SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________________ to ____________________
Commission file number 0-538
AMPAL-AMERICAN ISRAEL CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
New York 13-0435685
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1177 Avenue of the Americas, New York, New York 10036
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (212) 782-2100.
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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Class A Stock American Stock Exchange
Warrants to purchase shares of Class A Stock American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Class A Stock
4% Cumulative Convertible Preferred Stock
6 1/2% Cumulative Convertible Preferred Stock
(Titles of Classes)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K |X|.
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The number of shares outstanding of each of the issuer's classes of common
stock is: Common -- 0; Class A -- 23,678,984 (as of March 24, 1997).
The aggregate market value of the voting stock held by non-affiliates of
the registrant is $51,537,730 (as of March 24, 1997).
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ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OF AMPAL-AMERICAN ISRAEL CORPORATION
PART I
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ITEM 1. BUSINESS
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As used in this report (the "Report"), the term "Ampal" only refers to
Ampal-American Israel Corporation, the parent company; the term "Company" refers
to Ampal and its consolidated subsidiaries. Ampal is a New York corporation
founded in 1942.
For industry segment financial information and financial information about
foreign and domestic operations, see Note 11 to the Company's consolidated
financial statements included elsewhere herein.
The Company acquires interests in businesses located in the State of
Israel or that are Israel-related. An important objective of Ampal is to make
investments in companies that take advantage of growth in Israel's domestic
economy. The Company has diversified interests in the following sectors: high
technology and communications, energy distribution, hotels and leisure-time,
real estate, finance and basic industry. The Company intends to continue to
adhere to its historical policy of focusing its business interests primarily on
holdings in Israel-related enterprises.
The Company emphasizes long-term appreciation over short-term returns and
liquidity. The Company often makes equity investments accompanied by more
significant loans or loan guarantees with the intention that cash flow from
operations of the investee companies will repay these loans. In determining
whether to acquire an interest in a specific company, the Company considers
quality of management, qualification of investment partners, potential return on
investment, projected cash flow, market share and growth potential.
The Company generally seeks to acquire and maintain a sufficient equity
interest in a company to permit it, on its own or with investment partners, to
have influence in the management and operation of that company. The Company
often seeks investment partners who have expertise in the business in which an
investment is being made or whose operations and associations provide the
investee company with additional markets, sources of supply, financing or other
competitive advantages. The Company sometimes makes investments with or through
affiliated companies. Frequently, the Company enters into arrangements with its
investment partners or with the company in which it is investing in order to
ensure board representation or other rights relating to its investments. Bank
Hapoalim B.M. ("Hapoalim"), the largest bank in Israel, and its wholly-owned
subsidiary Atad Hevra Lahashkaot Limited ("Atad") were, until December 11, 1996,
Ampal's controlling shareholders and Hapoalim is currently the Company's
principal lender. Members of the Hapoalim group of companies sometimes invest
jointly with the Company. See "Significant Recent Developments Since Beginning
of Last Year - Change of Control of Ampal" and "Certain Relationships and
Related Transactions."
The growth of the Israeli economy, the success of a number of
Israeli-based companies, particularly in the area of high technology, the
privatization of government-owned companies and the acceleration of the peace
process over the last few years, have prompted numerous potential investors to
search for investment opportunities in Israel and have made it possible for
certain of such companies to gain direct access to Israeli and foreign public
securities markets. The Company competes for investment opportunities with other
established and well-capitalized investing entities. There can be no assurance
that opportunities will continue to be available to the Company at valuations
and on terms which are favorable.
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Listed below by industry segment are the Company's most significant
investees, the principal business of each and the percentage of equity owned,
directly or indirectly, by Ampal. The table below also indicates whether the
investee is listed on the American Stock Exchange ("AMEX"), quoted on the
National Association of Securities Dealers Automated Quotation System ("NASDAQ")
or NASDAQ National Market ("NASDAQ NM") or listed on the Tel Aviv Stock Exchange
("TASE"). For further information with respect to the investees, see below.
