As filed
with the Securities and Exchange Commission on July 29, 2009
Registration
No. 333-_______
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
S-3
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ZION OIL & GAS,
INC.
(Exact
name of registrant as specified in its charter)
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Delaware
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20-0065053
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer
Identification
Number)
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6510
Abrams Road, Suite 300
Dallas,
Texas 75231
(214)
221-4610
(Address,
including zip code, and telephone number,
including
area code, of registrant's principal executive offices)
Richard
Rinberg
Chief
Executive Officer
6510
Abrams Road, Suite 300
Dallas,
Texas 75231
(214)
221-4610
(Name,
address, including zip code, and telephone number, including area code, of agent
for service)
Copies
to:
David
Aboudi, Esq.
Aboudi
& Brounstein
3
Gavish Street
Kfar
Saba, 44641, Israel
+972-9-764-4833
Approximate date of commencement of
proposed sale to the public: As soon as practicable after this
Registration Statement becomes effective.
If the
only securities being registered on this Form are being offered pursuant to
dividend or interest reinvestment plans, please check the following box. o
If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. o
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If this
Form is a registration statement pursuant to General Instruction I.D. or a
post-effective amendment thereto that shall become effective upon filing with
the Commission pursuant to Rule 462(e) under the Securities Act, check the
following box. o
If this
Form is a post-effective amendment to a registration statement pursuant to
General Instruction I.D. filed to register additional securities or additional
classes of securities pursuant to Rule 413(b) under the Securities Act, check
the following box. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer ¨ Smaller Reporting
Company x
CALCULATION
OF REGISTRATION FEE
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Title of each class of securities
to be registered
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Amount to be
registered
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Proposed maximum
offering price
per unit(1)
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Proposed maximum
aggregate offering price
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Amount of
registration fee
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Rights
to purchase Common Stock, $.01 par value
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2,000,000 |
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N/A |
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N/A |
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$ |
0 |
(2) |
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Common
Stock, $0.01 par value, issuable upon exercise of non-transferable
rights
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2,000,000 |
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$ |
5.00 |
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$ |
10,000,000 |
(3) |
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$ _558
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(1)
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Estimated solely for the purpose
of calculating the registration fee pursuant to
Rule 457(o) under the Securities Act of 1933, as
amended.
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(2)
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The rights are being issued
without consideration. Pursuant to Rule 457(g), no separate
registration fee is payable.
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(3)
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Represents the gross proceeds
from the assumed exercise of all non-transferable rights
issued.
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The registrant hereby amends this
registration statement on such date or dates as may be necessary to delay its
effective date until the registrant shall file a further amendment which
specifically states that this registration statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933, as
amended, or until the registration statement shall become effective on such date
as the Commission, acting pursuant to said Section 8(a), may
determine.
The
information in this prospectus is not complete and may be changed. The
securities described herein may not be sold until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities and is not soliciting an offer to buy
these securities in any state where the offer or sale is not
permitted.
Subject
to Completion, dated ________, 2009
Zion
Oil & Gas, Inc.
2,000,000
Subscription Rights
Up
to 2,000,000 Shares of Common Stock
Issuable
Upon Exercise of Subscription Rights
ZION OIL
& GAS, INC. is distributing, at no cost, non-transferable subscription
rights to purchase shares of common stock in this rights offering to persons who
owned shares of our common stock on August __, 2009.
You will
receive .13 of a subscription right (THIRTEEN subscription rights
for each ONE HUNDRED shares) for each share
of common stock that you owned on August __, 2009. You will not receive any
fractional rights; instead the number of subscription rights you receive will be
rounded up to the next largest whole number. Each whole subscription right
entitles you to purchase one share of common stock at the purchase price of
$5.00 per share.
The
subscription rights are exercisable beginning on the date of this prospectus and
continuing until 5:00 p.m., Eastern Standard Time, on September __,
2009. If you want to participate in the rights offering, we recommend that
you submit your subscription documents to us before that deadline or to your
broker or bank at least 10 days before that deadline. Please see page 17
for further instructions on submitting subscriptions. All subscriptions will be
deposited into a segregated account maintained by us. We may, in our sole
discretion, extend the period for exercising rights or terminate the offering
earlier than the scheduled termination date upon two business days’
notice.
There is
no minimum number of shares that we must sell in order to complete the rights
offering. If you exercise your rights in full, you may also exercise an
over-subscription right to purchase additional shares of common stock that
remain unsubscribed at the expiration of the rights offering, subject to
availability and allocation of shares among persons exercising this
over-subscription right. Rights that are not exercised by the expiration date
will expire and have no value. Shareholders who do not participate in the rights
offering will continue to own the same number of shares, but will own a smaller
percentage of the total shares outstanding to the extent that other shareholders
participate in the rights offering.
The
subscription rights may not be sold or transferred except for being transferable
to affiliates of the recipient and by operation of law.
Shares of
our common stock are traded on the NYSE Amex under the symbol “ZN”. The last
sale price of our common stock on July 28, 2009 was $10.47. The shares of common
stock issued in the rights offering will also be listed on the NYSE
Amex.
Investing
in the securities offered by this prospectus is risky. You should read this
prospectus carefully before you invest. You should carefully consider the “Risk
Factors” section beginning on page 8 before deciding whether to exercise
your subscription rights.
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Subscription
Exercise Price
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Proceeds to
ZION OIL &
GAS, INC.(1)
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Per
Share
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$
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5.00
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$
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10,000,000
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Total
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$
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5.00
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$
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10,000,000
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(1)
Before deducting expenses payable by us, estimated to be $165,000. Assumes all
subscriptions rights will be exercised in the offering, which may not be the
case because we do not expect all of our shareholders to exercise their
subscription rights and over-subscription rights.
The
securities are not being offered in any jurisdiction where the offer is not
permitted under applicable local laws.
Neither
the 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.
The date
of this prospectus is ______, 2009
TABLE
OF CONTENTS
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Page
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Special
Note Regarding Forward Looking Statements
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1
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Prospectus
Summary
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3
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Risk
Factors
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8
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Use
of Proceeds
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13
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Capitalization
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14
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Determination
of Offering Price
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14
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Dilution
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14
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The
Rights Offering
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15
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Plan
of Distribution
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20
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Federal
Income Tax Considerations
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20
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State
and Foreign Securities Laws
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21
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Description
of Securities to be Registered
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21
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Company
Overview
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23
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Legal
Matters
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24
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Experts
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24
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Where
You Can Find More Information
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25
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Information
Incorporated by Reference
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25
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Disclosure
of Commission Position on Indemnification for Securities Act
Liabilities
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25
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SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus and the documents included or incorporated by reference in this
prospectus contain statements concerning our expectations, beliefs, plans,
objectives, goals, strategies, future events or performance and underlying
assumptions and other statements that are not historical facts. These statements
are "forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. You generally can identify our forward-looking
statements by the words "anticipate," "believe," "budgeted," "continue,"
"could," "estimate," "expect," "forecast," "goal," "intend," "may," "objective,"
"plan," "potential," "predict," "projection," "scheduled," "should," "will" or
other similar words. These forward-looking statements include, among others,
statements regarding:
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*
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our ability to explore for and
develop natural gas and oil resources successfully and
economically;
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*
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our estimates of the timing and
number of wells we expect to drill, other exploration activities and the
cost of those activities;
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*
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anticipated trends in our
business;
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our future results of
operations;
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our liquidity and our ability to
raise capital to finance our exploration and development
activities;
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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.
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-K for the fiscal year ended December 31, 2008 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.
PROSPECTUS
SUMMARY
This
section answers in summary form some questions you may have about ZION OIL &
GAS, INC. and this rights offering. The information in this section is a summary
and therefore does not contain all of the information that you should consider
before deciding whether to exercise your subscription rights. You should read
the entire prospectus carefully, including the “Risk Factors” section and the
documents listed under “Where You Can Find More Information.”
In
what business is ZION OIL & GAS, INC. engaged?
Zion Oil
& Gas was incorporated in Florida on April 6, 2000 and reincorporated in
Delaware on July 9, 2003. We are an initial stage oil and gas exploration
company with a history of over nine years of oil and gas exploration in Israel.
We have no revenues or operating income and are classified as an "exploration
stage" company.
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 under Israeli Petroleum Law.
In June 2009, we were advised by the Israeli Petroleum Commissioner that we will
be awarded a preliminary exclusive exploration permit, the Issachar-Zebulun
Permit, which will extend Zion’s petroleum rights from the Mediterranean at
Caesarea across the Carmel Mountains to Megiddo and through to the Jordan River
immediately south of the Sea of Galilee. The Issachar Zebulun Permit
increases Zion’s total petroleum exploration rights area to approximately
327,000 acres. This permit has an eighteen month term that allows the
Company to conduct, on an exclusive basis, preliminary investigations, except
for test drilling, to ascertain the prospects for discovering petroleum in the
area covered by the permit.
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 to a depth of 15,482 feet to the Triassic
formation with encouraging, but inconclusive results. We are utilizing a
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.
In May
2009, we commenced drilling a well (the Ma’anit-Rehoboth #2 well) to an ultimate
target depth of 18,040 feet. Utilizing a 2,000 horsepower drilling rig and rig
crews, imported from Turkey, directional drilling equipment and crew from Baker
Hughes INTEQ, Italy and logging equipment from Baker Hughes - Baker Atlas, we
completed drilling and logging the intermediate hole at a depth of 15,850 feet
in July 2009 and are currently evaluating the results internally. In addition,
independent consultants in Houston, Texas are also evaluating the well logs to
determine whether recoverable hydrocarbons in commercial quantities may be
present. These evaluations are being undertaken in order to see what
potential may exist in the Triassic, but have no bearing on our plan to drill to
the total depth of 18,040 feet.
After
setting intermediate casing, we continue to drill towards our projected depth of
approximately 18,040 feet. Our work program calls for the drilling of
an additional well to a minimum depth of approximately 4,500 meters (14,800
feet) on the Asher-Menashe License (the Elijah #3) by January
2010. We intend to commence drilling operations on the Elijah #3 well
as soon as we complete the appraisal and drilling on the Ma’anit-Rehoboth #2
well, which we estimate will be in September 2009.
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, even if we are successful in discovering oil and
gas.
Where
is Zion Located?
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
..
What
is a rights offering?
A rights
offering is ordinarily an issuance of subscription rights to a company's
existing shareholders to buy a proportional number of additional securities at a
given price (usually at a discount) within a fixed period. A rights offering is
an opportunity for you to purchase additional shares of common stock at a fixed
price and in an amount at least proportional to your existing interest, which
enables you to maintain, and possibly increase, your current percentage
ownership.
Why are we engaging in a rights
offering immediately following the expiration of our recent rights
offering?
In June
2009, we raised gross proceeds of $21 million from a rights offering to common
stockholders of up to 4.2 million shares of our common stock. The rights
offering commenced on May 4, 2009, following the declaration of the
effectiveness of the registration statement filed with the SEC in respect of
such offering. Under the rights offering, stockholders of record on the record
date of May 4, 2009 of shares of the Company’s common stock received, by way of
a dividend, .375 of a subscription right for each share held as of such date
(three subscription rights for each eight shares). Each whole subscription right
entitled the shareholder to purchase one share of common stock at the purchase
price of $5.00 per share. The rights offering was over-subscribed and we
returned approximately $1.1 million in over-subscriptions. As the completed
rights offering was fully subscribed, we distributed all 4.2 million shares of
our common stock available.
