DESCRIPTION
OF THE PLAN
The
following is a detailed description of the Plan in question-and-answer format.
PLAN
OVERVIEW
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1.
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What
is the purpose of the Plan?
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The
Plan provides Zion with an economical and flexible mechanism to raise equity capital through sales of our Common Stock and Units.
We will be using these proceeds to further our operations, including our exploration for oil and gas in onshore Israel.
The
Plan is also intended to promote long-term stock ownership among existing and new investors in Zion by providing a convenient
and economical method to purchase shares of our Common Stock and reinvest cash dividends in shares of common stock (when we pay
dividends in the future, if ever)
without payment of a brokerage commission
.
The
Plan is designed for long-term investors who wish to invest and build their share ownership over time. The Plan is not intended
to provide holders of shares of Common Stock with a mechanism for generating assured short-term profits through rapid turnover
of shares acquired at a discount. The Plan’s intended purpose precludes any person, organization or other entity from establishing
a series of related accounts for the purpose of conducting arbitrage operations and/or exceeding the optional monthly cash investment
limit. We reserve the right to modify, suspend or terminate participation in this Plan by otherwise eligible holders of our Common
Stock or new investors in order to eliminate practices that we determine, in our sole discretion, to be inconsistent with the
purposes of the Plan or that could reasonably be used to circumvent the rules of the Plan.
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2.
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What
features does the Plan offer
?
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Initial
investment.
If you are not an existing shareholder with a Plan Account through the Plan Agent, you can make an initial investment
in Zion’s Common Stock, starting with as little as $250. If you wish to make initial cash investments in excess of $10,000
for the purchase of stock, you will need to obtain our written approval. See Question 13.
If
you wish, you can also apply this amount to the purchase of Units, so long as the Units are available for purchase. Please note
that the dollar limitation of $10,000 and the approval of the “Request for Waiver” for amounts in excess of $10,000
do not apply to Unit purchases.
Optional
monthly cash investments.
Once you are a registered shareholder with a Plan Account through the Plan Agent, you can increase
your holdings of our Common Stock through optional monthly cash investments of $50 or more. Participants are not required to make
additional investments. You can make optional monthly cash investments by check, or electronically with deductions from your personal
bank account. If you wish to make monthly cash investments in excess of $10,000 for the purchase of stock, you will need to obtain
our prior written approval. See Question 13.
For
monthly automatic cash purchases, participants must complete the Enrollment Form, checking the box for Automatic Monthly Investments,
indicate the amount of the monthly debit (minimum $50, maximum $10,000 (unless you obtain our prior written approval)) and include
a voided check for the account to be debited. Only accounts at U.S. banks can participate in this program.
Checks
drawn on U.S. banks must be received at least three business days before the Purchase Dates. Purchases of shares and/or Units
are recorded daily (the “Purchase Date”). For ACH withdrawals that have been set up by the Plan Agent, the Plan Agent
would debit the bank account only on the 25
th
of the month.
You
can also apply these amounts to the purchase of Units, as long as the Units are available for purchase under the Plan. Please
note that the dollar limitation of $10,000 and the approval of the “Request for Waiver” for amounts in excess of $10,000
do not apply to Unit purchases.
Automatic
dividend reinvestment.
You can also increase your holdings of our Common Stock through automatic reinvestment of your cash
dividends (when and if dividends are paid in the future). You will also be credited with dividends on fractions of shares you
hold in the Plan. You can elect to reinvest all or a portion of your dividends. However, Participants electing to reinvest dividends
are required to reinvest at least 10% of the dividend to qualify as a dividend reinvestment program under I.R.S. Regulations.
To date, Zion has not paid dividends on its common stock and no assurance can be given as to when, if ever, Zion will be able
to pay dividends on its common stock
.
Mandatory
Share Deposit for Discounted Shares.
As a participant, you are required to have your Common Stock held in book entry form
in the Plan with the Plan Agent for at least six (6) months after the date of purchase of your shares for any discounted shares.
Any shares withdrawn from the Plan Account within six (6) months after the date of purchase will be subject to a withdrawal penalty.
See Question 18.
You
are not required to deposit shares of Common Stock and Warrants that are purchased as part of a Unit and also you are not subject
to any withdrawal fee for such securities.
Automated
transactions.
The Plan Agent does not have online interactive purchase facilities. The Plan Agent does provide the Plan Prospectus
and enrollment forms online. Participants will be able to view their accounts and statements online.
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3.
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How
does the purchase of Units work?
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We
offer for limited time periods, the opportunity to purchase Units of our securities where each Unit is comprised of one or more
shares of Common Stock and one or more Common Stock purchase warrants. The Warrant affords you the opportunity to purchase additional
shares of our Common Stock at a fixed warrant exercise price. The Warrants would become first exercisable on the 31
st
day following the Unit Option Termination Date and continue to be exercisable through the expiration date at a per share fixed
exercise price. The Warrants would not be exercisable prior to such date. We may file an application with NASDAQ to list the Warrants
on the NASDAQ Global Market; however, no assurance can be provided that any warrants would be approved for listing on the NASDAQ
Global Market.
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4.
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What
is the price that I will pay for shares of Common Stock under the Plan?
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Checks,
bank wire payments, or electronic bank payments for purchases received by the Plan Agent, or at the offices of the Company, before
12 noon (EST) on a business day generally will be recorded as purchased on the same business day (the “Purchase Date”).
The Plan Agent has online interactive purchase facilities (www.amstock.com) to handle electronic enrollment and electronic check
processing. In addition, the same electronic services are offered through the Company’s website (www.zionoil.com). Checks,
bank wire payments, or electronic bank payments for purchases received by the Plan Agent, or at the offices of Company, after
12 noon (EST) on a business day generally will be recorded as purchased on the next business day for the Purchase Date. Electronic
bank payments are treated as received and recorded on the date of receipt of the funds into the Plan Agent’s or the Company’s
bank account.
The
price at which shares will be deemed purchased and credited to the investor’s account will be at the average of the high
and low sale prices of the Company’s publicly traded Common Stock as reported on the NASDAQ on the Purchase Date.
Any
discount is subject to periodic change by Zion. Zion reserves the sole discretion to determine any current or future discount
off the Market Price of the Publicly Traded Stock for continuing investments in shares of our Common Stock. Zion shall have the
sole discretion to determine, if there is to be a Discount Amount, if any, and the duration of the Discount Period. The Discount
Period and the Discount amount, if any, shall be posted on the Zion website and the Plan Agent’s website at least two business
days prior to the next succeeding Purchase Date.
Your
Plan account will be credited with the number of shares (including fractional shares, computed to four decimals) equal to the
amount invested for your Plan account divided by the applicable price per share.
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5.
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What
is the price that I will pay for Units under the Plan?
|
The
Unit will be offered directly to Plan participants at a price per Unit to be fixed periodically by Zion. Changes to the per Unit
purchase price will be posted on the Zion website and the Plan Agent’s website at least two business days prior to the next
succeeding Purchase Date.
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6.
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When
will purchases of shares or Units be actually made?
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Since
only shares are purchased directly from the Company, the investor’s Plan account will be credited with the number of shares
(including fractional shares, computed to three decimals) of the Company’s Common Stock that was purchased. The price at
which shares will be deemed purchased and credited to the investor’s account will be at the average of the high and low
sale prices of the Company’s publicly traded Common Stock as reported on the NASDAQ on the Purchase Date. Transaction confirmations
are communicated daily by the Plan Agent and also quarterly and year-end statements are mailed by the Plan Agent.
Under
dividend reinvestments, the Plan Agent will combine the dividend funds of all Plan participants whose dividends are automatically
reinvested and will generally invest such dividend funds on the dividend payment date (and any succeeding trading days necessary
to complete the order). If the dividend payment date falls on a day that is not a trading day, then the investment will occur
on the next NASDAQ trading day. In addition, if the dividend is payable on a day when optional cash payments are to be invested,
dividend funds may be commingled with any such pending cash investments and a combined order may be executed. The record date
associated with a particular dividend is referred to as the “dividend record date”.
Zion
shall have the sole discretion to determine, if there is to be a discount to the Market Price of the Publicly Traded Stock. The
Discount Amount, if any, and the duration of the Discount Period shall be posted on the Zion website and the Plan Agent’s
website at least two business days prior the next succeeding Purchase Date. Modifications of the Discount Amount and the Discount
Period will become effective on the succeeding Purchase Date following the announcement of such change.
No
interest will be paid on cash held pending purchase.
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7.
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Where
will the shares under the Plan come from?
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Shares
under the Plan, whether sold directly, or as part of a Unit or issued upon the exercise of a Warrant, will be purchased directly
from Zion from our pool of authorized and unissued Common Stock.
Currently,
Zion has reserved approximately 12,000,000 shares of its authorized and unissued shares of Common Stock to purchases under the
Plan.
ADMINISTRATION
OF THE PLAN
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8.
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Who
administers the Plan?
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The
Plan is administered by American Stock Transfer & Trust Company, LLC (the “Plan Agent”). The Plan Agent
keeps records, sends statements of account to Plan participants and performs other duties relating to the Plan. The
Common Stock purchased in your Plan account will be registered in the name of the Plan Agent. You may, at any time,
withdraw all or any part of the shares held in your Plan account; subject to applicable withdrawal fees (see Question 18). Special
arrangements may be made with the Plan Agent if you are an institution that is required by law to maintain physical possession
of share certificates.
Also,
the Plan Agent acts as the warrant agent, receiving Unit purchases, accepting exercises, issuing common stock and warrants and
forwarding funds when requested.
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9.
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How
do I contact the Plan Agent or the Company?
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Plan
Agent
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Company
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Written
Inquiries:
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Zion
Oil & Gas, Inc.
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Zion Oil & Gas, Inc.
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c/o
American Stock Transfer
&
Trust Co., LLC
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12655 North Central Expressway Suite 1000
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6201
15
th
Avenue
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Dallas, Texas 75243
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Brooklyn,
NY 11219
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Attn: Investor Relations
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invest@zionoil.com
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www.amstock.com
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www.zionoil.com
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Phone
Inquiries:
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(844)
699-6645 (Domestic)
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(214) 221-4610
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(718)
921-8205 (International)
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10.
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What
kind of reports will be sent to participants in the Plan?
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As
a Plan participant, you will receive a statement of your account as soon as practicable after each transaction (i.e., dividend
reinvestment, optional cash payments, share withdrawals, transfers, Unit purchases, warrant transactions, etc.) is posted to your
Plan account. You should retain these statements in order to establish the cost basis of shares and Warrants purchased
under the Plan for income tax and other purposes. In addition, you will receive copies of all communications sent to
all other shareholders, such as annual and quarterly reports, proxy statements and income tax information for reporting dividends
paid. Under certain circumstances, in lieu of copies, you may receive a Notice of Internet Availability of Proxy Materials
providing access to the Company’s proxy statement and annual report online. The Plan Agent will provide account and statement
information online to investors.
PLAN
ELIGIBILITY AND ENROLLMENT
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11.
|
Who
is eligible to participate in the Plan?
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Any
person or legal entity is eligible to participate in the Plan. You do not have to be a current shareholder, nor do you have to
reside or be located in the U.S. or be a U.S. citizen. In all cases, purchases of shares of Common Stock or Units through the
Plan are usually made in U.S. currency, drawn on a U.S. bank account or by a wire in U.S. currency from a foreign bank account.
We
have successfully implemented an electronic enrollment procedure with the Telecheck Internet Check Acceptance service as a payment
method. In addition to the enrollment procedures otherwise specified with the mailing to the Plan Agent of the signed Plan Enrollment
Form and check payment, current stockholders and prospective investors may enroll in the Plan by the procedures that allow for
an acceptance of an electronic signature and date to the Plan Enrollment Form and a secure internet check acceptance by First
Data/Citibank Merchant Services as coordinated with the Plan Agent.
Electronic
enrollment and payment procedures have been implemented, in which AST can accept electronic enrollment and electronic bank payments
in U.S. Dollars and international shareholders and investors can make payments in British Pounds, Euros, Swiss Francs, Israeli
Shekels, or Canadian Dollars for DSPP purchases through the Company as coordinated with AST. Funds received in foreign currency
will be recorded by AST in US Dollars based upon the New York Closing Foreign Exchange Rate (5:00 p.m. EST) on the Purchase Date
as published online in the Wall Street Journal, Market Data Center under Currencies (www.wsj.com/mdc).
In
addition, before investing in our Common Stock and/or Units, each participant who resides or is located outside the U.S. is responsible
for reviewing the laws of his or her country of residence or other applicable laws to determine if there are any restrictions
on his or her ability to invest through the Plan.
Investors
who are not U.S. persons should keep the following in mind: (1) they may face tax obligations in their own country on dividends
and company-paid fees; (2) investments must be made using U.S. currency, drawn on a U.S. bank account or by a wire in U.S. currency
from a foreign bank account; (3) the enrollment procedure is the same as for U.S. taxpayers, except that a W-8 tax form must be
filed so that withholding on dividends will be reduced to the Tax Treaty amount for the resident country of the investor, if there
is an income tax treaty between the United States and the resident country of the investor .
The
Plan Agent or Zion may refuse to offer the Plan to residents of any state that may require registration, qualification or exemption
of the securities to be issued under the Plan, or require registration or qualification of the Plan Agent or any of its officers
or employees as a broker-dealer, a salesperson or an agent, where we determine, in our sole discretion, that the number of shareholders
or the number of shares held does not justify the expense that we may incur with respect to effecting sales of our common stock
under the Plan in the state.
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12.
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How
can I participate in the Plan?
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Current
Shareholders of Record
If
you already hold shares of our common stock registered in your name, you may join the Plan by returning a completed enrollment
form to the Plan Agent. Your participation will begin promptly after your signed Enrollment Form is received by the Plan Agent.
Once you have enrolled, your participation will continue automatically until either you elect to withdraw from the Plan or we
terminate the Plan or your participation in the Plan.
However, any Plan discounts apply only to new purchases under the Plan
of Common Stock and/or Unit purchases and not to existing shareholders depositing current Common Stock with the Plan Agent.
New
Investors
If
you are not a current shareholder, you may join the Plan by returning to the Plan Agent a completed enrollment form along with
an initial investment of at least $250, but not more than $10,000 (subject to our right to waive this maximum, see Question 13)
for direct Common Stock purchases.
Along
with the Enrollment Form, the new investor must send a voided check to have electronic debits processed from your bank account
for your initial investment or send your initial investment by check payable to the “Registrar and Transfer Company.”
You are being required to send a voided check so as to prevent any mistakes that can be made in submitting the correct account
Beneficial
Owners and Shares Held in “Street Name”
If
you are a beneficial owner of Zion’s Common Stock and your shares are registered in the name of a bank, broker, trustee
or other agent, you may transfer your shares to a Plan account to enroll in the dividend reinvestment program by instructing your
bank, broker, trustee or agent to transfer shares into your name and following the above instructions for Current Shareholders
or by following the above instructions for New Investors.
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13.
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How
may I invest in excess of $10,000 under the Plan?
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If
you want to make optional monthly cash investments in excess of $10,000 in any month or an initial investment in excess of $10,000
for direct Common Stock purchases, you must receive our written approval. To obtain our written approval, you must submit a “Request
for Waiver” form. You can obtain a Request for Waiver form on our website or the website of the Plan Agent at www.rtco.com
or by contacting Zion Oil & Gas, Inc., Investor Relations, 12655 North Central Expressway, Suite 1000, Dallas, Texas 75243
Upon completion, please send it directly to Zion Oil & Gas, Inc. for review and approval. Zion should notify the investor
and the Plan Agent of approval of the Waiver as well as the form of the payment (wire or check). We have the sole discretion to
approve or refuse any request to make an optional monthly cash investment or initial investment in excess of the maximum amount
and to set the terms of any such optional monthly cash investment or initial investment.
We
will decide whether to approve a submitted Request for Waiver within three (3) business days of the receipt of the request. If
you do not receive a response from us in connection with your request, you should assume that we have denied your request. If
a request is approved, funds must be received by the Plan Agent by wire transfer no later than 3:00 p.m. Eastern time, one business
day prior to the first day of the applicable “Pricing Period” (as defined below). We may alter, amend, supplement
or waive, in our sole discretion, the time periods and/or other parameters relating to optional cash purchases in excess of $10,000
made by one or more participants in the Plan or new investors, at any time and from time to time, prior to the granting of any
Request for Waiver.
If
we approve your Request for Waiver, we will notify you promptly. In deciding whether to approve a Request for Waiver, we will
consider relevant factors, including, but not limited to, the following:
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●
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our
need for additional funds;
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●
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the
attractiveness of obtaining additional funds through the sale of common stock as compared to other sources of funds;
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●
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the
purchase price likely to apply to any sale of common stock;
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●
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the
shareholder submitting the request;
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●
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the
extent and nature of the shareholder’s prior participation in the Plan;
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●
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the
number of shares of common stock held of record by the shareholder;
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●
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the
aggregate number of cash investments and initial investments in excess of $10,000 for which requests for waiver have been
submitted by all existing shareholders and new investors; and
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●
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our
current and projected capital needs.
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If
requests for waiver are submitted for an aggregate amount in excess of the amount we are then willing to accept, we may honor
such requests in order of receipt, pro rata or by any other method that we determine to be appropriate. We may determine, in our
discretion, the maximum amount that an existing shareholder or new investor may invest pursuant to the Plan or the maximum number
of shares of Common Stock that may be purchased pursuant to a request for waiver. In addition, we may place reasonable conditions
regarding the form and timing of payment on the granting of any waiver.
Purchase
Price of Shares for Optional Cash Investments in Excess of $10,000.
Shares purchased pursuant to an approved Request for Waiver
will be purchased directly from us as described herein, including the establishment of a “Threshold Price” and a “Waiver
Discount,” as more fully described below. If we grant your request to purchase shares pursuant to a Request for Waiver,
there will be a “Pricing Period,” which will generally consist of one to 15 consecutive separate trading days on the
NASDAQ, to be determined at our discretion. Each of these separate trading days will be a “Purchase Date,” and an
equal proportion of your optional cash investment will be invested on each trading day during such Pricing Period, subject to
the qualifications listed below. The “Purchase Price” for shares acquired on a particular Purchase Date will be equal
to 100% (subject to change as provided below) of the volume weighted average price, rounded to four decimal places, of our common
shares as reported by NASDAQ for the trading hours from 9:30 a.m. to 4:00 p.m., Eastern time (through and including the NASDAQ
closing print), for that Purchase Date. For example, if a cash investment of $1,000,000 is made pursuant to an approved Request
for Waiver, and the Pricing Period consists of ten trading days, there would be ten separate investments, each for $100,000, beginning
on the Pricing Period commencement date and continuing for ten trading days. The number of shares purchased for each Purchase
Date would be calculated by dividing the proportionate amount of the approved waiver request amount, in this example $100,000,
by the volume weighted average price as reported by NASDAQ, rounded to four decimal places, for the trading hours from 9:30 a.m.
to 4:00 p.m., Eastern time (through and including the NASDAQ closing print), for that Purchase Date, less any Waiver Discount.
Plan shares will not be available to Plan participants until the conclusion of each Pricing Period or investment, unless we activate
the Continuous Settlement Feature (see below).
The
Plan Agent will apply all optional cash purchases made pursuant to a Request for Waiver for which good funds are received on or
before the first business day before the Pricing Period to the purchase of shares of Common Stock on each Purchase Date of the
applicable Pricing Period.
Threshold
Price.
For any given Pricing Period, we may establish a minimum price, or “Threshold Price,” applicable to optional
cash purchases made pursuant to a Request for Waiver. This determination will be made by us in our discretion after a review of
current market conditions, the level of participation in the Plan, and current and projected capital needs.
If
established for any Pricing Period, the Threshold Price will be stated as a dollar amount that the volume weighted average price,
rounded to four decimal places, of our common shares as reported on the NASDAQ for the trading hours from 9:30 a.m. to 4:00 p.m.,
Eastern time (through and including the NASDAQ closing print), for each trading day of such Pricing Period (not adjusted for discounts,
if any) must equal or exceed. Except as provided below, we will exclude from the Pricing Period any trading day that the volume
weighted average price is less than the Threshold Price. We also will exclude from the Pricing Period and from the determination
of the purchase price any day in which no trades of our common shares are made on the NASDAQ. For example, if the Threshold Price
is not met for two of the trading days in a 10 day Pricing Period, then we will return 20% of the funds you submitted in connection
with your Request for Waiver unless we have activated the Pricing Period Extension Feature for the Pricing Period (described below).
Pricing
Period Extension Feature.
We may elect to activate for any particular Pricing Period the “Pricing Period Extension Feature,”
which will provide that the initial Pricing Period will be extended by the number of days that the Threshold Price is not satisfied,
or on which there are no trades of our common shares reported by NASDAQ, subject to a maximum of five trading days. If we elect
to activate the Pricing Period Extension Feature and the Threshold Price is satisfied for any additional day that has been added
to the initial Pricing Period, that day will be included as one of the trading days for the Pricing Period in lieu of the day
on which the Threshold Price was not met or trades of our common shares were not reported. For example, if the determined Pricing
Period is 10 days, and the Threshold Price is not satisfied for three out of those 10 days in the initial Pricing Period, and
we had previously announced at the time of the Request for Waiver acceptance that the Pricing Period Extension Feature was activated,
then the Pricing Period will automatically be extended, and if the Threshold Price is satisfied on the next three trading days
(or a subset thereof), then those three days (or a subset thereof) will become Purchase Dates in lieu of the three days on which
the Threshold Price was not met. As a result, because there were 10 trading days during the initial and extended Pricing Period
on which the Threshold Price was satisfied, all of the optional cash purchase will be invested.
Continuous
Settlement Feature
. If we elect to activate the Continuous Settlement Feature, shares of Common Stock will be available to
Plan Participants within three business days of each Purchase Date beginning on the first trading day in the applicable Pricing
Period and ending on the final trading day in the applicable Pricing Period, with an equal amount being invested on each such
day, subject to the qualifications set forth above. We may elect to activate the Continuous Settlement Feature at the time of
the Request for Waiver form acceptance.
Return
of Unsubscribed Funds.
We will return a portion of each optional cash investment, provided the total optional cash investment
is in excess of $10,000, for each trading day of a Pricing Period or extended Pricing Period, if applicable, for which the Threshold
Price is not met or for each day in which no trades of our common shares are reported on the NASDAQ, which we refer to as unsubscribed
funds. Any unsubscribed funds will be returned within three business days after the last day of the Pricing Period, or if applicable,
the extended Pricing Period, without interest. The amount returned will be based on the number of days on which the Threshold
Price was not met compared to the number of days in the Pricing Period or extended Pricing Period. For example, the return amount
in a 10 day Pricing Period will equal one-tenth (1/10) of the total amount of such optional cash investment (not just the amount
exceeding $10,000) for each trading day that the Threshold Price is not met or for each trading day in which sales are not reported.
The
establishment of the Threshold Price and the possible return of a portion of the investment apply only to optional cash investments
in excess of $10,000. Setting a Threshold Price for a Pricing Period will not affect the setting of a Threshold Price for any
other Pricing Period. We may waive our right to set a Threshold Price for any particular Pricing Period.
In
any event, no interest will be paid on returned funds.
Waiver
Discount
. We may establish a discount from the market price applicable to optional cash investments in excess of $10,000 made
pursuant to a Request for Waiver. This discount, which we also refer at as the “Waiver Discount,” may be between 0%
and 10% of the purchase price and may vary for each Pricing Period and for each optional cash investment.
The
Waiver Discount will be established at our sole discretion after a review of current market conditions, the level of participation
in the Plan, the attractiveness of obtaining such additional funds through the sale of common shares as compared to other sources
of funds, current and projected capital needs and other factors that we determine in our sole discretion. Setting a Waiver Discount
for a particular Pricing Period shall not affect the setting of a Waiver Discount for any other Pricing Period. The Waiver Discount
will apply only to optional cash investments of more than $10,000 (or other applicable maximum monthly amount). The Waiver Discount
will apply to the entire optional cash investment and not just the portion of the optional cash investment that exceeds $10,000.
A Pricing Period is the time period, in which we establish certain Waiver Discounts to be in effect with a specified discount
amount.
The
above restriction and Waiver Discount apply only to direct stock purchases. The dollar limitation of $10,000, the Waiver Discount
and the approval of the “Request for Waiver” for amounts in excess of $10,000 do not apply to Unit purchases.
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14.
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Are
there fees associated with enrollment?
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No. The
Company pays all fees, administrative and other expenses related to your Plan enrollment. However, you may incur certain charges
for certain other transactions, requests or withdrawals under the Plan. However, Participants can be subject to an early withdrawal
fee on direct stock purchases at a discounted price and would be responsible for any brokerage commissions attributable to any
open market sale.
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15.
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Are
there special eligibility or enrollment rules applicable to Company employees?
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Yes, if you are a Company
employee, you have the additional option of purchasing shares through automatic payroll deductions. Employees who participate
through the automatic payroll deduction option may open a Plan account simply by completing an Enrollment Form and returning it
to Zion
. Otherwise, the stock purchase plans are available on equal terms to all shareholders, new investors and Company employees.
MANDATORY
BOOK-ENTRY SERVICES
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16.
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What
is meant by book-entry shares?
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All
shares of Zion Oil’s Common Stock that are purchased through the Direct Stock Plan will be held by the Plan Agent and reflected
in book-entry form in your account on the records of the Plan Agent. If you hold other Zion Common Stock certificates,
you may also, at any time, deposit those certificates with the Plan Agent, but the shares represented by the deposited certificates
will not be included in the book-entry form in your Plan account.
Note: The certificates should not be endorsed and the
assignment section should not be completed.
The
Common Stock and Warrants purchased as part of a Unit will also be held in book-entry form with the Plan Agent, unless a Participant
requests delivery of the certificates representing the Common Stock and/or Warrants in whole shares with a check representing
fractional shares and/or warrants.
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17.
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Are
there any charges associated with this book entry service?