<TABLE>
<CAPTION>
PERCENTAGE
AS OF
INDUSTRY SEGMENT PRINCIPAL BUSINESS DECEMBER 31, 1996
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<S> <C> <C>
HIGH TECHNOLOGY AND COMMUNICATIONS
A.T.V. Broadcasting Ltd................. Arabic Cable Channel 24.9(1)
Breeze Wireless Communications Ltd...... Wireless Local Area 8.5
Network
Comfy Interactive Movies Ltd............ Computer Technology for 7.0(2)
Children
Courses Investment in Technology Ltd.... Venture Capital Fund 4.6(3)
Idan Software Industries I.S.I. Ltd. Telecommunications 7.9(4)
(NASDAQ: "IDANF")...................... Services
Mainsoft Corporation.................... Develops Tools for Unix 1.8(5)
Memco Software Ltd. Computer Security Software 5.6(6)
(NASDAQ NM: "MEMCF")................... Products
M-Systems Flash Disk Pioneers Ltd. Data Storage Material 2.3
(NASDAQ NM: "FLSHF")...................
Mutech Ltd.............................. Develops Software for 7.2
Servers
Teledata Communication Ltd. (NASDAQ NM: Telecommunications Systems 8.0(7)
"TLDCF")...............................
TODD Investments Limited Wireless 15.0(8)
(Geotek Communications Ltd.)........... Telecommunications
Trinet Venture Capital Ltd.............. Venture Capital Fund 50.0
U.D.S. - Ultimate Distribution Distribution Software 21.9
Systems Ltd...........................
ENERGY DISTRIBUTION
Granite Hacarmel Investments Ltd. (TASE) Distribution of Refined 21.5
Petroleum Products
HOTELS AND LEISURE-TIME
Coral World International Limited....... Underwater Observatories 50.0
and Marine Parks
Country Club Kfar Saba Limited.......... Country Club Facility 51.0
Hod Hasharon Sport Center (1992) Country Club Facility 50.0
Limited Partnership....................
Moriah Hotels Ltd....................... Hotel Chain 46.0
REAL ESTATE, FINANCE AND OTHER HOLDINGS
Alzur Property Development Commercial Real Estate 17.3
Company Ltd............................
Am-Hal Ltd.............................. Senior Citizen Facilities 50.0
Ampal Development (Israel) Ltd.......... Holding Company 100.0
Ampal Financial Services Ltd............ Holding Company 100.0
Ampal (Israel) Ltd...................... Holding Company 100.0
Ampal Realty Corporation................ Commercial Real Estate 94.0
Bay Heart Limited....................... Shopping Mall Owner/Lessor 37.0
Epsilon Investment House Ltd............ Investment Bank 20.0
Etz Vanir Ltd. and Yakhin Mataim Ltd.... Citrus Groves 50.0
Industrial Buildings Corporation Ltd. Industrial Real Estate 5.6(9)
(TASE)..................................
Nir Ltd................................. Holding Company 99.9
</TABLE>
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<TABLE>
<S> <C> <C>
Ophir Holdings Ltd. ("Ophir")........... Holding Company 42.5
Renaissance Israel...................... Investment Fund 15.0
Shmey-Bar Group......................... Commercial Real Estate 7.1(10)
BASIC INDUSTRY
Carmel Container Systems Limited (AMEX: Packaging Materials and 20.7
"KML")................................. Carton Production
M.D.F. Industries Ltd................... Medium Density Fiber 50.0
Products
Orlite Industries (1959) Ltd. (TASE).... Composite Material 25.3(11)
Products
Paradise Industries Ltd................. Mattresses and Fold-out Beds 85.1
</TABLE>
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(1) The Company purchased its interest in A.T.V. Broadcasting Ltd. in 1997.
(2) The Company's ownership includes 3.4% of Comfy owned directly and 50% of
Trinet's 7.2% ownership of Comfy.
(3) The Company's ownership includes 2.5% of Courses Investment owned directly
and 42.5% of Ophir's 5% ownership of Courses Investment.
(4) The Company sold its interest in Idan on March 27, 1997.
(5) The Company's ownership reflects 42.5% of Ophir's 4.3% ownership of
Mainsoft.
(6) The Company's ownership reflects 42.5% of Ophir's 13.1% ownership of
Memco.
