Document:

warrant_itc.htm

    

     

    THIS
WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OR REDEMPTION HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR
ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF OR EXERCISED UNLESS (I) A
REGISTRATION STATEMENT REGISTERING SUCH SECURITIES UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE, OR (II) THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO IT THAT SUCH TRANSFER
MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OR
QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS, OR (III) SUCH SECURITIES
ARE SOLD PURSUANT TO RULE 144 OR RULE 144A.

    

    UNLESS
PERMITTED UNDER CANADIAN SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY
SHALL NOT TRADE THE SECURITY ON PUBLIC MARKETS IN CANADA BEFORE THE DATE THAT IS
FOUR MONTHS AND ONE DAY AFTER THE  DATE OF ISSUANCE OF THIS
WARRANT.

     

    

     

     WARRANT TO PURCHASE COMMON STOCK

    of

    BONTAN
CORPORATION INC.

    

    THIS
CERTIFIES that INTERNATIONAL THREE CROWN PETROLEUM LLC, a Colorado limited
liability company, or any subsequent holder hereof (“Holder”) has the
right to purchase from BONTAN CORPORATION INC., an Ontario corporation (the
“Company”), up
to Five Million (5,000,000) fully paid and nonassessable shares of the Company’s
common stock (“Common
Stock”), subject to adjustment as provided herein, at a price of US$0.35
per share, subject to adjustment as provided herein, at any time during the Term
(as defined below).  The shares of Common Stock for which this Warrant
is exercisable, as the same may be adjusted pursuant hereto, are referred to
herein as the “Shares,” and the per
share exercise price for the Shares, as the same may be adjusted pursuant
hereto, is referred to herein as the “Exercise
Price.”

     
 

    By
accepting this Warrant to Purchase Common Stock of the Company (this “Warrant” or this
“Agreement”),
Holder agrees that its rights hereunder shall be held subject to all of the
terms, conditions, limitations and provisions set forth herein.

     
 

    1.  Date
of Issuance and Term.

    

    This
Warrant shall be deemed to be issued on November 14, 2009 (the “Date of Issuance”).
The term of this Warrant begins on the Date of Issuance and ends at 5:00 p.m.
Eastern time on the fifth (5th)
anniversary thereof (the “Term”).

    

     2.  Mechanics of
Exercise.

     
 

    (a)           Manner of
Exercise.  This Warrant may
be exercised, in whole or in part, at any time during the Term by delivery to
the Company, by facsimile, electronic mail or overnight courier in accordance
with Section 10(g), of a duly completed and executed Exercise Form in
substantially the form attached hereto as Exhibit A (the “Exercise Form”), and
within three (3) Trading Days thereafter, payment in full of the Exercise Price
(which may be satisfied by a Cash Exercise or a Cashless Exercise, as each is
defined below) for each Share as to which this Warrant is exercised (the “Aggregate Exercise
Price”).  Notwithstanding anything herein to the contrary,
Holder shall not be required to physically surrender this Warrant to the Company
until Holder has purchased all of the Shares available hereunder and this
Warrant has been exercised in full, in which case, Holder shall surrender this
Warrant to the Company for cancellation within three (3) Trading Days of the
date the final Exercise Form is delivered to the Company.  Partial
exercises of this Warrant resulting in purchases of a portion of the total
number of Shares available hereunder shall have the effect of lowering the total
number of Shares thereafter purchasable hereunder by an amount equal to the
aggregate number of Shares so purchased. Holder and the Company shall maintain
records showing the number of Shares purchased and the dates of such
purchases.

     

    
 

    
      
        
        

      

      
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         (b)           Payment of Exercise
Price.  Payment of the Exercise Price may be made by either of
the following, or a combination thereof, at the election of Holder:

    

    (i)  Cash
Exercise:  Holder may pay the Exercise Price in cash, bank or
cashier’s check, or by wire transfer (a “Cash Exercise”);
or

    

    (ii)  Cashless
Exercise: Holder may convert this
Warrant, in whole or in part, into a number of Shares determined using the
following formula (a “Cashless
Exercise”):

    

    X = Y (A-B)/A

     

    
      	
               
      

            	
              where:

            	
              X =
      the number of Shares to be issued to
Holder.

            

    

    
      	
               
      

            	
              Y =
      the number of Shares for which this Warrant is being
    exercised

            

    

    
      	
               
      

            	
              A =
      the Market Price of one (1) share of Common
  Stock

            

    

    
      	
               
      

            	
              B =
      the Exercise Price

            

    

    

    For
purposes of this Agreement, “Market Price,” as of
any date, means the average Volume Weighted Average Price (as defined below) of
the Common Stock over the five (5) consecutive Trading Day period
immediately preceding the date in question, and the “Volume Weighted Average
Price” as of any date means the volume weighted average sale price of the
Common Stock on the principal securities exchange or trading market where such
security is listed or traded (the “Trading Market”) as
reported by Bloomberg Financial Markets or an equivalent, reliable reporting
service mutually acceptable to Holder and the Company (“Bloomberg”), or, if
no volume weighted average sale price is reported for such security, then the
last closing trade price of such security as reported by Bloomberg, or, if no
last closing trade price is reported for such security by Bloomberg, the average
of the bid prices of any market makers for such security that are listed in the
over the counter market by the Financial Industry Regulatory Authority, Inc. or
in the “pink sheets” by the National Quotation Bureau, Inc.  If the
Volume Weighted Average Price cannot be calculated for such security on such
date in the manner provided above, the Volume Weighted Average Price shall be
the fair market value as mutually determined by Holder and the
Company.

     

    For
purposes of Rule 144 of the Securities Act and sub-section (d)(3)(ii) thereof,
it is intended, understood and acknowledged that the Common Stock issuable upon
exercise of this Warrant pursuant to a Cashless Exercise shall be deemed to have
been acquired at the time this Warrant was issued. Moreover, it is intended,
understood and acknowledged that the holding period for the Common Stock
issuable upon exercise of this Warrant pursuant to a Cashless Exercise shall be
deemed to have commenced on the date this Warrant was issued.

     

     

    
      
        
        

      

      
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    (c)           Date of Exercise. The “Date of Exercise” of
all or any portion of this Warrant shall be the first (1st) date on which both
the Exercise Form and the Aggregate Exercise Price with respect to such exercise
shall have been delivered to the Company.  In the case of a Cashless
Exercise, the Aggregate Exercise Price for the Shares being issued upon such
Cashless Exercise shall be deemed to have been delivered and paid in full upon
Holder’s delivery of the Exercise Form properly electing such Cashless Exercise.
Holder shall be deemed for all corporate purposes to have become the holder of
record of the Shares with respect to which this Warrant has been exercised (the
“Exercise
Shares”) as of the applicable Date of Exercise, irrespective of the date
such Exercise Shares are credited to Holder’s Depository Trust Company (“DTC”) account or the
date of delivery of certificates evidencing such Exercise Shares, as the case
may be.

     
 

    (d)           Delivery of Shares Upon
Exercise. Within ten (10) Trading Days after the Date of Exercise
(the “Delivery
Period”), the Company shall issue and deliver, or cause its transfer
agent (the “Transfer
Agent”) to issue and deliver, the Exercise Shares (and the certificates
evidencing the same) to Holder by crediting Holder’s prime broker account with
the DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system if the
Company is a participant in such system, and otherwise by delivering to Holder
one (1) or more physical stock certificates evidencing the Exercise Shares. The
Company shall, at its own cost and expense, take all reasonable steps, to ensure
such delivery, including obtaining and delivering an opinion of counsel, to
assure that the Transfer Agent shall issue stock certificates representing the
Exercise Shares in the name of Holder (or its nominee) or such other persons as
designated by Holder and in such denominations as specified by Holder. The
Company warrants that no instructions contrary to these instructions have been,
or will be given, to the Transfer Agent and that, provided that at least one (1)
of the Unrestricted Conditions (as defined below) is met and unless waived by
Holder, the Exercise Shares will be free-trading, and freely transferable, and
will not contain a legend restricting the resale or transferability of the
Exercise Shares.

     
 

    (e)           Delivery Failure.  In addition to
any other remedies which may be available to Holder, in the event that the
Company fails for any reason to effect delivery of the Exercise Shares by the
end of the Delivery Period, Holder will be entitled to rescind all or any part
of the applicable exercise of this Warrant, by delivering a notice to such
effect to the Company, whereupon the Company and Holder shall each be restored
to their respective positions immediately prior to the delivery of the Exercise
Form applicable to such exercise to the extent of such rescission.

    

    (f)           Buy-In.  In
addition to any other rights available to Holder, if the Company fails to
transmit or to cause its Transfer Agent to credit Holder’s DTC account or
otherwise transmit to Holder a certificate or certificates representing the
Exercise Shares on or before the expiration of the Delivery Period (other than a
failure caused by any incorrect or incomplete information provided by Holder to
the Company hereunder or the negligence of the Transfer Agent), and if after
such date Holder is required by its broker to purchase (in an open market
transaction or otherwise) or Holder’s brokerage firm otherwise purchases shares
of Common Stock to deliver in satisfaction of a sale by Holder of the Exercise
Shares that Holder anticipated receiving upon such exercise (a “Buy-In”), then the
Company shall: (1) pay in cash to Holder the amount by which (x) Holder’s
total purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (y) the amount obtained by multiplying
(A) the number of Exercise Shares that the Company was required to deliver
to Holder in connection with the exercise at issue, times (B) the price at
which the sell order giving rise to such purchase obligation was executed; and
(2) at the option of Holder, either (a) reinstate the portion of the
Warrant and equivalent number of Shares for which such exercise was not honored
or (b) deliver to Holder certificate(s) representing the number of shares of
Common Stock that would have been issued had the Company timely complied with
its exercise and delivery obligations hereunder.  For example, if
Holder purchases Common Stock having a total purchase price of $11,000 to cover
a Buy-In with respect to an attempted exercise to cover the sale of Common Stock
with an aggregate sale price giving rise to such purchase obligation of $10,000,
under subsection (1) of the immediately preceding sentence, the Company
shall be required to pay Holder $1,000. Holder shall provide the Company written
notice indicating the amounts payable to Holder in respect of the Buy-In,
together with applicable confirmations and other evidence reasonably requested
by the Company. Nothing herein shall limit a Holder’s right to pursue any other
remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with
respect to the Company’s failure to timely credit Holder’s DTC account or
otherwise deliver certificates representing shares of Common Stock upon exercise
of this Warrant as required pursuant to the terms hereof.