In light
of the very positive reception that our shareholders have given to the completed
rights offering and in order to afford an opportunity to shareholders who were
not able to exercise subscription rights to the extent that they desired, our
Board of Directors has determined to commence a new rights offering to our
stockholders at the same per share subscription price as the offering completed
in June 2009. Our drilling program is expensive and we contemplate that we will
need to raise additional amounts of capital beyond the $10 million in this
present rights offering in order to fully execute our business plan. Prior to
accessing other sources of capital, we want to give existing shareholders the
opportunity to participate in our capital-raising efforts in a manner that
allows them to maintain their proportional ownership interest
in us.
How
will we use the proceeds from the rights offering?
We are
making this rights offering with the intention of raising up to $10 million
(before payment of offering related expenses approximating
$165,000).
We intend to use the net proceeds of
the offering to continue our drilling program and the development of our license
and permit areas and for other operational expenses.
What
is the basic subscription right?
You will
receive .13 of a subscription right (THIRTEEN subscription rights
for each ONE HUNDRED
shares) for each share of common stock that you owned on August __, 2009. You
will not receive any fractional rights; instead the number of subscription
rights you receive will be rounded up to the next largest whole number. Each
whole basic subscription right entitles you to purchase one share of our common
stock at a subscription price of $5.00 per share. You may exercise any number of
your subscription rights, or you may choose not to exercise any subscription
rights. We will not distribute any fractional subscription rights, but instead
we will round up the aggregate number of rights you receive to the next whole
number.
What
is the over-subscription right?
We do not
expect all of the basic subscription rights to be exercised. The
over-subscription right provides shareholders that exercise all of their basic
subscription rights the opportunity to purchase the shares that are not
purchased by other shareholders. If you fully exercise your basic subscription
right, the over-subscription right of each right entitles you to subscribe for
additional shares of our common stock unclaimed by other holders of rights in
this offering at the same subscription price per share. If an insufficient
number of shares is available to fully satisfy all over-subscription right
requests, the available shares will be distributed proportionately among rights
holders who exercise their over-subscription right based on the number of shares
each rights holder subscribed for under the basic subscription right. We will
return any excess payments by mail without interest or deduction promptly after
the expiration of the subscription period.
Who
may participate in this offering?
Only
holders of record of our common stock as of August __, 2009 are entitled to
participate in this offering.
Am
I required to subscribe in this offering?
No. However,
shareholders who choose not to exercise their rights will experience dilution
to their equity interest in our company.
How
long will the rights offering last?
You will
be able to exercise your subscription rights only during a limited period. To
exercise a subscription right, you must do so by 5:00 p.m., Eastern Standard
Time, on September __, 2009, unless we extend the rights offering or
terminate it earlier. We may, in our sole discretion, extend the offering on one
or more occasions, for any reason. We may also terminate the rights
offering earlier than the scheduled expiration date by giving two business days
notice. Accordingly, if a rights holder desires to exercise its
subscription rights, we must actually receive all required documents and
payments for that rights holder before the expiration date and
time.
May
the Board of Directors cancel, amend, or extend the rights
offering?
The Board
of Directors may not cancel or amend the terms of the rights offering. The Board
of Directors may, however, extend the subscription period of the rights
offering, although it does not presently intend to do so.
If we
elect to extend the scheduled termination date, we will issue a press release
announcing such decision no later than 9:00 a.m., Eastern Daylight Time, on the
next business day after the decision has been taken.
Can
the rights offering be terminated prior to the scheduled termination
date?
Yes. The
offering may be terminated by us prior to the scheduled termination date upon
two business days notice. If we elect to terminate early, we will issue a press
release announcing such early termination no later than 9:00 a.m., Eastern
Daylight Time, on the next business day after the decision to so terminate has
been taken.
If
the offering is terminated earlier than the scheduled termination date, then we
will accept all valid subscriptions received by the time of early termination
and shares will be issued for all subscriptions accepted by us as soon as
practicable. No subscriptions will be accepted after the announced termination
date.
May I
transfer, sell or give away my subscription rights?
No.
Should you choose not to exercise your subscription rights, you may not sell,
give away or otherwise transfer your rights. However, subscription rights will
be transferable to affiliates of the recipient and by operation of law, for
example, upon death of the recipient.
How
many shares may I purchase?
You will
receive .13 of a subscription right (THIRTEEN subscription rights
for each ONE HUNDRED
shares) for each share of common stock that you owned as a holder of record on
August __, 2009. We will not distribute fractional subscription rights, but will
round the number of subscription rights you are to receive up to the next
largest whole number. Each whole subscription right entitles you to purchase one
share of common stock for $5.00. If you fully exercise all of your basic
subscription rights, your over-subscription rights entitle you to subscribe for
additional shares of our common stock unclaimed by other holders of rights in
this offering at the same subscription price per share. If an insufficient
number of shares is available to fully satisfy all over-subscription right
requests, the available shares will be distributed proportionately among rights
holders who exercise their over-subscription right based on the number of shares
each rights holder subscribed for under the basic subscription right pursuant to
the allocation procedures described below in “THE RIGHTS OFFERING-THE
SUBSCRIPTION RIGHTS-OVER SUBSCRIPTION RIGHT.”
How
do I exercise my subscription rights?
You may
exercise your subscription rights by properly completing and signing your
subscription form and delivering it, with full payment of the subscription price
for the shares you are subscribing, including any over-subscription right, to us
on or prior to 5:00 pm Eastern Standard Time, on September __,
2009. If you use the mail, we recommend that you use insured,
registered mail, return receipt requested. If you cannot deliver your
subscription agreement to us on time, you may follow the guaranteed delivery
procedures described under “The Offering - Guaranteed Delivery
Procedures.”
Is
exercising my subscription rights risky?
The
exercise of your subscription rights involves risks. Exercising your
subscription rights means buying additional shares of our common stock and
should be considered as carefully as you would consider any other equity
investment. Among other things, you should carefully consider the risks
described under the heading “RISK FACTORS,” beginning on
page 8.
After
I exercise my subscription rights, may I change my mind and cancel my
purchase?
No. Once
you send in your subscription agreement and payment, you cannot revoke the
exercise of your subscription rights, even if you later learn information about
us that you consider to be unfavorable and even if the market price of our
common stock is below the $5.00 per share purchase price. You should not
exercise your subscription rights unless you are certain that you wish to
purchase additional shares of our common stock at a price of $5.00 per
share.
What
happens if I choose not to exercise my subscription rights?
You will
retain your current number of shares of common stock even if you do not exercise
your subscription rights. However, if other shareholders exercise their
subscription rights and you do not, the percentage of our company that you own
will diminish, and your voting and other rights will be diluted. Your rights
will expire and have no value if they are not exercised by the expiration
date.
Will
I be charged any fees if I exercise my rights?
We will
not charge a fee to holders for exercising their rights. However, any holder
exercising its rights through a broker, dealer or nominee will be responsible
for any fees charged by its broker, dealer or nominee.
If
I exercise my rights, when will I receive the shares for which I have
subscribed?
We will
issue the shares of common stock for which subscriptions have been properly
received as soon as practicable after the expiration date of this rights
offering, whether or not you exercise your subscription rights immediately prior
to that date or earlier. If we elect to extend the termination date
of the offering, we may also elect to hold one or more interim closings prior to
the termination date. As soon as practically possible after each such closing,
we will, as soon as practically possible, issue certificates representing the
primary rights purchased at each such closing.
What
if my shares are not held in my name?
If you
hold your shares of our common stock in the name of a broker, dealer or other
nominee, then your broker, dealer or other nominee is the record holder of the
shares you own. The record holder must exercise the rights on your behalf for
the shares of common stock you wish to purchase. Therefore, you will need to
have your record holder act for you.
If you
wish to participate in this rights offering and purchase shares of common stock,
please promptly contact the record holder of your shares. We will ask your
broker, dealer or other nominee to notify you of this rights offering. You
should complete and return to your record holder the form entitled “Beneficial
Owner Election Form.” You should receive this form from your record holder with
the other rights offering materials. If you hold your shares through
a brokerage account, you should note that most brokerages permit the beneficial
owner to exercise their rights on one occasion only. Accordingly, if you plan to
exercise your over-subscription right, you should do so at the time that you
submit your subscription to your broker.
How
many shares of ZION OIL & GAS common stock are currently outstanding, and
how many shares will be outstanding after the rights offering?
As of
June 30, 2009, we had outstanding a total of 15,056,653 shares of common stock.
This figure excludes 1,050,000 shares issuable pursuant to warrants, stock
options and shares that may be issued pursuant to the 2005 Employee Stock Option
Plan. This figure also excludes the shares issuable upon exercise of the unit
warrants to purchase up to 645,268 shares of our common stock that we issued in
connection with our follow-on public offering that we completed in January 2009.
See “COMPANY OVERVIEW - COMPLETED PUBLIC OFFERING” The number of shares of
common stock that will be outstanding after the rights offering will depend on
the number of shares that are purchased in the rights offering. If we sell all
of the shares being offered, then we will issue approximately 2,000,000 shares
of common stock. In that case, we will have approximately 17,056,653 shares of
common stock outstanding after the rights offering. This would represent an
increase of approximately 13% in the number of outstanding shares of common
stock. However, we do not expect that all of the subscription rights will be
exercised.
How
did we arrive at the $5.00 per share subscription price?
In
addition, given that one of the reasons for this offering is to allow persons
from the recently completed rights offering an opportunity to obtain the shares
they were not able to obtain in that offering, we determined to maintain the per
share price of the recently completed rights offering. Our board of directors
determined that the subscription price should be designed to provide an
incentive to our current stockholders to exercise their rights in the rights
offering. Other factors considered in setting the subscription price included
the amount of proceeds desired, our need for equity capital, the historic and
current market price of our common stock, the historic volatility of the market
price of our common stock, our business prospects, alternatives available to us
for raising equity capital, and the liquidity of our common stock. The
subscription price does not necessarily bear any relationship to our past
operations, cash flows, book value, current financial condition, or any other
established criteria for value. You should not consider the subscription price
as an indication of the value of ZION OIL & GAS or our common
stock.
How
much money will ZION OIL & GAS receive from the rights
offering?
If we
sell all the shares being offered, we will receive gross proceeds of
approximately $10,000,000. After deduction of $165,000
in estimated expenses, we will have net proceeds of $9,835,000.
We are offering shares in the rights offering with no minimum purchase
requirement. As a result, there is no assurance we will be able to sell all or
any of the shares being offered, and it is not likely that all of our
shareholders will purchase all the shares offered in the rights
offering.
What
are the United States federal income tax consequences to me of exercising my
subscription rights?
The
receipt and exercise of your subscription rights are intended to be nontaxable
events for U.S. shareholders. However, you should seek specific tax advice from
your personal tax advisor. See “FEDERAL INCOME TAX CONSIDERATIONS-TAXATON OF OUR
SHAREHOLDERS.”
Has
the board of directors made a recommendation as to whether I should sell or
exercise my rights?
No. Neither
we nor our board of directors has made any recommendation as to whether you
should exercise your rights. You should decide whether to subscribe for shares
of our common stock, or simply take no action with respect to your rights, based
upon your own assessment of your best interests.
What
if I have other questions?
If you
have other questions about the rights offering, please contact our Dallas
office, by telephone at (888) 891-9466 or (214) 221-4610.
