Offshore Israel Project.  The keeping of
the Company’s books and records, preparation of the Company’s unaudited
financial statements and annual audit (unless the auditors are designated by
Bontan Parent) is an expense of the Company.  The provision of any
information requested by any Stockholder or Bontan Parent and the specific use
of any accounting firm at the request of Bontan Parent pursuant hereto shall be
at the sole cost and expense of the person (whether a Stockholder or Bontan
Parent) making such request, and each Stockholder and Bontan Parent agrees to
reimburse the Company and the Director for any such cost or
expense.

     

    (b)           ITC
acknowledges that, by virtue of Bontan’s equity interest in the Company, the
business and financial information of the Company is material to the business
and affairs of Bontan Parent.  As such, ITC may be subject to certain
restrictions on trading in Bontan Parent’s securities when it is in possession
of non-public information that is material to the business and affairs of Bontan
Parent.

     

    5.           Restrictions on Sale or
Transfer of Interest/Shares.

     

    (a)           General
Prohibition.  No Stockholder shall sell, assign, transfer,
give, pledge, encumber or in any way dispose of (collectively, a “Transfer”), any Shares, or
enter into an agreement to Transfer any Shares, without the Director’s prior
written consent, which consent may not be unreasonably withheld, and unless (a)
such Stockholder has complied with the provisions of this Section 5, and (b) the
transferee of any such Shares has agreed to be bound by the terms of, and become
a party to, this Agreement.  Any purported Transfer in violation of
any provision of this Agreement shall be void and ineffective and shall not
operate to Transfer any interest or title to the purported transferee, and
neither the Director nor any other Person shall be required to register such
prohibited Transfer on the books and records of the Company.

     

     

    
      
        
        

      

      
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          (b)           Right of First
Refusal.

     

    (i)           If
at any time, other than pursuant to an Exempt Transfer (as defined below), any
Stockholder (a “Seller”)
desires to Transfer any or all of the Shares or any rights to Shares held by
such Seller to any Person, such Seller shall reduce to writing the terms
pursuant to which the Seller desires to Transfer such Shares (a “Transfer
Offer”).  The Transfer Offer shall identify the number of
Shares to be transferred, the consideration payable for the Shares, if any, the
identity of the proposed transferee, and all the other terms and conditions of
such Transfer Offer.  The Seller shall deliver the Transfer Offer to
the Company and the other Stockholders (each, a “Transfer Offeree” and
collectively, the “Transfer
Offerees”).

     

    (ii)           Subject
to the conditions set forth in Section 5(b)(i), each of the Transfer Offerees
shall have the right to purchase up to his, her or its pro rata portion of the
Shares offered in the Transfer Offer, on the terms therein, exercisable by
written notice to the Seller within 25 days of receipt of the Transfer
Offer.  For purposes of this Section 5(b)(ii), pro rata portion is
determined by the respective Share holdings of each Transfer Offeree, expressed
as a percentage of the total number of Shares held by all Transfer
Offerees.

     

    (iii)           If,
after expiration of the 25-day period in Section 5(b)(ii), any Shares subject to
the Transfer Offer remain unsubscribed, then the Seller shall, by written notice
(the “Second Notice”) no
later than three business days after expiration of such 25-day period, offer the
Transfer Offerees who have elected to purchase Shares under Section 5(b)(ii)
(the “Participating Transfer
Offerees”) the right to purchase their pro rata portion of the
unsubscribed Shares, such right exercisable by written notice to the Seller
within five days of receipt of the Second Notice.  The Second Notice
shall state the number of unsubscribed Shares and the pro rata portion of those
Shares for each Participating Transfer Offeree.  For purposes of this
Section 5(b)(iii), pro rata portion is determined by the respective Share
holdings of each Participating Transfer Offeree, expressed as a percentage of
the total number of Shares held by all Participating Transfer
Offerees.  Participating Transfer Offerees electing to purchase
unsubscribed Shares under this Section 5(b)(iii) may assign to each other some
or all of their pro rata portion.