     
 

    3.  Registration
of Shares.

     

    (a)           Registration.  All
Shares issuable hereunder shall, prior to such issuance, be registered by the
Company pursuant to an effective registration statement (the “Registration
Statement”) filed with the United States Securities and Exchange
Commission (the “SEC”). No later than
sixty (60) days following the Date of Issuance, the Company shall file a
Registration Statement with the SEC covering the maximum number of Shares
issuable hereunder. To the extent that any Shares issuable hereunder are not
otherwise covered by an effective Registration Statement, the Company agrees
that, promptly following any request therefor from Holder, it shall prepare and
file with the SEC a Registration Statement covering such Shares. The Company
shall use its best efforts to cause any Registration Statement required to be
filed by it pursuant hereto to become effective as soon as possible after such
filing and to remain effective so long as any Shares are issuable
hereunder.  Notwithstanding anything to the contrary herein, the
Company may delay or suspend the effectiveness of a Registration Statement or
the use of any prospectus forming a part of a Registration Statement due to the
non-disclosure of material, non-public information concerning Company, the
disclosure of which at the time would, in the good faith opinion of the
Company’s Board of Directors after consultation with counsel, result in a
material adverse effect on the Company, provided that no such periods
of delay shall individually exceed seventy-five (75) days or in the aggregate
exceed seventy-five (75)  days during any twelve (12)-month
period.

     

    (b)           Failure to
Register.  In the event the Registration Statement has not been
filed with the SEC within sixty (60) days following the Date of Issuance, or
such Registration Statement is not declared effective prior to the date that is
nine (9) months following the Date of Issuance, then, in each
case,  on the date of such failure, the number of Shares for which
this Warrant is then exercisable shall be increased by two percent
(2.0%).  In addition, for each subsequent thirty (30) day period
during which the Registration Statement is not filed or effective (whether or
not the Registration Statement had previously been declared effective) for any
reason, the number of Shares for which this Warrant is then exercisable shall be
increased by one percent (1.0%).  Notwithstanding the foregoing, in no
event shall the total number of Shares for which this Warrant is exercisable
exceed 5,500,000 (provided that such number shall be adjusted to account for any
adjustment to the number of Shares purchasable hereunder pursuant hereto,
including pursuant to Section 5 hereof).

     

    (c)           Information by
Holder.  The Holder shall furnish to the Company such
information regarding the Holder and the distribution proposed by the Holder as
the Company may reasonably request and as shall be reasonably required in
connection with any registration referred to in Section 3(a).

     

     

    
      
        
        

      

      
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    4.  Restrictive
Legends

    

    (a)           Restrictive Legend.
Holder understands that until such time as this Warrant or the Exercise Shares
have been registered under the Securities Act or otherwise may be sold pursuant
to Rule 144 of the Securities Act or an exemption from registration under the
Securities Act without any restriction as to the number of securities as of a
particular date that can then be immediately sold, this Warrant and the Exercise
Shares, as applicable, shall bear a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer of the
certificates for such securities):

     
 

    “THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE
SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF OR EXERCISED UNLESS (I) A
REGISTRATION STATEMENT REGISTERING SUCH SECURITIES UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE, OR (II) THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO IT THAT SUCH TRANSFER
MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OR
QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS, OR (III) SUCH SECURITIES
ARE SOLD PURSUANT TO RULE 144 OR RULE 144A.

     

    UNLESS
PERMITTED UNDER CANADIAN SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY
SHALL NOT TRADE THE SECURITY ON PUBLIC MARKETS IN CANADA BEFORE THE DATE THAT IS
FOUR MONTHS AND ONE DAY AFTER THE DATE OF ISSUANCE OF THIS
WARRANT.”

     

    (b)           Removal of Restrictive
Legends.  The certificates evidencing the Exercise Shares shall
not contain any legend restricting the transfer thereof: (i) while a
registration statement covering the resale of such Exercise Shares is effective
under the Securities Act (provided that, if the Holder is selling pursuant to
such registration statement, the Holder agrees to only sell such Exercise Shares
during such time that such registration statement is effective and not withdrawn
or suspended) or, (ii) following any sale of such Exercise Shares pursuant to
Rule 144 of the Securities Act (if the Holder is not an Affiliate of the
Company), or (iii) if such Exercise Shares are eligible for sale under Rule
144(b)(1)(i) of the Securities Act, or (iv)  if such legend is not required
under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the SEC) and the
Company shall have received an opinion of counsel of Holder, satisfactory to the
Company, to such effect (collectively, the “Unrestricted
Conditions”).  If any of the Unrestricted Conditions is met at
the time of issuance of any Exercise Shares, then such Exercise Shares shall be
issued free of all legends.  The Company agrees that following the
Effective Date or at such other time as any of the Unrestricted Conditions is
met or a restrictive legend is otherwise no longer required, it will, no later
than ten (10) Trading Days following the delivery by Holder to the Company
or the Transfer Agent of a certificate representing Exercise Shares and issued
with or containing a restrictive legend, deliver or cause to be delivered to
Holder a certificate (or electronic transfer) representing such Exercise Shares
that is free from all restrictive and other legends. For purposes hereof, “Effective Date” shall
mean the date that a Registration Statement covering the Exercise Shares shall
have been declared effective by the SEC.

    

    5.  Notice; Adjustments
Upon Certain Events.

    

    (a)           Notice.  Holder,
as the holder of this Warrant, shall be entitled to receive  notice of
all matters as to which the holders of Common Stock are entitled to, or
otherwise do, receive notice concurrently with the notice provided to the
holders of the Common Stock.

     

     

    
      
        
        

      

      
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    (b)           Subsequent Equity
Sales.  If the Company, at any time while this Warrant is
outstanding, shall issue or sell, or shall grant any warrant, option or other
right to purchase or otherwise acquire, any Common Stock or any security
convertible into, or exercisable or exchangeable for, with or without
consideration, any Common Stock (any such warrant, option, right or security
(other than the Common Stock) a “Convertible
Security”), at an Effective Price (as defined below) that is less than
the Exercise Price, or if the holder of any Common Stock or Convertible
Securities shall at any time, whether by operation of purchase price
adjustments, reset provisions, floating conversion, exercise or exchange prices,
or otherwise, or due to warrants, options or rights per share which are issued
in connection with such issuance, be entitled to receive shares of Common Stock
at an Effective Price that is less than the Exercise Price (any such sale,
issuance, grant, adjustment or reset, a “Dilutive Issuance”),
which adjustment or reset shall, for the purposes hereof, be deemed to be an
issuance of the number of shares of Common Stock or Convertible Securities so
effected as of the date of such reset or adjustment, then

     

     

    (i) the Exercise Price shall be reduced
(and only reduced) by multiplying the Exercise Price by a fraction, the
numerator of which is the sum of (A) the number of shares of Common Stock issued
and outstanding immediately prior to the Dilutive Issuance, plus (B) the total
number of shares of Common Stock issuable (prior to giving effect to any
adjustment required by in connection with such Dilutive Issuance) upon the
exercise or conversion of Convertible Securities outstanding immediately prior
to the Dilutive Issuance and with an Effective Price (prior to giving effect to
any adjustment required by in connection with such Dilutive Issuance) that is
less than the Effective Price of the security or securities being offered in the
Dilutive Issuance, plus (C) the number of shares of Common Stock that the
Aggregate Consideration (as defined below) received or deemed received by the
Company in connection with the Dilutive Issuance would purchase at the Exercise
Price (prior to giving effect to the adjustment required by this Section 5(b) in
connection with such Dilutive Issuance), and the denominator of which shall be
the sum of (X) the number of shares of Common Stock issued and outstanding
immediately prior to the Dilutive Issuance plus (Y) the total number of shares
of Common Stock issuable  (prior to giving effect to any adjustment
required by in connection with such Dilutive Issuance) upon the exercise or
conversion of Convertible Securities outstanding immediately prior to the
Dilutive Issuance and with an Effective Price (prior to giving effect to any
adjustment required by in connection with such Dilutive Issuance) that is less
than the Effective Price of the security or securities being offered in the
Dilutive Issuance, plus (Z) the number of shares of Common Stock issued or
deemed issued in connection with the Dilutive Issuance; and

     

     

    (ii)  the number of Shares
issuable hereunder shall be increased such that the Aggregate Exercise Price
payable hereunder, after taking into account the decrease in the Exercise Price,
shall be equal to the Aggregate Exercise Price prior to such
adjustment.  Such adjustment shall be made whenever such Common Stock
or Convertible Securities are issued or deemed issued.

     

     

    The
Company shall notify Holder in writing of any Dilutive Issuance, no later than
the Trading Day following such Dilutive Issuance, indicating therein the
applicable issuance price, or applicable reset price, exchange price or
conversion price, as applicable, and any other pricing terms (such notice the
“Dilutive Issuance
Notice”), and stating therein the number of Shares then purchasable
hereunder and the Exercise Price therefor, as calculated in accordance with this
Section 5(b).  For purposes of clarification, whether or not the
Company provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon
the occurrence of any Dilutive Issuance, after the date of such Dilutive
Issuance, Holder shall be entitled to purchase, upon exercise of this Warrant,
the number of Shares determined and at the Exercise Price calculated in
accordance with this Section 5(b).

     

     

     

    
      
        
        

      

      
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    For the
purpose of making any adjustment required by this Section 5(b), the
aggregate consideration received by the Company for any issue or sale of Common
Stock or Convertible Securities (the “Aggregate
Consideration”) shall be the sum or all consideration received or deemed
received by the Company determined as follows: (i) to the extent such
consideration consists of cash, the gross amount of such cash received by the
Company before deduction of any underwriting or similar commissions,
compensation or concessions paid or allowed by the Company in connection with
such issue or sale and without deduction of any expenses payable by the Company,
(ii) to the extent such consideration consists of property other than cash, the
fair value of that property as determined in good faith by the Company’s Board
of Directors, (iii) if Common Stock or Convertible Securities are issued or sold
together with other stock or securities or other assets of the Company for
consideration that covers both, the portion of the consideration so received or
deemed received that may be reasonably determined in good faith by the Company’s
Board of Directors to be allocable to such Common Stock or Convertible
Securities, and (iv) if the Company issues or sells Convertible Securities, the
Company shall be deemed to have issued at the time of the issuance of such
Convertible Securities the maximum number of shares of Common Stock issuable
upon exercise or conversion thereof and to have received as consideration for
the issuance of such shares an amount equal to the total amount of the
consideration, if any, received by the Company for the issuance of such
Convertible Securities plus the
minimum amounts of consideration, if any, payable to the Company upon the
exercise or conversion of such Convertible Securities in full; provided that if the minimum
amounts of such consideration cannot be ascertained, but are a function of
antidilution or similar protective clauses, then the Company shall be deemed to
have received the minimum amounts of consideration without reference to such
clauses.  If the minimum amounts of consideration payable to the
Company upon the exercise or conversion of Convertible Securities is reduced
over time or on the occurrence or non-occurrence of specified events other than
by reason of antidilution adjustments, the Effective Price shall be recalculated
using the figure to which such minimum amount of consideration is reduced; provided further, that if the
minimum amounts of consideration payable to the Company upon the exercise or
conversion of such Convertible Securities is subsequently increased, the
Effective Price shall again be recalculated using the increased minimum amounts
of consideration payable to the Company upon the exercise or conversion of such
Convertible Securities. No further adjustment to the number of Shares
purchasable hereunder or the Exercise Price shall be made as a result of the
actual issuance of shares of Common Stock upon the exercise or conversion of
Convertible Securities.