(7) The Company's ownership includes 1.1% of Teledata owned directly and 42.5%
of Ophir's 16.2% ownership of Teledata.
(8) The Company's ownership of Geotek Communications Ltd. is through TODD
Investments Limited, of which the Company directly owns 15%.
(9) The Company's ownership reflects 42.5% of Ophir's 13.3% ownership of
Industrial Buildings.
(10) The Company's ownership reflects 42.5% of Ophir's holdings of 16.7% in
each of the following three companies: Shmey-Bar (I.A.) 1993 Ltd.;
Shmey-Bar (T.H.) 1993 Ltd. and Shmey-Bar Real Estate 1993 Ltd.
(11) The Company's ownership includes 25.2% of Orlite owned directly and 42.5%
of Ophir's .2% ownership of Orlite.
SIGNIFICANT RECENT DEVELOPMENTS SINCE BEGINNING OF LAST FISCAL YEAR
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CHANGE OF CONTROL OF AMPAL
On December 11, 1996, Hapoalim and Ampal entered into an Exchange
Agreement (the "Exchange Agreement") pursuant to which Hapoalim and Ampal
exchanged all 3,000,000 shares of Ampal's Common Stock, $1.00 par value (the
"Common Stock"), owned by Hapoalim for 3,000,000 shares of Ampal's Class A
Stock, $1.00 par value (the "Class A Stock"). Ampal's Board of the Directors
(the "Board") had formed a "Special Committee" consisting of five outside
directors to consider Hapoalim's request to (i) equalize the voting rights of
the Common Stock with the voting rights of the Class A Stock and (ii) compensate
Hapoalim for the reduction in its voting rights which would result from such
equalization. The Special Committee was authorized to negotiate, approve or
disapprove any such transaction on Ampal's behalf. The Special Committee
retained independent counsel and an independent investment bank to advise it in
connection with Hapoalim's proposal. The Special Committee unanimously approved
the exchange transaction and recommended that Ampal's Board also approve such
transaction and take all actions appropriate to effectuate it. Ampal's Board
approved the exchange transaction and the Exchange Agreement by the unanimous
vote
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of all directors then present and voting at a meeting held on December 11, 1996.
After such vote, on December 11, 1996, the Special Committee was discharged.
In the Exchange Agreement, Ampal agreed to recommend to its shareholders
that they vote their shares at the next meeting of Ampal's shareholders in favor
of an amendment to Ampal's Certificate of Incorporation (the "Certificate") to
provide for the removal and elimination of the Common Stock from Ampal's
authorized shares and the cancellation of any reference to the Common Stock in
Ampal's Certificate. At a meeting held on March 27, 1997, the Board recommended
that the shareholders approve such an amendment to the Certificate at the annual
meeting to be held on May 28, 1997 (the "Annual Meeting"). Ampal also agreed
that until its Certificate is amended as provided above, Ampal will not reissue,
resell, transfer, distribute or take any other action with respect to any or all
of the Common Stock. Furthermore, until the later of such time as the
Certificate is amended as so provided or such time as Hapoalim's interest in
Ampal, whether directly or through subsidiaries of Hapoalim, is less than 10% of
all of the outstanding shares of the Class A Stock, Ampal will not issue any
class of equity security with voting rights that are preferential to the voting
rights of the Class A Stock, other than preferred stock that has customary
preferential voting rights with respect to the election of members of the Board
only in the event of the non-payment of preferential dividends.
In addition, on December 11, 1996, pursuant to the Stock Purchase
Agreement (the "Stock Purchase Agreement"), dated May 12, 1996, among Atad
(collectively with Hapoalim, the "Bank"), Rebar Financial Corp. ("Rebar"),
Daniel Steinmetz, Benjamin Steinmetz and Raz Steinmetz (collectively, the
"Purchasers"), Atad delivered to Rebar 1,500,001 shares of Ampal's Class A Stock
in consideration for $11,798,583, previously deposited by Rebar and held in
escrow by Hapoalim (plus interest). Mr. Daniel Steinmetz will be a nominee as a
director of Ampal at the Annual Meeting. Mr. Raz Steinmetz is currently a
director of Ampal and Chairman of the Executive Committee.
