UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant
to Section 14(a) of the Securities
Exchange Act of 1934
Filed by Registrant
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Filed by Party other than Registrant
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Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as
permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Materials Pursuant to
§240.14a-12
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ZION OIL & GAS,
INC.
(Name of Registrant as Specified In Its
Charter)
N/A
(Name of Person(s) Filing Proxy Statement,
if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required.
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Fee computed on table below per Exchange Act
Rules 14a-6(i)(1) and 0-11.
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(1)
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Title of each class of securities to which
transaction applies:
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(2)
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Aggregate number of securities to which
transaction applies:
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(3)
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Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule 0-11 (set forth
the amount on which the filing fee is calculated and state how it
was determined):
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(4)
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Proposed maximum aggregate value of
transaction:
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(5)
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Total fee paid:
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Fee paid previously with preliminary
materials.
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Check box if any part of the fee is offset as
provided by Exchange Act Rule 0-11(a)(2) and identify the filing
for which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the Form or
Schedule and the date of its filing.
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(1)
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Amount previously paid:
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(2)
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Form, Schedule or Registration Statement
No.:
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(3)
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Filing Party:
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(4)
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Date Filed:
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EXPLANATORY
NOTE
This
Amendment No. 1 to Schedule 14A amends and restates the definitive proxy statement for the Zion Oil & Gas, Inc. (the “Company”)
2017 Annual Meeting of Shareholders, which was filed with the Securities and Exchange Commission and first mailed to our stockholders
on April 14, 2017 (the “Original Proxy Statement”). We have separated Proposal No. 2 in the Original Proxy Statement
relating to the increase in the number of shares authorized to be issued under the Company’s 2011 Equity Incentive Plan
(the “2011 Equity Plan”) and 2011 Non-Employee Directors Stock Option Plan (the “2011 Non-Employee Directors’
Plan”) into two (2) separate proposals. As revised, the Company’s stockholders will have the opportunity to vote separately
on each of the proposals relating to the 2011 Equity Plan and the 2011 Non-Employee Directors Plan. Other than the revisions related
to these changes, there are no other changes to the information in the Proxy Statement.
If
you have delivered a proxy, you may revoke that proxy as described in this proxy statement on page 1.
ZION OIL & GAS,
INC.
12655 North Central Expressway, SUITE 1000
DALLAS, TEXAS 75243
NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS
NOTICE IS HEREBY GIVEN that the 2017 Annual Meeting (the
“
Annual Meeting
”) of the Stockholders of ZION
OIL & GAS, INC. (the “
Company
”) will be held
at 2:00 P.M (local time) on June 7, 2017 at the Dan Caesarea Hotel
in Caesarea, Israel to:
1.
Elect four directors of the Company as Class III directors to serve
for a term of three years;
2.
Approve an increase in the number of shares of Common Stock available under the 2011 Equity Incentive Plan for employees
and consultants by an additional ten (10) million shares of Common Stock and thereby increasing the number of shares the Company
is authorized to issue thereunder from 6 million shares to 16 million Shares;
3.
Approve an increase in the number of shares of Common Stock available under the 2011 Non-Employee Directors Stock Option
Plan by an additional four (4) million shares of Common Stock and thereby increasing the number of shares the Company is authorized
to issue thereunder from 3 million shares to 7 million Shares;
4.
Approve, in a nonbinding advisory vote, the compensation of the Company’s Named Executive Officers;
5.
Ratify the appointment of MaloneBailey, LLP, as the Company’s independent registered public accounting firm for the
fiscal year ending December 31, 2017; and
6.
Conduct such other business as may properly come before the Annual Meeting and any adjournment(s) thereof.
The foregoing items of business are more fully described in the
Proxy Statement that accompanies this Notice. The Board of
Directors has fixed the close of business on April 11, 2017 as the
record date for the determination of stockholders entitled to
notice of, and to vote at, the Annual Meeting or any adjournment
thereof. Only stockholders of record at the close of business on
the record date are entitled to notice of, and to vote at, the
Annual Meeting.
Regardless of whether you plan to attend the Annual Meeting, please
vote your shares as soon as possible so that we may have a quorum
at the Annual Meeting, and your shares will be voted in accordance
with your instructions. For specific voting instructions, please
refer to the instructions on the proxy card or on the Notice of
Internet Availability of Proxy Materials that was mailed to you. If
you attend the Annual Meeting, you will have the right to revoke
the proxy and vote your shares in person.
We look forward to seeing you at the Annual Meeting.
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By
Order of the Board of Directors
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/s/ VICTOR G. CARRILLO
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Victor G. Carrillo
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Chief Executive Officer
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April 14, 2017
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IMPORTANT NOTICE
REGARDING INTERNET AVAILABILITY OF
PROXY MATERIALS FOR THE ANNUAL MEETING AND ANNUAL REPORT
The Company’s proxy materials and Annual Report on Form 10-K
are available at
http://www.astproxyportal.com/ast/ZionOil/.
ZION OIL & GAS,
INC.
12655 North Central Expressway, SUITE 1000
DALLAS, TEXAS 75243
PROXY
STATEMENT
For the Annual Meeting of Stockholders
To be held on Wednesday, June 7, 2017
This Proxy Statement is being furnished in connection with the
solicitation by the Board of Directors (the “Board of
Directors” or the “Board”) of Zion Oil & Gas,
Inc., a Delaware corporation (“Zion”, “Zion
Oil” or the “Company”), of proxies to be voted at
the 2017 Annual Meeting (the “Annual Meeting”) of the
Company’s stockholders to be held at the Dan Caesarea Hotel
in Caesarea, Israel on Wednesday, June 7, 2017, at 2:00 p.m. (CST)
and any adjournment(s) thereof.
Pursuant to rules adopted by the U.S. Securities and Exchange
Commission (“SEC”), we are providing stockholders of
record as of the Record Date (defined below) with Internet access
to our proxy materials. Our Board of Directors has made these proxy
materials available to you on the Internet on or about April 21,
2017 at
www.astproxyportal.com/ast/ZionOil/,
which is the website
described in the Notice of Internet Availability of Proxy Materials
(the “Notice”), mailed to stockholders of record. We
are sending the Notice to our stockholders of record as of the
Record Date, and filing the Notice with the SEC, on or about April
14, 2017. In addition to our proxy materials being available for
review, the website contains instructions on how to access the
proxy materials over the Internet or to request a printed copy,
free of charge. In addition, stockholders may request proxy
materials in printed form by mail or electronically by e-mail on an
ongoing basis by contacting our Investor Relations Department at
our principal executive offices in Dallas, Texas. We will also
provide stockholders upon request and free of charge with a copy of
our Form10-K for the year ended December 31, 2016 filed with the
SEC on March 14, 2017.
At the Annual Meeting, the stockholders will be asked to:
1.
Elect four directors of the Company as Class III directors to serve
for a term of three years;
2.
Approve an increase in the number of shares of Common Stock available under the 2011 Equity Incentive Plan for employees
and consultants by an additional ten (10) million shares of Common Stock and thereby increasing the number of shares the Company
is authorized to issue thereunder from 6 million shares to 16 Million shares reserved thereunder;
3.
Approve an increase in the number of shares of Common Stock available under the 2011 Non-Employee Directors Stock Option
Plan by an additional four (4) million shares of Common Stock and thereby increasing the number of shares the Company is authorized
to issue thereunder from 3 million shares to 7 Million shares reserved thereunder;
4.
Approve, in a nonbinding advisory vote, the compensation of the Company’s Named Executive Officers;
5.
Ratify the appointment of MaloneBailey, LLP, as the Company’s independent registered public accounting firm for the
fiscal year ending December 31, 2017; and
6.
Conduct such other business as may properly come before the Annual Meeting and any adjournment(s) thereof.
To have a valid meeting of the stockholders, a quorum of the
Company’s stockholders is necessary. A quorum shall consist
of a majority of the shares of the Common Stock issued and
outstanding and entitled to vote on the Record Date present in
person or by proxy at the Annual Meeting. Abstentions and broker
non-votes shall be counted as present for the purpose of
determining the presence of a quorum. Stockholders who execute
proxies retain the right to revoke them at any time by notice in
writing to the Secretary of the Company, by revocation in person at
the Annual Meeting or by presenting a later-dated proxy. Unless so
revoked, the shares represented by proxies will be
1
voted at the Annual Meeting. The shares represented by the proxies
solicited by the Board of Directors will be voted in accordance
with the directions given therein, but if no direction is given,
such shares unless otherwise restricted by law will be voted:
(i)
FOR
the election
as directors of the nominees of the Board named below;
(ii)
FOR
the proposal to approve an additional number of shares of Common Stock available under the 2011 Equity Incentive
Plan for employees and consultants reserving for issuance thereunder an additional ten million shares of Common Stock;
(iii)
FOR
the proposal to approve an additional number of shares of Common Stock available under the 2011 Non-Employee
Directors Stock Option Plan reserving for issuance thereunder an additional four million shares of Common Stock;
(iv)
FOR
the resolution regarding the compensation of the Company’s Named Executive Officers;
(v)
FOR
the proposal to ratify the appointment of MaloneBailey as the Company’s independent registered public
accounting firm for the fiscal year ending December 31, 2017; and
(vi)
unless otherwise restricted by law, in the discretion of the proxies named in the proxy on any other proposals to properly
come before the Annual Meeting or any adjournment(s) thereof.
The Company is unaware of any additional matters not set forth in
the Notice that will be presented for consideration at the Annual
Meeting.
2
VOTING RIGHTS
All voting rights are vested exclusively in the holders of Common
Stock. Only holders of Common Stock of record at the close of
business on April 11, 2017 (the “Record Date”) are
entitled to receive notice of and to vote at the Annual Meeting. As
of the Record Date, there were a total of 47,256,000 shares of
Common Stock outstanding. Each holder of Common Stock entitled to
vote at the Annual Meeting is entitled to one vote for each share
held.
Stockholders holding a majority of the Common Stock issued and
outstanding as of the Record Date, present in person or by proxy at
the Annual Meeting, will constitute a quorum for the transaction of
business at the Annual Meeting or any adjournment(s) thereof.
Assuming a quorum is present at the Annual Meeting,
(i)
the
affirmative vote of a plurality of the shares having voting power
present in person or by proxy is required for approval of Proposal
No. 1 (election of directors); and
(ii)
the affirmative vote of a majority of the shares having voting power present in person or by proxy is required for approval
to increase the number of shares in each of the 2011 Equity Incentive Plan and the 2011 Non-Employee Directors’ Stock Option
Plan of Proposal No. 2 and Proposal No. 3, respectively, (increase in Plan shares), for the advisory vote regarding the Company’s
Named Executive Officers of Proposal No. 4 and for ratification of the independent auditors for the year ended December 31, 2017
of Proposal No. 5 (independent auditor ratification). The vote regarding compensation of the Company’s Named Executive Officers
(Proposal No. 4) is advisory and non-binding in nature, but our Compensation Committee will take into account the outcome of the
votes when considering future executive compensation arrangements.
If
you hold shares in a brokerage account, brokers are not entitled to vote on Proposal Nos. 1, 2, 3 or 4 in the absence of specific
client instructions. Stockholders who hold shares in a brokerage account are encouraged to provide voting instructions to their
broker. To vote shares held in “street name” at the Annual Meeting, you should contact your broker before the Annual
Meeting to obtain a proxy form in your name. Broker non-votes and abstentions are counted as shares present at the Annual Meeting
for purposes of determining a quorum.
Under
the rules that govern brokers who have record ownership of shares that are held in “street name” for their clients,
who are the beneficial owners of the shares, brokers have discretion to vote these shares on “routine” matters, but
not on non-routine matters. The proposal to elect four Class III directors (Proposal No. 1) and the proposal to consider a non-binding
“say on pay” vote regarding the Company’s executive compensation (Proposal No. 4) are considered non-routine
matters on which banks, brokers and other nominees are not allowed to vote unless they have received voting instructions from
the beneficial owner of the shares. Your bank, broker or other nominee will send you instructions on how you can instruct them
to vote on these proposals. If you do not provide voting instructions, your bank, broker or other nominee will not vote your shares
on these proposals. Therefore, your broker will not have discretionary authority to vote your shares with respect to Proposal
Nos. 1 and 4.
A
“broker non-vote” occurs when the broker does not receive voting instructions from the beneficial owner with respect
to a non-routine matter and therefore the broker expressly indicates on a proxy card that it is not voting on a matter. Also,
brokers may not vote on material changes to equity compensation plans, such as Proposal No. 2 and Proposal No. 3, without instructions
from the beneficial owners. Abstentions will have the effect of a negative vote.
The
proposal to ratify the appointment of MaloneBailey, LLP as the Company’s independent registered public accounting firm for
the fiscal year ending December 31, 2017 (Proposal No. 5) is considered a routine matter on which banks, brokers and other nominees
may vote in their discretion on behalf of beneficial owners who have not provided voting instructions. Your bank, broker or other
nominee will send you instructions on how you can instruct them to vote on this proposal. If you do not provide voting instructions,
your bank, broker or other nominee will have discretionary authority to vote your shares with respect to this proposal.
3
How Can I Vote Without
Attending the Annual Meeting?
There are three convenient methods for registered stockholders to
direct their vote by proxy without attending the Annual
Meeting:
•
Vote by
Internet
. You can vote via the Internet. The website
address for Internet voting is provided on your Notice or proxy
card (
www.voteproxy.com
).
You will need to use the
control number
appearing on your Notice or proxy card to vote via the Internet.
You can use the Internet to transmit your voting instructions up
until 11:59 P.M. Eastern Time on June 6, 2017. Internet voting is
available 24 hours a day. If you vote via the Internet, you do NOT
need to vote by telephone or return a proxy card.
•
Vote by
Telephone
. You can also vote by telephone by calling
the toll-free telephone number provided on the Internet link on
your Notice or on your proxy card [
1-800-PROXIES
(1-800-776-9437) in the United States and Canada or 1-718-921-8500
from other countries
]. You will need to use the
control
number
appearing on your Notice or proxy card to vote by
telephone. You may transmit your voting instructions from any
touch-tone telephone up until 11:59 P.M. Eastern Time on June 6,
2017. Telephone voting is available 24 hours a day. If you vote by
telephone, you do NOT need to vote over the Internet or return a
proxy card.
•
Vote by
Mail
. If you received a printed copy of the proxy card,
you can vote by marking, dating and signing it, and returning it in
the postage-paid envelope provided. Please promptly mail your proxy
card to ensure that it is received prior to the closing of the
polls at the Annual Meeting.
Notice & Access
— Request Paper Copies:
Telephone: 888-Proxy-NA (888-776-9962); 718-921-8562 (for
international callers)
E-MAIL:
info@astfinancial.com
WEBSITE:
https://us.astfinancial.com/proxyservices/requestmaterials.asp
Webhosting site
address:
http://www.astproxyportal.com/ast/ZionOil/
4
STOCK OWNERSHIP OF
MANAGEMENT AND CERTAIN BENEFICIAL HOLDERS
The following table sets forth information as of the Record Date
concerning shares of our Common Stock beneficially owned by: (i)
each director; (ii) each nominee for director, (iii) each Named
Executive Officer (defined below); (iv) all directors and executive
officers as a group; and (v) each person or group known by the
Company to own beneficially more than 5% of the outstanding shares
of Common Stock.
In accordance with SEC rules, the table considers all shares of
Common Stock that could be issued upon the exercise of outstanding
options and warrants within 60 days of the Record Date to be
outstanding for the purpose of computing the percentage ownership
of the person holding those securities, but does not consider those
securities to be outstanding for computing the percentage ownership
of any other person. We have chosen to include the effect of the
shares of Common Stock that could be issued upon the exercise of
outstanding options and warrants through June 10, 2017. Unless
otherwise noted in the footnotes to the table and subject to
community property laws where applicable, the following individuals
have sole voting and investment control with respect to the shares
beneficially owned by them. Except as noted above, we have
calculated the percentages of shares beneficially owned based on
47,256,000 shares of Common Stock outstanding on the Record
Date.
The address of John M. Brown, Dustin L. Guinn, Victor G. Carrillo,
Michael B. Croswell Jr., Paul Oroian, Forrest A. Garb, William H.
Avery, Martin M. van Brauman, Justin W. Furnace, Gene Scammahorn,
Ralph F. DeVore and Kent Siegel is 12655 North Central Expressway,
Suite 1000, Dallas, TX 75243. The address of Yehezkel Druckman is 9
Halamish Street, Caesarea Industrial Park, 3088900 Israel.
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Amount and Nature of Beneficial Ownership
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John M. Brown
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1,180,000
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(2)
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2.5
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Dustin L. Guinn
(15)
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310,000
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(4)
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Victor G. Carrillo
(1)
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560,693
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(3)
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1.2
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Michael B. Croswell Jr.
(16)
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392,000
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(14)
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Ralph F. DeVore
(17)
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238,534
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(9)
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Forrest A. Garb
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199,147
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(5)
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William H. Avery
(1)
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680,000
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(6)
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1.4
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Paul Oroian
(1)
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216,160
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(7)
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Yehezkel Druckman
(1)
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185,000
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(8)
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Justin W. Furnace
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140,000
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(10)
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Gene Scammahorn
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141,111
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(11)
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Kent Siegel
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176,000
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(12)
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Martin M. van Brauman
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455,587
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(13)
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1.0
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Group Total*
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4,874,232
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10.3
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5
6
EXECUTIVE COMPENSATION
OVERVIEW
We are currently considered a “smaller reporting
company” for purposes of the SEC’s executive
compensation and other disclosure rules. As such, we have opted to
take advantage of the scaled disclosure requirements afforded to
smaller reporting companies. The executive compensation disclosures
that follow are compliant with the SEC’s executive
compensation disclosure rules for smaller reporting companies and,
therefore, are generally narrower in scope than (and, in some
cases, eliminate) the executive compensation disclosures that we
provided with respect to the fiscal years ended 2010 and 2011 (when
we were not considered a smaller reporting company).
Our current “Named Executive Officers” are:
•
John M. Brown — Executive Chairman
•
Dustin L. Guinn — Executive Vice Chairman, President/Chief
Operating Officer;
•
Victor G. Carrillo — Chief Executive Officer;
•
Michael B. Croswell Jr. — Chief Financial Officer.
Compensation
Philosophy
We believe that the skill and dedication of our executive officers
and other management personnel are critical factors affecting our
long-term success. We have been engaged in the exploration of oil
and gas in onshore Israel since 2000 and continue to face a very
challenging environment. Our ultimate success will depend, in part,
upon our talented employees and the leadership provided by our
Named Executive Officers. We have designed our executive
compensation program to achieve the following objectives:
•
Attract and retain
highly qualified talent.
We need to attract, motivate,
and retain management talent of high quality in a competitive
market.
•
Align the interests
of our executives with stockholders.
We strive to align
the interests of Zion’s management and stockholders, towards
the overall success of the Company, by planning and working towards
multi-well, long-term exploration and drilling programs in Israel,
aimed at discovering and producing commercial quantities of oil and
gas in Israel.
•
Manage resources
efficiently.
Employee compensation is a significant
expense for us. We strive to manage our compensation programs so as
to balance our need to reward and retain executives with our goal
of preserving stockholder value. In addition, given the importance
of preserving cash reserves for our exploration program, we seek to
provide executives with significant equity compensation in order to
encourage them to accept lower cash compensation than they might be
able to receive elsewhere.
Zion’s executive compensation programs are designed to
compensate individual management personnel based on a number of
factors, including:
•
the individual’s
position
and
responsibilities within the Company;
•
the overall importance of the individual’s responsibilities
in helping the Company achieve success:
•
specific tasks that the individual may be required to perform
during a particular time period;
•
the individual’s skill set, experience and education;
•
market conditions, as
measured
by
(among other things) feedback from recruiters and the
Company’s knowledge of peer company compensation
policies;
•
geographical considerations, including the cost of living
associated with the USA and Israel, where the Company’s
offices are located;
•
advice from third party economic consulting and compensation
firms;
•
the Company’s
performance
in
areas for which the individual has responsibility; and
•
the Company’s overall performance in its mission.
7
Compensation
Components
In an effort to meet these objectives, our executive compensation
program consists of the following components:
•
Base
Salary.
The Compensation Committee believes that base
salary should provide executives with a predictable income
sufficient to attract and retain strong talent in a competitive
marketplace. We generally strive to set executive base salaries at
levels that we believe enable us to hire and retain individuals in
a competitive environment.
•
Equity
Award.
The Compensation Committee believes that
long-term equity incentives, such as stock options, focus
executives on increasing long-term shareholder value.
•
Discretionary Cash
Bonus Award.