GOING
CONCERN CONSIDERATIONS
We are a
development stage company with limited capital resources, no revenue and a loss
from operations. We incurred net losses of $4,018,000 and $13,047,000 for the
years ended December 31, 2008 and 2007, respectively and $916,000 for the
quarter ended March 31, 2009. We have incurred significant losses since our
inception on April 6, 2000 and our accumulated deficit as of December 31, 2008
was $24,405,000 and for March 31, 2009 was $25,321,000. We cannot assure that we
will ever be profitable. These factors have raised substantial doubt about our
ability to continue as a going concern. See “RISK FACTORS on
page 8 relating to our ability to continue as a ‘going concern’ and our
need to raise additional funds to realize our business plans.
RISK
FACTORS
You
should carefully consider the risks described below before making a decision to
buy our securities. Investing in our common stock 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. Risks and uncertainties not
presently known to us or that we currently deem immaterial may also affect our
business operations.
Risks
Related to Our Business
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.
We
may require additional funds to drill additional wells.
Our
planned work program is expensive. Following the raise of gross proceeds of $21
million from the rights offering that we completed in June 2009, we believe that
our cash reserves are sufficient to enable us to complete the well we are
currently drilling (the Ma'anit-Rehoboth #2 on our Joseph license area), as well
as to drill an additional well (which we currently contemplate will be the
Elijah #3 on our Asher-Menashe license area). To continue our drilling beyond
that point, we will need to raise additional capital. We may also need to raise
additional capital in order to take advantage of business opportunities that
become available to us. We have no commitments for any financing and no
assurance can be provided that we will be able to raise funds when needed. If we
do not raise funds from this offering, our management anticipates that it will
have sufficient funds for our activities through September 2010. We estimate
that our current non-discretionary monthly expenditure rate to be approximately
$250,000. The recent and continuing turmoil in the credit and equity markets may
adversely affect our ability to raise the needed finds from this offering or
from alternative sources.
In any
event, 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.
A
substantial and extended decline in oil or natural gas prices could adversely
impact our future rate of growth and the carrying value of our unproved oil
& gas assets.
Prices
for oil and natural gas fluctuate widely. Fluctuations in the prices of oil and
natural gas will affect many aspects of our business, including our ability to
attract capital to finance our operations, our cost of capital, and the value of
our unproved oil and natural gas properties. Prices for oil and natural gas may
fluctuate widely in response to relatively minor changes in the supply of and
demand for oil and natural gas, market uncertainty and a wide variety of
additional factors that are beyond our control, such as the domestic and foreign
supply of oil and natural gas, the ability of members of the Organization of
Petroleum Exporting Countries to agree to and maintain oil price and production
controls, technological advances affecting energy consumption, and domestic and
foreign governmental regulations. Significant and extended reductions in
oil and natural gas prices could require us to reduce our capital expenditures
and impair the carrying value of our assets.
If we are
successful in finding commercial quantities of oil and/or gas, our revenues,
operating results, financial condition and ability to borrow funds or obtain
additional capital will depend substantially on prevailing prices for oil and
natural gas. Declines in oil and gas prices may materially adversely affect our
financial condition, liquidity, ability to obtain financing and operating
results. Lower oil and gas prices also may reduce the amount of oil and gas that
we could produce economically.
Historically,
oil and gas prices and markets have been volatile, with prices fluctuating
widely, and they are likely to continue to be volatile, making it impossible to
predict with any certainty the future prices of oil and gas.
We
have no proved reserves or current production and we may never have
any.
We do not
have any proved reserves or current production of oil or gas. We cannot assure
you that any wells will be completed or produce oil or gas in commercially
profitable quantities.
We
have a history of losses and we and we cannot assure you that we will ever be
profitable.
We
incurred net losses of $4,018,000 and $13,047,000 for the years ended December
31, 2008 and 2007, respectively and 916,000 for the quarter ended March 31,
2009. The loss for the year ended December 31, 2007 included an impairment
charge of $9,494,000 to our unproved oil and gas properties. Our
accumulated deficit as of December 31, 2008 was $24,405,000 and at March 31,
2009 was $25,321,000. We cannot assure that we will ever be
profitable.
Oil
and gas exploration is an inherently risky business.
Exploratory
drilling involves enormous risks, including the risk that no commercially
productive oil or natural gas reservoirs will be discovered. Even when properly
used and interpreted, seismic data analysis and other computer simulation
techniques are only tools used to assist geoscientists in trying to identify
subsurface structures and 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 adversely affect our operations and/or inhibit our ability to raise
capital.
Our
operations are concentrated in Israel and could be directly affected by
political, economic and military conditions in Israel. Efforts to secure a
lasting peace between Israel and its Arab neighbors and Palestinian residents
have been underway since the State of Israel was established in 1948, and the
future of these peace efforts is still uncertain.
Kibbutz
Ma'anit (where we drilled our first well and are drilling the Ma’anit-Rehoboth
#2) is in an area adjacent to Israeli Arab towns where anti-Israeli rioting
broke out in late 2000. On December 27, 2008, Israel began a military offensive
against the Hamas terrorist organization infrastructure based in Gaza. (Gaza is
in the South and our license areas are in the north of
Israel.) Currently, a cease-fire is in effect. Any future
armed conflict, 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.
Economic
risks may adversely affect our operations and/or inhibit our ability to raise
additional capital.
Economically,
our operations in Israel may be subject to:
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exchange rate
fluctuations;
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royalty and tax increases and
other risks arising out of Israeli State sovereignty over the mineral
rights in Israel and its taxing authority ;
and
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changes in Israel's economy that
could cause the legislation of oil and gas price
controls.
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Consequently,
our operations may be substantially affected by local economic factors beyond
our control, any of which could negatively affect our financial performance and
prospects.
Legal
risks could negatively affect the value of Zion.
Legally,
our operations in Israel may be subject to:
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changes in the Petroleum Law
resulting in modification of license and permit
rights;
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adoption of new legislation
relating to the terms and conditions pursuant to which operations in the
energy sector may be
conducted;
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changes in laws and policies
affecting operations of foreign-based companies in Israel;
and
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changes in governmental energy
and environmental policies or the personnel administering
them.
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The Israeli
Ministry of National Infrastructures 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 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.
The
Ministry of Environmental Protection is considering proposed legislation
relating to polluted materials, including their production, treatment, handling,
storage and transportation, that may affect land or water
resources. Persons engaged in activities involving these types of
materials will be required to prepare environmental impact statements and
remediation plans either prior to commencing activities or following the
occurrence of an event that may cause pollution to land or water resources or
endanger public health. We do now know and cannot predict whether any
legislation in this area will be enacted and, if so, in what form and which of
its provisions, if any, will relate to and affect our activities, how and to
what extent.
Our
petroleum rights (including licenses and permits) could be canceled, terminated
or not extended, and we would not be able to successfully execute our business
plan.
Any
license or other petroleum right we hold or may be granted is granted for 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. The terms of the Asher-Menashe license (on which we plan to
drill the Elijah #3 well), as recently amended, require us to commence drilling
a well by January 1, 2010. No assurance can be provided that we will be able to
obtain an extension to this if in fact we are unable to begin drilling by such
date.
There are limitations on the transfer of
interests in our petroleum rights, which could impair our ability to raise
additional funds to execute our business plan.
The
Israeli government has the right to approve any transfer of rights and interests
in any license or other petroleum right we hold or may be granted and any
mortgage of any license or other petroleum rights to borrow money. If we attempt
to raise additional funds through borrowings or joint ventures with other
companies and are unable to obtain required approvals from the government, the
value of your investment could be significantly diluted or even
lost.
Our
dependence on 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 August 14, 2008, the Authority granted the required permission
for a two year period (which period may be extended), subject to our paying a
one time surface use fee of approximately $455, signing a land use agreement and
providing a bank guarantee in the amount of NIS 50,000 (approximately $14,200).
The use fee has been paid, the agreement signed and the bank guarantee provided.
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.
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.
The
loss of key personnel could adversely impact our business.
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, to two
charitable foundations. In addition, we may allocate 1.5% royalty interest or
equivalent net operating profits interest to a key employee incentive plan
designed as bonus compensation over and above our executive compensation
payments. This means that the total royalty burden on our property (including
the government royalty of 12.5%) may be up to 20%. 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.
The
exercise of currently outstanding warrants and options may adversely affect the
market price of our common stock
In
connection with our Follow On Public Offering, we issued warrants to purchase up
to 666,343 shares of our common stock at a per share exercise price of $7.00,
exercisable between February 9, 2009 and January 31, 2012. The
shares underlying these warrants have been registered and, accordingly, any
shares issued upon the exercise of these warrants will be immediately resalable
on the open market. Additionally, we currently have (a) warrants outstanding to
purchase 50,000 shares of common stock at $5.00 per share exercisable through
December 31, 2009 and warrants to purchase 614,204 shares at $7.00 per share
exercisable through January 31, 2012, and (b) stock options outstanding to
purchase 437,549 shares of common stock at prices ranging between $0.01 and
$8.25 per share, which amount includes 112,000 options granted in June
2009.
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 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, 2009. The rules
governing the standards that must be met for management to assess our internal
controls over financial reporting are complex and require significant
documentation, testing and possible remediation to meet the detailed standards
under the rules. It is possible that 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. We
are uncertain as to what impact a conclusion that material weaknesses exist in
our internal controls over financial reporting would have on the trading price
of our common stock.
Risks
Related to Our Stock and this Rights Offering
Our
stock price and trading volume may be volatile, which could result in losses for
our stockholders.
The
equity trading markets have recently experienced high volatility resulting in
highly variable and unpredictable pricing of equity securities. If the turmoil
in the equity trading markets continues, the market for our common stock could
change in ways that may or may not be related to our business, our industry or
our operating performance and financial condition. In addition, the trading
volume in our common stock may fluctuate and cause significant price variations
to occur. Some of the factors that could negatively affect our share price or
result in fluctuations in the price or trading volume of our common stock
include:
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actual or anticipated quarterly
variations in our operating results, including further impairment to
unproved oil and gas
properties
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changes in expectations as to our
future financial performance or changes in financial estimates, if
any,
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announcements relating to our
business,
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conditions generally affecting
the oil and natural gas
industry,
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the success of our operating
strategy, and
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the operating and stock
performance of other comparable
companies.
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Many of
these factors are beyond our control, and we cannot predict their potential
effects on the price of our common stock. During the past fifty-two weeks, our
stock price has fluctuated from an intraday low (on September 16, 2008) of $5.07
to an intraday high of $17.68 (on February 24, 2009). This volatility has
had a significant effect on the market price of securities issued by many
companies for reasons unrelated to their operating performance and could have
the same effect on our common stock.
No
assurance can be provided that you will be able to resell your shares of common
stock at or above the price you acquired those shares in this offering. We
cannot assure you that the market price of common stock will increase to the per
share price at which the Unit was offered or that the market price of common
stock will not fluctuate or decline significantly.
Future
sales of our common stock may adversely affect the prevailing market price for
our common stock.
As of
June 30, 2009, we are authorized to issue up to 50,000,000 shares of common
stock, of which there were 15,056,653 shares of our common stock outstanding. An
additional 1,664,204 shares of common stock have been reserved for issuance upon
the exercise of outstanding warrants and options previously issued, including
the warrants issued in connection with our follow-on public offering which
terminated on January 9, 2009. See “COMPANY OVERVIEW” The warrants for 614,204
shares of common stock that we issued in the context of our follow-on public
offering are exercisable through January 2012 and, upon any such exercise of
these warrants, we will issue freely tradable shares. As of June 30, 2009, the
Company has issued 52,139 shares in respect of warrant exercises. The
exercise of these warrants and/or the issuance of additional shares of our
common stock in connection with the above would dilute the interest in our
company represented by each share of common stock and may adversely affect the
prevailing market price of our common.