Previously, on June 6, 1996, pursuant to the Stock Purchase Agreement,
Atad delivered to Rebar 5,742,351 shares of Ampal's Class A Stock in
consideration of $45,167,583.
Prior to the consummation of the transactions described above, Hapoalim
beneficially owned 3,000,000 shares of Ampal's Common Stock (representing 100%
of the outstanding Common Stock) and the Bank beneficially owned 10,500,991
shares (assuming conversion of shares of Ampal's preferred stock owned by the
Bank) of Ampal's Class A Stock (representing 50.2% of the outstanding Class A
Stock). As the holder of all the outstanding Common Stock, as to matters
submitted to the vote of the shareholders of Ampal (including the election of
directors other than 25% of the Board for whom only holders of Class A Stock
could vote), the Bank was entitled to cast a number of votes equal to the total
number of votes cast by the holders of Class A Stock, but, in no event, more
than ten votes per share of Common Stock. Thus, before the exchange of the
Bank's Common Stock for Class A Stock, as described above, the Bank had the
power to elect at least approximately 75% of Ampal's directors.
Following the consummation of the transactions described above, Rebar
beneficially owned 7,362,352 shares of Ampal's Class A Stock (representing 31.1%
of the outstanding Class A Stock), making it the single largest shareholder of
Ampal, and the Bank beneficially owned 6,258,639 shares (assuming conversion of
shares of Ampal's preferred stock owned by the Bank) of Ampal's Class A Stock
(representing 26% of the outstanding Class A Stock).
These transactions were executed by the Bank in order to comply with the
requirements of the Israeli banking laws requiring the Bank to decrease to 25%
or less its holdings in and means of control over Ampal by December 31, 1996.
See "Conditions in Israel - Israeli Banking Regulations." Following the
consummation of the transactions described above, the Bank owned 5,874,281
shares of Ampal's Class A Stock, representing 24.8% of the outstanding Class A
Stock (without assuming conversion of shares of Ampal's preferred stock owned by
the Bank).
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On June 19, 1996, Ampal's Board of Directors was increased from 11 members
to 14 members by the addition of Messrs. Hillel Peled, Michael W. Sonnenfeldt
and Raz Steinmetz at the recommendation of Rebar. Upon the resignation of Mr.
Shlomo Recht, effective December 31, 1996, the actual number of directors was 13
with one vacancy. At a meeting of the Board held on March 27, 1997, the Board
set the number of directors at 13.
In connection with the initial closing under the Stock Purchase Agreement,
Rebar obtained a bridge loan from The First International Bank of Israel Ltd.
(the "Lender"), in Israel, in the amount of $45,580,000, representing
approximately 80% of the funds paid at the initial closing. The balance of the
funds were contributed to Rebar by Mr. Benjamin Steinmetz, Mr. Daniel Steinmetz
and Mr. Raz Steinmetz, Rebar's directors, executive officers and controlling
persons. The loan from the Lender bears interest at a floating rate equal to
.75% above LIBOR. The bridge loan can be prepaid in whole or in part at any time
on an interest payment date. Upon repayment of the bridge loan, the Lender has
indicated that it is prepared to provide a replacement loan for a period of up
to 9-1/2 years, with the interest rate and payment schedule to be determined at
that time. Rebar has granted to the Lender a first priority lien and security
interest on the Class A Stock acquired pursuant to the Stock Purchase Agreement.
If at the end of any quarter the value of the pledged shares is less than the
amount of the debt to the Lender, then Rebar is obligated, on demand from the
Lender, either to repay the excess portion of the loan or to provide additional
collateral. If the excess portion of the loan is not repaid, or additional
collateral is not provided, the Lender has the right to call the loan and
require it to be paid in full. The loan is guaranteed by Raz Steinmetz to the
extent, in the aggregate, of 25% of the amount of the loan.
In the Stock Purchase Agreement, the Bank and the Purchasers agreed to use
all legal means to cause a general meeting of Ampal's shareholders to be held no
later than March 31, 1997 (the "Election Meeting") at which they would vote on
the election of a 13-member board of directors consisting of three persons
recommended by the Bank and ten persons recommended by Rebar. The Bank and Rebar
subsequently agreed to postpone such vote until the upcoming Annual Meeting. For
the period between the date of the first closing under the Stock Purchase
Agreement and the Election Meeting (the "Interim Period"), Messrs. Peled,
Sonnenfeldt and Raz Steinmetz were appointed to the Board at the recommendation
of Rebar.
