FILED
PURSUANT TO RULE 424(b)(3)
REGISTRATION
NO. 333-148982
Zion
Oil & Gas, Inc.
Units
of securities of Zion Oil & Gas, Inc. consisting of (i) one Share of Common
Stock, par value $.01 per Share and (ii)
one Common
Stock Purchase Warrant to purchase one Share of Common Stock at $7.00 per Share
Stock Purchase Warrant to purchase one Share of Common Stock at $7.00 per Share
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Minimum
325,000 Units
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Maximum
2,500,000 Units
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Zion
Oil
& Gas, Inc. is offering (the "Offering") a minimum of 325,000 "Units", on a
"best efforts, all or none" basis (the "Minimum Offering"), and an additional
2,175,000 Units on a "best efforts" basis, for a maximum of 2,500,000 Units
(the
"Maximum Offering"), at $10.00 per Unit for aggregate gross proceeds to us
of
$3,250 thousand and $25,000 thousand, respectively. Each Unit consists of (i)
one share of common stock, par value $.01 per share and (ii) one warrant (the
"Unit Warrant") to purchase one share of common stock at a per share exercise
price equal to $7.00. The Units will commence trading following the initial
closing of this offering and continue to be tradable until the 30th day after
the Termination Date (as defined below), at which time the shares and the Unit
Warrant will separate and trade separately and the Unit as such will cease
to
exist. The Unit Warrants will first become exercisable on the 31 st
day
following the Termination Date and continue to be exercisable through January
31, 2012. This offering is being made through Brockington Securities, Inc.
(the
"Underwriter") and other broker/dealers (arranged by the Underwriter) who are
members of the Financial Industry Regulatory Authority (FINRA). The compensation
to the Underwriter and other broker/dealers (collectively, the "Placement
Agents") will consist of a commission of 5% and a non-accountable expense
allowance of 3%.
This
offering is a "best efforts minimum/maximum offering." The Placement Agents
are
not required to place any firm orders or purchase any of the Units, but have
agreed to use their best efforts to market the Units on our behalf. We cannot
sell any of the Units until we have received and accepted subscriptions (using
the tear-out form in the back of this prospectus) and payment for a minimum
of
325,000 Units ( $
3,250
thousand). We may accept or reject subscriptions in our sole discretion. We
and
the Placement Agents will deposit all payments in an escrow account at Sterling
Trust Company, with whom we have signed an escrow agreement. If we do not accept
an investor's subscription, we will return such investor's funds promptly,
with
any interest earned, without deduction. If we do not receive acceptable
subscriptions and payment for the minimum number of units on or before a date
(the "Minimum Date") which is 90 days following the date of this prospectus
(which may, in our discretion, be extended by us for up to an additional 60
days), we will terminate the offering and promptly refund the money raised
with
any interest earned, without deduction. If the minimum is received on or before
the Minimum Date, we will schedule an initial closing date, notify the investors
of that date, and complete the initial sale of all subscriptions and funds
received prior to the initial closing date by transferring the funds out of
the
escrow account and promptly issuing the Units to the investors. After the
initial closing, deposits on account of subscriptions will continue to be
deposited into the escrow account until a date (the "Termination Date") which
is
the earlier
of (i)
180 days following the date of this prospectus (which may, in our sole
discretion, be extended by us for up to 60 days without notice to investors),
(ii) the date on which a total 2,500,000 Units have been subscribed and
accepted, and (iii) such date as announced by us on no less than two trading
days prior notice. A final closing will be scheduled promptly following the
Termination Date. There may be one or more interim closings between the initial
and the final closings. Your minimum purchase must be at least 100 Units ($1
thousand). Depending upon the state in which you reside, the maximum amount
you
may invest may depend on certain "suitability standards." Affiliates and control
persons of Zion may purchase in the offering.
Our
common stock is listed on the American Stock Exchange under the symbol "ZN."
The
closing price of our common stock on May 13, 2008 was $6.48. Neither the Units
nor the Unit Warrants we are offering under this prospectus are currently listed
for trading on any market. We filed an application with the American Stock
Exchange to list both the Units and the Unit Warrants. If our application is
accepted, the symbols "ZN.U" and "ZN.WS" have been reserved to designate each
of
the Units and the Unit Warrants, respectively.
Investing
in our securities is very risky. See "Risk Factors" at page 4 of this prospectus
to read about the risks that you should consider before buying the securities
offered pursuant to this Prospectus. Please note that all dollar amounts are
in
United States Dollars.
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Price to Public
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Placement Agents' Commissions(1)
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Proceeds to Zion(2)
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Per
Unit
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$
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10.00
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$
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0.50
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$
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9.50
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Total
Minimum
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$
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3,250,000
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$
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162,500
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$
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3,087,500
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Total
Maximum
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$
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25,000,000
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$
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1,250,000
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$
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23,750,000
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(1)
Reflects the maximum amount of commissions payable to the Placement Agents.
In
addition, pursuant to our agreement with the underwriter, the underwriter will
be entitled to a non-accountable expense allowance. See "PLAN OF DISTRIBUTION"
on page 14.
(2)
Before deducting estimated offering expenses of estimated at $387 thousand
in
the Minimum Offering and $1,115 thousand in the Maximum
Offering.
This
prospectus may not be used to sell our securities unless accompanied by a
prospectus supplement. Before you invest in our securities, you should carefully
read both this prospectus and the prospectus supplement related to the offering
of the securities.
Neither
the U.S. Securities and Exchange Commission nor any state securities commission
has approved or disapproved of these securities or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
BROCKINGTON
SECURITIES, INC.
The
date
of this prospectus is May 14, 2008
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Page
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About
this Prospectus
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1
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Special
Note Regarding Forward-Looking Statements
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1
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Company
Overview
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3
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Risk
Factors
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4
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Use
of Proceeds
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10
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Capitalization
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12
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Determination
of the Offering Price
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13
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Dilution
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13
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Plan
of Distribution
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14
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Description
of Securities to be Registered
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16
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Legal
Matters
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19
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Experts
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19
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Where
You Can Find More Information
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19
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Information
Incorporated by Reference
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20
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Disclosure
of Commission Position on Indemnification for Securities Act
Liabilities
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20
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This
prospectus is part of a registration statement on Form S-3 that we filed with
the Securities and Exchange Commission ("SEC") using a "shelf" registration
process. Under this shelf registration process, we may sell units of our
securities in one or more offerings where each unit is comprised of (i) one
share of our common stock and (ii) one common stock purchase warrant, up to
a
dollar amount of $25 million, subject to the limitations discussed in the next
paragraph. This prospectus provides a general description of the securities
that
are being offered by us. Each time we sell shares of common stock under this
shelf registration process, we will provide a prospectus supplement that will
contain more specific information about the terms of such offering. The
prospectus supplement may also add, update or change any of the information
contained in this prospectus. You should carefully read this prospectus and
any
prospectus supplement, as well as the information incorporated in this
prospectus by reference. See, "Information Incorporated by Reference." Any
information in any prospectus supplement or any subsequent material incorporated
herein by reference will supersede the information in this prospectus or any
earlier prospectus supplement. This prospectus may not be used to offer to
sell,
to solicit an offer to buy, or to consummate a sale of any shares of our common
stock unless it is accompanied by a prospectus supplement.
Under
the
regulations of the SEC governing the use of the Form S-3 registration statement,
so long as the market value of our "public float", as determined on the date
on
which we sell any of our units, is less than $75 million, then we may not sell
units for proceeds of more than one-third of our public float as it may be
from
time to time during the period the registration statement of which the
prospectus is a part remains effective. Our "public float" is comprised of
the
number of our issued and outstanding shares of common stock that are held by
non-affiliates multiplied by the closing price of our common stock on the AMEX
on any day within 60 days of the date on which we sell any securities hereunder.
To the extent that the restrictions described above limit our ability to sell
the maximum number of Units offered hereunder, we may sell such Units pursuant
to a separate Registration Statement on Form S-1 or other applicable form,
which
such registration statement we would file at some future time.
Unless
the context requires otherwise, in this prospectus the terms "Zion", "we,"
"our," "our company" and "us" refers solely to Zion Oil & Gas,
Inc.
This
prospectus and the documents included or incorporated by reference in this
prospectus contain statements concerning our expectations, beliefs, plans,
objectives, goals, strategies, future events or performance and underlying
assumptions and other statements that are not historical facts. These statements
are "forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. You generally can identify our forward-looking
statements by the words "anticipate," "believe," "budgeted," "continue,"
"could," "estimate," "expect," "forecast," "goal," "intend," "may," "objective,"
"plan," "potential," "predict," "projection," "scheduled," "should," "will"
or
other similar words. These forward-looking statements include, among others,
statements regarding:
| * |
our
growth strategies;
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our
ability to explore for and develop natural gas and oil resources
successfully and economically;
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our
estimates of the timing and number of wells we expect to drill and
other
exploration activities;
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anticipated
trends in our business;
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our
future results of operations;
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our
liquidity and our ability to finance our exploration and development
activities;
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our
capital expenditure program;
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future
market conditions in the oil and gas industry;
and
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the
impact of governmental regulation.
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More
specifically, our forward-looking statements include, among others, statements
relating to our schedule, business plan, targets, estimates or results of future
drilling, including the number, timing and results of wells, the timing and
risk
involved in drilling follow-up wells, planned expenditures, prospects budgeted
and other future capital expenditures, risk profile of oil and gas exploration,
acquisition of seismic data (including number, timing and size of projects),
planned evaluation of prospects, probability of prospects having oil and natural
gas, expected production or reserves, increases in reserves, acreage, working
capital requirements, hedging activities, the ability of expected sources of
liquidity to implement our business strategy, future hiring, future exploration
activity, production rates, all and any other statements regarding future
operations, financial results, business plans and cash needs and other
statements that are not historical facts.
1
Such
statements involve risks and uncertainties, including, but not limited to,
those
relating to our dependence on our exploratory drilling activities, the
volatility of oil and natural gas prices, the need to replace reserves depleted
by production, operating risks of oil and natural gas operations, our dependence
on our key personnel, factors that affect our ability to manage our growth
and
achieve our business strategy, risks relating to our limited operating history,
technological changes, our significant capital requirements, the potential
impact of government regulations, adverse regulatory determinations, litigation,
competition, the uncertainty of reserve information and future net revenue
estimates, property acquisition risks, industry partner issues, availability
of
equipment, weather and other factors detailed herein and in our other filings
with the SEC.
We
have
based our forward-looking statements on our management's beliefs and assumptions
based on information available to our management at the time the statements
are
made. We caution you that assumptions, beliefs, expectations, intentions and
projections about future events may and often do vary materially from actual
results. Therefore, we cannot assure you that actual results will not differ
materially from those expressed or implied by our forward-looking
statements.