Additionally,
if all subscription rights in this offering that are eligible to be exercised
are exercised, we will have a total of 17,056,653 shares outstanding, assuming
no other issuances or repurchases of common stock. This would represent an
increase of approximately 13% in the number of outstanding shares of our common
stock. We do not know the extent to which rights holders will exercise their
subscription rights in this offering. However, if a substantial number of rights
are exercised, the sale of numerous shares of common stock in the months soon
after the completion of the rights offering could depress the market price of
our common stock.
Cash
dividends will not be paid to shareholders for the foreseeable
future.
You may
receive little or no cash or stock dividends on your shares of common stock. The
board of directors has not directed the payment of any dividends, 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.
The
market price of our common stock may decline after the exercise of your
subscription rights.
Once you
exercise your subscription rights, you may not revoke the exercise. We cannot
assure you that the public trading market price of our common stock will not
decline after the exercise of your subscription rights. If you exercise your
subscription rights and the market price of the common stock goes below $5.00,
then you will have committed to buy shares of common stock in the rights
offering at a price that is higher than the price at which our shares could be
purchased in the market. Moreover, we cannot assure you that you will ever be
able to sell shares of common stock that you purchased in the rights offering at
a price equal to or greater than the subscription price. Until certificates are
delivered upon the expiration of the rights offering, or any interim closing
that should occur, you will not be able to sell the shares of our common stock
that you purchase in the rights offering.
You
should not consider the subscription prices of our common stock as an indication
of the value of our company or our common stock.
Our board
of directors set all of the terms and conditions of the rights offering,
including the subscription price. The $5.00 subscription price was based on
several factors, including the book value of our common stock (which includes
the value of our unproved oil and gas properties), the amount of proceeds
desired, our need for equity capital, the need to provide an incentive to our
current shareholders to exercise rights in the rights offering, the historic and
current market price of our common stock, the historic volatility of the market
price of our common stock, our business prospects and alternatives available to
us for raising equity capital. In addition, given that one of the reasons for
this offering is to allow persons from the recently completed rights offering an
opportunity to obtain the shares they were not able to obtain in that offering,
our board determined to maintain the per share price of the recently completed
rights offering. The subscription price does not necessarily bear any
relationship to our past operations, cash flows, book value, current financial
condition, or any other established criteria for value. You should not consider
the subscription price as an indication of the value of our company or our
common stock.
You
will not be able to revoke the exercise of your subscription
rights.
Once you
exercise your subscription rights, you may not revoke the exercise. Therefore,
even if circumstances arise after you have subscribed in the offering that cause
you to change your mind about investing in our common stock, or if the offering
is extended, you will nonetheless be legally bound to proceed with your
investment.
Shareholders
who do not fully exercise their rights will have their interests diluted by
shareholders who do exercise their rights.
If you do
not exercise all of your subscription rights, you may suffer significant
dilution of your percentage ownership of Zion relative to shareholders who fully
exercise their subscription rights. For example, if you own 150,000 shares of
common stock before the rights offering, or approximately 1% of the outstanding
common stock of Zion, and you exercise none of your subscription rights while
all other subscription rights are exercised, then the percentage ownership
represented by your shares will be reduced to approximately 0.88%.
The
resale price of your shares may be less than the subscription
price.
There can
be no assurance that, after we issue the shares of common stock upon exercise of
rights, a subscribing holder will be able to sell shares of common stock
purchased in this offering at a price equal to or greater than the subscription
price.
You
must act promptly and follow instructions carefully if you want to exercise your
rights.
Eligible
participants and, if applicable, brokers acting on their behalf, who desire to
purchase common stock in the rights offering must act promptly to ensure that
all required subscription agreements and payments are actually received by us
with respect to the rights before the expiration of the subscription period at
5:00 p.m., Eastern Standard Time, on September __, 2009. The time period to
exercise rights is limited. If you or your broker fail to complete and sign the
required rights subscription agreement, send an incorrect payment amount, or
otherwise fail to follow the procedures that apply to the exercise of your
rights, we may, depending on the circumstances, reject your exercise of rights
or accept it to the extent of the payment received, in which event, your current
investment in our company would be diluted. We cannot undertake to contact you
concerning, or attempt to correct, an incomplete or incorrect rights
subscription agreement or payment or contact you concerning whether a broker
holds rights on your behalf. We have the sole discretion to determine whether an
exercise properly follows the applicable procedures.
USE
OF PROCEEDS
Assuming
that all subscription rights are exercised for cash, we estimate that we would
receive net proceeds of approximately $9,835,000 in this rights offering, after
deducting estimated expenses of the rights offering of approximately
$165,000. We intend to use most of the net proceeds of this rights
offering for appraisal and exploratory drilling on our Israeli licenses and
geological and geophysical studies on our Issachar-Zebulun permit
area.
Our work
program 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 $7,800,000 on
the Asher-Menashe License (the Elijah #3) by January 2010, which will be done
from our currently available cash resources. We intend to commence
drilling operations on the Elijah #3 well as soon as we complete the appraisal
and drilling on the Ma’anit-Rehoboth #2 well, which we estimate will be in
September 2009.
The
proceeds from this rights offering, if fully subscribed, will enable us to drill
a subsequent well (Well #4) on either the Joseph License area or the
Asher-Menashe License area to 5,500 meters (18,040 feet) at an estimated cost of
approximately $9,300,000. We also intend to apply part of the proceeds from this
rights offering to geological and geophysical studies on our newly obtained
Issachar-Zebulun permit area.
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 an additional $800,000 to $1,500,000 in order
to set production casing, perforate, install the production tubing and wellhead
and conduct extended tests of the well. We believe that our current funds will
cover the estimated completion costs for the completion of one
well. If it is determined that we should complete more than one well,
it is possible that some of the proceeds from this offering could be used for
that purpose. Alternatively, further funding would have to be
obtained.
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 150
barrels of oil per day or 600,000 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 500 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 $40.00 per barrel and a minimum gas price of $4.00
per thousand cubic feet.
The
remaining net proceeds, if any, will be used for general and administrative
expenses, operations and working capital.
We intend
to invest the net proceeds of this offering in short-term deposits, investment
grade obligations or bank certificates of deposit in both Israel and the United
States until the funds are required.
The
following table sets forth the planned use of the proceeds from this
offering:
|
|
|
US$ thousands
|
|
|
|
|
|
Total
Proceeds
|
|
$ |
10,000 |
|
|
|
100 |
% |
|
Less:
Estimated Offering Expenses
|
|
$ |
165 |
|
|
|
1.7 |
% |
|
Net
Proceeds from Offering
|
|
$ |
9,835 |
|
|
|
98.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
Use
of Net Proceeds:
|
|
|
|
|
|
|
|
|
|
Drill
well on either Joseph or Asher-Menashe License
|
|
$ |
9,300 |
|
|
|
93.0 |
% |
|
Geological
and Geophysical studies on Issachar-Zebulun permit area
|
|
$ |
200 |
|
|
|
2.0 |
% |
|
Reserve
for Operations, G&A Expenses and Working Capital
|
|
$ |
335 |
|
|
|
3.3 |
% |
|
Total
Use of Net Proceeds
|
|
$ |
9,835 |
|
|
|
98.3 |
% |
The
foregoing reflects only estimates of the use of the proceeds. Actual
expenditures may vary materially from these estimates.
CAPITALIZATION
The
following table sets forth a summary of our capitalization on an historical
basis as of March 31, 2009, and as adjusted to reflect the net proceeds
from the rights offering, as if the rights offering had closed as of March 31,
2009. For the purpose of this table, we have assumed that all of the rights were
exercised in the new rights offering. However, there can be no assurance that
the rights will be exercised. You should read this information in conjunction
with our financial statements and the notes thereto which are incorporated by
reference into this prospectus.
|
|
|
Amount of Capitalization as of March
31, 2009
|
|
|
|
|
Actual
|
|
|
As Adjusted
(thousands)
|
|
|
|
|
($)
|
|
|
May/June
Rights Offering ($)
|
|
|
New Rights
Offering ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
|
|
Common
stock - par value $0.01 per share
|
|
$ |
108 |
|
|
$ |
150 |
|
|
$ |
170 |
|
|
Additional
paid in capital
|
|
$ |
32,435 |
|
|
$ |
53,247 |
|
|
$ |
63,062 |
|
|
Deficit
accumulated in development stage
|
|
$ |
(25,321 |
) |
|
|
(25,321 |
) |
|
|
(25,321 |
) |
|
Total
stockholders’ equity and capitalization
|
|
$ |
7,222 |
|
|
$ |
28,076 |
|
|
$ |
37,911 |
|
DETERMINATION OF OFFERING
PRICE
Given
that one of the reasons for this offering is to allow persons from the recently
completed rights offering an opportunity to obtain the shares they were not able
to obtain in that offering, we determined to maintain the per share price of the
recently completed rights offering. Our board of directors determined
that the subscription price in the rights offering that was completed in June
2009 should be designed to provide an incentive to our current stockholders to
exercise their rights in the rights offering. Other factors considered in
setting the subscription price included the amount of proceeds desired, our need
for equity capital, the historic and current market price of our common stock,
the historic volatility of the market price of our common stock, our business
prospects, alternatives available to us for raising equity capital, the pricing
of similar transactions and the liquidity of our common stock. The subscription
price does not necessarily bear any relationship to our past operations, cash
flows, book value, current financial condition, or any other established
criteria for value. You should not consider the subscription price as an
indication of the value of ZION OIL & GAS or our common stock.
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 the market
price of a share of our stock will not decline below the $5.00 per share
subscription price. See "RISK FACTORS" beginning on page 8 of this
Prospectus.
DILUTION
As of
March 31, 2009, our net tangible book value was $7,222,000 or $0.67 per share of
common stock and $28,076,000 or $1.86 per share of common stock when adjusted
for the recently completed rights offering. 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
March 31, 2009.
After
giving effect to the issuance of 2,000,000 shares of our common stock (as we
will assume that all of the subscription rights will have been exercised even
though we do not anticipate that all subscription rights will in fact have been
exercised), and after deducting offering expenses (estimated), $165,000, our net
tangible book value would increase to $37,911,000 and the tangible net book
value per share would increase to $2.22. This represents an immediate increase
in net tangible book value of $0.36 per share to current shareholders, and
immediate dilution of $2.78 per share on new shares purchased or 56%. "Dilution"
is determined by subtracting net tangible book value per share after the
Offering from the Offering price paid by investors for their new shares. The
following table illustrates this per share dilution to purchasers of shares in
this Rights Offering, as illustrated in the following table:
|
Assumed
public offering price per share of common stock
|
|
|
|
|
$
|
5.00
|
|
|
Net
tangible book value per share before this Offering
|
|
$
|
1.86
|
|
|
|
|
|
|
Increase
per share attributable to new shares
|
|
$
|
0.36
|
|
|
|
|
|
|
Adjusted
net tangible book value per share after this Offering
|
|
|
|
|
|
$
|
2.22
|
|
|
Dilution
per share for new shares
|
|
|
|
|
|
$
|
2.78
|
|
|
Percentage
dilution
|
|
|
|
|
|
|
56
|
%
|
THE
RIGHTS OFFERING
Before
exercising any subscription rights, you should read carefully the information
set forth under “Risk Factors” beginning on page 8.