The Compensation Committee has
historically awarded cash bonuses
on
occasion
to
reward significant individual contributions or to act as an
incentive.
•
General
Benefits.
We provide generally competitive benefits
packages, such as medical, life and disability insurance, to our
executives on the same terms as our other employees.
The Compensation Committee typically reviews our executive
officers’ compensation on an annual basis. Our Chief
Executive Officer (“CEO”) recommends to the
Compensation Committee the goals, objectives and compensation for
all executive officers, except himself, and responds to requests
for information from the Compensation Committee. Except for these
roles, Zion’s executive officers do not have a role in
approving goals and objectives or in determining compensation of
executive officers or non-employee directors. Our CEO has no role
in approving his own compensation.
We believe that the compensation provided to our executive officers
is reasonable and appropriate to facilitate the achievement of our
long-term objectives. The compensation programs and policies that
our Compensation Committee has designed incentivize our executive
officers to perform at a level necessary to achieve our desired
objectives. We believe that the various elements of compensation
combine to align the best interests of our executive officers with
our stockholders and our company in order to maximize stockholder
value.
8
EXECUTIVE
COMPENSATION
The following table sets forth the total compensation received for
services rendered in all capacities to our Company for the last
three fiscal years, which was awarded to, earned by, or paid to our
Chief Executive Officer, President, Chief Financial Officer and
other Named Executive Officers.
Name
and Principal Position
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All
Other
Compensation
(2)
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John M. Brown,
Executive Chairman
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2014
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273,000
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85,542
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101,343
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459,885
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2015
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273,000
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30,000
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20,529
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95,158
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418,687
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2016
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249,000
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65,000
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161,817
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99,067
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574,884
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Victor G. Carrillo,
Chief Executive Officer
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2014
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250,000
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59,337
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52,151
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361,488
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2015
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250,000
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123,325
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75,975
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449,300
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2016
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250,000
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50,000
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149,569
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55,374
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504,943
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Ilan N. Sheena,
Chief Financial Officer
and Managing Director in
Israel
(3)
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2014
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190,218
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1,124
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91,531
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71,175
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354,048
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2015
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175,195
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1,031
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170,148
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|
91,082
|
|
437,456
|
|
|
2016
|
|
177,294
|
|
1,032
|
|
239,614
|
|
67,330
|
|
485,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dustin L. Guinn
Executive Vice Chairman
President/COO
|
|
2016
|
|
125,000
|
|
|
|
176,946
|
|
22,478
|
|
324,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael B. Croswell Jr.
Chief Financial Officer
(3)
|
|
2016
|
|
56,250
|
|
1,026
|
|
154,062
|
|
25,530
|
|
236,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Glen Perry
President/COO
(3)
|
|
2015
|
|
121,911
|
|
1,031
|
|
143,072
|
|
56,319
|
|
322,333
|
|
|
2016
|
|
152,705
|
|
|
|
162,067
|
|
78,656
|
|
393,428
|
9
All Other Compensation
The following table provides information regarding each component
of compensation for 2016 included in the All Other Compensation
column in the Summary Compensation Table above.
|
|
Perquisites and Other Personal
Benefits
(1)
|
|
Automobile Related Expenses
(2)
|
|
Insurance Related Expenses
(3)
|
|
Israel
Related
Social
Benefits
(4)
|
|
|
John M. Brown
|
|
40,161
|
|
9,806
|
|
49,099
|
|
—
|
|
99,067
|
Victor G. Carrillo
|
|
1,608
|
|
7,800
|
|
45,966
|
|
—
|
|
55,374
|
Dustin L. Guinn
|
|
768
|
|
3,900
|
|
17,810
|
|
—
|
|
22,478
|
Michael B. Croswell Jr.
|
|
279
|
|
—
|
|
25,251
|
|
—
|
|
25,530
|
Ilan N. Sheena*
|
|
243
|
|
25,204
|
|
—
|
|
41,882
|
|
67,330
|
Glen Perry
|
|
8,809
|
|
28,627
|
|
8,067
|
|
33,165
|
|
78,656
|
Grant of Plan Based
Awards in 2016
The table below sets forth information regarding grants of
plan-based awards made to our Named Executive Officers during
2016.
|
|
|
|
|
|
Option Awards: Number of Securities Underlying Options
(#)
|
|
Exercise or Base Price of Option Awards
($/Share)
|
|
Grant
Date Fair Value of Option Awards
($)
|
John M. Brown
|
|
01/01/2016
|
|
01/01/2016
|
|
25,000
|
(2)
|
|
$
|
0.01
|
|
$
|
46,271
|
|
|
06/06/2016
|
|
06/06/2016
|
|
75,000
|
(3)
|
|
$
|
0.01
|
|
$
|
115,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Victor G. Carrillo
|
|
06/06/2016
|
|
06/06/2016
|
|
75,000
|
(3)
|
|
$
|
0.01
|
|
$
|
115,546
|
|
|
12/31/2016
|
|
12/31/2016
|
|
25,000
|
(4)
|
|
$
|
0.01
|
|
$
|
34,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dustin Guinn
|
|
06/06/2016
|
|
06/06/2016
|
|
50,000
|
(6)
|
|
$
|
1.55
|
|
$
|
29,896
|
|
|
07/01/2016
|
|
07/01/2016
|
|
100,000
|
(5)
|
|
$
|
0.01
|
|
$
|
147,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael B. Croswell Jr.
|
|
06/06/2016
|
|
06/06/2016
|
|
100,000
|
(3)
|
|
$
|
0.01
|
|
$
|
154,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ilan Sheena
|
|
04/04/2016
|
|
04/04/2016
|
|
10,000
|
(7)
|
|
$
|
0.01
|
|
$
|
17,506
|
|
|
06/06/2016
|
|
06/06/2016
|
|
100,000
|
(3)
|
|
$
|
0.01
|
|
$
|
154,062
|
|
|
12/31/2016
|
|
12/31/2016
|
|
50,000
|
(8)
|
|
$
|
0.01
|
|
$
|
68,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Glen Perry
|
|
01/05/2016
|
|
01/05/2016
|
|
25,000
|
(9)
|
|
$
|
0.01
|
|
$
|
46,521
|
|
|
06/06/2016
|
|
06/06/2016
|
|
100,000
|
(3)
|
|
$
|
0.01
|
|
$
|
115,546
|
10
11
Outstanding Equity
Awards at Fiscal Year End –December 2016
The following table sets forth certain information with respect to
restricted stock and stock options held by our Named Executive
Officers as of December 31, 2016.
|
|
Number of Securities Underlying Unexercised Options (#)
Exercisable
|
|
Number of Securities Underlying Unexercised Options (#)
Unexercisable
|
|
Equity Incentive Plan Awards: Number of Securities
Underlying Unexercised Unearned Options
(#)
|
|
Option Exercise Price
($)
|
|
|
John M. Brown
|
|
20,000
|
|
|
|
|
|
$
|
0.01
|
|
1/31/2020
|
|
|
300,000
|
|
|
|
|
|
$
|
2.61
|
|
12/4/2021
|
|
|
45,000
|
|
|
|
|
|
$
|
0.01
|
|
3/31/2024
|
|
|
25,000
|
|
|
|
|
|
$
|
1.38
|
|
1/1/2025
|
|
|
25,000
|
|
|
|
|
|
$
|
0.01
|
|
12/31/2025
|
|
|
75,000
|
|
|
|
|
|
$
|
0.01
|
|
6/5/2026
|
|
|
|
|
|
|
|
|
|
|
|
|
Victor G. Carrillo
|
|
200,000
|
|
|
|
|
|
$
|
2.61
|
|
12/4/2021
|
|
|
50,000
|
|
|
|
|
|
$
|
1.70
|
|
12/20/2022
|
|
|
20,693
|
|
|
|
|
|
$
|
1.67
|
|
10/1/2024
|
|
|
10,000
|
|
|
|
|
|
$
|
1.38
|
|
1/2/2025
|
|
|
25,000
|
|
|
|
|
|
$
|
0.01
|
|
6/5/2026
|
|
|
25,000
|
|
|
|
|
|
$
|
0.01
|
|
12/31/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Dustin Guinn
|
|
25,000
|
|
|
|
|
|
$
|
2.03
|
|
5/1/2021
|
|
|
10,000
|
|
|
|
|
|
$
|
0.01
|
|
04/16/2025
|
|
|
50,000
|
|
|
|
|
|
$
|
1.55
|
|
6/05/2026
|
|
|
100,000
|
|
|
|
|
|
$
|
0.01
|
|
6/30/2026
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael B. Croswell Jr.
|
|
40,000
|
|
|
|
|
|
$
|
2.61
|
|
12/4/2021
|
|
|
30,000
|
|
|
|
|
|
$
|
1.70
|
|
12/20/2022
|
|
|
5,000
|
|
|
|
|
|
$
|
0.01
|
|
06/11/2024
|
|
|
1,693
|
|
|
|
|
|
$
|
1.67
|
|
10/1/2024
|
|
|
48,307
|
|
|
|
|
|
$
|
1.38
|
|
1/2/2025
|
|
|
100,000
|
|
|
|
|
|
$
|
0.01
|
|
6/5/2026
|
|
|
|
|
|
|
|
|
|
|
|
|
Glen Perry
|
|
25,000
|
|
|
|
|
|
$
|
2.28
|
|
7/10/2019
|
|
|
50,000
|
|
|
|
|
|
$
|
1.67
|
|
10/01/2020
|
|
|
15,000
|
|
|
|
|
|
$
|
1.70
|
|
12/20/2022
|
|
|
|
|
|
|
|
|
|
|
|
|
Ilan N. Sheena
|
|
100,000
|
|
|
|
|
|
$
|
2.61
|
|
12/4/2021
|
|
|
35,000
|
|
|
|
|
|
$
|
1.70
|
|
12/20/2022
|
|
|
33,307
|
|
|
|
|
|
$
|
1.67
|
|
10/1/2024
|
|
|
16,693
|
|
|
|
|
|
$
|
1.38
|
|
1/2/2025
|
12
Option Exercises and
Stock Vested in Fiscal 2016
The following table provides information about options exercised by
the Named Executive Officers during the fiscal year ended December
31, 2016:
|
|
|
|
|
Number of Shares Acquired on Exercise
(#)
|
|
Value
Realized on Exercise
(1)
($)
|
Victor G. Carrillo
(2)
|
|
50,000
|
|
|
93,000
|
Victor G. Carrillo
(3)
|
|
25,000
|
|
|
44,750
|
Victor G. Carrillo
(4)
|
|
50,000
|
|
|
73,500
|
Ilan N. Sheena
(5)
|
|
2,500
|
|
$
|
4,575
|
Ilan N. Sheena
(6)
|
|
2,500
|
|
$
|
4,400
|
Ilan N. Sheena
(7)
|
|
100,000
|
|
$
|
155,000
|
Ilan N. Sheena
(8)
|
|
2,500
|
|
$
|
3,650
|
Ilan N. Sheena
(9)
|
|
2,500
|
|
$
|
3,350
|
Ilan N. Sheena
(10)
|
|
52,500
|
|
$
|
71,400
|
Michael B. Croswell Jr.
(11)
|
|
25,000
|
|
|
46,500
|
Glen Perry
(12)
|
|
25,000
|
|
|
45,000
|
Glen Perry
(13)
|
|
75,000
|
|
|
116,250
|
Employment
Agreements
John M.
Brown.
Mr. Brown has continuously served as Chairman of
the Board since the Company’s establishment in April of 2000,
but was appointed Executive Chairman in January 2010. On January 1,
2014, the Company and Mr. Brown, the Chairman of the
Company’s board of directors, entered into an Employment
Agreement (the “Chairman Agreement”) covering Mr.
Brown’s service as the Executive Chairman of the
Company’s Board of Directors, which has been amended by a
First Amendment dated March 31, 2014 and a Second Amendment dated
December 19, 2016.
The Chairman Agreement had an initial term that extended through
December 31, 2016 and then automatically renewed for successive two
year terms unless either party shall advise the other 90 days
before expiration of the initial or renewed term of its intention
to not renew the agreement beyond its then scheduled expiration
date. Under the agreement, Mr. Brown is paid an annual salary of
$231,000, payable monthly. Mr. Brown will receive an annual bonus
of $30,000 and 25,000 stock options. Mr. Brown can terminate the
Employment Agreement and the relationship thereunder at any time
upon 60 business days’ notice. If the Company were not to
renew the term of the agreement or were to terminate the agreement
during any renewal term, for any reason other than “Just
Cause” (as defined the Agreement), then the Company is to pay
to Mr. Brown an amount equal to the base salary, then payable to
him for a period of twelve months as if the Agreement had not been
so terminated or had been renewed. Mr. Brown may also terminate the
agreement for “Good Reason” (as defined in the
Agreement), whereupon he will be entitled to the same benefits as
if the Company had terminated the agreement for any reason other
than Just
13
Cause. The Employment Agreement provides for customary protections
of the Company’s confidential information and intellectual
property.
Victor G.
Carrillo.
Mr. Carrillo was appointed a director in
September 2010, Executive Vice President in January 2011 and
President and Chief Operating Officer in October 2011. Effective
June 15, 2015, Mr. Carrillo was appointed as the Chief Executive
Officer and effective June 16, 2015 the Company and Mr. Carrillo
entered into a new employment agreement for an initial term until
December 31, 2016 and automatically renewed for successive one (1)
year terms unless the Company or Employee indicates in writing,
more than 30 days prior to the termination of this initial term or
any renewal term, that it does not intend to renew this agreement.
Under the agreement, Mr. Carrillo continues to be paid an annual
salary of $250,000, subject to annual review and adjustments. The
June 16, 2015 agreement replaces the employment agreement between
Mr. Carrillo and the Company which was entered into as of March 19,
2012.
Under the agreement, Mr. Carrillo was granted a one-time fully
vested option to purchase up to 50,000 shares of common stock of
the Company at a per share exercise price of $0.01 and a signing
bonus of $50,000. The Company shall also grant to Employee fully
vested options to purchase 25,000 shares of common stock at a per
share exercise price of $.01 commencing January 5, 2016 and
continuing on the 5
th
day of January of each successive renewal term.
If the Company were to terminate the agreement during a renewal
term for any reason other than “Just Cause” (as defined
in the employment agreement), then Mr. Carrillo is entitled to 12
month’s salary, as well as all benefits earned and accrued
through such date. The employment agreement provides for customary
protections of the Company’s confidential information and
intellectual property.
Dustin L.
Guinn.
Mr. Guinn was appointed a director on May 1,
2015 and is currently serving as the Executive Vice Chairman since
July 1, 2016 and as President and Chief Operating Officer since
September 13, 2016. Mr. Guinn entered into an employment agreement
for an initial term until December 31, 2017 and automatically
renewed for successive one (1) year terms unless the Company or
Employee indicates in writing, more than 30 days prior to the
termination of this initial term or any renewal term that it does
not intend to renew this agreement. Under the agreement, Mr. Guinn
is to be paid an annual salary of $250,000, subject to annual
review and adjustments.
Mr. Guinn is granted a one-time fully vested option to purchase up
to 100,000 shares of common stock of the Company at a per share
exercise price of $0.01. The Company shall also grant to Employee
fully vested options to purchase 25,000 shares of common stock at a
per share exercise price of $.01 commencing January 5, 2017 and
continuing on the 5
th
day of January of each successive renewal term.
If the Company were to terminate the agreement during a renewal
term for any reason other than “Just Cause” (as defined
in the employment agreement), then Mr. Guinn is entitled to 12
month’s salary, as well as all benefits earned and accrued
through such date. The employment agreement provides for customary
protections of the Company’s confidential information and
intellectual property.
Michael B. Croswell
Jr.
Mr. Croswell was appointed by the Board as Chief
Financial Officer on August 15, 2016. Mr. Croswell entered into an
employment agreement for an initial term until December 31, 2017
and automatically renewed for successive one (1) year terms unless
the Company or Employee indicates in writing, more than 30 days
prior to the termination of this initial term or any renewal term
that it does not intend to renew this agreement. Under the
agreement, Mr. Croswell is to be paid an annual salary of $150,000,
subject to annual review and adjustments.
The Company shall also grant to Employee fully vested options to
purchase 10,000 shares of common stock at a per share exercise
price of $.01 commencing January 5, 2017 and continuing on the
5
th
day of January of each successive renewal term.
If the Company were to terminate the agreement during a renewal
term for any reason other than “Just Cause” (as defined
in the employment agreement), then Mr. Croswell is entitled to 12
month’s salary, as well as all benefits earned and accrued
through such date. The employment agreement provides for customary
protections of the Company’s confidential information and
intellectual property.
Ilan N.
Sheena.
Mr. Sheena resigned from the Company effective
December 31, 2016.
He was appointed Chief Financial Officer in March 2011. Prior to
that appointment, Mr. Sheena was Vice President (Finance) of the
Company’s Israeli Branch since November 2009. On May 8, 2011,
the Company and Ilan Sheena
14
entered into a restated employment agreement providing for the
employment (the “Sheena Employment Agreement”) of Mr.
Sheena as the Company’s Chief Financial Officer. The Sheena
Employment Agreement had an initial period through December 31,
2011 and thereafter renewed for an additional one year term until
replaced by an amended employment agreement in April of 2012. Under
the amended agreement, Mr. Sheena was paid an annual salary of the
then current New Israeli Shekel equivalent of $144,000, payable
monthly; which was increased, effective August 1, 2011, to the New
Israeli Shekel equivalent of $180,000 per annum. The Company also
provided to Mr. Sheena the following: (i) Manager’s Insurance
under Israeli law for the benefit of Mr. Sheena pursuant to which
the Company contributes amounts equal to (a) 14-1/3 percent (and
Mr. Sheena contributes an additional 5.5%) of each monthly salary
payment, and (b) 7.5% of Mr. Sheena’s salary (with Mr. Sheena
contributing an additional 2.5%) to an education fund, a form of
deferred compensation program established under Israeli law.
Glen
Perry.
Mr. Perry resigned from the
Company effective July 31, 2016.
He was the previously appointed President and Chief Operating
Officer effective June 15, 2015 by the Board of Directors.
Effective June 15, 2015, the Mr. Perry’s Employment Agreement
commenced with the initial term ending December 31, 2016 and
automatically renewed for successive one year terms unless the
Company or the Employee indicates more than 30 days prior to the
termination of the initial term or any renewal term that such
employment would be terminated and not renewed. During the term,
the Company paid $250,000 as the base salary, plus the Employee was
granted fully vested options to purchase up to 100,000 shares of
common stock at a per share exercise price of $0.01 within 10 days
from signing the Employment Agreement. The Company provided the
Employee with the use of a vehicle and cell phone. The Company
granted to Employee fully vested options to purchase 25,000 shares
of common stock at a per share exercise price of $0.01 commencing
January 5, 2016 and continuing on the 5
th
day of January of each successive renewal term.
The Company also provided under the Employment Agreement the
following: (i) Manager’s Insurance under Israeli law for the
benefit of Mr. Perry pursuant to which the Company contributes
amounts equal to (a) 14.33% (and Mr. Perry contributes an
additional 5.5%) of each monthly salary payment, and (b) 7.5% of
Mr. Perry’s salary (with Mr. Perry contributing an additional
2.5%) to an education fund, a form of deferred compensation program
established under Israeli law.
Potential Payments upon
Change of Control or Termination following a Change of
Control
Our employment agreements with our Named Executive Officers provide
incremental compensation in the event of termination, as described
herein. Generally, we currently do not provide any severance
specifically upon a change in control nor do we provide for
accelerated vesting upon change in control. Termination of
employment also impacts outstanding stock options.
Due to the factors that may affect the amount of any benefits
provided upon the events described below, any actual amounts paid
or payable may be different than those shown in this table. Factors
that could affect these amounts include the basis for the
termination, the date the termination event occurs, the base salary
of an executive on the date of termination of employment and the
price of our Common Stock when the termination event occurs.
The following table sets forth the compensation that would have
been received by each of the Company’s executive officers had
they been terminated as of December 31, 2016.
|
|
|
|
|
|
|
|
|
John M. Brown
|
|
231,000
|
|
—
|
|
—
|
|
231,000
|
Victor G. Carrillo
|
|
250,000
|
|
—
|
|
16,346
|
|
266,346
|
Dustin L. Guinn
|
|
250,000
|
|
—
|
|
7,690
|
|
257,690
|
Michael B. Croswell Jr.
|
|
150,000
|
|
—
|
|
13,749
|
|
163,749
|
15
COMPENSATION OF
DIRECTORS
Our non-employee director compensation program in 2016 consisted of
two principal elements: (1) board fees ($1,500 per month) and, if
applicable, committee chairmanship fees ($1,000 per month) and (2)
grants of stock options.