Some
of
the factors that could cause actual results to differ from those expressed
or
implied in forward-looking statements are described under "Risk Factors" in
this
prospectus and described under "Risk Factors" and elsewhere in our Annual Report
on Form 10-KSB for the fiscal year ended December 31, 2007 and in our other
periodic reports filed with the SEC. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual outcomes may vary materially from those indicated. All subsequent written
and oral forward-looking statements attributable to us or persons acting on
our
behalf are expressly qualified in their entirety by reference to these risks
and
uncertainties. You should not place undue reliance on our forward-looking
statements. Each forward-looking statement speaks only as of the date of the
particular statement, and we undertake no duty to update any forward-looking
statement.
2
COMPANY
OVERVIEW
Zion
Oil
is an initial stage oil and gas exploration company with a history of over
seven
years of oil and gas exploration in Israel. We have no revenues or operating
income and we are classified as an "exploration stage" company. Our executive
offices are located at 6510 Abrams Road, Suite 300, Dallas, Texas 75231, and
our
telephone number is (214) 221-4610. Our office in Israel is located at 15
Bareket Street, North Industrial Park Caesarea, 38900, Israel, and the telephone
number is +972-4-623-1425. Our website is www.zionoil.com. We were incorporated
in Florida on April 6, 2000 and reincorporated in Delaware on July 9,
2003.
We
currently hold two exploration licenses covering approximately 162,100 acres
onshore in the State of Israel between Netanya in the south and Haifa in the
north. The areas have been subject to a series of exploration permits and
licenses that have been granted to and held by us pursuant to the Israeli
Petroleum Law.
Since
April 2000, we have been conducting data accumulation, research and analysis
related to onshore oil and gas potential in the northern portion of Israel's
central coastal plain and the adjacent foothills region and Mt. Carmel range,
and have drilled one exploratory well in the region to a depth of 15,842 feet
to
the Triassic formation with encouraging, but inconclusive results. However,
notwithstanding these results, due to the mechanical condition of the
well-bore, we determined that the well was incapable of producing oil and/or
gas
in commercial quantities. As a result, in June 2007 we abandoned the well and,
applying generally accepted accounting principles, we recorded, as of June
30, 2007, an impairment charge of $9,494 thousand to our unproved oil and gas
properties.
We
are
utilizing an Israeli country-wide seismic database so as to better understand
and interpret the geology of our license areas. The database consists of 219
seismic sections totaling 3,100 kilometers of coverage and also includes the
stratigraphic sections from all the wells drilled in Israel. We are currently
developing one prospect and four leads in our license areas. We are planning
to
drill a well to a depth of about 15,400 feet (targeted to a bottom-hole location
in the Triassic formation approximately 1,500 feet east-northeast of the
bottom-hole location of our previously drilled well), to appraise our findings
in the previously drilled well, subject to raising the minimum proceeds of
this
offering and securing an appropriate rig to drill to the target depths. If
we
raise at least $5,500 thousand in this offering, we intend to deepen the well
to
be drilled to a depth of about 18,040 feet to both appraise the apparent
findings of the Ma’anit #1 in the Triassic at a depth of between approximately
12,000 and 15,400 feet and to test the deeper Permian horizons at a depth of
between approximately 16,000 and 18,000 feet.. As of the date of this
prospectus, there is no rig in Israel capable of drilling to the target depth.
We are currently in contact with potential drilling contractors with respect
to
bringing into Israel an appropriate rig. As of the date of this prospectus,
we
have not reached an agreement with any drilling contractor and no assurance
can
be provided that we will have the rig available once the minimum proceeds are
raised. See "RISK FACTORS" at page 4.
Our
ability to generate future revenues and operating cash flow will depend on
the
successful exploration and exploitation of our current and any future petroleum
rights or the acquisition of oil and/or gas producing properties, the volume
and
timing of our production, as well as commodity prices for oil and gas. Such
pricing factors are largely beyond our control, and may result in fluctuations
in our earnings.
The
Offering
We
are
offering (the "Offering") a minimum of 325,000 "Units", on a "best efforts,
all
or none" basis (the "Minimum Offering"), and an additional 2,175,000 Units
on a
"best efforts" basis, for a maximum of 2,500,000 Units (the "Maximum Offering"),
at $10.00 per Unit for aggregate gross proceeds to us of $3,250 thousand and
$25,000 thousand, respectively. Each Unit consists of (i) one share of
common stock, par value $0.01 (the "common stock") and (ii) one warrant to
purchase a share of common stock (a "Unit Warrant"). The Units will commence
trading following the initial closing of this offering and continue to be
tradable until the 30 th
day
after the termination of the Offering, at which time the shares and the Unit
Warrant will separate and trade separately and the Unit as such will cease
to
exist. The Unit Warrant will become first exercisable only on the 31
st
day
following the Termination Date and will continue to be exercisable through
January 31, 2012 at a per share exercise price of $7.00. The Unit Warrants
are
first exercisable on the first trading day following the Termination Date.
The
offering price for one Unit will be $10.00. Each
of the Unit price and the per share exercise price of the Unit Warrant exceed
the per share closing sale price of our Common Stock on May 1, 2008 of $6.59,
the trading day immediately preceding the date on which the registration
statement of which this Prospectus forms a part was filed. Shares of our common
stock trade on the American Stock Exchange (AMEX).
We have
applied to the AMEX to list for trading both the Units and the Unit
Warrants.
This
offering is being made through Brockington Securities, Inc. (the "Underwriter")
and other broker/dealers (arranged by the Underwriter) who are members of the
Financial Industry Regulatory Authority (FINRA). This offering is a "best
efforts minimum/maximum offering." The Placement Agents are not required to
place any firm orders or purchase any of the Units, but have agreed to use
their
best efforts to market the Units on our behalf. We cannot sell any of the Units
until we have received and accepted subscriptions and payment for a minimum
of
325,000 Units (
$3,250
thousand). If we do not accept an investor's subscription, we will return such
investor's funds promptly, with any interest earned, without deduction. If
we do
not receive acceptable subscriptions and payment for the minimum number of
units
on or before a date (the "Minimum Date") which is 90 days following the date
of
this prospectus (which may, in our discretion, be extended by us for up to
an
additional 60 days), we will terminate the offering and promptly refund the
money raised with any interest earned, without deduction. If the minimum is
received on or before the Minimum Date, we will schedule an initial closing
date, notify the investors of that date, and complete the initial sale of all
subscriptions and funds received prior to the initial closing date by
transferring the funds out of the escrow account and promptly issuing the Units
to the investors. After the initial closing, deposits on account of
subscriptions will continue to be deposited into the escrow account until a
date
(the "Termination Date") which is the earlier
of (i)
180 days following the date of this prospectus (which may, in our sole
discretion, be extended by us for up to 60 days without notice to investors),
(ii) the date on which a total 2,500,000 Units have been subscribed and
accepted, and (iii) such date as announced by us on no less than two trading
days prior notice. A final closing will be scheduled promptly following the
Termination Date. There may be one or more interim closings between the initial
and the final closings. Your minimum purchase must be at least 100 Units ($1
thousand).
3
The
shares of common stock and Unit Warrants which comprise each Unit will be
evidenced by common stock certificates and warrant certificates to be issued
to
the holder of the Unit upon surrender of the Unit certificate to our transfer
agent, Registrar and Transfer Company.
The
following table sets forth the number of shares of our common stock and warrants
to purchase our common stock that are outstanding prior to the Offering and
that
will be outstanding after completion of either the Minimum Offering or the
Maximum Offering.
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Securities
Outstanding
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Prior to
Offering (1)(2) |
After
Offering (Minimum) (2) |
After
Offering (Maximum) (2) |
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Common
Stock
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10,120,893
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10,445,893
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12,620,893
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Unit
Warrants
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—
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325,000
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2,500,000
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(1)
As of
May 1, 2008
(2)
Does
not include, as of May 1, 2008: (a) 1,000,000 shares of common stock reserved
for issuance pursuant to our 2005 Stock Option Plan, of which 250,549 shares
are
subject to outstanding option award agreements; and (b) 161,246 shares of common
stock issuable upon exercise of other warrants.
Risk
Factors
Investing
in our securities involves risks which you should consider carefully. See "RISK
FACTORS" beginning on page 4.
Use
of Proceeds
Net
proceeds will be used for (a) the drilling of a deep well (at least 15,400
feet
in the case of a Minimum Offering to appraise the Triassic formations and,
if at
least $5,500 thousand is raised in the Offering, to 18,040 feet to test the
Permian formations) on the Ma'anit structure in the Joseph License area, (b)
the
drilling of an exploratory well in the Asher-Menashe License area to at least
14,750 feet, if at least $19,000 thousand are raised, (c) if the drilling
described above is successful, the installation of production equipment, (d)
payment of accrued salaries and (e) working capital. See "USE OF PROCEEDS"
on
page 10 of this prospectus.
RISK
FACTORS
You
should carefully consider the risks described below before making a decision
to
buy our securities. Investing in our common stock, Units and Unit Warrants
involves a number of risks. If any of the following risks actually occurs,
our
business, financial condition and results of operations could be harmed. In
that
case, the trading price of our common stock could decline and you might lose
all
or part of your investment. Before you decide to buy our securities, you should
carefully consider the risk factors set forth below and those that may be
included in any applicable prospectus supplement and in the materials
incorporated by reference herein. See, "INFORMATION INCORPORATED BY REFERENCE"
at page 19 below. Risks and uncertainties not presently known to us or that
we
currently deem immaterial may also affect our business
operations.
We
are an exploration stage company with no current source of income and,
consequently, our financial condition has been unsound in the past and might
again be so in the future.
We
were
incorporated in April 2000 and are still an exploration stage company. Our
operations are subject to all of the risks inherent in exploration stage
companies with no revenues or operating income. Our potential for success must
be considered in light of the problems, expenses, difficulties, complications
and delays frequently encountered in connection with a new business, especially
the oil and gas exploration business. We cannot warrant or provide any assurance
that our business objectives will be accomplished. All of our audited financial
statements since inception have contained a statement by the auditors that
raise
substantial doubt about us being able to continue as a "going concern" unless
we
are able to raise additional capital.
4
If
we do not raise the maximum amount in this offering, do not obtain additional
financing, and/or are not able to reach agreements pursuant to which members
of
management continue to defer significant portions of their compensation, we
may
be unable to execute our business plan.