The Bank also agreed that during the Interim Period it would do everything
that is required and legal to prevent the Board from adopting resolutions which
(i) might infringe on the Purchasers' rights under the Stock Purchase Agreement,
(ii) authorize a deviation from Ampal's ordinary course of business or (iii)
authorize the investment in or sale of Ampal's property at a price of $3 million
or more, unless in each case such resolution is consented to by the directors
recommended by the Bank and those recommended by the Purchasers, provided that
the matter is not contrary to law or any agreement or undertaking of the Bank,
the Purchasers or Ampal. In addition, the Stock Purchase Agreement provides that
so long as Hapoalim, directly or indirectly, holds at least 8 1/3% of the voting
rights in Ampal, the Purchasers will use their best efforts so that the Board
shall consist of directors designated by Hapoalim reflecting Hapoalim's
proportionate holdings in Ampal.
Furthermore, pursuant to the Stock Purchase Agreement, the Purchasers
agreed that for so long as Hapoalim, directly or indirectly, holds at least 19
1/2% of the voting rights in Ampal, the Purchasers will use their best efforts
to preserve Hapoalim's interests in Ampal and to ensure that Hapoalim's
interests are not prejudiced by any future activities of Ampal (including by
enabling the Bank to participate in future private placements by Ampal in order
to maintain its proportionate interest in Ampal).
The Stock Purchase Agreement further provides that the Purchasers will
have certain rights of first refusal with respect to future sales by the Bank of
its shares in Ampal. In addition, under certain circumstances, the Purchasers
are entitled to purchase from the Bank a number of shares of Class A Stock equal
to the number of shares sold by the Bank in
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market transactions. The Bank has the right, under certain circumstances, to
participate in future private sales by the Purchasers of their shares of Class A
Stock.
The Bank and the Purchasers agreed to cooperate to cause Ampal to enter
into a registration rights agreement with them which will require Ampal to
cooperate with Bank and the Purchasers in order to permit them to publicly offer
their shares of Ampal's stock in the United States, Israel or anywhere else that
either of them decides, and to permit them to include their shares of Ampal's
stock in any public offering by Ampal of its shares anywhere.
In addition, since Hapoalim no longer controls Ampal, Ampal could lose
certain rights granted under a shareholders agreement to select directors to the
board of Granite Hacarmel Investments Ltd. ("Granite"). As long as Ampal
maintains its current representatives on Granite's Board of Directors, the other
shareholder has agreed not to terminate such rights. If, however, Ampal loses
these rights, Ampal may no longer be able to account for its holdings in Granite
under the equity method of accounting. Furthermore, since Ampal is no longer
controlled by Hapoalim, under the terms of a shareholders agreement between
Ampal and the other shareholder of Coral World International Limited ("Coral
World"), Ampal would have been required, upon the receipt of a notice from the
other shareholder indicating its desire to purchase Ampal's shares of Coral
World, to seek to sell its shares of Coral World to an outside person (subject
to a right of first refusal by the other shareholder) or, failing that, to sell
its shares to the other shareholder at a price equal to the greater of the book
value or seven times the previous year's earnings per share. The other
shareholder has informed the Company that it has waived such rights. See "Energy
Distribution - Granite Hacarmel Investments Ltd." and "Hotels and Leisure-Time -
Coral World International Limited."
M.D.F. INDUSTRIES LTD. ("M.D.F.")
M.D.F. the Company's 50%-owned affiliate, which has established a plant in
Israel for the production of medium density fiber boards, and which completed
its running-in period on June 30, 1996, incurred significant losses in 1996. The
losses are primarily attributable to the excess of cost of sales per production
unit over the selling price. M.D.F.'s sales prices were affected by the decrease
in worldwide prices of all wood-connected products, and to the establishment of
nearly 30 new plants for the production of medium density fiber boards
throughout the world. In view of the substantial losses incurred by M.D.F. and
the continuing depressed prices with respect to its products, the Company
believes that further substantial losses will be incurred by M.D.F.