     

     

    The
“Effective
Price” of Common Stock shall mean the quotient determined by dividing the
total number of shares of Common Stock issued or sold, or deemed to have been
issued or sold by the Company under this Section 5(b), into the Aggregate
Consideration received, or deemed to have been received by the Company for such
issuance under this Section 5(b), for such shares of Common
Stock.  In the event that the number of shares of Common Stock or the
Effective Price cannot be ascertained at the time of issuance, such shares of
Common Stock shall be deemed issued immediately upon the occurrence of the first
event that makes such number of shares or the Effective Price, as applicable,
ascertainable.

     

     

    Notwithstanding
the foregoing, no adjustment shall be made under this Section 5(b) in respect of
shares of Common Stock issued or issuable (i) to officers, directors, employees
of, or consultants to, the Company, pursuant to a stock option or purchase plan
or agreements on terms approved by the Company’s Board of Directors, (ii) upon
exercise of options or warrants outstanding on the date hereof, (iii) as
consideration  in a merger, consolidation, acquisition or similar
business combination that is approved by the Company’s Board of Directors, (iv)
pursuant to a borrowing or commercial financing arrangement with parties not
affiliated with the Company that is approved by the Company’s Board of
Directors, or (v) pursuant to that certain Contribution and Assignment Agreement
dated as of November 14, 2009 (the “Contribution Agreement”) among the Holder,
the Company, Allied Ventures Incorporated and Israel Petroleum Company, Limited,
but, for the avoidance of doubt, excluding any securities issued in the
connection with the Financings (as defined in the Contribution Agreement)
contemplated thereby.

     

     

    
      
        
        

      

      
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    (c)           Stock Split, Stock Divided,
Recapitalization or Reclassification.  If the Company shall
at any time issue a stock dividend or effect a stock split, recapitalization,
reclassification or other similar transaction of such character that additional
shares of Common Stock shall be issued to the Holders of Common Stock for no
consideration or the shares of Common Stock shall be changed into or become
exchangeable for a larger or smaller number of shares of Common Stock, then upon
the effective date thereof, the number of shares of Common Stock which Holder
shall be entitled to purchase upon exercise of this Warrant shall be increased
or decreased, as the case may be, in direct proportion to the increase or
decrease in the number of outstanding shares of Common Stock (calculated on a
fully diluted basis) by reason of such recapitalization, reclassification or
similar transaction, and the Exercise Price shall be, in the case of an increase
in the number of shares, proportionally decreased and, in the case of decrease
in the number of shares, proportionally increased. The Company shall give Holder
the same notice it provides to holders of Common Stock of any transaction
described in this Section 5(c).

     

    (d)           Fundamental
Transaction.  If, at any time while this Warrant is
outstanding, (i) the Company effects any merger or consolidation of the Company
with or into another Person, (ii) the Company effects any sale of all or
substantially all of its assets in one or a series of related transactions,
(iii) any tender offer or exchange offer (whether by the Company or another
Person) is completed pursuant to which holders of Common Stock are permitted to
tender or exchange their shares for other securities, cash or property, or (iv)
the Company effects any reclassification of the Common Stock or any compulsory
share exchange pursuant to which the Common Stock is effectively converted into
or exchanged for other securities (other than Common Stock of the Company), cash
or property (any such case, a “Fundamental
Transaction”), then, Holder shall have the right, upon any subsequent
exercise of this Warrant, to receive, for each Share that would have been
issuable upon such exercise immediately prior to the occurrence of such
Fundamental Transaction, the number of shares of common stock of the successor
or acquiring corporation or of the Company, if it is the surviving corporation,
and any additional consideration (the “Alternate
Consideration”) receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event.  For purposes of any such exercise,
the determination of the Exercise Price shall be appropriately adjusted to apply
to such Alternate Consideration based on the amount of Alternate Consideration
issuable in respect of one (1) share of Common Stock in such Fundamental
Transaction, and the Company shall apportion the Exercise Price among the
Alternate Consideration in a reasonable manner reflecting the relative value of
any different components of the Alternate Consideration. If holders of Common
Stock are given any choice as to the securities, cash or property to be received
in a Fundamental Transaction, then Holder shall be given, the same choice as to
the Alternate Consideration it receives upon any exercise of this Warrant
following such Fundamental Transaction.  The Company shall give Holder
the same notice it provides to holders of Common Stock of any Fundamental
Transaction, but in no event shall the Company provide Holder such notice later
than fifteen (15) days prior to the consummation of the Fundamental
Transaction.

     

    (e)           Fundamental Transaction
Agreements.  To the extent necessary to give effect to Holder’s
rights hereunder, any agreement pursuant to which a Fundamental Transaction is
effected shall include terms requiring the successor to the Company or the
surviving entity in such Fundamental Transaction, as applicable, to give effect
to, and to comply with, the provisions of this Agreement, and any such successor
or surviving entity shall issue to Holder a new warrant consistent with this
Agreement and evidencing Holder’s right to exercise such warrant into Alternate
Consideration and ensuring that this Warrant (or any such replacement security)
will be similarly adjusted upon any subsequent transaction analogous to a
Fundamental Transaction.

     

    (f)           Notice of
Adjustments. In the event that at
any time, as a result of an adjustment made pursuant to this Section 5 or
otherwise, Holder shall, upon exercise of this Warrant, become entitled to
receive a different number Shares and/or any other securities, property or
assets, or if the Exercise Price shall be adjusted, then, (i) the Company shall
promptly mail to Holder a notice (an “Adjustment Notice”)
setting forth the number of Shares and/or any other securities, property or
assets, and the Exercise Price, after giving effect to such adjustment and
setting forth a statement of the facts requiring such adjustment, and (ii)
wherever appropriate, all references herein to shares of Common Stock shall be
deemed to refer to and include such shares and/or other securities or assets,
and references to Exercise Price shall be deemed to refer to the adjusted
Exercise Price; and thereafter the number of such shares and/or other securities
or assets, and the Exercise Price, shall be subject to adjustment from time to
time in a manner and upon terms as nearly equivalent as practicable to the
provisions of this Agreement. The Company shall, upon the written request at any
time of Holder, furnish to such Holder a like Warrant (a “Replacement Warrant”)
setting forth (A) such adjustment or readjustment, (B) the Exercise
Price at the time in effect and (C) the number of shares of Common Stock
and the amount, if any, of other securities or property which at the time would
be received upon exercise of the Warrant.  For the avoidance of doubt,
the adjustments provided for herein shall be given effect whether or not the
Company provides an Adjustment Notice and whether or not Holder requests a
Replacement Warrant.

     

     

    
      
        
        

      

      
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    6.
Fractional Interests.

     

    No
fractional shares or scrip representing fractional shares shall be issuable upon
the exercise of this Warrant. If, on exercise of this Warrant, Holder would be
entitled to a fractional share of Common Stock or a right to acquire a
fractional share of Common Stock, such fractional share shall be disregarded and
the number of shares of Common Stock issuable upon exercise shall be the next
higher whole number of shares.

    

    7.  Transfer
of Warrant.

    

    (a)           Transferability.  Subject
to compliance with any applicable securities laws and the conditions set forth
in Section 7(d) hereof, this Warrant and all rights hereunder (including,
without limitation, any registration rights) are transferable, in whole or in
part, upon surrender of this Warrant at the principal office of the Company or
its designated agent, together with a written assignment of this Warrant
substantially in the form attached hereto as Exhibit B duly
executed by Holder or its agent or attorney and funds sufficient to pay any
transfer taxes payable upon the making of such transfer. Upon such surrender
and, if required, such payment, the Company shall execute and deliver a new
warrant or warrants in the name of the assignee or assignees and in the
denomination or denominations specified in such instrument of assignment, and
shall issue to the assignor a new warrant evidencing the portion of this Warrant
not so assigned, and this Warrant shall promptly be cancelled.

    

    (b)           New
Warrants.  This Warrant may be divided or combined with other
Warrants upon presentation hereof at the principal office of the Company,
together with a written notice specifying the names and denominations in which
new warrants are to be issued, signed by Holder or its agent or
attorney.  Subject to compliance with Section 7(a), as to any transfer
which may be involved in such division or combination, the Company shall execute
and deliver a new warrant or warrants in exchange for this Warrant and/or any
other warrants to be divided or combined in accordance with such
notice.

    

    (c)           Warrant
Register.  The Company shall register this Warrant, upon
records to be maintained by the Company for that purpose (the “Warrant Register”),
in the name of the record Holder hereof from time to time. The Company may deem
and treat the registered Holder of this Warrant as the absolute owner hereof for
the purpose of any exercise hereof or any distribution to Holder, and for all
other purposes, absent actual notice to the contrary.

     

    
 

    
      
        
        

      

      
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        (d)           Transfer
Restrictions.  If, at the time of the surrender of this Warrant
in connection with any transfer of this Warrant to any person or entity that is
not an Affiliate of the transferor, the transfer of this Warrant shall not be
registered pursuant to an effective registration statement under the Securities
Act and under applicable state securities or blue sky laws, the Company may
require, as a condition of allowing such transfer (i) that Holder or transferee
of this Warrant, as the case may be, furnish to the Company a written opinion of
counsel (which opinion shall be in form, substance and scope customary for
opinions of counsel in comparable transactions) to the effect that such transfer
may be made without registration under the Securities Act and under applicable
state securities or blue sky laws, (ii) that the holder or transferee execute
and deliver to the Company an investment letter in form and substance acceptable
to the Company, and (iii) that the transferee be an “accredited investor” as
defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8) promulgated under
the Securities Act or a “qualified institutional buyer” as defined in Rule
144A(a) of the Securities Act.

