Exhibit 10.1

 

NETWORK 1 FINANCIAL

 

 [ex10i_001.jpg]

 

The Galleria ● 2 Bridge Avenue

Suite 241 ● Red Bank, NJ 07701-1106

Phone: 732-758-9001 ● Toll Free: 800-886-7007 ● Fax: 732-758-6671

 

June 20, 2016

 

Martin M. van Brauman,

Senior Vice President, Secretary-Treasurer & Director

Zion Oil & Gas, Inc.

12655 North Central Expressway, Suite 1000

Dallas, TX 75243

 

Re: Placement Agent Agreement
Proposed Public Offering of $1,000 Par Value 12% Convertible Senior Bonds

 

Dear Mr. van Brauman:

 

This Placement Agent Agreement (the “Agreement”) is effective for the period
beginning April 5, 2016 and ending on the 1st day of September 2016, unless
otherwise extended by the mutual agreement of the parties hereto (the
“Engagement Period”), and is entered into by and between Network 1 Financial
Securities, Inc., a registered broker-dealer and member of the Financial
Industry Regulatory Authority, Inc. (“FINRA”) (Network 1 Financial Securities,
Inc. is hereinafter referred to individually and, as the context requires,
collectively with other broker-dealers that are registered with the U.S.
Securities and Exchange Commission (“SEC”) and members of FINRA that are
selected by Network 1 Financial Securities, Inc. to participate in the offering
set forth herein, as the “Agent”), and Zion Oil & Gas, Inc. (the “Company”), a
publicly traded corporation formed under the laws of the State of Delaware, in
connection with the proposed public offering (the “Offering”), on a “best
efforts” basis, of a minimum of $2.5 million and a maximum of $12 million of
$1,000 par value 12% Convertible Senior Bonds (the “Bonds”). The conversion
price, per share of the Company’s common stock, shall be equal to the average of
the closing prices of the Company’s common stock as reported by Bloomberg L.P.
for the 30 days preceding the date on which the Bonds are to be issued, plus a
30% issuance premium. Capitalized words and phrases not defined herein shall
have the meanings set forth in the Prospectus (as defined in Section 2 (b)
below). The Company and the Agent recognize and agree that in the event that the
dates referred to in clauses (iii) and (iv) of Section 1(d) below conflict with
the dates set forth in the Prospectus (as defined in Section 2(b)) and any
amendment thereto, said Prospectus and amendments shall govern.

 

The Company and the Agent hereby agree as follows:

 

1.Agreement to Act as Placement Agent.

 

On the basis of the representations, warranties and agreements of the Company
herein contained, and subject to all the terms and conditions of this Agreement:

 

(a)The Company hereby engages the Agent to act as the Company’s exclusive
securities placement agent in connection with the Offering, except as otherwise
provided in this Section 1. The Agent will act as sole placement agent of the
Offering or lead placement agent of a group of SEC-registered and FINRA member
broker-dealers that the Agent has invited to participate in the offering under
the Agent’s direction. The distribution and the Agent’s obligations under the
Offering shall be subject to, among other things, the completion of the Agent’s
due diligence examination of the Company and its affiliates.

 

 1 

 

 

(b)The Company hereby acknowledges that the Agent has agreed, as agent of the
Company, to use its reasonable best efforts to solicit offers to purchase the
Bonds from the Company on the terms and subject to the conditions set forth in
the Prospectus (as defined below). The Agent shall use its reasonable best
efforts to assist the Company in obtaining performance by each prospective
investor who has been solicited by the Agent and whose subscription agreement to
purchase the Bonds is accepted by the Company, but the Agent shall not, except
as otherwise provided in this Agreement, have any liability to the Company in
the event any such purchase is not consummated for any reason. Under no
circumstances will the Agent be obligated to underwrite or purchase any Bonds
for its own account and, in soliciting purchases of the Bonds, the Agent shall
act solely as the Company’s agent and not as a principal. The Agent is obligated
to determine the suitability of proposed investors that submit subscriptions to
the Agent and do not seek to purchase the Bonds by a direct investment with the
Company. Accordingly, the Agent has the right to reject, in whole or in part,
any subscription application received by it from a potential investor to
purchase Bonds on the grounds of such non-suitability, and such action shall not
be deemed a breach of this Agreement.

 

(c)Subject to the provisions of this Section 1, the Agent may on behalf of the
Company solicit offers for the purchase of the Bonds at such times and in such
amounts as the Agent deems advisable. The Agent shall communicate to the
Company, orally or in writing, each offer to purchase Bonds received by it as
agent of the Company. The Company shall have the sole right to accept offers to
purchase the Bonds and may reject any such offer, in whole or in part.

 

(d)This Offering is a “best efforts minimum/maximum offering,” which means that
the Agent is not required to place any firm orders or purchase any of the Bonds.
This placement arrangement with the Agent and any placement agents that it
selects to participate in the solicitation of prospective investors is on an
exclusive basis, except with respect to the Company’s right to secure
prospective purchasers (both current security holders and new investors)
directly.

 

(i)The Company cannot sell any of the Bonds until it has received and accepted
subscriptions and payments for a minimum of $2,500,000 (the “Minimum Purchase
Amount”).

 

(ii)The Minimum Purchase Amount is based on the Company’s and Agent’s current
projections of the corporate bond market. Among various items, the actual size
of the Offering, the precise number of Bonds to be offered by the Company, and
the conversion price per share of Company’s common stock, are expected to be the
subject of continuing discussions between the Company and the Agent and will
depend upon the capitalization of the Company being acceptable to the Agent. The
Agent may, subject to the Company’s approval (not to be unreasonably withheld,
conditioned or delayed), invite placement agents who are members of FINRA in
good standing to participate in placing a portion of the Offering. The Company
will consult with the Agent for possible broker-dealers in Europe and Israel for
possible placement opportunities.

 

(iii)If acceptable subscriptions and payments totaling at least $2,500,000 are
not received on or before August 31, 2016 (the “Minimum Date”), which is 92 days
following the date of the Prospectus (which the Company may, in its discretion,
extend up to 60 additional days), unless the Company determines, in the sole
exercise of its discretion to extend the Offering as provided in the Prospectus,
the Offering will terminate, and the Company will instruct the Escrow Agent to
promptly refund the money raised without interest or deduction of escrow fees.

 

(iv)If the Minimum Purchase Amount is received on or before the Minimum Date,
the Company will have the option to commence an Initial Closing prior to the
Final Closing Date and the Bonds will be issued on the Initial Closing Date and
on the Final Closing Date with October 2, 2016, which is the 31st day following
the Final Closing Date, as the beginning date of interest accrual.

 

 2 

 

 

(v)All subscribers’ payments will be deposited in an escrow account at
OceanFirst Bank, with whom the Company shall sign an Escrow Agreement. If the
Company does not accept a prospective investor’s subscription, the Company will
promptly return funds deposited into the escrow account by the prospective
investor, without any interest earned or escrow fees deducted.

 

(e)Compensation to the Agent in connection with the Offering will consist of a
commission of 6%, plus a non-accountable expense allowance of 1.5% based on the
value of the Bonds sold in this Offering, including the Additional Bonds.
Concurrent with the filing of the Prospectus Supplement, the Company shall
advance fifty thousand dollars ($50,000) towards the non-accountable expense
allowance.

 

(i)The Company agrees to pay the Agent or, if paid by the Agent, reimburse the
latter, for the expenses relating to the Offering, including but not limited to
the items set forth on Exhibit A:

 

(ii)The Agent reserves the right to reduce any item of its compensation or a
adjust the terms thereof as specified herein in the event that a determination
and/or suggestion will be made by FINRA to the effect that Agent’s aggregate
compensation is in excess of FINRA rules or that the terms thereof require
adjustment; provided, however, the aggregate compensation otherwise to be paid
to the Agent by the Company may not be increased above the amounts stated herein
without the written approval of the Company.

 

(f)Road Show. The Adviser may plan and arrange one or more “road show” marketing
trips for the Company’s management to meet with prospective investors. Such
trips will include visits to a number of prospective institutional and retail
investors. The Company shall pay for all of its own expenses of the Offering,
including, without limitation, travel and lodging expenses associated with road
show trips.

 

2.Registration Statement, Prospectus Supplement and Prospectus.