Consequently, because of the uncertainty with respect to M.D.F.'s future
operations, the Company has recorded a loss from impairment of this investment
in December 1996 for its full remaining investment in and loans to M.D.F. in the
amount of $8.8 million. This loss, in addition to the $1.3 million loss
previously recorded by the Company in 1996 with respect to M.D.F., resulted in a
total loss attributable to the operations of M.D.F. in the amount of $8.6
million, net of tax benefits. M.D.F. will no longer be accounted for as an
affiliate of the Company under the equity method of accounting. The Company,
however, continues to be contingently liable with respect to $5 million of
guarantees given by the Company with respect to M.D.F.'s bank obligations.
At Ampal's initiative, the Board of Directors of M.D.F. has approved
hiring consultants to study the operations and marketing of M.D.F. to determine
if a recovery plan can be implemented. In addition, the owner of the other 50%
interest in M.D.F. has agreed to provide additional funds in the amount of up to
$2 million to M.D.F., if required for M.D.F. to meet its obligations.
STOCK REPURCHASE PROGRAM
In March 1995, the Board of Directors of Ampal approved the repurchase by
Ampal of up to 2 million shares of its Class A Stock, at market prices from time
to time. As of February 21, 1996, Ampal had repurchased 605,400 shares of its
Class A Stock at an average price of $6.32 per share. On February 21, 1996, in
connection with developments regarding Hapoalim's ownership of Ampal's equity,
Ampal announced that it had temporarily suspended
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purchases under this program. Such suspension is still in effect. See "Change of
Control of Ampal."
For a discussion of other developments regarding the Company's investees
and affiliates, see below, particularly "Coral World International Limited,"
"Orlite Industries (1959) Ltd." and "Pri Ha'emek (Canned and Frozen Food) 88
Ltd."
HIGH TECHNOLOGY AND COMMUNICATIONS
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A.T.V. BROADCASTING LTD. ("A.T.V.")
On February 25, 1997, the Company acquired a 24.9% interest in A.T.V.
Broadcasting Ltd. A.T.V. is expected to submit a bid to the Israeli Ministry of
Communications ("MOC") for the establishment and operation of a new cable
channel targeted at the Arabic-speaking population of Israel. Roll
Communications Ltd., a prominent media company, has a 10% equity interest in
A.T.V.
Prior to the submission of the bid, the Company invested $37,350 in A.T.V.
Should A.T.V. be selected by the MOC to manage and operate the cable channel,
Ampal will be required to invest an additional $196,875 and to make available
$406,250 as a loan. Ampal may also be required to provide additional financing.
It is anticipated that the cable channel will be carried by regional cable
companies and that its signal may be made available to the entire population of
the Middle East via satellite. Furthermore, for the first time, an Israeli cable
channel will be licensed to sell advertising time.
BREEZE WIRELESS COMMUNICATIONS LTD. ("BREEZE")
In June 1995, the Company invested $1 million to acquire a 13.6% equity
interest in Breeze. The Company's interest was diluted to 8.5% in 1996.
Breeze, formerly known as Lannair, Ltd., is an Israeli company which
develops, manufactures and markets wireless local area networks ("LANS") for
computers, using license-free, spread spectrum radio technology. Breeze's
product strategy focuses on two product lines, wireless LANS for personal
computers and notebooks and wireless remote bridges and modems. Breeze has a
distribution network with more than 100 distributors in 45 countries. It has a
United States subsidiary which develops sales and provides support to customers
on the American continent.
COMFY INTERACTIVE MOVIES LTD. ("COMFY")
As of December 31, 1996, Ampal Industries (Israel) owned a 3.4% equity
interest in Comfy. Trinet Venture Capital Ltd. ("Trinet"), the Company's
50%-owned venture capital fund, owned, as of December 31, 1996, a 7.2% equity
interest in Comfy. In addition to its equity interest, the Company owns 6,255
options to purchase Comfy common stock with an exercise price of $46 and Trinet
owns 1,390 options to purchase Comfy common stock with an exercise price of $46
per share. All such options are exercisable until December 11, 1999. Comfy is
developing and marketing a computer keyboard and interactive movies specially
designed for children ages 1-6.