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No. There
is no cost to you either for having the Plan Agent hold the shares purchased for you through the Plan or for depositing with the
Plan Agent the stock certificates you hold for the purpose of adding the shares to your book-entry share position. However,
you may incur certain charges for certain other transactions, requests or withdrawals under the Plan.
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18.
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Are
there fees associated with withdrawing share certificates within the six month period following purchase?
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Yes.
Any shares withdrawn from the Plan Account within six (6) months after the date of purchase will be charged a withdrawal fee equal
to the discount to the Market Price of the Publicly Traded Stock that you received when purchasing the shares being withdrawn,
up to a maximum of the number of shares purchased at the discounted price. Shares cannot be transferred within the Plan or gifted
without incurring the same withdrawal fee, whether by act of law or by voluntary transfer. The Participant is subject to the withdrawal
fee at the time of withdrawal. The withdrawal fee will also apply to any purchases of shares made at the discounted price through
automatic dividend reinvestment and employee payroll deductions (if applicable) during the six (6) month period before the date
of withdrawal. The Participant must send in a check for the amount of the withdrawal fee for the applicable shares being withdrawn
from the Plan, or, alternatively, the Plan Agent is authorized to sell sufficient whole shares equal to the withdrawal fee and
remit the residual whole shares and cash in lieu of fractional shares to the requesting Participant.
The
above provisions do not apply to shares of Common Stock and Warrants purchased as part of a Unit, along with any shares issuable
upon exercise of a Warrant. Also, the above provision does not apply to any shares purchased without any discount to the Market
Price of the Publicly Traded Stock.
PURCHASE
OF UNITS
|
19.
|
Will
the Unit that I purchase under the Plan be tradable?
|
No.
The Units are not tradable. The shares of Common Stock and Warrants are being sold as part of a Unit solely for convenience sake
and immediately upon purchase the shares of Common Stock and Warrants are separable and will trade separately.
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20.
|
Will
the shares of Common Stock and Warrants that I receive from the Units be tradable on the NASDAQ Global Market?
|
Our
common stock is currently traded on the NASDAQ Global Market under the symbol “ZN”. The Units are non-transferable
and will not be traded. The Common Stock included in the Units will be listed for quotation on the NASDAQ Global Market under
the symbol “ZN”.
The
Warrants included in the Units will be separately transferable following their issuance. The Warrants will become first exercisable
on the 31
st
day following any Unit Option Termination Date and continue to be exercisable through the expiration date
at a fixed per share exercise price. The Warrants would not be exercisable prior to such date. We may file an application with
NASDAQ to list the Warrants on the NASDAQ Global Market; however, no assurance can be provided that the warrants would be approved
for listing on the NASDAQ Global Market.
The
shares of Common Stock issuable upon exercise of the Warrants would be immediately tradable upon issuance and would be listed
for quotation on the NASDAQ Global Market under the symbol “ZN”, assuming that the registration statement, as amended,
of which this Prospectus Supplement forms a part remains effective, and that our Common Stock is still listed on the NASDAQ Global
Market, at that time. Such registration statement, as amended, was declared effective by the SEC on March 10, 2017 and, therefore,
expires on the third anniversary thereof, subsequent to a 180 day grace period. Such registration statement, as amended, is sometimes
referred to herein as the “registration statement” or the “shelf registration statement.”
The
Common Stock and Warrants purchased as part of a Unit will be held in book-entry form with the Plan Agent, unless a Participant
requests delivery of the certificates representing the Common Stock and/or Warrants in whole shares with a check representing
fractional shares and/or warrants.
OPTIONAL
CASH PAYMENTS
|
21.
|
How
does the cash payment option work? What are the minimum and maximum amounts for optional cash payments?
|
As
a Plan participant, you may (but are not required to) make optional cash payments at any time in our Common Stock in amounts of
at least $50, subject to a limitation of $10,000, per month, subject to the “Request for Waiver” for amounts greater
than $10,000 per month.
All
optional cash payments will be invested in our Common Stock on the 25
th
day of each calendar month and if such day
falls on a holiday or a weekend, then on the next trading day. See Question 6. Interest will not be paid on funds held pending
investment.
|
22.
|
How
do I make an optional cash payment?
|
Optional
cash payments may be made by sending a personal check, drawn from a U.S. Bank in US Dollars, or by sending a bank wire in U.S.
dollars, payable to “American Stock Transfer & Trust Co., LLC,” (“AST”) along with the Enrollment
Form. AST can accept electronic enrollment and electronic bank payments in U.S. Dollars and international shareholders and investors
can make payments in British Pounds, Euros, Swiss Francs, Israeli Shekels, or Canadian Dollars for DSPP purchases through the
Company as coordinated with AST. Funds received in foreign currency will be recorded by AST in US Dollars based upon the New York
Closing Foreign Exchange Rate (5:00 p.m. EST) on the Purchase Date as published online in the Wall Street Journal, Market Data
Center under Currencies (www.wsj.com/mdc).
If
you elect this option, your funds will be debited from your bank account on the 25
th
day of each month (the “Purchase
Date”). If the 25
th
day of the month is a weekend or holiday, the debit date will be the next succeeding business
day. The price at which shares will be deemed purchased and credited to the investor’s Plan account will be at the average
of the daily averages of the high and low sale prices of the Company’s publicly traded Common Stock as reported on the NASDAQ
for the five trading day period ending on the Purchase Date (hereinafter the “Market Price of the Publicly Traded Stock”).
You may change the amount of funds to be deducted or terminate an automatic monthly investment of funds by either accessing your
account online (www.amstock.com) or by completing and submitting to AST a new automatic investment form.
|
23.
|
Will
I be charged fees for optional cash payments?
|
No. You
will not be charged any fees in connection with your optional cash payments. However, you may incur certain charges
for certain other transactions, requests or withdrawals under the Plan.
|
24.
|
How
are payments with “insufficient funds” handled?
|
If
an optional cash payment is made by a check drawn on insufficient funds or incorrect draft information, or the Plan Agent otherwise
does not receive the money, the requested purchase will be deemed void, and the Plan Agent will immediately remove from your account
any shares already purchased upon the prior credit of such funds.
ISSUANCE
OF STOCK CERTIFICATES
|
25.
|
Will
stock certificates be issued for shares acquired through the Plan?
|
No. Stock
certificates will not be issued for direct purchases of shares of Common Stock in a Plan account unless a specific request is
made to the Plan Agent
.
|
26.
|
How
do I request a stock certificate?
|
Certificates
for full shares held in the Plan may be obtained, without charge, by writing to the Plan Agent and requesting the issuance of
shares in certificate form with the exception of the Withdrawal Fee in Question 18, if the Fee applies.
Certificates
for fractional shares will not be issued under any circumstances.
|
27.
|
Can
I pledge or assign the shares held in my Plan account?
|
No. Shares
held in your Plan account may not be pledged or assigned. If you wish to pledge or assign your shares, you first must
write to the Plan Agent and request the issuance of shares in certificate form, and pay any applicable withdrawal fees.
GIFTS
AND TRANSFERS OF SHARES
|
28.
|
Can
I transfer shares that I hold in the Plan to someone else?
|
Yes. Subject
to compliance with all applicable laws, you may transfer ownership of some or all of your Plan shares by sending the Plan Agent
written, signed transfer instructions. You will be responsible for any applicable taxes in connection with the transfer.
However, a new or existing shareholder must sign an Enrollment Form in order to become a Plan Participant.
You
may transfer shares to new or existing shareholders. The Participant will be responsible for any brokerage commissions,
if there are any with any sales. If you are opening a new Plan account for the transferee, you must include a completed Enrollment
Form with the gift/transfer instructions; however, a new Plan account will not be opened as a result of a transfer of fewer than
ten (10) shares, unless you (i) authorize the reinvestment of dividends on the shares to be transferred and (ii) include an optional
cash payment with your transfer instructions sufficient to purchase the remainder of the ten (10) shares required to enroll. The
Plan Agent may charge the Participant a $15 fee for this transfer service, subject to any applicable Withdrawal Fee in Question
18.
CHANGING
METHOD OF PARTICIPATION AND WITHDRAWAL
|
29.
|
How
do I change my method of participation in the Plan?
|
You
may change your method of participation at any time by completing a new Enrollment Form and returning it to the Plan Agent.
|
30.
|
How
do I close my Plan account?
|
You
may terminate your participation in the Plan by giving written notice to the Plan Agent. Upon termination, you must
elect either (a) to receive a certificate for the number of whole shares held in your Plan account and a check for the value of
any fractional share (which value will be based on the closing market price on NASDAQ of the Common Stock on the first day that
shares of Common Stock are traded after the withdrawal request is received); or (b) to have all of the shares in your Plan account
sold for you. If you request that your shares be sold, the Plan Agent will make the sale in the market, if practicable,
within ten (10) trading days after receipt of the request. You will receive the proceeds of sale, less any brokerage
commission and transfer tax. Receipt by the Plan Agent of due notice of a participant’s death or incompetence shall be deemed
a notice of withdrawal. Medallion Signature Guarantee is required for sale requests of $10,000 or higher. Because
the Plan Agent will sell shares, on behalf of the Plan, neither the Company nor any participant under the Plan has the authority
or power to control the timing or pricing of sales, or the selection of the broker dealer making the sales. Therefore,
you will not be able to precisely time your sales through the Plan, and will bear the market risk associated with fluctuation
in the price of the Company’s Common Stock. The price of the Common Stock could go up or down before the broker
sells your shares. In addition, you will not earn interest on any cash proceeds generated by a sales transaction for
your account.
Any
certificates issued upon termination will be issued in the name or names in which the account is registered, unless otherwise
instructed. If the certificate is to be issued in a name other than the name or names on your Plan account, your signature
(and that of any co-owner) on the instructions or stock power must be “Medallion Guaranteed” by a financial institution
participating in the Medallion Guarantee program. You will be responsible for any applicable taxes in connection with the transfer. No
certificates will be issued for fractional shares. The Participant is responsible for any brokerage commissions.
The
Plan Agent will process notices of withdrawal and send proceeds to you as soon as practicable, without interest. If
a notice of withdrawal is received on or after an ex-dividend date but before the related dividend payment date, the withdrawal
will be processed as described above and a separate dividend check will be mailed as soon as practicable following the payment
date. Thereafter, cash dividends will be paid out to the shareholder and not reinvested in Company Common Stock.
If
a notice of withdrawal is received by the Plan Agent at least two (2) days prior to an optional cash payment purchase date, any
optional cash payment held by the Plan Agent will be returned to you as soon as practicable.
Signatures
of all registered holders must be “Medallion Guaranteed” by a financial institution participating in the Medallion
Guarantee program for all sale requests. The Medallion Guarantee program ensures that the individual signing is in
fact the owner as indicated on the participant’s account.
Participants
may request the Plan Agent to sell shares in the open market online at www.amstock.com by acquiring a user ID and password from
the Plan Agent, or they may fax or mail a written request to the Plan Agent at: American Stock Transfer & Trust Company, LLC,
6201 15
th
Avenue, Brooklyn, New York 11219, (844) 699-6645 (Domestic), (718) 921-8205 (International).
Plan
withdrawals made within six (6) months after a purchase at a discounted price described in the answer to Question 18 are subject
to the withdrawal fee explained in that answer.
DIVIDEND
REINVESTMENT
To
date, Zion has not paid any dividends on shares of its common stock and no assurance can be given as to when, if ever, Zion will
be able to pay dividends on its common stock. The payment of dividends on our common stock is at the discretion of our Board of
Directors. There is no guarantee that we will pay ever pay dividends in the future. The timing and amount of future dividends,
if any, will depend on earnings, cash requirements, our financial condition, applicable government regulations and other factors
deemed relevant by our board.
|
31.
|
What
dividend reinvestment options are available in the Plan?
|
(a) “Full
Dividend Reinvestment” - Under this option, you direct the Company to reinvest the dividends on all of the shares of Common
Stock registered in your name, as well as shares credited to your account under the Plan. In addition, you may make additional
investments by making optional cash payments; or
(b) “Partial
Dividend Reinvestment” - Under this option, you direct the Company to reinvest a percentage of the dividends paid on all
the shares of Common Stock registered in your name. The Participant must reinvest at least 10% of the dividend to qualify
under a dividend reinvestment program as required by the I.R.S. Cost Basis Regulations. Dividends on shares credited to your
account under the Plan will be reinvested fully. In addition, you may make additional investments by making optional
cash payments; or
(c) “Optional
Cash Payments Only” - Under this option, you may participate in the Plan by making optional cash payments only. The
Plan Agent will continue to pay cash dividends on the shares you hold outside the Plan. Dividends on shares credited
to your account under the Plan (i.e., through the optional cash investments) will be reinvested fully.
The
Plan Agent will return your Enrollment Form to you if you fail to select one of these options or fail to sign the Enrollment Form.
|
32.
|
Must
my dividends be reinvested automatically to the extent I have chosen either Full Dividend Reinvestment or Partial Dividend
Reinvestment?
|
Yes. To
the extent you have elected to participate in the Plan, cash dividends on those shares that are subject to reinvestment will be
reinvested automatically in additional shares of Common Stock.
|
33.
|
When
will my dividends be reinvested and at what price?
|
If
you are enrolled in the Plan as of an applicable “record date” for dividends, either all or part of the dividends
on your shares (depending on which option you have chosen) will be used to purchase shares of Common Stock as of the applicable
dividend payment dates.
The
price of the Common Stock to be purchased under the Plan is addressed in Question 4 above.
|
34.
|
Will
I be charged fees for participating in the dividend reinvestment program?
|
No. You
will not be charged any fees in connection with the reinvestment of your dividends under the Plan. However, you will
incur certain charges for certain other transactions, requests or withdrawals under the Plan.
ADDITIONAL
INFORMATION
|
35.
|
How
would a stock split, stock dividend or rights offering affect my account?
|
Any
shares resulting from a stock split or stock dividend paid on shares held in book entry form for you by the Plan Agent will be
credited to your book-entry position.
Warrants
representing rights on any shares registered in your name and on shares credited to your Plan account will be credited to your
book-entry position. Warrants are held in book entry form unless directed otherwise by the Plan Participant.
|
36.
|
How
do I vote my Plan shares at shareholders’ meetings?
|
As
a Plan participant, you will be sent a proxy statement in connection with each meeting of the Company’s shareholders, together
with a proxy card representing the shares registered directly in your name and the whole shares held by the Plan Agent in your
Plan account. This proxy card, when signed and returned, will be voted as you indicate. If the proxy card
is not returned or if it is returned unsigned, the shares will not be voted unless you or a duly appointed representative votes
in person at the meeting. As is the case with stockholders not participating in the Plan, if no instructions are indicated
on a properly signed and returned proxy card, all of the shares represented by the proxy card will be voted in accordance with
the recommendations of the Company’s management, to the extent permitted by law.
|
37.
|
Can
the Plan be changed or discontinued?
|
While
the Company intends at the present time to continue the Plan indefinitely, the Company reserves the right to amend, suspend, modify
or terminate the Plan at any time. Notice of any such amendment, suspension, modification or termination will be sent
to all Plan participants. The Plan Agent reserves the right to resign at any time upon reasonable notice to the Company
in writing. The Company reserves the right to elect and appoint at any time a new agent including itself or its nominee
to administer the Plan.
Upon
termination of the Plan by the Company, the Company or the Plan Agent, as the case may be, will return any optional cash payments
not invested and payroll deductions, issue a certificate for whole shares of Common Stock credited to each account under the Plan,
and make a cash payment for any fractional share credited to each account.
|
38.
|
Who
interprets and regulates the Plan?
|
Zion
reserves the right to interpret the Plan as may be necessary or desirable in connection with the operation of the Plan.
|
39.
|
What
are the federal income tax considerations of participation in the Plan?
|
Certain
federal income tax considerations of participation in the Plan are briefly summarized below under the caption “Certain U.S.
Federal Income Tax Considerations”. This summary is for general information only and does not constitute tax advice. The
information in this section is based on the Internal Revenue Code of 1986, as amended, or the Code, Treasury Regulations thereunder,
current administrative interpretations and practices of the Internal Revenue Service, or the Service, and court decisions, all
as of the date of this prospectus supplement. Future legislation, Treasury Regulations, administrative interpretations and practices
or court decisions could significantly change the current law or adversely affect existing interpretations of current law. Any
change could apply retroactively to transactions preceding the date of the change.
The
tax consequences for participants who do not reside in the United States will vary from jurisdiction to jurisdiction. In the case
of a foreign shareholder whose distributions arc subject to United States income tax withholding, the amount of the tax to be
withheld will be deducted from the amount of the distribution and the balance will be reinvested. You are urged to consult your
personal tax advisor to determine the particular tax consequences that may result from your participation in the Plan.
LIMITATION
OF LIABILITY
IF
YOU CHOOSE TO PARTICIPATE IN THE PLAN, YOU SHOULD RECOGNIZE THAT NEITHER THE COMPANY NOR THE PLAN AGENT CAN ASSURE YOU OF A PROFIT
OR PROTECT YOU AGAINST A LOSS ON THE SHARES THAT YOU PURCHASE UNDER THE PLAN.
Neither
the Company nor the Plan Agent, in administering the Plan, will be liable for any act done in good faith or for any good faith
omission to act, including without limitation any claim of liability arising out of failure to terminate a participant's account
upon such participant's death or incompetence, the price at which shares are purchased or sold for the participant's account,
the times when purchases or sales are made, or fluctuations in the market value of Company Common Stock. This limitation
of liability will not constitute a waiver by any participant of his or her rights under the federal securities laws.
Although
the Plan provides for the reinvestment of dividends, the declaration and payment of dividends will continue to be determined by
the Board of Directors of the Company in its discretion, depending upon future earnings, the financial condition of the Company
and other factors. The amount and timing of dividends may be changed, or the payment of dividends terminated, at any
time without notice.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus supplement and the documents included or incorporated by reference in this prospectus supplement contain statements
concerning our expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions
and other statements that are not historical facts. These statements are "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. You generally can identify our forward-looking statements by the words
"anticipate," "believe," "budgeted," "continue," "could," "estimate,"
"expect," "forecast," "goal," "intend," "may," "objective," "plan,"
"potential," "predict," "projection," "scheduled," "should," "will"
or other similar words. These forward-looking statements include, among others, statements regarding:
|
|
●
|
our
ability to explore for and develop natural gas and oil resources successfully and economically;
|
|
|
|
|
|
|
●
|
our
ability to obtain the needed exploration rights to continue our petroleum exploration program;
|
|
|
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|
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|
●
|
the
availability of equipment, such as seismic trucks, drilling rigs and transportation pipelines;
|
|
|
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|
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●
|
the
impact of governmental regulations, permitting and other legal requirements in Israel relating to onshore exploratory drilling;
|
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●
|
our
estimates of the timing and number of wells we expect to drill and other exploration activities and planned expenditures and
the time frame within which they will be undertaken;
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●
|
changes
in our drilling plans and related budgets;
|
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●
|
the
quality of our existing and future license areas with regard to, among other things, the existence of reserves in economic
quantities;
|
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●
|
anticipated
trends in our business;
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●
|
our
future results of operations;
|
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●
|
our
liquidity and our ability to raise capital to finance our exploration and development activities;
|
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●
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our
capital expenditure program;
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●
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Future
market conditions in the oil and gas industry; and
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●
|
the
demand for oil and natural gas, both locally in Israel and globally.
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●
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whether our
shares or publicly traded warrants would meet or continue to meet the eligibility requirements for continued listing on the
NASDAQ Global Market.
|
More
specifically, our forward-looking statements include, among others, statements relating to our schedule, business plan, targets, estimates
or results of future drilling, including the number, timing and results of wells, the ability to obtain the necessary licenses
and exploration rights, the timing and risk involved in drilling follow-up wells, planned expenditures, prospects budgeted and
other future capital expenditures, risk profile of oil and gas exploration, acquisition of seismic data (including number, timing
and size of projects), planned evaluation of prospects, probability of prospects having oil and natural gas, expected production
or reserves, increases in reserves, acreage, working capital requirements, hedging activities, the ability of expected sources
of liquidity to implement our business strategy, future hiring, future exploration activity, production rates, all and any other
statements regarding future operations, financial results, business plans and cash needs and other statements that are not historical
facts.
Such
statements involve risks and uncertainties, including, but not limited to, those relating to our dependence on our exploratory
drilling activities, the volatility of oil and natural gas prices, operating risks of oil and natural gas operations, our dependence
on our key personnel, factors that affect our ability to manage our growth and achieve our business strategy, risks relating to
our limited operating history, technological changes, our significant capital requirements, the potential impact of government
regulations, adverse regulatory determinations, litigation, competition, the uncertainty of reserve information and future net
revenue estimates, property acquisition risks, industry partner issues, availability of equipment, weather and other factors detailed
herein and in our other filings with the SEC.
We
have based our forward-looking statements on our management's beliefs and assumptions based on information available to our management
at the time the statements are made. We caution you that assumptions, beliefs, expectations, intentions and projections about
future events may and often do vary materially from actual results. Therefore, we cannot assure you that actual results will not
differ materially from those expressed or implied by our forward-looking statements.
Some
of the factors that could cause actual results to differ from those expressed or implied in forward-looking statements are described
under "Risk Factors" in this prospectus supplement and the accompanying base prospectus and described under "Risk
Factors" and elsewhere in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 and in our other
periodic reports filed with the SEC. Should one or more of these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual outcomes may vary materially from those indicated. All subsequent written and oral forward-looking statements
attributable to us or persons acting on our behalf are expressly qualified in their entirety by reference to these risks and uncertainties.
You should not place undue reliance on our forward-looking statements. Each forward-looking statement speaks only as of the date
of the particular statement, and we undertake no duty to update any forward-looking statement.
RISK
FACTORS
Before
making an investment decision, you should carefully consider the risks described under “Risks Related to our Business”
below and in the applicable prospectus supplement, together with all of the other information appearing in this prospectus or
incorporated by reference into this prospectus and any applicable prospectus supplement, in light of your particular investment
objectives and financial circumstances. Our business, financial condition or results of operations could be materially adversely
affected by any of these risks. The trading price of our securities could decline due to any of these risk factors, and you may
lose all or any part of your investment.
Risks
Related to our Business
We
are an oil and gas exploration company with no current source of revenue. Our ability to continue in business depends upon our
continued ability to obtain significant financing from external sources and the success of our exploration efforts, none of which
can be assured.
We
were incorporated in April 2000 and are still an oil and gas exploration company with no established production. Our operations
are subject to all of the risks inherent in exploration stage companies with no revenues or operating income. Our potential for
success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in
connection with a new business, especially the oil and gas exploration business, and in particular the deep, wildcat wells in
which we are engaged in Israel. We cannot warrant or provide any assurance that our business objectives will be accomplished.
We
have historically depended entirely upon capital infusions from the issuance of equity securities to provide the cash needed to
fund our operations. Between June 2009 and December 2016, we raised approximately $121 million in the public equity market from
rights offerings and our DSPP of our common stock, convertible bonds and warrants to our stockholders and bondholders. However,
we cannot assure you that we will be able to continue to raise funds in the public (or private) equity markets. Our ability to
continue in business depends upon our continued ability to obtain significant financing from external sources and the success
of our exploration efforts. Any reduction in our ability to raise equity capital in the future would force us to reallocate funds
from other planned uses and could have a significant negative effect on our business plans and operations, including our ability
to continue our current exploration activities. All of our audited financial statements since inception have contained a statement
by the auditors that raises substantial doubt about us being able to continue as a "going concern" unless we are able
to raise additional capital, except for the 2012 audited financials.
The
parent company of our drilling contract party is in receivership in Romania and any failure on our contract party’s ability
to perform under the drilling contract will delay the progress of the drilling and have an adverse effect on our business.
Zion
entered into a drilling contract with S.A. Daflog S.R.L., an Israeli-registered related party entity to DAFORA S.A. DAFORA is
the largest drilling company in Romania and has drilled over 1,000 wells in Romania, Eastern Europe and East Africa. Zion intends
to use DAFORA’s F-400 drilling rig which has a 3,000 HP capacity capable of drilling to over 7,000 meters. This provides
sufficient horsepower and safety factor to drill our planned well with a target depth of up to 4,500 meters. The DAFORA rig and
most of its major components are currently stored in Israel, at Givot Olam’s Meged-8 drill site.
Dafora
S.A., the parent to S.A.Daflog S.R.L., is in receivership in Romania (and party to the lease agreement of the Dafora equipment
to Daflog). The court appointed administrator/receiver of S.A. Daflog S.R.L. was a party to the drilling contract and has
approved the contractual relationship between Daflog and Zion. While we have taken all reasonable precautions to confirm
the ability of S.A Daflog to perform under the drilling contract, we cannot provide any assurance that the parent’s status
will not affect S.A Daflog’s ability to perform under the contract.
We
will require substantial additional funds to drill our next exploratory well and to realize our business plan.
Our
planned work program is expensive. We believe that our current cash resources are sufficient to allow us to accomplish the initial
drilling of the Megiddo-Jezreel No. 1 well and other exploratory operations on the Megiddo-Jezreel License. However, we currently
do not have the resources to drill the planned exploratory well to the desired depth and we have no commitments for any financing
and no assurance can be provided that we will be able to raise the needed funds when needed. We estimate that, when we are not
actively drilling a well, our monthly expenditure is approximately $450,000. However, when we are engaged in active drilling operations,
as we anticipate in the Megiddo-Jezreel License area, we estimate that there is an additional cost of approximately $60,000 per
day (equivalent to approximately $1,800,000 per month). If there is turmoil in the credit and equity markets, then our ability
to raise funds may be significant and adversely affected.
Additional
financing could cause your relative interest in our assets and potential earnings to be significantly diluted (unless you participated
in such financings). Even if we have exploration success, we may not be able to generate sufficient revenues to offset the cost
of dry holes and general and administrative expenses.
We
rely on independent experts and technical or operational service providers over whom we may have limited control.
The
success of our oil and gas exploration efforts is dependent upon the efforts of various third parties that we do not control.