The
Subscription Rights
Basic
Subscription Rights
We are
distributing to you, at no cost, non-transferable subscription rights as a
holder of record of shares of our common stock on August __, 2009. We are
distributing to you .13 of a subscription right (THIRTEEN subscription rights
for each ONE HUNDRED
shares) for each share of common stock that you owned as a holder of record on
August __, 2009. You will not receive fractional subscription rights during the
rights offering, but instead we will round your total number of subscription
rights up to the next largest whole number. Each whole subscription right
entitles you to purchase one share of common stock for $5.00. If you wish to
exercise your subscription rights, you must do so before the close of business
on September __, 2009. After that date, the subscription rights will expire and
will no longer be exercisable. You will receive certificates representing the
shares that you purchase pursuant to your subscription rights as soon as
practicable after the expiration date.
Over-Subscription
Rights
Subject
to the allocation described below, each subscription right also grants the
holder an over-subscription right to purchase additional shares of our common
stock that are not purchased by other rights holders pursuant to their basic
subscription rights. You are entitled to exercise your over-subscription right
only if you exercise your basic subscription right in full.
If you
wish to exercise your over-subscription right, you should indicate the number of
additional shares that you would like to purchase in the space provided on your
rights subscription agreement. When you send in your rights subscription
agreement, you must also send the full purchase price for the number of
additional shares that you have requested to purchase (in addition to the
payment due for shares purchased through your basic subscription right). If the
number of shares remaining after the exercise of all basic subscription rights
is not sufficient to satisfy all requests for shares pursuant to
over-subscription rights, you will be allocated additional shares (subject to
elimination of fractional shares) in the proportion which the number of shares
you purchased through the basic subscription right bears to the total number of
shares that all over-subscribing shareholders purchased through the basic
subscription right. However, if your pro-rata allocation exceeds the number of
shares you requested on your rights subscription agreement then you will receive
only the number of shares that you requested, and the remaining shares from your
pro-rata allocation will be divided among other rights holders exercising their
over-subscription rights.
As soon
as practicable after the expiration date, we will determine the number of shares
of common stock that you may purchase pursuant to the over-subscription right.
You will receive certificates representing these shares as soon as practicable
after the expiration date and after all allocations and adjustments have been
effected. If you request and pay for more shares than are allocated to you, we
will refund the overpayment, without interest. In connection with the exercise
of the over-subscription right, banks, brokers and other nominee holders of
subscription rights who act on behalf of beneficial owners will be required to
certify to us as to the aggregate number of subscription rights exercised, and
the number of shares of common stock requested through the over-subscription
right, by each beneficial owner on whose behalf the nominee holder is
acting. If you hold your shares through a brokerage account, you
should note that most brokerages permit the beneficial owner to exercise their
rights on one occasion only. Accordingly, if you plan to exercise your
over-subscription right, you should do so at the time that you submit your
subscription to your broker.
Subscription
Price
The
subscription price under the subscription rights is $5.00 per share of common
stock subscribed. The subscription price does not necessarily bear any
relationship to our past or expected future results of operations, cash flows,
current financial condition, or any other established criteria for value. No
change will be made to the cash subscription price by reason of changes in the
trading price of our common stock or other factors prior to the closing of this
offering.
Determination
of Subscription Price
Our board
of directors set all of the terms and conditions of this offering, including the
subscription price. Our board of directors determined that the subscription
price should be designed to provide an incentive to our current shareholders to
exercise their rights in the rights offering. In establishing the subscription
price, our board of directors considered the book value of our common stock and
various other factors, including the amount of proceeds desired, our need for
equity capital, the historic and current market price of our common stock, the
historic volatility of the market price of our common stock, our business
prospects, general conditions in the oil and gas industry,
alternatives available to us for raising equity capital, the pricing of similar
transactions, including the pricing of our most recently completed rights
offering which closed in June 2009 and the liquidity of our common stock. We did
not seek or obtain any opinion of financial advisors or investment bankers in
establishing the subscription price for the offering. You should not consider
the subscription price as an indication of the value of our company or our
common stock. We cannot assure that you will be able to sell shares purchased
during this offering at a price equal to or greater than the subscription price.
On July 28, 2009, the closing sale price of our common stock was $10.47 per
share.
Expiration
Date
The
rights will expire at 5:00 p.m., Eastern Standard Time, on September __,
2009, unless we decide to extend the rights offering or to terminate it early.
If this commencement of the rights offering is delayed, the expiration date will
be similarly extended. If you do not exercise your subscription rights prior to
specified expiration date, whether it be the initial expiration date or a
subsequently extended date, or an accelerated date, your subscription rights
will be null and void. We will not be required to issue shares of common stock
to you if we receive your subscription agreement or your payment after the
specified expiration date, regardless of when you sent the subscription
agreement and payment, unless you send the documents in compliance with the
guaranteed delivery procedures described below.
Extensions,
Amendments, and Termination
You may
exercise your subscription rights at any time before 5:00 p.m., Eastern Daylight
Time, on _______, 2009, the expiration date of the rights offering, unless
extended or accelerated. We may, in our sole discretion, extend the time for
exercising the subscription rights or may accelerate the termination date by
giving two business days’ notice.
We will
extend the duration of the rights offering as required by applicable law, and we
may choose to extend it if we decide that changes in the market price of our
common stock warrant an extension or if we decide to give investors more time to
exercise their subscription rights in the rights offering. If we elect to extend
the expiration of the rights offering, we will issue a press release announcing
such extension no later than 9:00 a.m., Eastern Daylight Time, on the next
business day after the most recently announced expiration date.
If we
choose to accelerate the expiration of the rights offering, we will issue a
press release announcing such acceleration, giving two business days notice of
the new expiration date.
If you do
not exercise your subscription rights before the expiration date of the rights
offering, your unexercised subscription rights will be null and void and will
have no value. We will not be obligated to honor your exercise of subscription
rights if the subscription agent receives the documents relating to your
exercise after the rights offering expires, regardless of when you transmitted
the documents.
Non-Transferability
of Subscription Rights
Except in
the limited circumstances described below, only you may exercise your
subscription rights. You may not sell, give away or otherwise transfer your
subscription rights.
Notwithstanding
the foregoing, you may transfer your rights to an existing 401(k), IRA or other
similar investment plan (subject to all of the rules, regulations and
restrictions of such plan) established for your benefit, or that plan may
transfer such rights to you, provided that, in each case, such transfer is
otherwise in compliance with all applicable federal and state securities
laws. Your rights also may be transferred to any of your affiliates
or by operation of law. For example, a transfer of rights to the estate of the
recipient upon the death of the recipient would be permitted. As used in this
paragraph, an affiliate means any person (including a 401(k), IRA or other
similar investment plan subject to all the applicable rules, regulations and
restrictions of such plan, a partnership, corporation or other legal entity such
as a trust or estate) which controls, is controlled by or is under common
control with you. If your rights are transferred as permitted, evidence
satisfactory to us that the transfer was proper must be received by us prior to
the expiration date of this offering.
Exercise
of Subscription Rights
You may
exercise your subscription rights by delivering to us on or prior to the
expiration date:
|
|
·
|
A properly completed and duly
executed subscription
agreement;
|
|
|
·
|
Any required signature guarantees
or other supplemental documentation;
and
|
|
|
·
|
Payment in full of $5.00 per
share of common stock to be purchased pursuant to the basic subscription
rights and the over-subscription
right.
|
You
should deliver your subscription agreement and payment to us at the address
shown under the heading “Subscription Agent.” We will not pay you interest on
funds delivered for the exercise of rights.
You bear
all risk for the method of delivery of rights subscription agreements, any
necessary accompanying documents and payment of the subscription price. If you
send the rights subscription agreement and other items by mail, we recommend
that you send them by registered mail, properly insured, with return receipt
requested. You should allow a sufficient number of days to ensure delivery and
clearance of cash payment prior to the expiration time.
We
reserve the right to reject any exercise of subscription rights if the exercise
does not fully comply with the terms of the rights offering or is not in proper
form or if the exercise of rights would be unlawful.
Method
of Payment
Payment
for the shares must be made by check or bank draft (cashier’s check) drawn upon
a U.S. bank or a money order payable to “Zion Oil & Gas”, or by wire
transfer of immediately available funds to the account maintained by
us. Any wire transfer of funds should clearly indicate the identity
of the subscriber who is paying the subscription price by the wire transfer.
Payment will be deemed to have been received only upon:
|
|
·
|
receipt and clearance of any
uncertified check;
|
|
|
·
|
receipt by Zion of any certified
check or bank draft drawn upon a U.S. bank, any money order or any funds
transferred by wire transfers;
or
|
|
|
·
|
receipt of good funds in the
account maintained by us, designated
above.
|
Please
note that funds paid by uncertified personal check may take at least five
business days to clear. Accordingly, if you wish to pay by means of an
uncertified personal check, we urge you to make payment sufficiently in advance
of the expiration date to ensure that we receive cleared funds before that date.
We also urge you to consider payment by means of a certified or cashier’s check
or money order.
Guaranteed
Delivery Procedures
If you
wish to exercise your rights, but you do not have sufficient time to deliver the
rights subscription agreement evidencing your rights to us before the expiration
of the subscription period, you may exercise your rights by the following
guaranteed delivery procedures:
|
|
·
|
provide your payment in full of
the subscription price for each share of common stock being subscribed for
pursuant to the basic subscription rights and the over-subscription right
to us before the expiration
time;
|
|
|
·
|
deliver a notice of guaranteed
delivery to us at or before the expiration time;
and
|
|
|
·
|
deliver the properly completed
rights certificate evidencing the rights being exercised, and, if
applicable for a nominee holder, the related nominee holder certification,
with any required signatures medallion guaranteed, to us, within three
business days following the expiration
time.
|
Your
notice of guaranteed delivery must be substantially in the form provided with
the “Instructions for Use of ZION OIL & GAS, INC. Subscription Certificates”
distributed to you with your rights notification. Your notice of guaranteed
delivery must come from an eligible institution which is a member of, or a
participant in, a signature guarantee medallion program acceptable to Zion. In
your notice of guaranteed delivery you must state:
|
|
·
|
the number of rights represented
by your rights subscription agreement, the number of shares of common
stock you are subscribing for pursuant to your subscription rights;
and
|
|
|
·
|
your guarantee that you will
deliver to us any rights subscription agreements evidencing the rights you
are exercising within three business days following the expiration
time.
|
You may
deliver the notice of guaranteed delivery to us in the same manner as the rights
subscription agreement at the addresses set forth under the heading
“Subscription Agent.”
Eligible
institutions may also transmit the notice of guaranteed delivery to us by
facsimile transmission to (214) 221-6510 or 469-916-2366. To confirm facsimile
deliveries, you may call (214) 221-4610.
Signature
Guarantees
Signatures
on the subscription agreement do not need to be guaranteed if either the
subscription agreement provides that the shares of common stock to be purchased
are to be delivered directly to the record owner of such subscription rights, or
the subscription agreement is submitted for the account of a member firm of a
registered national securities exchange or a member of the National Association
of Securities Dealers, Inc., or a commercial bank or trust company having
an office or correspondent in the United States. Signatures on all other
subscription certificates must be guaranteed by an Eligible Guarantor
Institution, as defined in Rule 17Ad-15 of the Securities Exchange Act of
1934, as amended, subject to the standards and procedures adopted by the Zion.