    

    8.  No
Circumvention.

    

    The
Company hereby covenants and agrees that the Company will not, by amendment of
its certificate of incorporation, bylaws or through any reorganization, transfer
of assets, consolidation, merger, scheme of arrangement, dissolution, issue or
sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, and will at all
times in good faith carry out all the provisions of this Warrant and take all
action as may be reasonably required to protect the rights of Holder. Without
limiting the generality of the foregoing, the Company (i) shall not
increase the par value of any shares of Common Stock receivable upon the
exercise of this Warrant above the Exercise Price then in effect,
(ii) shall take all such actions as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant, and
(iii) use commercially reasonable efforts to obtain all such authorizations,
exemptions or consents from any public regulatory body having jurisdiction
thereof as may be necessary to enable the Company to perform its obligations
under this Warrant.

     
 

    9.  Dispute
Resolution.

    

    If Holder
and the Company shall disagree as to the determination of the closing price or
the Volume Weighted Average Price of the Common Stock or the calculation of the
Exercise Price, the Aggregate Exercise Price or the Market Price, Holder and the
Company shall cooperate in good faith in an attempt to agree upon such
determination or calculation.  If Holder and the Company are unable to
agree upon such determination or calculation within two (2) Business Days,
then the Company shall promptly submit the disputed items to an
independent, reputable investment bank or an independent, reputable outside
accountant selected by the Company and approved by Holder, which approval shall
not be unreasonably withheld, to make the disputed determination or calculation,
and the Company shall use its best efforts to cause the investment bank or the
accountant, as the case may be, to perform the determinations or calculations
and notify the Company and Holder of the results no later than five
(5) Business Days from the time it receives the disputed determinations or
calculations.  Such investment bank’s or accountant’s determination or
calculation, as the case may be, shall be binding upon all parties absent
demonstrable error, and the Company and Holder shall each pay one-half of the
fees and costs of such investment bank or accountant.

     

     

    
      
        
        

      

      
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    10.  Miscellaneous.

    

    (a)           No Rights as Shareholder
Until Exercise.  This Warrant does not entitle Holder to any
voting rights or other rights as a shareholder of the Company prior to the
exercise hereof.

    

    (b)           Loss, Theft, Destruction or
Mutilation of Warrant.  The Company covenants that upon receipt
by the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant or any stock certificate relating to
any Exercise Shares, and in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it (which, in the case of the Warrant, shall
not include the posting of any bond), and upon surrender and cancellation of
such warrant or stock certificate, if mutilated, the Company will make and
deliver a new warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of such warrant or stock certificate.

    

    (c)           Saturdays, Sundays,
Holidays, etc.    If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall not be a Business Day, then such action may be taken or such right
may be exercised on the next succeeding Business Day.

    

    (d)           Authorized
Shares.  In addition to the requirements of Section 3, the
Company covenants that during the Term, it will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of the Shares upon the exercise of any purchase rights under this Warrant. The
Company further covenants that its issuance of this Warrant shall constitute
full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Exercise
Shares upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such
Shares may be issued as provided herein without violation of any applicable law
or regulation, or of any requirements of the Trading Market upon which the
Common Stock may be listed.

    

     

    (e)           Governing Law;
Jurisdiction.  This Agreement, and all questions concerning the
construction, validity, enforcement and interpretation thereof, shall be
governed by and construed and enforced in accordance with the internal laws of
the State of Delaware, without regard to the principles of conflicts of law
thereof or of any other jurisdiction to the extent that they would result in the
application of the laws of any other jurisdiction.  Each party agrees
that all legal proceedings concerning the interpretations, enforcement and
defense of the transactions contemplated by this Agreement (whether brought
against a party hereto or its respective affiliates, directors, officers,
shareholders, employees or agents) shall be commenced exclusively in the state
and federal courts located in Delaware.  Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts located in
Delaware, for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is improper or is an
inconvenient venue for such proceeding.  Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof.  Nothing contained herein shall be deemed to limit in any way
any right to serve process in any other manner permitted by law.  The
parties hereby waive all rights to a trial by jury.

    

    (f)           Nonwaiver and
Expenses.  No course of dealing or any delay or failure to
exercise any right hereunder on the part of Holder shall operate as a waiver of
such right or otherwise prejudice Holder's rights, powers or
remedies.  If either party shall commence an action or proceeding to
enforce any provisions of this Agreement, then the prevailing party in such
action or proceeding shall be reimbursed by the other party for its reasonable
attorneys’ fees and other costs and expenses incurred with the investigation,
preparation and prosecution of such action or proceeding.

     

    
 

    
      
        
        

      

      
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10 -

        
          

        

      

      
        
        

      

    

     

        (g)           Notices.  All
notices, requests,
demands, claims, and other communications given or made pursuant to this
Agreement shall be in writing and shall be deemed effectively given upon the
earlier of actual receipt or:  (a) personal delivery to the party to
be notified, (b) when sent, if sent by facsimile or electronic mail during
normal business hours of the recipient, and if not sent during normal business
hours, 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) Business Day after deposit with a nationally recognized overnight
courier, freight prepaid, specifying next business day delivery, with written
verification of receipt.  All communications shall be sent to the
respective parties at their facsimile, number, e-mail address or physical
address as set forth below or to such other facsimile number, e-mail address or
physical address as subsequently modified by written notice given in accordance
with this Section 10(g).

     

    

    
      	
              If
      to Holder:

              International
      Three Crown Petroleum LLC

              P.O.
      Box 774327

              Steamboat
      Springs, Colorado 80477

              Attn:
      H. Howard Cooper

              Fax:  __________________________

              E-Mail:
      ________________________

            	
              If
      to the Company:

              Bontan
      Corporation Inc.

              47
      Avenue Road, Suite 200,

              Toronto,
      Ontario, Canada M5R 2G3

              Attn:
      Kam Shah

              Fax:416-361-6228

              E-Mail:
      Kam@bontancorp.com

            

    

    

    (h)           Limitation of
Liability.  No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant, and no enumeration herein
of the rights or privileges of Holder, shall give rise to any liability of
Holder for the purchase price of any Common Stock or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.

    

    (i)           Remedies.  Holder,
in addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Warrant. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Warrant and hereby agrees to waive and not to assert the
defense in any action for specific performance that a remedy at law would be
adequate.

    

    (j)           Successors and
Assigns.  Subject to applicable securities laws, this Warrant
and the rights and obligations evidenced hereby shall inure to the benefit of
and be binding upon the successors of the Company and the successors and
permitted assigns of Holder. The provisions of this Warrant are intended to be
for the benefit of all Holders from time to time of this Warrant and shall be
enforceable by any such Holder or the holder of any Exercise
Shares.

    

    (k)           Amendment

    . This
Warrant may be modified or amended or the provisions hereof waived with the
written consent of Holder and the Company.

    

    (l)           Severability

    .  Wherever
possible, each provision of this Warrant shall be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of this
Warrant shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of
this Warrant.

    

    (m)           Headings

    . The
headings used in this Warrant are for the convenience of reference only and
shall not, for any purpose, be deemed a part of this Warrant.

    

     

    
      
        
        

      

      
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        (n)           Definitions.

     

    

    (i)           “Affiliate” means any
person or entity that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
person or entity, as such terms are used in the Securities Act. With respect to
a Holder, any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as such Holder will be deemed
to be an Affiliate of such Holder.

    

    (ii)           “Business Day” means a
day on which banks are open for business in The City of New York.

    

    (iii)           “Trading Day” means
any day on which the Common Sock is traded for at least two (2) hours on the
Trading Market or, if the Common Stock is not so traded, then any Business
Day.

     

    

     

    [Remainder
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    IN WITNESS WHEREOF, the undersigned has
executed this Warrant as of the 14th day of November 2009.

     

    BONTAN
CORPORATION INC.

     

    By:                                                                

                                  
 Print
Name:                                                           

                                   
Title:                                                           

    
      
        
           

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    EXHIBIT
A

     

    EXERCISE
FORM

     

    TO:
BONTAN CORPORATION, INC.

     

    The
undersigned hereby irrevocably exercises the right to purchase                     
shares of Common Stock of BONTAN CORPORATION INC., an Ontario corporation (the
“Company”), evidenced by the Warrant dated November 14, 2009 and issued by the
Company to International Three Crown Petroleum LLC, a copy of which is attached
hereto (the “Warrant”).

     

    The
undersigned is exercising the attached Warrant pursuant to:

     

     ̈  Cash
Exercise                                                                 ̈ Cashless
Exercise

    

    The
undersigned hereby irrevocably directs that the said exercised shares be issued
and delivered as follows:

    
      	
              Name(s)
      in Full

            	 
      	
              DWAC
      Account Number or

              Address(es)
      (include Postal/Zip Code)

               

            	 
      	
              Numbers(s)
      of Shares of Common Stock

            
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      

    

    (Please
print in full the name in which certificates are to be issued.  If any
of the securities are to be issued to a person or persons other than the
undersigned, then the Transfer of Warrants form must be completed and the
transferee and the undersigned must pay to the Company all eligible transfer
taxes or other government charges.)

    

    The
undersigned requests that any stock certificates for such shares be issued free
of any restrictive legend.

    

    DATED
____________________

    

    
      	 
      	 
      	 
      
	
              Witness
      or Signature Guarantee

            	 
      	
              Signature

            
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	
              Print
      Name

            
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	
              Address

            
	 
      	 
      	 
      

    

    
      
        
           
 

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    EXHIBIT
B

     

    TRANSFER
OF WARRANT

     

    (To be
executed by the registered holder

    desiring
to transfer the Warrant)

     

    FOR VALUE
RECEIVED, the undersigned holder of the attached warrant (the “Warrant”) hereby
sells, assigns and transfers unto the person or persons below named the right to
purchase                     
shares of the Common Stock of BONTAN CORPORATION INC., an Ontario corporation,
evidenced by the Warrant and does hereby irrevocably constitute and appoint
                    
attorney to transfer the Warrant on the books of the Company, with full power of
substitution in the premises.

     

    The
undersigned hereby certifies that the Warrant is being sold, assigned or
transferred in accordance with all applicable securities laws.