 

(a)The Company filed with the SEC an effective shelf registration statement on
Form S-3/A (File No. 333-193336) from which additional shares of its common
stock and other securities can be issued. In addition, the Company may also
issue additional shares of its common stock or securities convertible into or
exchangeable for its common stock in connection with the hiring of personnel,
future acquisitions, future private placements of our securities for capital
raising purposes or for other business purposes. The current registration
statement was declared effective by the SEC on March 27, 2014 and therefore, is
effective until March 26, 2017 plus 180 days thereafter.

 

(b)The Company will file with the SEC pursuant to Rule 424(b)(5) under the U.S.
Securities Act of 1933, as amended (the “Securities Act”) and applicable state
securities authorities a prospectus supplement relating to the Bonds, which
together with the Prospectus under the effective shelf registration, is referred
to as the “Prospectus.”

 

(c)The Company shall, if necessary, prepare and file with the SEC and the
appropriate state securities authorities an amended Prospectus Supplement under
the Securities Act covering any material amendments to the terms of the Bonds
and Warrants, and the Offering.

 

(d)The Agent and its outside counsel shall be given the opportunity to make such
review and investigation pertaining to the Company and the Prospectus as they
deem desirable. The Agent and the Company shall coordinate on the distribution
of escrow proceeds of the Offering, which shall be described, in detail, within
the Prospectus and Escrow Agreement, it being further understood and agreed
that, except as may expressly be approved by the Agent, no proceeds from the
Offering will be used to pay outstanding loans owed by the Company to any
Company officers, directors or stockholders.

 

 3 

 

 

3.Representations and Warranties of the Company Regarding the Offering.

 

(a)The Company represents and warrants to, and agrees with, the Agent, as of the
date hereof and as of the Closing Date (as defined below), except as otherwise
indicated, as follows:

 

(i)At the date hereof and at the Closing Date, the Registration Statement and
any post-effective amendment thereto complied or will comply in all material
respects with the requirements of the Securities Act and the Rules and
Regulations thereunder and did not, does not and will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading. The
Prospectus, as amended or supplemented, as of its date, at the time of filing
pursuant to Rule 424(b) under the Securities Act and at the Closing Date, does
not and will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The representations and warranties set forth in the two
immediately preceding sentences shall not apply to statements in or omissions
from the Registration Statement or any Prospectus in reliance upon, and in
conformity with, written information furnished to the Company by the Agent
specifically for use in the preparation thereof, which written information is
described in Section 8(f) below. The Registration Statement contains all
exhibits and schedules required to be filed by the Securities Act or the Rules
and Regulations. No order preventing or suspending the effectiveness or use of
the Registration Statement or any Prospectus is in effect and no proceedings for
such purpose have been instituted or are pending, or, to the knowledge of the
Company, are contemplated or threatened by the Commission.

 

(ii)The Company has not distributed any prospectus or other offering material in
connection with the offering and sale of the Bonds other than the Prospectus and
Subscription Documents.

 

(iii)All Information, as described in Section 6(f) of this Agreement, (A) made
available by the Company to the Agent or the Agent’s agents, representatives and
any potential syndicate or selling group member, (B) contained in any Prospectus
or amended Prospectus prepared by the Company in connection with the Offering,
and (C) contained in any filing by the Company with any court or governmental
regulatory agency, commission or instrumentality, will, as of the date made
available or filed, be complete and correct in all material respects and will
not, as of the date made available or filed, contain any untrue statement of
material fact or omit to state a material fact necessary to make the statements
therein not misleading in light of the circumstances under which such statements
are made, provided that the Company will update any such information as required
prior to the Closing. The Company further represents and warrants to the Agent
that all such information will have been prepared by the Company in good faith
and will be based upon assumptions which, in light of the circumstances under
which they were made, are reasonable. The Company acknowledges and agrees that
in rendering its services hereunder, the Agent will be using and relying on such
information without independent verification thereof by the Agent or independent
appraisal by the Agent of any of the Company’s assets.

 

 4 

 

 

(iv)The consolidated financial statements of the Company, together with the
related notes, included in the Registration Statement and the Prospectus comply
in all material respects with the applicable requirements of the Securities Act
and fairly present the consolidated financial condition of the Company as of the
dates indicated and the results of operations and changes in cash flows for the
periods therein specified in conformity with U.S. generally accepted accounting
principles (“GAAP”) consistently applied throughout the periods involved; and
the supporting schedules included in the Registration Statement present fairly
the information required to be stated therein. The pro forma and pro forma as
adjusted financial information included in the Registration Statement and the
Prospectus has been properly compiled and prepared in all material respects in
accordance with the applicable requirements of the Securities Act and the Rules
and Regulations and include all adjustments necessary to present fairly in
accordance with U.S. GAAP the pro forma and as adjusted financial position of
the respective entity or entities presented therein at the respective dates
indicated and their cash flows and the results of operations for the respective
periods specified. The assumptions used in preparing the pro forma and pro forma
as adjusted financial information included in the Registration Statement and the
Prospectus provide a reasonable basis for presenting the significant effects
directly attributable to the transactions or events described therein. The
related pro forma and pro forma as adjusted adjustments give appropriate effect
to those assumptions; and the pro forma and pro forma as adjusted financial
information reflect the proper application of those adjustments to the
corresponding historical financial statement amounts. No other financial
statements, pro forma financial information or schedules are required under the
Securities Act to be included or incorporated by reference in the Registration
Statement or the Prospectus.

 

(v)To the Company’s knowledge, MaloneBailey, LLP, which has expressed its
opinion with respect to certain of the financial statements and schedules filed
as a part of the Registration Statement and included in the Registration
Statement and the Prospectus, is an independent public accounting firm with
respect to the Company within the meaning of the Securities Act and the Rules
and Regulations.

 

(vi)The Company had a reasonable basis for, and made in good faith, each
“forward-looking statement” (within the meaning of Section 27A of the Securities
Act or Section 21E of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”)) contained or incorporated by reference in the Registration
Statement, the Time of Sale Disclosure Package, the Final Prospectus, in each
case at the time such “forward-looking statement” was made.

 

(vii)All statistical or market-related data included in the Registration
Statement and the Prospectus are based on or derived from sources that the
Company reasonably believes to be reliable and accurate, and the Company has
obtained the written consent to the use of such data from such sources, to the
extent required, other than such consents the failure of which to obtain is not
reasonably likely to result in a Material Adverse Effect (as defined below in
Section 4(a).

 

(viii)The Common Stock is registered pursuant to Section 12(g) of the Exchange
Act and is quoted on the Nasdaq Global Market or the Nasdaq Capital Market under
the symbol "ZN" and its Common Stock warrant under the symbol "ZNWAA. Except as
set forth in the Registration Statement and the Prospectus, there is no action
pending by the Company or, to the Company’s knowledge, by the Nasdaq Global
Market to terminate the quotation of the Common Stock on the Nasdaq Global
Market, nor has the Company received any notification that the Nasdaq Global
Market is contemplating terminating such quotation.

 

 5 

 

 

(ix)The Company has not taken, directly or indirectly, any action that is
designed to or that has constituted or that would reasonably be expected to
cause or result in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Bonds.

 

(x)The Company is not and, after giving effect to the offering and sale of the
Bonds and the application of the net proceeds thereof, will not be an
“investment company,” as such term is defined in the Investment Company Act of
1940, as amended.

 

(xi)The Company has the corporate power and authority to issue the Agent’s
Warrants (as defined in Section 5(b) below) and to perform its obligations
thereunder. The Agent’s Warrants have been duly authorized and constitute valid
and binding obligations of the Company, enforceable against the Company in
accordance with their terms except (A) as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization or similar laws of general
applicability affecting the rights of creditors generally, and (B) as
enforceability of any indemnification or contribution provision may be limited
under the federal and state securities laws in the United States. The shares of
Common Stock underlying the Agent’s Warrants have been duly authorized and
reserved for issuance and, upon issuance following exercise of the Agent’s
Warrants will be validly issued, fully paid and non-assessable, and the issuance
of such Common Stock is free of statutory and contractual preemptive rights,
resale rights, rights of first refusal and restrictions upon voting and transfer
(except for applicable transfer restrictions under the Securities Act and any
applicable state securities laws). The offering and issuance of the Agent’s
Warrants (as defined in Section 5(b) below) are pursuant to an exemption from or
have been duly registered in accordance with the registration requirements of
the Securities Act.

