If we are successful in finding commercial quantities of oil and gas in Israel, we intend to donate a portion of our gross revenues to charities in Israel, the United States and elsewhere in the world. The donations will be made through entities we are in the process of establishing. These entities have not been as yet fully defined. For purposes of this discussion we call them charitable foundations, but they may be tax-exempt corporations, foundations, associations or some other form of charitable entity. This exact form of the charitable foundations, the domicile of the charitable trust for contributions outside Israel, and the exact form of the royalty interests to be donated have not yet been determined. Those forms will depend to an extent upon advice of tax counsel and the outcome of negotiations with the Israeli Tax Authority and other governmental authorities in Israel and outside of Israel. Independent of the form of organization and the form of interest donated, our board of directors has established the following parameters for the charitable foundations:

• There will be two separate and distinct charitable foundations, one to be established in Israel and one to operate outside Israel. Each of the charitable foundations will have its own board of directors.
• We will assign to each of the two charitable foundations an after payout (of exploration costs through the first discovery well) overriding royalty of 3% in the Joseph Project petroleum rights and any other petroleum rights that we acquire in Israel. This means that 6% of the gross proceeds of oil and gas production would go to the two charitable foundations for charitable purposes, 3% to be used for charitable activities in Israel by one charitable foundation and 3% to be used for such purposes in the United States and internationally by the other.
• If we are unsuccessful in our exploration efforts, no funds will be available for donation.
• The general application of the funds will be to support projects for the restoration of the land and people of Israel and social, charitable, medical, religious, educational and rehabilitative projects in the United States and internationally. More specific guidelines will be established at the time the charitable foundations are formed, based upon the foundation laws of the country.

Our shareholders, in a resolution passed at the 2002 Annual Meeting, approved the concept in principle, as well as the specific sources of interest to be donated to the foundations. Specifically, the shareholders resolution gave the board the authority to transfer to each charitable foundation a (i) 3% "overriding royalty", (ii) net operating profits interest, or (iii) substantially equivalent interests.

We have elected to apply the 3% overriding royalty and not the other interests, subject to any legal and tax restrictions under Israeli law as may be in effect at the time of the transfer of the interest. If, due to increased tax liability, we elect not to donate the overriding royalty but rather donate a substitute interest (such as a net profits interest) then the amount of the substitute interest would be calculated and specified such that it would have the same economic value to the charitable foundation as would a 3% overriding royalty.

These charitable foundations are to be new, separate and independent of any charitable organization supported by (or affiliated with) any of our officers or directors (a "Related Charitable Organization"). Nothing in the charters, organizational documents or bylaws of our charitable foundations will prohibit any Related Charitable Organization from applying for a grant or other financial support from one of the Zion charitable foundations. However, any member of the governing body or committee recommending allocation of grants of one of the charitable foundations who is affiliated with a Related Charitable Organization applying for such financial aid will be precluded from voting on the grant.