Our
planned work program is expensive. Assuming we raise only the minimum amount
in
the offering, we would have sufficient funds for our activities through December
2008. These activities would include the drilling of a well (tentatively
designated the Ma'anit-Rehoboth #2 well) to the Triassic on the Ma'anit prospect
in the Joseph License, which we estimate could cost as much as $4.5 million
for
a dry hole and $5.2 million for a completed producer, assuming that we do not
encounter any significant drilling or completion problems. If we are unable
to
raise the minimum proceeds of this offering within a time frame that will allow
us to commence drilling this well by August 31, 2008 or, alternatively, we
are
unable to otherwise raise this amount in a combination of equity offerings
and
loans or we are unable to attract joint venture participants in the project
within such a time frame, then, unless we raise more than the minimum proceeds
of this Offering in amounts equal to approximately $225 thousand per each month
of delay in the commencement of the well beyond August 31, 2008, we may not
be
able to drill the planned well. Our business plan also requires us to reach
agreements with certain officers and employees to continue to defer the monies
due them and continue to accept partial payment of their currently due salaries,
and there can be no assurance that we will be able to reach such agreements.
The
amount of $225 thousand per month represents our current non-discretionary
monthly expenditure rate.
If
we
only raise the minimum amount in this offering, then even if the
Ma'anit-Rehoboth #2 well is completed in the Triassic as a commercial well,
we
may have to seek additional forms of financing, including the sale (if possible)
of a portion of our license rights, in order to enable us to deepen the
Ma'anit-Rehoboth #2 to the Permian, as planned, and to meet our obligations
to
drill a test well on our Asher-Menashe License, as well as to enable us to
drill
additional wells whether to develop the Ma'anit prospect if the Ma'anit-Rehoboth
#2 is successful or to drill other prospective leads.
Any
additional financing could cause your relative interest in our assets and
potential earnings to be significantly diluted. Even if we have exploration
success, we may not be able to generate sufficient revenues to offset the cost
of dry holes and general and administrative expenses.
There
is currently no rig available in Israel capable of drilling to the target depths
and we have no agreement or understanding with a drilling contractor and, thus,
we may be unable to commence our planned drilling operations as
contemplated.
As
of the
date of this prospectus, there is no rig available in Israel to conduct the
drilling that our business plan contemplates. We are currently in negotiation
with an international drilling contractor outside of Israel and have accepted
their proposal in principle. However, until such time as we sign a legally
binding agreement, there can be no assurance that we will be able to come to
an
agreement with the drilling contractor to drill our planned well(s) on
commercially reasonable terms, or at all. Moreover, even if we reach an
agreement or understanding with the drilling contractor, the contractor will
need to obtain certain permits and requisite authorization before the rig can
be
brought into Israel. We estimate that these procedures, over which we have
no
control, can take up to four months from their commencement. Finally, under
the
current terms of each of our licenses, unless we commence the drilling of a
well
by July 1, 2009 (which date is subject to extension by the Israeli Petroleum
Commissioner), we risk losing the license. Any delay in our drilling timetables
can have a material adverse effect on the implementation of our business
plan.
We
do not
have any proved reserves or current production of oil or gas. We cannot assure
you that any wells will be completed or produce oil or gas in commercially
profitable quantities.
We
have a history of losses and we could remain unprofitable for a long
time.
We
incurred net losses of $13,047 thousand for the year ended December 31, 2007
and
$2,510 thousand for the year ended December 31, 2006. Our accumulated deficit
as
of December 31, 2007 was $20,387 thousand. We cannot assure that we will ever
be
profitable.
We
have significant cash commitments for executive compensation, thus reducing
the
amounts of money available for exploratory drilling.
Under
existing compensation agreements we are committed to pay to certain of our
executive officers and employees approximately $1,602 thousand on an annual
basis. As of March 31, 2008, these and other officers have voluntarily committed
to defer payment of $1,188 thousand of unpaid compensation through July 1,
2008,
subject to partial earlier payment in certain circumstances. There is no
assurance that such deferral will continue in the future. If we do not have
a
discovery of oil and/or gas, a sizable portion of our capital resources,
including the amounts raised in the future, may be used for executive
compensation, reducing the amounts available for exploratory
drilling.
5
Oil
and gas exploration is an inherently risky business.
Exploratory
drilling involves enormous risks, including the risk that no commercially
productive oil or natural gas reservoirs will be discovered. Even when properly
used and interpreted, seismic data analysis and other computer simulation
techniques are only tools used to assist geoscientists in trying to identify
subsurface structures and hydrocarbon indicators. They do not allow the
interpreter to know conclusively if hydrocarbons are present or economically
available. The risk analysis techniques we use in evaluating potential drilling
sites rely on subjective judgments of our personnel and
consultants.
Operating
hazards and uninsured risks with respect to the oil and gas operations may
have
material adverse effects on our operations.
Our
exploration and, if successful, development and production operations are
subject to all of the risks normally incident to the exploration for and the
development and production of oil and gas, including blowouts, cratering,
uncontrollable flows of oil, gas or well fluids, fires, pollution and other
environmental and operating risks. These hazards could result in substantial
losses due to injury or loss of life, severe damage to or destruction of
property and equipment, pollution and other environmental damage and suspension
of operations. While as a matter of practice we take out insurance against
some
or all of these risks, such insurance may not cover the particular hazard and
may not be sufficient to cover all losses. The occurrence of a significant
event
adversely affecting any of the oil and gas properties in which we have an
interest could have a material adverse affect on us, could materially affect
our
continued operation and could expose us to material liability.
Political
risks may inhibit our ability to raise capital.
Our
operations are concentrated in Israel and could be directly affected by
political, economic and military conditions in Israel. Efforts to secure a
lasting peace between Israel and its Arab neighbors and Palestinian residents
have been underway since the State of Israel was established in 1948 and the
future of these peace efforts is still uncertain.
Kibbutz
Ma'anit (where we have drilled our first well and plan to drill a second well)
is in an area adjacent to Israeli Arab towns where anti-Israeli rioting broke
out in late 2000. Any future armed conflict (including the renewal of the
conflict in the summer of 2006 between Israel and the Hezbollah terrorist
organization based in Lebanon and its expansion into areas in which we are
operating or into central Israel), political instability or continued violence
in the region could have a negative effect on our operations and business
conditions in Israel, as well as our ability to raise additional capital
necessary for completion of our exploration program.
Economically,
our operations in Israel may be subject to:
•
exchange rate fluctuations;
•
royalty
and tax increases and other risks arising out of Israeli State sovereignty
over
the mineral rights in Israel and its taxation regime; and
•
changes
in Israel's economy that could cause the legislation of oil and gas price
controls.
Consequently,
our operations may be substantially affected by local economic factors beyond
our control, any of which could negatively affect our financial performance
and
prospects.
Legal
risks could negatively affect the value of Zion.
Legally,
our operations in Israel may be subject to:
•
changes
in the Petroleum Law resulting in modification of license and permit
rights;
•
adoption of new legislation relating to the terms and conditions pursuant to
which operations in the energy sector may be conducted;
•
changes
in laws and policies affecting operations of foreign-based companies in Israel;
and
•
changes
in governmental energy and environmental policies or the personnel administering
them.
6
The Israeli
Ministry of National Infrastructures is considering proposed legislation
relating to licensing requirements for entities engaged in the fuel sector
that,
if adopted as currently proposed, may result in our having to obtain additional
licenses to market and sell hydrocarbons that may be discovered by us. We have
been advised by the Ministry that they do not intend to deprive a holder of
petroleum rights issued under the Petroleum Law of its right under that law
to
sell hydrocarbons discovered and produced under its petroleum rights. We cannot
now predict whether or in what form the proposed legislation may be adopted
or,
if adopted, its possible impact on our operations. Further, in the event of
a
legal dispute in Israel, we may be subject to the exclusive jurisdiction of
Israeli courts or we may not be successful in subjecting persons who are not
United States residents to the jurisdiction of courts in the United States,
either of which could adversely affect the outcome of a dispute.
Our
petroleum rights (including licenses and permits) could be cancelled or
terminated, and we would not be able to successfully execute our business
plan.
Any
license or other petroleum right we hold or may be granted is granted for a
fixed period and requires compliance with a work program detailed in the license
or other petroleum right. If we do not fulfill the relevant work program due
to
inadequate funding or for any other reason, the Israeli government may terminate
the license or any other petroleum right before its scheduled expiration
date.
There
are
limitations
on the transfer of interests in our petroleum rights, which could impair our
ability to raise additional funds to execute our business
plan
The
Israeli government has the right to approve any transfer of rights and interests
in any license or other petroleum right we hold or may be granted and any
mortgage of any license or other petroleum rights to borrow money. If we attempt
to raise additional funds through borrowings or joint ventures with other
companies and are unable to obtain required approvals from the government,
the
value of your investment could be significantly diluted or even
lost.
Due
to
the lack of competitive resources in Israel, costs for our operations may be
more expensive than costs for similar operations in other parts of the world.
We
are also more likely to incur delays in our drilling schedule and be subject
to
a greater risk of failure in meeting our required work schedule. Similarly,
some
of the oil field personnel we need to undertake our planned operations are
not
necessarily available in Israel or available on short notice for work in Israel.
Finally, as discussed above, as of the date of this prospectus, there is no
rig
available in Israel capable of drilling to the target depths of our planned
wells. Any or all of the factors specified above may result in increased costs
and delays in the work schedule.
Our
dependence on Israeli local licenses and permits may require more funds than
we
have budgeted and may cause delays in our work schedule.
In
connection with drilling operations, we are subject to a number of Israeli
local
licenses and permits. Some of these are issued by the Israeli security forces,
the Civil Aviation Authority, the Israeli Water Commission, the Israel Lands
Authority, the holders of the surface rights in the lands on which we intend
to
conduct drilling operations, including Kibbutz Ma'anit, local and regional
planning commissions, and environmental authorities. The surface rights to
the
drill site on which we plan to drill the Ma’anit Rehoboth #2 well are held under
A long-term lease by Kibbutz Ma'anit. The rights are owned by the State of
Israel and administered by the Israel Lands Authority. Permission necessary
to
re-enter and use the drill site to conduct petroleum operations has been granted
to Zion by the Kibbutz in consideration for a monthly fee of $350. Permission
of
the Israel Lands Authority for the use of the surface rights is also required,
which permission the Israel Lands Authority is required to grant under the
Petroleum Law. On April 12, 2007, the Authority granted the required permission
for a one year period (which period could be extended), subject to our paying
an
annual surface use fee and signing a land use agreement. The use fee through
April 2008 was paid, but the agreement was not finalized pending receipt from
the Israel Lands Authority of the land use agreement. Recently the Israel Lands
Authority adopted new procedures for the grant of surface rights for oil
exploration (including drilling) activities and adopted a form of land use
agreement for such purpose, which procedures include requirements for special
approval if the applicant is a non-Israeli entity. With the expiration on April
12, 2008 of our previously granted permission, we applied for an extension
under
the new procedures. The Israel Lands Authority is currently reviewing our file
in light of the new procedures. We cannot give any assurance when or pursuant
to
what conditions we will obtain formal permission from the Israel Lands Authority
for the use of the drill site.