Pursuant to the monthly board fees described above, non-employee
directors received an annual payment of $18,000 in 2016 and each
chairman or co-chairman of a committee received an additional
$12,000 in annual payments. We also reimburse directors for travel,
lodging and related expenses they incur in attending Board and
committee meetings.
The following table summarizes compensation paid to our
non-management directors during the fiscal year ended December 31,
2016.
|
|
Fees
Earned or Paid in Cash
|
|
|
|
|
|
|
|
|
Forrest A. Garb
|
|
30,000
|
|
|
|
29,875
|
(2)
|
|
6,138
|
(13)
|
|
66,013
|
Paul Oroian
|
|
42,000
|
|
|
|
29,875
|
(2)
|
|
5,366
|
(5)
|
|
77,241
|
William H. Avery
|
|
18,000
|
|
|
|
169,500
|
(4)
|
|
169,961
|
(6)
|
|
357,461
|
Yehezkel Druckman
|
|
30,000
|
|
|
|
72,018
|
(2)
|
|
60,000
|
(7)
|
|
162,018
|
Justin Furnace
|
|
42,000
|
|
|
|
29,875
|
(2)
|
|
4,624
|
(8)
|
|
76,499
|
Gene Scammahorn
|
|
23,000
|
|
|
|
29,875
|
(2)
|
|
4,390
|
(9)
|
|
57,265
|
Kent S. Siegel
|
|
30,000
|
|
|
|
29,875
|
(2)
|
|
5,541
|
(10)
|
|
65,416
|
Ralph F. DeVore
(3)
|
|
16,500
|
|
|
|
49,875
|
(2)
|
|
5,000
|
(11)
|
|
71,375
|
Martin M. van Brauman
|
|
18,000
|
|
|
|
184,909
|
(4)
|
|
209,354
|
(12)
|
|
412,263
|
16
INFORMATION RELATING TO
AN EXECUTIVE OFFICER WHO IS NOT A DIRECTOR NOMINEE
Below is certain information relating to the sole executive officer
of the Company who is not also a member of the Board of Directors
or a director nominee:
Mr. Croswell replaced Ilan Sheena as the Chief Financial Officer on
September 12, 2016, the date of Mr. Sheena’s notice to the
Company of his leaving. Mr. Sheena continued working for the
Company until December 31, 2016.
Mr. Croswell, CPA, has been serving as Corporate Controller since
April 2011. In February 2013, Michael was promoted to Vice
President of Administration while retaining his accounting
responsibilities. Mr. Croswell is a corporate accounting and
management professional with a diverse range of industry
experience. Mr. Croswell has been a Certified Public Accountant
(“CPA”) since 1997 and earned his Bachelor of Business
Administration degree in Accounting from Stephen F. Austin State
University and his Masters of Business Administration from the
University of Dallas. From November 2006 to April 2011, he worked
as Assistant Controller at Monitronics International, an alarm
monitoring company and subsidiary of Ascent Media Corporation where
he developed the monthly close schedule, implemented cross training
and was recognized as a top manager. From October 2001 to February
2005, Mr. Croswell worked as an accounting manager and Controller
at Genpass Technologies, an ATM transaction processing company and
a subsidiary of U.S. Bancorp. From 1998 to 2001, he worked as an
accounting manager at Monarch Dental Corporation where he was
responsible for the Dallas, Houston, San Antonio, West Texas, and
New Mexico markets which encompassed more than 60 dental offices.
From 1994 to 1998, he worked at Maxus Energy Corporation (later
acquired by YPF in Argentina which was later acquired by Repsol in
Spain) as a joint interest accountant and later joined the
international accounting group where he worked with the books and
records for the Venezuela and Ecuador operations.
Employment
Agreements
We have entered into employment agreements with Messrs. Brown,
Carrillo, Guinn, and Croswell. See “Executive Compensation
— Employment Agreements” for additional
information.
Policy for Approval of
Related Party Transactions
Our Audit Committee Charter provides that our Audit Committee shall
review for potential conflict of interest situations on an ongoing
basis and shall approve all “related party
transactions” required to be disclosed under SEC regulations
or otherwise subject to approval by an independent body of our
Board under the requirements of the NASDAQ. Except as set forth
above, we do not have a written approval policy for transactions
between the Company and our executive officers and directors, but
these transactions are subject to the limitations on conflicts of
interest and related-party transactions found in our Code of
Business Conduct and Ethics (the “Code”). Under the
Code, executive officers and directors endeavor to avoid any
actual, potential or apparent conflict of interest between their
personal and professional relationships. Any proposed related
transactions, however, may be approved in accordance with both
applicable law and applicable NASDAQ rules.
17
EQUITY COMPENSATION PLAN
INFORMATION
The following table sets forth certain information with respect to
securities authorized for issuance under equity compensation plans
as of December 31, 2016.
|
|
Number of securities to be issued upon exercise of
outstanding options, warrants and rights(a)
|
|
Weighted- average exercise price of outstanding options,
warrants and rights(b)
|
|
Number of securities remaining available for future
issuance under equity compensation plans (excluding securities
reflected in column(a))(c)
|
Equity compensation plans approved by security
holders:
|
|
|
|
|
|
|
|
Stock Options
|
|
4,166,943
|
|
$
|
1.58
|
|
2,016,750
|
Equity compensation plans not approved by
security holders:
|
|
—
|
|
|
—
|
|
—
|
TOTAL
|
|
4,166,943
|
|
$
|
1.58
|
|
2,016,750
|
Long-Term Incentive
Plan
At our 2002 Annual Meeting of Stockholders, the stockholders
approved the establishment of a long-term key employee incentive
plan, which may be structured as an employees’ royalty pool,
to be funded by the equivalent of a 1.5% overriding royalty
interest. The Company may, but has not yet, established a long-term
management incentive plan for key employees whereby a 1.5%
overriding royalty or equivalent interest in the all current and
future oil and gas exploration and development rights would be
assigned to key employees. As this plan has not been established as
of December 31, 2016, the Company did not have any outstanding
obligation in respect of the plan.
SECTION 16(a) BENEFICIAL
OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), requires officers and directors
of the Company and persons who beneficially own more than 10% of
the Common Stock outstanding to file initial statements of
beneficial ownership of Common Stock (Form 3) and statements of
changes in beneficial ownership of Common Stock (Forms 4 or 5) with
the SEC. Officers, directors and such greater than 10% stockholders
are required by SEC regulation to furnish the Company with copies
of all such forms they file.
Based upon a review of the filings furnished to the Company
pursuant to Rule 16a-3(e) promulgated under the Exchange Act and on
representations from its executive officers and directors and
persons who beneficially own more than 10% of the Common Stock, all
filing requirements of Section 16 (a) of the Exchange Act, were
complied with in a timely manner during the fiscal year ended
December 31, 2016.
18
PROPOSAL NO.
1
ELECTION OF
DIRECTORS
Our Board currently consists of twelve directors. Our Amended and
Restated Certificate of Incorporation classifies the Board into
three classes, each having a staggered term expiring at successive
annual meetings. Four Class III directors are to be elected at the
Annual Meeting to serve a three-year term expiring at the 2020
Annual Meeting of Stockholder (and until their successors shall be
elected and shall qualify). The term of our Class II directors,
Justin W. Furnace, Martin M. van Brauman, Dustin L. Guinn and Gene
Scammahorn shall expire at the 2019 Annual Meeting of Stockholders.
The term of our Class I directors, John Brown, Forrest Garb, Kent
Siegel and Ralph DeVore, shall expire at the 2018 Annual Meeting of
Stockholders.
The Board has nominated the persons named in the table below for
election as Class III directors. All such persons are presently
directors of the Company, and each has consented to being named as
a nominee for election as a Class III director and has agreed to
serve if elected. Unless otherwise specified in the accompanying
proxy, the shares voted pursuant to it will be voted for the
persons named below as nominees for election as Class I directors.
If, for any reason, at the time of the election, any of the
nominees should be unable or unwilling to accept election, such
proxy will be voted for the election, in such nominee’s
place, of a substitute nominee recommended by the Board to the
extent that such substitute nominee exists. However, the Board has
no reason to believe that any nominee will be unable or unwilling
to serve as a director.
The four nominees receiving the highest number of affirmative votes
of shares present or represented by proxy and entitled to vote for
them shall be elected as directors.
|
|
|
|
|
|
|
Victor G. Carrillo
|
|
CEO/Director
|
|
52
|
|
2010
|
Paul Oroian
|
|
Director
|
|
64
|
|
2003
|
Yehezkel Druckman
|
|
Director
|
|
78
|
|
2005
|
William H. Avery
|
|
General Counsel/Director
|
|
69
|
|
2013
|
The following describes at least the last five years of business
experience of the directors standing for re-election. The
descriptions include any other directorships at public companies
held during the past five years by these directors. No family
relationship exists between any director and executive officer of
the Company.
Victor G.
Carrillo
, age 52, was appointed Chief Executive Officer on
June 15, 2015. He served as President and Chief Operating Officer
from October 2011 until June 15, 2015. He served as Executive Vice
President from January 2011 until October 2011. He has been a
director since September 2010. From January 2011 through May 2016,
Mr. Carrillo served on the Board of Directors of Magnum-Hunter
Resources, a publicly traded oil and gas company exploring in the
United States. He currently serves on the advisory board of the
Texas-Israel Chamber of Commerce and the Maguire Energy Institute
at SMU. Mr. Carrillo is a petroleum geologist and geophysicist,
attorney, former Abilene City Councilman, former Taylor County
Judge, and for eight years served as statewide-elected commissioner
of the Railroad Commission of Texas (the state’s regulatory
authority over oil and gas drilling). He has over 25 years of
professional experience, much of it in the oil and gas industry,
specifically in exploration and production. He holds a law degree
from the University of Houston Law Center, a Master of Science
degree in geology from Baylor University, and a Bachelor of Science
degree in geology from Hardin-Simmons University. Mr. Carrillo also
received an honorary doctorate degree from Hardin-Simmons
University in May 2006.
Paul Oroian
, age
64, was appointed a director in November 2003. He has served as
president and managing partner of Oroian, Guest and Little, P.C., a
certified public accounting and consulting firm based in San
Antonio, Texas, since its founding in 1983. From 1980-1983, Mr.
Oroian was a tax senior in the San Antonio offices of Arthur Young
and Company. Mr. Oroian holds a Bachelor of Science degree in
Business Administration from Bryant College. He has served as a
board member of Technology Oversight Committee and the IRS Regional
Liaison Committee of the Texas Society of Certified Public
Accountants and was vice president and a director of the San
Antonio CPA Society between 1992 and 1998. Mr. Oroian’s
extensive experience as a certified public accountant was
instrumental in his appointment to the Audit Committee of our Board
and provides our Board with a critical accounting perspective. Mr.
Oroian also serves as the Board’s Lead Independent
Director.
19
Dr. Yehezkel
“Charlie” Druckman
, age 78, was appointed a
director in November 2005. Dr. Druckman was Petroleum Commissioner
for the State of Israel from 1995 until his retirement in 2004,
where he supervised the licensing of petroleum rights both onshore
and offshore Israel. These efforts led to the discovery of 1.5
trillion cubic feet of gas in the Israeli offshore Mari B and other
smaller fields during 1999-2000. Since 1965, he has been a member
of the professional staff of the Geological Survey of Israel, where
he headed the Mapping, Stratigraphy and Oil Division during
1982-1985 and 1991-1994. He was also affiliated with Louisiana
State University at Baton Rouge as Research Associate in Geology
during 1978-1980 and 1989-1990. He was awarded in 1974 the Israel
Geological Society’s Perez Grader award. He is an active
member of the American Association of Petroleum Geologists and the
Geological Society of Israel (where he served as president in 1982
and for a number of years on the Society’s editorial board).
He also served as member of the Israeli National Petroleum
Commission and Board of Directors of Oil Exploration (Investments)
Ltd., an Israeli government company. Dr. Druckman graduated from
the Hebrew University in Jerusalem where he was awarded BSc, MSc
and PhD degrees in geology. Dr. Druckman’s academic
credentials as a geologist, his experience as the Petroleum
Commissioner for the State of Israel for nearly a decade and his
vast knowledge and expertise in the geological mapping of the State
of Israel for petroleum exploration purposes provide us with a
critical resource in our ongoing oil and gas exploration efforts in
Israel as well as a liaison to the Israeli regulatory authorities
with whom we are in ongoing contact with respect to the maintenance
of our license and other oil and gas exploration rights.
William H. Avery,
age 69, was appointed to the Board as a non-employee director,
effective September 1, 2013. From 2001 to 2003, Mr. Avery worked on
a broad variety of administrative, financial and legal matters for
the Company. He served as Vice President of Finance and Treasurer
commencing 2003 until 2007. He worked full time as Executive Vice
President and Treasurer and as a director commencing in 2007 with
responsibility for administration, finance and legal until 2010.
From December 2012 to current, he has been retained as General
Counsel on a part time basis under an independent consulting
contract. Mr. Avery has a BBA in Finance and Economics from
Southern Methodist University and a Juris Doctorate from Duke
University.
There are no family relationships between any of the above
directors.
Information Relating
to Continuing Directors who are not Standing for Re-election this
Year
John M. Brown
,
age 77, is the founder of Zion Oil & Gas and has been a
director and Chairman of the Board of Directors of Zion since its
organization in April 2000. Mr. Brown was appointed Executive
Chairman in January 2010. Mr. Brown was also appointed as Interim
Chief Executive Officer on October 18, 2012 and on January 1, 2014,
Mr. Brown was appointed as the Chief Executive Officer and to
continue as the Executive Chairman. Previously, he served as our
Chief Executive Officer from April 2000 to September 2004 and as
President from April 2000 to October 2001. Mr. Brown has extensive
management, marketing and sales experience, having held senior
management positions in two Fortune 100 companies - GTE Valeron, a
subsidiary of GTE Corporation and a manufacturer of cutting tools,
where he was employed from 1966-86 and served as the corporate
director of purchasing, and Magnetek, Inc., a manufacturer of
digital power supplies, systems and controls, where he was
corporate director of procurement during 1988-89. Mr. Brown was a
director and principal stockholder in M&B Concrete
Construction, Inc. from 1996 to 2003 and is an officer and director
of M&B Holding Inc. (a Nevada corporation) based in Dallas,
Texas, the sole shareholder of M&B General Contracting Inc. (a
Delaware corporation). These companies primarily provide cement
walls and floors for industrial buildings, office buildings and
home developers. Prior to founding the Company, Mr. Brown had been
actively pursuing a license for oil and gas exploration in Israel
for many years. His efforts led to our obtaining, in May 2000, the
Ma’anit License, the precursor to the Joseph License. Mr.
Brown holds a BBA degree from Fullerton College. Mr. Brown’s
senior management experience in two Fortune 500 companies as well
as his extensive experience in the oil and gas sector in the State
of Israel provide with him with the insight and vision needed to
serve as CEO and chairman of our Board of Directors.
Dustin L. Guinn
,
age 40, is currently servings as the Executive Vice Chairman since
July 1, 2016 and the President and Chief Operating Officer since
September 13, 2016. He was appointed a director on May 1, 2015.
Dustin Guinn served as Chief Executive Officer of Viking Services,
in which he had acted in this capacity from June of 2011 through
September 30, 2015. Mr. Guinn’s primary responsibilities
included operational and strategic management focusing on the
growth, deployment and profitability of assets in Turkey, Northern
Iraq, Hungary, Bulgaria, Serbia, Romania and other strategic
countries within the Middle East, North Africa, as well as Central
and Eastern Europe. Mr. Guinn has extensive experience in
transactional mergers and acquisitions involving both entity and
asset
20
purchases as well as the integration of those acquisitions and has
been intimately involved in the growth of Viking, in terms of
financial, operational, structural, and reporting and management
growth since its inception in 2008. Prior to assuming the
responsibilities of CEO in 2011 Mr. Guinn served as President of
Viking International and Viking Geophysical in which he leveraged
his financial background and experience to focus on the continued
development of operational efficiencies, reporting implementation,
profitable asset deployment and accountability focusing on ROI
metrics. Mr. Guinn was integral in the procurement and negotiation
of many of Viking’s key long-term, ongoing service contracts
and MSA’s that Viking currently enjoys. Mr. Guinn has also
served in a number of capacities within Viking such as CFO,
Treasury Manager and Financial Analyst, which have allowed for the
opportunity to have a balanced and well-rounded understanding of
the business. Mr. Guinn graduated, with honors, from New Mexico
State University with a Bachelor of Business Administration degree
in Finance, during which time he competed in both track and field
and football (Three Year Starter at Tight End) and earned a
Master’s Degree in Business Administration from West Texas
A&M.
Forrest A. Garb
,
age 87, was appointed a director in November 2005. Mr. Garb is a
petroleum engineer who has provided independent consulting services
for more than 45 years. His consulting career began with H.J. Gruy
and Associates, Inc. and its successors, where he served as a vice
president for four years, executive vice-president for ten years,
and president for fifteen years, until leaving in 1986, following
Gruy’s merger into a public company. In his capacity as
president, Mr. Garb contracted, performed and supervised over
12,500 projects ranging from simple evaluations to sophisticated
reservoir simulations. In 1988, Mr. Garb founded Forrest A. Garb
& Associates, Inc., a privately-owned petroleum consulting
firm, where he served as chairman and chief executive officer until
his retirement in 2003 and sale of his interests in the company to
its key employees. Prior to entering into consulting, Mr. Garb was
educated in petroleum engineering at Texas A&M University (BSc
and Professional MSc) and received his early training at Socony
Mobil Oil Company in Kansas, Texas, Louisiana and Venezuela. Mr.
Garb is a member of the Society of Petroleum Engineers and is a
past President of the Society of Petroleum Evaluation Engineers. He
is a member of the Association of Computing Machinery, the American
Arbitration Association, the Petroleum Engineers Club of Dallas,
the Dallas Geological Society, and is a member of the American
Association of Petroleum Geologists. He is a charter member of The
American Institute of Minerals Appraisers. He is a registered
professional engineer in the state of Texas. Mr. Garb’s
petroleum engineering background and vast experience in the
petroleum industry spanning over 45 years provide our Board with a
valuable resource in assessing oil and gas prospects.
Kent S. Siegel,
age 61
,
was
appointed a director in December 2012 and assumed his office as of
January 1, 2013. Mr. Siegel previously served as a director on the
Company’s Board from November 2003 through March 31, 2011 and
as the Company’s Chief Financial Officer from July 9, 2010
through March 31, 2011, the date of his resignation. Mr. Siegel has
served as president and chief operating officer of Kent S. Siegel,
P.C. since 1984. Kent S. Siegel, P.C. is a firm of certified public
accountants and attorneys at law based in West Bloomfield,
Michigan, at which Mr. Siegel practices as a tax and bankruptcy
attorney and CPA. Mr. Siegel holds a Bachelor of Business
Administration from Michigan State University School of Business, a
Juris Doctorate from Wayne State University School of Law and a
Bachelor of Science in Electrical Engineering from Lawrence
Technological University School of Engineering. Mr. Siegel’s
extensive experience as a certified public accountant and in tax
law provides our Board with a critical accounting and tax law
perspective. Mr. Siegel is a valuable member of the Audit Committee
of our Board.
Justin W.
Furnace
, age 39, was appointed a director in April 2012. Mr.
Furnace is the Director of External Affairs for Hilcorp Energy
Company in Houston, Texas. Previously, from May of 2010 to
September 2012, he was the President of the Texas Independent
Producers & Royalty Owners Association (TIPRO), a trade
association representing the interests of more than 2,300
independent oil and natural gas producers and royalty owners
throughout Texas. As TIPRO President, Mr. Furnace was responsible
for overseeing the association’s governmental affairs in
Texas and Washington D.C. and representing the interests of the
association membership before various regulatory bodies, among
other things. Prior thereto, from June 2007 to May 2010, Mr.
Furnace served as chief of staff and legal counsel to then Chairman
Victor Carrillo of the Texas Railroad Commission. He was the
Chairman’s top policy advisor, in charge of evaluating,
assessing and implementing all legal, technical and legislative
strategies. Prior to his tenure at the Railroad Commission, from
September 2004 to December 2006, he practiced law at the Beaumont
office of Mehaffy Webber as an associate in the firm’s
business and litigation departments. While at the firm, he focused
on both transactions and litigation relating to oil and gas, real
estate and corporate matters. A graduate of Hardin-Simmons
University in 2001, Mr. Furnace currently serves on its Board of
Development. He later received his Doctorate of Jurisprudence from
Texas Tech University School of Law in 2004. Mr.
Furnace’s
21
background in commercial oil and gas law and his regulatory
experience make him a valuable objective resource for our company
on these matters.