These third parties provide critical engineering, geological, geophysical and other scientific analytical services, including
2-D seismic imaging technology to explore for and develop oil and gas prospects. Given our small size and limited resources, we
do not have all the required expertise on staff. As a result, we rely upon various companies and other third persons to
assist us in identifying desirable hydrocarbon prospects to acquire and to provide us with technical assistance and services.
In addition, we rely upon the owners and operators of drilling rigs and related equipment. If any of these relationships with
third-party service providers are terminated or are unavailable on commercially acceptable terms, we may not be able to execute
our business plan. Our limited control over the activities and business practices of these third parties, any inability on our
part to maintain satisfactory commercial relationships with them, their limited availability or their failure to provide
quality services could materially and adversely affect our business, results of operations and financial condition.
We
typically commence exploration drilling operations without undertaking extensive analytical testing thereby potentially increasing
the risk (and associated costs) of drilling a non-producing well.
Larger
oil and gas exploration companies typically conduct extensive analytical pre-drilling testing. These include 3-D seismic imaging,
the drilling of an expendable “pilot” well or “stratigraphic test” to collect data (logs, cores, fluid
samples, pressure data) to determine if drilling a well capable of producing oil or gas well (full completion with casing and
well testing) is justified. The use of pilot or stratigraphic tests is often used in areas where there is little or no offset
well data, like Israel, where our exploration license areas are located. While 3-D seismic imaging data is more useful than
2-D seismic data in identifying potential new drilling prospects, its acquisition and processing costs are many multiples greater
than that for 2-D data, and there are prohibitive Israel-specific logistical roadblocks to acquisition of onshore 3-D seismic
data in Israel. We believe that the additional months, delays and associated costs associated with more extensive pre-drilling
testing typically undertaken by larger oil and gas exploration companies is not necessarily justified when drilling vertical exploration
wells (as we have historically been doing). Nonetheless, the absence of more extensive pre-drilling testing may potentially increase
the risk of drilling a non-producing well, which would in turn result in increased costs and expenses. Additionally, Zion is typically
engaged in drilling deep onshore wildcat wells in Israel where only approximately 500 total wells have ever been drilled, the
vast majority of which are relatively shallow. As such, exploration risks are inherently very substantial.
A
substantial and extended decline in oil or natural gas prices could adversely impact our future rate of growth and the carrying
value of our unproved oil & gas assets.
Prices
for oil and natural gas fluctuate widely. Fluctuations in the prices of oil and natural gas will affect many aspects of our business,
including our ability to attract capital to finance our operations, our cost of capital, and the value of our unproved oil and
natural gas properties. Prices for oil and natural gas may fluctuate widely in response to relatively minor changes in the supply
of and demand for oil and natural gas, market uncertainty and a wide variety of additional factors (such as the current political
turmoil in the Middle East) that are beyond our control, such as the domestic and foreign supply of oil and natural gas, the ability
of members of the Organization of Petroleum Exporting Countries to agree to and maintain oil price and production controls, technological
advances affecting energy consumption, and domestic and foreign governmental regulations. Significant and extended reductions
in oil and natural gas prices could require us to reduce our capital expenditures and impair the carrying value of our assets.
If
we are successful in finding commercial quantities of oil and/or gas, our revenues, operating results, financial condition and
ability to borrow funds or obtain additional capital will depend substantially on prevailing prices for oil and natural gas. Declines
in oil and gas prices may materially adversely affect our financial condition, liquidity, ability to obtain financing and operating
results. Lower oil and gas prices also may reduce the amount of oil and gas that we could produce economically.
Historically,
oil and gas prices and markets have been volatile, with prices fluctuating widely, and they are likely to continue to be volatile,
making it impossible to predict with any certainty the future prices of oil and gas.
We
may continue to recognize substantial write-downs with respect to well impairment costs.
We
account for our oil and gas property costs using the full-cost method of accounting for oil and gas properties. Accordingly, all
costs associated with acquisition, exploration and development of oil and gas reserves, including directly related overhead costs,
are capitalized. We record an investment impairment charge when we believe an investment has experienced a decline in value that
is other than temporary.
Abandonment
of properties is accounted for as adjustments to capitalized costs. The net capitalized costs are subject to a “ceiling
test,” which limits such costs to the aggregate of the estimated present value of future net revenues from proved reserves
discounted at ten percent based on current economic and operating conditions, plus the lower of cost or fair market value of unproved
properties. The recoverability of amounts capitalized for oil and gas properties is dependent upon the identification of economically
recoverable reserves, together with obtaining the necessary financing to exploit such reserves and the achievement of profitable
operations.
We
review our unproved oil and gas properties periodically to determine whether they have been impaired. An impairment allowance
is provided on an unproved property when we determine that the property will not be developed. Any impairment charge incurred
is recorded in accumulated depletion, impairment and amortization to reduce our recorded basis in the asset.
Our
lack of diversification increases the risk of an investment in us, and our financial condition and results of operations may deteriorate
if we fail to diversify.
Our
business focus is on oil and gas exploration on a limited number of properties in Israel. As a result, we lack diversification,
in terms of both the nature and geographic scope of our business. We will likely be impacted more acutely by factors affecting
our industry or the regions in which we operate than we would if our business were more diversified. If we are unable to diversify
our operations, our financial condition and results of operations could deteriorate.
We
currently have no proved reserves or current production, and we may never have any.
We
do not have any proved reserves or current production of oil or gas. We cannot assure you that any wells will be completed or
produce oil or gas in commercially profitable quantities.
We
have a history of losses and we cannot assure you that we will ever be profitable.
We
incurred net losses of $7,306,000 for the year ended December 31, 2015 and $8,513,000 for the year ended December 31, 2016. We
cannot provide any assurances that we will ever be profitable.
Oil
and gas exploration is an inherently risky business.
Exploratory
drilling involves enormous risks, including the risk that no commercially productive oil or natural gas reservoirs will be discovered.
Even when properly used and interpreted, seismic data analysis and other computer simulation techniques are only tools used to
assist geoscientists in trying to identify subsurface structures and potential hydrocarbon indicators. They do not allow the interpreter
to know conclusively if hydrocarbons are present or economically available. The risk analysis techniques we use in evaluating
potential drilling sites rely on subjective judgments of our personnel and consultants. Additionally, Zion is typically engaged
in drilling deep onshore wildcat wells in Israel where only approximately 500 total wells have ever been drilled, the vast majority
of which are relatively shallow. Consequently, our exploration risks are very substantial.
Operating
hazards and uninsured risks with respect to the oil and gas operations may have material adverse effects on our operations.
Our
exploration and, if successful, development and production operations are subject to all of the risks normally incident to the
exploration for and the development and production of oil and gas, including blowouts, cratering, uncontrollable flows of oil,
gas or well fluids, fires, pollution and other environmental and operating risks. These hazards could result in substantial losses
due to injury or loss of life, severe damage to or destruction of property and equipment, pollution and other environmental damage
and suspension of operations. While as a matter of practice we take out insurance against some or all of these risks, such insurance
may not cover the particular hazard and may not be sufficient to cover all losses. The occurrence of a significant event adversely
affecting any of the oil and gas properties in which we have an interest could have a material adverse effect on us, could materially
affect our continued operation and could expose us to material liability.
Political
risks may adversely affect our operations and/or inhibit our ability to raise capital.
Our
operations are concentrated in Israel and could be directly affected by political, economic and military conditions in Israel.
Efforts to secure a lasting peace between Israel and its Arab neighbors and Palestinian residents have been underway since Israel
became a country in 1948, and the future of these peace efforts is still uncertain.
Civil
unrest has continued to spread throughout the region and has involved other areas such as the Gaza Strip and nations such as Egypt,
Syria and Yemen. Such unrest, if it continues to spread or grow in intensity, could lead to civil wars; regime changes resulting
in governments that are hostile to the US and/or Israel, such as has previously occurred in the region; violations of the 1979
Egypt-Israel Peace Treaty; or regional conflict.
At
this time, we are uncertain of the outcome of these events. However, prolonged and/or widespread regional conflict in the Middle
East could have the following results, among others:
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capital
market reassessment of risk and subsequent redeployment of capital to more stable areas making it more difficult for us to
obtain financing for potential development projects;
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security
concerns in Israel, making it more difficult for our personnel or supplies to enter or exit the country;
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security
concerns leading to evacuation of our personnel;
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damage
to or destruction of our wells, production facilities, receiving terminals or other operating assets;
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inability
of our service and equipment providers to deliver items necessary for us to conduct our operations in, resulting in
delays; and
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lack
of availability of drilling rig and experienced crew, oilfield equipment or services if third party providers decide to exit
the region.
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Loss
of property and/or interruption of our business plans resulting from hostile acts could have a significant negative impact on
our earnings and cash flow. In addition, we may not have enough insurance to cover any loss of property or other claims resulting
from these risks.
We
face various risks associated with the trend toward increased activism against oil and gas exploration and development activities.
Opposition
toward oil and gas drilling and development activity has been growing globally and is particularly pronounced in OECD countries
which include the US, the UK and Israel. Companies in the oil and gas industry, such as us, are often the target of activist
efforts from both individuals and non-governmental organizations regarding safety, human rights, environmental compliance and
business practices. Future activist efforts could result in the following:
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delay
or denial of drilling permits;
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shortening
of lease terms or reduction in lease size;
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restrictions
on installation or operation of gathering or processing facilities;
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restrictions
on the use of certain operating practices, such as hydraulic fracturing;
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legal
challenges or lawsuits;
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damaging
publicity about us;
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increased
costs of doing business;
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reduction
in demand for our products; and
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other
adverse effects on our ability to develop our properties and expand production.
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Our
need to incur costs associated with responding to these initiatives or complying with any resulting new legal or regulatory requirements
resulting from these activities that are substantial and not adequately provided for, could have a material adverse effect on
our business, financial condition and results of operations.
Economic
risks may adversely affect our operations and/or inhibit our ability to raise additional capital.
Economically,
our operations in Israel may be subject to:
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exchange
rate fluctuations;
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royalty
and tax increases and other risks arising out of Israeli State sovereignty over the mineral rights in Israel and its
taxing authority; and
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changes
in Israel's economy that could cause the legislation of oil and gas price controls.
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Consequently,
our operations may be substantially affected by local economic factors beyond our control, any of which could negatively affect
our financial performance and prospects.
Legal
risks could negatively affect Zion’s value.
Legally,
our operations in Israel may be subject to:
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changes
in the Petroleum Law resulting in modification of license and permit rights;
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adoption
of new legislation relating to the terms and conditions pursuant to which operations in the energy sector may be conducted;
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changes
in laws and policies affecting operations of foreign-based companies in Israel; and
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changes
in governmental energy and environmental policies or the personnel administering them.
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The
Israeli Ministry of National Infrastructures has promulgated legislation relating to licensing requirements for entities engaged
in the fuel sector that may result in our having to obtain additional licenses to market and sell hydrocarbons that may be discovered
by us. We have been advised by the Ministry that they do not intend to deprive a holder of petroleum rights under the Petroleum
Law of its right under that law to sell hydrocarbons discovered and produced under its petroleum rights. We cannot now predict
the legislation’s possible impact on our operations.
Further,
in the event of a legal dispute in Israel, we may be subject to the exclusive jurisdiction of Israeli courts or we may not be
successful in subjecting persons who are not United States residents to the jurisdiction of courts in the United States, either
of which could adversely affect the outcome of a dispute.
The
Ministry of Environmental Protection is considering proposed legislation relating to polluted materials, including their production,
treatment, handling, storage and transportation, that may affect land or water resources. Persons engaged in activities
involving these types of materials will be required to prepare environmental impact statements and remediation plans either prior
to commencing activities or following the occurrence of an event that may cause pollution to land or water resources or endanger
public health. We do now know and cannot predict whether any legislation in this area will be enacted and, if so, in what
form and which of its provisions, if any, will relate to and affect our activities, how and to what extent.
In
March 2011, the Ministry of Environmental Protection issued initial guidelines relating to oil and gas drilling. This is the first
time that the Ministry has published specific environmental guidelines for oil and gas drilling operations, relating to on-shore
and off-shore Israel. The guidelines are subject to change.
The
guidelines are detailed and provide environmental guidelines for all aspects of drilling operations, commencing from when an application
for a preliminary permit is filed, and continuing through license, drilling exploration, production lease, petroleum production
and abandonment of the well. The guidelines address details that must be submitted regarding the drill site, surrounding area,
the actual drilling operations, the storage and removal of waste and the closing or abandoning of a well.
The
Company believes that these and other new regulations will significantly increase the expenditures associated with obtaining new
exploration rights and considerably increase the time needed to obtain all of the necessary authorizations and approvals prior
to drilling.
Our
petroleum rights (including licenses and permits) could be canceled, terminated or not extended, and we would not be able to successfully
execute our business plan.
Any
license or other petroleum right we hold or may be granted is granted for fixed periods and requires compliance with a work program
detailed in the license or other petroleum right. If we do not fulfill the relevant work program due to inadequate funding or
for any other reason, the Israeli government may terminate the license or any other petroleum right before its scheduled expiration
date. No assurance can be provided that we will be able to obtain an extension to this if in fact we are unable to begin drilling
by such date.
There
are limitations on the transfer of interests in our petroleum rights, which could impair our ability to raise additional funds
to execute our business plan
.
The
Israeli government has the right to approve any transfer of rights and interests in any license or other petroleum right we hold
or may be granted and any mortgage of any license or other petroleum rights to borrow money. If we attempt to raise additional
funds through borrowings or joint ventures with other companies and are unable to obtain required approvals from the government,
the value of your investment could be significantly diluted or even lost.
Our
dependence on the limited contractors, equipment and professional services available in Israel may result in increased costs and
possibly material delays in our work schedule
.
Due
to the lack of competitive resources in Israel, costs for our operations may be more expensive than costs for similar operations
in other parts of the world. We are also more likely to incur delays in our drilling schedule and be subject to a greater risk
of failure in meeting our required work schedule. Similarly, some of the oil field personnel we need to undertake our planned
operations are not necessarily available in Israel or available on short notice for work in Israel. Any or all of the factors
specified above may result in increased costs and delays in the work schedule.
Our
dependence on Israeli local licenses and permits may require more funds than we have budgeted and may cause delays in our work
schedule.
In
connection with drilling operations, we are subject to a number of Israeli local licenses and permits. Some of these are issued
by the Israeli security forces, the Civil Aviation Authority, the Israeli Water Commission, the Israel Lands Authority, the holders
of the surface rights in the lands on which we intend to conduct drilling operations, including Kibbutz Sde Eliyahu, local and
regional planning commissions and environmental authorities.
The
surface rights to the drill site of the MJ #1 well are held under a long-term lease by Kibbutz Sde Eliyahu. The rights are owned
by the State of Israel and administered by the Israel Lands Authority. Permission has been granted to Zion by both Kibbutz Sde
Eliyahu and the Israel Lands Authority for the use of the surface rights.
In
the event of a commercial discovery and depending on the nature of the discovery and the production and related distribution equipment
necessary to produce and sell the discovered hydrocarbons, we will be subject to additional licenses and permits, including from
various departments in the Ministry of National Infrastructures, Energy and Water Resources, regional and local planning commissions,
the environmental authorities and the Israel Lands Authority. If we are unable to obtain some or all of these permits or the time
required to obtain them is longer than anticipated, we may have to alter or delay our planned work schedule, which would increase
our costs.
If
we are successful in finding commercial quantities of oil and/or gas, our operations will be subject to laws and regulations relating
to the generation, storage, handling, emission, transportation and discharge of materials into the environment, which can adversely
affect the cost, manner or feasibility of our doing business. Many Israeli laws and regulations require permits for the operation
of various facilities, and these permits are subject to revocation, modification and renewal. Governmental authorities have the
power to enforce compliance with their regulations, and violations could subject us to fines, injunctions or both.
If
compliance with safety and environmental regulations is more expensive than anticipated, it could adversely impact the profitability
of our business.
Risks
of substantial costs and liabilities related to safety and environmental compliance issues are inherent in oil and gas operations.
It is possible that other developments, such as stricter safety and environmental laws and regulations, and claims for damages
to property or persons resulting from oil and gas exploration and production, would result in substantial costs and liabilities.
This could also cause our insurance premiums to be significantly greater than anticipated.
Earnings
will be diluted due to charitable contributions and key employee incentive plan.
We
are legally bound to fund in the form of a royalty interest or equivalent net operating profits interest, 6% of our gross sales
revenues, if any, to two charitable foundations. In addition, we may allocate 1.5% royalty interest or equivalent net operating
profits interest to a key employee incentive plan designed as bonus compensation over and above our executive compensation payments.
This means that the total royalty burden on our property (including the government royalty of 12.5%) may be up to 20% of gross
revenue. As our expenses increase with respect to the amount of sales, these donations and allocation could significantly dilute
future earnings and, thus, depress the price of the common stock.
Risks
Related to Our Common Stock
Our
stock price and trading volume may be volatile, which could result in losses for our stockholders.
The
equity trading markets have recently experienced high volatility resulting in highly variable and unpredictable pricing of equity
securities. If the turmoil in the equity trading markets continues, the market for our common stock could change in ways that
may or may not be related to our business, our industry or our operating performance and financial condition. In addition, the
trading volume in our common stock may fluctuate and cause significant price variations to occur. Some of the factors that could
negatively affect our share price or result in fluctuations in the price or trading volume of our common stock include:
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actual
or anticipated quarterly variations in our operating results, including further impairment to unproved oil and gas
properties,
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changes
in expectations as to our future financial performance or changes in financial estimates, if any,
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announcements
relating to our business,
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conditions
generally affecting the oil and natural gas industry,
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the
success of our operating strategy, and
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the
operating and stock performance of other comparable companies.
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Many of these factors are
beyond our control, and we cannot predict their potential effects on the price of our common stock. In addition, the stock market
is subject to extreme price and volume fluctuations. During the past 52 weeks, our stock price has fluctuated from an intraday
low of $1.20 to an intraday high of $1.53. This volatility has had a significant effect on the market price of securities
issued by many companies for reasons unrelated to their operating performance and could have the same effect on our common stock.
No
assurance can be provided that you will be able to resell your shares of common stock at or above the price you acquired those
shares in this offering. We cannot assure you that the market price of common stock will increase to the per share price at which
it was offered or that the market price of common stock will not fluctuate or decline significantly.
As
of December 31, 2016, we had outstanding stock options at exercise prices ranging between $0.01 and $2.61 per share and warrants
at $1 and $2 exercise prices to purchase 7,543,596 shares of common stock.
The
exercise or possibility of exercise of outstanding warrants and stock options, or any offering under the S-3 shelf registration
statement that we may complete, could have an adverse effect on the market price for our common stock, and you may experience
dilution to your holdings.
Cash
dividends will not be paid to shareholders for the foreseeable future.
You
may receive little or no cash or stock dividends on your shares of common stock. The board of directors has not directed the payment
of any dividends and does not anticipate paying dividends on the shares for the foreseeable future and intends to retain any future
earnings to the extent necessary to develop and expand our business. Payment of cash dividends, if any, will depend, among other
factors, on our earnings, capital requirements, and the general operating and financial condition, and will be subject to legal
limitations on the payment of dividends out of paid-in capital.
CAPITALIZATION
The
following table sets forth a summary of our capitalization on an historical basis as of December 31, 2016. For purposes of a projecting
a possible change in our capitalization if a future unit program is offered based upon previous unit offering programs under the
Plan, we are making the following unit feature assumptions. For the purpose of this table, we are assuming a hypothetical $2.50
unit price for one share of common stock and one warrant with an exercise price of $2.00. For this table, we have assumed that
all of the Units that could be offered under the Plan were purchased (with no shares being purchased) at a per Unit purchase price
of $2.50. However, there can be no assurance that the $2.50 Units would ever be offered under the Plan and, if so, would in fact
be purchased. You should read this information in conjunction with our financial statements and the notes thereto which are incorporated
by reference into this prospectus.
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Amount of Capitalization as of December 31, 2016
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Actual
($) (thousands)
|
|
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As Adjusted (1)
($) (thousands)
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With Additional
Shares (2)
($) (thousands)
|
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|
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Stockholders’ equity:
|
|
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|
|
|
|
|
|
|
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Common stock – par value $0.01 per share
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$
|
426
|
|
|
|
475
|
|
|
|
513
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|
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Additional paid in capital
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|
$
|
157,854
|
|
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|
175,854
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|
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|
190,254
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Deficit accumulated in development stage
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|
$
|
(150,615
|
)
|
|
|
(150,615
|
)
|
|
|
(150,615
|
)
|
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Total stockholders’ equity and capitalization
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|
$
|
7,665
|
|
|
|
25,714
|
|
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|
40,152
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(1) Assumes that
only Units will be sold under the Plan and that all Units will be purchased (and that no shares will be offered direct) at a per
Unit purchase price of $2.50. If and when a new Unit program is offered, we will issue and file an amendment to this prospectus
supplement to update the foregoing information.
(2)
Assumes that all of the Warrants included in the Units are exercised at the per share exercise price of $2.00.
For
the purpose of the second table, we have assumed that all of the shares that could be offered under the Plan were purchased (with
no Units being purchased) at a per share price of $2.50. However, there can be no assurance that all of the shares that could
be offered will be purchased or that we will be able to sell the shares at $2.50. You should read this information in conjunction
with our financial statements and the notes thereto which are incorporated by reference into this prospectus
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|
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Amount of Capitalization as of December 31, 2016
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|
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|
Actual
($) (thousands)
|
|
|
As Adjusted (1)
($) (thousands)
|
|
|
With Additional
Shares (2)
($) (thousands)
|
|
|
|
|
|
|
|
|
|
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|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
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Common stock - par value $0.01 per share
|
|
$
|
426
|
|
|
|
|
|
|
N/A
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|
Additional paid in capital
|
|
$
|
157,854
|
|
|
|
175,854
|
|
|
N/A
|
|
Deficit accumulated in development stage
|
|
$
|
(150,615
|
)
|
|
|
(150,615
|
)
|
|
N/A
|
|
Total stockholders’ equity and capitalization
|
|
$
|
7,665
|
|
|
|
25,714
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|
|
N/A
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DETERMINATION
OF OFFERING PRICE
The
purchase price for the shares/Units and the exercise price of the Warrants will be set by our board of directors. In determining
the purchase price, our board of directors considered a number of factors, including: our business prospects; the need to offer
securities at a price that would be attractive to our investors; general conditions in the securities market; and the likely cost
of capital from other sources. The purchase price is not intended to bear any relationship to the book value of our assets or
our past operations, cash flows, losses, financial condition, net worth or any other established criteria used to value securities,
the amount of proceeds desired, our need for equity capital, the historic and current market price of our common stock, the historic
volatility of the market price of our common stock, our business prospects, alternatives available to us for raising equity capital,
the pricing of similar transactions and the liquidity of our common stock. The price does not necessarily bear any relationship
to our past operations, cash flows, book value, current financial condition, or any other established criteria for value. You
should not consider the purchase price as an indication of the value of Zion Oil & Gas or our common stock.
The
purchase price for shares of Common Stock purchased under the Plan will be based on the Market Price of the Publicly Traded Stock,
subject to applicable discounts as set forth herein.
DILUTION
As
of December 31, 2016, our net tangible book value was $7,665,000, or $0.18 per share of common stock. Net tangible book value
is the aggregate amount of our tangible assets less our total liabilities. Net tangible book value per share represents our total
tangible assets less our total liabilities, divided by the number of shares of common stock outstanding on December 31, 2016.
Assuming
in our hypothetical that only Units are sold and that all of the Units that are being offered will be sold (even though we do
not anticipate that this will be the case) at a per Unit price of $2.50, dilution would be calculated as follows. After
giving effect to the issuance of shares of our common stock included in the Units and before deducting offering expenses),
our net tangible book value would increase to approximately $25,714,000 and the tangible net book value per share would increase
to $0.60. These figures do not account for any Warrant exercises, if any that may occur. This represents an immediate increase
in net tangible book value of $0.42 per share to current shareholders, and immediate dilution of $1.90 per share on new shares
purchased in the Unit or 76%. "Dilution" is determined by subtracting net tangible book value per share after the offering
from the Unit subscription price paid by investors purchasing the Units. The following table illustrates this per share dilution
to purchasers of Units in this offering, as illustrated in the following table:
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Assumed public offering price per share of Unit
|
|
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$
|
2.50
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Net tangible book value per share before this Offering
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|
$
|
0.18
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|
|
|
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Increase per share attributable to new shares
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|
$
|
0.42
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Adjusted net tangible book value per share after this Offering
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$
|
0.60
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Dilution per share for new shares
|
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$
|
1.90
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Percentage dilution
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76
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%
|
If
the per Unit purchase price is in fact modified, then we will issue and file an amendment to this prospectus supplement to update
the foregoing information.