In
the
event of a commercial discovery and depending on the nature of the discovery
and
the production and related distribution equipment necessary to produce and
sell
the discovered hydrocarbons, we will be subject to additional licenses and
permits, including from various departments in the Ministry of National
Infrastructures, regional and local planning commissions, the environmental
authorities and the Israel Lands Authority. If we are unable to obtain some
or
all of these permits or the time required to obtain them is longer than
anticipated, we may have to alter or delay our planned work schedule, which
would increase our costs.
7
If
we are
successful in finding commercial quantities of oil and/or gas, our operations
will be subject to laws and regulations relating to the generation, storage,
handling, emission, transportation and discharge of materials into the
environment, which can adversely affect the cost, manner or feasibility of
our
doing business. Many Israeli laws and regulations require permits for the
operation of various facilities, and these permits are subject to revocation,
modification and renewal. Governmental authorities have the power to enforce
compliance with their regulations, and violations could subject us to fines,
injunctions or both.
If
compliance with environmental regulations is more expensive than anticipated,
it
could adversely impact the profitability of our business.
Risks
of
substantial costs and liabilities related to environmental compliance issues
are
inherent in oil and gas operations. It is possible that other developments,
such
as stricter environmental laws and regulations, and claims for damages to
property or persons resulting from oil and gas exploration and production,
would
result in substantial costs and liabilities. This could also cause our insurance
premiums to be significantly greater than anticipated.
Fluctuation
in oil and gas prices could adversely affect our financial
condition.
If
we are
successful in finding commercial quantities of oil and gas, our revenues,
operating results, financial condition and ability to borrow funds or obtain
additional capital will depend substantially on prevailing prices for oil and
natural gas. Declines in oil and gas prices may materially adversely affect
our
financial condition, liquidity, ability to obtain financing and operating
results. Lower oil and/or gas prices also may reduce the amount of oil and/or
gas that we could produce economically.
Historically,
oil and gas prices and markets have been volatile, with prices fluctuating
widely, and they are likely to continue to be volatile, making it impossible
to
predict with any certainty the future prices of oil and gas.
We
are
highly dependent on the services of Glen Perry and other key personnel. The
loss
of certain of our key employees could have a material adverse impact on the
development of our business. We currently do not maintain key employee insurance
policies on these employees.
Earnings
will be diluted due to charitable contributions and key employee incentive
plan.
We
are
committed to donating in the form of a royalty interest or equivalent net
operating profits interest, 6% of our gross sales revenues, if any, (after
payout of exploration costs through the first discovery well) to two charitable
foundations. In addition, we may allocate 1.5% royalty interest or equivalent
net operating profits interest (after payout of drilling costs on a well-by-well
basis) to a key employee incentive plan designed as a bonus compensation over
and above our executive compensation payments. This means that the total royalty
burden on our property (including the government royalty of 12.5%) may be up
to
20%. As our expenses increase with respect to the amount of sales, these
donations and allocation could significantly dilute future earnings and, thus,
depress the price of the common stock.
Risks
Related to Our Stock and this Offering
You
will experience immediate and substantial dilution from the purchase of our
Common Stock.
The
difference between the public offering price per share of our common stock
(allocating all of the unit purchase price to the common stock and none to
the
warrant included in the Unit) and the pro forma net tangible book value per
share of our common stock after this offering constitutes the dilution to you
and other investors in this offering. The fact that our initial stockholders
acquired their shares of common stock at a nominal price significantly
contributed to this dilution. Assuming the offering is completed and no value
is
ascribed to the Unit Warrants included in the Units, you and the other new
investors will incur an immediate and substantial dilution of approximately
92%
or $9.19 per share (the difference between the pro forma net tangible book
value
per share after this offering of $0.57, and the initial offering price of $10.00
per unit) in the case of a Minimum Offering and approximately 78% or $7.77
per
share in the case of a Maximum Offering.
Our
outstanding warrants and Unit Warrants may adversely affect the market price
of
our common stock.
The
Unit
Warrants being offered by us in this Offering to purchase up to 2,500,000 shares
of common stock (assuming that we conclude the Maximum Offering) will be
exercisable commencing on the 31 st
day
following the Termination Date. Additionally, as of May 1, 2008, we had
outstanding (i) warrants to purchase 161,246 shares of common stock at prices
ranging between $5.00 and $8.75 per share, of which warrants to purchase 114,625
shares are exercisable through December 31, 2008, and warrants to purchase
46,621 shares are exercisable through September 25, 2009 and (ii) employee
stock
options to purchase 250,549 shares of common stock at prices ranging between
$0.01 and $5.60 per share. Finally, our officers may elect to receive payment
of
all or part of approximately $1,100 thousand in deferred and accrued salary
payments (as of March 31, 2008) in shares of our common stock. See "USE OF
PROCEEDS" at page 10.
8
The
sale
or possibility of sale of the shares underlying the Unit Warrants, the other
warrants and as discussed above could have an adverse effect on the market
price
for our common stock or our Units. If and to the extent these warrants are
exercised, you may experience additional dilution to your holdings.
Price
of the Units and the per share exercise price of the Unit Warrants was
determined without regard to tangible book value.
The
public offering price of the Units and the exercise price and other terms of
the
Unit Warrants have been determined in part by the Company and the Underwriter
based on the market price of our shares and in consideration of the current
stage of our operations, including results of operations to date, and are not
necessarily related to the Company's asset value, net worth or other established
criteria of value. On May 1, 2008, the closing price of our Common Stock on
the
American Stock Exchange was $6.59. Accordingly, both the price of a Unit and
the
per share exercise price of the Unit Warrants exceed the closing sale price
of
$6.59 of our Common Stock on May 1, 2008, the trading day immediately preceding
the date on which the registration statement of which this Prospectus forms
a
part was filed. See "DETERMINATION OF OFFERING PRICE" at page 13 below. No
assurance can be given that the market price of the common stock will exceed
the
Unit price or the per share exercise price of the Unit Warrants.
The
management of Zion, including John Brown who holds proxies from a total of
32
other shareholders, controls more than 36.9% of the voting shares of Zion as
of
the date of the prospectus and may continue to hold up to 35.8% of the voting
shares in the event of a Minimum Offering and up to 29.6% in the event of a
Maximum Offering. The ability of management to exercise significant control
over
Zion through July 8, 2008 (at which date certain voting agreements with Mr.
Brown terminate) may discourage, delay or prevent a takeover attempt that a
shareholder might consider in their best interest and that might result in
a
shareholder receiving a premium for their common stock. Also, management may
have the ability to:
•
control
the vote of most matters submitted to our shareholders, including any merger,
consolidation or sale of all or substantially all of our assets;
•
elect
all of the members of our board of directors;
•
prevent
or cause a change in control of our company; and
•
decide
whether to issue additional common stock or other securities or declare
dividends.
We
have a limited number of authorized shares of common stock
available
for issuance and if our stockholders do not approve an increase in the
authorized number of shares of our common stock we may be unable to raise
significant additional capital beyond this Offering.
As
of May
1, 2008, we had 20 million authorized shares of common stock, of which
10,120,893 shares of our Common Stock were issued and outstanding and an
additional 1,161,246 are reserved for issuance upon grant, exercise or
conversion of outstanding options and warrants. Following the Minimum Offering
(assuming that we can successfully complete the Minimum Offering), we will
have
10,445,893 million shares issued and 1,486,246 shares reserved for issuance
upon
exercise of outstanding options and warrants (including the Unit Warrants).
Assuming the Maximum Offering, we will have 12,620,893 million shares issued
and
3,661,246 shares reserved for issuance upon exercise of outstanding options
and
warrants (including the Unit Warrants). Thus, following either the Minimum
Offering or the Maximum Offering, we will have a limited number of shares of
common stock available for issuance. The limited availability of shares of
common stock may hinder our ability to raise capital through the issuance of
equity or securities convertible into equity, if the need should so arise.
Management plans to propose at the 2008 annual meeting of stockholders which
we
anticipate holding during the second quarter of 2008 that our stockholders
approve an increase to the number of authorized shares of common stock available
for issuance beyond 20 million shares. Under requisite law, the proposal to
increase the number of authorized common stock needs the approval of the holders
of a majority of the issued and outstanding shares of common stock at such
time
in order to become effective. No assurance can be provided that we will be
able
to obtain the requisite vote to increase our authorized common stock and the
failure to increase our authorized common stock may have an adverse effect
on
our ability to raise additional capital when (and if) needed.
If
we are unable to satisfy the requirements of Section 404 of the Sarbanes-Oxley
Act, or our internal control over financial reporting is not effective, the
reliability of our financial statements may be questioned and our share price
may suffer.
Section
404 of the Sarbanes-Oxley Act requires any company subject to the reporting
requirements of the U.S. securities laws to do a comprehensive evaluation of
its
internal control over financial reporting. To comply with this statute, we
are
required to document and test our internal controls over financial reporting
and
our management was required to issue a report concerning the effectiveness
of
our internal controls over financial reporting in the annual report on Form
10-KSB for the year ended December 31, 2007. Our independent auditors will
be
required to issue an opinion on the effectiveness of our internal controls
over
financial reporting for our annual report on Form 10-K for the fiscal year
ending December 31, 2008. The rules governing the standards that must be met
for
management to assess our internal controls over financial reporting are
relatively new and complex and require significant documentation, testing and
possible remediation to meet the detailed standards under the rules. It is
possible that, as we prepare for this audit, we could discover certain
deficiencies in the design and/or operation of our internal controls that could
adversely affect our ability to record, process, summarize and report financial
data. We have invested and will continue to invest significant resources in
this
process. Because an audit of our internal controls has not been required to
be
reported in the past, we are uncertain as to what impact a conclusion that
deficiencies exist in our internal controls over financial reporting would
have
on the trading price of our common stock.
9
You
may
receive little or no cash or stock dividends on your shares of common stock.
The
board of directors has not directed the payment of any dividends, does not
anticipate paying dividends on the shares for the foreseeable future and intends
to retain any future earnings to the extent necessary to develop and expand
our
business. Payment of cash dividends, if any, will depend, among other factors,
on our earnings, capital requirements, and the general operating and financial
condition, and will be subject to legal limitations on the payment of dividends
out of paid-in capital.
Our
common stock has limited liquidity, so investors may not be able to sell any
significant number of shares of our stock at prevailing market
prices.
The
average daily trading volume of our common stock was approximately 6,732 shares
per day over the 90 day period ended April 30, 2008. If limited trading in
our stock continues, it may be difficult for investors to sell their shares
in
the public market at any given time at prevailing prices.
Our
stock price and trading volume may be volatile, which could result in losses
for
our stockholders.
The
equity trading markets may experience periods of volatility, which could result
in highly variable and unpredictable pricing of equity securities. The market
for our common stock could change in ways that may or may not be related to
our
business, our industry or our operating performance and financial condition.