COURSES INVESTMENT IN TECHNOLOGY LTD. ("COURSES INVESTMENT")
The Company and Ophir own 2.5% and 5% of Courses Investment, respectively.
Courses Investment is a venture capital fund which has invested in 18 start-up
companies in the fields of communications, software and electronics.
IDAN SOFTWARE INDUSTRIES I.S.I. LTD. ("IDAN")
Idan, through its direct and indirect subsidiaries, is a provider of
telecommunications services and products in Israel. Idan's subsidiary, Elitec
Industries 77 Ltd. ("Elitec"), through a subsidiary, provides tenant
communication services to office buildings and other facilities. Elitec, through
another subsidiary, provides outbound
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international telephone and facsimile services to Israeli business customers and
issues a telephone calling card to Israeli business executives, professionals
and others for use primarily in placing direct-dial inter-country calls. Elitec
shares are publicly traded on the TASE.
Idan's subsidiary, ASP Computer Products, Inc., designs, manufactures and
distributes peripheral equipment for computers including sharing devices between
personal computers, laser printers and facsimile machines.
The Company has entered into a shareholders' agreement pursuant to which
it has agreed to vote all of its shares in favor of all of the nominees
nominated by the other parties to the agreement to Idan's board of directors,
and for so long as it holds at least 70% of the shares it purchased in a private
placement from Idan, the other shareholders have agreed to vote in favor of the
Company's nominee to Idan's board of directors.
The Company owned 7.9% of Idan, which it purchased in 1993. On March 27,
1997, the Company sold its interest in Idan to Idan's principal shareholder for
approximately $945,000. The Company will record a small gain with respect to
this transaction. Idan is quoted on NASDAQ NM under the symbol "IDANF."
M SYSTEMS FLASH DISK PIONEERS LTD. ("M SYSTEMS")
In January 1995, the Company acquired 260,416 common shares of M-Systems,
equal to a 4.1% interest, for $1 million and received warrants to purchase an
additional 130,206 common shares at $4.61 per share until June 30, 1998. M
Systems is an Israeli company that designs, develops, manufactures and markets
innovative software and hardware data storage solution. During 1996, M-Systems
sales increased by 80%. M-Systems also signed strategic alliance agreements with
several large companies. During 1996, the Company sold 55,000 common shares of
M-Systems for a net gain of $.3 million after taxes.
M Systems' shares are quoted on NASDAQ under the symbol "FLSHF."
TELEDATA COMMUNICATION LTD. ("TELEDATA")
Teledata designs, develops, manufactures, markets and supports advanced
wireline and wireless customer access network equipment for telephone operating
companies worldwide. Its products enable telephone operating companies to
enhance the capacity, reach and functionality of the network of transmission
links that connects subscribers to a local exchange, generally known as the
"local loop" or "customer access network." Using Teledata's products, telephone
operating companies can quickly and cost-effectively deploy new networks using
fiber, copper or radio links and upgrade the existing infrastructure in order to
substantially increase the number of subscribers that can be served and improve
the scope and quality of service offered.
During 1996, Ophir sold 250,000 Teledata ordinary shares for $4 million.
The Company's net gain on sale was $.5 million net of taxes. As of December 12,
1996, Ophir beneficially owned 16.2% of Teledata's ordinary shares. On March 14,
1997, Teledata filed a registration statement with the Securities and Exchange
Commission (the "SEC") in connection with the sale of 2,700,000 ordinary shares.
It is anticipated that Ophir will participate in the offering as a selling
shareholder and will sell 330,000 ordinary shares. As a result, should the
offering be completed as currently structured, Ophir will own approximately
11.4% of Teledata's ordinary shares (assuming that the underwriters do not
exercise their over-allotment options). During 1996, Ampal Industries sold
113,624 ordinary shares for a net gain of $1 million after taxes and 31,800
ordinary shares in the first quarter of 1997 reducing its holdings in Teledata
to 88,000 ordinary shares.