Assuming
that all Warrants included in such Units are exercised in these hypothetical calculations at the per share exercise price of $2.00
(even though we do not anticipate that either such event would occur even if we offered such a unit program), dilution would be
calculated as follows. After giving effect to the issuance of additional shares of our Common Stock upon exercise of the Warrants,
our net tangible book value would increase to approximately $40,152,000 and the tangible net book value per share would increase
to $0.94. This represents an immediate increase in net tangible book value of $0.34 per share to current shareholders from previous
dilution example, and immediate dilution of $1.56 per share on new shares purchased or 69.9%. "Dilution" is determined
by subtracting net tangible book value per share after the Warrant exercises from the Warrant exercise price of $2.00 then paid
by investors upon exercise of the Warrants. The following table illustrates this per share dilution to purchasers of Units following
the exercise of the Warrants, as illustrated in the following table:
|
Assumed warrant strike price per share of common stock
|
|
|
|
|
|
$
|
2.00
|
|
|
Net tangible book value per share after this Offering but before warrant exercise
|
|
$
|
0.60
|
|
|
|
|
|
|
Increase per share attributable to new shares
|
|
$
|
0.34
|
|
|
|
|
|
|
Adjusted net tangible book value per share after this Offering
|
|
|
|
|
|
$
|
0.94
|
|
|
Dilution per share for new shares
|
|
|
|
|
|
$
|
1.56
|
|
|
Percentage dilution
|
|
|
|
|
|
|
69.9
|
%
|
Assuming
that all of the shares that are being offered will be sold (even though we do not anticipate that this will be the case), dilution
would be calculated as follows, after giving effect to the issuance of all of the shares of our common stock that are being offered
under the Plan at a pre-share purchased price of $2.00. No assurance can be provided that we will be able to sell the shares
at $2.00. Before deducting offering expenses, our net tangible book value would increase to approximately $25,714,000 and
the tangible net book value per share would increase to $0.60. These figures do not account for any Warrant exercises, if any
occur. This represents an immediate increase in net tangible book value of $0.42 per share to current shareholders, and immediate
dilution of $1.40 per share on new shares purchased. "Dilution" is determined by subtracting net tangible book value
per share after the offering from the assumed share price of $2.00 paid by investors. The following table illustrates this per
share dilution to purchasers of Units in this offering, as illustrated in the following table:
|
Assumed public offering price per share of share
|
|
|
|
|
|
$
|
2.00
|
|
|
Net tangible book value per share before this Offering
|
|
$
|
0.18
|
|
|
|
|
|
|
Increase per share attributable to new shares
|
|
$
|
0.42
|
|
|
|
|
|
|
Adjusted net tangible book value per share after this Offering
|
|
|
|
|
|
$
|
0.60
|
|
|
Dilution per share for new shares
|
|
|
|
|
|
$
|
1.40
|
|
|
Percentage dilution
|
|
|
|
|
|
|
70.00
|
%
|
CERTAIN
U.S. FEDERAL INCOME TAX CONSEQUENCES
THIS
DISCUSSION IS INCLUDED FOR YOUR GENERAL INFORMATION ONLY. YOU SHOULD CONSULT YOUR TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES
TO YOU IN LIGHT OF YOUR PARTICULAR CIRCUMSTANCES, INCLUDING ANY STATE, LOCAL AND FOREIGN TAX CONSEQUENCES.
The
following summary describes certain United States federal income tax consequences of participating in the Plan to participants.
This summary is based on current law and regulations as of the date of this prospectus. Future legislation, Treasury
regulations, administrative interpretations and practices and/or court decisions may adversely affect the tax considerations described
in this prospectus. Any such change could apply retroactively to transactions preceding the date of the change. We have not requested
and do not intend to request a ruling from the IRS regarding the tax consequences associated with participating in the Plan, and
the statements in this prospectus are not binding on the IRS or any court. Thus, we can provide no assurance that the tax considerations
contained in this summary will not be challenged by the IRS or will be sustained by a court if challenged by the IRS. This summary
does not discuss any state, local or foreign tax consequences associated with the participation in the Plan, or the ownership,
sale or other disposition of our stock.
This
summary deals only with holders who hold our Common Stock and/or Warrant as a "capital asset" (generally, property held
for investment within the meaning of Section 1221 of the Code). It does not address all the tax consequences that may be relevant
to you in light of your particular circumstances. In addition, it does not address the tax consequences relevant to persons who
receive special treatment under the federal income tax law, except where specifically noted. Holders receiving special treatment
include, without limitation:
|
|
●
|
financial
institutions, banks and thrifts;
|
|
|
●
|
tax-exempt
organizations;
|
|
|
●
|
regulated
investment companies and real estate investment trusts;
|
|
|
●
|
foreign
corporations or partnerships, and persons who are not residents or citizens of the United States;
|
|
|
●
|
dealers
in securities or currencies;
|
|
|
●
|
persons
holding our Common Stock as a hedge against currency risks or as a position in a straddle; or
|
|
|
●
|
United
States persons whose functional currency is not the United States dollar.
|
If
a partnership holds our Common Stock and/or warrants, the tax treatment of a partner in the partnership generally will depend
upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding our Common
Stock and/or Warrant, you should consult your tax advisor regarding the tax consequences of participating in the Plan and the
ownership and disposition of our Common Stock and/or warrants.
If
you are considering participating in the Plan, you are strongly urged to consult your tax advisors concerning the application
of United States federal income tax laws to your particular situation, the consequences of your participation in the Plan, the
ownership and disposition of our Common Stock and/or warrants arising under the laws of any state, local or foreign taxing jurisdiction.
U.S.
Participant
When
we use the term "U.S. participant," we mean a participant in the Plan who, for United States federal income tax purposes
is:
|
|
●
|
a
citizen or resident of the United States;
|
|
|
●
|
a
corporation, partnership, limited liability company or other entity created or organized in or under the laws of the United
States or of any State thereof or in the District of Columbia unless, in the case of a partnership or limited liability company,
Treasury regulations provide otherwise;
|
|
|
●
|
an
estate the income of which is subject to United States federal income taxation regardless of its source; or
|
|
|
●
|
a
trust whose administration is subject to the primary supervision of a United States court and which has one or more United
States persons who have the authority to control all substantial decisions of the trust. Notwithstanding the preceding sentence,
to the extent provided in the Treasury regulations, certain trusts in existence on August 20, 1996, and treated as United
States persons prior to this date that elect to continue to be treated as United States persons, shall also be considered
U.S. participants.
|
Direct
Stock Purchases
|
|
●
|
A
participant who purchases shares of Common Stock directly (and not as part of a Unit) with the initial investment and the
optional cash payments may be treated as having received an additional dividend distribution equal to the excess, if any,
of the fair market value of the shares acquired on the Purchase Date over the amount of your investment.
|
|
|
●
|
A
participant will not realize any taxable income when the participant sends Common Stock certificates to the Plan Agent to
be deposited into the participant’s Plan Account. A participant’s tax basis and holding period for shares of Common
Stock purchased outside the Plan and deposited in the participant’s Plan Account will be the same as they would have
been had the participant continued to hold those shares outside the Plan.
|
|
|
●
|
A
participant will not realize any taxable income when the participant receives certificates for whole shares of Common Stock
held in the participant’s Plan Account, either upon request for certificates, or upon termination of participation or
termination of the Plan by us.
|
|
|
●
|
A
participant will generally recognize gain or loss when shares of Common Stock acquired under the Plan (including fractions
of shares) are sold by the Plan Agent at the participant’s request or sold after withdrawal from or termination of the
Plan. A participant who receives, upon termination of participation or termination of the Plan by us, a cash adjustment for
a fraction of a share credited to the participant’s account may realize gain or loss with respect to such fraction.
The amount of the gain or loss will be the difference between the amount which the participant receives for the shares of
Common Stock (or fraction of a share) and the participant’s tax basis. Such gain or loss will generally be capital gain
or loss, and will be long-term or short-term depending on the holding period of the shares of Common Stock sold. The capital
gain or loss will be long-term if the participant’s holding period for shares of Common Stock is more than one year
at the time of sale and will be short-term if the holding period is one year or less. A participant’s holding period
for shares of Common Stock acquired pursuant to the Plan generally begins on the day following the date the shares are credited
to the participant’s Plan Account. A whole share consisting of fractional shares purchased on different dates will have
a split holding period with the holding period for each fractional component beginning on the day following the date the factional
share was credited to the participant’s Plan Account.
|
|
|
●
|
With
respect to tax basis reporting, participants may elect to use the “average basis method” with respect to shares
of stock acquired in connection with certain dividend reinvestment plans that require the reinvestment of at least 10% of
every dividend. Because the Plan requires the reinvestment of at least 10% of dividends, a participant may elect to use the
average basis method of determining such tax basis. Absent an election to the contrary, the Plan Agent intends to use the
“FIFO” method (as defined in applicable Treasury Regulations) for shares of our Common Stock acquired by or for
you under the Plan.
|
|
|
●
|
Certain
U.S. participants that are individuals, estates, or trusts will be subject to a 3.8% Medicare tax on, among other things,
dividends on and capital gains from the sale or other disposition of stock, subject to certain exceptions.
|
|
|
●
|
As
a participant in the Plan, you will receive statements on a regular basis advising you of purchases and sales of shares of
Common Stock. Any distribution treated as a dividend (including from brokerage commissions and fees paid by the Company) will
be reported on your year-end IRS Form 1099-DIV. If, at your request, the Plan Agent sells shares of Common Stock for you,
the proceeds from the sale will be reported on IRS Form 1099-B.
|
Amounts
Treated As a Distribution
|
|
●
|
A
participant who participates in the dividend reinvestment feature of the Plan will be treated for federal income tax purposes
as having received a distribution in an amount equal to the sum of (a) the fair market value of the shares on the date the
shares were acquired directly from us with reinvested dividends, (b) any cash distributions received by the Plan Agent for
the purpose of acquiring additional shares on your behalf, and (c) any cash distributions received by you with respect to
shares of common stock not included in the Plan. A participant who participates in the dividend reinvestment feature of the
Plan and makes an optional cash purchase of shares of common stock under the Plan will be treated as having received a distribution
equal to the excess, if any, of the fair market value on the investment date of the common shares over the amount of the optional
cash payment made by the participant.
|
|
|
●
|
The
Internal Revenue Service has indicated in private letter rulings (which are applicable only to the taxpayer to whom the ruling
is issued) that a taxpayer who does not participate in the dividend reinvestment feature of the Plan and only makes an optional
cash purchase of common stock under the Plan will not be treated as having received a distribution equal to the excess, if
any, of the fair market value on the investment date of the shares of Common Stock over the amount of the optional cash payment
made by the taxpayer.
|
|
|
●
|
The
total amount of your distributions will be reported to you and to the Internal Revenue Service on the appropriate tax form
shortly after the end of each year by the Plan Agent.
|
Character
of Distributions
|
|
●
|
The
amount treated as distributions to shareholders as described above constitute dividends for federal income tax purposes up
to the amount of our positive current and accumulated earnings and profits and, to that extent, will be taxable as ordinary
income.
|
|
|
●
|
To
the extent distributions are in excess of our earnings and profits, the distributions will be treated first as a tax-free
return of capital to the extent of your tax basis in our common shares and, to the extent in excess of your basis, will be
taxable as a gain realized from the sale of your common shares.
|
|
|
●
|
Distributions
to corporate shareholders, including amounts taxable as dividends to corporate shareholders, will not be eligible for the
corporate dividend received deduction.
|
Tax
Basis and Holding Period of Shares and Warrants Acquired Pursuant to the Plan
|
|
●
|
Your
tax basis in shares of common stock acquired directly from us with reinvested cash distributions under the Plan will be equal
to the fair market value of such shares as of the date of distribution. Your tax basis in additional common shares acquired
under the Plan with optional cash investments should be equal to the amount of such optional cash investments plus the amount,
if any, treated as a distribution to you. Your tax basis in shares of common stock purchased on your behalf by the Plan Agent
in the open market or privately negotiated transactions will be equal to the cost of such shares plus your proportionate amount
of commission paid by us as in connection with such purchase.
|
|
|
●
|
Your
tax basis in the common stock and the warrant acquired from the Unit program will be allocated to each element of the Unit
on the basis of their respective fair market values on the date of purchase. If the fair market value of the warrant is not
readily ascertainable then the portion of the price paid of the Unit will be allocable first to the Common Stock to the extent
of the fair market price of the Common Stock on the date of Unit purchase with the remaining purchase price allocated to the
warrant.
|
|
|
●
|
Your
holding period for shares of common stock acquired with reinvested cash distributions generally will commence on the day after
the dividend payment date. If, however, the shares are acquired with optional cash investments or are purchased with reinvested
cash distributions by the Plan Agent on your behalf, the holding period will commence on the day after the date of purchase.
|
|
|
●
|
Your
holding period for the Common Stock and the Warrant purchased under the Unit program will commence for both securities on
the day after the date of purchase of the Unit.
|
|
|
●
|
Your
holding period for the Common Stock issuable upon exercise of a Warrant will commence on the day after you exercise the Warrant
and pay the exercise price.
|
Effect
of Withholding Requirements
|
|
●
|
Under
certain conditions, we or the Plan Agent may be required to deduct as “backup withholding” twenty-eight (28%)
of all dividends paid to you, regardless of whether such dividends are reinvested pursuant to the Plan.
|
|
|
●
|
Similarly,
the Plan Agent may be required to deduct backup withholding from all proceeds from sales of shares of common stock held in
your account.
|
|
|
●
|
Backup
withholding amounts will be withheld from dividends before such dividends are reinvested under the Plan. Therefore, if you
are subject to backup withholding, dividends to be reinvested under the Plan will be reduced by the backup withholding amount.
|
Foreign
Shareholder Participation
|
|
●
|
If
you are a foreign shareholder, you need to provide the required federal income certifications to establish your status as
a foreign shareholder so that backup withholding as described above does not apply to you.
|
|
|
●
|
You
also need to provide the required certifications, if you wish to claim the benefit of exemptions from federal income tax withholding
or reduced withholding rates under a treaty or convention entered into between the United States and your country of residence.
|
|
|
●
|
If
you are a foreign shareholder whose dividends are subject to federal income tax withholding, the appropriate amount will be
withheld and the balance in shares of common stock will be credited to your account.
|
|
|
●
|
Dividends
and sales proceeds payable to certain foreign shareholders will be subject to special reporting rules under “FATCA.”
If these rules are not complied with, such dividends and sales proceeds will be subject to withholding tax at a rate of 30%
in spite of a treaty that provides a lower rate. Such withholding applies to dividends paid in respect of our Common Stock
and to gross proceeds from the sale or other disposition of our Common Stock. If withholding is required under these rules,
the appropriate amount of tax will be deducted and only the remaining amount will be reinvested or paid.
|
IRS
CIRCULAR 230 DISCLOSURE. TO ENSURE COMPLIANCE WITH INTERNAL REVENUE SERVICE CIRCULAR 230, PARTICIPANTS ARE HEREBY NOTIFIED THAT:
(I) ANY DISCUSSION OF FEDERAL TAX ISSUES IN THIS PROSPECTUS WAS NOT INTENDED OR WRITTEN TO BE RELIED UPON, AND CANNOT BE RELIED
UPON BY PARTICIPANTS FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON PARTICIPANTS UNDER THE INTERNAL REVENUE CODE
OF 1986, AS AMENDED; (II) SUCH DISCUSSION IS WRITTEN IN CONNECTION WITH THE PROMOTION OR MARKETING OF THE TRANSACTIONS OR MATTERS
ADDRESSED IN THIS PROSPECTUS; AND (III) PARTICIPANTS SHOULD SEEK TAX ADVICE BASED ON THEIR PARTICICULAR CIRCUMSTANCES FROM AN
INDEPENDENT TAX ADVISOR.
USE
OF PROCEEDS
Shares
purchased for Plan participants with reinvested cash dividends and optional cash investments and through Unit purchases will be
shares newly issued by Zion. Zion and the Plan Agent are unable to estimate the number of shares, if any, that will
be purchased directly from the Company under the Plan or the amount of proceeds from any such shares. The net proceeds
will be used by the Company for general corporate purposes.
PLAN
OF DISTRIBUTION
Subject
to other provisions within this Prospectus Supplement and the accompanying base Prospectus, we will distribute newly issued shares
of our Common Stock and/or the Warrants sold under the Unit Plan if requested by the purchaser to the Plan Agent. Under direct
stock purchases, the Plan Agent will maintain the Common Stock on deposit for the initial six (6) months after the date of purchase
and continuing until there is a request for withdrawal of the discounted shares by the owner or owners. The Plan Agent will assist
in the administration of the Plan, but will not be acting as an underwriter with respect to shares of our common stock sold under
the Plan. You will pay no service fees or brokerage trading fees for acquisitions of shares under the Plan, whether the shares
are newly issued or purchased in the open market. Our common stock is currently listed on the NASDAQ Global Market under
the symbol “ZN”.
In
connection with the administration of the Plan, we may be requested to approve investments made pursuant to requests for waiver
by or on behalf of existing stockholders and new investors who may be engaged in the securities business.
Persons
who acquire shares of our Common Stock through the Plan and resell them shortly after acquiring them, including coverage of short
positions, under certain circumstances, may be participating in a distribution of securities that would require compliance with
Regulation M under the Exchange Act, and may be considered to be underwriters within the meaning of the Securities Act of 1933.
We will not extend to any such person any rights or privileges other than to which he, she or it would be entitled as a participant,
nor will we enter into any agreement with any such person regarding the resale or distribution by any such person of the shares
of our Common Stock so purchased. We may, however, accept optional cash payments and initial investments made pursuant to requests
for waiver by such persons.
From
time to time, financial intermediaries, including brokers and dealers, and other persons may engage in positioning transactions
in order to benefit from any discounts applicable to optional cash payments and initial investments made under the Plan. Those
transactions may cause fluctuations in the trading volume of our Common Stock. Financial intermediaries and such other persons
who engage in positioning transactions may be deemed to be underwriters. We have no arrangements or understandings, formal or
informal, with any person relating to the sale of shares of our Common Stock to be received under the Plan. We reserve the right
to modify, suspend or terminate participation in the Plan by otherwise eligible persons to eliminate practices that are inconsistent
with the purposes of the Plan.
LEGAL
MATTERS
Pearl
Cohen Zedek Latzer Baratz LLP (Zion’s external legal counsel) will pass on the validity of the issuance of the securities
offered by this prospectus supplement and the accompanying base prospectus.
EXPERTS
The
financial statements of Zion Oil & Gas, Inc. as of and for the years ended December 31, 2015 and 2014 have been incorporated
by reference herein in reliance upon the reports of MaloneBailey, LLP, independent registered public accounting firm, incorporated
by reference herein, and upon the authority of said firm as experts in accounting and auditing.
WHERE
YOU CAN FIND MORE INFORMATION AND INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
We
file annual, quarterly and current reports, proxy statements and other information with the SEC. Our filings are available to
the public over the Internet at the SEC’s website at
http://www.sec.gov
. You may also read and copy any document
we file with the SEC at its public reference facilities at 100 F Street, N.E., Washington, D.C. 20549. You can also obtain copies
of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington,
D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities.
Our SEC filings are also available at no cost on our website,
http://www.zionoil.com/sec-reports
, as soon as reasonably
practicable after we file such documents with the SEC. Except for those SEC filings, none of the other information on our website
is part of this prospectus supplement or the accompanying base prospectus.
We
“incorporate by reference” into this prospectus supplement and the accompanying base prospectus the information that
we file with the SEC, which means that we can disclose important information to you by referring you to those documents. The information
incorporated by reference is an important part of this prospectus supplement and the accompanying base prospectus. Some information
contained in this prospectus supplement and the accompanying base prospectus updates the information incorporated by reference,
and information that the Company files subsequently with the SEC will automatically update this prospectus supplement and the
accompanying base prospectus. In other words, in the case of a conflict or inconsistency between information set forth in this
prospectus supplement, the accompanying base prospectus, and the information incorporated by reference herein, you should rely
on the information contained in the document that was filed last. We incorporate by reference the following documents (excluding
any portions of such documents that have been “furnished” but not “filed” for purposes of the Securities
Exchange Act of 1934, as amended, which we refer to as the “Exchange Act”):
|
|
●
|
Our
annual report on Form 10-K for the fiscal year ended December 31, 2015 filed on March 15, 2016;
|
|
|
●
|
Our
definitive proxy statement with respect to the Annual Meeting of Stockholders held on June 6, 2016, as filed with the Securities
and Exchange Commission on April 14, 2016;
|
|
|
●
|
Our
Quarterly Reports on Form 10-Q for the quarterly periods ended March 30, 2016 filed on May 16, 2016, June 30, 2016 filed on
August 9, 2016, and September 30, 2016 filed on November 10, 2016;
|
|
|
●
|
Our
current reports on Form 8-K: January 14, 2016; February 2, 2016; March 31, 2016; April 7, 2016; June 8, 2016; June 8, 2016;
June 23, 2016; July 20, 2016; August 30, 2016; September 16, 2016; October 7, 2016; October 19, 2016; November 1, 2016; November
4, 2016 and November 30, 2016;
|
|
|
●
|
the
description of our common stock in our registration statement on Form 8-A filed with the SEC on December 29, 2006, including
any amendments or reports filed for the purpose of updating such description; and the description of our 10% Convertible Senior
Note due 2021 on Form 8-A/A filed with the SEC on April 28, 2016; and
|
|
|
●
|
all
future filings that we make with the SEC under Section 13(a), 13(c), 14, or 15(d) of the Exchange Act after the date of filing
of the registration statement on Form S-3 of which this prospectus supplement and the accompanying base prospectus are a part
and prior to the termination or completion of any offering of securities under this prospectus supplement and the accompanying
base prospectus (except, in each case, for information contained in any such filing that is furnished and not “filed”
under the Exchange Act), which filings will be deemed to be incorporated by reference in this prospectus supplement and the
accompanying base prospectus, and to be a part hereof from the respective dates of such filings.
|
We
will provide without charge to each person, including any beneficial owner, to whom this prospectus is delivered, upon written
or oral request of such person, a copy of any or all of the information that is incorporated by reference in this prospectus supplement
and base prospectus. Requests for such documents should be directed to: Shareholder Relations, Zion Oil & Gas, Inc., 12655
North Central Expressway, Suite 1000, Dallas, TX 75243.
This
prospectus supplement and the accompanying base prospectus are a part of a registration statement on Form S-3 that we filed with
the SEC. That registration statement contains more information than this prospectus supplement and the accompanying base prospectus
regarding us and our common stock, including certain exhibits and schedules. You can obtain a copy of the registration statement
from the SEC at the address listed above or from the SEC’s Internet website.
You
should rely only on the information in this prospectus supplement, the accompanying base prospectus, any applicable free writing
prospectus and the documents that are incorporated herein or therein by reference. We have not authorized anyone else to provide
you with different information. We are not offering these securities in any state where the offer is prohibited by law. You should
not assume that the information in this prospectus supplement, the accompanying base prospectus, any applicable free writing prospectus
or any document incorporated by reference into any of them is accurate as of any date other than the date of the applicable document.
[This
page was intentionally left blank]
Annex A
Annex
B
[Face
of Certificate - ZION OIL & GAS, INC.]
(SEE
REVERSE SIDE FOR LEGEND)
W
WARRANTS
(THIS
WARRANT WILL BE VOID IF NOT EXERCISED PRIOR TO 5:00 P.M., EASTERN STANDARD TIME,
______________,
20__)
ZION
OIL & GAS, INC.
CUSIP
989696 ___
WARRANT
THIS
CERTIFIES THAT, for value received _____________ is the registered holder of a Warrant or Warrants expiring _____________, 20__
(the "Warrant") to purchase one fully paid and non-assessable share of Common Stock, par value $.01 per share (the "Shares"),
of ZION OIL & GAS, INC., a Delaware corporation (the "Company"). The Warrant entitles the holder thereof to purchase
from the Company, commencing on _____, 20__, one Share of the Company at the price of $___ per share, upon surrender of this Warrant
Certificate and payment of the Warrant Price at the office or agency of the Warrant Agent, American Stock Transfer & Trust
Company, LLC (such payment to be made by check made payable to the order of the Company), but only subject to the conditions set
forth herein and in the Warrant Agreement between the Company and the Warrant Agent. In no event shall the registered holder of
this Warrant be entitled to receive a net-cash settlement or other consideration in lieu of physical settlement in Shares of the
Company. The Warrant Agreement provides that, upon the occurrence of certain events, the Warrant Price and the number of Warrant
Shares purchasable hereunder, set forth on the face hereof, may, subject to certain conditions, be adjusted. The term Warrant
Price as used in this Warrant Certificate refers to the price per Share at which Shares may be purchased at the time the Warrant
is exercised.
This
Warrant may expire on the date first above written if it is not exercised prior to such date by the registered holder pursuant
to the terms of the Warrant Agreement.
No
fraction of a Share will be issued upon any exercise of a Warrant. If, upon exercise of a Warrant, a holder would be entitled
to receive a fractional interest in a Share, the Company will, upon exercise, round up to the nearest whole number the number
of shares of common stock to be issued to the warrant holder.
Upon
any exercise of the Warrant for less than the total number of full Shares provided for herein, there shall be issued to the registered
holder hereof or his/her/its assignee a new Warrant Certificate covering the number of Shares for which the Warrant has not been
exercised.
Warrant
Certificates, when surrendered at the office or agency of the Warrant Agent by the registered holder hereof in person or by attorney
duly authorized in writing, may be exchanged in the manner and subject to the limitations provided in the Warrant Agreement, but
without payment of any service charge, for another Warrant Certificate or Warrant Certificates of like tenor and evidencing in
the aggregate a like number of Warrants.
Upon
due presentment for registration of transfer of the Warrant Certificate at the office or agency of the Warrant Agent, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to
the transferee in exchange for this Warrant Certificate, subject to the limitations provided in the Warrant Agreement, without
charge except for any applicable tax or other governmental charge.
The
Company and the Warrant Agent may deem and treat the registered holder as the absolute owner of the Warrants represented by this
Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone) for the purpose of any
exercise hereof, of any distribution to the registered holder, and for all other purposes, and neither the Company nor the Warrant
Agent shall be affected by any notice to the contrary.
This
Warrant does not entitle the registered holder to any of the rights of a stockholder of the Company.
COUNTERSIGNED:
American
Stock Transfer & Trust Company, LLC
WARRANT
AGENT
BY:
AUTHORIZED
OFFICER
DATED:
(Signature)
CHIEF
EXECUTIVE OFFICER
(Seal)
(Signature)
SECRETARY
SUBSCRIPTION
FORM
To
Be Executed by the Registered Holder in Order to Exercise Warrants
The
undersigned Registered Holder irrevocably elects to exercise _________ Warrants represented by this Warrant Certificate, and to
purchase the shares of Common Stock issuable upon the exercise of such Warrants, and requests that Certificates for such shares
shall be issued in the name of
(PLEASE
TYPE OR PRINT NAME AND ADDRESS)
(SOCIAL
SECURITY OR TAX IDENTIFICATION NUMBER)
and
be delivered to
(PLEASE
PRINT OR TYPE NAME AND ADDRESS)
and,
if such number of Warrants shall not be all the Warrants evidenced by this Warrant Certificate, that a new Warrant Certificate
for the balance of such Warrants be registered in the name of, and delivered to, the Registered Holder at the address stated below:
|
Dated:
|
-
|
|
|
|
|
(SIGNATURE)
|
-
|
|
|
|
|
(ADDRESS)
|
-
|
|
|
|
|
(TAX
IDENTIFICATION NUMBER)
|
-
|
THE
SIGNATURE TO THE ASSIGNMENT OF THE SUBSCRIPTION FORM MUST CORRESPOND TO THE NAME WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE
IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A COMMERCIAL BANK OR
TRUST COMPANY OR A MEMBER FIRM OF THE AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR CHICAGO STOCK
EXCHANGE.