In
addition, the trading volume in our common stock may fluctuate and cause
significant price variations to occur. Some of the factors that could negatively
affect our share price or result in fluctuations in the price or trading volume
of our common stock include:
| * |
changes
in expectations as to our future financial performance or changes
in
financial estimates, if any,
|
| * |
announcements
relating to our business or the business of our
competitors,
|
| * |
conditions
generally affecting the oil and natural gas
industry,
|
| * |
the
success of our operating strategy,
and
|
Many
of
these factors are beyond our control, and we cannot predict their potential
effects on the price of our common stock. If the market price of our common
stock does not increase to the per share price reflected by the price at which
the Unit is offered, then whether or not the per share market price declines
from current levels, you may be unable to resell your shares of common stock
at
or above the price you acquired those shares. We cannot assure you that the
market price of our common stock will increase to the per share price at which
the Unit is offered or that the market price of common stock will not fluctuate
or decline significantly.
USE
OF PROCEEDS
The
net
proceeds to us from the sale of a minimum of 325,000 units and a maximum of
2,500,000 units at a per unit offering price of $10.00 are estimated to be
approximately $2,700 thousand and $22,635 thousand, respectively, after
deducting estimated placement agent commissions and offering
expenses.
Some
of
our officers and employees have not been paid for salaries earned in amounts
totaling approximately $1,188 thousand (as of March 31, 2008). These persons
and
certain newly retained officers have agreed to defer a portion of their pay
earned through July 1, 2008. If an amount greater than the minimum offering
is
raised, portions of the outstanding accounts payable may be exchanged for shares
and/or further deferred and the remainder may be paid, based upon the amount
raised and our other financial conditions at the time.
10
We
intend
to use most of the net proceeds of this offering for appraisal and exploratory
drilling on our Israeli licenses. Our work program calls for the drilling of
an
appraisal and/or exploratory well in each of our licenses at an estimated "dry
hole" cost of $4,500 thousand to drill our next planned well (the
Ma'anit-Rehoboth #2) on the Joseph License to a total measured depth of
approximately 4,700 meters (15,400 feet) to the Triassic formation in
fulfillment of the terms of the Joseph License, and an estimated $6,600 thousand
to drill the Ma'anit-Rehoboth #2 to a total measured depth of approximately
5,550 meters (18,040 feet) to the Permian. Our work program also calls for
the
drilling of a well to a minimum depth of approximately 4,500 meters (14,800
feet) at an estimated cost of approximately $7,800 thousand on the Asher-Menashe
License. Drilling a subsequent well on the Joseph License area to 5,500 meters
(18,040 feet) would cost approximately $9,300 thousand. We intend to evaluate
the new wells through a combination of electrical wireline tool investigations,
recovery of samples from the target formations (coring) and testing. A "dry
hole" is a well that for either geological or mechanical reasons is judged
by us
to be incapable of producing oil or gas in commercial quantities. If any well
is
not a "dry hole," a completion attempt would be made at an estimated completion
cost of between $800 thousand and $1,500 thousand in order to set production
casing, perforate, install the production tubing and wellhead and conduct
extended tests of the well. We cannot assure you that any well will be completed
or produce oil and/or gas in commercial quantities.
If
only
the minimum of approximately $2,700 thousand net proceeds are raised from this
offering, we intend to drill the Ma'anit-Rehoboth #2 to a total measured depth
of approximately 4,700 meters (15,400 feet) to the Triassic formation and
appraise the apparent findings of the Ma'anit #1 well in that formation.
Drilling the Ma'anit-Rehoboth #2 to the Triassic formation will fulfill our
obligations under the Joseph License. Amounts raised in the Offering in excess
of the Minimum Offering will be applied to deepen the Ma'anit-Rehoboth #2 well
to its designed total depth of approximately 5,500 meters (18,040 feet) to
the
Permian formation and evaluate the well. If the maximum of approximately $
22,635 thousand net proceeds are raised, we intend to drill the Ma'anit-Rehoboth
#2 well to the Permian, drill a well on the Asher-Menashe License to a minimum
depth of 4,500 meters (14,800 feet), and prepare to drill a third well to a
depth of between 4,500 to 5,400 meters (14,800 to 17,700 feet) on one of our
two
licenses.
An
attempt to reenter the first well, which was drilled and tested with
encouraging, but inconclusive results, will be made. If sufficient funds are
not
raised in the Offering or through other means to drill the Ma'anit-Rehoboth
#2
to the Permian formation, but the results of drilling the well to the Triassic
formation are such that the well is not a "dry hole" in the Triassic formation,
an attempt to complete the Ma'anit-Rehoboth #2 in the Triassic formation will
be
made at an estimated completion cost of $800 thousand.
We
estimate that, in order to be commercially productive, any of the wells we
intend to drill to the approximate depth of 4,500 meters (14,800 feet) or deeper
based on industry standards, would need to be capable of producing at least
100
barrels of oil per day or 600 thousand cubic feet of gas per day. Such
production levels will not pay out the cost of drilling the well, but only
the
costs of operating the well on a current basis. In order to justify the costs
of
drilling of additional wells, there would need to be the expectation that each
additional well would have initial production rates in excess of 350 barrels
of
oil per day or five million cubic feet of gas per day, or some combination
of
the two, based upon minimum oil prices of $60.00 per barrel and a minimum gas
price of $4.00 per thousand cubic feet.
The
remaining net proceeds will be used for general and administrative expenses
and
working capital.
We
intend
to invest the net proceeds of this offering in short-term deposits, investment
grade obligations or bank certificates of deposit in both Israel and the United
States until the funds are required.
If
only
the minimum amount is raised in this Offering, we believe that the proceeds
from
this Offering combined with our current available cash will satisfy our cash
requirements through December 2008, including the drilling of the
Ma'anit-Rehoboth #2 to a total measured depth of approximately 4,700 meters
(15,400 feet). This assumes that our officers would be willing, as they have
done in the past, to defer some of their salaries until more cash is available.
Thereafter, it will be necessary to raise additional funds for completion of
the
well at that depth, if justified, or to deepen the well to its designed depth
of
5,500 meters (18,040 feet) and for subsequent drilling. Out of the net proceeds
of $2,700 thousand in this minimum case, $2,500 thousand would be used toward
drilling the Ma'anit-Rehoboth #2 to the Triassic formation, assuming that the
initial closing of the offering occurs within a time frame that allows us to
commence drilling the well by August 31, 2008. (The remaining $200 thousand
would be set aside for contingencies.) Following completion of that well, if
successful whether in the Triassic or Permian, we would install gas separation
facilities and storage tanks at an estimated cost of $500 thousand, which in
the
case of a minimum program we would need to pay from other funds (such as
borrowings or the proceeds from exercises of outstanding warrants) and not
from
the net proceeds of this offering. Of course, there can be no assurance that
such funds will be available. However, if we do not raise at least the minimum
amount of the offering within the time frame needed to facilitate the
commencement of drilling by August 31, 2008, then we may need to raise beyond
the stated minimum to commence drilling the Ma'anit Rehoboth #2 well as our
available cash resources would then go towards the on-going maintenance of
business operations.
To
the
extent that this offering is successful in raising the maximum funds, we expect
to have sufficient money to (i) drill and complete the Ma'anit-Rehoboth #2
to a
measured depth of least 5,550 meters (18,040 feet), (ii) drill a well to a
depth
of between 4,500 and 5,550 meters (14,800 and 18,040 feet) on our Asher-Menashe
License as required by the terms of that license and as dictated after the
evaluation of the available data, including the evaluation of the results of
Ma'anit-Rehoboth #2 well and the seismic and geophysical studies currently
being
conducted on the Asher-Menashe License area, and (iii) prepare for an additional
well on either our Joseph License or our Asher-Menashe License taking into
consideration the results of the Ma'anit-Rehoboth #2 and the first Asher-Menashe
well. Out of the net proceeds of $22,435 thousand, we may spend up to
approximately $1,400 thousand to repay compensation and deferred compensation
to
officers that will be outstanding as of June 30, 2008. We currently estimate
that our non-discretionary general and administrative expenses will be
approximately $225 thousand per month, most of which would be spent on salaries,
benefits and professional fees.
11
Our
estimates for working capital (including general and administrative costs)
below
increase substantially from the minimum to the maximum case. This occurs because
the maximum case would cause us to have a higher activity level, resulting
in
some higher expenses. Our salaries and benefits also increase substantially
in
the maximum case because we would need a larger staff for the increased
activity. None of our experts, consultants, accountants, or legal counsel has
been hired on a contingent fee basis. Finally, in a maximum case, a portion
of
our working capital may be allocated to additional geological and geophysical
exploratory work and drilling, completion and well operating
expenses.
The
following table sets forth the planned use of the proceeds from this
offering:
|
|
Minimum
US$ thousands |
|
Maximum
US$ thousands |
|
||||||||||||
|
Total
Proceeds
|
$
|
3,250
|
100
|
%
|
$
|
25,000
|
100
|
%
|
NOTES
|
|||||||
|
Less:
Offering Expenses
|
$
|
550
|
16.9
|
%
|
$
|
2,365
|
9.5
|
%
|
||||||||
|
Net
Proceeds from Offering
|
$
|
2,700
|
83.1
|
%
|
$
|
22,635
|
90.5
|
%
|
||||||||
|
Use
of Net Proceeds:
|
||||||||||||||||
|
Drill
Ma'anit-Rehoboth #2 to Triassic
|
$
|
2,500
|
76.9
|
%
|
$
|
2,500
|
10.0
|
%
|
(1
|
)
|
||||||
|
Deepen
Ma'anit-Rehoboth to Permian
|
$
|
0
|
$
|
2,100
|
8.4
|
%
|
||||||||||
|
Drill
Asher-Menashe well to Triassic
|
$
|
0
|
$
|
7,800
|
31.2
|
%
|
||||||||||
|
Completion
costs for one well
|
$
|
0
|
$
|
1,500
|
6.0
|
%
|
(2
|
)
|
||||||||
|
Production
equipment for one well
|
$
|
0
|
$
|
500
|
2.0
|
%
|
(2
|
)
|
||||||||
|
Geological
and Geophysical
|
$
|
0
|
$
|
100
|
0.4
|
%
|
||||||||||
|
Reserve
for operations
|
$
|
200
|
6.2
|
%
|
$
|
4,500
|
18.0
|
%
|
(3
|
)
|
||||||
|
Accounts
Payable to Officers
|
$
|
0
|
$
|
1,400
|
5.6
|
%
|
||||||||||
|
Working
Capital
|
$
|
0
|
$
|
2,235
|
8.9
|
%
|
||||||||||
|
Total
Use of Net Proceeds
|
$
|
2,700
|
83.1
|
%
|
$
|
22,635
|
90.5
|
%
|
||||||||
(1)
Assumes closing of minimum offering within time frame that allows us to commence
drilling on the Ma'anit-Rehobot #2 well by August 31, 2008. We anticipate that
the amount will increase if we commence drilling the well later than August
2008, as available cash proceeds will be used for ordinary operating
requirements.