 

(b)Any certificate signed by any officer of the Company and delivered to the
Agent or to the Agent’s counsel shall be deemed a representation and warranty by
the Company to the Agent as to the matters covered thereby.

 

4.Representations and Warranties Regarding the Company.

 

The Company represents and warrants to and agrees with, the Agent, as of the
date hereof and as of the Closing Date (as defined in Section 5(a) below),
except as set forth in the Registration Statement and the Prospectus, as
follows:

 

(a)The Company has been duly organized and validly exists as a corporation or
other entity in good standing under the laws of the State of Delaware, its
jurisdiction of organization. The Company has the power and authority (corporate
or otherwise) to own its properties and conduct its business as currently being
carried on and as described in the Registration Statement and the Prospectus,
and is duly qualified to do business as a foreign corporation or other entity in
good standing in each jurisdiction in which it owns or leases real property or
in which the conduct of its business makes such qualification necessary and in
which the failure to so qualify would have or is reasonably likely to result in
a material adverse effect upon the business, properties, operations, condition
(financial or otherwise) or results of operations of the Company and its
subsidiaries, taken as a whole, or in its ability to perform its obligations
under this Agreement (“Material Adverse Effect”).

 

(b)The Company has the power and authority to enter into this Agreement and to
authorize, issue and sell the Bonds and Agent’s Warrants as contemplated by this
Agreement. Each of this Agreement, the Subscription Agreement, the Bonds and the
Warrants has been duly authorized, executed and delivered by the Company, and
constitutes a valid, legal and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as rights to indemnity
hereunder may be limited by federal or state securities laws and except as such
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting the rights of creditors generally and subject to general
principles of equity.

 

 6 

 

 

(c)The execution, delivery and performance of this Agreement, the Subscription
Agreement, the Bonds and the Warrants and the consummation of the transactions
herein contemplated will not (A) result in a breach or violation of any of the
terms and provisions of, or constitute a default under, any law, order, rule or
regulation to which the Company or any subsidiary is subject, or by which any
property or asset of the Company or any subsidiary is bound or affected, except
to the extent such breach, violation or default is not reasonably likely to have
a Material Adverse Effect, (B) conflict with, result in any violation or breach
of, or constitute a default (or an event that with notice or lapse of time or
both would become a default) under, or give to others any right of termination,
amendment, acceleration or cancellation (with or without notice, lapse of time
or both) (a “Default Acceleration Event”) of, any agreement, lease, credit
facility, debt, note, bond, mortgage, indenture or other instrument (the
“Contracts”) or obligation or other understanding to which the Company or any
subsidiary is a party or by which any property or asset of the Company or any
subsidiary is bound or affected, except to the extent that such conflict,
default or Default Acceleration Event is not reasonably likely to result in a
Material Adverse Effect, or (C) result in a breach or violation of any of the
terms and provisions of, or constitute a default under, the Company’s
certificate of incorporation, as amended, or by-laws, as amended.

 

(d)Neither the Company nor any of its subsidiaries is in violation, breach or
default under its certificate of incorporation, as amended, by-laws, as amended,
or other equivalent organizational or governing documents, except where the
violation, breach or default in the case of a subsidiary of the Company is not
reasonably likely to result in a Material Adverse Effect.

 

(e)No consents, approvals, orders, authorizations or filings are required on the
part of the Company and its subsidiaries in connection with the execution,
delivery or performance of this Agreement, the Subscription Agreement the
Warrants and the issue and sale of the Bonds, except (i) the registration under
the Securities Act of the Bonds, (ii) such consents, approvals, authorizations,
registrations or qualifications as may be required under state or foreign
securities or Blue Sky laws and FINRA’s in connection with the offer and sale of
the Bonds by the several Agent and sub-agents, (iii) such consents, approvals,
orders, authorizations and filings the failure of which to make or obtain is not
reasonably likely to result in a Material Adverse Effect and (iv) such consents,
approvals and waivers which have been obtained by the Company, and which are in
full force and effect as of the date hereof.

 

(f)The Company has an authorized capitalization as set forth in the Registration
Statement and the Prospectus. All of the issued and outstanding shares of
capital stock of the Company are duly authorized and validly issued, fully paid
and nonassessable, and have been issued in compliance with all applicable
securities laws, and conform in all material respects to the description thereof
in the Registration Statement and the Prospectus. Registration Statement and the
Prospectus. Except for the issuances of options or restricted stock in the
ordinary course of business, since the respective dates as of which information
is provided in the Registration Statement or the Prospectus, the Company has not
entered into or granted any convertible or exchangeable securities, options,
warrants, agreements, contracts or other rights in existence to purchase or
acquire from the Company any shares of the capital stock of the Company. The
Bonds, when issued, will be duly authorized and validly issued, fully paid and
nonassessable, will be issued in compliance with all applicable securities laws,
and will be free of preemptive, registration or similar rights and will conform
to the description of the Bonds of the Company contained in the Registration
Statement and the Prospectus. The Warrant Shares, when issued, paid for and
delivered upon due exercise of the Warrants, will be duly authorized and validly
issued, fully paid and nonassessable, will be issued in compliance with all
applicable securities laws, and will be free of preemptive, registration or
similar rights. The Warrant Shares have been reserved for issuance.

 

 7 

 

 

(g)The Company has (i) filed all returns (as hereinafter defined) required to be
filed with taxing authorities prior to the date hereof or has duly obtained
extensions of time for the filing thereof and (ii) paid all taxes (as
hereinafter defined) shown as due on such returns that were filed and has paid
all taxes imposed on or assessed against the Company except, in all cases, for
any such amounts that the Company is contesting in good faith and except in any
case in which the failure to so file or pay would not reasonably be expected to
have a Material Adverse Effect. The provisions for taxes payable, if any, shown
on the financial statements filed with or as part of the Registration Statement
are sufficient for all accrued and unpaid taxes, whether or not disputed, and
for all periods to and including the dates of such consolidated financial
statements. No issues have been raised and are currently pending by any taxing
authority in connection with any of the returns or taxes asserted as due from
the Company or its subsidiaries, and no waivers of statutes of limitation with
respect to the returns or collection of taxes have been given by or requested
from the Company or its subsidiaries. The term “taxes” means all federal, state,
local, foreign, and other net income, gross income, gross receipts, sales, use,
ad valorem, transfer, franchise, profits, license, lease, service, service use,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, windfall profits, customs, duties or other taxes, fees, assessments,
or charges of any kind whatever, together with any interest and any penalties,
additions to tax, or additional amounts with respect thereto. The term “returns”
means all returns, declarations, reports, statements, and other documents
required to be filed in respect to taxes.

 

(h)Since the respective dates as of which information is given in the
Registration Statement, or the Prospectus, (i) the Company has not incurred any
material liabilities or obligations, direct or contingent, or entered into any
material transactions other than in the ordinary course of business, (ii) the
Company has not declared or paid any dividends or made any distribution of any
kind with respect to its capital stock, there has not been any change in the
capital stock of the Company or any of its subsidiaries (other than a change in
the number of outstanding shares of Common Stock due to the issuance of shares
in connection with the Company’s Direct Stock Participation plan warrants or the
issuance of restricted stock awards or restricted stock units under the
Company’s existing stock awards plan, or any new grants thereof in the ordinary
course of business), (iii) there has not been any material change in the
Company’s long-term or short-term debt, and (iv) there has not been the
occurrence of any Material Adverse Effect.

 

(i)Except as a set forth in the Registration Statement and the Prospectus, there
is not pending or, to the knowledge of the Company, threatened, any action, suit
or proceeding to which the Company or any of its subsidiaries is a party or of
which any property or assets of the Company or its subsidiaries is the subject
before or by any court or governmental agency, authority or body, or any
arbitrator or mediator, which is reasonably likely to result in a Material
Adverse Effect or adversely affect the consummation of the transactions
contemplated by this Agreement.

 

(j)The Company holds, and is in compliance with, all franchises, grants,
authorizations, licenses, permits, easements, consents, certificates and orders
(“Permits”) of any governmental or self-regulatory agency, authority or body
required for the conduct of its business, and all such Permits are in full force
and effect, in each case except where the failure to hold, or comply with, any
of them is not reasonably likely to result in a Material Adverse Effect.