ASSIGNMENT
To
Be Executed by the Registered Holder in Order to Assign Warrants
For
Value Received, _____________________hereby sell, assign, and transfer unto
_____________________________________________________
(PLEASE
TYPE OR PRINT NAME AND ADDRESS)
_____________________________________________________
_____________________________________________________
_____________________________________________________
(SOCIAL
SECURITY OR TAX IDENTIFICATION NUMBER)
and
be delivered to__________________________________________________________________________________
(PLEASE
PRINT OR TYPE NAME AND ADDRESS)
Of
the Warrants represented by this Warrant Certificate, and hereby irrevocably constitute and
Appoint
________________________________Attorney to transfer this Warrant Certificate on the books of the Company, with full power of
substitution in the premises.
Dated:
(SIGNATURE)
Notice:
The signature to this assignment must correspond with the name as written upon the face of the certificate in every particular,
without alteration or enlargement or any change whatever.
Signature(s)
Guaranteed:
THE
SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT
UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM, PURSUANT TO S.E.C. RULE 17Ad-15).
PROSPECTUS
$102,350,000
ZION
OIL & GAS, INC.
Common
Stock, Debt Securities, Warrants and Units
This
prospectus is part of a replacement registration statement that we filed with the Securities and Exchange Commission (the “SEC”)
using a “shelf” registration process. From time to time, we may offer up to an aggregate of approximately $102,350,000
of any combination of the securities described in this prospectus, either individually or in units. We will not sell under this
registration statement and prospectus common stock or other securities with a market value exceeding one-third of the aggregate
market value of our outstanding common stock by non-affiliates, or the public float, in any 12-month period; provided, however,
if the aggregate market value of our public float equals or exceeds $75 million hereafter, such limitation shall not apply to
sales made pursuant to this registration statement and prospectus on or subsequent to such date.
This
prospectus provides a general description of the securities we may offer. Each time we sell securities, we will provide
specific terms of the securities offered in a supplement to this prospectus. The prospectus supplement may also add, update
or change information contained in this prospectus. You should read this prospectus and the applicable prospectus supplement
carefully before you invest in any securities.
Our
common stock is quoted on the NASDAQ Global Market under the symbol “ZN.” The sale price of our common stock on the
NASDAQ Global Market on February 17, 2017 was $1.29 and our public float was approximately $53 million. Under our Dividend Reinvestment
and Common Stock Purchase Plan, we also have a common stock purchase warrant at an exercise price of $2.00, expiring January 31,
2020, that was issued and quoted on the NASDAQ Global Market under the symbol “ZNWAA.” On March 27, 2014, the Company
filed with the SEC the prospectus supplement dated as of March 27, 2014 and accompanying base prospectus relating to the Company’s
Dividend Reinvestment and Direct Stock Purchase Plan (the “DSPP”). The prospectus formed part of the Company’s
Registration Statement on Form S-3 (File No. 333-193336), which was declared effective by the SEC on March 31, 2014. The applicable
prospectus supplement will contain information, where applicable, as to the above and any other listing on the NASDAQ Global Market
or any securities market or other exchange of the securities, if any, covered by the prospectus supplement.
Investing
in our securities involves a high degree of risk. We urge you to carefully consider the risks that we have described on page P-9 of
this prospectus under the caption “Risk Factors.” We may also include specific risk factors in supplements to this
prospectus under the caption “Risk Factors.” This prospectus may not be used to offer or sell our securities unless
accompanied by a prospectus supplement.
We
will sell these securities directly to investors, through agents designated from time to time or to or through underwriters or
dealers. For additional information on the methods of sale, you should refer to the section entitled “Plan of Distribution”
in this prospectus. If any underwriters are involved in the sale of any securities with respect to which this prospectus
is being delivered, the names of such underwriters and any applicable commissions or discounts will be set forth in a prospectus
supplement. The price to the public of such securities and the net proceeds we expect to receive from such sale will
also be set forth in a prospectus supplement.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The
date of this prospectus is March 10, 2017.
Table
of Contents
ABOUT
THIS PROSPECTUS
This
prospectus is a part of a replacement registration statement that we filed with the Securities and Exchange Commission, or SEC,
utilizing a “shelf” registration process. Under this shelf registration process, we may sell any combination of the
securities described in this prospectus in one or more offerings up to a total dollar amount of approximately $102,350,000.
We will not sell under this registration statement and prospectus common stock or other securities with a market value exceeding
one-third of the aggregate market value of our outstanding common stock by non-affiliates, or the public float, in any 12-month
period; provided, however, if the aggregate market value of our public float equals or exceeds $75 million hereafter, such limitation
shall not apply to sales made pursuant to this registration statement and prospectus on or subsequent to such date. This
prospectus provides you with a general description of the securities we may offer. Each time we sell securities under this
shelf registration, we will provide a prospectus supplement that will contain specific information about the terms of that offering.
The prospectus supplement may also add, update or change information contained in this prospectus. You should read both
this prospectus and any prospectus supplement together with additional information described on page P-34 under the heading “Where
You Can Find More Information.”
You
should rely only on the information provided or incorporated by reference in this prospectus or any prospectus supplement. We
have not authorized any dealer, salesman or other person to give any information or to make any representation other than those
contained or incorporated by reference in this prospectus and the accompanying supplement to this prospectus. You must not rely
upon any information or representation not contained or incorporated by reference in this prospectus or the accompanying prospectus
supplement. This prospectus and the accompanying supplement to this prospectus do not constitute an offer to sell or the solicitation
of an offer to buy any securities other than the registered securities to which they relate, nor do this prospectus and the
accompanying supplement to this prospectus constitute an offer to sell or the solicitation of an offer to buy securities in any
jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction. You should not assume
that the information contained in this prospectus and the accompanying prospectus supplement is accurate on any date subsequent
to the date set forth on the front of the document or that any information we have incorporated by reference is correct on any
date subsequent to the date of the document incorporated by reference, even though this prospectus and any accompanying prospectus
supplement is delivered or securities sold on a later date. In this prospectus and any prospectus supplement, unless otherwise
indicated, the terms “Company,” "we," "our" and "us" refer to Zion Oil & Gas,
Inc., a corporation incorporated in the State of Delaware.
THIS
PROSPECTUS MAY NOT BE USED TO OFFER AND SELL SECURITIES UNLESS IT IS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus and the documents included or incorporated by reference in this prospectus contain statements concerning our expectations,
beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that
are not historical facts. These statements are "forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. You generally can identify our forward-looking statements by the words "anticipate,"
"believe," "budgeted," "continue," "could," "estimate," "expect,"
"forecast," "goal," "intend," "may," "objective," "plan," "potential,"
"predict," "projection," "scheduled," "should," "will" or other similar words.
These forward-looking statements include, among others, statements regarding:
|
|
●
|
our
liquidity and our ability to raise capital to finance our exploration and development activities;
|
|
|
●
|
our
ability to explore for and develop natural gas and oil resources successfully and economically;
|
|
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●
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local
(in Israel) as well as global demand for oil and natural gas;
|
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|
●
|
our
estimates of the timing and number of wells we expect to drill and other exploration activities and planned expenditures;
|
|
|
●
|
changes
in our drilling plans and related budgets;
|
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|
●
|
the
quality of our license area with regard to, among other things, the existence of reserves in economic quantities;
|
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●
|
anticipated
trends in our business;
|
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●
|
our
future results of operations;
|
|
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●
|
our
capital expenditure program;
|
|
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●
|
future
market conditions in the oil and gas industry; and
|
|
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●
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the
impact of governmental regulation.
|
More
specifically, our forward-looking statements include, among others, statements relating to our schedule, business plan, targets, estimates
or results of future drilling, including the number, timing and results of wells, the timing and risk involved in drilling follow-up
wells, planned expenditures, prospects budgeted and other future capital expenditures, risk profile of oil and gas exploration,
acquisition of seismic data (including number, timing and size of projects), planned evaluation of prospects, probability of prospects
having oil and natural gas, expected production or reserves, increases in reserves, acreage, working capital requirements, hedging
activities, the ability of expected sources of liquidity to implement our business strategy, future hiring, future exploration
activity, production rates, all and any other statements regarding future operations, financial results, business plans and cash
needs and other statements that are not historical facts.
Such
statements involve risks and uncertainties, including, but not limited to, those relating to our dependence on our exploratory
drilling activities, the volatility of oil and natural gas prices, the need to replace reserves depleted by production, operating
risks of oil and natural gas operations, our dependence on our key personnel, factors that affect our ability to manage our growth
and achieve our business strategy, risks relating to our limited operating history, technological changes, our significant capital
requirements, the potential impact of government regulations, adverse regulatory determinations, litigation, competition, the
uncertainty of reserve information and future net revenue estimates, property acquisition risks, industry partner issues, availability
of equipment, weather and other factors detailed herein and in our other filings with the SEC.
We
have based our forward-looking statements on our management's beliefs and assumptions based on information available to our management
at the time the statements are made. We caution you that assumptions, beliefs, expectations, intentions and projections about
future events may and often do vary materially from actual results. Therefore, we cannot assure you that actual results will not
differ materially from those expressed or implied by our forward-looking statements.
Some
of the factors that could cause actual results to differ from those expressed or implied in forward-looking statements are described
under "Risk Factors" in this prospectus (page P-9) and described under "Risk Factors" and elsewhere in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2015 and in our other periodic reports filed with the SEC. Should
one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may
vary materially from those indicated. All subsequent written and oral forward-looking statements attributable to us or persons
acting on our behalf are expressly qualified in their entirety by reference to these risks and uncertainties. You should not place
undue reliance on our forward-looking statements. Each forward-looking statement speaks only as of the date of the particular
statement, and we undertake no duty to update any forward-looking statement.
SUMMARY
The
following is only a summary, and does not contain all of the information that you need to consider in making your investment decision.
We urge you to read this entire prospectus, including the more detailed financial statements, notes to the financial statements and
other information incorporated by reference into this prospectus under “Where You Can Find More Information” and “Incorporation
of Certain Information by Reference” from our other filings with the SEC, as well as any prospectus supplement applicable
to an offering of the securities registered pursuant to the registration statement of which this prospectus forms a part. Investing
in our securities involves risks. Therefore, please carefully consider the information provided under the heading "Risk Factors"
beginning on page P-9.
Our
Company
Zion
Oil and Gas, Inc., a Delaware corporation, is an initial stage oil and gas exploration company with a history of over 16 years
of oil and gas exploration in Israel. We have no revenues or operating income. We were incorporated in Florida on April 6, 2000
and reincorporated in Delaware on July 9, 2003. We completed our initial public offering in January 2007. Our common stock currently
trades on the NASDAQ Global Market under the symbol “ZN” and our warrant trades on such market under the symbol “ZNWAA.”
We
currently hold one active petroleum exploration license onshore Israel, the Megiddo-Jezreel License (“MJL”), comprising
approximately 99,000 acres.
The MJL was awarded on December 3, 2013 for a three-year primary term through
December 2, 2016, with the possibility of additional one-year extensions up to a maximum of seven years. The MJL is onshore, south
and west of the Sea of Galilee. On June 28, 2016, the Company submitted a third Application for Extension of Drilling Date, and
on July 4, 2016, the Petroleum Commissioner formally approved the application as follows:
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No.
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|
|
Activity
Description
|
|
To
be carried out by:
|
|
|
1
|
|
|
Sign
a contract with drilling contractor and forward to Petroleum Commissioner
|
|
|
13
October 2016
|
|
|
2
|
|
|
Submit
detailed Engineering Plan to carry out the drilling
|
|
|
13
October 2016
|
|
|
3
|
|
|
Spudding
in the license area
|
|
|
1
December 2016
|
|
|
4
|
|
|
Submit
a final report on the results of the drilling
|
|
|
1
May 2017
|
|
|
|
5
|
|
|
Submit
a plan for continued work in the license area
|
|
|
29
June 2017
|
|
The
Petroleum Commissioner modified Zion’s work plan deadlines and awarded the Company a one-year extension to December 2, 2017,
on its Megiddo-Jezreel petroleum exploration license, subject to Zion signing a drilling contract and submitting a detailed engineering
plan by October 13, 2016 and spudding an exploratory well by December 1, 2016. The Company timely complied with two key Special
Conditions of our existing license terms established by the Israel Petroleum Commissioner, by providing on October 13, 2016 the
fully executed drilling contract with S.A. Daflog, S.R.L. (dated 6 October 2016) and a Detailed Drilling Engineering Plan for
the Megiddo-Jezreel #1 well. Zion entered into a drilling contract with S.A. DAFLOG S.R.L., an Israeli-registered related party
entity to DAFORA S.A.
As
previously reported, the Company needed authorization from the Israel land Authority (the “ILA”), the formal lessor
of the land to the kibbutz, to access and utilize the drill site. The Company received this authority on July 4, 2016. This is
in conjunction with our May 15, 2016, signed agreement with Kibbutz Sde Eliyahu on whose property the drilling pad will be situated.
While
Zion has successfully complied with the Special Conditions of the Company’s work program to date, the process of securing
an appropriate drilling rig and crew with which to drill our upcoming well has been long and complicated. As such, Zion submitted
a drilling date extension request to the Petroleum Commissioner on November 7, 2016. Key details of the extension request are
as outlined below:
|
NO.
|
|
ACTIVITY DESCRIPTION
|
|
TO
BE CARRIED OUT BY:
|
|
1
|
|
Begin
drilling / spud well
|
|
30
June 2017
|
|
2
|
|
Submit
final report on the results of drilling
|
|
1
November 2017
|
|
3
|
|
Submit
a plan for continued work in the license area
|
|
1
December 2017
|
On
November 29, 2016, the Company received notification from the State of Israel’s Petroleum Commissioner officially approving
the drilling date extension for the Company.
The
Company has prepared the specific drill pad to accommodate the DAFORA’s F-400 Rig. The drill site plan was prepared by the
Israeli company,
Y. Bazelet and Aggregatim LTD
. The access road and the drill site is almost finished and we hope to commence
rig mobilization to the MJ#1 location and to begin rig-up and acceptance testing within 60 days, assuming no weather or regulatory
delays.
We
hold 100% of the working interest in our licenses, which means we are responsible for 100% of the costs of exploration and, if
established, production. Our net revenue interest is 81.5%, which means we would receive 81.5% of the gross proceeds from the
sale of oil and gas from license areas upon their conversion to production leases, if there is any commercial production. The
18.5% to which we are not entitled comprises (i) a 12.5% royalty reserved by the State of Israel and (ii) an overriding royalty
interest (or equivalent net operating profits interest) of 6% of gross revenue from production given over to two charitable foundations.
No royalty would be payable to any landowner with respect to production from our license areas as the State of Israel owns all
the mineral rights. In addition, we may establish a key employee incentive plan that may receive an overriding royalty interest
(or equivalent net operating profits interest) of up to 1.5%. In that event, our effective net revenue interest
would be 80%. Effective March 2011, a special levy on income from oil and gas production was enacted in Israel. The new law provides
that royalties on hydrocarbon discoveries will remain at 12.5%, while taxation of profits will begin only after the developers
have reached payback on their investment plus a return. The levy will be 20% after a payback of 150% on the investment, and will
rise gradually, reaching 44.56% after a return of 230% on the investment. The Israeli government also repealed the percentage
depletion deduction and made certain changes to the rules for deducting tangible and intangible development. These rules will
only become germane to us when, and if, we commence production of oil and/or gas.
Our
ability to generate future revenues and operating cash flow will depend on the successful exploration and exploitation of our
current and any future petroleum rights or the acquisition of oil and/or gas producing properties, the volume and timing of our
production, as well as commodity prices for oil and gas. Such pricing factors are largely beyond our control, and may result in
fluctuations in our earnings.
Our
company’s vision, as exemplified by its Founder and Chairman, John Brown, of finding oil and/or natural gas in Israel, is
Biblically inspired. The vision is based, in part, on Biblical references alluding to the presence of oil and/or natural gas in
territories within the State of Israel that were formerly within certain ancient Biblical tribal areas. While John Brown provides
the broad vision and goals for Zion, the actions taken by the Company’s management as it actively explores for oil and gas
in Israel are based on modern science and good business practice. Zion’s oil and gas exploration activities are supported
by appropriate geological and other science based studies and surveys typically carried out by companies engaged in oil and gas
exploration activities.
Financing
Activities
To
date, we have funded our operations through the issuance of our securities. Our recent financing is discussed below.
On
March 27, 2014 under the current Form S-3, as amended, the Company filed its Dividend Reinvestment and Stock Purchase Plan (the
“DSPP”) pursuant to which stockholders and interested investors can purchase shares of the Company’s Common
Stock as well as units of the Company’s securities. The terms of the DSPP are described in the Prospectus Supplement originally
filed on March 27, 2014 (the “Original Prospectus Supplement”) with the Securities and Exchange Commission (“SEC”)
under the Company’s effective registration Statement on Form S-3, as thereafter amended. On January 13, 2015, the Company
amended the Original Prospectus Supplement (“Amendment No. 3”) to provide for a unit option (the “Unit Option”)
under the DSPP comprised of one share of Common Stock and three Common Stock purchase warrants with each unit priced at $4.00.
Each warrant afforded the investor or stockholder the opportunity to purchase the Company’s Common Stock at a warrant exercise
price of $1.00. Each of the three warrant series have different expiration dates that have been extended.
On
December 28, 2015, Amendment No. 6 to the Original Prospectus Supplement was filed extending the scheduled termination date of
the Unit Option to March 31, 2016. On March 31, 2016, the Unit Option terminated. The number of warrants were not of a sufficient
quantity to justify OTC (over the counter) trading. The warrants became first exercisable on May 2, 2016 and continue to be exercisable
through May 2, 2017 for ZNWAB (1 year), May 2, 2018 for ZNWAC (2 years) and May 2, 2019 for ZNWAD (3 years), respectively, at
a per share exercise price of $1.00. The Company issued approximately 120,000 shares of its Common Stock as of September 30, resulting
in cash proceeds of approximately $120,000.
For
the nine months ended September 30, 2016, approximately $2,680,000 has been raised under the DSPP program. As a result, the Company
issued approximately 1,578,000 shares of its Common Stock during the same period. Additionally, warrants for approximately 286,000
shares of Common Stock were issued during the nine months ended September 30, 2016 (approximately 95,000 each of ZNWAB, ZNWAC,
and ZNWAD). As of September 30, 2016, the number of outstanding warrants for each warrant issue is as approximately: 320,000 of
ZNWAB, 348,000 of ZNWAC, and 351,000 of ZNWAD. The total amount of funds received from the DSPP, including the exercise of warrants,
from the inception date through September 30, 2016 is approximately $11,488,000.
Rights
Offering -10% Senior Convertible Notes due May 2, 2021
On
October 21, 2015, the Company filed with the SEC a prospectus supplement for a rights offering. Under the rights offering, the
Company distributed at no cost, 360,000 non-transferable subscription rights to subscribe for, on a per right basis, two 10% Convertible
Senior Bonds par $100 due May 2, 2021 (the “Notes”), to persons who owned shares of the Company’s Common Stock
on October 15, 2015, the record date for the offering. Each whole subscription right entitled the participant to purchase two
convertible bonds at a purchase price of $100 per bond. Effective October 21, 2015, the Company executed a Supplemental Indenture,
as issuer, with the American Stock Transfer & Trust Company, LLC, a New York limited liability trust company (“AST”),
as trustee for the Notes (the “Indenture”). The offering was scheduled to terminate on January 15, 2016 but was extended
to March 31, 2016. On March 31, 2016, the rights offering terminated.
On
May 2, 2016, the Company issued approximately $3,470,000 aggregate principal amount of Notes in connection with the rights
offering. The Company received net proceeds of approximately $3,334,000, from the sale of the Notes, after deducting fees and
expenses of $136,000 incurred in connection with the offering. These costs have been discounted as deferred offering costs.
The
Notes contain a convertible option that gives rise to a derivative liability, which is accounted for separately from the Notes.
Accordingly, the Notes were initially recognized at fair value of approximately $1,844,000, which represents the principal amount
of $3,470,000 from which a debt discount of approximately $1,626,000 (which is equal to the fair value of the convertible option)
was deducted.
During
the nine months ended September 30, 2016, the Company recorded approximately $12,000 in amortization expense related
to the deferred financing costs, and approximately $65,000 in debt discount amortization, net. The Notes are governed by the terms
of the Indenture. The Notes are senior unsecured obligations of the Company and bear interest at a rate of 10% per year, payable
annually in arrears on May 2 of each year, commencing May 2, 2017. The Notes will mature on May 2, 2021, unless earlier redeemed
by the Company or converted by the holder.
Interest
and principal may be paid, at the Company’s option, in cash or in shares of the Company’s Common Stock. The number
of shares for the payment of interest in shares of Common Stock, in lieu of the cash amount, will be based on the average of the
closing prices of the Company’s Common Stock as reported by Bloomberg L.P. for the 30 trading days preceding the record
date for the payment of interest; such record date has been designated and will always be the 10
th
business day prior
to the interest payment date on May 2 of each year. The number of shares for the payment of principal, in lieu of the cash amount,
shall be based upon the average of the closing price of the Company’s Common Stock as reported by Bloomberg L.P. for the
30 trading days preceding the principal repayment date; such record date has been designated as the trading day immediately prior
to the 30-day period preceding the maturity date of May 2, 2021. Fractional shares will not be issued and the final number of
shares will be rounded up to the next whole share.
At
any time prior to the close of business on the business day immediately preceding April 2, 2021, holders may convert their notes
into Common Stock at the conversion rate of 44 shares per $100 bond (which is equivalent to a conversion rate of approximately
$2.27 per share). The conversion rate is subject to adjustment from time to time upon the occurrence of certain events, including,
but not limited to, the issuance of stock dividends and payment of cash dividends.
Beginning
May 3, 2018, the Company is entitled to redeem for cash the outstanding Notes at an amount equal to the principal and accrued
and unpaid interest, plus a 10% premium. No “sinking fund” is provided for the Notes due May 2021, which means that
the Company is not required to periodically redeem or retire the Notes due May 2021.
Through
the nine months ended September 30, 2016, approximately 125 convertible bonds of $100 each have been converted under this offering
at a conversion rate of approximately $2.27 per share. As a result, the Company issued approximately 5,500 shares of its Common
Stock during the same period.
|
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
|
|
|
US$
|
|
|
Total
|
|
|
US$
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10% Senior Convertible Bonds, net of debt discount on derivative liability of $1,626,000 on the day of issuance
|
|
$
|
1,844,000
|
|
|
$
|
1,844,000
|
|
|
|
-
|
|
|
|
-
|
|
|
Debt discount amortization, net
|
|
$
|
65,000
|
|
|
$
|
316,000
|
|
|
|
-
|
|
|
|
-
|
|
|
Bonds converted to shares
|
|
$
|
(12,000
|
)
|
|
$
|
(12,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Offering cost, net
|
|
$
|
(124,000
|
)
|
|
$
|
(124,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
10% senior Convertible bonds – Long Term Liability
|
|
$
|
1,773,000
|
|
|
$
|
2,024,000
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For
the nine months ended September 30, 2016, the Company recognized interest expense of approximately $144,000 related to the Notes,
Payable for the first time and in arrears on May 2, 2017.
New
Unit Option under the Unit Program
On
November 1, 2016, the Company launched a unit offering (the “Unit Program”) under the Company’s DSPP pursuant
to which stockholders and interested investors can purchase units comprised of seven (7) shares of Common Stock and seven (7)
Common Stock purchase warrants, at a per unit purchase price of $10. The warrant shall have the symbol “ZNWAE,” but
no assurance can be provided that the warrant will be approved for listing on the NASDAQ Global Market. The Company’s new
Unit Program is scheduled to terminate on March 31, 2017.
The
warrants will first become exercisable on May 1, 2017, which is the 31
st
day following the scheduled Unit Program Termination
Date (i.e., on March 31, 2017) and continue to be exercisable through May 1, 2020 at a per share exercise price of $1.00. If the
Common Stock of the Company closes at or above $5.00 for fifteen (15) consecutive trading days at any time prior to the expiration
date of the warrant, the Company has the sole discretion to provide a notice to warrant holders of an early termination of the
warrant within sixty (60) days of the notice.
The
Securities We May Offer
We
may offer shares of our common stock, various series of debt securities and warrants to purchase any of such securities, either
individually or in units, with a total value of up to approximately $102,350,000 from time to time under this prospectus at prices
and on terms to be determined by market conditions at the time of offering. We will not sell under this registration statement
and prospectus common stock or other securities with a market value exceeding one-third of the aggregate market value of our outstanding
common stock by non-affiliates, or the public float, in any 12-month period; provided, however, if the aggregate market value
of our public float equals or exceeds $75 million hereafter, such limitation shall not apply to sales made pursuant to this registration
statement and prospectus on or subsequent to such date. This prospectus provides you with a general description of the securities
we may offer. Each time we offer a type or series of securities, we will provide a prospectus supplement that will describe
the specific amounts, prices and other important terms of the securities, including, to the extent applicable:
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aggregate
principal amount or aggregate offering price;
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maturity,
if applicable;
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original
issue discount, if any;
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rates
and times of payment of interest, if any;
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redemption,
conversion, exchange or sinking fund terms, if any;
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conversion
or exchange prices or rates, if any, and, if applicable, any provisions for changes to or adjustments in the conversion or
exchange prices or rates and in the securities or other property receivable upon conversion or exchange;
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restrictive
covenants, if any;
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voting
or other rights, if any; and
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important
federal income tax considerations.