(2)
For
first well successfully completed, if any. Completion and production equipment
costs for additional completed wells to be separately financed.
(3)
Including contingencies (operating and G&A) and in maximum program funds
towards drilling the third well.
The
above
discussion assumes that we will be able to locate and contract with an
appropriate drilling contractor to undertake the planned drilling activities
by
no later than August 31, 2008. While we are in discussions with a drilling
contractor for the purpose of bringing an appropriate rig into Israel, we do
not
presently have any such arrangement. No assurance can be provided that we will
be successful in securing an appropriate rig in a timely manner. See "RISK
FACTORS - Risks Related to our Business".
The
foregoing reflects only estimates of the use of the proceeds if the minimum
amount or maximum amount is attained. If more than the minimum but less than
the
maximum is raised, the amounts will be adjusted appropriately. Actual
expenditures may vary materially from these estimates.
The
following table sets forth our total capitalization as of December 31, 2007,
and
our capitalization as adjusted on the same date giving effect to the sale of
a
minimum of 325,000 Units and a maximum of 2,500,000 Units at $10.00 per Unit
in
this offering and application of the estimated net proceeds as described in
this
prospectus.
12
|
|
Amount of Capitalization as of December 31, 2007
|
|||||||||
|
|
As Adjusted (thousands)
|
|||||||||
|
|
($)
|
Minimum ($)
|
Maximum ($)
|
|||||||
|
|
|
|
|
|||||||
|
Stockholders
equity:
|
||||||||||
|
Common
stock - par value $0.01 per share
|
101
|
104
|
126
|
|||||||
|
Additional
paid in capital
|
26,074
|
28,721
|
48,434
|
|||||||
|
Deficit
accumulated in development stage
|
(20,387
|
)
|
(20,387
|
(20,387
|
||||||
|
Total
stockholders equity
|
5,788
|
8,438
|
28,173
|
|||||||
|
Total
Capitalization
|
5,788
|
8,438
|
28,173
|
|||||||
DETERMINATION
OF OFFERING PRICE
The
offering price for the Units, and the terms of the Unit Warrants (including
the
exercise price of the Unit Warrants), have been determined by Zion in
consultation with the Underwriter. Among the factors considered in determining
the public offering price and such terms were the market price of our shares
at
the time of the filing of the registration statement, of which this prospectus
is a part, registering the Units for sale, the market price history of our
shares since their initial listing with AMEX on January 3, 2007 considering
the
history of, and the prospects for, our business, and the status of our past
and
present operations, our development and the general condition of the securities
market at the time of this Offering. The public offering price does not
necessarily bear any simple relationship to our assets, book value, earnings
or
other established criterion of value. The per Unit price and the per share
exercise price of the Unit Warrants exceed the closing price of our common
stock
on May 1, 2008, the trading day preceding the day on which the registration
statement of which this prospectus forms a part was filed.
The
market price of our common stock is subject to change as a result of market
conditions and other factors, and no assurance can be given that a public market
for the Units will develop after the initial closing of the Offering and through
the 30 th
day
following the Termination Date (which represents the period during which a
Unit
may be transferable) or that a public market for the Unit Warrants will develop
after the Termination Date, or if public markets in fact develop, that such
public markets will be sustained, or that the securities (including the shares
in the Units) can be resold at any time at the offering price or any other
price. See "RISK FACTORS" beginning on page 4 of this Prospectus.
The
following discussion and tables allocate no value to the Unit
Warrants.
As
of
December 31, 2007, our net tangible book value was $5,788 thousand or $0.57
per
share of common stock. Net tangible book value is the aggregate amount of our
tangible assets less our total liabilities. Net tangible book value per share
represents our total tangible assets less our total liabilities, divided by
the
number of shares of common stock outstanding on December 31, 2007.
Minimum
Offering
After
giving effect to the sale of a minimum of 325,000 Units of our securities at
a
per Unit offering price of $10.00 and after deducting placement agent
commissions and other offering expenses, our net tangible book value as of
December 31, 2007 would increase from $5,788 thousand to $8,438 thousand and
the
net tangible book value per share would increase from $0.57 to $0.81. This
represents an immediate increase in net tangible book value of $0.24 per share
to current shareholders, and immediate dilution of $9.19 per share to new
investors or 92%. "Dilution" is determined by subtracting net tangible book
value per share after the Offering from the Offering price to investors. The
following table illustrates this per share dilution to purchasers of Units
in
the Minimum Offering, as illustrated in the following table:
|
Assumed
Public offering price per share of common stock
|
$
|
10.00
|
|||||
|
Net
tangible book value per share before this Offering
|
$
|
0.57
|
|||||
|
Increase
per share attributable to new investors
|
$
|
0.24
|
|||||
|
Adjusted
net tangible book value per share after this Offering
|
$
|
0.81
|
|||||
|
Dilution
per share to new investors
|
$
|
9.19
|
|||||
|
Percentage
dilution
|
92
|
%
|
13
Another
view of dilution is the differences in per share purchase price as of December
31, 2007:
|
|
Shares Purchased
|
Total Consideration
|
||||||||||||||
|
|
Number
|
Percent
|
Amount
(thousands)
|
Percent
|
Average
Per Share
|
|||||||||||
|
Current shareholders
|
10,120,893
|
97
|
%
|
$
|
26,175
|
89
|
%
|
$
|
2.59
|
|||||||
|
New
investors
|
325,000
|
3
|
%
|
3,250
|
11
|
%
|
$
|
10.00
|
||||||||
|
|
10,445,893
|
100
|
%
|
$
|
29,425
|
100
|
%
|
|||||||||
Maximum
Offering
After
giving effect to the sale of a maximum of 2,500,000 Units at per Unit offering
price of $10.00 and after deducting placement agent commissions and other
offering expenses, our net tangible book value as of September 30, 2007 would
increase from $5,788 thousand to $28,173 thousand and the net tangible book
value per share would increase from $0.57 to $2.23. This represents an immediate
increase in net tangible book value of $1.66 per share to current shareholders,
and immediate dilution of $7.77 per share to new investors or 78%. "Dilution"
is
determined by subtracting net tangible book value per share after the Offering
from the Offering price to investors. The following table illustrates this
per
share dilution to purchasers of Units in the Minimum Offering, as illustrated
in
the following table:
|
Assumed
public offering price per share of common stock
|
$
|
10.00
|
|||||
|
Net
tangible book value per share before this Offering
|
$
|
0.57
|
|||||
|
Increase
per share attributable to new investors
|
$
|
1.66
|
|||||
|
Adjusted
net tangible book value per share after this Offering
|
$
|
2.23
|
|||||
|
Dilution
per share to new investors
|
$
|
7.77
|
|||||
|
Percentage
dilution
|
78
|
%
|
Another
view of dilution is the differences in per share purchase price as of December
31, 2007:
|
|
Shares Purchased
|
Total Consideration
|
||||||||||||||
|
|
Number
|
Percent
|
Amount
(thousands)
|
Percent
|
Average
Per Share
|
|||||||||||
|
|
|
|
|
|
|
|||||||||||
|
Current
shareholders
|
10,120,893
|
80
|
%
|
$
|
26,175
|
51
|
%
|
$
|
2.59
|
|||||||
|
New
investors
|
2,500,000
|
20
|
%
|
$
|
25,000
|
49
|
%
|
$
|
10.00
|
|||||||
|
|
12,620,893
|
100
|
%
|
$
|
51,175
|
100
|
%
|
|||||||||
PLAN
OF DISTRIBUTION
Subject
to the terms and conditions of the underwriting agreement, the underwriter
named
below (the "Underwriter") has agreed to use its best efforts to offer and sell
on our behalf a minimum of 325,000 Units on a "best efforts, all or none" basis
and an additional 2,175,000 Units on a "best efforts" basis, for a maximum
of
2,500,000 Units at $10 per Unit (for an aggregate of $3,250 thousand, assuming
the Minimum Offering and $25,000 thousand, assuming the Maximum
Offering):
|
Underwriter
|
|
Number of Units
|
|
Brockington
Securities, Inc.
|
|
Up
to 2,500,000 Units
|
The
Underwriter may retain other licensed securities dealers who are members of
the
Financial Industry Regulatory Authority ("FINRA") (collectively, "Placement
Agents") to offer Units to residents of the United States and with our
agreement, to residents outside the United States on a non-exclusive basis
through persons authorized under the laws of those jurisdictions.
Officers
and directors of Zion Oil & Gas may introduce the Underwriter to persons to
consider this Offering and purchase Securities through the Underwriter. They
may
also place Units to purchasers who are residents outside the United States
and
may retain sales agents in certain countries outside the United States. In
addition, our officers and directors may also offer Units directly in exchange
for accounts payable and/or repayments for professional and oilfield services.
In this regard, officers and directors will not receive any commissions or
any
other compensation.
14
We
will
establish an escrow account with Sterling Trust Company (the "Escrow Agent"),
under an escrow agreement between us and the Escrow Agent. Under the terms
of
the escrow agreement, all checks from investors will be made payable to
“Sterling Trust Company, Escrow Agent, FBO Zion Oil Subscribers” and deposited
into such account until we receive and accept funds representing the Minimum
Offering amount. Funds in the escrow account may be invested in obligations
of,
or obligations guaranteed by, the United States government, bank money market
accounts, or certificates of deposit of national or state banks that have
deposits insured by the Federal Deposit Insurance Corporation (including
certificates of deposit of any bank acting as depositary or custodian for any
such funds). If we do not accept an investor's subscription, we will return
his
funds promptly, with interest, without deduction.
At
any
time after the Minimum Offering amount of $3,250 thousand (representing 325,000
Units) has been deposited into the escrow account, an initial closing will
be
scheduled and the funds, less the Underwriter's fees and expenses, will be
transferred at the closing into one of our operating accounts. Following the
initial closing, funds will continue to be deposited in the escrow account
until
the final closing following the termination of this Offering, which will take
place promptly following the earlier of (i) the receipt and acceptance of the
Maximum Offering amount of $25,000 thousand, or (ii) 180 days following the
date
of this Prospectus (which date may be extended by us for up to another 60 days),
or (iii) such date as announced by us on no less than two trading days' prior
notice. One or more interim closings may take place between the initial closing
and the final closing.
If
the
Minimum Offering amount is not reached by the Minimum Date of this offering
(which is now set for 90 days following the date of this prospectus, but which
may be extended by us for up to another 60 days), we will promptly refund and
return all monies to investors, with interest, without deduction. You will
therefore receive 100% of your money back if the minimum offering is not
subscribed, plus interest at money market rates.