Gene Scammahorn,
age
70,
was appointed
a director in October 2012. Until recently, Mr. Scammahorn was an
Internal Audit Director at Xerox Business Services, LLC, a position
that he held since 2001. In this position, he was primarily
responsible for consulting and advising operating management in
preparations for over 100 external SSAE (formerly SAS 70) audits of
domestic and global business process outsourcing contracts. Mr.
Scammahorn has over 30 years of business experience, including two
“Big Four” public accounting firms, major oil and gas
companies and banking and consulting. He has participated in audit
committee presentations and meetings for major clients, the Federal
Reserve Bank of Dallas and Xerox Business Services, LLC. He
received a BS in Accounting in 1973 from the University of Tulsa
and is a Certified Public Accountant and a Certified Financial
Planner. Mr. Scammahorn’s extensive experience as a certified
public accountant was instrumental in his appointment to the Audit
Committee of our Board and provides our Board with a critical
accounting perspective.
Martin M. van
Brauman
, age 69, was appointed to the Board effective April
1, 2014 and since January 1, 2012 has been the Corporate Secretary
and Treasurer and since June 1, 2013 has been a Senior Vice
President. From July 1, 2007 to January 31, 2009, he served as the
Chief Financial Officer, Corporate Secretary, Senior Vice President
and Board director. Between February 1, 2009 and July 1, 2009, he
served as the Chief Legal Officer. He is Board Certified in Tax Law
by the Texas Board of Legal Specialization and has been in private
legal practice in Dallas specializing in international and
corporate tax and business corporate law. Previously, he spent 12
years as a Senior Attorney (International Specialist and Petroleum
Industry Specialist) with the Office of Chief Counsel, IRS,
followed by three years as a tax consultant with Deloitte &
Touche and Grant Thornton. He has published on subjects related to
taxation of international oil and gas ventures. Mr. van Brauman
holds a B.E. degree from Vanderbilt University, a Doctor of
Jurisprudence degree from St. Mary’s University and an M.B.A.
(Beta Gamma Sigma) and LL.M. (Tax Law) from Southern Methodist
University. He has been an Adjunct Professor at Southern Methodist
University, School of Law, L.L.M. Tax Program and at the University
of Texas at Dallas, Masters of Accounting Program. He is on the
Advisory Board of the Jewish and Israel Studies Program, University
of North Texas. He is a Capitol Club member of the American Israel
Public Affairs Committee (“AIPAC”).
Ralph F. DeVore
,
age 79, was appointed to the Board on February 1, 2016. Mr.
DeVore’s career includes over 25 years in advertising and
marketing as an entrepreneur doing business with Fortune 100
companies such as PepsiCo, Walgreen and Philip Morris. In addition,
he held a management position with The Sherwin-Williams Company, a
Fortune 500 company. He currently serves as President of Christian
Commerce Corporation, a 501(c)(3) private foundation which he
founded in 1984. The focus of the foundation is promotion and
education of Christian principles through world-wide evangelism. He
also serves in a consulting role to other Christian ministries who
call on his business expertise and years of ministry experience.
Ralph earned a B.S. in Occupational Education from Wayland Baptist
University and is a graduate of Southwestern Baptist Theological
Seminary. He holds a Texas Real Estate Broker license. He is on the
Boards of Christian Commerce Corporation and was recently on the
Hal Lindsey Website Ministries.
There are no family relationships between any of the above
directors.
22
ADDITIONAL INFORMATION
CONCERNING THE BOARD OF DIRECTORS
BOARD
MEETINGS
During the fiscal year ended December 31, 2016, the Board met twice
and acted by unanimous consent on 10 occasions. Each of the
directors attended 100% of the aggregate number of meetings of the
Board and of any committees of the Board on which they served.
The Board does not have a formal policy with respect to Board
members’ attendance at annual stockholder meetings, although
it encourages directors to attend and participate at all such
meetings. All of the directors serving at the time of the 2016
annual meeting attended the Company’s 2016 annual meeting
held in Caesarea, Israel on June 6, 2016.
CODE OF
ETHICS
We have adopted a Code of Business Conduct and Ethics that applies
to our directors, officers and all employees. The code has been
posted on our web site at
www.zionoil.com/investor-center/corporate-governance
, and
may also be obtained free of charge by writing to Ethics Code, c/o
Zion Oil & Gas, Inc., 12655 North Central Expressway, Suite
1000, Dallas, Texas 75243. We intend to satisfy the disclosure
requirement under Item 10 of Form 8-K regarding an amendment to, or
waiver from, a provision of our Code of Business Conduct and Ethics
by posting such information on our website, at the address and
location specified above.
BOARD LEADERSHIP
STRUCTURE
The role of Executive Chairman is held by Mr. Brown, of Executive
Vice Chairman is held by Mr. Guinn and of the Chief Executive
Officer by Mr. Carrillo. Mr. Guinn also holds the position of
President and Chief Operating Officer. The Board believes that this
management structure provides the optimal leadership situation for
the Company during this period to ensure that key business issues
and interests of the Company’s stakeholders (stockholders,
employees, communities and prospective investors) are communicated
to the Board. In addition, Mr. Brown’s experience as founder
and continuing Chairman of the Company since its inception and
qualifications, enable him to fulfill the responsibilities of both
roles and effectively lead Zion with a unified vision.
The Board believes that other elements of the Company’s
corporate structure ensure that independent directors can perform
their role as independent fiduciaries in the Board’s
oversight of management and our business and minimize any potential
conflict that may result from combining the roles of CEO and
Chairman. In this regard, it shall be noted that Mr. Oroian serves
as Lead Director.
BOARD
COMMITTEES
The Company’s Board has established an Audit Committee, a
Compensation Committee and a Nominating and Corporate Governance
Committee, with each comprised of independent directors. Each
committee operates under a charter that has been approved by our
Board. All of the charters are publicly available on our website at
www.zionoil.com/investor-center/corporate-governance
. Copies
of our committee charters are available, without charge, upon
request in writing to Investor Relations Department
.
Audit
Committee
The Company’s Audit Committee is currently comprised of
Messrs. Oroian, Siegel and Scammahorn. Mr. Oroian was elected to
serve as Chairman.
The principal function of the Audit Committee is to assist the
Board in monitoring (i) the integrity of the Company’s
financial statements, (ii) Company compliance with legal and
regulatory requirements, (iii) the independent auditor’s
qualifications and independence, (iv) performance of the
Company’s independent auditors, (v) the Company’s
business practices and ethical standards and (vi) related party
transactions. The Audit Committee is also directly responsible for
the appointment, compensation, retention and oversight of the work
of the Company’s independent auditors.
The Board has determined that each member of the Audit Committee is
an “independent director” as defined by NASDAQ
regulations and also meets the additional criteria for independence
of Audit Committee members set forth in Rule 10A-3(b)(l) under the
Exchange Act. In addition, the Board has determined that Mr. Oroian
qualifies as an
23
“audit committee financial expert” as defined by the
SEC. Security holders should understand that this designation is a
disclosure requirement of the SEC relating to Mr. Oroian’s
experience and understanding with respect to certain accounting and
auditing matters. The designation does not impose on Mr. Oroian any
duties, obligations or liability that is greater than is generally
imposed on him as a member of the Audit Committee and Board, and
his designation as an Audit Committee financial expert pursuant to
this SEC requirement does not affect the duties, obligations or
liability of any other member of the Audit Committee or Board.
During the fiscal year ended December 31, 2016, the Audit Committee
met five times.
Compensation
Committee
The current members of our Compensation Committee are Messrs.
Furnace, Garb and Siegel. Mr. Furnace was elected to serve as
Chairman. All three current members of the Compensation Committee
satisfy the SEC independence criteria and the NASDAQ independence
criteria. The Compensation Committee establishes our
Company’s policies and administers our compensation program
with respect to our executive officers. Based on periodic
evaluation, the Compensation Committee also makes recommendations
to the Board regarding director compensation and our
Company’s employee benefits program. Pursuant to its charter,
the functions and responsibilities of the Compensation Committee
include:
•
determining compensation for the Company’s executive
officers;
•
assisting in developing and reviewing the annual performance goals
and objectives of our executive officers;
•
assessing the adequacy and competitiveness of our executive
compensation program;
•
administering our incentive compensation program and other
equity-based compensation plans;
•
reviewing and recommending compensation for our non-employee
directors; and
•
reviewing and evaluating the adequacy of the Compensation Committee
charter on an annual basis.
During the fiscal year ended December 31, 2016, the Compensation
Committee met once and acted by unanimous consent on nine
occasions.
Our executive officers receive a compensation package consisting of
base salary, long-term equity awards, and participation in benefit
plans generally available to all of our employees including life,
health, disability and dental insurance. We have chosen these
elements of compensation to create a flexible package that reflects
the long-term nature of our business. We also enter into employment
agreements with our executive officers that provide for certain
severance benefits upon termination of employment following a
Company change of control.
In setting executive officer compensation levels, the Compensation
Committee, which is comprised entirely of independent directors, is
guided by the following considerations:
•
recommendations from the CEO based on individual executive
performance and appropriate benchmark data;
•
ensuring compensation levels reflect the Company’s past
performance and expectations of future performance;
•
ensuring compensation levels are competitive with compensation
generally being paid to executives we seek to recruit to ensure our
ability to attract and retain experienced and well-qualified
executives; and
•
ensuring a portion of executive officer compensation is paid in the
form of equity-based incentives to closely link stockholder and
executive interests.
The Compensation Committee periodically engages a consulting
company to obtain market data and information on compensation
trends regarding executive and director compensation.
24
Nominating and
Corporate Governance Committee
The current members of our Nominating and Corporate Governance
Committee are Messrs. Oroian, Furnace, DeVore and Scammahorn. Mr.
Furnace was elected to serve as Chairman. Mr. DeVore was appointed
to the Committee on February 1, 2016 upon his election to the Board
on the same date. The Nominating and Corporate Governance Committee
is charged with selecting and recommending for the approval of the
Board nominees to be submitted to the stockholders for
election.
In addition, the Nominating and Corporate Governance Committee has
adopted a formal written policy respecting the standards and
qualifications to be used in identifying director nominees,
including the consideration of director nominees presented by the
Company’s stockholders. A copy of the director nominee policy
is available on our website at
www.zionoil.com/investor-center/corporate-governance
.
During the fiscal year ended December 31, 2016, the Nominating and
Corporate Governance Committee met once and acted by unanimous
consent on two occasions.
While the Nominating and Corporate Governance Committee does not
have a formal policy with respect to diversity, the Board of
Directors believes that it is essential that Board members
represent diverse business backgrounds and experience and include
individuals with a background in related fields and industries. In
considering candidates for the Board, the Nominating and Corporate
Governance Committee considers the entirety of each
candidate’s credentials in the context of these standards and
the expertise needed by the Company. We believe that the
backgrounds and qualifications of our directors, considered as a
group, should and do provide a composite mix of experience,
knowledge and abilities that will allow the Board to fulfill its
responsibilities with respect to the Company’s needs.
The Nominating and Corporate Governance Committee will consider
qualified director candidates recommended by stockholders in
compliance with its formally adopted director nominee policy and
subject to applicable inquiries. Proposals for consideration by the
Nominating and Corporate Governance Committee of director nominees
may be made by submitting the names and supporting information to:
Justin Furnace, Chairman, Nominating and Corporate Governance
Committee, Zion Oil & Gas, Inc., 12655 North Central
Expressway, Suite 1000, Dallas, Texas 75243. A stockholder
nomination must contain the following information about the
nominee:
•
Name;
•
Age;
•
Business and residence addresses;
•
Principal occupation or employment;
•
The number of shares of the Company’s Common Stock and other
Company securities held by the nominee;
•
A resume of his or her business and educational background;
•
The information that would be required under SEC rules in a proxy
statement soliciting proxies for the election of such nominee as a
director; and
•
A signed consent of the nominee to serve as a director, if
nominated and elected.
The nomination should also contain the following information
concerning the nominating stockholder:
•
Name
•
Address
•
The number of shares of the Company’s Common Stock and other
securities held by the nominating stockholder.
•
The nature of the holdings – whether directly or beneficially
(if beneficially, details of the legal holder and the nature of the
beneficial interest should be provided); and
25
•
Whether the nominating stockholder has any agreement or
understanding of any type (written or oral) with any other
stockholder concerning the voting of Company shares and, if so, the
identity and address of the other parties to the agreement or
understanding, the stockholdings of each of the other parties, and
the nature of the agreement or understanding.
We have adopted a formal
process for stockholders to communicate with the Board, which has
been posted on our web site at
www.zionoil.com/investor-center/corporate-governance
.
Stockholders may communicate with the Board by sending written
communications to the Board of Directors, care of Mr. Paul Oroian,
Lead Independent Director, to:
Mr. Oroian, Lead
Independent Director
Zion Oil & Gas, Inc.
12655 North Central Expressway, Suite 1000
Dallas, Texas 75243
The mailing envelope must contain a clear notation indicating that
the enclosed letter is a “Stockholder-Board
Communication” or “Stockholder-Director
Communication.” All such letters must identify the author as
a stockholder and clearly state whether the intended recipients are
all members of the Board or only certain specified individual
directors. We will make copies of all such letters received and
circulate them to the appropriate director or directors.
If no particular director is named, letters will be forwarded,
depending on the subject matter, to the Lead Independent Director.
In general, Company personnel will not censor or edit such
communications and any stockholder communication delivered to the
Company for forwarding to the Board or specified Board member(s)
will be forwarded in accordance with the stockholder’s
instructions. However, we reserve the right not to forward to Board
members any abusive, threatening or otherwise inappropriate
materials.
The Nominating and Corporate Governance Committee may revise these
procedures at any time. Until other procedures are developed and
posted on our website, all communications to the Board should be
mailed in accordance with the procedures described above.
Our Board of Directors may from time to time establish other
committees.
Board’s Role in
Risk Oversight
Management is responsible for the day-to-day management of risks
the Company faces, while the Board of Directors, as a whole and
through its committees, has the ultimate responsibility for the
oversight of risk management. Senior officers attend meetings of
the Board, provide presentations on operations including
significant risks, and are available to address any questions or
concerns raised by the Board. Additionally, our three Board
committees assist the Board in fulfilling its oversight
responsibilities in certain areas of risk. Pursuant to its charter,
the Audit Committee coordinates the Boards’ oversight of the
Company’s internal control over financial reporting,
disclosure controls and procedures and code of conduct. Management
regularly reports to the Audit Committee on these areas. The
Compensation Committee assists the Board in fulfilling its
oversight responsibilities with respect to the management of risks
arising from our compensation policies and programs. The Nominating
and Corporate Governance Committee assists the Board in fulfilling
its oversight responsibilities with respect to the management of
risks associated with Board organization, membership and structure,
succession planning for our directors and corporate governance.
When any committees receives a report related to material risk
oversight, the Chairman of the relevant committee reports on the
discussion to the full Board.
26
REPORT OF THE AUDIT
COMMITTEE
The Company’s
management has the primary responsibility for the financial
statements and the reporting process, including the Company’s
system of internal controls and disclosure controls and procedures.
An independent registered public accounting firm has been engaged
to audit the Company’s financial statements and express an
opinion on the financial statements based on the audit. The Audit
Committee oversees (i) the Company’s accounting and financial
reporting processes and (ii) the audits of the financial statements
of the Company on behalf of the Board.
The Audit Committee has met
and held discussions with management and MaloneBailey LLP, the
Company’s independent registered public accounting firm.
Management represented to the Audit Committee that the
Company’s financial statements for the year ended December
31, 2016 were prepared in accordance with generally accepted
accounting principles. The Audit Committee discussed the financial
statements with both management and the independent auditors. The
Audit Committee also discussed with the independent auditors the
matters required to be discussed by Statement on Auditing Standards
No. 61, as amended (AICPA,
Professional
Standards
, Vol. 1, AU section 380).
The Audit Committee discussed with the independent auditors the
overall scope and plans for the audit. We met with the independent
auditors, with and without management, to discuss the results of
their examination, the evaluation of the Company’s internal
controls, and the overall quality of the Company’s financial
reporting.
The Audit Committee discussed with the independent auditors the
auditor’s independence from the Company and management,
including the independent auditors written disclosures required by
PCAOB Rule 3526 (File No. PCAOB-2008-03) (Independence Discussions
with Audit Committees).
Based on the foregoing, the Audit Committee has recommended to the
Board of Directors, and the Board approved, that the audited
financial statements be included in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2016, for
filing with the SEC.
This report is submitted by the Chairman of the Audit
Committee.
AUDIT COMMITTEE
Paul Oroian
Kent Siegel
Gene Scammahorn
March 7, 2017
The information
contained in this report shall not be deemed to be
“soliciting material” or to be “filed” with
the Securities and Exchange Commission, nor shall such information
be incorporated by reference into any future filing under the
Securities Act of 1933, as amended, or the Securities Exchange Act
of 1934, as amended, except to the extent that the Company
specifically incorporates it by reference in such
filing.
DIRECTOR
INDEPENDENCE
Of the 12 current members of our Board of Directors, seven (Messrs.
Furnace, Garb, Oroian, Druckman, Siegel, DeVore and Scammahorn)
meet the criteria of independence set by the NASDAQ Global Market
for membership on the board of a NASDAQ listed company
(“NASDAQ independence criteria”).
NASDAQ independence criteria provide, among other requirements,
that an independent director: (i) cannot be and, over the past
three years, cannot have been an officer or employee of the Company
and cannot be an immediate family member of such person; (ii)
cannot receive or, over the past three years, have an immediate
family member who receives or received from the Company more than
$120,000 in any consecutive twelve month period for services other
than as one of the Company’s directors (or, with respect to
an immediate family member, as a Company employee); (iii) cannot be
affiliated, or be an immediate family member of a person affiliated
with, any organization to which the Company made, or from which the
Company received payments (other than those arising solely from
investments in the Company’s securities or payments under
non-discretionary charitable contribution matching programs) that
exceed five percent of the organization’s consolidated gross
revenues for that year, or $200,000, whichever is more, in any of
the most recent three fiscal years.
SEC independence criteria, which govern members of and candidates
for service on the Audit Committee, provide that an
“independent” director cannot be one of the
Company’s officers or be in a position, directly or
indirectly, to control the Company’s management or policies
(other than in his position as a director). Neither can he or she
be, or be affiliated with, a paid consultant or provider of
services to the Company.
27
BOARD
RECOMMENDATIONS
PROPOSAL NO.
1
THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS A VOTE FOR THE PROPOSAL TO ELECT THE FOUR
CLASS III DIRECTORS THAT HAVE BEEN NOMINATED TO THE BOARD OF
DIRECTORS.
PROPOSAL NO.
2
APPROVE
AN ADDITIONAL NUMBER OF SHARES OF COMMON STOCK AVAILABLE UNDER THE 2011 EQUITY INCENTIVE PLAN.
At
the Annual Meeting, the stockholders will be asked to approve in the increase in the number of shares of our Common Stock available
for issuance under 2011 Equity Incentive Plan (the “Equity Incentive Plan”) by ten (10) million shares so that the
Company will have a total of 16 million shares of Common Stock authorized for issuance thereunder following (and subject to) approval
of this proposal.
The
Board believes that equity based awards are an important incentive for attracting, retaining and motivating employees and officers
through the opportunity of equity participation in the Company under the Company’s 2011 Equity Incentive Plan (the “Equity
Incentive Plan”), effective April 13, 2011. The Equity Incentive Plan is intended to enable the Company to continue to have
an adequate number of shares of Common Stock available for the grant of stock options to attract new employees, as well as retain
current employees. Although the Company cannot currently determine the number of options that may be granted in the future to
the executive officers and other employees of the Company, each of the executive officers and key employees of the Company has
an interest in the approval of the additional number of shares of Common Stock available for issuance in so far as they are eligible
recipients of options under the Equity Incentive Plan.
SUMMARY
OF THE TERMS OF THE EQUITY INCENTIVE PLAN
The
summary of the Equity Incentive Plan below is qualified in its entirety by the Equity Incentive Plan attached hereto as
Annex
A.
THE
EQUITY INCENTIVE PLAN ADMINISTRATION
The
Equity Incentive Plan is administered by the Board of Directors of the Company or, at the discretion of the Board, by a committee
composed of at least three members of the Board. The Compensation Committee of the Board, and the Board itself acting in its capacity
as administrator of the Equity Incentive Plan, is referred to herein as the “Committee.” The Committee is authorized,
among other things, to construe, interpret and implement the provisions of the Equity Incentive Plan, to select the key employees
to whom awards will be granted, to determine the terms and conditions of such awards and to make all other determinations deemed
necessary or advisable for the administration of the Equity Incentive Plan.