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The
prospectus supplement also may add, update or change information contained in this prospectus or in documents we have incorporated
by reference into this prospectus. However, no prospectus supplement will offer a security that is not registered and described
in this prospectus at the time of the effectiveness of the registration statement of which this prospectus is a part.
We
may sell the securities directly to or through underwriters, dealers or agents. We, and our underwriters or agents, reserve
the right to accept or reject all or part of any proposed purchase of securities. Currently, we sell securities directly
through our Dividend Reinvestment and Common Stock Purchase Plan. If we do offer securities through underwriters or agents, we
will include in the applicable prospectus supplement:
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the
names of those underwriters or agents;
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applicable
fees, discounts and commissions to be paid to them;
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details
regarding over-allotment options, if any; and
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the
net proceeds to us.
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The
following is a summary of the securities we may offer with this prospectus.
Common
Stock
. We currently have authorized 200,000,000 shares of common stock, par value $0.01 per share. We may offer
shares of our common stock either alone or underlying other registered securities convertible into or exercisable for our common
stock from time to time. Holders of our common stock are entitled to one vote per share for the election of directors and on all
other matters that require stockholder approval. In the event of our liquidation, dissolution or winding up, holders
of our common stock are entitled to share ratably in the assets remaining after payment of liabilities. Currently, we do
not pay any dividends. Our common stock does not carry any preemptive rights enabling a holder to subscribe for, or receive shares
of, any class of our common stock or any other securities convertible into shares of any class of our common stock, or any redemption
rights.
Debt
Securities
. We may offer debt securities from time to time, in one or more series, as either senior or subordinated
debt or as senior or subordinated convertible debt. The senior debt securities will rank equally with any other unsubordinated
debt that we may have and may be secured or unsecured. The subordinated debt securities will be subordinate and junior in
right of payment, to the extent and in the manner described in the instrument governing the debt, to all or some portion of our
indebtedness. Any convertible debt securities that we issue will be convertible into or exchangeable for our common stock
or other securities of ours. Conversion may be mandatory or at your option and would be at prescribed conversion rates.
Any
debt securities will be issued under one or more documents called indentures, which are contracts between us and a trustee for
the holders of the debt securities. In this prospectus, we have summarized certain general and standard features of the
debt securities we may issue. We urge you, however, to read the prospectus supplements related to the series of debt securities
being offered, as well as the complete indentures that contain the terms of the debt securities. We will file as exhibits to
the registration statement of which this prospectus is a part, or will incorporate by reference into such registration statement
from a Current Report on Form 8-K that we file with the SEC, the forms of indentures and any supplemental indentures and the forms
of debt securities containing the terms of debt securities we are offering before the issuance of any series of debt pursuant
to the Registration Statement of which this prospectus forms a part.
Warrants.
We may offer warrants for the purchase of our common stock, and/or debt securities in one or more series, from
time to time. We may issue warrants independently or together with common stock, and/or debt securities and the warrants
may be attached to or separate from those securities. Currently, warrants under the symbol “ZNWAE” to purchase an
additional share of the Company’s common stock at an exercise price of $1.00 per share for three years are being offered
by the Company until March 31, 2017 in accordance with the terms of the DSPP as described in the prospectus.
The
warrants will be evidenced by warrant certificates issued under one or more warrant agreements, which are contracts between us
and an agent for the holders of the warrants. In this prospectus, we have summarized certain general and standard features
of the warrants. We urge you, however, to read the prospectus supplements related to the series of warrants being offered,
as well as the warrant agreements and warrant certificates that contain the terms of the warrants. We will file as exhibits
to the registration statement of which this prospectus is a part, or will incorporate by reference into such registration
statement from a Current Report on Form 8-K that we file with the SEC, the form of warrant agreements and form of warrant certificates
relating to warrants for the purchase of common stock and debt securities we are offering before the issuance of any such warrants
pursuant to the Registration Statement of which this prospectus forms a part.
Units.
We may offer units consisting of common stock, debt securities and/or warrants to purchase any of such securities in one
or more series. We are currently offer a $10 unit, consisting of 7 shares of common stock and 7 warrants (ZNWAE) for a $1.00 exercise
price over a three year period until March 31, 2017. In this prospectus, we have summarized certain general and standard features
of the units. We urge you, however, to read the prospectus supplements related to the series of units being offered, as well as
the unit agreements that contain the terms of the units. We will file as exhibits to the registration statement of which this
prospectus is a part, or will incorporate by reference from a Current Report on Form 8-K that we file with the SEC, the form of
unit agreement and any supplemental agreements that describe the terms of the series of units we are offering before the issuance
of the related series of units pursuant to the Registration Statement of which this prospectus forms a part.
We
will evidence each series of units by unit certificates that we will issue under a separate agreement. We will enter into the
unit agreements with a unit agent. Each unit agent will be a bank or trust company that we select. We will indicate the name and
address of the unit agent in the applicable prospectus supplement relating to a particular series of units.
THIS
PROSPECTUS MAY NOT BE USED TO OFFER OR SELL ANY SECURITIES UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
RISK
FACTORS
Before
making an investment decision, you should carefully consider the risks described under “Risks Related to our Business”
below and in the applicable prospectus supplement, together with all of the other information appearing in this prospectus or
incorporated by reference into this prospectus and any applicable prospectus supplement, in light of your particular investment
objectives and financial circumstances. Our business, financial condition or results of operations could be materially adversely
affected by any of these risks. The trading price of our securities could decline due to any of these risk factors, and you may
lose all or any part of your investment.
Risks
Related to our Business
We
are an oil and gas exploration company with no current source of revenue. Our ability to continue in business depends upon our
continued ability to obtain significant financing from external sources and the success of our exploration efforts, none of which
can be assured.
We
were incorporated in April 2000 and are still an oil and gas exploration company with no established production. Our operations
are subject to all of the risks inherent in exploration stage companies with no revenues or operating income. Our potential for
success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in
connection with a new business, especially the oil and gas exploration business, and in particular the deep, wildcat wells in
which we are engaged in Israel. We cannot warrant or provide any assurance that our business objectives will be accomplished.
We
have historically depended entirely upon capital infusions from the issuance of equity securities to provide the cash needed to
fund our operations. Between June 2009 and December 2016, we raised approximately $121 million in the public equity market from
rights offerings and our DSPP of our common stock, convertible bonds and warrants to our stockholders and bondholders. However,
we cannot assure you that we will be able to continue to raise funds in the public (or private) equity markets. Our ability to
continue in business depends upon our continued ability to obtain significant financing from external sources and the success
of our exploration efforts. Any reduction in our ability to raise equity capital in the future would force us to reallocate funds
from other planned uses and could have a significant negative effect on our business plans and operations, including our ability
to continue our current exploration activities.
Status
of Drilling Contractor
Dafora
S.A., the parent to S.A.Daflog S.R.L., is in receivership (and party to the lease agreement of the Dafora equipment to Daflog).
But the administrator of the company, was a party to the drilling contract and has approved the contractual relationship between
Daflog and Zion. While the industry is still feeling the effects of the downturn, Zion has taken, in its opinion, the necessary
steps to give assurances that the drilling contractor can fulfil its obligations as best we can.
We
will require substantial additional funds to drill our next exploratory well and to realize our business plan.
Our
planned work program is expensive. We believe that our current cash resources are sufficient to allow us to accomplish the initial
drilling of the Megiddo-Jezreel No. 1 well and other exploratory operations on the Megiddo-Jezreel License. However, we currently
do not have the resources to drill the planned exploratory well to the desired depth and we have no commitments for any financing
and no assurance can be provided that we will be able to raise the needed funds when needed. We estimate that, when we are not
actively drilling a well, our monthly expenditure is approximately $450,000. However, when we are engaged in active drilling operations,
as we anticipate in the Megiddo-Jezreel License area, we estimate that there is an additional cost of approximately $60,000 per
day (equivalent to approximately $1,800,000 per month). If there is turmoil in the credit and equity markets, then our ability
to raise funds may be significant and adversely affected.
Additional
financing could cause your relative interest in our assets and potential earnings to be significantly diluted (unless you participated
in such financings). Even if we have exploration success, we may not be able to generate sufficient revenues to offset the cost
of dry holes and general and administrative expenses.
We
rely on independent experts and technical or operational service providers over whom we may have limited control.
The
success of our oil and gas exploration efforts is dependent upon the efforts of various third parties that we do not control.
These third parties provide critical engineering, geological, geophysical and other scientific analytical services, including
2-D seismic imaging technology to explore for and develop oil and gas prospects. Given our small size and limited resources, we
do not have all the required expertise on staff. As a result, we rely upon various companies and other third persons to
assist us in identifying desirable hydrocarbon prospects to acquire and to provide us with technical assistance and services.
In addition, we rely upon the owners and operators of drilling rigs and related equipment. If any of these relationships with
third-party service providers are terminated or are unavailable on commercially acceptable terms, we may not be able to execute
our business plan. Our limited control over the activities and business practices of these third parties, any inability on our
part to maintain satisfactory commercial relationships with them, their limited availability or their failure to provide
quality services could materially and adversely affect our business, results of operations and financial condition.
We
typically commence exploration drilling operations without undertaking extensive analytical testing thereby potentially increasing
the risk (and associated costs) of drilling a non-producing well.
Larger
oil and gas exploration companies typically conduct extensive analytical pre-drilling testing. These include 3-D seismic imaging,
the drilling of an expendable “pilot” well or “stratigraphic test” to collect data (logs, cores, fluid
samples, pressure data) to determine if drilling a well capable of producing oil or gas well (full completion with casing and
well testing) is justified. The use of pilot or stratigraphic tests is often used in areas where there is little or no offset
well data, like Israel, where our exploration license areas are located. While 3-D seismic imaging data is more useful than
2-D seismic data in identifying potential new drilling prospects, its acquisition and processing costs are many multiples greater
than that for 2-D data, and there are prohibitive Israel-specific logistical roadblocks to acquisition of onshore 3-D seismic
data in Israel. We believe that the additional months, delays and associated costs associated with more extensive pre-drilling
testing typically undertaken by larger oil and gas exploration companies is not necessarily justified when drilling vertical exploration
wells (as we have historically been doing). Nonetheless, the absence of more extensive pre-drilling testing may potentially increase
the risk of drilling a non-producing well, which would in turn result in increased costs and expenses. Additionally, Zion is typically
engaged in drilling deep onshore wildcat wells in Israel where only approximately 500 total wells have ever been drilled, the
vast majority of which are relatively shallow. As such, exploration risks are inherently very substantial.
A
substantial and extended decline in oil or natural gas prices could adversely impact our future rate of growth and the carrying
value of our unproved oil & gas assets.
Prices
for oil and natural gas fluctuate widely. Fluctuations in the prices of oil and natural gas will affect many aspects of our business,
including our ability to attract capital to finance our operations, our cost of capital, and the value of our unproved oil and
natural gas properties. Prices for oil and natural gas may fluctuate widely in response to relatively minor changes in the supply
of and demand for oil and natural gas, market uncertainty and a wide variety of additional factors (such as the current political
turmoil in the Middle East) that are beyond our control, such as the domestic and foreign supply of oil and natural gas, the ability
of members of the Organization of Petroleum Exporting Countries to agree to and maintain oil price and production controls, technological
advances affecting energy consumption, and domestic and foreign governmental regulations. Significant and extended reductions
in oil and natural gas prices could require us to reduce our capital expenditures and impair the carrying value of our assets.
If
we are successful in finding commercial quantities of oil and/or gas, our revenues, operating results, financial condition and
ability to borrow funds or obtain additional capital will depend substantially on prevailing prices for oil and natural gas. Declines
in oil and gas prices may materially adversely affect our financial condition, liquidity, ability to obtain financing and operating
results. Lower oil and gas prices also may reduce the amount of oil and gas that we could produce economically.
Historically,
oil and gas prices and markets have been volatile, with prices fluctuating widely, and they are likely to continue to be volatile,
making it impossible to predict with any certainty the future prices of oil and gas.
We
may continue to recognize substantial write-downs with respect to well impairment costs.
We
account for our oil and gas property costs using the full-cost method of accounting for oil and gas properties. Accordingly, all
costs associated with acquisition, exploration and development of oil and gas reserves, including directly related overhead costs,
are capitalized. We record an investment impairment charge when we believe an investment has experienced a decline in value that
is other than temporary.
Abandonment
of properties is accounted for as adjustments to capitalized costs. The net capitalized costs are subject to a “ceiling
test,” which limits such costs to the aggregate of the estimated present value of future net revenues from proved reserves
discounted at ten percent based on current economic and operating conditions, plus the lower of cost or fair market value of unproved
properties. The recoverability of amounts capitalized for oil and gas properties is dependent upon the identification of economically
recoverable reserves, together with obtaining the necessary financing to exploit such reserves and the achievement of profitable
operations.
We
review our unproved oil and gas properties periodically to determine whether they have been impaired. An impairment allowance
is provided on an unproved property when we determine that the property will not be developed. Any impairment charge incurred
is recorded in accumulated depletion, impairment and amortization to reduce our recorded basis in the asset.
Our
lack of diversification increases the risk of an investment in us, and our financial condition and results of operations may deteriorate
if we fail to diversify.
Our
business focus is on oil and gas exploration on a limited number of properties in Israel. As a result, we lack diversification,
in terms of both the nature and geographic scope of our business. We will likely be impacted more acutely by factors affecting
our industry or the regions in which we operate than we would if our business were more diversified. If we are unable to diversify
our operations, our financial condition and results of operations could deteriorate.
We
currently have no proved reserves or current production, and we may never have any.
We
do not have any proved reserves or current production of oil or gas. We cannot assure you that any wells will be completed or
produce oil or gas in commercially profitable quantities.
We
have a history of losses and we cannot assure you that we will ever be profitable.
We
incurred net losses of $7,306,000 for the year ended December 31, 2015 and $8,513,000 for the year ended December 31, 2016. We
cannot provide any assurances that we will ever be profitable.
Oil
and gas exploration is an inherently risky business.
Exploratory
drilling involves enormous risks, including the risk that no commercially productive oil or natural gas reservoirs will be discovered.
Even when properly used and interpreted, seismic data analysis and other computer simulation techniques are only tools used to
assist geoscientists in trying to identify subsurface structures and potential hydrocarbon indicators. They do not allow the interpreter
to know conclusively if hydrocarbons are present or economically available. The risk analysis techniques we use in evaluating
potential drilling sites rely on subjective judgments of our personnel and consultants. Additionally, Zion is typically engaged
in drilling deep onshore wildcat wells in Israel where only approximately 500 total wells have ever been drilled, the vast majority
of which are relatively shallow. Consequently, our exploration risks are very substantial.
Operating
hazards and uninsured risks with respect to the oil and gas operations may have material adverse effects on our operations.
Our
exploration and, if successful, development and production operations are subject to all of the risks normally incident to the
exploration for and the development and production of oil and gas, including blowouts, cratering, uncontrollable flows of oil,
gas or well fluids, fires, pollution and other environmental and operating risks. These hazards could result in substantial losses
due to injury or loss of life, severe damage to or destruction of property and equipment, pollution and other environmental damage
and suspension of operations. While as a matter of practice we take out insurance against some or all of these risks, such insurance
may not cover the particular hazard and may not be sufficient to cover all losses. The occurrence of a significant event adversely
affecting any of the oil and gas properties in which we have an interest could have a material adverse effect on us, could materially
affect our continued operation and could expose us to material liability.
Political
risks may adversely affect our operations and/or inhibit our ability to raise capital.
Our
operations are concentrated in Israel and could be directly affected by political, economic and military conditions in Israel.
Efforts to secure a lasting peace between Israel and its Arab neighbors and Palestinian residents have been underway since Israel
became a country in 1948, and the future of these peace efforts is still uncertain.
Civil
unrest has continued to spread throughout the region and has involved other areas such as the Gaza Strip and nations such as Egypt,
Syria and Yemen. Such unrest, if it continues to spread or grow in intensity, could lead to civil wars; regime changes resulting
in governments that are hostile to the US and/or Israel, such as has previously occurred in the region; violations of the 1979
Egypt-Israel Peace Treaty; or regional conflict.
At
this time, we are uncertain of the outcome of these events. However, prolonged and/or widespread regional conflict in the Middle
East could have the following results, among others:
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capital
market reassessment of risk and subsequent redeployment of capital to more stable areas making it more difficult for us to
obtain financing for potential development projects;
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security
concerns in Israel, making it more difficult for our personnel or supplies to enter or exit the country;
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security
concerns leading to evacuation of our personnel;
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damage
to or destruction of our wells, production facilities, receiving terminals or other operating assets;
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inability
of our service and equipment providers to deliver items necessary for us to conduct our operations in, resulting in
delays; and
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lack
of availability of drilling rig and experienced crew, oilfield equipment or services if third party providers decide to exit
the region.
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Loss
of property and/or interruption of our business plans resulting from hostile acts could have a significant negative impact on
our earnings and cash flow. In addition, we may not have enough insurance to cover any loss of property or other claims resulting
from these risks.
We
face various risks associated with the trend toward increased activism against oil and gas exploration and development activities.
Opposition
toward oil and gas drilling and development activity has been growing globally and is particularly pronounced in OECD countries
which include the US, the UK and Israel. Companies in the oil and gas industry, such as us, are often the target of activist
efforts from both individuals and non-governmental organizations regarding safety, human rights, environmental compliance and
business practices. Future activist efforts could result in the following:
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delay
or denial of drilling permits;
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shortening
of lease terms or reduction in lease size;
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restrictions
on installation or operation of gathering or processing facilities;
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restrictions
on the use of certain operating practices, such as hydraulic fracturing;
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legal
challenges or lawsuits;
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damaging
publicity about us;
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increased
costs of doing business;
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reduction
in demand for our products; and
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other
adverse effects on our ability to develop our properties and expand production.
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Our
need to incur costs associated with responding to these initiatives or complying with any resulting new legal or regulatory requirements
resulting from these activities that are substantial and not adequately provided for, could have a material adverse effect on
our business, financial condition and results of operations.
Economic
risks may adversely affect our operations and/or inhibit our ability to raise additional capital.
Economically,
our operations in Israel may be subject to:
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exchange
rate fluctuations;
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royalty
and tax increases and other risks arising out of Israeli State sovereignty over the mineral rights in Israel and its
taxing authority; and
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changes
in Israel's economy that could cause the legislation of oil and gas price controls.
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Consequently,
our operations may be substantially affected by local economic factors beyond our control, any of which could negatively affect
our financial performance and prospects.
Legal
risks could negatively affect Zion’s value.
Legally,
our operations in Israel may be subject to:
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changes
in the Petroleum Law resulting in modification of license and permit rights;
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adoption
of new legislation relating to the terms and conditions pursuant to which operations in the energy sector may be conducted;
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changes
in laws and policies affecting operations of foreign-based companies in Israel; and
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changes
in governmental energy and environmental policies or the personnel administering them.
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The
Israeli Ministry of National Infrastructures has promulgated legislation relating to licensing requirements for entities engaged
in the fuel sector that may result in our having to obtain additional licenses to market and sell hydrocarbons that may be discovered
by us. We have been advised by the Ministry that they do not intend to deprive a holder of petroleum rights under the Petroleum
Law of its right under that law to sell hydrocarbons discovered and produced under its petroleum rights. We cannot now predict
the legislation’s possible impact on our operations.
Further,
in the event of a legal dispute in Israel, we may be subject to the exclusive jurisdiction of Israeli courts or we may not be
successful in subjecting persons who are not United States residents to the jurisdiction of courts in the United States, either
of which could adversely affect the outcome of a dispute.
The
Ministry of Environmental Protection is considering proposed legislation relating to polluted materials, including their production,
treatment, handling, storage and transportation, that may affect land or water resources. Persons engaged in activities
involving these types of materials will be required to prepare environmental impact statements and remediation plans either prior
to commencing activities or following the occurrence of an event that may cause pollution to land or water resources or endanger
public health. We do now know and cannot predict whether any legislation in this area will be enacted and, if so, in what
form and which of its provisions, if any, will relate to and affect our activities, how and to what extent.
In
March 2011, the Ministry of Environmental Protection issued initial guidelines relating to oil and gas drilling. This is the first
time that the Ministry has published specific environmental guidelines for oil and gas drilling operations, relating to on-shore
and off-shore Israel. The guidelines are subject to change.
The
guidelines are detailed and provide environmental guidelines for all aspects of drilling operations, commencing from when an application
for a preliminary permit is filed, and continuing through license, drilling exploration, production lease, petroleum production
and abandonment of the well. The guidelines address details that must be submitted regarding the drill site, surrounding area,
the actual drilling operations, the storage and removal of waste and the closing or abandoning of a well.
The
Company believes that these and other new regulations will significantly increase the expenditures associated with obtaining new
exploration rights and considerably increase the time needed to obtain all of the necessary authorizations and approvals prior
to drilling.
Our
petroleum rights (including licenses and permits) could be canceled, terminated or not extended, and we would not be able to successfully
execute our business plan.
Any
license or other petroleum right we hold or may be granted is granted for fixed periods and requires compliance with a work program
detailed in the license or other petroleum right. If we do not fulfill the relevant work program due to inadequate funding or
for any other reason, the Israeli government may terminate the license or any other petroleum right before its scheduled expiration
date. No assurance can be provided that we will be able to obtain an extension to this if in fact we are unable to begin drilling
by such date.
There
are limitations on the transfer of interests in our petroleum rights, which could impair our ability to raise additional funds
to execute our business plan
.
The
Israeli government has the right to approve any transfer of rights and interests in any license or other petroleum right we hold
or may be granted and any mortgage of any license or other petroleum rights to borrow money. If we attempt to raise additional
funds through borrowings or joint ventures with other companies and are unable to obtain required approvals from the government,
the value of your investment could be significantly diluted or even lost.
Our
dependence on the limited contractors, equipment and professional services available in Israel may result in increased costs and
possibly material delays in our work schedule
.
Due
to the lack of competitive resources in Israel, costs for our operations may be more expensive than costs for similar operations
in other parts of the world. We are also more likely to incur delays in our drilling schedule and be subject to a greater risk
of failure in meeting our required work schedule. Similarly, some of the oil field personnel we need to undertake our planned
operations are not necessarily available in Israel or available on short notice for work in Israel. Any or all of the factors
specified above may result in increased costs and delays in the work schedule.
Our
dependence on Israeli local licenses and permits may require more funds than we have budgeted and may cause delays in our work
schedule.
In
connection with drilling operations, we are subject to a number of Israeli local licenses and permits. Some of these are issued
by the Israeli security forces, the Civil Aviation Authority, the Israeli Water Commission, the Israel Lands Authority, the holders
of the surface rights in the lands on which we intend to conduct drilling operations, including Kibbutz Sde Eliyahu, local and
regional planning commissions and environmental authorities.
The
surface rights to the drill site of the MJ #1 well are held under a long-term lease by Kibbutz Sde Eliyahu. The rights are owned
by the State of Israel and administered by the Israel Lands Authority. Permission has been granted to Zion by both Kibbutz Sde
Eliyahu and the Israel Lands Authority for the use of the surface rights.
In
the event of a commercial discovery and depending on the nature of the discovery and the production and related distribution equipment
necessary to produce and sell the discovered hydrocarbons, we will be subject to additional licenses and permits, including from
various departments in the Ministry of National Infrastructures, Energy and Water Resources, regional and local planning commissions,
the environmental authorities and the Israel Lands Authority. If we are unable to obtain some or all of these permits or the time
required to obtain them is longer than anticipated, we may have to alter or delay our planned work schedule, which would increase
our costs.
If
we are successful in finding commercial quantities of oil and/or gas, our operations will be subject to laws and regulations relating
to the generation, storage, handling, emission, transportation and discharge of materials into the environment, which can adversely
affect the cost, manner or feasibility of our doing business. Many Israeli laws and regulations require permits for the operation
of various facilities, and these permits are subject to revocation, modification and renewal. Governmental authorities have the
power to enforce compliance with their regulations, and violations could subject us to fines, injunctions or both.
If
compliance with safety and environmental regulations is more expensive than anticipated, it could adversely impact the profitability
of our business.
Risks
of substantial costs and liabilities related to safety and environmental compliance issues are inherent in oil and gas operatons.
It is possible that other developments, such as stricter safety and environmental laws and regulations, and claims for damages
to property or persons resulting from oil and gas exploration and production, would result in substantial costs and liabilities.
This could also cause our insurance premiums to be significantly greater than anticipated.
Earnings
will be diluted due to charitable contributions and key employee incentive plan.
We
are legally bound to fund in the form of a royalty interest or equivalent net operating profits interest, 6% of our gross sales
revenues, if any, to two charitable foundations. In addition, we may allocate 1.5% royalty interest or equivalent net operating
profits interest to a key employee incentive plan designed as bonus compensation over and above our executive compensation payments.
This means that the total royalty burden on our property (including the government royalty of 12.5%) may be up to 20% of gross
revenue. As our expenses increase with respect to the amount of sales, these donations and allocation could significantly dilute
future earnings and, thus, depress the price of the common stock.
Risks
Related to Our Common Stock
Our
stock price and trading volume may be volatile, which could result in losses for our stockholders.
The
equity trading markets have recently experienced high volatility resulting in highly variable and unpredictable pricing of equity
securities. If the turmoil in the equity trading markets continues, the market for our common stock could change in ways that
may or may not be related to our business, our industry or our operating performance and financial condition. In addition, the
trading volume in our common stock may fluctuate and cause significant price variations to occur. Some of the factors that could
negatively affect our share price or result in fluctuations in the price or trading volume of our common stock include:
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actual
or anticipated quarterly variations in our operating results, including further impairment to unproved oil and gas properties,
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changes
in expectations as to our future financial performance or changes in financial estimates, if any,
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announcements
relating to our business,
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conditions
generally affecting the oil and natural gas industry,
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the
success of our operating strategy, and
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the
operating and stock performance of other comparable companies.