     

    (iv)           If
the Transfer Offerees elect to purchase all, but not less than all, of the
Shares subject to the Transfer Offer, the closing of the purchases of Shares by
the Participating Transfer Offerees shall take place at the principal office of
the Company no more than 15 days after the expiration of the Transfer
Offer.  At such closing, the Participating Transfer Offerees shall
deliver a certified check or checks or wire transfers of immediately available
funds in the appropriate amount to the Seller against delivery of certificates
representing the Shares so purchased, duly endorsed in blank for transfer or
accompanied by a stock power duly executed in blank.  In the event
that the consideration specified in the Transfer Offer is other than cash, then
the Participating Transfer Offerees may, at their option, deliver at such
closing cash, in lieu of such other consideration, in an amount equal to the
fair market value of such other consideration, as agreed upon by the parties or
as determined by an independent appraisal, agreed upon by the
parties.

     

     

    
      
        
        

      

      
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    (v)           The
right of first refusal granted to the Stockholders pursuant to this Section 5(b)
shall terminate with respect to a Transfer Offer if the Participating Transfer
Offerees elect to purchase less than all of the Shares offered in the Transfer
Offer.  In that event, the Seller shall then have the right, for a
period of 50 days from the termination of the Transfer Offer, to Transfer all,
but not less than all, of the Shares subject to the Transfer Offer to the
proposed transferee in accordance with the terms of the Transfer
Offer.  If the Seller has not completed the sale of all such Shares
within such 50-day period, the Seller shall no longer be permitted to Transfer
such remaining Shares pursuant to this Section 5(b) without again fully
complying with the provisions hereof.

     

    (vi)           Notwithstanding
the foregoing, no Transfer may be made to any Person unless such Person agrees
in writing, in form and substance reasonably acceptable to the Company, to be
bound by the provisions of this Agreement.  Promptly after any
Transfer pursuant to this Section 5(b), the Seller shall notify the Company of
the consummation thereof and shall furnish such evidence of the completion,
including time of completion, of such Transfer and of the terms thereof as the
Company may reasonably request.

     

    (c)           Exempt
Transfer.  As used herein, the term “Exempt Transfer” shall mean a
Transfer between a Stockholder and either (a) any Person that, directly or
indirectly, through one or more intermediaries, has voting control of, is
controlled by, or is under common voting control with, such Stockholder; (b)
with respect to natural persons, such Stockholder’s spouse, parents, children,
siblings and/or grandchildren; (c) a trust, corporation, partnership or other
entity, whose beneficiaries, stockholders, partners, or owners, or other Persons
holding a controlling interest, consist of such Stockholder and/or such other
Persons referred to in the immediately preceding clauses (a) or (b); (d) with
respect to any Stockholder that is a partnership, a limited partnership, a
limited liability company or a corporation, such Stockholder’s partners, members
or stockholders; or (e) the Company pursuant to the terms of an employment
agreement, stock option agreement or similar agreement between such Stockholder
and the Company; provided that in the event of any Transfer made pursuant to one
of the exemptions provided by clauses (a), (b), (c) and (d), (i) the
Stockholders shall inform the Company of such transfer and (ii) the transferee
shall enter into a written agreement to be bound by and comply with all
provisions of this Agreement, as if it were an original Stockholder hereunder,
as applicable.

     

    (d)           Opinion of
Counsel.  Notwithstanding any provision herein to the contrary,
if timely requested by the Company, no Stockholder shall Transfer any Shares
unless such Stockholder shall first obtain an opinion of counsel satisfactory to
the Company to the effect that such Transfer is either exempt from the
registration provisions of the Securities Act (as defined below) or that the
Securities Act is inapplicable to such Transfer.