 

(k)The Company and its subsidiaries have good and marketable title to all
property (whether real or personal) described in the Registration Statement and
the Prospectus as being owned by them that is material to the business of the
Company, in each case free and clear of all liens, claims, security interests,
other encumbrances or defects, except those that are not reasonably likely to
result in a Material Adverse Effect. The property held under lease by the
Company and its subsidiaries is held by them under valid, subsisting and
enforceable leases with only such exceptions with respect to any particular
lease as do not interfere in any material respect with the conduct of the
business of the Company and its subsidiaries.

 

 8 

 

 

(l)The Company and each of its subsidiaries owns or possesses or has valid right
to use all patents, patent applications, trademarks, service marks, trade names,
trademark registrations, service mark registrations, copyrights, licenses,
inventions, trade secrets and similar rights (“Intellectual Property”) necessary
for the conduct of the business of the Company and its subsidiaries as currently
carried on and as described in the Registration Statement and the Prospectus. To
the knowledge of the Company, no action or use by the Company or any of its
subsidiaries will involve or give rise to any infringement of, or license or
similar fees for, any Intellectual Property of others, except where such action,
use, license or fee is not reasonably likely to result in a Material Adverse
Effect. Neither the Company nor any of its subsidiaries has received any notice
alleging any such infringement or fee.

 

(m)The Company and each of its subsidiaries has complied with, is not in
violation of, and has not received any notice of violation relating to any law,
rule or regulation relating to the conduct of its business, or the ownership or
operation of its property and assets, including, without limitation, (i) the
Currency and Foreign Transactions Reporting Act of 1970, as amended, or any
money laundering laws, rules or regulations, (ii) any laws, rules or regulations
related to health, safety or the environment, including those relating to the
regulation of hazardous substances, (iii) the Sarbanes-Oxley Act and the rules
and regulations of the Commission thereunder, (iv) the Foreign Corrupt Practices
Act of 1977 and the rules and regulations thereunder, and (v) the Employment
Retirement Income Security Act of 1974 and the rules and regulations thereunder,
in each case except where the failure to be in compliance is not reasonably
likely to result in a Material Adverse Effect.

 

(n)Neither the Company nor any of its subsidiaries nor, to the knowledge of the
Company, any director, officer, employee, representative, agent or affiliate of
the Company or any of its subsidiaries is currently subject to any U.S.
sanctions administered by the Office of Foreign Assets Control (“OFAC”) of the
U.S. Treasury Department (“OFAC”); and the Company will not directly or
indirectly use the proceeds of the offering of the Bonds contemplated hereby, or
lend, contribute or otherwise make available such proceeds to any person or
entity, for the purpose of financing the activities of any person currently
subject to any U.S. sanctions administered by OFAC.

 

(o)The Company carries, or is covered by, insurance in such amounts and covering
such risks as, in the Company’s reasonable judgment, is adequate for the conduct
of its business and the value of its properties and as is customary for
similarly sized companies engaged in similar businesses in similar industries.

 

(p)No labor dispute with the employees of the Company exists or, to the
knowledge of the Company, is imminent, that is reasonably likely to result in a
Material Adverse Effect.

 

(q)Except as set forth in the Registration Statement and the Prospectus, neither
the Company nor, to its knowledge, any other party is in violation, breach or
default of any Contract that is reasonably likely to result in a Material
Adverse Effect.

 

(r)No supplier, customer, distributor or sales agent of the Company has notified
the Company that it intends to discontinue or decrease the rate of business done
with the Company, except where such decrease is not reasonably likely to result
in a Material Adverse Effect.

 

(s)There are no claims, payments, issuances, arrangements or understandings for
services in the nature of a finder’s, consulting or origination fee with respect
to the introduction of the Company to any Agent or the sale of the Bonds
hereunder or any other arrangements, agreements, understandings, payments or
issuances with respect to the Company that may affect the Agent’s compensation,
as determined by FINRA.

 

 9 

 

 

(t)Except as set forth in the Registration Statement and the Prospectus, the
Company has not made within the 12-month period prior to the date on which the
Registration Statement was filed with the Commission (“Filing Date”) any direct
or indirect payments (in cash, securities or otherwise) to (i) any person, as a
finder’s fee, investing fee or otherwise, in consideration of such person
raising capital for the Company or introducing to the Company persons who
provided capital to the Company, (ii) any FINRA member, or (iii) any person or
entity that has any direct or indirect affiliation or association with any FINRA
member.

 

(u)None of the net proceeds of the offering will be paid by the Company to any
participating FINRA member or any affiliate or associate of any participating
FINRA member, except as specifically authorized herein.

 

(v)Except as set forth in the Registration Statement and the Prospectus, to the
Company’s knowledge, no (i) officer or director of the Company or its
subsidiaries, (ii) owner of 5% or more of the Company’s unregistered securities
or that of its subsidiaries or (iii) owner of any amount of the Company’s
unregistered securities acquired within the 180-day period prior to the Filing
Date, has any direct or indirect affiliation or association with any FINRA
member. The Company will advise the Agent and their counsel if it becomes aware
at any time prior to the 90th day following the Initial or Final Closing that
any officer, director or stockholder of 5% or more of the Company’s unregistered
securities of the Company or its subsidiaries is or becomes an affiliate or
associated person of a FINRA member participating in the offering.

 

(w)Other than the Agent and its selected participating agents, no person has the
right to act as a placement agent or as a financial advisor to the Company in
connection with the transactions contemplated hereby.

 

(x)The statements set forth in the Registration Statement and the Prospectus
under the caption “Description of Bonds” insofar as they purport to constitute a
summary of the terms of the Bonds and under the captions “Business,” “Certain
Relationships and Related Party Transactions”, and “Plan of Distribution”,
insofar as they purport to describe the provisions of the laws and documents
referred to therein, are accurate, complete and fair in all material respects.

 

(y)Except as set forth in the Registration Statement and the Prospectus, there
are no contracts, agreements or understandings between the Company and any
person granting such person the right (other than rights which have been waived
in writing or otherwise satisfied or not enforceable in connection with the
offering of the Bonds) to require the Company to file a registration statement
under the Securities Act with respect to any securities of the Company owned or
to be owned by such person or to require the Company to include such securities
in the securities registered pursuant to the Registration Statement or in any
securities being registered pursuant to any other registration statement filed
by the Company under the Securities Act.

 

(z)Except as set forth in the Registration Statement and the Prospectus, the
Company has not sold or issued any shares of Common Stock during the six-month
period preceding the date of the Prospectus, including any sales pursuant to
Rule 144A under, or Regulations D or S of, the Securities Act, other than shares
issued pursuant to employee benefit plans, stock option plans or other employee
compensation plans or pursuant to outstanding options, rights or warrants.

 

(aa)The Company and each of its subsidiaries (i) are in compliance with all, and
have not violated any, laws, regulations, ordinances, rules, orders, judgments,
decrees, permits or other legal requirements of any governmental authority,
including without limitation any United States or non-United States federal,
state, provincial, regional, or local authority, relating to the protection of
human health or safety, the environment, or natural resources, or to hazardous
or toxic substances or wastes, pollutants or contaminants (including, without
limitation, all health and safety laws) (“Environmental Laws”) applicable to
such entity, which compliance includes, without limitation, obtaining,
maintaining and complying with all permits and authorizations and approvals
required by Environmental Laws to conduct their respective businesses as
described in the Registration Statement and the Prospectus, except where the
failure to comply would not, singularly or in the aggregate, have a Material
Adverse Effect, and (ii) have not received notice of any actual or alleged
violation of Environmental Laws, or of any potential liability for or other
obligation concerning the presence, disposal or release of hazardous or toxic
substances or wastes, pollutants or contaminants.

 

 10 

 

 

(A)       There are no proceedings that are pending, or known to be
contemplated, against the Company or any of its subsidiaries under Environmental
Laws in which a governmental authority is also a party.

 

(B)       The Company and its subsidiaries are not aware of any existing
liabilities concerning hazardous or toxic substances or wastes, pollutants or
contaminants that could reasonably be expected to have a Material Adverse Effect
on the capital expenditures, earnings or competitive position of the Company and
its subsidiaries.