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Many of these factors are
beyond our control, and we cannot predict their potential effects on the price of our common stock. In addition, the stock market
is subject to extreme price and volume fluctuations. During the past 52 weeks, our stock price has fluctuated from an intraday
low of $1.20 to an intraday high of $1.53. This volatility has had a significant effect on the market price of securities
issued by many companies for reasons unrelated to their operating performance and could have the same effect on our common stock.
No
assurance can be provided that you will be able to resell your shares of common stock at or above the price you acquired those
shares in this offering. We cannot assure you that the market price of common stock will increase to the per share price at which
it was offered or that the market price of common stock will not fluctuate or decline significantly.
As
of December 31, 2016, we had outstanding stock options at exercise prices ranging between $0.01 and $2.61 per share and warrants
at $1 and $2 exercise prices to purchase 7,543,596 shares of common stock.
The
exercise or possibility of exercise of outstanding warrants and stock options, or any offering under the S-3 shelf registration
statement that we may complete, could have an adverse effect on the market price for our common stock, and you may experience
dilution to your holdings.
Cash
dividends will not be paid to shareholders for the foreseeable future.
You
may receive little or no cash or stock dividends on your shares of common stock. The board of directors has not directed the payment
of any dividends and does not anticipate paying dividends on the shares for the foreseeable future and intends to retain any future
earnings to the extent necessary to develop and expand our business. Payment of cash dividends, if any, will depend, among other
factors, on our earnings, capital requirements, and the general operating and financial condition, and will be subject to legal
limitations on the payment of dividends out of paid-in capital.
USE
OF PROCEEDS
Unless
otherwise indicated in the prospectus supplement applicable to an offering, we intend to use any net proceeds from the sale of
our securities to fund our operations and for other general corporate purposes, such as additions to working capital, expansion
of our drilling and other exploration efforts and further our efforts to possibly acquire a majority working interest in a deep-drilling
capacity onshore drilling rig. We have not determined the amount of net proceeds to be used specifically for the foregoing purposes.
When
we offer a particular series of securities, we will describe the intended use of the net proceeds from that offering in a prospectus
supplement. The actual amount of net proceeds we spend on a particular use will depend on many factors, including, our future
capital expenditures, the amount of cash required by our operations, and our future revenue growth, if any. Therefore, we will
retain broad discretion in the use of the net proceeds.
DESCRIPTION
OF CAPITAL STOCK
Our
authorized share capital consists of 200,000,000 shares of common stock, par value $0.01 per share. As of December 31, 2016, there
were 42,577,541 common shares outstanding. All outstanding shares of common stock are fully paid and non-assessable.
The
following description of our common stock, together with any additional information we include in any applicable prospectus supplement,
summarizes the material terms and provisions of our common stock that we may offer under this prospectus. While the terms we have
summarized below will apply generally to any future common stock that we may offer, we will describe the particular terms of any
class or series of these securities in more detail in the applicable prospectus supplement. For the complete terms of our
common stock, please refer to our certificate of incorporation and our bylaws that are incorporated by reference into the registration
statement of which this prospectus is a part or may be incorporated by reference in this prospectus or any applicable prospectus
supplement. The summary below and that contained in any applicable prospectus supplement are qualified in their entirety by reference
to our certificate of incorporation and bylaws.
Common
Stock
Voting
.
Holders of shares of common stock are entitled to one vote for each share on all matters to be voted on by the stockholders. They
are not entitled to cumulative voting rights.
Dividends
and Other Distributions
. Holders of our common stock are entitled to share in an equal amount per share in any dividends declared
by our board of directors on the common stock and paid out of legally available assets.
Distributions
on Dissolution
. In the event of our liquidation, dissolution or winding up, holders of our common stock are entitled to share
ratably in the assets remaining after payment of liabilities.
Other
Rights.
Our common stock does not carry any preemptive rights enabling a holder to subscribe for, or receive shares of, any
class of our common stock or any other securities convertible into shares of any class of our common stock. There are no conversion
or redemption rights or sinking funds provided for our stockholders.
Certificate
of Incorporation and Bylaws Provisions
The
following summary describes provisions of our certificate of incorporation and bylaws. They may have the effect of discouraging
a tender offer, proxy contest or other takeover attempt that is opposed by our board of directors. These provisions include:
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restrictions
on the rights of shareholders to remove directors;
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limitations
against shareholders calling a Special Meeting of shareholders or acting by unanimous written consent in lieu of a meeting;
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requirements
for advance notice of actions proposed by shareholders for consideration at meetings of the shareholders; and
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restrictions
on business combination transactions with "related persons."
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Classified
board of directors and removal
Our
certificate of incorporation provides that the board of directors shall be divided into three classes, designated Class I, Class
II and Class III, with the classes to be as nearly equal in number as possible. The term of office of each class expires at the
third Annual Meeting of Shareholders for the election of directors following the election of such class (except for the initial
classes). Directors may be removed only for cause and only upon the affirmative vote of holders of at least 66 2/3% of our voting
stock at a Special Meeting of Shareholders called expressly for that purpose. The classification of directors could have the effect
of making it more difficult for shareholders to change the composition of the board of directors. At least two Annual Meetings
of Shareholders, instead of one, are generally required to effect a change in a majority of the board of directors.
The
classification provisions could also have the effect of discouraging a third party from initiating a proxy contest, making a tender
offer or otherwise attempting to obtain control of our company, even though such an attempt might be beneficial to us and our
shareholders. The classification of the board of directors could thus increase the likelihood that incumbent directors will retain
their positions. In addition, because the classification provisions may discourage accumulations of large blocks of stock by purchasers
whose objective is to take control of our company and remove a majority of the board of directors, the classification of the board
of directors could tend to reduce the likelihood of fluctuations in the market price of the common stock that might result from
accumulations of large blocks. Accordingly, shareholders could be deprived of opportunities to sell their shares of common stock
at a higher market price than might otherwise be the case.
Shareholder
action by written consent and special meetings
Our
bylaws provide that shareholder action can be taken only at an Annual or Special Meeting of shareholders and may not be taken
by written consent in lieu of a meeting once our number of shareholders exceeded sixty, which occurred in the first quarter of
2003. Special Meetings of shareholders can be called only upon a resolution adopted by the board of directors. Moreover, the business
permitted to be conducted at any Special Meeting of shareholders is limited to the business brought before the meeting under the
Notice of Meeting given by us. These provisions may have the effect of delaying consideration of a shareholder proposal until
the next Annual Meeting. These provisions would also prevent the holders of a majority of our voting stock from unilaterally using
the written consent or Special Meeting procedure to take shareholder action.
Advance
notice provisions for shareholder nominations and shareholder proposals
Our
bylaws establish an advance notice procedure for shareholders to make nominations of candidates for election as directors or bring
other business before a meeting of shareholders. The shareholder notice procedure provides that only persons who are nominated
by, or at the direction of, the board of directors, or by a shareholder who has given timely written notice containing specified
information to our secretary prior to the meeting at which directors are to be elected, will be eligible for election as our directors.
The shareholder notice procedure also provides that at a meeting of the shareholders only such business may be conducted as has
been brought before the meeting by, or at the direction of, the chairman of the board of directors, or in the absence of the chairman
of the board, the chief executive officer, the president, or by a shareholder who has given timely written notice containing specified
information to our secretary of such shareholder's intention to bring such business before such meeting.
Although
our bylaws do not give the board of directors any power to approve or disapprove shareholder nominations for the election of directors
or proposals for action, they may have the effect of precluding a contest for the election of directors or the consideration of
shareholder proposals if the proper procedures are not followed, and of discouraging or deterring a third party from conducting
a solicitation of proxies to elect its own slate of directors or to approve its own proposal, without regard to whether consideration
of such nominees or proposals might be harmful or beneficial to Zion and our shareholders.
Business
combination provision
Our
certificate of incorporation contains a provision for approval of specified business combination transactions involving any person,
entity or group that beneficially owns at least 10% of our aggregate voting stock. Such person, entity or group is sometimes referred
to as a "related person". This provision requires the affirmative vote of the holders of not less than 66 2/3% of our
voting stock to approve specified transactions between a related person and Zion, including:
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any
merger or consolidation;
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any
sale, lease, exchange, mortgage, pledge, transfer or other disposition of our assets having a fair market value of more than
10% of our total assets, or assets representing more than 10% of our cash flow or earning power, or 10% of stockholders' equity,
which is referred to as a "substantial part";
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any
sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with us of all or a substantial part of the assets
of a related person;
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any
reclassification of securities, recapitalization, or any other transaction involving us that would have the effect of increasing
the voting power of a related person;
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the
adoption of a plan or proposal for our liquidation or dissolution proposed by or on behalf of a related person; and
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the
entering into of any agreement, contract or other arrangement providing for any of the transactions described above.
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This
voting requirement will not apply to certain transactions, including any transaction approved by a majority vote of the directors
(called "Disinterested Directors") who are not affiliated or associated with the related person described above, provided
that there are at least three Disinterested Directors. This provision could have the effect of delaying or preventing a change
in control of Zion in a transaction or series of transactions.
Liability
of directors and indemnification
Our
certificate of incorporation provides that a director will not be personally liable to us or our shareholders for breach of fiduciary
duty as a director, except to the extent that such exemption or limitation of liability is not permitted under Delaware General
Corporation Law. Any amendment or repeal of such provisions may not adversely affect any right or protection of a director existing
under our certificate of incorporation for any act or omission occurring prior to such amendment or repeal.
Our
certificate of incorporation and bylaws provide that each person who at any time serves or served as one of our directors or officers,
or any person who, while one of our directors or officers, is or was serving at our request as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise, is entitled to indemnification and the advancement of expenses
from us, to the fullest extent permitted by applicable Delaware law. However, as provided under applicable Delaware General Corporation
Law, this indemnification will only be provided if the indemnitee acted in good faith and in a manner he or she reasonably believed
to be in, or not opposed to, the best interests of our company.
Amendments
Our
certificate of incorporation provides that we reserve the right to amend, alter, change, or repeal any provision contained in
our certificate of incorporation, and all rights conferred to shareholders are granted subject to such reservation. The affirmative
vote of holders of not less than 80% of our voting stock, voting together as a single class, is required to alter, amend, adopt
any provision inconsistent with, or to repeal certain specified provisions of our certificate of incorporation. However, the 80%
vote described in the prior sentence is not required for any alteration, amendment, adoption of inconsistent provision or repeal
of the "business combination" provision discussed under the "Business combination provision" paragraph above
which is recommended to the shareholders by two-thirds of our Disinterested Directors, and such alteration, amendment, adoption
of inconsistent provision or repeal shall require the vote, if any, required under the applicable provisions of the Delaware General
Corporation Law, our certificate of incorporation and our bylaws. In addition, our bylaws provide that shareholders may only adopt,
amend or repeal our bylaws by the affirmative vote of holders of not less than 66-2/3% of our voting stock, voting together as
a single class. Our bylaws may also be amended by the affirmative vote of two-thirds of our board of directors.
Listing
Symbols on the NASDAQ Global Market
Our
common stock is quoted on the NASDAQ Global Market under the symbol “ZN” The sale price of our common stock on the
NASDAQ Global Market on February 17, 2017 was $1.29. We also have one common stock purchase warrant quoted on the NASDAQ Global
Market under the symbol “ZNWAA” since March 31, 2014. The applicable prospectus supplement will contain information,
where applicable, as to any other listing on NASDAQ Global Market or any securities market or other exchange of the securities,
if any, covered by the prospectus supplement.
Transfer
Agent and Registrar
The
transfer agent and registrar for our common stock is American Stock Transfer & Trust Company, LLC, Brooklyn, New York.
DESCRIPTION
OF DEBT SECURITIES
The
following description, together with the additional information we include in any applicable prospectus supplements, summarizes
the general terms and provisions of the debt securities that we may offer under this prospectus. While the terms we have
summarized below will generally apply to any future debt securities we may offer under this prospectus, we will describe the particular
terms of any debt securities that we may offer in more detail in the applicable prospectus supplement. The terms of any
debt securities we offer under a prospectus supplement may differ from the terms we describe below. However, no prospectus
supplement shall fundamentally change the terms that are set forth in this prospectus or offer a security that is not registered
and described in this prospectus at the time of its effectiveness. As of the date of this prospectus, we have no outstanding
registered debt securities.
We
may issue one or more series of notes under indentures, which we will enter into with the trustee to be named therein. If
we issue debt securities, we will file these documents as exhibits to the registration statement of which this prospectus is a
part, or incorporate them by reference from a Current Report on Form 8-K that we file with the SEC. We use the term “indentures”
to refer to any and all indentures that we may enter into with respect to debt securities issued and sold pursuant to this Registration
Statement.
The
indentures will be qualified under the Trust Indenture Act of 1939. We use the term “debenture trustee” to refer
to either the senior trustee or the subordinated trustee, as applicable.
The
following summaries of material provisions of the debt securities are subject to, and qualified in their entirety by reference
to, all the provisions of the indenture applicable to a particular series of debt securities. We urge you to read the applicable
prospectus supplements related to the debt securities that we sell under this prospectus, as well as the complete indentures that
contain the terms of the debt securities. Except as we may otherwise indicate, the terms of the senior and the subordinated
indentures are identical.
General
The
indentures may limit the aggregate principal amount of the debt securities which we may issue and will provide that we may issue
the debt securities from time to time in one or more series. The indentures may or may not limit the amount of our other indebtedness
or the debt securities which we may issue. The particular terms of each series of debt securities will be described in a prospectus
supplement relating to such series, including any pricing supplement. The prospectus supplement will set forth:
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the
principal amount being offered, and, if a series, the total amount authorized and the total amount outstanding;
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any
limit on the amount that may be issued;
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whether
or not we will issue the series of debt securities in global form and, if so, the terms and who the depositary will be;
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whether
and under what circumstances, if any, we will pay additional amounts on any debt securities held by a person who is not a
United States person for tax purposes, and whether we can redeem the debt securities if we have to pay such additional amounts;
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the
annual interest rate, which may be fixed or variable, or the method for determining the rate, the date interest will begin
to accrue, the dates interest will be payable and the regular record dates for interest payment dates or the method for determining
such dates;
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whether
or not the debt securities will be secured or unsecured, and the terms of any secured debt;
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the
terms of the subordination of any series of subordinated debt;
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the
place where payments will be payable;
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restrictions
on transfer, sale or other assignment, if any;
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our
right, if any, to defer payment of interest and the maximum length of any such deferral period;
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the
date, if any, after which, the conditions upon which, and the price at which we may, at our option, redeem the series of debt
securities pursuant to any optional or provisional redemption provisions, and any other applicable terms of those redemption
provisions;
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the
date, if any, on which, and the price at which we are obligated, pursuant to any mandatory sinking fund or analogous fund
provisions or otherwise, to redeem, or at the holder’s option to purchase, the series of debt securities and the currency
or currency unit in which the debt securities are payable;
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whether
the indenture will restrict our ability to:
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incur
additional indebtedness;
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issue
additional securities;
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pay
dividends and make distributions in respect of our capital stock;
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redeem
capital stock;
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place
restrictions on our subsidiaries’ ability to pay dividends, make distributions or transfer assets;
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make
investments or other restricted payments;
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sell
or otherwise dispose of assets;
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enter
into sale-leaseback transactions;
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engage
in transactions with stockholders and affiliates;
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issue
or sell stock of our subsidiaries; or
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effect
a consolidation or merger;
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whether
the indenture will require us to maintain any interest coverage, fixed charge, cash flow-based, asset-based or other financial
ratios;
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a
discussion of any material or special United States federal income tax considerations applicable to the debt securities;
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information
describing any book-entry features;
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provisions
for a sinking fund purchase or other analogous fund, if any;
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whether
the debt securities are to be offered at a price such that they will be deemed to be offered at an “original issue discount”
as defined in paragraph (a) of Section 1273 of the Internal Revenue Code;
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the
procedures for any auction and remarketing, if any;
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the
denominations in which we will issue the series of debt securities, if other than denominations of $1,000 and any integral
multiple thereof;
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if
other than dollars, the currency in which the series of debt securities will be denominated; and
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any
other specific terms, preferences, rights or limitations of, or restrictions on, the debt securities, including any events
of default that are in addition to those described in this prospectus or any covenants provided with respect to the debt securities
that are in addition to those described above, and any terms which may be required by us or advisable under applicable laws
or regulations or advisable in connection with the marketing of the debt securities.
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Conversion
or Exchange Rights
We
will set forth in the prospectus supplement the terms on which a series of debt securities may be convertible into or exchangeable
for common stock or other securities of ours or a third party, including the conversion or exchange rate, as applicable, or how
it will be calculated, and the applicable conversion or exchange period. We will include provisions as to whether conversion
or exchange is mandatory, at the option of the holder or at our option. We may include provisions pursuant to which the
number of our securities or the securities of a third party that the holders of the series of debt securities receive upon conversion
or exchange would, under the circumstances described in those provisions, be subject to adjustment, or pursuant to which
those holders would, under those circumstances, receive other property upon conversion or exchange, for example in the event of
our merger or consolidation with another entity.
Consolidation,
Merger or Sale
The
description of the debt securities in the prospectus supplement or the indentures may provide that we may not consolidate or amalgamate
with or merge into any person or convey, transfer or lease our properties or assets as an entirety or substantially as an entirety
to any person, and we may not permit any person to consolidate or amalgamate with or merge into us, or convey, transfer or lease
its properties and assets as an entirety or substantially as an entirety to us, unless:
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immediately
after giving effect to the transaction, no event of default, and no event which after notice or lapse of time or both would
become an event of default, will have occurred and be continuing; and
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certain
other conditions are met.
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If
the debt securities are convertible for our other securities, the person with whom we consolidate or merge or to whom we sell
all of our property must make provisions for the conversion of the debt securities into securities that the holders of the debt
securities would have received if they had converted the debt securities before the consolidation, merger or sale.
Events
of Default under the Indenture
Each
of the following constitute reasonably standard events of default that may be included in any finalized indenture or prospectus
supplement as constituting an event of default with respect to any series of debt securities that we may issue:
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if
we fail to pay interest when due and payable and our failure continues for 30 days and the time for payment has not been extended
or deferred;
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if
we fail to pay the principal, sinking fund payment or premium, if any, when due and payable and the time for payment has not
been extended or delayed;
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if
we fail to observe or perform any other covenant contained in the debt securities or the indentures, other than a covenant
specifically relating to another series of debt securities, and our failure continues for 90 days after we receive notice
from the debenture trustee or holders of at least 25% in aggregate principal amount of the outstanding debt securities of
the applicable series;
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if
specified events of bankruptcy, insolvency or reorganization occur; and
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any
other event of default provided in or pursuant to the applicable indenture or prospectus supplement with respect to the debt
securities of that series.
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If
an event of default with respect to debt securities of any series occurs and is continuing, other than an event of default in
the event of bankruptcy, insolvency or reorganization, the debenture trustee or the holders of at least 25% in aggregate principal
amount of the outstanding debt securities of that series, by notice to us in writing, and to the debenture trustee if notice is
given by such holders, may declare the unpaid principal of, premium, if any, and accrued interest, if any, due and payable immediately. If
an event of default due to bankruptcy, insolvency or reorganization occurs with respect to us, the principal amount of and accrued
interest, if any, of each issue of debt securities then outstanding shall be due and payable without any notice or other action
on the part of the debenture trustee or any holder.
The
holders of a majority in principal amount of the outstanding debt securities of an affected series may waive any default or event
of default with respect to the series and its consequences, except defaults or events of default regarding payment of principal,
premium, if any, or interest, unless we have cured the default or event of default in accordance with the indenture.
Subject
to the terms of the indentures, if an event of default under an indenture shall occur and be continuing, the debenture trustee
will be under no obligation to exercise any of its rights or powers under such indenture at the request or direction of any of
the holders of the applicable series of debt securities, unless such holders have offered the debenture trustee reasonable indemnity.
The holders of a majority in principal amount of the outstanding debt securities of any series will have the right to direct the
time, method and place of conducting any proceeding for any remedy available to the debenture trustee, or exercising any trust
or power conferred on the debenture trustee, with respect to the debt securities of that series, provided that:
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the
direction so given by the holder is not in conflict with any law or the applicable indenture; and
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subject
to its duties under the Trust Indenture Act of 1939, the debenture trustee need not take any action that might involve it
in personal liability or might be unduly prejudicial to the holders not involved in the proceeding.
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A
holder of the debt securities of any series will only have the right to institute a proceeding under the indentures or to appoint
a receiver or trustee, or to seek other remedies if:
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the
holder has given written notice to the debenture trustee of a continuing event of default with respect to that series;
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the
holders of at least 25% in aggregate principal amount of the outstanding debt securities of that series have made written
request, and such holders have offered reasonable indemnity to the debenture trustee to institute the proceeding as trustee;
and
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the
debenture trustee does not institute the proceeding, and does not receive from the holders of a majority in aggregate principal
amount of the outstanding debt securities of that series other conflicting directions within 90 days after the notice, request
and offer.
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These
limitations do not apply to a suit instituted by a holder of debt securities if we default in the payment of the principal, premium,
if any, or interest on, the debt securities.
We
will periodically file statements with the debenture trustee regarding our compliance with specified covenants in the indentures.
Modification
of Indenture; Waiver
We
and the debenture trustee may change an indenture without the consent of any holders with respect to specific matters, including:
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to
fix any ambiguity, defect or inconsistency in the indenture;
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to
comply with the provisions described above under “Consolidation, Merger or Sale”;
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to
comply with any requirements of the SEC in connection with the qualification of any indenture under the Trust Indenture Act
of 1939;
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to
evidence and provide for the acceptance of appointment by a successor trustee;
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to
provide for uncertificated debt securities and to make all appropriate changes for such purpose;
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to
add to, delete from, or revise the conditions, limitations and restrictions on the authorized amount, terms or purposes of
issuance, authorization and delivery of debt securities or any series, as set forth in the indenture;
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to
provide for the issuance of and establish the form and terms and conditions of the debt securities of any series as provided
under “General,” to establish the form of any certifications required to be furnished pursuant to the terms of
the indenture or any series of debt securities, or to add to the rights of the holders of any series of debt securities;
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to
add to our covenants such new covenants, restrictions, conditions or provisions for the protection of the holders, to make
the occurrence, or the occurrence and the continuance, of a default in any such additional covenants, restrictions, conditions
or provisions an event of default, or to surrender any of our rights or powers under the indenture; or
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to
change anything that does not materially adversely affect the interests of any holder of debt securities of any series.
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In
addition, under the indentures, the rights of holders of a series of debt securities may be changed by us and the debenture trustee
with the written consent of the holders of at least a majority in aggregate principal amount of the outstanding debt securities
of each series that is affected. However, we and the debenture trustee may only make the following changes with the consent
of each holder of any outstanding debt securities affected:
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extending
the fixed maturity of the series of debt securities;
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reducing
the principal amount, reducing the rate of or extending the time of payment of interest, or reducing any premium payable upon
the redemption of any debt securities; or
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reducing
the percentage of debt securities, the holders of which are required to consent to any amendment, supplement, modification
or waiver.
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Discharge
Each
indenture will provide that we can elect to be discharged from our obligations with respect to one or more series of debt securities,
except for obligations to:
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register
the transfer or exchange of debt securities of the series;
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replace
stolen, lost or mutilated debt securities of the series;
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maintain
paying agencies;
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hold
monies for payment in trust;
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recover
excess money held by the debenture trustee;
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compensate
and indemnify the debenture trustee; and
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appoint
any successor trustee.
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In
order to exercise our rights to be discharged, we must deposit with the debenture trustee money or government obligations sufficient
to pay all the principal of, any premium, if any, and interest on, the debt securities of the series on the dates payments are
due.
Form,
Exchange and Transfer
We
will issue the debt securities of each series only in fully registered form without coupons and, unless we otherwise specify in
the applicable prospectus supplement, in denominations of $1,000 and any integral multiple thereof. The indenture will provide
that we may issue debt securities of a series in temporary or permanent global form and as book-entry securities that will be
deposited with, or on behalf of, The Depository Trust Company, New York, New York, known as DTC, or another depositary named
by us and identified in a prospectus supplement with respect to that series. See “Legal Ownership of Securities”
for a further description of the terms relating to any book-entry securities.
At
the option of the holder, subject to the terms of the indentures and the limitations applicable to global securities described
in the applicable prospectus supplement, the holder of the debt securities of any series can exchange the debt securities for
other debt securities of the same series, in any authorized denomination and of like tenor and aggregate principal amount.
Subject
to the terms of the indentures and the limitations applicable to global securities set forth in the applicable prospectus supplement,
holders of the debt securities may present the debt securities for exchange or for registration of transfer, duly endorsed or
with the form of transfer endorsed thereon duly executed if so required by us or the security registrar, at the office of the
security registrar or at the office of any transfer agent designated by us for this purpose. Unless otherwise provided in
the debt securities that the holder presents for transfer or exchange, we will make no service charge for any registration of
transfer or exchange, but we may require payment of any taxes or other governmental charges.
We
will name in the applicable prospectus supplement the security registrar, and any transfer agent in addition to the security registrar,
that we initially designate for any debt securities. We may at any time designate additional transfer agents or rescind
the designation of any transfer agent or approve a change in the office through which any transfer agent acts, except that we
will be required to maintain a transfer agent in each place of payment for the debt securities of each series.
If
we elect to redeem the debt securities of any series, we will not be required to:
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issue,
register the transfer of, or exchange any debt securities of any series being redeemed in part during a period beginning at
the opening of business 15 days before the day of mailing of a notice of redemption of any debt securities that may be selected
for redemption and ending at the close of business on the day of the mailing; or
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register
the transfer of or exchange any debt securities so selected for redemption, in whole or in part, except the unredeemed portion
of any debt securities we are redeeming in part.