Eligible Guarantor Institutions include banks, brokers, dealers, credit unions,
national securities exchanges and savings associations.
Rights
of Subscribers
Your
exercise of rights in this rights offering will give you no additional rights as
a shareholder until the shares you have agreed to purchase in the rights
offering are deemed issued to you.
No
Revocation of Exercised Rights
Once you
send in your subscription agreement and payment, you cannot revoke the exercise
of your subscription rights, even if the subscription period has not yet ended,
we extend the subscription period, you later learn information about us that you
consider to be unfavorable or the market price of our common stock is below the
$5.00 per share purchase price. You should not exercise your subscription rights
unless you are certain that you wish to purchase additional shares of our common
stock at a price of $5.00 per share.
Issuance
of Common Stock
We will
issue the shares of our common stock purchased in the rights offering as soon as
possible following the expiration date of the rights offering. The
shares will be issued to those subscribers who have timely and properly
completed subscription agreements, along with payment of the subscription price,
for each share of common stock subscribed for. Each subscribing holder’s new
shares will be issued in the same form, certificated or book-entry, as the
rights exercised by that holder.
Your
payment of the aggregate subscription price for our common stock will be
deposited into a segregated account maintained by us and will not be accessed by
Zion until after the offering closes. We will not pay you any interest on funds
paid for your rights exercise, regardless of whether the funds are applied to
the subscription price or returned to you. You will have no rights as a
shareholder of our company with respect to the subscribed for shares of our
common stock until the certificates representing such shares are issued to you
or the shares are deposited in the book-entry account held on your behalf.
Certificates representing your shares or book-entries will be made as
practically as possible after the expiration of the rights offering. Upon our
issuance of the certificates or the deposit of the shares in the applicable
book-entry account, you will be deemed the owner of the shares you purchased by
exercise of your rights. Unless otherwise instructed in the rights subscription
agreement, the shares issued to you pursuant to your subscription will be
registered in your name or the name of your nominee, if applicable. We will not
issue any fractional shares of common stock.
Shares
Held for Others
If you
are a broker, a trustee or a depository for securities, or you otherwise hold
shares of common stock for the account of others as a nominee holder, you should
promptly notify the beneficial owner of such shares as soon as possible to
obtain instructions with respect to their subscription rights, as set forth in
the instructions we have provided to you for your distribution to beneficial
owners. If the beneficial owner so instructs, you should complete the
appropriate subscription agreement and the related nominee holder certification
and submit them to us with the proper payment.
If you
are a beneficial owner of common stock held by a nominee holder, such as a
broker, trustee or a depository for securities, we will ask your broker, dealer
or other nominee to notify you of this rights offering. If you wish to purchase
shares through this rights offering, you should contact the holder and ask him
or her to effect transactions in accordance with your instructions on a form
provided by your nominee holder with the other rights offering
materials. If you hold your shares through a brokerage account, you
should note that most brokerages permit the beneficial owner to exercise their
rights on one occasion only. Accordingly, if you plan to exercise your
over-subscription right, you should make sure to do so at the time that you
submit your subscription to your broker.
Ambiguities
in Exercise of Subscription Rights
If you do
not specify the number of shares of common stock being subscribed for on your
subscription certificate, or if your payment is not sufficient to pay the total
purchase price for all of the shares that you indicated you wished to purchase,
you will be deemed to have subscribed for the maximum number of shares of common
stock that could be subscribed for with the payment that we receive from you. If
the aggregate subscription price paid by you exceeds the amount necessary to
purchase the number of shares for which you have indicated an intention to
subscribe, then you will be deemed to have exercised the over-subscription
rights to the full extent of the excess payment tendered, to purchase, to the
extent available, that number of whole shares of common stock equal to the
quotient obtained by dividing the excess payment tendered by the subscription
price. Any remaining amount shall be returned to you by mail, without interest
or deduction, as soon as practicable after the expiration date and after all
prorations and adjustments contemplated by the terms of the rights offering have
been effected.
Regulatory
Limitation
We are
not making the rights offering in any state or other jurisdiction in which it is
unlawful to do so. We will not sell or accept an offer to purchase shares of our
common stock from you if you are a resident of any state or other jurisdiction
in which the sale or offer of the rights would be unlawful. We may delay the
commencement of the rights offering in certain states or other jurisdictions in
order to comply with the laws of those states or other jurisdictions. However,
we may decide, in our sole discretion, not to modify the terms of the rights
offering as may be requested by certain states or other jurisdictions. If that
happens and you are a resident of the state or jurisdiction that requests the
modification, you will not be eligible to participate in the rights offering. We
do not currently intend to make any changes in the terms of the rights
offering.
We will
not be required to issue to you shares of common stock pursuant to the rights
offering if, in our opinion, you would be required to obtain prior clearance or
approval from any state or federal regulatory authorities to own or control such
shares if, at the time the subscription rights expire, you have not obtained
such clearance or approval.
Our
Decision Binding
All
questions concerning the timeliness, validity, form and eligibility of any
exercise of subscription rights will be determined by us, and our determinations
will be final and binding. In our sole discretion, we may waive any defect or
irregularity, or permit a defect or irregularity to be corrected within such
time as we may determine, or reject the purported exercise of any subscription
right by reason of any defect or irregularity in any exercise. Subscriptions
will not be deemed to have been received or accepted until all irregularities
have been waived by us or cured within such time as we determine in our sole
discretion. We will not be under any duty to notify you of any defect or
irregularity in connection with the submission of a subscription agreement or
incur any liability for failure to give you that notice.
Shares
of Common Stock Outstanding After the Rights Offering
As of
June 30, 2009, we had outstanding 15,056,653 shares of our common stock and an
additional 1,664,204 shares of common stock have been reserved for issuance upon
the exercise of certain outstanding warrants and options. Assuming we issue all
of the shares of common stock offered in the rights offering and none of our
outstanding warrants and options are exercised, approximately 17,056,653 shares
of common stock will be outstanding. This would represent an increase of
approximately 13% in the number of outstanding shares of common stock. If you do
not fully exercise your subscription rights but others do, the percentage of our
common stock that you hold will decrease.
No
Recommendations
Neither
we nor our board of directors are making any recommendation as to whether or not
you should exercise your subscription rights. You should make your decision
based on your own assessment of your best interests.
Important
PLEASE
CAREFULLY READ THE INSTRUCTIONS ACCOMPANYING THE SUBSCRIPTION AGREEMENT AND
FOLLOW THOSE INSTRUCTIONS IN DETAIL. YOU ARE RESPONSIBLE FOR CHOOSING THE
PAYMENT AND DELIVERY METHOD FOR YOUR SUBSCRIPTION AGREEMENT, AND YOU BEAR THE
RISKS ASSOCIATED WITH SUCH DELIVERY. IF YOU CHOOSE TO DELIVER YOUR SUBSCRIPTION
AGREEMENT AND PAYMENT BY MAIL, WE RECOMMEND THAT YOU USE REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED. WE ALSO RECOMMEND THAT YOU
ALLOW A SUFFICIENT NUMBER OF DAYS TO ENSURE DELIVERY AND CLEARANCE OF PAYMENT
PRIOR TO THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE
AT LEAST FIVE BUSINESS DAYS TO CLEAR, WE STRONGLY URGE YOU TO PAY, OR ARRANGE
FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIER’S CHECK OR MONEY
ORDER.
If
You Have Questions
If you
have questions or need assistance concerning the procedure for exercising
subscription rights, or if you would like additional copies of this prospectus,
the Instructions, or the Notice of Guaranteed Delivery, you should
contact:
Zion Oil
& Gas, Inc.
6510
Abrams Rd., Suite 300
Dallas,
TX 75231
(214)
221-4610 or (888) 891-9466
e-mail:
dallas@zionoil.com
PLAN
OF DISTRIBUTION
Immediately
following the effective date of this Prospectus, we will distribute at no cost
the subscription rights and copies of this prospectus to all holders of record
of our common stock on August __, 2009. If you wish to exercise your basic
subscription rights and the over-subscription rights and purchase shares of
common stock, you should complete the subscription agreement and return it, with
payment for the shares, to us, to 6510 Abrams Rd., Suite 300, Dallas, TX
75231. If you have any questions, you should contact Zion Oil &
Gas at (214) 221-4610 or (888) 891-9466.
FEDERAL
INCOME TAX CONSIDERATIONS
The
following summarizes the material federal income tax consequences to you as a
U.S. shareholder of ZION OIL & GAS INC. and to us as a result of the
receipt, lapse, or exercise of the subscription rights distributed to you
pursuant to the rights offering. This discussion does not address the tax
consequences of the rights offering under applicable state, local or foreign tax
laws. Moreover, this discussion does not address every aspect of taxation that
may be relevant to a particular taxpayer under special circumstances or who is
subject to special treatment under applicable law and is not intended to be
applicable in all respects to all categories of investors. For example, certain
types of investors, such as insurance companies, tax-exempt persons, financial
institutions, regulated investment companies, dealers in securities, persons who
hold their shares of our common stock as part of a hedging, straddle,
constructive sale or conversion transaction, persons whose functional currency
is not the U.S. dollar and persons who are not treated as a U.S. shareholder
could be subject to different tax consequences.
For
purposes of this disclosure, a U.S. shareholder is a holder of our common stock
that is:
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an individual who is a citizen or
resident of the United
States,
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a corporation, partnership or
other entity created in, or organized under the laws of the United States
or any state or political subdivision
thereof;
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an estate the income of which is
includable in gross income for U.S. federal income tax purposes regardless
of its source; or
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a trust that (i) the
administration of which is subject to the primary supervision of a U.S.
court and which has one or more U.S. persons who have the authority to
control all substantial decisions of the trust, or (ii) that was in
existence on August 20, 1996, was treated as a U.S. person on the
previous day, and elected to continue to be so
treated.
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This
summary is based on the Internal Revenue Code of 1986, as amended (which we will
refer to as the “Code”), the Treasury regulations promulgated thereunder,
judicial authority and current administrative rules and practice, any of
which may subsequently be changed, possibly retroactively, or interpreted
differently by the Internal Revenue Service, so as to result in U.S. federal
income tax consequences different from those discussed below. The discussion
that follows neither binds nor precludes the Internal Revenue Service from
adopting a position contrary to that expressed in this prospectus, and we cannot
assure you that such a contrary position could not be asserted successfully by
the Internal Revenue Service or adopted by a court if the positions were
litigated. We have not obtained a ruling from the Internal Revenue Service or a
written opinion from tax counsel with respect to the federal income tax
consequences discussed below. This discussion assumes that your shares of common
stock and the subscription rights and shares issued to you during the rights
offering constitute capital assets within the meaning of Code
Section 1221.
Receipt
and exercise of the subscription rights distributed pursuant to the rights
offering is intended to be nontaxable to shareholders, and the following summary
assumes you will qualify for such nontaxable treatment. If, however, the rights
offering does not qualify as nontaxable, you would be treated as receiving a
taxable distribution equal to the fair market value of the subscription rights
on their distribution date. The distribution would be taxed as a dividend to the
extent made out of our current or accumulated earnings and profits; any excess
would be treated first as a return of your basis (investment) in your our stock
and then as a capital gain. Expiration of the subscription rights would result
in a capital loss.