None
of
our securities included in this Offering may be offered or sold, directly or
indirectly, nor may this Prospectus or any other offering material or
advertisements in connection with the offer and sales of any of our Units,
common stock or Unit Warrants be distributed or published in any jurisdiction,
except under circumstances that will result in compliance with the applicable
rules and regulations of that jurisdiction. This Prospectus is neither an offer
to sell nor a solicitation of any offer to buy any of our Units, common stock
or
Unit Warrants included in this Offering in any jurisdiction where that would
not
be permitted or legal.
Affiliates,
directors and officers of Zion may purchase Units in the offering for either
cash or in exchange for reduction of accounts payable. Cash purchases by
affiliates, directors and officers will be counted as part of the minimum
subscription amount necessary to effect an initial closing; but exchange
purchases by such persons for payment of compensation or reduction of accounts
payable (including deferred compensation) will not be so counted. While no
affiliate, director or current or prospective officer of Zion, has indicated
that he or she intends to purchase any of the Units offered hereby, certain
of
these persons may do so. The purchase of a significant number of Units by any
of
these persons could limit the breadth and scope of the market for our
securities. Any such purchases will be made for investment purposes only, and
not for redistribution.
The
Underwriter has informed us that it does not intend to make a market in our
securities.
Underwriting
Commissions
Under
the
terms of our agreement with the Underwriter, we will pay a commission on
completed cash sales to all United States residents and to any non-residents
of
the United States subscribing through the Underwriter of five percent (5%)
of
the subscription amount; provided, however, that in no event shall Underwriter
be entitled to less than a commission of two and one-half percent (2.5%) of
the
public offering price of the aggregate Units sold in the offering.
Under
the
terms of our agreement with the Underwriter we will also pay a non-accountable
expense allowance of three percent (3%), of which $40 thousand has been
advanced, of the aggregate cash subscription amount placed with all United
States residents and any non-United States residents subscribing through the
Underwriter; provided, however, that in no event shall the Underwriter be
entitled to less than a non-accountable expense allowance of 1.5% of the public
offering price of the aggregate Units sold by or through the Underwriter in
the
Offering. In January 2008, we advanced to Network Securities 1, Inc., the
underwriter that we previously engaged for this offering, $50,000 in respect
of
the 3% non-accountable expense allowance. As of April 2, 2008, the agreement
between us and Network 1, pursuant to which Network 1 was as the underwriter
on
this offering, was terminated. The new Underwriter has agreed to its 3% non
accountable expense allowance being reduced by any unreturned portion of the
$50,000 advance that we remitted to Network 1 in January 2008.
15
We
have
agreed to indemnify the Underwriter and certain persons associated with the
Underwriter against any costs or liabilities incurred by the Underwriter by
reasons of alleged misstatements or alleged omissions to state material facts
in
connection with statements made in the Registration Statement and the
Prospectus. The Underwriter has in turn agreed to indemnify Zion against any
liabilities by reason of alleged misstatements or alleged omissions to state
material facts in connection with the statements made in the Prospectus based
on
information relating to the Underwriter and furnished in writing by the
Underwriter as well as by reason of any actual breach by the Underwriter of
any
applicable federal or state law, rule or regulation or the requirements of
any
securities and self-regulatory organizations of which the Underwriter is a
member.
Underwriting
Agreement
The
foregoing is a summary of the principal terms of the underwriting agreement
and
does not purport to be complete. Reference is made to the copy of the
underwriting agreement which will be filed as an exhibit to the Registration
Statement.
Listing
Application with American Stock Exchange
Neither
the Units nor the Unit Warrants are listed by AMEX. We have applied to list
with
AMEX both the Units and Unit Warrants. We have been informed that, subject
to
the approval of our application, the ticker symbols "ZN.U" and "ZN.WS" have
been
reserved for Zion's use upon listing of the Units following the initial closing
of the Offering and of the Unit Warrants following the final termination of
the
Offering.
Our
common stock currently trades on the AMEX under the symbol ZN
State
Securities ("Blue Sky") and Foreign Securities Laws
In
order
to comply with certain blue sky and foreign securities laws, if applicable,
our
shares will be sold in such jurisdictions only through brokers or dealers that
are registered or licensed in the applicable jurisdiction or, in the case of
foreign jurisdictions, through our officers and directors if permitted under
the
laws of the foreign jurisdiction. In addition, in certain states and foreign
countries, our shares may not be sold unless the shares have been registered
or
qualified for sale in such state or an exemption from registration or
qualification is available and is satisfied. In certain states and foreign
countries, the amount of investment you might make, or whether or not you would
be allowed to invest, could depend upon you meeting the "suitability standards"
established by the state or country in which you reside. "Suitability standards"
are defined as "minimum net worth required, minimum income required and/or
maximum investment allowed" of or by a potential purchaser in this offering.
Our
officers, directors and Placement Agents will all be provided information on
a
current basis as to those states and foreign jurisdictions in which we have
qualified or in which we have an opinion of counsel that our shares are exempt
from registration, and the suitability standards, if any, required by such
states and foreign jurisdictions.
DESCRIPTION
OF SECURITIES TO BE REGISTERED
This
section describes the material terms of our capital stock under our certificate
of incorporation and bylaws. The terms of our articles of incorporation and
bylaws are more detailed than the general information provided below. Therefore,
you should carefully consider the actual provisions of these
documents.
Authorized
Capital Stock
As
of May
1, 2008, our authorized capital stock consists of 20,000,000 shares of common
stock, par value $.01 per share, of which 10,120,893 shares were outstanding
as
of such date. Additionally, we had, as of March 31, 2008, (a) outstanding
warrants to acquire 161,246 shares of common stock, of which (i) warrants to
purchase 114,625 shares will expire on Dec. 31, 2008, and (ii) warrants to
purchase 46,621 shares will expire on September 25, 2009, and (b) an additional
1,000,000 shares of common stock reserved for issuance under the company's
2005
Stock Option plan, of which options for 250,549 shares were awarded as of March
31, 2008.
Units
Each
Unit
consists of one share of common stock and one warrant to purchase one share
of
common stock. The Units will commence trading following the effective date
of
this offering until the 30 th
day
after the termination of the Offering, at which time the shares and the Unit
Warrant will without any further action separate and trade separately and the
Unit as such will cease to exist. The holders of Units will at all times,
including such time as the Unit is not separable, have the rights of all
shareholders holding our common stock.
16
Common
Stock
Our
shareholders are entitled to one vote per share on all matters submitted to
a
vote of shareholders. They are entitled to receive dividends when and as
declared by the board of directors out of legally available funds and to share
ratably in our assets legally available for distribution upon liquidation,
dissolution or winding up. Shareholders do not have subscription, redemption
or
conversion rights, or preemptive rights.
Our
shareholders do not have cumulative voting rights, the effect of which is that
the holders of more than half of all voting rights with respect to common stock
can elect all of our directors. The board of directors is empowered to fill
any
vacancies on the board of directors created by expansion of the board or
resignations, subject to quorum requirements.
Except
as
otherwise discussed below at "Business combination provision" and "Amendments",
all shareholder action is taken by vote of a majority of voting shares of our
capital stock present at a meeting of shareholders at which a quorum (a majority
of the issued and outstanding shares of the voting capital stock) is present
in
person or by proxy. Directors are elected by a plurality vote of the shares
present (by person or proxy) at a meeting.
Unit
Warrants
Each
Unit
Warrant offered pursuant to this Prospectus gives its holder the right to
purchase one share of common stock. The Unit Warrants will become first
exercisable only on the 31 st
day
following the Termination Date and will continue to be exercisable through
the
close of business on January 31, 2012 at a per share exercise price equal to
$7.00. The Unit Warrants are not exercisable prior to such date. A maximum
of
2,500,000 shares of common stock will be issuable upon the exercise of the
Unit
Warrants. The Unit Warrants will be issued pursuant to the terms of a warrant
agreement by us. We have authorized and reserved for issuance the shares of
common stock issuable on the exercise of the Unit Warrants.
The
Unit
Warrants issued in connection with the offering are not exercisable unless
we
have a current prospectus covering the shares of common stock to be issued
upon
exercise of such Unit Warrants and the shares have been registered, qualified
or
deemed to be exempt from registration under the securities laws of the state
of
residence of the exercising holder of the Unit Warrants. Although the law
requires and we have agreed to keep a registration statement effective which
covers the issuance of the common stock on exercise of the Unit Warrants, if
we
fail to do so for any reason, the Unit Warrants may not be exercisable and
therefore of no value. If the Unit Warrants are not exercisable at their
expiration date because a current registration statement for the shares to
be
issued upon exercise is not available, then the expiration date will be extended
until 30 days following notice from us that the Unit Warrants are again
exercisable. Nevertheless, there is a possibility that the Unit Warrants will
never be exercisable when in-the-money or otherwise, and that holders of Unit
Warrants will never receive shares of common stock. The Unit Warrants do not
confer on the warrant holder any voting, dividend or other stockholder
rights.
The
following summary describes provisions of our certificate of incorporation
and
bylaws. They may have the effect of discouraging a tender offer, proxy contest
or other takeover attempt that is opposed by our board of directors. These
provisions include:
|
|
·
|
restrictions
on the rights of shareholders to remove directors;
|
|
|
·
|
limitations
against shareholders calling a Special Meeting of shareholders or
acting
by unanimous written consent in lieu of a meeting;
|
|
|
·
|
|
|
|
·
|
restrictions
on business combination transactions with "related
persons."
|
Classified
board of directors and removal.
Our
certificate of incorporation provides that the board of directors shall be
divided into three classes, designated Class I, Class II and Class III, with
the
classes to be as nearly equal in number as possible. The term of office of
each
class expires at the third Annual Meeting of Shareholders for the election
of
directors following the election of such class (except for the initial classes).
Directors may be removed only for cause and only upon the affirmative vote
of
holders of at least 66 2/3% of our voting stock at a Special Meeting of
Shareholders called expressly for that purpose. The classification of directors
could have the effect of making it more difficult for shareholders to change
the
composition of the board of directors. At least two Annual Meetings of
Shareholders, instead of one, are generally required to effect a change in
a
majority of the board of directors.
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The
classification provisions could also have the effect of discouraging a third
party from initiating a proxy contest, making a tender offer or otherwise
attempting to obtain control of Zion, even though such an attempt might be
beneficial to us and our shareholders. The classification of the board of
directors could thus increase the likelihood that incumbent directors will
retain their positions. In addition, because the classification provisions
may
discourage accumulations of large blocks of stock by purchasers whose objective
is to take control of Zion and remove a majority of the board of directors,
the
classification of the board of directors could tend to reduce the likelihood
of
fluctuations in the market price of the common stock that might result from
accumulations of large blocks. Accordingly, shareholders could be deprived
of
opportunities to sell their shares of common stock at a higher market price
than
might otherwise be the case.