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Information
Concerning the Debenture Trustee
The
debenture trustee, other than during the occurrence and continuance of an event of default under an indenture, will undertake
to perform only those duties as are specifically set forth in the applicable indenture. Upon an event of default under an
indenture, the debenture trustee must use the same degree of care as a prudent person would exercise or use in the conduct of
his or her own affairs. Subject to this provision, the debenture trustee is under no obligation to exercise any of the powers
given it by the indentures at the request of any holder of debt securities unless it is offered reasonable security and indemnity
against the costs, expenses and liabilities that it might incur.
Payment
and Paying Agents
Unless
we otherwise indicate in the applicable prospectus supplement, we will make payment of the interest on any debt securities on
any interest payment date to the person in whose name the debt securities, or one or more predecessor securities, are registered
at the close of business on the regular record date for the interest.
We
will pay principal of and any premium and interest on the debt securities of a particular series at the office of the paying agents
designated by us, except that, unless we otherwise indicate in the applicable prospectus supplement, we may make interest payments
by check which we will mail to the holder or by wire transfer to certain holders. Unless we otherwise indicate in a prospectus
supplement, we will designate the corporate office of the debenture trustee in the City of Dallas, Texas as our sole paying agent
for payments with respect to debt securities of each series. We will name in the applicable prospectus supplement any other
paying agents that we initially designate for the debt securities of a particular series. We will maintain a paying agent
in each place of payment for the debt securities of a particular series.
All
money we pay to a paying agent or the debenture trustee for the payment of the principal of or any premium or interest on any
debt securities which remains unclaimed at the end of two years after such principal, premium or interest has become due and payable
will be repaid to us, and the holder of the debt security thereafter may look only to us for payment thereof.
Subordination
of Subordinated Debt Securities
The
subordinated debt securities will be subordinate and junior in priority of payment to certain of our other indebtedness to the
extent described in a prospectus supplement. The indentures will not limit the amount of indebtedness which we may incur,
including senior indebtedness or subordinated indebtedness, and will not limit us from issuing any other debt, including secured
debt or unsecured debt.
DESCRIPTION
OF WARRANTS
The
following description, together with the additional information we may include in any applicable prospectus supplements, summarizes
the material terms and provisions of the warrants that we may offer under this prospectus. While the terms we have summarized
below will apply generally to any warrants that we may offer under this prospectus, we will describe the particular terms of any
series of warrants in more detail in the applicable prospectus supplement. The terms of any warrants offered under a prospectus
supplement may differ from the terms described below. However, no prospectus supplement will fundamentally change the terms that
are set forth in this prospectus or offer a security that is not registered and described in this prospectus at the time
of its effectiveness.
We
will file as exhibits to the registration statement of which this prospectus is a part, or will incorporate by reference from
a Current Report on Form 8-K that we file with the SEC, the form of warrant agreement, including a form of warrant certificate,
that describes the terms of the particular series of warrants we are offering before the issuance of the related series of warrants.
The following summaries of material provisions of the warrants and the warrant agreements are subject to, and qualified in their
entirety by reference to, all the provisions of the warrant agreement and warrant certificate applicable to a particular series
of warrants. We urge you to read the applicable prospectus supplements related to the particular series of warrants that we sell
under this prospectus, as well as the complete warrant agreements and warrant certificates that contain the terms of the warrants.
General
We
will describe in the applicable prospectus supplement the terms relating to a series of warrants, including:
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the
offering price and aggregate number of warrants offered;
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the
currency for which the warrants may be purchased;
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if
applicable, the designation and terms of the securities with which the warrants are issued and the number of warrants issued
with each such security or each principal amount of such security;
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if
applicable, the date on and after which the warrants and the related securities will be separately transferable;
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in
the case of warrants to purchase debt securities, the principal amount of debt securities purchasable upon exercise of one
warrant and the price at which, and currency in which, this principal amount of debt securities may be purchased upon such
exercise;
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in
the case of warrants to purchase common stock, the number of shares of common stock may be, purchasable upon the exercise
of one warrant and the price at which these shares may be purchased upon such exercise;
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the
effect of any merger, consolidation, sale or other disposition of our business on the warrant agreements and the warrants;
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the
terms of any rights to redeem or call the warrants;
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any
provisions for changes to or adjustments in the exercise price or number of securities issuable upon exercise of the warrants;
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the
dates on which the right to exercise the warrants will commence and expire;
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the
manner in which the warrant agreements and warrants may be modified;
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federal
income tax consequences of holding or exercising the warrants;
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the
terms of the securities issuable upon exercise of the warrants; and
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any
other specific terms, preferences, rights or limitations of or restrictions on the warrants.
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Before
exercising their warrants, holders of warrants will not have any of the rights of holders of the securities purchasable upon such
exercise, including:
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in
the case of warrants to purchase debt securities, the right to receive payments of principal of, or premium, if any, or interest
on, the debt securities purchasable upon exercise or to enforce covenants in the applicable indenture; and
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in
the case of warrants to purchase common stock, the rights of common stock holders such as, but not limited to, the right to
participate in voting on shareholder and/or company matters.
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Exercise
of Warrants
Each
warrant will entitle the holder to purchase the securities that we specify in the applicable prospectus supplement at the exercise
price that we describe in the applicable prospectus supplement. Unless we otherwise specify in the applicable prospectus supplement,
holders of the warrants may exercise the warrants at any time up to the specified time on the expiration date that we set forth
in the applicable prospectus supplement. After the close of business on the expiration date, unexercised warrants will become
void.
Holders
of the warrants may exercise the warrants by delivering the warrant certificate representing the warrants to be exercised together
with specified information, and paying the required amount to the warrant agent in immediately available funds, as provided in
the applicable prospectus supplement. We will set forth on the reverse side of the warrant certificate and in the applicable prospectus
supplement the information that the holder of the warrant will be required to deliver to the warrant agent.
Upon
receipt of the required payment and the warrant certificate properly completed and duly executed at the corporate trust office
of the warrant agent or any other office indicated in the applicable prospectus supplement, we will issue and deliver the securities
purchasable upon such exercise. If fewer than all of the warrants represented by the warrant certificate are exercised, then we
will issue a new warrant certificate for the remaining amount of warrants. If we so indicate in the applicable prospectus supplement,
holders of the warrants may surrender securities as all or part of the exercise price for warrants.
Enforceability
of Rights by Holders of Warrants
Each
warrant agent will act solely as our agent under the applicable warrant agreement and will not assume any obligation or relationship
of agency or trust with any holder of any warrant. A single bank or trust company may act as warrant agent for more than
one issue of warrants. A warrant agent will have no duty or responsibility in case of any default by us under the applicable
warrant agreement or warrant, including any duty or responsibility to initiate any proceedings at law or otherwise, or to make
any demand upon us. Any holder of a warrant may, without the consent of the related warrant agent or the holder of any other
warrant, enforce by appropriate legal action its right to exercise, and receive the securities purchasable upon exercise of, its
warrants.
DESCRIPTION
OF UNITS
The
following description, together with the additional information we may include in any applicable prospectus supplements, summarizes
the material terms and provisions of the units that we may offer under this prospectus. While the terms we have summarized below
will apply generally to any units that we may offer under this prospectus, we will describe the particular terms of any series
of units in more detail in the applicable prospectus supplement. The terms of any units offered under a prospectus supplement
may differ from the terms described below. However, no prospectus supplement will fundamentally change the terms that are set
forth in this prospectus or offer a security that is not registered and described in this prospectus at the time of its effectiveness.
We
will file as exhibits to the registration statement of which this prospectus is a part, or will incorporate by reference from
a Current Report on Form 8-K that we file with the SEC, the form of unit agreement that describes the terms of the series of units
we are offering, and any supplemental agreements, before the issuance of the related series of units. The following summaries
of material terms and provisions of the units are subject to, and qualified in their entirety by reference to, all the provisions
of the unit agreement and any supplemental agreements applicable to a particular series of units. We urge you to read the applicable
prospectus supplements related to the particular series of units that we sell under this prospectus, as well as the complete unit
agreement and any supplemental agreements that contain the terms of the units.
General
We
may issue units comprised of one or more debt securities, shares of common stock and warrants in any combination. Each unit will
be issued so that the holder of the unit is also the holder of each security included in the unit. Thus, the holder of a unit
will have the rights and obligations of a holder of each included security. The unit agreement under which a unit is issued may
provide that the securities included in the unit may not be held or transferred separately, at any time or at any time before
a specified date.
We
will describe in the applicable prospectus supplement the terms of the series of units, including:
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the
designation and terms of the units and of the securities comprising the units, including whether and under what circumstances
those securities may be held or transferred separately;
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any
provisions of the governing unit agreement that differ from those described below; and
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any
provisions for the issuance, payment, settlement, transfer or exchange of the units or of the securities comprising the units.
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The
provisions described in this section, as well as those described under “Description of Capital Stock,” “Description
of Debt Securities” and “Description of Warrants” will apply to each unit and to any common stock, debt security
or warrant included in each unit, respectively.
Issuance
in Series
We
may issue units in such amounts and in numerous distinct series as we determine.
Enforceability
of Rights by Holders of Units
Each
unit agent will act solely as our agent under the applicable unit agreement and will not assume any obligation or relationship
of agency or trust with any holder of any unit. A single bank or trust company may act as unit agent for more than one series
of units. A unit agent will have no duty or responsibility in case of any default by us under the applicable unit agreement or
unit, including any duty or responsibility to initiate any proceedings at law or otherwise, or to make any demand upon us. Any
holder of a unit may, without the consent of the related unit agent or the holder of any other unit, enforce by appropriate legal
action its rights as holder under any security included in the unit.
Title
We,
the unit agents and any of their agents may treat the registered holder of any unit certificate as an absolute owner of the units
evidenced by that certificate for any purpose and as the person entitled to exercise the rights attaching to the units so requested,
despite any notice to the contrary. See “Legal Ownership of Securities.”
LEGAL
OWNERSHIP OF SECURITIES
We
can issue securities in registered form or in the form of one or more global securities. We describe global securities in
greater detail below. We refer to those persons who have securities registered in their own names on the books that we or
any applicable trustee or depositary or warrant agent maintain for this purpose as the “holders” of those securities.
These persons are the legal holders of the securities. We refer to those persons who, indirectly through others, own beneficial
interests in securities that are not registered in their own names, as “indirect holders” of those securities.
As we discuss below, indirect holders are not legal holders, and investors in securities issued in book-entry form or in street
name will be indirect holders.
Book-Entry
Holders
We
may issue securities in book-entry form only, as we will specify in the applicable prospectus supplement. This means securities
may be represented by one or more global securities registered in the name of a financial institution that holds them as depositary
on behalf of other financial institutions that participate in the depositary’s book-entry system. These participating
institutions, which are referred to as participants, in turn, hold beneficial interests in the securities on behalf of themselves
or their customers.
Only
the person in whose name a security is registered is recognized as the holder of that security. Global securities will be
registered in the name of the depositary. Consequently, for global securities, we will recognize only the depositary as
the holder of the securities, and we will make all payments on the securities to the depositary. The depositary passes along
the payments it receives to its participants, which in turn pass the payments along to their customers who are the beneficial
owners. The depositary and its participants do so under agreements they have made with one another or with their customers;
they are not obligated to do so under the terms of the securities.
As
a result, investors in a global security will not own securities directly. Instead, they will own beneficial interests in
a global security, through a bank, broker or other financial institution that participates in the depositary’s book-entry
system or holds an interest through a participant. As long as the securities are issued in global form, investors will be
indirect holders, and not holders, of the securities.
Street
Name Holders
We
may terminate global securities or issue securities that are not issued in global form. In these cases, investors may choose
to hold their securities in their own names or in “street name.” Securities held by an investor in street name would
be registered in the name of a bank, broker or other financial institution that the investor chooses, and the investor would hold
only a beneficial interest in those securities through an account he or she maintains at that institution.
For
securities held in street name, we or any applicable trustee or depositary will recognize only the intermediary banks, brokers
and other financial institutions in whose names the securities are registered as the holders of those securities, and we or any
such trustee or depositary will make all payments on those securities to them. These institutions pass along the payments
they receive to their customers who are the beneficial owners, but only because they agree to do so in their customer agreements
or because they are legally required to do so. Investors who hold securities in street name will be indirect holders, not
holders, of those securities.
Legal
Holders
Our
obligations, as well as the obligations of any applicable trustee or third party employed by us or a trustee, run only to the
legal holders of the securities. We do not have obligations to investors who hold beneficial interests in global securities,
in street name or by any other indirect means. This will be the case whether an investor chooses to be an indirect holder
of a security or has no choice because we are issuing the securities only in global form.
For
example, once we make a payment or give a notice to the holder, we have no further responsibility for the payment or notice even
if that holder is required, under agreements with its participants or customers or by law, to pass it along to the indirect holders
but does not do so. Similarly, we may want to obtain the approval of the holders to amend an indenture, to relieve us of
the consequences of a default or of our obligation to comply with a particular provision of an indenture, or for other purposes.
In such an event, we would seek approval only from the holders, and not the indirect holders, of the securities. Whether
and how the holders contact the indirect holders is up to the holders.
Special
Considerations for Indirect Holders
If
you hold securities through a bank, broker or other financial institution, either in book-entry form because the securities are
represented by one or more global securities or in street name, you should check with your own institution to find out:
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how
it handles securities payments and notices;
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whether
it imposes fees or charges;
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how
it would handle a request for the holders’ consent, if ever required;
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whether
and how you can instruct it to send you securities registered in your own name so you can be a holder, if that is permitted
in the future;
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how
it would exercise rights under the securities if there were a default or other event triggering the need for holders to act
to protect their interests; and
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if
the securities are in book-entry form, how the depositary’s rules and procedures will affect these matters.
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Global
Securities
A
global security is a security that represents one or any other number of individual securities held by a depositary. Generally,
all securities represented by the same global securities will have the same terms.
Each
security issued in book-entry form will be represented by a global security that we issue to, deposit with and register in the
name of a financial institution or its nominee that we select. The financial institution that we select for this purpose
is called the depositary. Unless we specify otherwise in the applicable prospectus supplement, The Depository Trust Company,
New York, New York, known as DTC, will be the depositary for all securities issued in book-entry form.
A
global security may not be transferred to or registered in the name of anyone other than the depositary, its nominee or a successor
depositary, unless special termination situations arise. We describe those situations below under “Special Situations
When a Global Security Will Be Terminated.” As a result of these arrangements, the depositary, or its nominee, will be the
sole registered owner and holder of all securities represented by a global security, and investors will be permitted to own only
beneficial interests in a global security. Beneficial interests must be held by means of an account with a broker, bank
or other financial institution that in turn has an account with the depositary or with another institution that does. Thus,
an investor whose security is represented by a global security will not be a holder of the security, but only an indirect holder
of a beneficial interest in the global security.
If
the prospectus supplement for a particular security indicates that the security will be issued as a global security, then the
security will be represented by a global security at all times unless and until the global security is terminated. If termination
occurs, we may issue the securities through another book-entry clearing system or decide that the securities may no longer be
held through any book-entry clearing system.
Special
Considerations For Global Securities
As
an indirect holder, an investor’s rights relating to a global security will be governed by the account rules of the investor’s
financial institution and of the depositary, as well as general laws relating to securities transfers. We do not recognize
an indirect holder as a holder of securities and instead deal only with the depositary that holds the global security.
If
securities are issued only as global securities, an investor should be aware of the following:
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an
investor cannot cause the securities to be registered in his or her name, and cannot obtain non-global certificates for his
or her interest in the securities, except in the special situations we describe below;
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an
investor will be an indirect holder and must look to his or her own bank or broker for payments on the securities and protection
of his or her legal rights relating to the securities, as we describe above;
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an
investor may not be able to sell interests in the securities to some insurance companies and to other institutions that are
required by law to own their securities in non-book-entry form;
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an
investor may not be able to pledge his or her interest in the global security in circumstances where certificates representing
the securities must be delivered to the lender or other beneficiary of the pledge in order for the pledge to be effective;
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the
depositary’s policies, which may change from time to time, will govern payments, transfers, exchanges and other matters
relating to an investor’s interest in the global security. We and any applicable trustee have no responsibility
for any aspect of the depositary’s actions or for its records of ownership interests in the global security. We
and the trustee also do not supervise the depositary in any way;
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the
depositary may, and we understand that DTC will, require that those who purchase and sell interests in the global security
within its book-entry system use immediately available funds, and your broker or bank may require you to do so as well; and
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financial
institutions that participate in the depositary’s book-entry system, and through which an investor holds its interest
in the global security, may also have their own policies affecting payments, notices and other matters relating to the securities.
There may be more than one financial intermediary in the chain of ownership for an investor. We do not monitor and are
not responsible for the actions of any of those intermediaries.
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Special
Situations When A Global Security Will Be Terminated
In
a few special situations described below, a global security will terminate and interests in it will be exchanged for physical
certificates representing those interests. After that exchange, the choice of whether to hold securities directly or in
street name will be up to the investor. Investors must consult their own banks or brokers to find out how to have their
interests in securities transferred to their own names, so that they will be direct holders. We have described the rights
of holders and street name investors above.
A
global security will terminate when the following special situations occur:
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if
the depositary notifies us that it is unwilling, unable or no longer qualified to continue as depositary for that global security
and we do not appoint another institution to act as depositary within 90 days;
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if
we notify any applicable trustee that we wish to terminate that global security; or
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if
an event of default has occurred with regard to securities represented by that global security and has not been cured or waived.
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The
prospectus supplement may also list additional situations for terminating a global security that would apply only to the particular
series of securities covered by the prospectus supplement. When a global security terminates, the depositary, and not we
or any applicable trustee, is responsible for deciding the names of the institutions that will be the initial direct holders.
PLAN
OF DISTRIBUTION
We
may sell the securities to or through underwriters or dealers, through agents, or directly to one or more purchasers. A
prospectus supplement or supplements will describe the terms of the offering of the securities, including, to the extent applicable:
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the
name or names of any underwriters or agents;
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the
purchase price of the securities and the proceeds we will receive from the sale;
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any
over-allotment options under which underwriters may purchase additional securities from us;
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any
agency fees or underwriting discounts and other items constituting agents’ or underwriters’ compensation;
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any
public offering price;
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any
discounts or concessions allowed or re-allowed or paid to dealers; and
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any
securities exchange or market on which the securities may be listed.
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We
may distribute the securities from time to time in one or more transactions at:
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fixed
price or prices, which may be changed from time to time;
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market
prices prevailing at the time of sale;
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prices
related to such prevailing market prices; or
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Underwriters
If
we use underwriters for a sale of securities, the underwriters will acquire the securities for their own account. The underwriters
may resell the securities in one or more transactions, including negotiated transactions, at a fixed public offering price or
at varying prices determined at the time of sale. The obligations of the underwriters to purchase the securities will be subject
to the conditions set forth in the applicable underwriting agreement. We may offer the securities to the public through underwriting
syndicates represented by managing underwriters or by underwriters without a syndicate. Subject to certain conditions, the
underwriters will be obligated to purchase all the securities of the series offered if they purchase any of the securities of
that series. We may change from time to time any public offering price and any discounts or concessions the underwriters allow
or pay to dealers. We may use underwriters with whom we have a material relationship. We will describe the nature of any such
relationship in any applicable prospectus supplement naming any such underwriter. Only underwriters we name in the prospectus
supplement are underwriters of the securities offered by the prospectus supplement.
We
may provide agents and underwriters with indemnification against civil liabilities related to offerings under this prospectus,
including liabilities under the Securities Act, or contribution with respect to payments that the agents or underwriters may make
with respect to these liabilities.
Agents
We
may designate agents who agree to use their reasonable efforts to solicit purchases of our securities for the period of their
appointment or to sell our securities on a continuing basis. We will name any agent involved in the offering and sale of securities
and we will describe any commissions we will pay the agent in the applicable prospectus supplement. Unless the prospectus
supplement states otherwise, our agent will act on a best-efforts basis for the period of its appointment.
We
may authorize agents or underwriters to solicit offers by certain types of institutional investors to purchase securities from
us at the public offering price set forth in the prospectus supplement pursuant to delayed delivery contracts providing for payment
and delivery on a specified date in the future. We will describe the conditions to these contracts and the commissions we
must pay for solicitation of these contracts in the prospectus supplement.
We
may provide agents and underwriters with indemnification against civil liabilities related to this offering, including liabilities
under the Securities Act, or contribution with respect to payments that the agents or underwriters may make with respect to these
liabilities. Agents and underwriters may engage in transactions with, or perform services for, us in the ordinary course
of business.
Direct Sales
We may also sell securities
directly to one or more purchasers without using underwriters or agents. We intend to offer securities direct to investors through
our Dividend Reinvestment and Common Stock Purchase Plan.
Trading
Markets and Listing of Securities
Unless otherwise specified
in the applicable prospectus supplement, each class or series of securities will be a new issue with no established trading market,
other than our common stock, which is currently listed on the NASDAQ Global Market. We may elect to list any other class or series
of securities on any exchange or market, but we are not obligated to do so. It is possible that one or more underwriters may make
a market in a class or series of securities, but the underwriters will not be obligated to do so and may discontinue any
market making at any time without notice. We cannot give any assurance as to the liquidity of the trading market for any of the
securities.
Stabilization
Activities
Any underwriter may engage
in overallotment, stabilizing transactions, short covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act. Overallotment involves sales in excess of the offering size, which create a short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum.
Short covering transactions involve purchases of the securities in the open market after the distribution is completed to cover
short positions. Penalty bids permit the underwriters to reclaim a selling concession from a dealer when the securities originally
sold by the dealer are purchased in a covering transaction to cover short positions. Those activities may cause the price of the
securities to be higher than it would otherwise be. If commenced, the underwriters may discontinue any of these activities at
any time.
LEGAL
MATTERS
The
validity of the securities being offered by this prospectus will be passed upon for us by Pearl Cohen Zedek Latzer Baratz LLP.
If the validity of any securities is also passed upon by counsel for any underwriters, dealers or agents, that counsel will be
named in the prospectus supplement relating to that specific offering.
EXPERTS
The
audited financial statements of Zion Oil & Gas, Inc. as of December 31, 2015 and 2014, and management’s assessment of
the effectiveness of internal control over financial reporting as of December 31, 2015 have been incorporated by reference herein
in reliance upon the reports of Malone Bailey LLP, an independent registered public accounting firm.
WHERE
YOU CAN FIND MORE INFORMATION
We
are subject to the reporting requirements of the Exchange Act and file annual, quarterly and current reports, proxy statements
and other information with the SEC. You may read and copy these reports, proxy statements and other information at the SEC's Public
Reference Room at 100 F Street, N.E., Washington, DC 20549. You can request copies of these documents by writing to the SEC and
paying a fee for the copying cost. Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference Room.
The SEC also maintains an Internet site that contains reports, proxy statements and other information about issuers, like us,
who file electronically with the SEC. The address of the SEC's web site is
http://www.sec.gov
. Our common stock
is listed for trading on the NASDAQ under the symbol “ZN” and our warrant is listed for trading on the NASDAQ under
the symbol “ZNWAA”.
We
have filed a registration statement on Form S-3 with the SEC to register the securities that may be offered pursuant to this prospectus.
This prospectus is part of that registration statement and, as permitted by the SEC’s rules, does not contain all of the
information included in the registration statement. For further information about us, this offering and our common stock, you
may refer to the registration statement and its exhibits and schedules as well as the documents described herein or incorporated
herein by reference. You can review and copy these documents, without charge, at the public reference facilities maintained by
the SEC or on the SEC’s website as described above or you may obtain a copy from the SEC upon payment of the fees prescribed
by the SEC.
INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE
The
SEC allows us to “incorporate by reference” the information we file with them, which means that we can disclose important
information to you by referring you to those documents. The information we incorporate by reference is considered to be an important
part of this prospectus, and information that we file with the SEC at a later date will automatically add to, update or supersede
this information.
We incorporate by reference
into this prospectus the documents listed below:
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our
annual report on Form 10-K for the year ended December 31, 2015 filed on March 15, 2016;
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our
definitive proxy statement filed on April 14, 2016;
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our
Quarterly Reports on Form 10-Q for the quarterly periods ended March 30, 2016 filed on May 16, 2016, June 30, 2016 filed on
August 9, 2016, and September 30, 2016 filed on November 10, 2016;
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Current
Reports on Form 8-K: January 14, 2016; February 2, 2016; March 31, 2016; April 7, 2016; June 8, 2016; June 8, 2016; June 23,
2016; July 20, 2016; August 30, 2016; September 16, 2016; October 7, 2016; October 19, 2016; November 1, 2016; November 4,
2016; and November 30, 2016,
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the
description of our common stock in our registration statement on Form 8-A filed with the SEC on December 29, 2006, including
any amendments or reports filed for the purpose of updating such description; and the description of our 10% Convertible Senior
Note due 2021 on Form 8-A/A filed with the SEC on April 28, 2016; and
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all
future filings that we make with the SEC under Section 13(a), 13(c), 14, or 15(d) of the Exchange Act after the date of filing
of the registration statement on Form S-3 of which this prospectus is a part and prior to the termination or completion of
any offering of securities under this prospectus and all applicable prospectus supplements (except, in each case, for information
contained in any such filing that is furnished and not “filed” under the Exchange Act), which filings will be
deemed to be incorporated by reference in this prospectus, as supplemented by the applicable prospectus supplement, and to
be a part hereof from the respective dates of such filings.
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We
will provide without charge to each person, including any beneficial owner, to whom this prospectus is delivered, upon written
or oral request of such person, a copy of any or all of the information that is incorporated by reference in this prospectus.
Requests for such documents should be directed to: Shareholder Relations, Zion Oil & Gas, Inc., 12655 North Central Expressway,
Suite 1000, Dallas, TX 75243.
This
prospectus is part of a registration statement on Form S-3 that we filed with the SEC. That registration statement contains more
information than this prospectus regarding us and our common stock, including certain exhibits and schedules. You can obtain a
copy of the registration statement from the SEC at the address listed above or from the SEC’s Internet website.
You
should rely only on the information provided in and incorporated by reference into this prospectus or any prospectus supplement.
We have not authorized anyone else to provide you with different information. You should not assume that the information in this
prospectus or any prospectus supplement is accurate as of any date other than the date on the front cover of these documents.
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