Taxation
of Shareholders
Receipt of a subscription
right. You will not
recognize any gain or other income upon receipt of a subscription right in
respect of your common stock. Your tax basis in each subscription right will
effectively depend on whether you exercise the subscription right or allow the
subscription right to expire. Except as provided in the following sentence, the
basis of the subscription rights you receive as a distribution with respect to
your shares of our common stock will be zero. If, however, either (i) the
fair market value of the subscription rights on the date of issuance is 15% or
more of the fair market value (on the date of issuance of the rights) of the
common stock with respect to which they are received or (ii) you properly
elect, in your federal income tax return for the taxable year in which the
subscription rights are received, to allocate part of your basis in your common
stock to the subscription rights, then upon exercise of the rights, your basis
in the common stock will be allocated between the common stock and the rights in
proportion to the fair market value of each on the date the rights are issued.
In addition, your holding period for a subscription right will include your
holding period for the shares of common stock upon which the subscription right
is issued.
Expiration of subscription
rights. You will not
recognize any loss upon the expiration of a subscription right.
Exercise of subscription
rights. You generally
will not recognize a gain or loss on the exercise of a subscription right. The
tax basis of any share of common stock that you purchase through the rights
offering will be equal to the sum of your tax basis (if any) in the subscription
right exercised and the price paid for the share. The holding period of the
shares of common stock purchased through the rights offering will begin on the
date that you exercise your subscription rights.
THIS
DISCUSSION IS INCLUDED FOR YOUR GENERAL INFORMATION ONLY. YOU SHOULD CONSULT
YOUR TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES TO YOU OF THE RIGHTS OFFERING
IN LIGHT OF YOUR PARTICULAR CIRCUMSTANCES, INCLUDING ANY STATE, LOCAL AND
FOREIGN TAX CONSEQUENCES.
STATE
AND FOREIGN SECURITIES LAWS
The
rights offering is not being made in any state or other jurisdiction in which it
is unlawful to do so. We may delay the commencement of the rights offering in
certain states or other jurisdictions in order to comply with the securities law
requirements of such states or other jurisdictions. In our sole discretion, we
may decline to make modifications to the terms of the rights offering requested
by certain states or other jurisdictions, in which case shareholders who live in
those states or jurisdictions will not be eligible to participate in the rights
offering.
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
June 30, 2009, our authorized capital stock consists of 50,000,000 shares of
common stock, par value $.01 per share, of which 15,056,653 shares were
outstanding as of such date. Additionally, we had, as of such date, (a) 50,000
outstanding warrants to acquire shares of common stock, which will expire on
December 31, 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 437,549 shares were awarded as of June 30, 2009 (which includes
112,000 fully vested options awarded to eleven staff members, one director and
six consultants on June 16, 2009, with a per share exercise price of $8.25, and
an expiration date of June 16, 2012 ) and (c) outstanding warrants to purchase
up to 614,204 shares of our common stock, which became exercisable on February
9, 2009 and expire on January 31, 2012.
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.
Certificate
of Incorporation and Bylaws Provisions
The
following summary describes provisions of our certificate of incorporation and
bylaws. They may have the effect of discouraging a tender offer, proxy contest
or other takeover attempt that is opposed by our board of directors. These
provisions include:
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restrictions on the rights of
shareholders to remove
directors;
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limitations against shareholders
calling a Special Meeting of shareholders or acting by unanimous written
consent in lieu of a
meeting;
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Requirements for advance notice
of actions proposed by shareholders for consideration at meetings of the
shareholders; and
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restrictions on business
combination transactions with "related
persons."
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Classified
board of directors and removal
Our
certificate of incorporation provides that the board of directors shall be
divided into three classes, designated Class I, Class II and Class III, with the
classes to be as nearly equal in number as possible. The term of office of each
class expires at the third Annual Meeting of Shareholders for the election of
directors following the election of such class (except for the initial classes).
Directors may be removed only for cause and only upon the affirmative vote of
holders of at least 66 2/3% of our voting stock at a Special Meeting of
Shareholders called expressly for that purpose. The classification of directors
could have the effect of making it more difficult for shareholders to change the
composition of the board of directors. At least two Annual Meetings of
Shareholders, instead of one, are generally required to effect a change in a
majority of the board of directors.
The
classification provisions could also have the effect of discouraging a third
party from initiating a proxy contest, making a tender offer or otherwise
attempting to obtain control of our company, even though such an attempt might
be beneficial to us and our shareholders. The classification of the board of
directors could thus increase the likelihood that incumbent directors will
retain their positions. In addition, because the classification provisions may
discourage accumulations of large blocks of stock by purchasers whose objective
is to take control of our company and remove a majority of the board of
directors, the classification of the board of directors could tend to reduce the
likelihood of fluctuations in the market price of the common stock that might
result from accumulations of large blocks. Accordingly, shareholders could be
deprived of opportunities to sell their shares of common stock at a higher
market price than might otherwise be the case.
Shareholder
action by written consent and special meetings
Our
bylaws provide that shareholder action can be taken only at an Annual or Special
Meeting of shareholders and may not be taken by written consent in lieu of a
meeting once our number of shareholders exceeded sixty, which occurred in the
first quarter of 2003. Special Meetings of shareholders can be called only upon
a resolution adopted by the board of directors. Moreover, the business permitted
to be conducted at any Special Meeting of shareholders is limited to the
business brought before the meeting under the Notice of Meeting given by us.
These provisions may have the effect of delaying consideration of a shareholder
proposal until the next Annual Meeting. These provisions would also prevent the
holders of a majority of our voting stock from unilaterally using the written
consent or Special Meeting procedure to take shareholder action.
Advance
notice provisions for shareholder nominations and shareholder
proposals
Our
bylaws establish an advance notice procedure for shareholders to make
nominations of candidates for election as directors or bring other business
before a meeting of shareholders. The shareholder notice procedure provides that
only persons who are nominated by, or at the direction of, the board of
directors, or by a shareholder who has given timely written notice containing
specified information to our secretary prior to the meeting at which directors
are to be elected, will be eligible for election as our directors. The
shareholder notice procedure also provides that at a meeting of the shareholders
only such business may be conducted as has been brought before the meeting by,
or at the direction of, the chairman of the board of directors, or in the
absence of the chairman of the board, the chief executive officer, the
president, or by a shareholder who has given timely written notice containing
specified information to our secretary of such shareholder's intention to bring
such business before such meeting.
Although
our bylaws do not give the board of directors any power to approve or disapprove
shareholder nominations for the election of directors or proposals for action,
they may have the effect of precluding a contest for the election of directors
or the consideration of shareholder proposals if the proper procedures are not
followed, and of discouraging or deterring a third party from conducting a
solicitation of proxies to elect its own slate of directors or to approve its
own proposal, without regard to whether consideration of such nominees or
proposals might be harmful or beneficial to Zion and our
shareholders.
Business
combination provision
Our
certificate of incorporation contains a provision for approval of specified
business combination transactions involving any person, entity or group that
beneficially owns at least 10% of our aggregate voting stock. Such person,
entity or group is sometimes referred to as a "related person". This provision
requires the affirmative vote of the holders of not less than 66 2/3% of our
voting stock to approve specified transactions between a related person and
Zion, including:
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any merger or
consolidation;
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any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of our assets having a
fair market value of more than 10% of our total 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 us or our shareholders for breach of fiduciary duty as a director,
except to the extent that such exemption or limitation of liability is not
permitted under Delaware General Corporation Law. Any amendment or repeal of
such provisions may not adversely affect any right or protection of a director
existing under our certificate of incorporation for any act or omission
occurring prior to such amendment or repeal.
Our
certificate of incorporation and bylaws provide that each person who at any time
serves or served as one of our directors or officers, or any person who, while
one of our directors or officers, is or was serving at our request as a director
or officer of another corporation, partnership, joint venture, trust or other
enterprise, is entitled to indemnification and the advancement of expenses from
us, to the fullest extent permitted by applicable Delaware law. However, as
provided under applicable Delaware General Corporation Law, this indemnification
will only be provided if the indemnitee acted in good faith and in a manner he
or she reasonably believed to be in, or not opposed to, the best interests of
our company.
Amendments
Our
certificate of incorporation provides that we reserve the right to amend, alter,
change, or repeal any provision contained in our certificate of incorporation,
and all rights conferred to shareholders are granted subject to such
reservation. The affirmative vote of holders of not less than 80% of our voting
stock, voting together as a single class, is required to alter, amend, adopt any
provision inconsistent with, or to repeal certain specified provisions of our
certificate of incorporation. However, the 80% vote described in the prior
sentence is not required for any alteration, amendment, adoption of inconsistent
provision or repeal of the "business combination" provision discussed under the
"Business combination provision" paragraph above which is recommended to the
shareholders by two-thirds of our Disinterested Directors, and such alteration,
amendment, adoption of inconsistent provision or repeal shall require the vote,
if any, required under the applicable provisions of the Delaware General
Corporation Law, our certificate of incorporation and our bylaws. In addition,
our bylaws provide that shareholders may only adopt, amend or repeal our bylaws
by the affirmative vote of holders of not less than 66-2/3% of our voting stock,
voting together as a single class. Our bylaws may also be amended by the
affirmative vote of two-thirds of our board of directors.
Listing
Symbols on the NYSE Amex
Our
common stock is currently traded on the NYSE Amex under the symbol
"ZN." We also have warrants outstanding that are quoted under the
symbol "ZN.WS". A listing application to list the shares being offered in this
rights offering will be made with the NYSE Amex.
Transfer
Agent and Registrar
The
transfer agent and registrar for our common stock is Registrar and Transfer
Company, Cranford, New Jersey.
COMPANY
OVERVIEW
Zion Oil
is an initial stage oil and gas exploration company with a history of over eight
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. In June 2009, we were advised by the Israel Petroleum
Commissioner that we will be awarded a preliminary exploration permit with
priority rights on approximately 165,000 acres onshore Israel. This permit has
an eighteen month term that allows the Company to conduct, on an exclusive
basis, preliminary investigations, except for test drilling, to ascertain the
prospects for discovering petroleum in the area covered by the permit. The
permit area is adjacent to and to the east of our current license areas. The new
permit extends our petroleum rights from the Mediterranean at Caesarea across
the Carmel Mountains to Megiddo and through to the Jordan River immediately
south of the Sea of Galilee.
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 $9,494,000 to our unproved oil and gas
properties.
In
January 2008, we completed the acquisition of approximately 52.5 kilometers in
the Ramot Menashe and Nahal Me’arot areas within the Asher License
area. Utilizing these seismic lines, along with other lines already
existing in an Israeli country-wide seismic database, allowed us to better
understand and interpret the geology of our license areas and select drill sites
within the licenses. 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. Using the new and existing seismic, we have
developed one prospect and four leads in our license areas.
During
June 2009, we drilled the Ma’anit-Rehoboth #2 well to a depth of approximately
4,700 meters (15,500 feet) and continued to 15,850 feet in early July 2009. The
well is ultimately targeted to a bottom-hole location in the Permian formation
approximately 2,500 feet east-northeast of the bottom-hole location of our
previously drilled well. Utilizing a 2,000 horsepower drilling rig and rig
crews, imported from Turkey, directional drilling equipment and crew from Baker
Hughes INTEQ, Italy and logging equipment from Baker Hughes - Baker Atlas, we
drilled the intermediate hole at a depth of 15,850 feet and completed logging.