     

     

    
      
        
        

      

      
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    6.           Representations, Warranties
and Acknowledgments of the Stockholders.  Each Stockholder
hereby acknowledges, and represents and warrants to the Company and the Initial
Director, that, (i) its investment in the Company and its rights hereunder
constitutes a “security” as defined in the Securities Act of 1933, as amended
(the “Securities Act”)
and/or state “blue-sky” laws, (ii) its investment in the Company has not been
registered under the Securities Act or any state law, and that it is being sold
to the Stockholder in reliance upon an exemption from the registration
requirements of the Securities Act or any state law for transactions which do
not involve a public offering, (iii) the Stockholder may not sell, offer for
sale, transfer, pledge or hypothecate all or any part of its interest in the
Company in the absence of an effective registration statement covering such
interest under the Securities Act unless such sale, offer of sale, transfer,
pledge or hypothecation is exempt from registration under the Securities Act
(iv) except as to Bontan, the Stockholder is an “accredited investor” as such
term is defined in Rule 501 of Regulation D promulgated under the Securities
Act, (v) the Stockholder is sophisticated with respect to, and has substantial
knowledge and experience in, business matters generally, and oil and gas
investments specifically, has made investments in oil and gas interests in the
past, and is capable of evaluating all the merits and risks of an investment in
the Company, (vi) the Stockholder has reviewed its investment in the Company
with its tax and legal counsel to the extent it deems the same advisable (vii)
the Stockholder is making its investment in the Company for its own account, for
investment, and not with a view to, or for resale in connection with, any
distribution within the meaning of the Securities Act, (viii) the Stockholder
recognizes that an investment in the Company is speculative and involves
substantial risk, and that oil and gas exploration and development, in
particular, is an unpredictable and high risk investment; and (ix) neither the
Company nor the Initial Director have made any guaranty or representation upon
which the Stockholder has relied concerning the possibility or probability of
profit or loss as a result of its membership interest in the Company and that
all information that the Stockholder has provided to the Company, concerning
itself and its financial position is true and accurate.

     

    7.           Other
Activities.  The Director and each of the Stockholders, and any
of their respective affiliates, may engage in any other activities he or it
chooses, and it is specifically recognized that the Director and the
Stockholders, and their respective affiliates or affiliated Persons, are
currently or may hereafter be engaged in the exploration for, and production of,
oil and gas, both for their own accounts and for others, and nothing herein
shall prevent the Director, the Stockholders, or any of their respective
affiliates or related Persons, from engaging in such activities, individually or
jointly with others, in any locale. Neither the Director nor the Stockholders,
nor any of their respective affiliates or related persons, is required to offer
the other (or the Company) the right to participate in any other business,
activity or operation in which it may engage, and the Director and each of the
Stockholders hereby waive, relinquish and renounce any such right or claim of
participation.

     

    8.           Distributions other than
Upon Dissolution.  Subject to Section 9 and the limitations and
requirements set forth in the Companies Law, the Company shall make
distributions to the Stockholders at such times and in such amounts as the
Director deems advisable; provided that each
Stockholder may require annual distributions of the minimum amount necessary to
cover its tax liability resulting from its ownership of the
Company.

     

     

    
      
        
        

      

      
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    9.           Winding Up, Dissolution and
Distributions Upon Dissolution.

     

    (a)           Upon
dissolution of the Company, the Director shall wind up the business and affairs
of the Company, and shall cause all property and assets of the Company to be
distributed as follows:

     

    (i)           first,
all of the Company’s debts, liabilities, and obligations, of the Company shall
be paid in full or reserves therefor shall be set aside; and

     

    (ii)           any
remaining assets shall be distributed to the Stockholders in accordance with
their respective percentage equity interests in the Company.

     

    (b)           Upon
the completion of the distribution of Company assets as provided above, the
Company shall be terminated and the Director shall file the articles of
dissolution or other appropriate document as required by the Companies Law and
shall take such other actions as required by the Companies Law or as otherwise
may be necessary to terminate the Company.