 

(C)       To the knowledge of the Company, no property which is or has been
owned, leased, used, operated or occupied by the Company or its subsidiaries has
been designated as a Superfund site pursuant to the Comprehensive Environmental
Response, Compensation of Liability Act of 1980, as amended (42 U.S.C. Section
9601, et. seq.), or otherwise designated as a contaminated site under applicable
state or local law.

 

(bb)The Company maintains a system of internal control over financial reporting
(as such term is defined in Rule 13a-15(f) under the Exchange Act) that complies
in all material respects with the requirements of the Exchange Act and has been
designed by the Company’s principal executive officer and principal financial
officer, or under their supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with U.S. generally accepted
accounting principles. The Company’s internal control over financial reporting
is effective and the Company is not aware of any material weaknesses in its
internal control over financial reporting.

 

(cc)Since the date of the latest audited financial statements included in the
Registration Statement and the Prospectus, there has been no change in the
Company’s internal control over financial reporting that has materially
affected, or is reasonably likely to materially affect, the Company’s internal
control over financial reporting.

 

(dd)The Company maintains disclosure controls and procedures (as such term is
defined in Rule 13a-15(e) under the Exchange Act) that comply with the
requirements of the Exchange Act; such disclosure controls and procedures have
been designed to ensure that material information relating to the Company and
its subsidiaries is made known to the Company’s principal executive officer and
principal financial officer by others within those entities; and such disclosure
controls and procedures are effective.

 

(ee)The operations of the Company and its subsidiaries are being conducted in
material compliance with applicable employment laws, the rules and regulations
thereunder and any related or similar rules, regulations or guidelines, issued,
administered or enforced by any governmental agency (collectively, the “Employee
Benefit Laws”) and no action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the Company
or any of its subsidiaries with respect to the Employee Benefit Laws is pending
or, to the knowledge of the Company, threatened.

 

(ff)Neither the Company nor any of its affiliates, nor any director, officer, or
employee, nor, to the Company’s knowledge, any agent or representative of the
Company or of any of its affiliates, has taken any action in furtherance of an
offer, payment, promise to pay, or authorization or approval of the payment or
giving of money, property, gifts or anything else of value, directly or
indirectly, to any “government official” (including any officer or employee of a
government or government-owned or controlled entity or of a public organization,
or any person acting in an official capacity for or on behalf of any of the
foregoing, or any political party or party official or candidate for political
office) to influence official action or secure an improper advantage; and the
Company and its subsidiaries and affiliates conduct their businesses in
compliance in all material respects with applicable anti-corruption laws and
have instituted and maintain and will continue to maintain policies and
procedures designed to promote and achieve compliance in all material respects
with such laws and with the representation and warranty contained herein.

 

 11 

 

 

5.Purchase, Sale and Delivery of Bonds.

 

(a)The time and date of delivery of the closing and the delivery of the funds,
securities and documents required to be delivered to the Agent is referred to
herein as the “Closing Date.” On the Closing Date, the Company shall deliver the
Placement Fee to the respective accounts previously specified in writing to the
Company by the Agent and the Agent’s Warrants and the documents referred to
herein to the Agent at such place as shall be agreed upon by the Company and the
Agent.

 

(b)Agent’s Warrants. The Company hereby agrees to issue to Agent (and/or its
designees) on the Closing Date, Warrants to purchase a number of shares of
Common Stock equal to up to an aggregate of 5% of that number of Bonds issued at
such closing (the “Agent’s Warrants”). The Agent’s Warrants shall be
exercisable, in whole or in part, commencing after 6 months from the closing and
expiring on the three-year anniversary of the closing at an initial exercise
price equal to one hundred and twenty five percent (125%) of the conversion
price of the Bonds into shares of common stock underlying the Bonds, which will
be fixed upon the issuance of the Bonds as disclosed in the Prospectus.

 

6.Covenants.

 

The Company covenants and agrees with the several Agents as follows:

 

(a)To prepare the Prospectus in a form approved by the Agent and to file such
Prospectus pursuant to Rule 424(b) under the Securities Act not later than the
Commission’s close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier time
as may be required by Rule 430A(a)(3) under the Securities Act.

 

(b)During the period beginning on the date hereof and ending on the date that
the Prospectus is no longer required by law to be delivered in connection with
sales by an underwriter or dealer (the “Prospectus Delivery Period”), prior to
amending or supplementing the Registration Statement, including any Rule 462
Registration Statement, or the Prospectus, the Company shall furnish to the
Agent for review and comment a copy of each such proposed amendment or
supplement, and the Company shall not file any such proposed amendment or
supplement to which the Agent reasonably objects.

 

(c)From the date of this Agreement until the end of the offering, the Company
shall promptly advise the Agent in writing (A) of the receipt of any comments
of, or requests for additional or supplemental information from, the Commission,
(B) of the time and date of any filing of any post-effective amendment to the
Registration Statement or any amendment or supplement to the offering the
Prospectus, (C) of the time and date that any post-effective amendment to the
Registration Statement becomes effective and (D) of the issuance by the SEC of
any stop order suspending the effectiveness of the Registration Statement or
Prospectus, or of any proceedings to remove, suspend or terminate from listing
or quotation the Bonds or the Company’s Common Stock from any securities
exchange upon which it is listed for trading or included or designated for
quotation, or of the threatening or initiation of any proceedings for any of
such purposes. If the SEC shall enter any such stop order at any time during the
Offering, the Company will use its reasonable efforts to obtain the lifting of
such Offering order at the earliest possible moment. Additionally, the Company
agrees that it shall comply with the provisions of Rules 424(b), 430A and 430B,
as applicable, under the Securities Act and will use its reasonable efforts to
confirm that any filings made by the Company under Rule 424(b) or Rule 433 were
received in a timely manner by the Commission (without reliance on Rule
424(b)(8) or 164(b) of the Securities Act).

 

 12 

 

 

(d)During the Offering, the Company will comply with all requirements imposed
upon it by the Securities Act, as now and hereafter amended, and by the Rules
and Regulations, as from time to time in force, and by the Exchange Act, as now
and hereafter amended, so far as necessary to permit the continuance of sales of
or dealings in the Bonds as contemplated by the provisions hereof, the
Registration Statement and the Prospectus. If during such period any event
occurs as the result of which the Prospectus would include an untrue statement
of a material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which such statement
was made, not misleading or, if during such period it is necessary or
appropriate in the opinion of the Company or its counsel or the Agent or its
counsel, to amend the Registration Statement or supplement the Prospectus to
comply with the Securities Act, the Company will promptly notify the Agent and
will amend the Registration Statement or the Prospectus so as to correct such
statement or omission or effect such compliance.

 

(e)The Company will provide reasonable notice to the Agent regarding all press
releases and other communications and publicity undertaken by the Company with
respect to the Offering.

 

(f)During the Offering, the Company agrees to cooperate with the Agent and to
furnish, or cause to be furnished, to the Agent, any and all information and
data concerning the Company, its affiliates and the Offering that the Agent
reasonably deems appropriate, including, without limitation, the Company’s
acquisition plans and plans for raising capital or an additional financing (the
“Information”). The Company shall provide the Agent reasonable access during
normal business hours from and after the date of execution of this Agreement
until the Closing to all of the Company’s and its affiliates’ assets,
properties, books, contracts, commitments and records and to the Company’s
officers, directors, employees, appraisers, independent accountants, legal
counsel and other consultants and advisors except those assets and personnel
related to confidential and proprietary geological and seismic analysis.

 

(g)The Company shall take or cause to be taken all necessary action to qualify
the Bonds for sale under the securities laws of such jurisdictions as the Agent
reasonably designate and to continue such qualifications in effect so long as
required for the distribution of the Bonds, except that the Company shall not be
required in connection therewith to file a prospectus in Canada, to qualify as a
foreign corporation or as a dealer in securities in any jurisdiction in which it
is not so qualified, to execute a general consent to service of process in any
state or to subject itself to taxation in respect of doing business in any
jurisdiction in which it is not otherwise subject.

 

(h)The Company will furnish to the Agent and counsel for the Agent copies of the
Registration Statement, Prospectus, and all amendments and supplements to such
documents, in each case as soon as available and in such quantities as the Agent
may from time to time reasonably request.