SHARES
AVAILABLE
The
aggregate number of shares of Common Stock that Company will be authorized to issue, subject to adjustment as described below,
under the Equity Incentive Plan will be 16 million.
If
any shares of Common Stock subject to an award are forfeited or an award is settled in cash or otherwise terminates for any reason
whatsoever without an actual distribution of shares, the shares subject to such award will again be available for awards. If any
performance units awarded under the Equity Incentive Plan are forfeited or canceled, the performance units will again be available
for awards. If the Committee determines that any stock dividend, recapitalization, split, reorganization, merger, consolidation,
combination, repurchase, or other similar corporate transaction or event, affects the Common Stock or the book value of the Company
such that an adjustment is appropriate in order to prevent dilution or enlargement of the rights of participants, then the Committee
shall adjust any or all of (i) the number and kind of shares of Common Stock which may thereafter be issued in connection with
awards, (ii) the number and kind of shares of Common Stock issuable in respect of outstanding awards, (iii) the aggregate number
and kind of shares of Common Stock available, (iv) the number of performance units which may thereafter be granted and the book
value of the Company with respect to outstanding performance
28
units,
and (v) the exercise price, grant price, or purchase price relating to any award. If deemed appropriate, the Committee may also
provide for cash payments relating to outstanding awards, provided, however, in each case that no adjustment shall be made which
would cause the plan to violate Section 422(b)(1) of the Internal Revenue Code of 1986, as amended (the “Code”) with
respect to ISOs (defined below) or would adversely affect the status of a Performance-Based Award (defined below) as “performance
based compensation” under Section 162(m) of the Code. The Committee may also adjust performance conditions and other terms
of awards in response to unusual or nonrecurring events or to changes in applicable laws, regulations, or accounting principles,
except to the extent that such adjustment would adversely affect the status of any outstanding Performance-Based Awards as “performance-based
compensation” under Section 162(m) of the Code.
ELIGIBILITY
Persons
eligible to participate in the Equity Incentive Plan include all key employees and consultants of the Company and its subsidiaries,
as determined by the Committee. While the specific individuals to whom awards will be made in the future cannot be determined
at this time, it is anticipated that currently 30 employees, directors, suppliers, advisors and consultants presently are eligible
for participation in the Equity Incentive Plan.
AWARDS
The
Equity Incentive Plan is designed to give the Committee the maximum flexibility in providing incentive compensation to key employees,
service providers and consultants. The Equity Incentive Plan provides for the grant of incentive stock options, nonqualified stock
options, stock appreciation rights, restricted stock, bonus stock, awards in lieu of cash obligations, other stock-based awards
and performance units. The Equity Incentive Plan also permits cash payments either as a separate award or as a supplement to a
stock-based award, and for the income and employment taxes imposed on a participant in respect of any award.
STOCK
OPTIONS AND STOCK APPRECIATION RIGHTS
The
Committee is authorized to grant stock options, including both incentive stock options (“ISOs”), which can result
in potentially favorable tax treatment to the participant, and nonqualified stock options. The Committee can also grant stock
appreciation rights (“SARs”) entitling the participant to receive the excess of the fair market value of a share of
Common Stock on the date of exercise over the grant price of the SAR. The exercise price per share of Common Stock subject to
an option and the grant price of an SAR are determined by the Committee, provided that the exercise price of an ISO or SAR may
not be less than the fair market value (110% of the fair market value in the case of an ISO granted to a 10% shareholder) of the
Common Stock on the date of grant. However, the 2011 Incentive Plan also allows the Committee to grant an option, an SAR or other
award allowing the purchase of Common Stock at an exercise price or grant price less than fair market value when it is granted
in substitution for some other award or retroactively in tandem with an outstanding award. In those cases, the exercise or grant
price may be the fair market value at that date, at the date of the earlier award or at that date reduced by the fair market value
of the award required to be surrendered as a condition to the receipt of the substitute award. The terms of each option or SAR,
the times at which each option or SAR will be exercisable, and provisions requiring forfeiture of unexercised options or SARs
and relating to exercisability or following termination of employment will be fixed by the Committee. However, no ISO or SAR granted
in tandem will have a term exceeding ten years (or shorter period applicable under Section 422 of the Code). Options may be exercised
by payment of the exercise price in cash or in Common Stock, outstanding awards or other property (including notes or obligations
to make payment on a deferred basis, or through “cashless exercises”) having a fair market value equal to the exercise
price, as the Committee may determine from time to time. The Committee also determines the methods of exercise and settlement
and certain other terms of the SARs.
RESTRICTED
STOCK
The
Equity Incentive Plan also authorizes the Committee to grant restricted stock. Restricted stock is an award of shares of Common
Stock which may not be disposed of by participants and which may be forfeited in the event of certain terminations of employment
or certain other events prior to the end of a restriction period established by the Committee. Such an award entitles the participant
to all of the rights of a stockholder of the Company, including the right to vote the shares and the right to receive any dividends
thereon, unless otherwise determined by the Committee.
29
OTHER
STOCK-BASED AWARDS, BONUS STOCK AND AWARDS IN LIEU OF CASH OBLIGATIONS
In
order to enable the Company to respond to business and economic developments and trends in executive compensation practices, the
Equity Incentive Plan authorizes the Committee to grant awards that are denominated or payable in, or valued in whole or in part
by reference to the value of, Common Stock. The Committee will determine the terms and conditions of such awards, including consideration
to be paid to exercise awards in the nature of purchase rights, the period during which awards will be outstanding and forfeiture
conditions and restrictions on awards. In addition, the Committee is authorized to grant shares as a bonus, free of restrictions,
or to grant shares or other awards in lieu of Company obligations to pay cash or deliver other property under other plans or compensatory
arrangements, subject to such terms as the Committee may specify.
CASH
PAYMENTS
The
Committee may grant the right to receive cash payments whether as a separate award or as a supplement to any stock-based awards.
Also, to encourage participants to retain awards payable in stock by providing a source of cash sufficient to pay the income and
employment taxes imposed as a result of a payment pursuant to, or the exercise or vesting of, any award, the Equity Incentive
Plan authorizes the Committee to grant a Tax Bonus in respect of any award.
PERFORMANCE
UNITS
The
Committee is also authorized to grant performance units. A performance unit is a right to receive a payment in cash equal to the
increase in the book value of the Company if specified performance goals during a specified time period are met. The Committee
has the discretion to establish the performance goals and the performance periods relating to each performance unit. A performance
goal is a goal expressed in terms of growth in book value, earnings per share, return on equity or any other financial or other
measurement selected by the Committee, in its discretion, and may relate to the operations of the Company as a whole or any subsidiary,
division or department, and the performance periods may be of such length as the Committee may select. Neither the performance
goals nor the performance periods need be identical for all performance units awarded at any time or from time to time.
PERFORMANCE-BASED
AWARDS
The
Committee may (but is not required to) grant awards pursuant to the Equity Incentive Plan to a participant who, in the year of
grant, may be among the Company’s Chief Executive Officer and the four other most highly compensated executive officers
(“Covered Employees”), which are intended to qualify as a Performance-Based Award. If the Committee grants an award
as a Performance-Based Award, the right to receive payment of such award, other than stock options and SARs granted at not less
than fair market value on the date of grant, will be conditional upon the achievement of performance goals established by the
Committee in writing at the time such Performance-Based Award is granted. Such performance goals may vary from participant to
participant and Performance-Based Award to Performance-Based Award. The goals will be based upon (i) the attainment of specific
amounts of, or increases in, one or more of the following, any of which may be measured either in absolute terms or as compared
to another company or companies: revenues, earnings, cash flow, net worth, book value, stockholder’s equity, financial return
ratios, market performance or total stockholder return, and/or (ii) the completion of certain business or capital transactions.
Before any Performance-Based Award is paid, the Committee will certify in writing that the performance goals applicable to the
Performance-Based Award were in fact satisfied.
OTHER
TERMS OF AWARDS
The
maximum amount which may be granted as Performance-Based Awards to any participant in any calendar year shall not exceed (i) 500,000 performance units, (ii) a Tax Bonus payable with respect to the stock based awards and Performance
Units and (iii) cash payments (other than Tax Bonuses) of $1,000,000. The Equity Incentive Plan grants the Committee broad discretion in the operation and administration of the Equity Incentive
Plan. This discretion includes the authority to make adjustments in the terms and conditions of, and the criteria included in
performance conditions related to, any awards in recognition of unusual or nonrecurring events affecting the Company or in response
to changes inapplicable laws, regulations or accounting principles. However, no such adjustment may adversely affect the status
of any outstanding award as a Performance-Based Award. The Committee can waive any condition applicable to any award, and may
adjust any performance condition specified in connection with any award, if such adjustment
30
is
necessary, to take account of a change in the Company’s strategy, performance of comparable companies or other circumstances.
However no adjustment may adversely affect the status of any outstanding award as a Performance-Based Award. Awards under the
Equity Incentive Plan generally will be granted for no consideration other than services. The Committee may, however, grant awards
alone, in addition to, in tandem with, or in substitution for, any other award under the Equity Incentive Plan, other awards under
other Company plans, or other rights to payment from the Company. Awards granted in addition to or in tandem with other awards
may be granted either at the same time or at different times. If an award is granted in substitution for another award, the participant
must surrender such other award in consideration for the grant of the new award.
CHANGE
OF CONTROL
In
the event of a change of control of the Company, all awards granted under the Equity Incentive Plan (including Performance-Based
Awards) that are outstanding and not yet vested or exercisable or which are subject to restrictions, will become immediately 100%
vested in each participant or will be free of any restrictions, and will be exercisable for the remaining duration of the award.
All awards that are exercisable as of the effective date of the change of control will remain exercisable for the remaining duration
of the award. Under the Equity Incentive Plan, a change of control occurs upon any of the following events: (i) the acquisition,
in one or more transactions, of beneficial ownership by any person or group, (other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or a subsidiary), of any securities of the Company such that, as a result
of such acquisition, such person or group, either (A) beneficially owns, directly or indirectly, more than 50% of the Company’s
outstanding voting securities entitled to vote on a regular basis for a majority of the members of the Board or (B) otherwise
has the ability to elect, directly or indirectly, a majority of the members of the Board; (ii) a change in the composition of
the Board such that a majority of the members of the Board are not Continuing Directors (as defined in the Equity Incentive Plan);
or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than
a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50%
of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or
an agreement for the sale or disposition by the Company, in one or more transactions, of all or substantially all the Company’s
assets. The foregoing events will not be deemed to be a change of control if a majority of the then current directors shall have
voted not to treat such transaction as resulting in a Change of Control.
AMENDMENT
AND TERMINATION
The
Equity Incentive Plan is of indefinite duration; continuing until all shares and performance units reserved therefore have been
issued or until terminated by the Board. The Board may amend, alter, suspend, discontinue, or terminate the Equity Incentive Plan
or the Committee’s authority to grant awards thereunder without further stockholder approval or the consent of the participants,
except stockholder approval must be obtained within one year after the effectiveness of such action if required by law or regulation
or under the rules of the securities exchange on which the Common Stock is then quoted or listed or as otherwise required by Rule
16b-3 under the Exchange Act. Notwithstanding the foregoing, unless approved by the stockholders, no amendment will: (i) change
the class of persons eligible to receive awards; (ii) materially increase the benefits accruing to participants under the Equity
Incentive Plan; or (iii) increase the number of shares of Common Stock subject to the Equity Incentive Plan.
CERTAIN
FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY AND THE PARTICIPANT
The
following discussion is a brief summary of the principal United States Federal income tax consequences under current Federal income
tax laws relating to awards under the Equity Incentive Plan. This summary is not intended to be exhaustive and, among other things,
does not describe state, local or foreign income and other tax consequences. A participant will not realize any income upon the
award of an option (including any other stock-based award in the nature of a purchase right), an SAR or a performance unit, nor
will the Company be entitled to any tax deduction. When a participant who has been granted an option which is not designated as
an ISO exercises that option and receives Common Stock which is either “transferable” or not subject to a “substantial
risk of forfeiture” under Section 83(c) of the Code, the participant will realize compensation income subject, in the case
of an employee, to withholding taxes. The amount of that compensation income will equal the excess of the fair market value
31
of
the Common Stock (without regard to any restrictions) on the date of exercise of the option over its exercise price, and the Company
will generally be entitled to a tax deduction in the same amount and at the same time as the compensation income is realized by
the participant. The participant’s tax basis for the Common Stock so acquired will equal the sum of the compensation income
realized and the exercise price. Upon any subsequent sale or exchange of the Common Stock, the gain or loss will generally be
taxed as a capital gain or loss and will be a long-term capital gain or loss if the Common Stock has been held for more than one
year after the date of exercise.
If
a participant exercises an option which is designated as an ISO and the participant has been an employee of the Company or its
subsidiaries throughout the period from the date of grant of the ISO until three months prior to its exercise, the participant
will not realize any income upon the exercise of the ISO (although alternative minimum tax liability may result), and the Company
will not be entitled to any tax deduction. If the participant sells or exchanges any of the shares acquired upon the exercise
of the ISO more than one year after the transfer of the shares to the participant and more than two years after the date of grant
of the ISO, any gain or loss (based upon the difference between the amount realized and the exercise price of the ISO) will be
treated as long-term capital gain or loss to the participant. If such sale, exchange or other disposition takes place within two
years of the grant of the ISO or within one year of the transfer of shares to the participant, the sale, exchange or other disposition
will generally constitute a “disqualifying disposition” of such shares. In such event, to the extent that the gain
realized on the disqualifying disposition does not exceed the difference between the fair market value of the shares at the time
of exercise of the ISO over the exercise price, such amount will be treated as compensation income in the year of the disqualifying
disposition, and the Company will be entitled to a deduction in the same amount and at the same time as the compensation income
is realized by the participant. The balance of the gain, if any, will be treated as capital gain and will not result in any deduction
by the Company.
With
respect to other awards (including an SAR or a performance unit) granted under the Equity Incentive Plan that may be settled either
in cash or in Common Stock or other property that is either transferable or not subject to a substantial risk of forfeiture under
Section 83(c) of the Code, the participant will realize compensation income (subject, in the case of employees) to withholding
taxes) equal to the amount of cash or the fair market value of the Common Stock or other property received. The Company will be
entitled to a deduction in the same amount and at the same time as the compensation income is realized by the participant.
With
respect to awards involving Common Stock or other property that is both nontransferable and subject to a substantial risk of forfeiture,
unless an election is made under Section 83(b) of the Code, as described below, the participant will realize compensation income
equal to the fair market value of the Common Stock or other property received at the first time the Common Stock or other property
is either transferable or not subject to a substantial risk of forfeiture. The Company will be entitled to a deduction in the
same amount and at the same time as the compensation income is realized by the participant. Even though Common Stock or other
property may be nontransferable and subject to a substantial risk of forfeiture, a participant may elect (within 30 days of receipt
of the Common Stock or other property) to include in gross income the fair market value (determined without regard to such restrictions)
of such Common Stock or other property at the time received. In that event, the participant will not realize any income at the
time the Common Stock or other property either becomes transferable or is not subject to a substantial risk of forfeiture, but
if the participant subsequently forfeits such Common Stock or other property, the participant’s loss would be limited only
to the amount actually paid for the Common Stock or other property. While such Common Stock or other property remains nontransferable
and subject to a substantial risk of forfeiture, any dividends or other income will be taxable as additional compensation income.
Finally, special rules may apply with respect to participants subject to Section 16(b) of the Exchange Act.
The
Committee may condition the payment, exercise or vesting of any award on the payment of the withholding taxes and may provide
that a portion of the Common Stock or other property to be distributed will be withheld (or previously acquired stock or other
property surrendered by the participant) to satisfy such withholding and other tax obligations. Finally, amounts paid pursuant
to an award which vests or becomes exercisable, or with respect to which restrictions lapse, upon a Change in Control may constitute
a “parachute payment” under Section 280G of the Code. To the extent any such payment constitutes an “excess
parachute payment,” the Company would not be entitled to deduct such payment and the participant would be subject to a 20
percent excise tax (in addition to regular income tax).
32
SECTION
162(M) PROVISIONS
The
Equity Incentive Plan was designed to permit the deduction by the Company of the compensation realized by certain officers in
respect of long-term incentive compensation granted under the Equity Incentive Plan which is intended by the Committee to qualify
as “performance-based compensation” under Section 162(m) of the Code. Section 162(m) of the Code generally disallows
a deduction to the Company for compensation paid in any year in excess of $1 million to any Covered Employee. Certain compensation,
including compensation that meets the specified requirements for “performance-based compensation,” is not subject
to this deduction limit. Among the requirements for compensation to qualify as “performance-based compensation” is
that the material terms pursuant to which the compensation is to be paid be disclosed to, and approved by, the stockholders of
the Company in a separate vote prior to the payment. Accordingly, because the Equity Incentive Plan has been approved by the Stockholders,
the compensation payable pursuant to awards granted to officers who in the year of grant may be Covered Employees and which are
intended by the Committee to qualify as “performance-based compensation” should not be subject to the deduction limit
of Section 162(m) of the Code, provided the Plan continues to be administered by a Committee consisting solely of two or more
“outside directors” and the other requirements of Section 162(m) of the Code are satisfied. Nonqualified stock options
granted with an option price less than the fair market value at the time of grant will not qualify as performance-based compensation.
Notwithstanding the foregoing, the Committee may, in the exercise of its discretion, issue stock option grants that would be subject
to the deductibility limit where it deems such issuance to be in the best interests of the Company and its stockholders.
NEW
PLAN BENEFITS
Because
awards under the Equity Incentive Plan are discretionary, the Company cannot currently determine the number of options that may
be granted under the Equity Incentive Plan, as amended.
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AN ADDITIONAL NUMBER OF SHARES
OF COMMON STOCK AVAILABLE UNDER THE 2011 EQUITY INCENTIVE PLAN BY 10,000,000 SHARES OF COMMON STOCK.
33
PROPOSAL NO.
3
APPROVE
AN ADDITIONAL NUMBER OF SHARES OF COMMON STOCK AVAILABLE
UNDER THE 2011 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN.
At
the Annual Meeting, the stockholders will be asked to approve in the increase in the number of shares of our Common Stock available
for issuance under 2011 Non-Employee Directors’ Stock Option Plan (the “Directors’ Plan”) by four (4)
million shares so that the Company will be authorized to issue a total of 7 million shares of Common Stock thereunder following
(and subject to) approval of this proposal.
The
Board believes that equity based awards are an important incentive for attracting and retaining on the Company’s Board the
service of individuals who are not otherwise employed by the Company or any subsidiary or branch under the Directors’ Plan
and terminating June 20, 2021. The availability of an additional 4,000,000 shares of Common Stock will provide that flexibility
over the life of the Directors’ Plan to respond to business and economic developments and trends in board compensation packages
and to attract and retain qualified non-employee directors.
Although
the Company cannot currently determine the number of options that may be granted in the future to non-employee directors of the
Company, each of the non-employee directors of the Company has an interest in the approval of the amendment to the Directors Plan
in so far as they are eligible recipients of options under the plan.
SUMMARY
OF THE 2011 DIRECTORS PLAN
The
summary of the principal terms of the Directors Plan below is qualified in its entirety by the Directors Plan attached hereto
as
Annex B
The
Directors Plan is administered by the Board or, if so determined by the Board, by a committee consisting solely of three or more
non-employee directors of the Company. The body administrating the Directors Plan is referred to herein as the “Administrative
Body”. The Administrative Body is authorized to construe, interpret and implement the provisions of the Directors Plan,
to select the non-employee directors to whom awards will be granted, to determine the amount, terms and conditions of such awards
and to make all other determinations deemed necessary or advisable for the administration of the Directors Plan. The shares available
for grant under the Directors Plan may be authorized and unissued shares or treasury shares. If any shares of Common Stock subject
to an award are forfeited or the award otherwise terminates for any reason whatsoever without an actual distribution of shares,
the shares subject to such award will again be available for awards. Only directors not employed by the Company or any of its
subsidiaries are eligible to participate in the Directors Plan.
Under
the Directors Plan, the Administrative Body may issue only non-qualified options. Each option granted under the Directors Plan
will, unless earlier terminated as provided in the Directors Plan, expire six years from the date of grant. If a non-employee
director ceases to serve as a director of the Company, options issued to such a director under the Directors Plan will:
(i)
in the case of removal for cause, terminate immediately;
(ii)
in the case of death or disability, terminate two years after the date on which such director ceased to serve; and
(iii)
in all other the cases (including failure to be re-nominated or reelected), terminate 24 months after such director ceased
to serve.