     

    10.           Exculpation;
Indemnification.   The Director shall not be liable to the
Company or any of the Stockholders for any act or failure to act, nor for any
errors of judgment, but only for willful misconduct or gross negligence in its
management of the business and affairs of the Company.  The Company
shall indemnify and hold harmless the Director and the Director’s affiliates,
and any agents, officers, and employees, if any, of the Director and such
affiliates, from and against any and all loss, liability or damage incurred as a
result of any act or omission, or any error of judgment, related to the
Director’s management of the business and affairs of the Company unless such
loss, liability or damage results from the Director’s willful misconduct or
gross negligence.  The Company shall indemnify and hold harmless any
of the Company’s officers, agents, Stockholders and control Persons, as well as
their respective affiliates, from and against any and all loss, liability or
damage incurred as a result of any act or omission, or any error of judgment,
related to such officer’s, agent’s, Stockholder’s or control Person’s
performance of his or its duties or actions with respect to the Company, unless
such loss, liability or damage results from the willful misconduct or gross
negligence of such officer, agent, Stockholder or control Person.  The
indemnification rights provided by this Section 10 shall survive the termination
of this Agreement and shall continue as to any Person who has ceased to be a
Director, officer, agent, Stockholder or control Person of the Company and shall
inure to the benefit of the personal representatives, heirs, executors and
administrators of such Person.

     

    Notwithstanding
the above, it is a condition of any indemnification by the Company that, with
respect to the acts or omissions alleged, the prospective indemnitee (i) acted
in good faith, (ii) acted in a manner that such person reasonably believed to be
in or not opposed to the best interests of the Company, and (iii) in the case of
a criminal proceeding, had no reasonable cause to believe that such person’s
conduct was unlawful.

     

    11.           Definitions.  As
used in this Agreement, the following terms have the following
meanings:

     

    “Person” means any individual,
sole proprietorship, partnership, limited liability company, joint venture,
company, trust, unincorporated organization, association, corporation,
institution, public benefit corporation, firm, joint stock company, estate,
entity or government agency.

     

     

    
      
        
        

      

      
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    12.           Tax
Principles.  The Director shall have sole authority to make all
tax elections and other decisions relating to taxes regarding the
Company.  The Director shall cause the Company to timely elect (such
election to be effective from the formation of the Company) under applicable
U.S. Treasury regulations to be treated as a partnership for U.S. tax purposes,
and to file any required forms (including U.S. Treasury Form 8832) with the
applicable taxing authorities.  To the extent relevant for U.S. tax
purposes, as determined by the Director in its sole discretion:

     

    (a)           The
Company shall maintain capital accounts for its stockholders in accordance with
U.S. Treasury Regulation 1.704-1(b);

     

    (b)           All
"profit" or "loss" of the company shall be allocated in accordance with the
Stockholders percentage share ownership in the Company, and "profit" or "loss"
shall mean the profit or loss of the Company as determined under the capital
accounting rules of U.S. Treasury Regulation § 1.704-1(b)(2)(iv) for purposes of
adjusting the capital accounts of the Stockholders, including, without
limitation, the provisions of paragraphs (b), (f) and (g) of those regulations
relating to the computation of items of income, gain, deduction and
loss;

     

    (c)           Notwithstanding
the preceding clause (b), the following allocations shall apply:

     

    (i)           the
"qualified income offset" provisions of U.S. Treasury Regulation Section 1.704
1(b)(2)(ii)(d) are incorporated herein by reference and shall apply to adjust
the allocation of profit and loss otherwise provided for under clause (b) to the
extent provided in that regulation;

     

    (ii)           the
"minimum gain" provisions of U.S. Treasury Regulation Section 1.704 2 are
incorporated herein by reference and shall apply to adjust the allocation of
profit and loss otherwise provided for under clause (b) to the extent provided
in that regulation;

     