 

(i)The Company will make generally available to its security holders as soon as
practicable, but in any event not later than 15 months after the end of the
Company’s current fiscal quarter, an earnings statement (which need not be
audited) covering a 12-month period that shall satisfy the provisions of Section
11(a) of the Securities Act and Rule 158 of the Rules and Regulations.

 

(j)The Company, whether or not the transactions contemplated hereunder are
consummated or this Agreement is terminated, will pay or cause to be paid the
expenses set forth on Exhibit A. If this Agreement is terminated by the Agent in
accordance with the provisions of Section 7 or Section 11, the Company will
reimburse the Agent for all out-of-pocket reasonable and documented
disbursements (including, but not limited to, reasonable fees and disbursements
of counsel, travel expenses, postage, facsimile and telephone charges) incurred
by the Agent in connection with its investigation, preparing to market and
marketing the Bonds or in contemplation of performing its obligations hereunder,
not to exceed $75,000.

 

 13 

 

 

(k)The Company intends to apply the net proceeds from the sale of the Bonds to
be sold by it hereunder for the purposes set forth in the Prospectus.

 

(l)The Company has not taken and will not take, directly or indirectly, during
the Offering any action designed to or which might reasonably be expected to
cause or result in, or that has constituted, the stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
the Bonds.

 

(m)The Company represents and agrees that, and the Agent and other placement
agents, if any, severally and not jointly, represent and agree that, it shall
inform the other party(ies) if it has made and will make any offer or other
communication that would constitute an “free writing prospectus,” as defined in
Rule 405 under the Securities Act, relating to the Bonds.

 

(n)For a period of at least three (3) years from the Effective Date, the Company
shall retain an internationally recognized PCAOB registered independent public
accounting firm reasonably acceptable to the Agent. The Agent acknowledges that
MaloneBailey LLP is acceptable to the Agent.

 

(o)To engage and maintain, at its expense, a registrar and transfer agent for
the Common Stock.

 

(p)The Company will use its best efforts to maintain its listing on Nasdaq and
effect the listing of the Bonds, if applicable, on Nasdaq or another applicable
securities market within six months of the Closing Date.

 

(q)To not take, directly or indirectly, any action designed to cause or result
in, or that has constituted or might reasonably be expected to constitute, under
the Exchange Act or otherwise, the stabilization or manipulation of the price of
any securities of the Company to facilitate the sale or resale of the Bonds.

 

(r)Concurrently with, or as soon as practicable after, the filing of the
Prospectus with the Commission, the Company shall make all necessary state “blue
sky” securities law filings with respect to the Bonds (including the Additional
Bonds) and the securities underlying the Bonds and Additional Bonds. The Company
and the Agent will cooperate in obtaining the necessary approvals and
qualifications in such states as the Agent deems necessary and/or desirable.

 

(s)The Company shall treat this Agreement and the terms hereof as confidential
and will not disclose them to anyone other than the officers and directors of
the Company and the Company’s accountants and legal counsel. Except as
contemplated by the terms hereof, or as required by applicable law, the Company
and the Agent shall keep strictly confidential all non-public information
concerning the Company provided to the Agent. No obligation or confidentiality
shall apply to information that (A) is in the public domain as of the date
hereof or hereafter enters the public domain without breech by the Agent, (B)
was known or became known by the Agent prior to the Company’s disclosure thereof
to the Agent, (C) becomes known to the Agent from a source other than the
company, and other than by the breech of an obligation of confidentiality owed
to the Company, (D) is disclosed by the Company to a third party without
restrictions on its disclosure or, (v) is independently developed by the Agent,
in each case as demonstrated by contemporary written evidence.

 

 14 

 

 

7.Conditions of the Agent’s Obligations.

 

The respective obligations of the several Agent hereunder are subject to the
accuracy, as of the date hereof and at the Closing Date, of and compliance in
all material respects with all representations, warranties and agreements of the
Company contained herein, the performance by the Company of its obligations
hereunder and the following additional conditions.

 

(a)If filing of the Prospectus, or any amendment or supplement thereto, is
required under the Securities Act or the Rules and Regulations, the Company
shall have filed the Prospectus (or such amendment or supplement) with the SEC
in the manner and within the time period so required (without reliance on Rule
424(b)(8) or 164(b) under the Securities Act); the Registration Statement shall
remain effective; no stop order suspending the effectiveness of the Registration
Statement or any part thereof, any Rule 462 Registration Statement, or any
amendment thereof, nor suspending or preventing the use of the Prospectus shall
have been issued; no proceedings for the issuance of such an order shall have
been initiated or threatened; any request of the SEC or an Agent for additional
information (to be included in the Registration Statement the Prospectus or
otherwise) shall have been complied with to the Agent’ satisfaction.

 

(b)FINRA shall have raised no objection to the fairness and reasonableness of
the placement terms and arrangements.

 

(c)None of the Agent shall have reasonably determined, and advised the Company,
that the Registration Statement the Prospectus, or any amendment thereof or
supplement thereto, contains an untrue statement of fact which, in such Agent’s
reasonable opinion, is material, or omits to state a fact which, in such Agent’s
reasonable opinion, is material and is required to be stated therein or
necessary to make the statements therein not misleading.

 

(d)On the Closing Date, there shall have been furnished to the Agent the opinion
of Pearl Cohen Zedek Latzer Baratz, LLP, U.S. counsel for the Company, dated the
Closing Date, and addressed to the Agent, in form and substance reasonably
satisfactory to the Agent.

 

(e)On the Closing Date, there shall have been furnished to the Agent the
negative assurance letter of Quintairos, Prieto, Wood & Boyer, P.A., counsel to
the Agent, dated the Closing Date, and addressed to the Agent, in form and
substance reasonably satisfactory to the Agent.

 

(f)The Agent shall have received a letter from, or other confirmation by the
Company acceptable to the Agent, stating that MaloneBailey LLP, on the date
hereof and on the Closing Date, is an independent public accountant within the
meaning of the Securities Act and is in compliance with the requirements
relating to the qualifications of accountants under Rule 2-01 of Regulation S-X
of the Commission, and confirming the conclusions and findings of said firm with
respect to the financial information and other matters required by the Agent.

 

(g)On the Closing Date, there shall have been furnished to the Agent a
certificate, dated the Closing Date, and addressed to the Agent, signed by the
chief executive officer and the chief financial officer of the Company, in their
capacity as officers of the Company, to the effect that:

 

(i)The representations and warranties of the Company in this Agreement that are
qualified by materiality or by reference to any Material Adverse Effect are true
and correct in all respects, and all other representations and warranties of the
Company in this Agreement are true and correct, in all material respects, as if
made at and as of the Closing Date, and the Company has complied with all the
agreements and satisfied all the conditions on its part to be performed or
satisfied at or prior to the Closing Date;

 

(ii)No stop order or other order (A) suspending the effectiveness of the
Registration Statement or any part thereof or any amendment thereof, (B)
suspending the qualification of the Bonds for offering or sale, or (C)
suspending or preventing the use of the Prospectus has been issued, and no
proceeding for that purpose has been instituted or, to their knowledge, is
contemplated by the Commission or any state or regulatory body; and

 

 15 

 

 

(iii)There has been no occurrence of any event resulting or reasonably likely to
result in a Material Adverse Effect during the period from and after the date of
this Agreement and prior to the Closing Date.

 

(h)On the Closing Date, there shall have been issued to the Agent, an Agent’
Warrant.

 

(i)The Common Stock shall remain approved for listing on the Nasdaq Market. The
Company shall have taken no action designed to, or likely to have the effect of
terminating the registration of the Common Stock under the Exchange Act or
delisting or suspending from trading the Common Stock from the Nasdaq Market,
nor shall the Company have received any information suggesting that the
Commission or the Nasdaq Market is contemplating terminating such registration
or listing. The Warrants and shares of Common Stock underlying the Agent’
Warrants shall be DTC eligible.

 

(j)The Company shall have furnished to the Agent and its counsel such additional
documents, certificates and evidence as the Agent or their counsel may have
reasonably requested.

 

If any condition specified in this Section 7 shall not have been fulfilled when
and as required to be fulfilled in all material respects, this Agreement may be
terminated by any Agent by notice to the Company at any time at or prior to the
Closing Date, and such termination shall be without liability of any party to
any other party, except that Section 6(j), Section 8 and Section 9 shall survive
any such termination and remain in full force and effect.