The
exercise price of each option will be the fair market value of the Common Stock on the date of the grant of the option. The number
of options and prices at which they are exercisable are subject to adjustment in the case of certain transactions such as mergers,
recapitalizations, stock splits or stock dividends. The Directors Plan continues in effect through June 20, 2021. The Board may
amend, alter, suspend, discontinue, or terminate the Directors Plan. Notwithstanding the foregoing, any such amendment, alteration,
suspension, discontinuation or termination shall be subject to the approval of the Company’s stockholders if such approval
is required by any applicable law or regulation or any applicable stock exchange rule. Additionally, without the consent of the
an affected non-employee director, no amendment, alteration, suspension, discontinuation or termination of the Directors Plan
may materially, adversely affect the rights of such non-employee director under any option theretofore granted.
34
FEDERAL
TAX CONSEQUENCES
Set
forth below is a description of the federal income tax consequences under the Code, of the grant and exercise of the benefits
awarded under the Directors Plan. This description does not purport to be a complete description of the federal income tax aspects
of the Directors Plan. The summary does not include any discussion of state, local or foreign income tax consequences or the effect
of gift, estate or inheritance taxes, any of which may be significant to a particular director eligible to receive options.
A
director to whom an option is granted under the Directors Plan will not recognize any taxable income upon the grant of an option.
Upon the exercise of such option, an optionee will generally recognize ordinary compensation income equal to the difference between
the exercise price of the option and the fair market value of the Common Stock acquired on the date of grant. The tax basis of
such Common Stock to the optionee will equal the amount includable in the optionee’s income as compensation, and the optionee’s
holding period for such Common Stock will commence on the day on which the optionee recognizes the compensation income in respect
of such Common Stock. Any additional gain or any loss recognized on the subsequent disposition of the shares of Common Stock will
be a capital gain or loss and will be a long-term gain or loss if the shares are held for more than one year. Generally, the Company
will be entitled to a tax deduction upon the exercise of an option under the Directors Plan at the same time and in the same amount
as the ordinary income recognized by the optionee, if any.
NEW
PLAN BENEFITS
Because
awards under the Directors Plan are discretionary, the Company cannot currently determine the number of options that may be granted
under the Directors Plan.
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AN ADDITIONAL NUMBER OF SHARES
OF COMMON STOCK AVAILABLE UNDER THE 2011 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN OF 4,000,000 SHARES OF COMMON STOCK.
35
PROPOSAL
NO. 4
ADVISORY VOTE ON
EXECUTIVE COMPENSATION
The Board recognizes that executive compensation is an important
matter for our stockholders. As described elsewhere in this Proxy
Statement, the Compensation Committee is tasked with the
implementation of our executive compensation philosophy.
In particular, the Compensation Committee strives to attract,
retain and motivate exceptional executives, to reward past
performance measured against established goals and provide
incentives for future performance, and to align executives’
long-term interests with the interests of our stockholders. To do
this, the Compensation Committee uses a combination of short- and
long-term incentive compensation to reward near-term excellent
performance and to encourage executives’ commitment to our
long-range, strategic business goals. It is always the intention of
the Compensation Committee that our executive officers be
compensated competitively and consistently with our strategy, sound
corporate governance principles, and stockholder interests and
concerns.
We
believe our compensation program is effective, appropriate and strongly aligned with the long-term interests of our stockholders
and that the total compensation package provided to the Named Executive Officers (including potential payouts upon a termination
or change of control) is reasonable and not excessive. As you consider this Proposal No. 4 we urge you to read the more detailed
information about our compensation philosophy and objectives and to review the tabular disclosures regarding Named Executive Officer
compensation together with the accompanying narrative disclosures in the “Executive Compensation Overview” section
of this Proxy Statement.
The vote on this resolution is not intended to address any specific
element of compensation; rather, the vote relates to the
compensation of our Named Executive Officers as disclosed in this
Proxy Statement in accordance with the SEC’s compensation
disclosure rules. The vote is advisory, which means that it is not
binding on the Company or our Board or the Compensation Committee
of our Board.
This proposal will be approved on an advisory basis if it receives
the affirmative vote of a majority of the shares present or
represented and entitled to vote either in person or by proxy. As
noted earlier in this Proxy Statement, broker non-votes will not
affect the outcome of this proposal, and abstentions will be
equivalent to a vote against this proposal.
Accordingly, we ask our stockholders to vote on the following
resolution at our Annual Meeting:
“RESOLVED, that the Company’s stockholders approve, on
an advisory basis, the compensation of the Named Executive
Officers, as disclosed in the Company’s Proxy Statement for
the 2017 Annual Meeting of Stockholders pursuant to the
compensation disclosure rules of the Securities and Exchange
Commission, including the 2016 Summary Compensation Table and the
other related tables and disclosure.”
Although the vote is non-binding, our Board will take into account
the outcome of the vote when making future decisions about the
Company’s executive compensation policies and procedures.
During the Annual Meeting of stockholders on June 9, 2014, the
stockholders voted for a “Three Years” on the proposal
recommending the frequency of Advisory Votes on Executive
Compensation. For every Six years, the Company will allow
stockholders to vote on whether to hold “say on pay”
every one, two or three years in the future. Therefore, the
Frequency of the Advisory Vote on Executive Compensation will be in
the Proxy Statement for the 2020 year. The Company’s
stockholders also have the opportunity to provide additional
feedback on important matters involving executive compensation even
in years when advisory votes do not occur. For example,
stockholders can communicate with the Board through our website at
www.zionoil.com/investor-center/corporate-governance
.
Stockholders may communicate with the Board by sending written
communications to the Board of Directors, care of Mr. Paul Oroian,
Lead Independent Director, Zion Oil & Gas, Inc., 12655 North
Central Expressway, Suite 1000, Dallas, Texas 75243 (See page 26
for further instructions for written communications to the Board of
Directors).
BOARD
RECOMMENDATION
THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE “FOR”
THE APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS,
AS DISCLOSED IN THIS PROXY STATEMENT.
36
PROPOSAL
NO. 5
RATIFICATION OF THE
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
MaloneBailey, LLP (“MaloneBailey”), an independent
registered public accounting firm, was the auditor for the year
ended December 31, 2016 and has been selected as the independent
auditor for the year ending December 31, 2017. Although stockholder
ratification is not required for the appointment of MaloneBailey,
since the Audit Committee has the responsibility for appointing the
Company’s independent auditors, the appointment is being
submitted for ratification with a view toward soliciting the
stockholders’ opinions, which the Audit Committee will take
into consideration in the future.
It is expected that a representative of MaloneBailey will be
available to respond to appropriate questions from stockholders
present at the annual meeting.
Principal Accountant
Fees and Services
The following table sets forth the fees for services provided by
Malone Bailey and KPMG Somekh Chaikin (“SC”) relating
to the fiscal years ended December 31, 2016 and December 31,
2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audit Fees
(1)
|
|
$
|
39,000
|
|
$
|
63,000
|
|
$
|
39,000
|
|
$
|
57,000
|
Audit-Related Fees
(2)
|
|
|
—
|
|
$
|
5,552
|
|
$
|
|
|
|
4,550
|
Tax Fees
(3)
|
|
$
|
7,500
|
|
|
—
|
|
$
|
8,800
|
|
|
—
|
All Other Fees
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
Total
|
|
$
|
46,500
|
|
$
|
68,552
|
|
$
|
47,800
|
|
$
|
61,550
|
Policy on Pre-Approval
of Services
Our Audit Committee considers and pre-approves any audit and
non-audit engagement or relationship between the Company and any
independent accountant. The Audit Committee has delegated to the
Chairman of the Audit Committee the authority to pre-approve all
audit or non-audit services to be provided by an independent
accountant if presented to the full Audit Committee at its next
meeting. In accordance with these procedures, the engagement of
MaloneBailey to conduct the audit of our 2017 financial statements
was pre-approved by the Chairman of our Audit Committee and
approved by the Audit Committee.
BOARD
RECOMMENDATION
THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT
OF MALONEBAILEY, LLP AS THE COMPANY’S INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDED DECEMBER 31, 2017.
PROXIES RECEIVED IN RESPONSE TO THIS SOLICITATION WILL BE VOTED FOR
THE APPOINTMENT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM UNLESS OTHERWISE SPECIFIED IN THE PROXY.
37
OTHER MATTERS
At the Annual Meeting, management does not intend to present any
matters other than matters referred to herein, and as of this date
management does not know of any matter that will be presented for a
vote at said Meeting.
STOCKHOLDER
PROPOSALS
Under the rules of the SEC, stockholder proposals intended to be
presented at the Company’s 2018 Annual Meeting of
Stockholders in accordance with Rule 14a-8 promulgated under the
Exchange Act must be made in accordance with the bylaws of the
Company and received by the Company, at its principal executive
offices, to be eligible for inclusion in the Company’s proxy
statement for that meeting, no later than December 31, 2017. The
proposal must otherwise comply with all requirements of the SEC for
stockholder proposals. Appropriate stockholder proposals submitted
outside of Rule 14a-8 must be pursuant to our bylaws and policies.
The Board will review any stockholder proposals that are filed as
required and will determine whether such proposals meet applicable
criteria for inclusion in its 2018 proxy statement.
SOLICITATION OF
PROXIES
The Company will pay the cost of the solicitation of proxies.
Solicitation of proxies may be made in person or by mail,
telephone, or telecopy by directors, officers, and employees of the
Company. The Company may also engage the services of others to
solicit proxies in person or by telephone or telecopy. In addition,
the Company may also request banking institutions, brokerage firms,
custodians, nominees, and fiduciaries to forward solicitation
material to the beneficial owners of Common Stock held of record by
such persons, and the Company will reimburse such persons for the
costs related to such services.
It is important that your shares be represented at the Annual
Meeting. If you are unable to be present in person, you may vote by
telephone or via the Internet. If you have received a paper copy of
the proxy card by mail you may also sign, date and return the proxy
card promptly in the enclosed postage-prepaid envelope.
“HOUSEHOLDING”
OF PROXY MATERIALS
The SEC has adopted rules
that permit companies and intermediaries such as brokers to satisfy
delivery requirements for proxy statements and related notices with
respect to two or more stockholders sharing the same address by
delivering a single proxy statement or notice addressed to those
stockholders. This process, which is commonly referred to as
“householding,” potentially provides extra convenience
for stockholders and cost savings for companies. The Company and
some brokers household proxy materials, delivering a single proxy
statement or notice to multiple stockholders sharing an address
unless contrary instructions have been received from one or more of
the affected stockholders. Once you have received notice from your
broker or us that they or we will be householding materials to your
address, householding will continue until you are notified
otherwise or until you instruct us to the contrary. If, at any
time, you no longer wish to participate in householding and would
prefer to receive a separate proxy statement and related notices,
or if you are receiving multiple copies of the proxy statement and
related notices and wish to receive only one, please notify your
broker if your shares are held in a brokerage account or us if you
hold registered shares. You may notify us by sending a written
request to Investor Relations, Zion Oil & Gas, Inc., 12655
North Central Expressway, Suite 1000, Dallas, Texas 75243 or by
calling us at (214) 221-4610.
The Company undertakes to deliver promptly, upon written or oral
request, a separate copy of the Annual Report on Form 10-K for the
year ended December 31, 2016, the Proxy Statement and the Notice of
Annual Meeting of Stockholders and related notices to a stockholder
at a shared address to which a single copy of such documents was
delivered. Stockholders may make such request in writing, directed
to Investor Relations, Zion Oil & Gas, Inc., 12655 North
Central Expressway, Suite 1000, Dallas, Texas 75243 or by calling
us at (214) 221-4610.
By
Order of the Board of Directors
|
|
|
|
|
|
/s/ VICTOR G. CARRILLO
|
|
|
Victor G. Carrillo
|
|
|
Chief Executive Officer
|
|
|
|
|
|
April 14, 2017
|
|
|
38
ANNEX
A
ZION
OIL & GAS INC.
2011
EQUITY INCENTIVE PLAN
Section
1
.
Purpose of the Plan
The
purpose of the Zion Oil & Gas Inc. Equity Incentive Plan, including Appendix I attached hereto (the
“Plan”
)
is to further the interests of Zion Oil & Gas Inc. (the
“Company”
) and its shareholders by providing long-term
performance incentives to those key employees and consultants and Service Providers of the Company and its Subsidiaries who are
largely responsible for the management, growth and protection of the business of the Company and its Subsidiaries.
Section
2
.
Definitions
For
purposes of the Plan, the following terms shall be defined as set forth below:
(a)
“Applicable Laws” means the requirement relating to the administration of employee stock option plans under
the laws of the United States of America and of the State of Israel, any stock exchange or quotation system on which the shares
shall be listed or quoted and the applicable laws of any country or jurisdiction where Options are granted under the Plan.
(b)
“Award” means any Option, Performance Unit, SAR (including a Limited SAR), Restricted Stock, Stock granted
as a bonus or in lieu of other awards, other Stock-Based Award, Tax Bonus or other cash payments granted to a Participant under
the Plan.
(c)
“Award Agreement” shall mean the written agreement, instrument or document evidencing an Award.
(d)
Cause” — shall mean (i) the willful failure by the Participant to perform substantially the Participant’s
duties (other than due to physical or mental illness) after reasonable notice to the Participant of such failure, (ii) the Participant’s
engaging in serious misconduct that is injurious to the Company or any Subsidiary, (iii) the Participant’s having been convicted
of, or entered a plea of nolo contendere to, a crime that constitutes a felony, or (iv) breach of a fiduciary duty, or (v) the
breach by the Participant of any written covenant or agreement not to compete, in each case with respect to the Company or any
Subsidiary, regarding confidentiality of information of the Company or any Subsidiary or nonsolicitation or hiring of employees
of the Company or any Subsidiary, or (vi) any other act or omission which in the reasonable opinion of the Company could be financially
injurious to the Company or any Subsidiary, their reputation or business including but not limited to any other breach of Participant’s
employment agreement with the Group.
(e)
“Change of Control” means and includes each of the following: (i) the acquisition, in one or more transactions,
of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) by any person or entity or any group of persons
or entities who constitute a group (within the meaning of Section 13(d)(3) of the Exchange Act), other than a trustee or other
fiduciary holding securities under an employee benefit plan of the Company or a Subsidiary, of any securities of the Company such
that, as a result of such acquisition, such person, entity or group either (A) beneficially owns (within the meaning of Rule 13d-3
under the Exchange Act), directly or indirectly, more than 50% of the Company’s outstanding voting securities entitled to
vote on a regular basis for a majority of the members of the Board of Directors of the Company or (B) otherwise has the ability
to elect, directly or indirectly, a majority of the members of the Board; (ii) a change in the composition of the Board of Directors
of the Company such that a majority of the members of the Board of Directors of the Company are not Continuing Directors; or (iii)
the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger
or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50%
of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation, or the stockholders of the Company
A-1
approve
a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one or more transactions)
all or substantially all of the Company’s assets.
Notwithstanding
the foregoing, the preceding events shall not be deemed to be a Change of Control if, prior to any transaction or transactions
causing such change, a majority of the Continuing Directors shall have voted not to treat such transaction or transactions as
resulting in a Change of Control.
(f)
“Code” means the Internal Revenue Code of 1986, as amended from time to time.
(g)
A “Continuing Director” means, as of any date of determination, any member of the Board of Directors of the
Company who (i) was a member of such Board on the effective date of the Plan or (ii) was nominated for election or elected to
such Board with the affirmative vote of a majority of the Continuing Directors who were members of such Board at the time of such
nomination or election.
(h)
“Date of Grant” — subject to Applicable Laws, is the date on which the Committee grants the Award.
(i)
“Eligible Employee” — shall mean each Executive Officer and any other employee or consultant of the Company
or its Subsidiaries, but shall not include Directors who are not employees of any such entity.
(j)
“Employment” shall mean, continuous and regular salaried employment with the Company or a Subsidiary, which
shall include (unless the Committee shall otherwise determine) any period of vacation, any approved leave of absence or any salary
continuation or severance pay period and, at the discretion of the Committee, may include service with any former Subsidiary of
the Company.
(k)
“Executive Officer” — shall mean those persons who are officers of the Company within the meaning of
Rule l6a-1(f) of the Exchange Act.
(1)
“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time.
(m)
“Fair Market Value” means, with respect to Stock, Awards, or other property, the fair market value of such
Stock, Awards, or other property determined by such methods or procedures as shall be established from time to time by the Committee
in good faith and in accordance with applicable law. Unless otherwise determined by the Committee, the Fair Market Value of Stock
shall mean the mean of the high and low sales prices of Stock on the relevant date as reported on the stock exchange or market
on which the Stock is primarily traded, or if no sale is made on such date, then the Fair Market Value is the weighted average
of the mean of the high and low sales prices of the Stock on the next preceding day and the next succeeding day on which such
sales were made, as reported on the stock exchange or market on which the Stock is primarily traded. Notwithstanding the foregoing,
(i) in the case of any Award made on the date of the initial public offering of the Company’s Common Stock, “Fair
Market Value” on such date shall be the price at which the Company’s Common Stock is sold to the public in such initial
public offering and (ii) in the case of any Award made prior to the date of the initial public offering of the Company’s
Common Stock, “Fair Market Value” on such date shall be as determined in good faith by the Board.
(n)
“Group” shall mean the Company’s group of companies including, inter alia, its Parent or Subsidiary or
any other affiliate or successor company as the Board shall determine.
(o)
“ISO” means any Option designated as an incentive stock option within the meaning of Section 422 of the Code.
(p)
“Limited SAR” means an SAR exercisable only for cash upon a Change of Control or other event, as specified
by the Committee.
(q)
“Option” means a right granted to a Participant pursuant to Section 6(b) to purchase Stock at a specified price
during specified time periods. An Option may be either an ISO or a nonstatutory Option (an Option not designated as an ISO).
(r)
“Performance Unit” means a right granted to a Participant pursuant to Section 6(c) to receive a payment in
cash equal to the increase in the book value of the Company during specified time periods if specified performance goals are met.
A-2
(s)
“Participants” means key employees and consultants who will receive Awards pursuant to the Plan.
(t)
“Restricted Stock” means Stock awarded to a Participant pursuant to Section 6(d) that may be subject to certain
restrictions and to a risk of forfeiture.
(u)
“Service Provider” — means an employee, Director, supplier, advisor or Consultant of the Company, provided,
however, that a consultant or advisor must be an individual who is providing or will be providing bona fide services to the Company,
with such services (1) not being in connection with the offer or sale of securities in a capital-raising transaction, and (2)
not directly or indirectly promoting or maintaining a market for securities of the Company.
(v)
“Stock-Based Award” — means a right that may be denominated or payable in, or valued in whole or in part
by reference to the market value of, Stock, including, but not limited to, any Option, SAR (including a Limited SAR), Restricted
Stock, Stock granted as a bonus or Awards in lieu of cash obligations.
(w)
“SAR” or “Stock Appreciation Right” means the right granted to a Participant pursuant to Section
6(e) to be paid an amount measured by the appreciation in the Fair Market Value of Stock from the Date of Grant to the date of
exercise of the right, with payment to be made in cash, Stock or as specified in the Award, as determined by the Committee.
(x)
“Subsidiary” shall mean any corporation, partnership, joint venture or other business entity of which 50% or
more of the outstanding voting power is beneficially owned, directly or indirectly, by the Company.
(y)
“Tax Bonus” means a payment in cash in the year in which an amount is included in the gross income of a Participant
in respect of an Award of an amount equal to the federal, foreign, if any, and applicable state and local income and employment
tax liabilities payable by the Participant as a result of (i) the amount included in gross income in respect of the Award and
(ii) the payment of the amount in clause (i) and the amount in this clause (ii). For purposes of determining the amount to be
paid to the Participant pursuant to the preceding sentence, the Participant shall be deemed to pay, according to any applicable
laws, income taxes at the highest marginal rate of tax imposed upon ordinary income for the year in which an amount in respect
of the Award is included in gross income, after giving effect to any deductions therefrom or credits available with respect to
the payment of any such taxes.
(z)
“Ten Percent Stockholder” means a person who owns shares possessing more than ten percent (10%) of the total
combined voting power of all classes of shares of the Company or of any of its Subsidiaries immediately before such Option is
granted.
Section
3
.
Administration of the Plan
The
Plan shall be administered by the Board of Directors of the Company or, at the discretion of the Board, by a committee composed
of at least two non employee members of the Board. Any such committee designated by the Board, and the Board itself acting in
its capacity as administrator of the Equity Incentive Plan, is referred to herein as the “Committee.” After any such
designation, no member of the Committee while serving as such shall be eligible for participation in the Plan. Any action of the
Committee in administering the Plan shall be final, conclusive and binding on all persons, including the Company, its Subsidiaries,
employees, Participants, persons claiming rights from or through Participants and stockholders of the Company.