     

     

    Dated:                                        Signature:

     

     

    Fill in
for new registration of Warrant:

     

     

    Name:

     

     

     

     

    Address:

     

     

     

    Please print nae and addres of assignee (including zip code
number):warrant_alliedventures.htm

    

     

    THIS
WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OR REDEMPTION HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR
ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF OR EXERCISED UNLESS (I) A
REGISTRATION STATEMENT REGISTERING SUCH SECURITIES UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE, OR (II) THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO IT THAT SUCH TRANSFER
MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OR
QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS, OR (III) SUCH SECURITIES
ARE SOLD PURSUANT TO RULE 144 OR RULE 144A.

    

    UNLESS
PERMITTED UNDER CANADIAN SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY
SHALL NOT TRADE THE SECURITY ON PUBLIC MARKETS IN CANADA BEFORE THE DATE THAT IS
FOUR MONTHS AND ONE DAY AFTER THE  DATE OF ISSUANCE OF THIS
WARRANT.

     

    

     

     WARRANT TO PURCHASE COMMON STOCK

    of

    BONTAN
CORPORATION INC.

    

    THIS
CERTIFIES that ALLIED VENTURES INCORPORATED, a Belize corporation, or any
subsequent holder hereof (“Holder”) has the
right to purchase from BONTAN CORPORATION INC., an Ontario corporation (the
“Company”), up
to Two Million (2,000,000) fully paid and nonassessable shares of the Company’s
common stock (“Common
Stock”), subject to adjustment as provided herein, at a price of US$0.35
per share, subject to adjustment as provided herein, at any time during the Term
(as defined below).  The shares of Common Stock for which this Warrant
is exercisable, as the same may be adjusted pursuant hereto, are referred to
herein as the “Shares,” and the per
share exercise price for the Shares, as the same may be adjusted pursuant
hereto, is referred to herein as the “Exercise
Price.”

     
 

    By
accepting this Warrant to Purchase Common Stock of the Company (this “Warrant” or this
“Agreement”),
Holder agrees that its rights hereunder shall be held subject to all of the
terms, conditions, limitations and provisions set forth herein.

     
 

    1.  Date
of Issuance and Term.

    

    This
Warrant shall be deemed to be issued on November 14, 2009 (the “Date of Issuance”).
The term of this Warrant begins on the Date of Issuance and ends at 5:00 p.m.
Eastern time on the fifth (5th)
anniversary thereof (the “Term”).

    

     

     2.  Mechanics of
Exercise.

     

    (a)           Manner of
Exercise.  This Warrant may
be exercised, in whole or in part, at any time during the Term by delivery to
the Company, by facsimile, electronic mail or overnight courier in accordance
with Section 10(g), of a duly completed and executed Exercise Form in
substantially the form attached hereto as Exhibit A (the “Exercise Form”), and
within three (3) Trading Days thereafter, payment in full of the Exercise Price
(which may be satisfied by a Cash Exercise or a Cashless Exercise, as each is
defined below) for each Share as to which this Warrant is exercised (the “Aggregate Exercise
Price”).  Notwithstanding anything herein to the contrary,
Holder shall not be required to physically surrender this Warrant to the Company
until Holder has purchased all of the Shares available hereunder and this
Warrant has been exercised in full, in which case, Holder shall surrender this
Warrant to the Company for cancellation within three (3) Trading Days of the
date the final Exercise Form is delivered to the Company.  Partial
exercises of this Warrant resulting in purchases of a portion of the total
number of Shares available hereunder shall have the effect of lowering the total
number of Shares thereafter purchasable hereunder by an amount equal to the
aggregate number of Shares so purchased. Holder and the Company shall maintain
records showing the number of Shares purchased and the dates of such
purchases.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

    (b)           Payment of Exercise
Price.  Payment of the Exercise Price may be made by either of
the following, or a combination thereof, at the election of Holder:

    

    (i)  Cash
Exercise:  Holder may pay the Exercise Price in cash, bank or
cashier’s check, or by wire transfer (a “Cash Exercise”);
or

    

    (ii)  Cashless
Exercise: Holder may convert this
Warrant, in whole or in part, into a number of Shares determined using the
following formula (a “Cashless
Exercise”):

    

    X = Y (A-B)/A

     

    
      	
               
      

            	
              where:

            	
              X =
      the number of Shares to be issued to
Holder.

            

    

    
      	
               
      

            	
              Y =
      the number of Shares for which this Warrant is being
    exercised

            

    

    
      	
               
      

            	
              A =
      the Market Price of one (1) share of Common
  Stock

            

    

    
      	
               
      

            	
              B =
      the Exercise Price

            

    

    

    For
purposes of this Agreement, “Market Price,” as of
any date, means the average Volume Weighted Average Price (as defined below) of
the Common Stock over the five (5) consecutive Trading Day period
immediately preceding the date in question, and the “Volume Weighted Average
Price” as of any date means the volume weighted average sale price of the
Common Stock on the principal securities exchange or trading market where such
security is listed or traded (the “Trading Market”) as
reported by Bloomberg Financial Markets or an equivalent, reliable reporting
service mutually acceptable to Holder and the Company (“Bloomberg”), or, if
no volume weighted average sale price is reported for such security, then the
last closing trade price of such security as reported by Bloomberg, or, if no
last closing trade price is reported for such security by Bloomberg, the average
of the bid prices of any market makers for such security that are listed in the
over the counter market by the Financial Industry Regulatory Authority, Inc. or
in the “pink sheets” by the National Quotation Bureau, Inc.  If the
Volume Weighted Average Price cannot be calculated for such security on such
date in the manner provided above, the Volume Weighted Average Price shall be
the fair market value as mutually determined by Holder and the
Company.

     

    For
purposes of Rule 144 of the Securities Act and sub-section (d)(3)(ii) thereof,
it is intended, understood and acknowledged that the Common Stock issuable upon
exercise of this Warrant pursuant to a Cashless Exercise shall be deemed to have
been acquired at the time this Warrant was issued. Moreover, it is intended,
understood and acknowledged that the holding period for the Common Stock
issuable upon exercise of this Warrant pursuant to a Cashless Exercise shall be
deemed to have commenced on the date this Warrant was issued.

     

    
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

        (c)           Date of Exercise. The “Date of Exercise” of
all or any portion of this Warrant shall be the first (1st) date on which both
the Exercise Form and the Aggregate Exercise Price with respect to such exercise
shall have been delivered to the Company.  In the case of a Cashless
Exercise, the Aggregate Exercise Price for the Shares being issued upon such
Cashless Exercise shall be deemed to have been delivered and paid in full upon
Holder’s delivery of the Exercise Form properly electing such Cashless Exercise.
Holder shall be deemed for all corporate purposes to have become the holder of
record of the Shares with respect to which this Warrant has been exercised (the
“Exercise
Shares”) as of the applicable Date of Exercise, irrespective of the date
such Exercise Shares are credited to Holder’s Depository Trust Company (“DTC”) account or the
date of delivery of certificates evidencing such Exercise Shares, as the case
may be.

     
 

    (d)           Delivery of Shares Upon
Exercise. Within ten (10) Trading Days after the Date of Exercise
(the “Delivery
Period”), the Company shall issue and deliver, or cause its transfer
agent (the “Transfer
Agent”) to issue and deliver, the Exercise Shares (and the certificates
evidencing the same) to Holder by crediting Holder’s prime broker account with
the DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system if the
Company is a participant in such system, and otherwise by delivering to Holder
one (1) or more physical stock certificates evidencing the Exercise Shares. The
Company shall, at its own cost and expense, take all reasonable steps, to ensure
such delivery, including obtaining and delivering an opinion of counsel, to
assure that the Transfer Agent shall issue stock certificates representing the
Exercise Shares in the name of Holder (or its nominee) or such other persons as
designated by Holder and in such denominations as specified by Holder. The
Company warrants that no instructions contrary to these instructions have been,
or will be given, to the Transfer Agent and that, provided that at least one (1)
of the Unrestricted Conditions (as defined below) is met and unless waived by
Holder, the Exercise Shares will be free-trading, and freely transferable, and
will not contain a legend restricting the resale or transferability of the
Exercise Shares.

     
 

    (e)           Delivery Failure.  In addition to
any other remedies which may be available to Holder, in the event that the
Company fails for any reason to effect delivery of the Exercise Shares by the
end of the Delivery Period, Holder will be entitled to rescind all or any part
of the applicable exercise of this Warrant, by delivering a notice to such
effect to the Company, whereupon the Company and Holder shall each be restored
to their respective positions immediately prior to the delivery of the Exercise
Form applicable to such exercise to the extent of such rescission.

    

    (f)           Buy-In.  In
addition to any other rights available to Holder, if the Company fails to
transmit or to cause its Transfer Agent to credit Holder’s DTC account or
otherwise transmit to Holder a certificate or certificates representing the
Exercise Shares on or before the expiration of the Delivery Period (other than a
failure caused by any incorrect or incomplete information provided by Holder to
the Company hereunder or the negligence of the Transfer Agent), and if after
such date Holder is required by its broker to purchase (in an open market
transaction or otherwise) or Holder’s brokerage firm otherwise purchases shares
of Common Stock to deliver in satisfaction of a sale by Holder of the Exercise
Shares that Holder anticipated receiving upon such exercise (a “Buy-In”), then the
Company shall: (1) pay in cash to Holder the amount by which (x) Holder’s
total purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (y) the amount obtained by multiplying
(A) the number of Exercise Shares that the Company was required to deliver
to Holder in connection with the exercise at issue, times (B) the price at
which the sell order giving rise to such purchase obligation was executed; and
(2) at the option of Holder, either (a) reinstate the portion of the
Warrant and equivalent number of Shares for which such exercise was not honored
or (b) deliver to Holder certificate(s) representing the number of shares of
Common Stock that would have been issued had the Company timely complied with
its exercise and delivery obligations hereunder.  For example, if
Holder purchases Common Stock having a total purchase price of $11,000 to cover
a Buy-In with respect to an attempted exercise to cover the sale of Common Stock
with an aggregate sale price giving rise to such purchase obligation of $10,000,
under subsection (1) of the immediately preceding sentence, the Company
shall be required to pay Holder $1,000. Holder shall provide the Company written
notice indicating the amounts payable to Holder in respect of the Buy-In,
together with applicable confirmations and other evidence reasonably requested
by the Company. Nothing herein shall limit a Holder’s right to pursue any other
remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with
respect to the Company’s failure to timely credit Holder’s DTC account or
otherwise deliver certificates representing shares of Common Stock upon exercise
of this Warrant as required pursuant to the terms hereof.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    3.  Registration
of Shares.