 

8.Indemnification and Contribution.

 

(a)The Company agrees to indemnify, defend and hold harmless the Agent, its
affiliates, directors and officers and employees, and each person, if any, who
controls any Agent within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, from and against any losses, claims, damages or
liabilities to which such Agent or such person may become subject, under the
Securities Act or otherwise (including in settlement of any litigation if such
settlement is effected with the written consent of the Company), insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon (i) an untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, including the information
deemed to be a part of the Registration Statement at the time of effectiveness
and at any subsequent time pursuant to Rules 430A and 430B of the Rules and
Regulations, or arise out of or are based upon the omission from the
Registration Statement, or alleged omission to state therein, a material fact
required to be stated therein or necessary to make the statements therein not
misleading, (ii) an untrue statement or alleged untrue statement of a material
fact contained in the Prospectus, or any amendment or supplement thereto
(including any documents filed under the Exchange Act and deemed to be
incorporated by reference into the Registration Statement or the Prospectus), or
in any other materials used in connection with the offering of the Bonds, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, (iii) an untrue statement or alleged untrue statement of a
material fact contained in any materials or information provided to investors
by, or with the approval of, the Company in connection with the marketing of the
offering of the Bonds, including any roadshow or investor presentations made to
investors by the Company (whether in person or electronically), or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, (iv)
in whole or in part, any material breach in the representations and warranties
of the Company contained herein, or (v) in whole or in part, any failure of the
Company to perform its obligations hereunder, under the Subscription Agreements
or under applicable law, and will reimburse the Agent for any legal or other
expenses reasonably incurred by it in connection with evaluating, investigating
or defending against such loss, claim, damage, liability or action; provided,
however, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability or action arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement, the Prospectus, or any amendment or
supplement thereto, in reliance upon and in conformity with written information
furnished to the Company by such Agent specifically for use in the preparation
thereof, which written information is described in Section 8(f).

 

 16 

 

 

(b)The Agent and each other placement agent, if any, severally and not jointly,
will indemnify, defend and hold harmless the Company, its affiliates, directors,
officers and employees, and each person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act, from and against any losses, claims, damages or liabilities to which the
Company may become subject, under the Securities Act or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of such Agent), insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement the Prospectus, or any amendment or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in the Registration Statement, the Prospectus, or any
amendment or supplement thereto, in reliance upon and in conformity with written
information furnished to the Company by such Agent specifically for use in the
preparation thereof, which written information is described in Section 8(f), and
will reimburse the Company for any legal or other expenses reasonably incurred
by the Company in connection with defending against any such loss, claim,
damage, liability or action.

 

(c)Promptly after receipt by an indemnified party under subsection (a) or (b)
above of notice of the commencement of any action, such indemnified party shall,
if a claim in respect thereof is to be made against the indemnifying party under
such subsection, notify the indemnifying party in writing of the commencement
thereof; but the failure to notify the indemnifying party shall not relieve the
indemnifying party from any liability that it may have to any indemnified party
except to the extent such indemnifying party has been materially prejudiced by
such failure. In case any such action shall be brought against any indemnified
party, and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in, and, to the extent
that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of the indemnifying party’s election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under such subsection for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof; provided,
however, that if (i) the indemnified party has reasonably concluded (based on
advice of counsel) that there may be legal defenses available to it or other
indemnified parties that are different from or in addition to those available to
the indemnifying party, (ii) a conflict or potential conflict exists (based on
advice of counsel to the indemnified party) between the indemnified party and
the indemnifying party (in which case the indemnifying party will not have the
right to direct the defense of such action on behalf of the indemnified party),
or (iii) the indemnifying party has not in fact employed counsel reasonably
satisfactory to the indemnified party to assume the defense of such action
within a reasonable time after receiving notice of the commencement of the
action, the indemnified party shall have the right to employ a single counsel to
represent it in any claim in respect of which indemnity may be sought under
subsection (a) or (b) of this Section 8, in which event the reasonable fees and
expenses of such separate counsel shall be borne by the indemnifying party or
parties and reimbursed to the indemnified party as incurred.

 

 17 

 

 

The indemnifying party under this Section 8 shall not be liable for any
settlement of any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party against any loss,
claim, damage, liability or expense by reason of such settlement or judgment. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement, compromise or consent to the entry of judgment in
any pending or threatened action, suit or proceeding in respect of which any
indemnified party is a party or could be named and indemnity was or would be
sought hereunder by such indemnified party, unless such settlement, compromise
or consent (a) includes an unconditional release of such indemnified party from
all liability for claims that are the subject matter of such action, suit or
proceeding and (b) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.

 

(d)If the indemnification provided for in this Section 8 is unavailable or
insufficient to hold harmless an indemnified party under subsection (a) or (b)
above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a) or (b) above, (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company on
the one hand and the Agent on the other from the offering and sale of the Bonds
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and the Agent on the other in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Agent on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company bear to
the total underwriting discounts and commissions received by the Agent, in each
case as set forth in the table on the cover page of the Final Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or the Agent and the parties’ relevant intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The Company and the Agent agree that it would not be just and
equitable if contributions pursuant to this subsection (d) were to be determined
by pro rata allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in the first sentence of
this subsection (d). The amount paid by an indemnified party as a result of the
losses, claims, damages or liabilities referred to in the first sentence of this
subsection (d) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
against any action or claim that is the subject of this subsection (d).
Notwithstanding the provisions of this subsection (d), no Agent shall be
required to contribute any amount in excess of the amount of such Agent’s
Placement Fee referenced in Section 1(e) actually received by such Agent
pursuant to this Agreement. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Agent’s obligations to contribute as provided in this
Section 8 are several in proportion to their respective underwriting obligations
and not joint.

 

(e)The obligations of the Company under this Section 8 shall be in addition to
any liability that the Company may otherwise have and the benefits of such
obligations shall extend, upon the same terms and conditions, to each person, if
any, who controls any Agent within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act; and the several obligations of the Agent
under this Section 8 shall be in addition to any liability that such Agent may
otherwise have and the benefits of such obligations shall extend, upon the same
terms and conditions, to the Company, and its officers, directors and each
person who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act.

 

 18 

 

 

(f)For purposes of this Agreement, the Agent confirms, and the Company
acknowledges, that there is no information concerning such Agent furnished in
writing to the Company by such Agent specifically for preparation of or
inclusion in the Registration Statement or the Prospectus, other than the
statements set forth in the last paragraph on the cover page of the Prospectus
and the statements set forth in the “Plan of Distribution” section of the
Prospectus only insofar as such statements relate to the amount commissions and
related activities that may be undertaken by such Agent.

 

9.Representations and Agreements to Survive Delivery.

 

All representations, warranties, covenants and agreements of the Company herein
or in certificates delivered pursuant hereto, including, but not limited to, the
agreements of the Agent or other placement agents, if applicable, and the
Company contained in Section 6(j), Section 6(s), and Section 8 hereof, shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of the several Agent or any controlling person thereof, or
the Company or any of its officers, directors, or controlling persons, and shall
survive delivery of, and payment for, the Bonds to and by the Agent hereunder.

 

10.Termination of this Agreement.

 

(a)The Agent shall have the right to terminate this Agreement by giving notice
to the Company as hereinafter specified at any time at or prior to the Closing
Date, if in the reasonable opinion of such Agent, (i) there has occurred any
material adverse change in the securities markets or any event, act or
occurrence that has materially disrupted, or in the opinion of such Agent, will
in the future materially disrupt, the securities markets or there shall be such
a material adverse change in general financial, political or economic conditions
or the effect of international conditions on the financial markets in the United
States is such as to make it, in the judgment of such Agent, inadvisable or
impracticable to market the Bonds or enforce contracts for the sale of the
Bonds, (ii) trading in the Company’s Common Stock shall have been suspended by
the Commission, or on the Nasdaq Stock Market shall have been suspended, (iii)
minimum or maximum prices for trading shall have been fixed, or maximum ranges
for prices for securities shall have been required, on the Nasdaq Stock Market,
by such exchange or by order of the Commission or any other governmental
authority having jurisdiction, (iv) a banking moratorium shall have been
declared by federal or New York or California state authorities, (v) there shall
have occurred any attack on, outbreak or escalation of hostilities or act of
terrorism involving the United States, any declaration by the United States of
an international 1 emergency or war, any substantial change or development
involving a prospective substantial change in United States or international
political, financial or economic conditions or any other calamity or crisis,
(vi) the Company suffers any loss by strike, fire, flood, earthquake, accident
or other calamity, whether or not covered by insurance, which is likely to have
a Material Adverse Effect or (vii) in the judgment of the Agent, there has been,
since the time of execution of this Agreement or since the respective dates as
of which information is given in the Prospectus, any material adverse change in
the assets, properties, condition, financial or otherwise, or in the results of
operations, business affairs of the Company and its subsidiaries considered as a
whole, whether or not arising in the ordinary course of business. Any such
termination shall be without liability of any party to any other party except
that the provisions of Section 6(f), Section 6(s) and Section 8 hereof shall at
all times be effective and shall survive such termination.