Subject
to the provisions of the Plan, the Committee shall have full and final authority in its discretion:
(a)
to select the Participants;
(b)
to determine the type or types of Awards to be granted to each Participant;
(c)
to determine the number of shares of Stock to which an Award will relate, the terms and conditions of any Award granted
under the Plan (including, but not limited to, restrictions as to transferability or forfeiture, exercisability or settlement
of an Award and waivers or accelerations thereof, and waivers of or modifications to performance conditions relating to an Award,
based in each case on such considerations as the Committee shall determine) and all other matters to be determined in connection
with an Award;
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(d)
to determine whether, to what extent, and under what circumstances an Award may be settled, or the exercise price of an
Award may be paid, in cash, Stock, other Awards or other property, or an Award may be canceled, forfeited, or surrendered;
(e)
to determine whether, and to certify that, performance goals to which the settlement of an Award is subject are satisfied;
(1)
to correct any defect or supply any omission or reconcile any inconsistency in the Plan, and to adopt, amend and rescind
such rules and regulations as, in its opinion, may be advisable in the administration of the Plan; and
(g)
to make all other determinations as it may deem necessary or advisable for the administration of the Plan. The Committee
may delegate to officers or managers of the Company or any Subsidiary or to unaffiliated Service Providers the authority, subject
to such terms as the Committee shall determine, to perform administrative functions and to perform such other functions as the
Committee may detemine, to the extent permitted under Applicable Laws.
Section
4
.
Participation in the Plan
Participants
in the Plan shall be selected by the Committee from among the key employees and consultants of the Company and its Subsidiaries,
provided, however, that only key employees shall be eligible to receive ISOs under the Plan.
Section
5
.
Plan Limitations; Shares Subject to the Plan
(a)
Subject to the provisions of Section 8(a) hereof, the aggregate number of shares of common stock, $0.01 par value, of the
Company (the “Stock”) available for issuance as Awards under the Plan shall not exceed 16,000,000 shares.
(b)
Subject to the provisions of Section 8(a) hereof, the aggregate number of Performance Units which may be awarded under
the Plan shall not exceed 500,000. If any Performance Units awarded under the Plan shall be forfeited or canceled, such Performance
Units shall thereafter be available for award under the Plan.
(c)
Subject to the provisions of Section 8(a) hereof, of the aggregate number of Options of the Company available as per Section
5(a) a maximum number of Shares in respect of which ISO can be awarded hereunder shall be 16,000,000. If any Options awarded under
the Plan shall be forfeited or canceled, such Options thereafter be available for award under the Plan.
No
Award may be granted if the number of shares to which such Award relates, when added to the number of shares previously issued
under the Plan and the number of shares which may then be acquired pursuant to other outstanding, unexercised Awards, exceeds
the number of shares available for issuance pursuant to the Plan. If any shares subject to an Award are forfeited or such Award
is settled in cash or otherwise terminates for any reason whatsoever without an actual distribution of shares to the Participant,
any shares counted against the number of shares available for issuance pursuant to the Plan with respect to such Award shall,
to the extent of any such forfeiture, settlement, or termination, again be available for Awards under the Plan; provided, however,
that the Committee may adopt procedures for the counting of shares relating to any Award to ensure appropriate counting, avoid
double counting, and provide for adjustments in any case in which the number of shares actually distributed differs from the number
of shares previously counted in connection with such Award.
(d)
To the extent required by Section 162(m) of the Code (as amended from time to time), the reprising of an Option shall be
treated as the grant of a new option and the cancellation of the reprised Option.
Section
6
.
Awards
(a)
General. Awards may be granted on the terms and conditions set forth in this Section 6. In addition, the Committee may
impose on any Award or the exercise thereof, at the Date of Grant or thereafter (subject to Section 8(a)), such additional terms
and conditions, not inconsistent with the provisions of
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the
Plan, as the Committee shall determine, including terms requiring forfeiture of Awards in the event of termination of employment
by the Participant; provided, however, that the Committee shall retain full power to accelerate or waive any such additional term
or condition as it may have previously imposed. All Awards shall be evidenced by a relevant Award Agreement.
(b)
Options. The Committee may grant Options to Participants on the following terms and conditions:
(i)
The Incentive Stock Option price per share of Stock shall be set in the Award Agreement, but shall not be less than one
hundred percent (100%) of the Fair Market Value of the Stock at the time of the Option Grant Date.
The
aggregate Fair Market Value, determined as of the Option Grant Date, of the shares of Stock with respect to which Incentive Stock
Options are exercisable for the first time during any calendar year by any Eligible Participant shall not exceed one hundred thousand
dollars ($100,000); provided, however, to the extent permitted under Section 422 of the Code:
if
a Participant’s employment is terminated by reason of death, Disability or Retirement and the portion of any Incentive Stock
Option that is otherwise exercisable during the post-termination period applied without regard to the one hundred thousand dollar
($100,000) limitation contained in Section 422 of the Code is greater than the portion of such option that is immediately exercisable
as an Incentive Stock Option during such post-termination period under Section 422, such excess shall be treated as a Nonqualified
Stock Option; and
if
the exercise of an Incentive Stock Option is accelerated by reason of an Acceleration Event, any portion of such Award that is
not exercisable as an Incentive Stock Option by reason of the one hundred thousand dollar ($100,000) limitation contained in Section
422 of the Code shall be treated as a Nonqualified Stock Option.
Incentive
Stock Options shall be granted only to an Eligible Participant who, at the time of the Option Grant Date, does not own Stock possessing
more than 10% of the total combined voting power of all classes of stock of the Company; provided, however, the foregoing restriction
shall not apply if at the time of the Option Grant Date the option price is at least one hundred ten percent (110%) of the Fair
Market Value of the Stock subject to the Incentive Stock Option and such Incentive Stock Option by its terms is not exercisable
after the expiration of five (5) years from the Option Grant Date.
The
Committee may adopt any other terms and conditions which it determines should be imposed for the Incentive Stock Option to qualify
under Section 422 of the Code, as well as any other terms and conditions not inconsistent with this Article IV as determined by
the Committee.
The
Committee may at any time offer to buy out for a payment in cash, Stock, Deferred Stock or Restricted Stock an Incentive Stock
Option previously granted, based on such terms and conditions as the Committee shall establish and communicate to the Participant
at the time that such offer is made.
If
the Incentive Stock Option Award Agreement so provides, the Committee may require that all or part of the shares of Stock to be
issued upon the exercise of an Incentive Stock Option shall take the form of Deferred or Restricted Stock, which shall be valued
on the date of exercise, as determined by the Committee, on the basis of the Fair Market Value of such Deferred Stock or Restricted
Stock determined without regard to the deferral limitations and/or forfeiture restrictions involved.
(ii)
Time and Method of Exercise. The Committee shall determine the time or times at which an Option may be exercised in whole
or in part, whether the exercise price shall be paid in cash or by the surrender at Fair Market Value of Stock, or by any combination
of cash and shares of Stock, including, without limitation, cash, Stock, other Awards, or other property (including notes or other
contractual obligations of Participants to make payment on a deferred basis, such as through “cashless exercise” arrangements,
to the extent permitted by applicable laws), and the methods by which Stock will be delivered or deemed to be delivered to Participants.
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(iii)
Incentive Stock Options. The terms of any Option granted under the Plan as an ISO shall comply in all respects with the
provisions of Section 422 of the Code, including, but not limited to, the requirement that no ISO shall be granted more than ten
years after the effective date of the Plan.
(c)
Performance Units. The Committee is authorized to grant Performance Units to Participants on the following terms and conditions:
(i)
Performance Criteria and Period. At the time it makes an award of Performance Units, the Committee shall establish both
the performance goal or goals and the performance period or periods applicable to the Performance Units so awarded. A performance
goal shall be a goal, expressed in terms of growth in book value, earnings per share, return on equity or any other financial
or other measurement deemed appropriate by the Committee, or may relate to the results of operations or other measurable progress
of either the Company as a whole or the Participant’s Subsidiary, division or department. The performance period will be
the period of time over which one or more of the performance goals must be achieved, which may be of such length as the Committee,
in its discretion, shall select. Neither the performance goals nor the performance periods need be identical for all Performance
Units awarded at any time or from time to time. The Committee shall have the authority, in its discretion, to accelerate the time
at which any performance period will expire or waive or modify the performance goals of any Participant or Participants. The Committee
may also make such adjustments, to the extent it deems appropriate, to the performance goals for any Performance Units awarded
to compensate for, or to reflect, any material changes which may have occurred in accounting practices, tax laws, other laws or
regulations, the financial structure of the Company, acquisitions or dispositions of business or Subsidiaries or any unusual circumstances
outside of management’s control which, in the sole judgment of the Committee, alters or affects the computation of such
performance goals or the performance of the Company or any relevant Subsidiary, division or department.
(ii)
Value of Performance Units. The value of each Performance Unit at any time shall equal the book value per share of the
Company’s Stock, as such value appears on the consolidated balance sheet of the Company as of the end of the fiscal quarter
immediately preceding the date of valuation.
(d)
Restricted Stock. The Committee is authorized to grant Restricted Stock to Participants on the following terms and conditions:
(i)
Restricted Period. Restricted Stock awarded to a Participant shall be subject to such restrictions on transferability and
other restrictions for such periods as shall be established by the Committee, in its discretion, at the time of such Award, which
restrictions may lapse separately or in combination at such times, under such circumstances, or otherwise, as the Committee may
determine.
(ii)
Forfeiture. Restricted Stock shall be forfeitable to the Company upon termination of employment during the applicable restricted
periods. The Committee, in its discretion, whether in an Award Agreement or anytime after an Award is made, may accelerate the
time at which restrictions or forfeiture conditions will lapse or remove any such restrictions, including upon death, disability
or retirement, whenever the Committee determines that such action is in the best interests of the Company.
(iii)
Certificates for Stock. Restricted Stock granted under the Plan may be evidenced in such manner as the Committee shall
determine. If certificates representing Restricted Stock are registered in the name of the Participant, such certificates may
bear an appropriate legend referring to the terms, conditions and restrictions applicable to such Restricted Stock.
(iv)
Rights as a Shareholder. Subject to the terms and conditions of the Award Agreement, the Participant shall have all the
rights of a stockholder with respect to shares of Restricted Stock awarded to him or her, including, without limitation, the right
to vote such shares and the right to receive all dividends or other distributions made with respect to such shares. If any such
dividends or distributions are paid in Stock, the Stock shall be subject to restrictions and a risk of forfeiture to the same
extent as the Restricted Stock with respect to which the Stock has been distributed.
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(e)
Stock Appreciation Rights. The Committee is authorized to grant SARs to Participants on the following terms and conditions:
(i)
Right to Payment. An SAR shall confer on the Participant to whom it is granted a right to receive, upon exercise thereof,
the excess of (A) the Fair Market Value of one share of Stock on the date of exercise over (B) the grant price of the SAR as determined
by the Committee as of the Date of Grant of the SAR, which grant price (except as provided in Section 7(a)) shall not be less
than the Fair Market Value of one share of Stock on the Date of Grant.
(ii)
Other Terms. The Committee shall determine the time or times at which an SAR may be exercised in whole or in part, the
method of exercise, method of settlement, form of consideration payable in settlement, method by which Stock will be delivered
or deemed to be delivered to Participants, whether or not an SAR shall be in tandem with any other Award, and any other terms
and conditions of any SAR. Limited SARs may be granted on such terms, not inconsistent with this Section 6(e), as the Committee
may determine. Limited SARs may be either freestanding or in tandem with other Awards.
(f)
Bonus Stock and Awards in Lieu of Cash Obligations. The Committee is authorized to grant Stock as a bonus, or to grant
Stock or other Awards in lieu of Company or Subsidiary obligations to pay cash or deliver other property under other plans or
compensatory arrangements; provided that, in the case of Participants subject to Section 16 of the Exchange Act, such cash amounts
are determined under such other plans in a manner that complies with applicable requirements of Rule 16b-3 so that the acquisition
of Stock or Awards hereunder shall be exempt from Section 16(b) liability. Stock or Awards granted hereunder shall be subject
to such other terms as shall be determined by the Committee.
(g)
Other Stock-Based Awards. The Committee is authorized, subject to limitations under applicable law, to grant to Participants
such other Stock-Based Awards in addition to those provided in Sections 6(b) and (d) through (e) hereof, as deemed by the Committee
to be consistent with the purposes of the Plan. The Committee shall determine the terms and conditions of such Awards. Stock delivered
pursuant to an Award in the nature of a purchase right granted under this Section 6(g) shall be purchased for such consideration
and paid for at such times, by such methods, and in such forms, including, without limitation, cash, Stock, other Awards, or other
property, as the Committee shall determine.
(i)
Cash Payments. The Committee is authorized, subject to limitations under any applicable laws, to grant to Participants
Tax Bonuses and other cash payments, whether awarded separately or as a supplement to any Stock-Based Award. The Committee shall
determine the terms and conditions of such Awards.
Section
7
.
Additional Provisions Applicable to Awards
(a)
Stand-Alone, Additional, Tandem, and Substitute Awards. Awards granted under the Plan may, in the discretion of the Committee,
be granted either alone or
in
addition to, in tandem with, or in substitution for, any other Award granted under
the Plan or any award granted under any other plan of the Company or any Subsidiary, or any business entity acquired by the Company
or any Subsidiary, or any other right of a Participant to receive payment from the Company or any Subsidiary. If an Award is granted
in substitution for another Award or award, the Committee shall require the surrender of such other Award or award in consideration
for the grant of the new Award. Awards granted in addition to, or in tandem with other Awards or awards may be granted either
as of the same time as, or a different time from, the grant of such other Awards or awards. The per share exercise price of any
Option, grant price of any SAR, or purchase price of any other Award conferring a right to purchase Stock:
(i)
granted in substitution for an outstanding Award or award, shall be not less than the lesser of (A) the Fair Market Value
of a share of Stock at the date such substitute Award is granted or (B) such Fair Market Value at that date, reduced to reflect
the Fair Market Value at that date of the Award or award required to be surrendered by the Participant as a condition to receipt
of the substitute Award; or
(ii)
retroactively granted in tandem with an outstanding Award or award, shall not be less than the lesser of the Fair Market
Value of a share of Stock at the Date of Grant of the later Award or at the Date of Grant of the earlier Award or award.
A-7
(b)
Exchange and Buy Out Provisions. The Committee may at any time offer to exchange or buy out any previously granted Award
for a payment in cash, Stock, other Awards (subject to Section 7(a)), or other property based on such terms and conditions as
the Committee shall determine and communicate to a Participant at the time that such offer is made.
(c)
Performance Conditions. The right of a Participant to exercise or receive a grant or settlement of any Award, and the timing
thereof, may be subject to such performance conditions as may be specified by the Committee.
(d)
Term of Awards. If not previously exercised each Option shall expire upon the earlier of the tenth (10
th
)
anniversary of the date of the grant thereof or (subject to section 9) upon the termination of the Participant’s Employment
(or, if applicable, on the day following the last day on which such Option is exercisable), provided that (i) the Committee may
establish a shorter term for an Option at the time of the grant of such Option and (ii) in the case of an ISO issued to a Participant
who owns stock in the Company possessing more than 10% of the total combined voting power of all classes of stock of the Company,
such Incentive Stock Option shall expire on the fifth (5th) anniversary of the Date of Grant. For purposes of the preceding sentence,
a person’s stock ownership will be determined using the constructive ownership rules contained in Code Section 424(d), as
amended from time to time.
(e)
Form of Payment. Subject to the terms of the Plan and any applicable Award Agreement, payments or transfers to be made
by the Company or a Subsidiary upon the grant or exercise of an Award may be made in such forms as the Committee shall determine,
including, without limitation, cash, Stock, other Awards, or other property (and may be made in a single payment or transfer,
in installments, or on a deferred basis), in each case determined in accordance with rules adopted by, and at the discretion of,
the Committee. (Such payments may include, without limitation, provisions for the payment or crediting of reasonable interest
on installments or deferred payments.) The Committee, in its discretion, may accelerate any payment or transfer upon a change
in control as defined by the Committee. The Committee may also authorize payment upon the exercise of an Option by net issuance
or other cashless exercise methods.
(f)
Loan Provisions. With the consent of the Committee, and subject at all times to laws and regulations and other binding
obligations or provisions applicable to the Company, the Company may make, guarantee, or arrange for a loan or loans to a Participant
with respect to the exercise of any Option or other payment in connection with any Award, including the payment by a Participant
of any or all federal, state, or local income or other taxes due in connection with any Award. Subject to such limitations, the
Committee shall have full authority to decide whether to make a loan or loans hereunder and to determine the amount, terms, and
provisions of any such loan or loans, including the interest rate to be charged in respect of any such loan or loans, whether
the loan or loans are to be with or without recourse against the borrower, the terms on which the loan is to be repaid and the
conditions, if any, under which the loan or loans may be forgiven.
(g)
Awards to Comply with Section 162(m) of the Code. The Committee may (but is not required to) grant an Award pursuant to
the Plan to a Participant who, in the year of grant, may be a “covered employee,” within the meaning of Section 162(m)
of the Code, which is intended to qualify as “performance-based compensation” under Section 162(m) of the Code (a
“Performance-Based Award”). The right to receive a Performance-Based Award, other than Options and SARs granted at
not less than Fair Market Value, shall be conditional upon the achievement of performance goals established by the Committee in
writing at the time such Performance-Based Award is granted. Such performance goals, which may vary from Participant to Participant
and Performance-Based Award to Performance-Based Award, shall be based upon the attainment by the Company or any Subsidiary, division
or department of specific amounts of, or increases in, one or more of the following, any of which may be measured either in absolute
terms or as compared to another company or companies: revenues, earnings, cash flow, net worth, book value, stockholders’
equity, financial return ratios, market performance or total stockholder return, and/or the completion of certain business or
capital transactions. Before any compensation pursuant to a Performance-Based Award is paid, the Committee shall certify in writing
that the performance goals applicable to the Performance-Based Award were in fact satisfied.
A-8
The
maximum amount which may be granted as Performance-Based Awards to any Participant in any calendar year shall not exceed (i) Stock-Based
Awards for 500,000 shares of Stock (whether payable in cash or stock), subject to adjustment as provided in Section 8(a) hereof,
(ii) 500,000 Performance Units, (iii) a Tax Bonus payable with respect to the Stock-Based Awards described in clause (i) and Performance
Units described in clause (ii), and (iv) cash payments (other than Tax Bonuses) of $1,000,000.
(h)
Change of Control. In the event of a Change of Control of the Company, all Awards granted under the Plan (including Performance-Based
Awards) that are still outstanding and not yet vested or exercisable or which are subject to restrictions shall become immediately
100% vested in each Participant or shall be free of any restrictions, as of the first date that the definition of Change of Control
has been fulfilled, and shall be exercisable for the remaining duration of the Award. All Awards that are exercisable as of the
effective date of the Change of Control will remain exercisable for the remaining duration of the Award.
Section
8
.
Adjustments upon Changes in Capitalization; Acceleration in Certain Events
(a)
In the event that the Committee shall determine that any stock dividend, recapitalization, forward split or reverse split,
reorganization, merger, consolidation, spin-off, combination, repurchase or share exchange, or other similar corporate transaction
or event, affects the Stock or the book value of the Company such that an adjustment is appropriate in order to prevent dilution
or enlargement of the rights of Participants under the Plan, then the Committee shall, in such manner as it may deem equitable,
adjust any or all of (i) the number and kind of shares of Stock which may thereafter be issued in connection with Awards, (ii)
the number and kind of shares of Stock issuable in respect of outstanding Awards, (iii) the aggregate number and kind of shares
of Stock available under the Plan, (iv) the number of Performance Units which may thereafter be granted and the book value of
the Company with respect to outstanding Performance Units, and (v) the exercise price, grant price, or purchase price relating
to any Award or, if deemed appropriate, make provision for a cash payment with respect to any outstanding Award; provided, however,
in each case, that no adjustment shall be made which would cause the Plan to violate Section 422(b)(1) of the Code with respect
to ISOs or would adversely affect the status of a Performance-Based Award as “performance-based compensation” under
Section 162(m) of the Code.
(b)
In addition, the Committee is authorized to make adjustments in the terms and conditions of, and the criteria included
in, Awards in recognition of unusual or nonrecurring events (including, without limitation, events described in the preceding
paragraph) affecting the Company or any Subsidiary, or in response to changes in applicable laws, regulations, or accounting principles.
Notwithstanding the foregoing, no adjustment shall be made in any outstanding Performance-Based Awards to the extent that such
adjustment would adversely affect the status of that Performance-Based Award as “performance-based compensation” under
Section 162(m) of the Code.