     

    (a)           Registration.  All
Shares issuable hereunder shall, prior to such issuance, be registered by the
Company pursuant to an effective registration statement (the “Registration
Statement”) filed with the United States Securities and Exchange
Commission (the “SEC”). No later than
sixty (60) days following the Date of Issuance, the Company shall file a
Registration Statement with the SEC covering the maximum number of Shares
issuable hereunder. To the extent that any Shares issuable hereunder are not
otherwise covered by an effective Registration Statement, the Company agrees
that, promptly following any request therefor from Holder, it shall prepare and
file with the SEC a Registration Statement covering such Shares. The Company
shall use its best efforts to cause any Registration Statement required to be
filed by it pursuant hereto to become effective as soon as possible after such
filing and to remain effective so long as any Shares are issuable
hereunder.  Notwithstanding anything to the contrary herein, the
Company may delay or suspend the effectiveness of a Registration Statement or
the use of any prospectus forming a part of a Registration Statement due to the
non-disclosure of material, non-public information concerning Company, the
disclosure of which at the time would, in the good faith opinion of the
Company’s Board of Directors after consultation with counsel, result in a
material adverse effect on the Company, provided that no such periods
of delay shall individually exceed seventy-five (75) days or in the aggregate
exceed seventy-five (75)  days during any twelve (12)-month
period.

     

    (b)           Failure to
Register.  In the event the Registration Statement has not been
filed with the SEC within sixty (60) days following the Date of Issuance, or
such Registration Statement is not declared effective prior to the date that is
nine (9) months following the Date of Issuance, then, in each
case,  on the date of such failure, the number of Shares for which
this Warrant is then exercisable shall be increased by two percent
(2.0%).  In addition, for each subsequent thirty (30) day period
during which the Registration Statement is not filed or effective (whether or
not the Registration Statement had previously been declared effective) for any
reason, the number of Shares for which this Warrant is then exercisable shall be
increased by one percent (1.0%).  Notwithstanding the foregoing, in no
event shall the total number of Shares for which this Warrant is exercisable
exceed 2,200,000 (provided that such number shall be adjusted to account for any
adjustment to the number of Shares purchasable hereunder pursuant hereto,
including pursuant to Section 5 hereof).

     

    (c)           Information by
Holder.  The Holder shall furnish to the Company such
information regarding the Holder and the distribution proposed by the Holder as
the Company may reasonably request and as shall be reasonably required in
connection with any registration referred to in Section 3(a).

     
 

    4.  Restrictive
Legends

    

    (a)           Restrictive Legend.
Holder understands that until such time as this Warrant or the Exercise Shares
have been registered under the Securities Act or otherwise may be sold pursuant
to Rule 144 of the Securities Act or an exemption from registration under the
Securities Act without any restriction as to the number of securities as of a
particular date that can then be immediately sold, this Warrant and the Exercise
Shares, as applicable, shall bear a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer of the
certificates for such securities):

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    “THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE
SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF OR EXERCISED UNLESS (I) A
REGISTRATION STATEMENT REGISTERING SUCH SECURITIES UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE, OR (II) THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO IT THAT SUCH TRANSFER
MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OR
QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS, OR (III) SUCH SECURITIES
ARE SOLD PURSUANT TO RULE 144 OR RULE 144A.

     

    UNLESS
PERMITTED UNDER CANADIAN SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY
SHALL NOT TRADE THE SECURITY ON PUBLIC MARKETS IN CANADA BEFORE THE DATE THAT IS
FOUR MONTHS AND ONE DAY AFTER THE DATE OF ISSUANCE OF THIS
WARRANT.”

     

    (b)           Removal of Restrictive
Legends.  The certificates evidencing the Exercise Shares shall
not contain any legend restricting the transfer thereof: (i) while a
registration statement covering the resale of such Exercise Shares is effective
under the Securities Act (provided that, if the Holder is selling pursuant to
such registration statement, the Holder agrees to only sell such Exercise Shares
during such time that such registration statement is effective and not withdrawn
or suspended) or, (ii) following any sale of such Exercise Shares pursuant to
Rule 144 of the Securities Act (if the Holder is not an Affiliate of the
Company), or (iii) if such Exercise Shares are eligible for sale under Rule
144(b)(1)(i) of the Securities Act, or (iv)  if such legend is not required
under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the SEC) and the
Company shall have received an opinion of counsel of Holder, satisfactory to the
Company, to such effect (collectively, the “Unrestricted
Conditions”).  If any of the Unrestricted Conditions is met at
the time of issuance of any Exercise Shares, then such Exercise Shares shall be
issued free of all legends.  The Company agrees that following the
Effective Date or at such other time as any of the Unrestricted Conditions is
met or a restrictive legend is otherwise no longer required, it will, no later
than ten (10) Trading Days following the delivery by Holder to the Company
or the Transfer Agent of a certificate representing Exercise Shares and issued
with or containing a restrictive legend, deliver or cause to be delivered to
Holder a certificate (or electronic transfer) representing such Exercise Shares
that is free from all restrictive and other legends. For purposes hereof, “Effective Date” shall
mean the date that a Registration Statement covering the Exercise Shares shall
have been declared effective by the SEC.

    

    5.  Notice; Adjustments
Upon Certain Events.

    

    (a)           Notice.  Holder,
as the holder of this Warrant, shall be entitled to receive  notice of
all matters as to which the holders of Common Stock are entitled to, or
otherwise do, receive notice concurrently with the notice provided to the
holders of the Common Stock.

     

    (b)           Subsequent Equity
Sales.  If the Company, at any time while this Warrant is
outstanding, shall issue or sell, or shall grant any warrant, option or other
right to purchase or otherwise acquire, any Common Stock or any security
convertible into, or exercisable or exchangeable for, with or without
consideration, any Common Stock (any such warrant, option, right or security
(other than the Common Stock) a “Convertible
Security”), at an Effective Price (as defined below) that is less than
the Exercise Price, or if the holder of any Common Stock or Convertible
Securities shall at any time, whether by operation of purchase price
adjustments, reset provisions, floating conversion, exercise or exchange prices,
or otherwise, or due to warrants, options or rights per share which are issued
in connection with such issuance, be entitled to receive shares of Common Stock
at an Effective Price that is less than the Exercise Price (any such sale,
issuance, grant, adjustment or reset, a “Dilutive Issuance”),
which adjustment or reset shall, for the purposes hereof, be deemed to be an
issuance of the number of shares of Common Stock or Convertible Securities so
effected as of the date of such reset or adjustment, then

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

        (i) the
Exercise Price shall be reduced (and only reduced) by multiplying the Exercise
Price by a fraction, the numerator of which is the sum of (A) the number of
shares of Common Stock issued and outstanding immediately prior to the Dilutive
Issuance, plus (B) the total number of shares of Common Stock issuable (prior to
giving effect to any adjustment required by in connection with such Dilutive
Issuance) upon the exercise or conversion of Convertible Securities outstanding
immediately prior to the Dilutive Issuance and with an Effective Price (prior to
giving effect to any adjustment required by in connection with such Dilutive
Issuance) that is less than the Effective Price of the security or securities
being offered in the Dilutive Issuance, plus (C) the number of shares of Common
Stock that the Aggregate Consideration (as defined below) received or deemed
received by the Company in connection with the Dilutive Issuance would purchase
at the Exercise Price (prior to giving effect to the adjustment required by this
Section 5(b) in connection with such Dilutive Issuance), and the denominator of
which shall be the sum of (X) the number of shares of Common Stock issued and
outstanding immediately prior to the Dilutive Issuance plus (Y) the total number
of shares of Common Stock issuable  (prior to giving effect to any
adjustment required by in connection with such Dilutive Issuance) upon the
exercise or conversion of Convertible Securities outstanding immediately prior
to the Dilutive Issuance and with an Effective Price (prior to giving effect to
any adjustment required by in connection with such Dilutive Issuance) that is
less than the Effective Price of the security or securities being offered in the
Dilutive Issuance, plus (Z) the number of shares of Common Stock issued or
deemed issued in connection with the Dilutive Issuance; and

     

     

    (ii)  the number of Shares
issuable hereunder shall be increased such that the Aggregate Exercise Price
payable hereunder, after taking into account the decrease in the Exercise Price,
shall be equal to the Aggregate Exercise Price prior to such
adjustment.  Such adjustment shall be made whenever such Common Stock
or Convertible Securities are issued or deemed issued.

     

     

    The
Company shall notify Holder in writing of any Dilutive Issuance, no later than
the Trading Day following such Dilutive Issuance, indicating therein the
applicable issuance price, or applicable reset price, exchange price or
conversion price, as applicable, and any other pricing terms (such notice the
“Dilutive Issuance
Notice”), and stating therein the number of Shares then purchasable
hereunder and the Exercise Price therefor, as calculated in accordance with this
Section 5(b).  For purposes of clarification, whether or not the
Company provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon
the occurrence of any Dilutive Issuance, after the date of such Dilutive
Issuance, Holder shall be entitled to purchase, upon exercise of this Warrant,
the number of Shares determined and at the Exercise Price calculated in
accordance with this Section 5(b).

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    For the
purpose of making any adjustment required by this Section 5(b), the
aggregate consideration received by the Company for any issue or sale of Common
Stock or Convertible Securities (the “Aggregate
Consideration”) shall be the sum or all consideration received or deemed
received by the Company determined as follows: (i) to the extent such
consideration consists of cash, the gross amount of such cash received by the
Company before deduction of any underwriting or similar commissions,
compensation or concessions paid or allowed by the Company in connection with
such issue or sale and without deduction of any expenses payable by the Company,
(ii) to the extent such consideration consists of property other than cash, the
fair value of that property as determined in good faith by the Company’s Board
of Directors, (iii) if Common Stock or Convertible Securities are issued or sold
together with other stock or securities or other assets of the Company for
consideration that covers both, the portion of the consideration so received or
deemed received that may be reasonably determined in good faith by the Company’s
Board of Directors to be allocable to such Common Stock or Convertible
Securities, and (iv) if the Company issues or sells Convertible Securities, the
Company shall be deemed to have issued at the time of the issuance of such
Convertible Securities the maximum number of shares of Common Stock issuable
upon exercise or conversion thereof and to have received as consideration for
the issuance of such shares an amount equal to the total amount of the
consideration, if any, received by the Company for the issuance of such
Convertible Securities plus the
minimum amounts of consideration, if any, payable to the Company upon the
exercise or conversion of such Convertible Securities in full; provided that if the minimum
amounts of such consideration cannot be ascertained, but are a function of
antidilution or similar protective clauses, then the Company shall be deemed to
have received the minimum amounts of consideration without reference to such
clauses.  If the minimum amounts of consideration payable to the
Company upon the exercise or conversion of Convertible Securities is reduced
over time or on the occurrence or non-occurrence of specified events other than
by reason of antidilution adjustments, the Effective Price shall be recalculated
using the figure to which such minimum amount of consideration is reduced; provided further, that if the
minimum amounts of consideration payable to the Company upon the exercise or
conversion of such Convertible Securities is subsequently increased, the
Effective Price shall again be recalculated using the increased minimum amounts
of consideration payable to the Company upon the exercise or conversion of such
Convertible Securities. No further adjustment to the number of Shares
purchasable hereunder or the Exercise Price shall be made as a result of the
actual issuance of shares of Common Stock upon the exercise or conversion of
Convertible Securities.