 

(b)If any Agent elects to terminate this Agreement as provided in this Section,
the Company and the other Agent shall be notified promptly by such Agent by
telephone, confirmed by letter.

 

 19 

 

 

11.Notices.

 

Except as otherwise provided herein, all communications hereunder shall be in
writing and,

 

(a)If to the Agent, shall be mailed, delivered or telecopied to

 

Network 1 Financial Securities, Inc.
The Galleria, Penthouse
2 Bridge Avenue, Building 2
Red Bank, NJ 07701
Telephone: (732) 758-9001
www.network1financial.comand
Attention: William R. Hunt, Jr.

 

if to the Company, shall be mailed, delivered or telecopied to it at

Zion Oil & Gas, Inc.
12655 North Central Expressway, Suite 1000
Dallas, TX 75243
Telephone: (214) 221-4610 or (888) 891-9466
Fax: ( 214) 221-6510
e-mail: martin.vanbrauman@zionoil.com
Attention: Martin Van Brauman, Senior Vice-President, Secretary-Treasurer and
Director

 

(b)or in each case to such other address as the person to be notified may have
requested in writing.

 

Any party to this Agreement may change such address for notices by sending to
the parties to this Agreement written notice of a new address for such purpose.

 

12.Persons Entitled to Benefit of Agreement.

 

This Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors and assigns and the controlling persons,
officers and directors referred to in Section 8. Nothing in this Agreement is
intended or shall be construed to give to any other person, firm or corporation
any legal or equitable remedy or claim under or in respect of this Agreement or
any provision herein contained. The term “successors and assigns” as herein used
shall not include any purchaser, as such purchaser, of any of the Bonds from any
Agent.

 

13.Absence of Fiduciary Relationship.

 

The Company acknowledges and agrees that:

 

(a)the Agent has been retained solely to act as an agent in connection with the
sale of the Bonds and that no fiduciary, advisory or agency relationship between
the Company and any Agent has been created in respect of any of the transactions
contemplated by this Agreement, irrespective of whether any Agent has advised or
is advising the Company on other matters;

 

(b)the price and other terms of the Bonds and Agent’s Warrants set forth in this
Agreement were established by the Company following discussions and arms-length
negotiations with the Agent and the Company is capable of evaluating and
understanding and understands and accepts the terms, risks and conditions of the
transactions contemplated by this Agreement;

 

(c)it has been advised that the Agent and its affiliates are engaged in a broad
range of transactions that may involve interests that differ from those of the
Company and that no Agent has any obligation to disclose such interest and
transactions to the Company by virtue of any fiduciary, advisory or agency
relationship; and

 

(d)it has been advised that the Agent is acting, in respect of the transactions
contemplated by this Agreement, solely for the benefit of such Agent, and not on
behalf of the Company.

 

 20 

 

 

14.Amendments and Waivers.

 

No supplement, modification or waiver of this Agreement shall be binding unless
executed in writing by the party to be bound thereby. The failure of a party to
exercise any right or remedy shall not be deemed or constitute a waiver of such
right or remedy in the future. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provision
hereof (regardless of whether similar), nor shall any such waiver be deemed or
constitute a continuing waiver unless otherwise expressly provided.

 

15.Partial Unenforceability.

 

The invalidity or unenforceability of any section, paragraph, clause or
provision of this Agreement shall not affect the validity or enforceability of
any other section, paragraph, clause or provision.

 

16.Governing Law.

 

This Agreement shall be governed by and construed in accordance with the laws of
the State of New Jersey without reference to its conflicts of law principles.

 

17.Dispute Resolution.

 

The Company and the Agent agree that in the event a dispute arises between the
Agent and the Company or any of its officers, directors, employees, agents,
attorneys or accountants, arising out of, in connection with, or as a result of
the execution of this Agreement, or as a result of any subscription tendered by
any purchaser of the shares, such dispute shall be resolved through arbitration
rather than litigation. The parties agree to submit such disputes for resolution
to FINRA within five (5) days after receiving a written request from any of the
aforesaid parties to do so. The failure by the Company or the Agent to submit
any dispute to arbitration as requested may result in the commencement of an
arbitration proceeding against such party. The parties further agree that any
hearing scheduled after an arbitration proceeding is initiated by any of the
aforesaid parties shall take place in New Jersey. The parties acknowledge that
the result of the arbitration proceeding shall be final and binding on all of
the parties to the proceeding, and by agreeing to arbitration the parties are
waiving their respective rights to seek remedies in Court.

 

18.Dollar Amounts.

 

All dollar amounts in this Agreement are in United States Dollars.

 

19.Counterparts.

 

This Agreement may be executed in one or more counterparts and, if executed in
more than one counterpart, the executed counterparts shall each be deemed to be
an original and all such counterparts shall together constitute one and the same
instrument. Signatures of authorized individuals made and transmitted via
electronic means (facsimile or scanned as a PDF) are deemed acceptable to all
parties.

 

Please sign and return to the Company the enclosed duplicates of this letter
whereupon this letter will become a binding agreement between the Company and
the Agent in accordance with its terms.

 

Very truly yours,

 

NETWORK 1 FINANCIAL SECURITIES, INC. (Agent)

 

By: /s/ William R. Hunt Jr.     William R. Hunt, Jr., President  

 

Confirmed as of the date first above-mentioned.

 

ZION OIL AND GAS, INC. (Company)

 

By: /s/ Martin M. van Brauman     Martin M. van Brauman,
Senior Vice President, Secretary-Treasurer & Director  

 

 21 

 

 

EXHIBIT A

 

  Description Maximum Liability
of the Company
is limited to
such amount (1) A. The Agent’s reasonable and documented legal and accounting
fees and disbursements, including but not limited to, fees, disbursements and
expenses of the Agent’s counsel, the costs of preparing, filing, mailing and
delivering the Prospectus Supplement and amendments thereto, post-effective
amendments and supplements thereto (all in such quantities as the Agent may
reasonably require), the costs of preparing the Placement Agreement and related
documents, and submission to Advertising Department. Up to $50,000       B. The
cost of any “due diligence” meetings and research, as needed. Up to $5,000      
C. All reasonable and documented fees and expenses for travel and conducting a
road show presentation, and related out-of-pocket expenses with the Company’s
prior written  approval Up to $5,000       D. FINRA filing fees and expenses
incident to any required review and approval by FINRA of the Agent’s terms of
compensation for the sale of the Bonds and compliance with advertising
guidelines. $5,000       E. Broker-dealer clearing firm charges, including but
not limited to review fees, Depositary Trust Company fees for clearing, and
other services, including but not limited to fees required by Depositary Trust
Company and the Deposit and Withdrawal as Custodian (DWAC) System Transfer
taxes, if any, payable upon the transfer of securities from the Company to
investors, and fees and expenses of the transfer agent and registrar for the
Bonds, Warrants and the underlying Common Stock. [To be determined       F. All
other costs and expenses incident to the performance of the Agent’s obligations
hereunder that are not otherwise specifically provided for herein. [To be
determined]

 

(1) These figures in this column are estimates only. They are provided by the
Agent as a courtesy to assist the Company with respect to its financial planning
and are not intended to, and shall not, bind the Agent or the Company in any
way. Notwithstanding the foregoing sentence, Agent agrees to limit such costs
and expenses, with the exception of the fees and expenses described in row E, to
$75,000.

 

 22 

 

 

EXHIBIT B

 

Form of U.S. Subscription Agreement

 

[To be provided separately]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23