The logging results are being evaluated internally, and will additionally be
evaluated by independent consultants in Houston, Texas to determine whether
recoverable hydrocarbons may be present in commercial quantities. After setting
intermediate casing, we have continued drilling down to the Permian formation,
targeting a bottom hole depth of approximately 18,040 feet. Our work program
calls for the drilling of an additional well to a minimum depth of approximately
4,500 meters (14,800 feet) on the Asher-Menashe License (the Elijah #3) by
January 2010. We intend to commence drilling operations on the Elijah #3 well as
soon as we complete the appraisal and drilling on the Ma’anit-Rehoboth #2 well,
which we estimate will be in September 2009.
Between
October 24, 2008 and January 9, 2009, we raised from a follow-on public offering
gross proceeds of $6,663,000 from the sale of units of our securities, of which
$240,000 was for debt conversion. Each unit offered in the follow-on
offering consisted of (i) one share of common stock, par value $.01 per share
and (ii) one warrant to purchase one share of common stock at a per share
exercise price equal to $7.00. We utilized the amounts raised in the follow on
public offering to commence drilling the above referenced Ma’anit Rehoboth #2
well.
In June
2009, we raised gross proceeds of $21 million from a rights offering to common
stockholders of up to 4.2 million shares of our common stock. The rights
offering commenced on May 4, 2009, following the declaration of the
effectiveness of the registration statement filed with the SEC in respect of
such offering. Under the rights offering, stockholders of record on the record
date of May 4, 2009 of shares of the Company’s common stock received, by way of
a dividend, .375 of a subscription right for each share held as of such date
(three subscription rights for each eight shares). Each whole subscription right
entitled the shareholder to purchase one share of common stock at the purchase
price of $5.00 per share. The rights offering was fully subscribed, resulting in
our distribution of all of the 4.2 million shares available, including 2,126,737
shares under the basic subscription privilege and 2,073,263 under the
over-subscription privilege, representing a 51% basic subscription participation
rate. With the completion of the rights offering, we had outstanding 15,056,653
total shares of common stock outstanding.
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.
LEGAL MATTERS
Aboudi
& Brounstein will pass on the validity of the issuance of the shares of
common stock offered by this prospectus.
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-K for the year ended December 31, 2008. Such
financial statements have been incorporated in this prospectus by reference to
our Annual Report on Form 10-K for the year ended December 31, 2008, 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, 2008 and 2007, and for the years ended December
31, 2008 and 2007 and for the period from April 6, 2000 (inception) to December
31, 2008 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
..
We file
annual, quarterly and current reports, proxy statements and other information
with the SEC. These documents are available for inspection and copying by the
public at the Public Reference Room at 100 F Street, N.E., Room 1580,
Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. Our filings are also
available to the public on the internet through the SEC website at www.sec.gov.
You may also find our SEC filings and other relevant information about us on our
website at http://www.zionoil.com. However, the information on our website is
not a part of this prospectus.
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-K
for the year ended December 31, 2008 filed on March 31, 2009
;
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*
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our
definitive proxy statement filed on April 21,
2009
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*
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Our
quarterly report on Form 10-Q for the three months ended March 31, 2009
filed on May 15, 2009
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*
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Our
current report on Form 8-K, filed on May 29,
2009
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*
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Our
current report on Form 8-K, filed on June 4,
2009
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*
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Our
current report on Form 8-K, filed on June 10,
2009
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*
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Our
current report on Form 8-K, filed on June 11,
2009
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*
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Our
current report on Form 8-K, filed on June 18,
2009
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*
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Our
current report on Form 8-K, filed on June 23,
2009
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*
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Our
current report on Form 8-K, filed on June 25,
2009
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*
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Our
current report on Form 8-K, filed on June 30,
2009
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*
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Our
current reports on Form 8-K, filed on July 2,
2009
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*
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Our
current report on Form 8-K, filed on July 10,
2009
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*
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Our
current report on Form 8-K, filed on July 17,
2009
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*
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Our
current report on Form 8-K, filed on July 24,
2009
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*
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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)221-4610; email: kim@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.
We have
in place a directors' and officers' liability insurance policy that, subject to
the terms and conditions of the policy, insures our directors and officers
against losses arising from any wrongful act (as defined by the policy) in his
or her capacity as a director or officer. The policy reimburses us for amounts,
which we lawfully indemnify or are required or permitted by law to indemnify our
directors and officers.
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
14. Other Expenses of Issuance and Distribution
The
following table sets forth a reasonable itemized statement of all anticipated
out-of-pocket and overhead expenses (subject to future contingencies) to be
incurred in connection with the distribution of the securities being registered,
reflecting the minimum and maximum offering amounts. Each amount, except for the
commission, registration fee and listing fee, is estimated.
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$
(thousands)
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SEC
Filing Fee
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$ |
1 |
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Accounting
Fees and Expenses
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45 |
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Legal
Fees and Expenses
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13 |
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Printing
Costs
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50 |
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Listing
Fees
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45 |
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Fees
of Transfer Agent
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5 |
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Travel,
Advertising and Public Relations
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6 |
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TOTAL
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$ |
165 |
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Item
15. Indemnification of Directors and Officers
Section
145 of the Delaware General Corporation Law and our certificate of incorporation
and bylaws contain provisions for indemnification of our officers and directors,
and under certain circumstances, our employees and other persons. Our bylaws
require us to indemnify such persons to the fullest extent permitted by Delaware
law. Each such person will be indemnified in any proceeding if such person acted
in good faith and in a manner that such person reasonably believed to be in, or
not opposed to, our best interests. The indemnification would cover expenses,
including attorney's fees, judgments, fines and amounts paid in settlement. Our
bylaws also provide that we may purchase and maintain insurance on behalf of any
of our present or past directors or officers insuring against any liability
asserted against such person incurred in their capacity as a director or officer
or arising out of such status, whether or not we would have the power to
indemnify such person.
We have
no other indemnification provisions in our certificate of incorporation, bylaws
or otherwise specifically providing for indemnification of directors, officers
and controlling persons against liability under the Securities Act.
Item
16 Exhibits.
The
following documents are filed as exhibits to this registration
statement:
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Exhibit
Number
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Description
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5.1*
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Opinion
of Aboudi and Brounstein Law Offices, regarding legality of securities
being registered
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23.1
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Consent
of Aboudi and Brounstein Law Offices (included in the opinion filed as
Exhibit 5.1 to this Registration Statement)
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23.2*
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Consent
of Lane Gorman Trubitt, L.L.P.
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23.3*
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Consent
of Somekh Chaikin, independent registered public accounting firm, a member
of KPMG International
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24.1
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Powers
of Attorney (included on the signature page of this Registration
Statement)
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99.1*
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Form
of Subscription
Agreement
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*
Attached hereto
Item
17 Undertakings
The
undersigned registrant hereby undertakes:
(1) To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To
include any prospectus required by section 10(a)(3) of the Securities Act of
1933;
(ii) To
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the SEC
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
registration statement.
(iii) To
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement;
Provided, however , that:
Paragraphs (1)(i), (1)(ii) and (1)(iii) of this section do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in reports filed with or furnished to the SEC by the
registrant pursuant to section 13 or section 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in the registration statement, or
is contained in a form of prospectus filed pursuant to Rule 424(b) that is part
of the registration statement.
(2) That,
for the purpose of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
(4) That,
for the purpose of determining liability under the Securities Act of 1933 to any
purchaser:
(i) If
the registrant is relying on Rule 430B:
(A) Each
prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to
be part of the registration statement as of the date the filed prospectus was
deemed part of and included in the registration statement; and
(B) Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as
part of a registration statement in reliance on Rule 430B relating to an
offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of
providing the information required by section 10(a) of the Securities Act of
1933 shall be deemed to be part of and included in the registration statement as
of the earlier of the date such form of prospectus is first used after
effectiveness or the date of the first contract of sale of securities in the
offering described in the prospectus. As provided in Rule 430B, for liability
purposes of the issuer and any person that is at that date an underwriter, such
date shall be deemed to be a new effective date of the registration statement
relating to the securities in the registration statement to which that
prospectus relates, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof; provided, however , that no
statement made in a registration statement or prospectus that is part of the
registration statement or made in a document incorporated or deemed incorporated
by reference into the registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of contract of sale
prior to such effective date, supersede or modify any statement that was made in
the registration statement or prospectus that was part of the registration
statement or made in any such document immediately prior to such effective date;
or
(ii) If the registrant is subject to Rule 430C, each prospectus filed pursuant
to Rule 424(b) as part of a registration statement relating to an offering,
other than registration statements relying on Rule 430B or other than
prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and
included in the registration statement as of the date it is first used after
effectiveness. Provided, however, that no statement made in a registration
statement or prospectus that is part of the registration statement or made in a
document incorporated or deemed incorporated by reference into the registration
statement or prospectus that is part of the registration statement will, as to a
purchaser with a time of contract of sale prior to such first use, supersede or
modify any statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such document
immediately prior to such date of first use.
(5) That,
for the purpose of determining liability of the registrant under the Securities
Act of 1933 to any purchaser in the initial distribution of the
securities:
The
undersigned registrant undertakes that in a primary offering of securities of
the undersigned registrant pursuant to this registration statement, regardless
of the underwriting method used to sell the securities to the purchaser, if the
securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities to such
purchaser:
(i) Any
preliminary prospectus or prospectus of the undersigned registrant relating to
the offering required to be filed pursuant to Rule 424;
(ii) Any
free writing prospectus relating to the offering prepared by or on behalf of the
undersigned registrant or used or referred to by the undersigned
registrant;
(iii) The
portion of any other free writing prospectus relating to the offering containing
material information about the undersigned registrant or its securities provided
by or on behalf of the undersigned registrant; and
(iv) Any
other communication that is an offer in the offering made by the undersigned
registrant to the purchaser.
The
undersigned registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to section 13(a) or section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
The
undersigned registrant hereby undertakes that:
(1) For
purposes of determining any liability under the Securities Act of 1933, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act of 1933 shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For
the purpose of determining any liability under the Securities Act of 1933, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant certifies that
it has reasonable grounds to believe that it meets all of the requirements for
filing on Form S-3 and has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Dallas, State of Texas, on July 29, 2009.
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ZION
OIL & GAS, INC.
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(Registrant)
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By:
/s/ Richard Rinberg
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Richard
Rinberg
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Chief
Executive Officer
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POWER OF
ATTORNEY
KNOW ALL
MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Richard Rinberg and William Avery and each of them
(with full power to each of them to act alone), his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
substitutes, may lawfully do or cause to be done by virtue hereof.
In
accordance with the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated:
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Signature
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Title
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Date
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/s/
John M. Brown
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Chairman
of the Board of Directors
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John
M. Brown
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July
29, 2009
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/s/
Richard J. Rinberg
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Chief
Executive Officer and Director
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Richard
J. Rinberg
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July
29, 2009
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/s/
Glen H. Perry
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President,
Chief Operating Officer and Director
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Glen
H. Perry
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July
29, 2009
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/s/
William H. Avery
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Executive
Vice President, Secretary, Treasurer and Director
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William
H. Avery
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July
29, 2009
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/s/
Paul Oroian
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Director
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Paul
Oroian
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July
29, 2009
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/s/
Kent Siegel
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Director
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Kent
Siegel
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July
29, 2009
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/s/
Yehezkel Druckman
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Director
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Yehezkel
Druckman
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July
29, 2009
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/s/
Forrest A. Garb
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Director
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Forrest
A. Garb
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July
29, 2009
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/s/
Julian Taylor
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Director
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Julian
Taylor
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July
29,
2009
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