Section
9
.
Termination of Employment
Unless
the Committee shall otherwise determine at or after grant, in the event of termination of Participant’s employment with
the Company or any Subsidiary other than for Cause, disability or death, or if applicable, the termination of services given by
the Participant to the Company or the subsidiary other than for Cause, Disability or Death, all Options granted to that Participant,
which are vested and exercisable at the time of such termination, may, unless earlier terminated in accordance with the provisions
of the Plan or the Option Agreement, be exercised within three (3) months after the date of such termination. If, on the date
of termination, the Shares subject to the Option have not vested in their entirety, any Shares covered by the unvested portion
of the Option shall expire and be of no further force and effect and revert to the Plan. If the vested portion of the Option is
not so exercised within the time specified herein, such vested portion of the Option shall expire and be of no further force and
effect, and the Shares covered by such Option shall revert to the Plan.
In
the event of termination of Participant’s employment with the Company, or if applicable, the termination of services given
by the Participant to the Company by reason of death or total and permanent Disability (within the meaning of Section 22(e)(3)
of the Code), or Retirement, the outstanding Options, which were vested on the date of termination, may be exercised by the Participant,
the Participant’s legal guardian, the Participant’s estate or a person who acquires the right to exercise the
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Option
by bequest or inheritance, as the case may be, within twelve (12) months after termination (but in no event later than the expiration
of the term of such Option as set forth in the Award Agreement). If, on the date of termination, there are Options which are not
entirely vested, the Shares covered by the unvested portion of the Options shall revert to the Plan. If the Option is not so exercised
within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
If
a Participant’s employment is terminated for Cause, all Options held by the Participant shall immediately terminate, regardless
of whether then exercisable, unless otherwise determined by the Committee.
In
the event of a Participant’s termination of Employment for any reason not described in the preceding sentences, the Participant
(or, in the event of the Participant’s death or disability during the period during which an Option is exercisable under
this sentence, the Participant’s beneficiary or legal representative) may exercise any Option which was exercisable at the
time of such termination for 90 days (or such greater or lesser period as the Committee shall specify at or after the grant of
such Option.
Section
10
.
General Provisions
(a)
Changes to the Plan and Awards. The Board of Directors of the Company may amend, alter, suspend, discontinue, or terminate
the Plan or the Committee’s authority to grant Awards under the Plan without the consent of the Company’s stockholders
or Participants, except that any such amendment, alteration, suspension, discontinuation, or termination shall be subject to the
approval of the Company’s stockholders within one year after such Board action if such stockholder approval is required
by any federal or state law or regulation or the rules of any stock exchange or automated quotation system on which the Stock
may then be listed or quoted, and the Board may otherwise, in its discretion, determine to submit other such changes to the Plan
to the stockholders for approval; provided, however, that without the consent of an affected Participant, no amendment, alteration,
suspension, discontinuation, or termination of the Plan may materially and adversely affect the rights of such Participant under
any Award theretofore granted and any Award Agreement relating thereto. The Committee may waive any conditions or rights under,
or amend, alter, suspend, discontinue, or terminate, any Award theretofore granted and any Award Agreement relating thereto; provided,
however, that without the consent of an affected Participant, no such amendment, alteration, suspension, discontinuation, or termination
of any Award may materially and adversely affect the rights of such Participant under such Award.
The
foregoing notwithstanding, any performance condition specified in connection with an Award shall not be deemed a fixed contractual
term, but shall remain subject to adjustment by the Committee, in its discretion at any time in view of the Committee’s
assessment of the Company’s strategy, performance of comparable companies, and other circumstances, except to the extent
that any such adjustment to a performance condition would adversely affect the status of a Performance-Based Award as “performance-based
compensation” under Section 162(m) of the Code.
No
amendment will: (i) change the class of persons eligible to receive Awards; (ii) materially increase the benefits accruing to
Participants under the Plan, or (iii) increase the number of shares of Stock or the number of Performance Units subject to the
Plan.
(b)
No Right to Award or Employment. No employee or other person shall have any claim or right to receive an Award under the
Plan. Neither the Plan nor any action taken hereunder shall be construed as giving any employee any right to be retained in the
employ of the Company or any Subsidiary.
(c)
Tax Consequences. Any tax consequences arising from the grant or exercise of any Award or from the disposition of Shares
or from any other event or act (whether of the Participant or of the Company) hereunder, shall be borne solely by the Participant.
The Company shall withhold taxes according to the requirements under the Applicable Laws, rules, and regulations, including withholding
taxes at source. Furthermore, such Participant shall agree to indemnify the Company that employs the Participant and/or the Company’s
Stockholders and/or directors and/or officers if applicable, and hold them harmless against and from any and all liability for
any such tax or interest or penalty thereon, including without
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limitation,
liabilities relating to the necessity to withhold, or to have withheld, any such tax from any payment made to the Participant.
Except as otherwise required by law, the Company shall not be obligated to honor the exercise of any Option by or on behalf of
an Participant until all tax consequences (if any) arising from the exercise of such Options are resolved in a manner reasonably
acceptable to the Company.
(d)
Limits on Transferability; Beneficiaries. No Award or other right or interest of a Participant under the Plan shall be
pledged, encumbered, or hypothecated to, or in favor of, or subject to any lien, obligation, or liability of such Participants
to, any party, other than the Company or any Subsidiary, or assigned or transferred by such Participant otherwise than by will
or the laws of descent and distribution, and such Awards and rights shall be exercisable during the lifetime of the Participant
only by the Participant or his or her guardian or legal representative. Notwithstanding the foregoing, the Committee may, in its
discretion, provide that Awards or other rights or interests of a Participant granted pursuant to the Plan (other than an ISO)
be transferable, without consideration, to immediate family members (i.e., children, grandchildren or spouse), to trusts for the
benefit of such immediate family members and to partnerships in which such family members are the only partners. The Committee
may attach to such transferability feature such terms and conditions as it deems advisable. In addition, a Participant may, in
the manner established by the Committee, designate a beneficiary (which may be a person or a trust) to exercise the rights of
the Participant, and to receive any distribution, with respect to any Award upon the death of the Participant. A beneficiary,
guardian, legal representative or other person claiming any rights under the Plan from or through any Participant shall be subject
to all terms and conditions of the Plan and any Award Agreement applicable to such Participant, except as otherwise determined
by the Committee, and to any additional restrictions deemed necessary or appropriate by the Committee.
(e)
No Rights to Awards; No Stockholder Rights. No Participant shall have any claim to be granted any Award under the Plan,
and there is no obligation for uniformity of treatment of Participants. No Award shall confer on any Participant any of the rights
of a stockholder of the Company unless and until Stock is duly issued or transferred to the Participant in accordance with the
terms of the Award.
(f)
Discretion. In exercising, or declining to exercise, any grant of authority or discretion hereunder, the Committee may
consider or ignore such factors or circumstances and may accord such weight to such factors and circumstances as the Committee
alone and in its sole judgment deems appropriate and without regard to the affect such exercise, or declining to exercise such
grant of authority or discretion, would have upon the affected Participant, any other Participant, any employee, the Company,
any Subsidiary, any stockholder or any other person.
(g)
Governing Law. The Plan and all instruments issued there under or in connection therewith, shall be governed by, construed,
enforced and interpreted in accordance with, the laws of the State of Delaware.
(h)
Non-Exclusivity of the Plan
The
adoption of the Plan by the Board shall not be construed as amending, modifying or rescinding any previously approved incentive
arrangements or as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem
desirable, including, without limitation, the granting of Options otherwise then under the Plan, and such arrangements may be
either applicable generally or only in specific cases.
For
the avoidance of doubt, prior grants of options to Participants of the Company under their employment agreements, and not in the
framework of any previous option plan, shall not be deemed an approved incentive arrangement for the purpose of this Plan.
(i)
Inability to Obtain Authority
The
inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s
counsel to be necessary to the lawful issuance of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.
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(j)
Multiple Agreements
The
terms of each Option may differ from other Options granted to each Participant under the Plan at the same time. The Committee
may also grant more than one Option to a given Participant during the term of the Plan, either in addition to, or in substitution
for, one or more Options previously granted to that Participant.
(k)
Disputes
Any
dispute or disagreement which may arise under or as a result of or pursuant to this Plan or the Options Agreements shall be determined
by the Board in its sole discretion and any interpretation made by the Board of the terms of the Plan or the Option Agreements
shall be final, binding and conclusive.
(l)
Effective Date. The effective date of the Plan is April 13, 2011.
(m)
Adoption of the Plan and Effective Date. The Plan shall be adopted by the requisite vote of the stockholders of the Company
and shall be effective as of such date.
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ANNEX
B
Zion
Oil & Gas Inc.
2011 NON-EMPLOYEE DIRECTORS
STOCK OPTION PLAN
1.
Purpose. The Zion Oil & Gas Inc. 2011 Non-Employee Directors Stock Option Plan (the “Plan”) is designed to aid
Zion Oil & Gas Inc., a Delaware corporation (the “Company”), in retaining and attracting non-employee directors
(directors who are not employees of the Company or of any corporation, partnership, joint venture or other business entity of
which fifty percent (50%) or more of the outstanding voting power is beneficially owned, directly or indirectly, by the Company)
of exceptional ability by enabling such non-employee directors to purchase a proprietary interest in the Company, thereby stimulating
in such individuals an increased desire to render greater services that will contribute to the continued growth and success of
the Company.
2.
Amount and Source of Stock. The total number of shares of the Company’s common stock, $.01 par value per share (the “Stock”),
which may be the subject of options granted pursuant to the Plan shall not exceed 7,000,000, subject to adjustment as provided
in paragraph 10. Such Stock may be reserved or made available from the Company’s authorized and unissued Stock or from Stock
reacquired and held in the Company’s treasury. In the event that any option granted hereunder shall terminate prior to its
exercise in full for any reason, then the Stock subject to such option shall be added to the Stock otherwise available for issuance
pursuant to the exercise of options under the Plan.
3.
Administration of the Plan. The Plan shall be administered by the Board of Directors of the Company (the “Board”)
or, if determined by the Board, a committee selected by the Board and comprised solely of two or more members of the Board, who
are “Non-Employee Directors” as that term is defined in Rule 16b-3(b)(3) (or any successor provision) promulgated
under the Securities Exchange Act of 1934, as amended. The corporate body administering the Plan is hereinafter referred to as
the “Administrative Body.” The Administrative Body shall have all the powers vested in it by the terms of the Plan.
Such powers include the authority to select the participants who will receive options under the Plan, to prescribe the form of
the individual option agreements, to grant options under the Plan, to fix the vesting and other terms of each option grant, to
construe the Plan, to determine all questions arising thereunder, and to adopt and amend such rules and regulations for the administration
of the Plan as it may deem desirable. Any decisions of the Administrative Body in the administration of the Plan shall be final
and conclusive.
4.
Option Grants.
(a)
Each non-employee director shall be eligible to receive grants of options at such time or times and for such number of shares
of Stock as the Administrative Body, in its discretion, shall determine. The date on which an option is granted under this subparagraph
to a specified individual shall constitute the date of grant of such option (the “Date of Grant”).
(b)
The terms relating to the vesting of the option shall be fixed by the Administrative Body at the time of the grant of the option.
5.
Option Price. The exercise price of the Stock purchasable under any option granted pursuant to the Plan shall be equal to the
Fair Market Value of a share of Stock on the Date of Grant. For purposes of the Plan, the “Fair Market Value” of a
share of Stock shall mean (i) if the Stock is traded on a national securities exchange, the per share closing price of the Stock
on the principal securities exchange on which they are listed n the Date of Grant (or if there is no closing price for such Date
of Grant, then the last preceding business day on which there was a closing price); or (ii) if the Stock is traded on the over-the-counter
market but bid quotations are not published on NASDAQ, the closing bid price per share for the Stock as furnished by a broker-dealer
which regularly furnishes price quotations for the Stock; or (iii) if the Stock is not traded on a securities exchange or the
over-the-counter market, the valuation accorded to each share of Stock by the Administrative Body.
6.
Term of Option.
(a)
Unless earlier terminated pursuant to the other provisions herein, the option hereby granted shall terminate at the close of business
on the date six (6) years from the Date of Grant (the “Expiration Date”).
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(b)
If the non-employee director is removed as a director of the Company for cause (as determined in accordance with applicable law)
by the stockholders of the Company, the unexercised portion of the option will terminate simultaneously with the non-employee
director’s removal as a director.
(c)
If a non-employee director ceases to be a director of the Company on account of his or her death or disability, then the option
may be exercised at any time prior to the earlier of the Expiration Date and twenty four (24) months after the date that the non-employee
director ceases to be a director of the Company, and any part of the option which is not so exercised within such period shall
thereupon terminate.
(d)
If a non-employee director ceases to be a director of the Company for any reason (other than cause, death or disability), then
the option may be exercised at any time prior to the earlier of the Expiration Date and twenty four (24) months after the date
that the non-employee director ceases to be a director of the Company, and any part of the option which is not so exercised within
such period shall thereupon terminate.
(e)
No option granted hereunder shall be exercisable unless and until the non-employee director has entered into an individual option
agreement with the Company that shall set forth the terms and conditions of such option. Each such agreement shall expressly incorporate
by reference the provisions of this Plan (a copy of which shall be made available for inspection by the optionee during normal
business hours at the principal office of the Company), and shall state that in the event of any inconsistency between the provisions
hereof and the provisions of such agreement, the provisions of this Plan shall govern.
7.
Exercise of Options. An option shall be exercised when written notice of such exercise, signed by the person entitled to exercise
the option, has been delivered or transmitted by registered or certified mail to the Secretary (or such other officer as is specified
in the individual option agreement) of the Company at its then principal office. Such notice shall specify the number of shares
of Stock for which the option is being exercised and shall be accompanied by (i) such documentation, if any, as may be required
by the Company as provided in subparagraph 11(b), and (ii) payment of the aggregate option price. The Administrative Body shall
determine whether the exercise price for an option shall be paid in cash, by the surrender at Fair Market Value of Stock (held
for at least six (6) months), by any combination of cash and shares of Stock, including, without limitation, cash, Stock or other
property (including notes or other contractual obligations of non-employee directors to make payment on a deferred basis), the
means or methods of payment, including through “cashless exercise” arrangements, to the extent permitted by applicable
law, and the methods by which, or the time or times at which, Stock will be delivered or deemed to be delivered to non-employee
directors upon the exercise of such option. Delivery of such notice shall constitute an irrevocable election to purchase the Stock
specified in such notice, and the date on which the Company receives the last of such notice, documentation and the aggregate
option exercise price for all of the Stock covered by the notice shall, subject to the provisions of paragraph 11 hereof, be the
date as of which the Stock so purchased shall be deemed to have been issued. The person entitled to exercise the option shall
not have the right or status as a holder of the Stock to which such exercise relates prior to receipt by the Company of the payment,
notice and documentation expressly referred to in this paragraph 7.
8.
Right of the Company to Terminate Services of a Non-Employee Director. Nothing contained herein or in any individual option agreement
shall be construed to confer on any non-employee director any right to continue as a director of the Company or derogate from
any right of the Company, the Board or the stockholders of the Company to remove or not renominate such non-employee director
as a director of the Company, with or without cause.
9.
Non-transferability of Options. No option granted under the Plan shall be pledged, encumbered, or hypothecated to, or in favor
of, or subject to any lien, obligation, or liability of such non-employee director to, any party, other than the Company, or assigned
or transferred by such non-employee director otherwise than by will or the laws of descent and distribution, and such option shall
be exercisable during the lifetime of the non-employee director only by the non-employee director or his or her guardian or legal
representative. Notwithstanding the foregoing, the Administrative Body may, in its discretion, provide that an option of a non-employee
director granted pursuant to the Plan be transferable, without consideration, to immediate family members (i.e., children, grandchildren
or spouse), to trusts for the benefit of such immediate family members and to partnerships in which such family members are the
only partners. The Administrative Body may attach to such transferability feature such terms and conditions as it deems advisable.
In addition, a non-employee director may, in the manner established by the Administrative Body, designate a beneficiary (which
may be a person or a trust) to exercise the rights of the non-employee director, and to receive any distribution, with respect
to any option upon the death of
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the
non-employee director. A beneficiary, guardian, legal representative or other person claiming any rights under the Plan from or
through any non-employee director shall be subject to all terms and conditions of the Plan and any individual option agreement
applicable to such non-employee director, except as otherwise determined by the Administrative Body, and to any additional restrictions
deemed necessary or appropriate by the Administrative Body.
10.
Adjustments Upon Certain Events. In the event that the Administrative Body shall determine that any stock dividend, recapitalization,
forward split or reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase or share exchange, or
other similar corporate transaction or event, affects the Stock such that an adjustment is appropriate in order to prevent dilution
or enlargement of the rights of non-employee directors under the Plan, then the Administrative Body shall, in such manner as it
may deem equitable, adjust any or all of (i) the number and kind of shares of Stock that may thereafter be issued in connection
with options, (ii) the number and kind of shares of Stock issuable in respect of outstanding options, (iii) the aggregate number
and kind of shares of Stock available under the Plan, and (iv) the exercise price, grant price, or purchase price relating to
any option or, if deemed appropriate, make provision for a cash payment with respect to any outstanding option.
11.
General Restrictions.
(a)
No option granted hereunder shall be exercisable if the Company shall at any time determine that (i) the listing upon any securities
exchange, registration or qualification under any state or federal law of any Stock otherwise deliverable upon such exercise,
or (ii) the consent or approval of any regulatory body or the satisfaction of withholding tax or other withholding liabilities,
is necessary or appropriate in connection with such exercise. In any of the events referred to in clause (i) or clause (ii) above,
the exercisability of such options shall be suspended and shall not be effective unless and until such withholding, listing, registration,
qualifications or approval shall have been effected or obtained free of any conditions not acceptable to the Company in its sole
discretion, notwithstanding any termination of any option or any portion of any option during the period when exercisability has
been suspended.
(b)
The Administrative Body may require, as a condition to the right to exercise an option, that the Company receive from the non-employee
director holding the option, at the time of any such exercise, representations, warranties and agreements to the effect that the
Stock is being purchased by the non-employee director for investment only and without any present intention to sell or otherwise
distribute such Stock and that the non-employee director will not dispose of such Stock in transactions which, in the opinion
of counsel to the Company, would violate the registration provisions of the Securities Act of 1933, as then amended, and the rules
and regulations thereunder. The certificates issued to evidence such Stock shall bear appropriate legends summarizing such restrictions
on the disposition thereof.
12.
Changes to the Plan.
(a)
The Board may amend, alter, suspend, discontinue, or terminate the Plan or the Administrative Body’s authority to grant
options under the Plan without the consent of the Company’s stockholders or non-employee directors, except that any such
amendment, alteration, suspension, discontinuation, or termination shall be subject to the approval of the Company’s stockholders
within one year after such Board action if such stockholder approval is required by any Federal or state law or regulation or
the rules of any stock exchange or automated quotation system on which the Stock may then be listed or quoted, and the Board may
otherwise, in its discretion, determine to submit other such changes to the Plan to the stockholders for approval; provided, however,
that without the consent of an affected non-employee director, no amendment, alteration, suspension, discontinuation, or termination
of the Plan may materially and adversely affect the rights of such non-employee director under any option theretofore granted
and any individual option agreement relating thereto. Subject to applicable law, the Administrative Body may waive any conditions
or rights under, or amend, alter, suspend, discontinue, or terminate, any option theretofore granted and any individual option
agreement relating thereto; provided, however, that without the consent of an affected non-employee director, no such amendment,
alteration, suspension, discontinuation, or termination of any option may materially and adversely affect the rights of such non-employee
director under such option.
(b)
The Board may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any option in the manner and
to the extent it shall deem desirable to carry the Plan into effect.
13.
Termination. Unless the Plan shall theretofore have been terminated, the Plan shall terminate on June 20, 2021, and no options
under the Plan shall thereafter be granted.
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14.
Fractional Shares. The Company will not be required to issue any fractional shares of Stock pursuant to the Plan. The Administrative
Body may provide for the elimination of fractions and for the settlement of fractions in cash.
15.
Discretion. In exercising, or declining to exercise, any grant of authority or discretion hereunder, the Administrative Body may
consider or ignore such factors or circumstances and may accord such weight to such factors and circumstances as the Administrative
Body alone and in its sole judgment deems appropriate and without regard to the effect such exercise, or declining to exercise
such grant of authority or discretion, would have upon the affected non-employee director, any other non-employee director, any
employee, the Company, any stockholder or any other person.
16.
Adoption of the Plan and Effective Date. The Plan shall be adopted by the requisite vote of the stockholders of the Company and
shall be effective as of such date.
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