     

     

    The
“Effective
Price” of Common Stock shall mean the quotient determined by dividing the
total number of shares of Common Stock issued or sold, or deemed to have been
issued or sold by the Company under this Section 5(b), into the Aggregate
Consideration received, or deemed to have been received by the Company for such
issuance under this Section 5(b), for such shares of Common
Stock.  In the event that the number of shares of Common Stock or the
Effective Price cannot be ascertained at the time of issuance, such shares of
Common Stock shall be deemed issued immediately upon the occurrence of the first
event that makes such number of shares or the Effective Price, as applicable,
ascertainable.

     

    Notwithstanding
the foregoing, no adjustment shall be made under this Section 5(b) in respect of
shares of Common Stock issued or issuable (i) to officers, directors, employees
of, or consultants to, the Company, pursuant to a stock option or purchase plan
or agreements on terms approved by the Company’s Board of Directors, (ii) upon
exercise of options or warrants outstanding on the date hereof, (iii) as
consideration  in a merger, consolidation, acquisition or similar
business combination that is approved by the Company’s Board of Directors, (iv)
pursuant to a borrowing or commercial financing arrangement with parties not
affiliated with the Company that is approved by the Company’s Board of
Directors, or (v) pursuant to that certain Contribution and Assignment Agreement
dated as of November 14, 2009 (the “Contribution Agreement”) among the Holder,
the Company, International Three Crown Petroleum LLC and Israel Petroleum
Company, Limited, but, for the avoidance of doubt, excluding any securities
issued in the connection with the Financings (as defined in the Contribution
Agreement) contemplated thereby.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

        (c)           Stock Split, Stock Divided,
Recapitalization or Reclassification.  If the Company shall
at any time issue a stock dividend or effect a stock split, recapitalization,
reclassification or other similar transaction of such character that additional
shares of Common Stock shall be issued to the Holders of Common Stock for no
consideration or the shares of Common Stock shall be changed into or become
exchangeable for a larger or smaller number of shares of Common Stock, then upon
the effective date thereof, the number of shares of Common Stock which Holder
shall be entitled to purchase upon exercise of this Warrant shall be increased
or decreased, as the case may be, in direct proportion to the increase or
decrease in the number of outstanding shares of Common Stock (calculated on a
fully diluted basis) by reason of such recapitalization, reclassification or
similar transaction, and the Exercise Price shall be, in the case of an increase
in the number of shares, proportionally decreased and, in the case of decrease
in the number of shares, proportionally increased. The Company shall give Holder
the same notice it provides to holders of Common Stock of any transaction
described in this Section 5(c).

     

    (d)           Fundamental
Transaction.  If, at any time while this Warrant is
outstanding, (i) the Company effects any merger or consolidation of the Company
with or into another Person, (ii) the Company effects any sale of all or
substantially all of its assets in one or a series of related transactions,
(iii) any tender offer or exchange offer (whether by the Company or another
Person) is completed pursuant to which holders of Common Stock are permitted to
tender or exchange their shares for other securities, cash or property, or (iv)
the Company effects any reclassification of the Common Stock or any compulsory
share exchange pursuant to which the Common Stock is effectively converted into
or exchanged for other securities (other than Common Stock of the Company), cash
or property (any such case, a “Fundamental
Transaction”), then, Holder shall have the right, upon any subsequent
exercise of this Warrant, to receive, for each Share that would have been
issuable upon such exercise immediately prior to the occurrence of such
Fundamental Transaction, the number of shares of common stock of the successor
or acquiring corporation or of the Company, if it is the surviving corporation,
and any additional consideration (the “Alternate
Consideration”) receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event.  For purposes of any such exercise,
the determination of the Exercise Price shall be appropriately adjusted to apply
to such Alternate Consideration based on the amount of Alternate Consideration
issuable in respect of one (1) share of Common Stock in such Fundamental
Transaction, and the Company shall apportion the Exercise Price among the
Alternate Consideration in a reasonable manner reflecting the relative value of
any different components of the Alternate Consideration. If holders of Common
Stock are given any choice as to the securities, cash or property to be received
in a Fundamental Transaction, then Holder shall be given, the same choice as to
the Alternate Consideration it receives upon any exercise of this Warrant
following such Fundamental Transaction.  The Company shall give Holder
the same notice it provides to holders of Common Stock of any Fundamental
Transaction, but in no event shall the Company provide Holder such notice later
than fifteen (15) days prior to the consummation of the Fundamental
Transaction.

     

    (e)           Fundamental Transaction
Agreements.  To the extent necessary to give effect to Holder’s
rights hereunder, any agreement pursuant to which a Fundamental Transaction is
effected shall include terms requiring the successor to the Company or the
surviving entity in such Fundamental Transaction, as applicable, to give effect
to, and to comply with, the provisions of this Agreement, and any such successor
or surviving entity shall issue to Holder a new warrant consistent with this
Agreement and evidencing Holder’s right to exercise such warrant into Alternate
Consideration and ensuring that this Warrant (or any such replacement security)
will be similarly adjusted upon any subsequent transaction analogous to a
Fundamental Transaction.

     

    (f)           Notice of
Adjustments. In the event that at
any time, as a result of an adjustment made pursuant to this Section 5 or
otherwise, Holder shall, upon exercise of this Warrant, become entitled to
receive a different number Shares and/or any other securities, property or
assets, or if the Exercise Price shall be adjusted, then, (i) the Company shall
promptly mail to Holder a notice (an “Adjustment Notice”)
setting forth the number of Shares and/or any other securities, property or
assets, and the Exercise Price, after giving effect to such adjustment and
setting forth a statement of the facts requiring such adjustment, and (ii)
wherever appropriate, all references herein to shares of Common Stock shall be
deemed to refer to and include such shares and/or other securities or assets,
and references to Exercise Price shall be deemed to refer to the adjusted
Exercise Price; and thereafter the number of such shares and/or other securities
or assets, and the Exercise Price, shall be subject to adjustment from time to
time in a manner and upon terms as nearly equivalent as practicable to the
provisions of this Agreement. The Company shall, upon the written request at any
time of Holder, furnish to such Holder a like Warrant (a “Replacement Warrant”)
setting forth (A) such adjustment or readjustment, (B) the Exercise
Price at the time in effect and (C) the number of shares of Common Stock
and the amount, if any, of other securities or property which at the time would
be received upon exercise of the Warrant.  For the avoidance of doubt,
the adjustments provided for herein shall be given effect whether or not the
Company provides an Adjustment Notice and whether or not Holder requests a
Replacement Warrant.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

    6.
Fractional Interests.

     

    No
fractional shares or scrip representing fractional shares shall be issuable upon
the exercise of this Warrant. If, on exercise of this Warrant, Holder would be
entitled to a fractional share of Common Stock or a right to acquire a
fractional share of Common Stock, such fractional share shall be disregarded and
the number of shares of Common Stock issuable upon exercise shall be the next
higher whole number of shares.

    

    7.  Transfer
of Warrant.

    

    (a)           Transferability.  Subject
to compliance with any applicable securities laws and the conditions set forth
in Section 7(d) hereof, this Warrant and all rights hereunder (including,
without limitation, any registration rights) are transferable, in whole or in
part, upon surrender of this Warrant at the principal office of the Company or
its designated agent, together with a written assignment of this Warrant
substantially in the form attached hereto as Exhibit B duly
executed by Holder or its agent or attorney and funds sufficient to pay any
transfer taxes payable upon the making of such transfer. Upon such surrender
and, if required, such payment, the Company shall execute and deliver a new
warrant or warrants in the name of the assignee or assignees and in the
denomination or denominations specified in such instrument of assignment, and
shall issue to the assignor a new warrant evidencing the portion of this Warrant
not so assigned, and this Warrant shall promptly be cancelled.

    

    (b)           New
Warrants.  This Warrant may be divided or combined with other
Warrants upon presentation hereof at the principal office of the Company,
together with a written notice specifying the names and denominations in which
new warrants are to be issued, signed by Holder or its agent or
attorney.  Subject to compliance with Section 7(a), as to any transfer
which may be involved in such division or combination, the Company shall execute
and deliver a new warrant or warrants in exchange for this Warrant and/or any
other warrants to be divided or combined in accordance with such
notice.

    

    (c)           Warrant
Register.  The Company shall register this Warrant, upon
records to be maintained by the Company for that purpose (the “Warrant Register”),
in the name of the record Holder hereof from time to time. The Company may deem
and treat the registered Holder of this Warrant as the absolute owner hereof for
the purpose of any exercise hereof or any distribution to Holder, and for all
other purposes, absent actual notice to the contrary.

    

    (d)           Transfer
Restrictions.  If, at the time of the surrender of this Warrant
in connection with any transfer of this Warrant to any person or entity that is
not an Affiliate of the transferor, the transfer of this Warrant shall not be
registered pursuant to an effective registration statement under the Securities
Act and under applicable state securities or blue sky laws, the Company may
require, as a condition of allowing such transfer (i) that Holder or transferee
of this Warrant, as the case may be, furnish to the Company a written opinion of
counsel (which opinion shall be in form, substance and scope customary for
opinions of counsel in comparable transactions) to the effect that such transfer
may be made without registration under the Securities Act and under applicable
state securities or blue sky laws, (ii) that the holder or transferee execute
and deliver to the Company an investment letter in form and substance acceptable
to the Company, and (iii) that the transferee be an “accredited investor” as
defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8) promulgated under
the Securities Act or a “qualified institutional buyer” as defined in Rule
144A(a) of the Securities Act.