    (iii)           notwithstanding
the provisions of clause (b), if during any fiscal year of the Company the
allocation of any loss or deduction, net of any income or gain, to a Stockholder
would cause or increase a negative balance in a Stockholder’s capital account as
of the end of that fiscal year, only the amount of such loss or deduction that
reduces the balance to zero shall be allocated to the Stockholder and the
remaining amount shall be allocated to the other Stockholders.  For
purposes of the preceding sentence, a capital account shall be reduced by the
adjustments, allocations and distributions described in U.S. Treasury
Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6), and increased by the
amount, if any, of the negative balance in the Stockholder's capital account
that the Stockholder is obligated to restore within the meaning of U.S. Treasury
Regulation § 1.704-1(b)(2)(ii)(c) as of that time or is deemed obligated to
restore under U.S. Treasury Regulation Section 1.704-2(g)(1) or § 1.704 2(i)(5);
and

     

    (iv)           all
allocations pursuant to the foregoing provisions of this clause (c) (the
"Regulatory Allocations") shall be taken into account in computing allocations
of other items under clause (b), including, if necessary, allocations in
subsequent fiscal years, so that the net amounts reflected in the Stockholders’
capital accounts and the character for income tax purposes of the taxable income
recognized (e.g., as capital or ordinary) will, to the extent possible, be the
same as if no Regulatory Allocations had been given effect.

     

     

    
      
        
        

      

      
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        (d)           The
Stockholders recognize that with respect to property contributed to the Company
by a Stockholder and with respect to property revalued in accordance with U.S.
Treasury Regulation § 1.704 1(b)(2)(iv)(f), there will be a difference between
the agreed values or "carrying values" of such property at the time of
contribution or revaluation and the adjusted tax basis of such property at that
time.  All items of tax depreciation, cost recovery, amortization,
amount realized and gain or loss with respect to such assets shall be allocated
among the Stockholders to take into account the book-tax disparities in
accordance with the provisions of Sections 704(b) and 704(c) of the Internal
Revenue Code of 1986, as amended ("Code") and the U.S. Treasury Regulations
under those sections;

     

    (e)           In
the event of a Transfer of Shares, Section 706 of the Code will apply to
allocations of profit or loss in the year of the transfer, as determined by the
Director;

     

    (f)           To
the extent required as determined by the Director in its sole discretion, the
Company shall file all applicable U.S. tax returns and make all required tax
reporting to the Stockholders, and withhold from any distributions to
Stockholders any U.S. taxes required to be withheld under the Code and
applicable U.S. Treasury regulations; and

     

    (g)           The
Director shall be the "tax matters partner" under Section 6231(a) of the
Code.

     

    In
discharging the Director’s responsibilities as tax matters partner, the Director
agrees to use commercially reasonable efforts to maintain the non-U.S. status of
the Company so as to minimize the potential for Bontan and Bontan Parent to
become subject to U.S. tax withholding, payment or filing requirements; provided
that, the Parties acknowledge and agree that ITC shall be managed within the
United States and shall carry out some or all of its responsibilities as a
Director of the Company within the United States, and this sentence shall not
prevent ITC from any of such activities.

     

    13.           Entire
Agreement.  This Agreement, along with the Articles of
Association and Memorandum of Association of the Company, the Contribution
Agreement, and any exhibits hereto and thereto, along with any other documents
delivered pursuant hereto or thereto or pursuant to the Option Agreement
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof and no party shall be liable or
bound to any other in any manner by any oral or written representations,
warranties, covenants and agreements except as specifically set forth herein and
therein.  In the event of any conflict between this Agreement and the
Articles of Association or the Memorandum of Association of the Company, the
provisions of this Agreement will control. Each party expressly represents and
warrants that it is not relying on any oral or written representations,
warranties, covenants or agreements outside of this Agreement.

     

     

    
      
        
        

      

      
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    14.           Amendment.  This
Agreement may be amended by an instrument in writing signed by each of the
parties hereto and approved in the manner prescribed in Section 2(e)
above.