Shareholder
action by written consent and special meetings.
Our
bylaws provide that shareholder action can be taken only at an Annual or Special
Meeting of shareholders and may not be taken by written consent in lieu of
a
meeting once our number of shareholders exceeded sixty, which occurred in the
first quarter of 2003. Special Meetings of shareholders can be called only
upon
a resolution adopted by the board of directors. Moreover, the business permitted
to be conducted at any Special Meeting of shareholders is limited to the
business brought before the meeting under the Notice of Meeting given by us.
These provisions may have the effect of delaying consideration of a shareholder
proposal until the next Annual Meeting. These provisions would also prevent
the
holders of a majority of our voting stock from unilaterally using the written
consent or Special Meeting procedure to take shareholder action.
Advance
notice provisions for shareholder nominations and shareholder
proposals.
Our
bylaws establish an advance notice procedure for shareholders to make
nominations of candidates for election as directors or bring other business
before a meeting of shareholders. The shareholder notice procedure provides
that
only persons who are nominated by, or at the direction of, the board of
directors, or by a shareholder who has given timely written notice containing
specified information to our secretary prior to the meeting at which directors
are to be elected, will be eligible for election as our directors. The
shareholder notice procedure also provides that at a meeting of the shareholders
only such business may be conducted as has been brought before the meeting
by,
or at the direction of, the chairman of the board of directors, or in the
absence of the chairman of the board, the chief executive officer, the
president, or by a shareholder who has given timely written notice containing
specified information to our secretary of such shareholder's intention to bring
such business before such meeting.
Although
our bylaws do not give the board of directors any power to approve or disapprove
shareholder nominations for the election of directors or proposals for action,
they may have the effect of precluding a contest for the election of directors
or the consideration of shareholder proposals if the proper procedures are
not
followed, and of discouraging or deterring a third party from conducting a
solicitation of proxies to elect its own slate of directors or to approve its
own proposal, without regard to whether consideration of such nominees or
proposals might be harmful or beneficial to Zion and our
shareholders.
Business
combination provision.
Our
certificate of incorporation contains a provision for approval of specified
business combination transactions involving any person, entity or group that
beneficially owns at least 10% of our aggregate voting stock. Such person,
entity or group is sometimes referred to as a "related person". This provision
requires the affirmative vote of the holders of not less than 66 2/3% of our
voting stock to approve specified transactions between a related person and
Zion, including:
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any
merger or consolidation;
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any
sale, lease, exchange, mortgage, pledge, transfer or other disposition
of
our assets having a fair market value of more than 10% of our total
consolidated assets, or assets representing more than 10% of our
cash flow
or earning power, or 10% of stockholders' equity, which is referred
to as
a "substantial part";
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any
sale, lease, exchange, mortgage, pledge, transfer or other disposition
to
or with us of all or a substantial part of the assets of a related
person;
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any
reclassification of securities, recapitalization, or any other transaction
involving us that would have the effect of increasing the voting
power of
a related person;
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the
adoption of a plan or proposal for our liquidation or dissolution
proposed
by or on behalf of a related person; and
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the
entering into of any agreement, contract or other arrangement providing
for any of the transactions described
above.
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This
voting requirement will not apply to certain transactions, including any
transaction approved by a majority vote of the directors (called "Disinterested
Directors") who are not affiliated or associated with the related person
described above, provided that there are at least three Disinterested Directors.
This provision could have the effect of delaying or preventing a change in
control of Zion in a transaction or series of transactions.
Liability
of directors and indemnification.
Our
certificate of incorporation provides that a director will not be personally
liable to Zion or our shareholders for breach of fiduciary duty as a director,
except to the extent that such exemption or limitation of liability is not
permitted under Delaware General Corporation Law. Any amendment or repeal of
such provisions may not adversely affect any right or protection of a director
existing under our certificate of incorporation for any act or omission
occurring prior to such amendment or repeal.
Our
certificate of incorporation and bylaws provide that each person who at any
time
serves or served as one of our directors or officers, or any person who, while
one of our directors or officers, is or was serving at our request as a director
or officer of another corporation, partnership, joint venture, trust or other
enterprise, is entitled to indemnification and the advancement of expenses
from
Zion, to the fullest extent permitted by applicable Delaware law. However,
as
provided under applicable Delaware General Corporation Law, this indemnification
will only be provided if the indemnitee acted in good faith and in a manner
he
or she reasonably believed to be in, or not opposed to, the best interests
of
Zion.
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Amendments.
Our
certificate of incorporation provides that we reserve the right to amend, alter,
change, or repeal any provision contained in our certificate of incorporation,
and all rights conferred to shareholders are granted subject to such
reservation. The affirmative vote of holders of not less than 80% of our voting
stock, voting together as a single class, is required to alter, amend, adopt
any
provision inconsistent with, or to repeal certain specified provisions of our
certificate of incorporation. However, the 80% vote described in the prior
sentence is not required for any alteration, amendment, adoption of inconsistent
provision or repeal of the "business combination" provision discussed under
the
"Business combination provision" paragraph above which is recommended to the
shareholders by two-thirds of our Disinterested Directors, and such alteration,
amendment, adoption of inconsistent provision or repeal shall require the vote,
if any, required under the applicable provisions of the Delaware General
Corporation Law, our certificate of incorporation and our bylaws. In addition,
our bylaws provide that shareholders may only adopt, amend or repeal our bylaws
by the affirmative vote of holders of not less than 66-2/3% of our voting stock,
voting together as a single class. Our bylaws may also be amended by the
affirmative vote of two-thirds of our board of directors.
AMEX
Listing Symbols
Our
common stock is currently traded on the AMEX Market under the symbol "ZN."
The
symbols "ZN.U" and "ZN.WS" have been reserved to designate each of,
respectively, the Units and the Unit Warrants, subject to listing of these
securities by AMEX. A listing application to list these securities is currently
pending before AMEX.
Transfer
Agent and Registrar
The
transfer agent and registrar for our common stock is Registrar and Transfer
Company, Cranford, New Jersey.
Aboudi
& Brounstein will pass on the validity of the issuance of the shares of
common stock offered by this prospectus. Certain legal matters in connection
with this offering will be passed upon for the Underwriter by Guzov Ofsink,
LLC,, New York, New York.
EXPERTS
Our
audited financial statements for the period from April 6, 2000 (inception)
to
December 31, 2004, have been audited by Lane Gorman Trubitt, L.L.P., independent
registered public accounting firm, as set forth in their report thereon included
in our Annual Report on Form 10-KSB for the year ended December 31, 2007. Such
financial statements have been incorporated in this prospectus by reference
to
our Annual Report on Form 10-KSB for the year ended December 31, 2007, in
reliance on the authority of said firm as experts in auditing and
accounting.
The
financial statements of Zion Oil & Gas, Inc. (a development stage
enterprise) as of December 31, 2007 and 2006, and for the years ended December
31, 2007 and 2006 and for the period from April 6, 2000 (inception) to December
31, 2007 have been incorporated by reference herein in reliance upon the report
of Somekh Chaikin, a member of KPMG International and an independent registered
public accounting firm and Lane Gorman Trubitt, L.L.P., independent registered
public accounting firm, incorporated herein by reference, and upon authority
of
said firms as experts in accounting and auditing. Such report contains an
explanatory paragraph that states that Zion is in the development stage and
has
no operating revenue, limited capital resources and a loss from operations,
all
of which raise substantial doubt about Zion's ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
WHERE
YOU CAN FIND MORE INFORMATION
This
prospectus is part of a registration statement on Form S-3 filed by us with
the
SEC relating to the shares of our common stock offered under this prospectus.
As
permitted by SEC rules, this prospectus does not contain all of the information
contained in the registration statement and accompanying exhibits and schedules
filed by us with the SEC. The registration statement, exhibits and schedules
provide additional information about us and our common stock. The registration
statement, exhibits and schedules are available at the SEC's public reference
rooms or the SEC website at www.sec.gov
.
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INFORMATION
INCORPORATED BY REFERENCE
The
SEC
allows us to "incorporate by reference" into this prospectus the information
we
file with the SEC. This permits us to disclose important information to you
by
referencing these filed documents. Any information referenced in this way is
considered part of this prospectus and any prospectus supplement. Any
information filed with the SEC after the date on the cover of this prospectus
or
any prospectus supplement will automatically be deemed to update and supersede
this prospectus and such prospectus supplement. We incorporate by reference
the
documents listed below and any future filings made by us with the SEC with
file
number 001-11252 under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended, until all of the securities described in
this
prospectus are sold:
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our
Annual Report on Form 10-KSB for the year ended December 31,
2007;
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our
definitive proxy statement filed on April 29, 2008;
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our
Current Report on Form 8-K filed on January 24, 2008;
and
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the
description of our common stock in our registration statement on
Form 8-A
filed with the SEC on December 29, 2006, including any amendments
or
reports filed for the purpose of updating such
description.
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You
can
request a copy of any document incorporated by reference in this prospectus,
at
no cost, by writing or telephoning or e-mailing us at the following contacts:
address: 6510 Abrams Road, Suite 300, Dallas, Texas 75231; telephone:
(214)221-6410; email: ashley@zionoil.com
.
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES
ACT
LIABILITIES
Our
Bylaws provide that we will indemnify our directors and officers and may
indemnify our employees and other agents to the fullest extent permitted by
law.
We believe that indemnification under our Bylaws covers at least negligence
and
gross negligence by indemnified parties, and permits us to advance litigation
expenses in the case of stockholder derivative actions or other actions, against
an undertaking by the indemnified party to repay such advances if it is
ultimately determined that the indemnified party is not entitled to
indemnification. We have liability insurance for our directors and
officers.
In
addition, our Certificate of Incorporation provides that, under Delaware law,
our directors shall not be liable for monetary damages for breach of the
directors' fiduciary duty as a director to us and our stockholders. This
provision in the Certificate of Incorporation does not eliminate the directors'
fiduciary duty, and in appropriate circumstances equitable remedies such as
injunctive or other forms of non-monetary relief will remain available under
Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to our Company for acts
or omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for actions leading to improper personal benefit to the
director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws.
Provisions
of our Bylaws require us, among other things, to indemnify our directors and
officers against certain liabilities that may arise by reason of their status
or
service as directors or officers (other than liabilities arising from actions
not taken in good faith or in a manner the indemnitee believed to be opposed
to
our best interests) to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified and to obtain
directors' and officers' insurance if available on reasonable terms. To the
extent that indemnification for liabilities arising under the Securities Act
of
1933 may be permitted to directors, officers or persons controlling our Company
as discussed in the foregoing provisions, we have been informed that in the
opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act of 1933, and is therefore unenforceable. We
believe that our Certificate of Incorporation and Bylaw provisions are necessary
to attract and retain qualified persons as directors and officers.
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