    

    8.  No
Circumvention.

    

    The
Company hereby covenants and agrees that the Company will not, by amendment of
its certificate of incorporation, bylaws or through any reorganization, transfer
of assets, consolidation, merger, scheme of arrangement, dissolution, issue or
sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, and will at all
times in good faith carry out all the provisions of this Warrant and take all
action as may be reasonably required to protect the rights of Holder. Without
limiting the generality of the foregoing, the Company (i) shall not
increase the par value of any shares of Common Stock receivable upon the
exercise of this Warrant above the Exercise Price then in effect,
(ii) shall take all such actions as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant, and
(iii) use commercially reasonable efforts to obtain all such authorizations,
exemptions or consents from any public regulatory body having jurisdiction
thereof as may be necessary to enable the Company to perform its obligations
under this Warrant.

     
 

    9.  Dispute
Resolution.

    

    If Holder
and the Company shall disagree as to the determination of the closing price or
the Volume Weighted Average Price of the Common Stock or the calculation of the
Exercise Price, the Aggregate Exercise Price or the Market Price, Holder and the
Company shall cooperate in good faith in an attempt to agree upon such
determination or calculation.  If Holder and the Company are unable to
agree upon such determination or calculation within two (2) Business Days,
then the Company shall promptly submit the disputed items to an
independent, reputable investment bank or an independent, reputable outside
accountant selected by the Company and approved by Holder, which approval shall
not be unreasonably withheld, to make the disputed determination or calculation,
and the Company shall use its best efforts to cause the investment bank or the
accountant, as the case may be, to perform the determinations or calculations
and notify the Company and Holder of the results no later than five
(5) Business Days from the time it receives the disputed determinations or
calculations.  Such investment bank’s or accountant’s determination or
calculation, as the case may be, shall be binding upon all parties absent
demonstrable error, and the Company and Holder shall each pay one-half of the
fees and costs of such investment bank or accountant.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

    10.  Miscellaneous.

    

    (a)           No Rights as Shareholder
Until Exercise.  This Warrant does not entitle Holder to any
voting rights or other rights as a shareholder of the Company prior to the
exercise hereof.

    

    (b)           Loss, Theft, Destruction or
Mutilation of Warrant.  The Company covenants that upon receipt
by the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant or any stock certificate relating to
any Exercise Shares, and in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it (which, in the case of the Warrant, shall
not include the posting of any bond), and upon surrender and cancellation of
such warrant or stock certificate, if mutilated, the Company will make and
deliver a new warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of such warrant or stock certificate.

    

    (c)           Saturdays, Sundays,
Holidays, etc.    If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall not be a Business Day, then such action may be taken or such right
may be exercised on the next succeeding Business Day.

    

    (d)           Authorized
Shares.  In addition to the requirements of Section 3, the
Company covenants that during the Term, it will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of the Shares upon the exercise of any purchase rights under this Warrant. The
Company further covenants that its issuance of this Warrant shall constitute
full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Exercise
Shares upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such
Shares may be issued as provided herein without violation of any applicable law
or regulation, or of any requirements of the Trading Market upon which the
Common Stock may be listed.

    

     

    (e)           Governing Law;
Jurisdiction.  This Agreement, and all questions concerning the
construction, validity, enforcement and interpretation thereof, shall be
governed by and construed and enforced in accordance with the internal laws of
the State of Delaware, without regard to the principles of conflicts of law
thereof or of any other jurisdiction to the extent that they would result in the
application of the laws of any other jurisdiction.  Each party agrees
that all legal proceedings concerning the interpretations, enforcement and
defense of the transactions contemplated by this Agreement (whether brought
against a party hereto or its respective affiliates, directors, officers,
shareholders, employees or agents) shall be commenced exclusively in the state
and federal courts located in Delaware.  Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts located in
Delaware, for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is improper or is an
inconvenient venue for such proceeding.  Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof.  Nothing contained herein shall be deemed to limit in any way
any right to serve process in any other manner permitted by law.  The
parties hereby waive all rights to a trial by jury.

    

    (f)           Nonwaiver and
Expenses.  No course of dealing or any delay or failure to
exercise any right hereunder on the part of Holder shall operate as a waiver of
such right or otherwise prejudice Holder's rights, powers or
remedies.  If either party shall commence an action or proceeding to
enforce any provisions of this Agreement, then the prevailing party in such
action or proceeding shall be reimbursed by the other party for its reasonable
attorneys’ fees and other costs and expenses incurred with the investigation,
preparation and prosecution of such action or proceeding.

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

        (g)           Notices.  All
notices, requests,
demands, claims, and other communications given or made pursuant to this
Agreement shall be in writing and shall be deemed effectively given upon the
earlier of actual receipt or:  (a) personal delivery to the party to
be notified, (b) when sent, if sent by facsimile or electronic mail during
normal business hours of the recipient, and if not sent during normal business
hours, 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) Business Day after deposit with a nationally recognized overnight
courier, freight prepaid, specifying next business day delivery, with written
verification of receipt.  All communications shall be sent to the
respective parties at their facsimile, number, e-mail address or physical
address as set forth below or to such other facsimile number, e-mail address or
physical address as subsequently modified by written notice given in accordance
with this Section 10(g).

     

    

    
      	
              If
      to Holder:

              Allied
      Ventures Incorporated

              __________________________

              __________________________

              Attn:
      _____________________

              Fax:  __________________________

              E-Mail:
      ________________________

            	
              If
      to the Company:

              Bontan
      Corporation Inc.

              47
      Avenue Road, Suite 200,

              Toronto,
      Ontario, Canada M5R 2G3

              Attn:
      Kam Shah

              Fax:416-361-6228

              E-Mail:
      Kam@bontancorp.com

            

    

    

    (h)           Limitation of
Liability.  No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant, and no enumeration herein
of the rights or privileges of Holder, shall give rise to any liability of
Holder for the purchase price of any Common Stock or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.

    

    (i)           Remedies.  Holder,
in addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Warrant. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Warrant and hereby agrees to waive and not to assert the
defense in any action for specific performance that a remedy at law would be
adequate.

    

    (j)           Successors and
Assigns.  Subject to applicable securities laws, this Warrant
and the rights and obligations evidenced hereby shall inure to the benefit of
and be binding upon the successors of the Company and the successors and
permitted assigns of Holder. The provisions of this Warrant are intended to be
for the benefit of all Holders from time to time of this Warrant and shall be
enforceable by any such Holder or the holder of any Exercise
Shares.

    

    (k)           Amendment

    . This
Warrant may be modified or amended or the provisions hereof waived with the
written consent of Holder and the Company.

    

    (l)           Severability

    .  Wherever
possible, each provision of this Warrant shall be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of this
Warrant shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of
this Warrant.

    

    (m)           Headings

    . The
headings used in this Warrant are for the convenience of reference only and
shall not, for any purpose, be deemed a part of this Warrant.

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

        (n)           Definitions.

     

    

    (i)           “Affiliate” means any
person or entity that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
person or entity, as such terms are used in the Securities Act. With respect to
a Holder, any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as such Holder will be deemed
to be an Affiliate of such Holder.

    

    (ii)           “Business Day” means a
day on which banks are open for business in The City of New York.

    

    (iii)           “Trading Day” means
any day on which the Common Sock is traded for at least two (2) hours on the
Trading Market or, if the Common Stock is not so traded, then any Business
Day.

     

    

     

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    IN WITNESS WHEREOF, the undersigned has
executed this Warrant as of the 14th day of November 2009.

     

    BONTAN
CORPORATION INC.

     

    By:                                                                

     

    Print
Name:                                                           

     

    Title:                                                           

    
      
        
           

          \\\DE - 025224/000003 - 436029 v3

        

         

      

      
         

        
          

        

      

      
         

      

    

    EXHIBIT
A

     

    EXERCISE
FORM

     

    TO:
BONTAN CORPORATION, INC.

     

    The
undersigned hereby irrevocably exercises the right to purchase                     
shares of Common Stock of BONTAN CORPORATION INC., an Ontario corporation (the
“Company”), evidenced by the Warrant dated November 14, 2009 and issued by the
Company to Allied Ventures Incorporated, a copy of which is attached hereto (the
“Warrant”).

     

    The
undersigned is exercising the attached Warrant pursuant to:

     

     ̈  Cash
Exercise                                                                 ̈ Cashless
Exercise

    

    The
undersigned hereby irrevocably directs that the said exercised shares be issued
and delivered as follows:

    
      	
              Name(s)
      in Full

            	 
      	
              DWAC
      Account Number or

              Address(es)
      (include Postal/Zip Code)

               

            	 
      	
              Numbers(s)
      of Shares of Common Stock

            
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      

    

    (Please
print in full the name in which certificates are to be issued.  If any
of the securities are to be issued to a person or persons other than the
undersigned, then the Transfer of Warrants form must be completed and the
transferee and the undersigned must pay to the Company all eligible transfer
taxes or other government charges.)

    

    The
undersigned requests that any stock certificates for such shares be issued free
of any restrictive legend.

    

    DATED
____________________

    

    
      	 
      	 
      	 
      
	
              Witness
      or Signature Guarantee

            	 
      	
              Signature

            
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	
              Print
      Name

            
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	
              Address

            
	 
      	 
      	 
      

    

    
      
        
           
 

          \\\DE - 025224/000003 - 436029 v3

        

         

      

      
         

        
          

        

      

      
         

      

    

    

    EXHIBIT
B

     

    TRANSFER
OF WARRANT

     

    (To be
executed by the registered holder

    desiring
to transfer the Warrant)

     

    FOR VALUE
RECEIVED, the undersigned holder of the attached warrant (the “Warrant”) hereby
sells, assigns and transfers unto the person or persons below named the right to
purchase                     
shares of the Common Stock of BONTAN CORPORATION INC., an Ontario corporation,
evidenced by the Warrant and does hereby irrevocably constitute and appoint
                    
attorney to transfer the Warrant on the books of the Company, with full power of
substitution in the premises.

     

    The
undersigned hereby certifies that the Warrant is being sold, assigned or
transferred in accordance with all applicable securities laws.

     

    
      	
              Dated:
                                  

            	
                

            	 
      	
                

            	 
      
	 
      	
                

            	 
      	
                

            	 
      	
                

            	
              Signature

            

    

     

    

     

    Fill in
for new registration of Warrant:

     

    
      	 
      
	 
      
	
              Name

            
	 
      
	 
      
	
              Address

            
	 
      
	 
      
	
              Please
      print name and address of assignee

              (including
      zip code number)

            

    

     

    

    

    

    

    

    
      
        
           
 

          \\\DE - 025224/000003 - 436029 v3

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