     

    15.           Governing
Law.  This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware (but not including the choice
of law rules thereof).

     

    16.           Notices.  All
notices required or permitted hereunder shall be in writing and shall be deemed
effectively given: (a) upon personal delivery to the party to be notified, (b)
when sent by confirmed electronic mail or facsimile if sent during normal
business hours of the recipient; if not, then on the next Business Day, (c) five
(5) days after having been sent by registered or certified mail, return receipt
requested, postage prepaid, or (d) one (1) day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with written
verification of receipt.  All communications shall be sent to the
party to be notified at the address as set forth below or at such other address
as such party may designate by ten days advance written notice to the other
parties hereto.

     

    The
Company:

     

    Israel
Petroleum Company, Limited

    c/o
International Three Crown Petroleum, LLC

    P.O. Box
774327

    Steamboat
Springs, Colorado 80477

    Attn: H.
Howard Cooper

    

    ITC:

     

    International
Three Crown Petroleum, LLC

    P.O. Box
774327

    Steamboat
Springs, Colorado 80477

    Attn: H.
Howard Cooper

    

    Bontan
and Bontan Parent:

    

    47 Avenue Road, Suite 200

    Toronto, Ontario

    Canada M5R 2G3

    Attention:  Kam Shah,
Chairman and CEO

     
 

    17.           Severability.  In
the event one or more of the provisions of this Agreement should, for any
reason, be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality, or unenforceability shall not affect any other
provisions of this Agreement, and this Agreement shall be construed as if such
invalid, illegal or unenforceable provision had never been contained
herein.

     

    18.           Counterparts.                                This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.

     

    19.           Binding
Effect.  The provisions hereof shall inure to the benefit of,
and be binding upon, the parties hereto and their respective successors,
assigns, heirs, executors and administrators and other legal
representatives.

     

    20.           Assignment.                      No
party hereto shall assign any of its rights or obligations under this Agreement
without the prior written consent of the other parties, which may be withheld in
their absolute discretion, and any purported assignment by a party without such
prior consent shall be void.

     

    [SIGNATURE
PAGE FOLLOWS]

    
      
        
           

           

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    IN
WITNESS WHEREOF the
undersigned have executed this Agreement effective as of the date first above
written.

     

    STOCKHOLDERS:

    

    INTERNATIONAL
THREE CROWN PETROLEUM LLC, a Colorado limited liability company

    

    

    By:_________/s/_____________________

    Name:
______________________________

    Title:
_______________________________

    

    ALLIED
VENTURES INCORPORATED, a Belize corporation

    

    

    By:_____________/s/____________________

    Name:
______________________________

    Title:
_______________________________

    

    BONTAN OIL & GAS
CORPORATION,

    an Ontario corporation

    

    

    By:___________/s/______________________

    Name:
______________________________

    Title:
_______________________________

    

    

    AS
TO THOSE MATTERS SPECIFICALLY REFERRED TO HEREIN:

    

    BONTAN
CORPORATION INC., an Ontario corporation

    

    

    By:__________/s/_______________________

    Name:
______________________________

    Title:
_______________________________

    

    [signatures continued on next
page]

    
      
        
          

           

          Signature
Page to Stockholders Agreement

           

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    COMPANY:

    

    ISRAEL
PETROLEUM COMPANY, LIMITED, a Cayman Islands limited company

    

    
      	
               
      

            	
              By:

            	
              INTERNATIONAL
      THREE CROWN PETROLEUM LLC, a Colorado limited liability
      company

            

    

    

    By:____/s/______________________

    Name: H.
Howard Cooper

    Title:
Manager

    

    

    INITIAL DIRECTOR:

    

    INTERNATIONAL
THREE CROWN PETROLEUM LLC, a Colorado limited liability company

    

    

    By:_______/s/______________________

    Name: H. Howard Cooper

    Title: Manager

    

    

    
      
        
          

           

          Signature
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