Ampal Industries, Ophir and a subsidiary of Hapoalim are currently
contemplating entering into a shareholders agreement with respect to voting on
the election of directors and other matters presented to the shareholders of
Teledata.
Teledata's shares are quoted on the NASDAQ NM under the symbol "TLDCF."
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TRINET VENTURE CAPITAL LTD. ("TRINET")
In February 1994, the Company and ICH, established Trinet, a venture
capital fund for investments in high-technology ventures in Israel including
start-up entities. Each of the Company and ICH had committed to invest up to
$2.5 million in Trinet. In 1996, the commitment was increased by $4 million ($2
million each). Trinet is managed by Trinet Investment in High-Tech Ltd. which is
37.5%-owned by each of the Company and ICH. The balance is owned by an officer
of Trinet.
At the end of 1995, Trinet owned a 66% interest in Imagenet Ltd.
("Imagenet"), a company engaged in research and development activities related
to computer systems, software and hardware. Because of various share issuances
by Imagenet in 1996, Trinet's interest in Imagenet was reduced to 49.2%. Because
of the dilution and unrealized gain in 1996, the Company recorded a net gain of
$1 million after taxes.
In 1995, Trinet invested $900,000 for a 51% interest in Smart-Link Link
Ltd. ("Smart-Link"), a developer and marketer of multimedia products. In 1996,
Trinet increased its holdings in Smart-Link to 60.1% through an investment of an
additional $600,000. Between November 1996 and April 1997, other investors
invested or committed to invest $4 million in Smart-Link. It is therefore
anticipated that by April 1997 Trinet's holdings in Smart-Link will decrease to
approximately 40.6%. As a result of Trinet's realized gain, the Company recorded
a net gain of $1.1 million, after taxes.
In December 1996 and January 1997, Trinet invested an aggregate amount of
$1 million for a 62.2% interest in Nulan Technologies Ltd., a developer,
producer and marketer of communications and multimedia products.
Trinet also has a 7.2% interest in Comfy, see "Comfy Interactive Movies
Ltd.;" a 5.7% interest in Logal Software and Educational Systems Ltd. ("Logal"),
a developer and marketer of computer-integrated educational systems for
scientific instruction in educational systems (Trinet's holding was diluted to
5.7% as a result of a public offering completed by Logal in February 1996); and
a 2% interest in Peptor Ltd., a developer of advanced pharmaceutical products
based on synthetic peptide.
U.D.S. - ULTIMATE DISTRIBUTION SYSTEMS LTD. ("U.D.S.")
In September 1995, the Company invested $1.3 million to acquire a 21.9%
equity interest in U.D.S. and three-year options to acquire an additional 4.4%
equity interest.
U.D.S., formerly known as Barshar Ltd., is an Israeli-based software
company specializing in the management and optimization of a variety of logistic
tasks for the distribution industry. Its products allow savings in the cost of
distribution and increased management control over routing of products and
people. Its software has been adopted by Coca Cola-Europe, El Al Airlines, three
Israeli medical centers as well as by a major beer distributor in the United
States, for the management of personnel ground transportation.
ENERGY DISTRIBUTION
- -------------------
GRANITE HACARMEL INVESTMENTS LTD. ("GRANITE")
Granite owns the Sonol group of companies, the second largest Israeli
distributor of refined petroleum products. Supergas, a wholly-owned subsidiary
of Granite, is the third largest marketer and distributor in Israel of liquified
petroleum gas. Through its subsidiaries, Granite also manufactures and markets
lubricating oils and automotive batteries.
During 1996, Sonol had a net gain of six public gas stations to its
network. As of December 31, 1996, Sonol supplied petroleum products to 157
public gas stations in Israel, of which 110 are owned by or leased to Sonol.
Sonol sold approximately 2.1 and 2.4 million metric tons of refined petroleum
products and lubricating oils in 1996 and 1995, respectively. The main sources
of the decrease were reduced sales to large customers and
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the termination of sales to areas controlled by the Palestinian Authority as of
September 1, 1996.
Pursuant to the recommendation of a committee appointed by the Minister of
Energy and Infrastructure, the Minister announced his intention to change the
policy which required petroleum companies to hold emergency stocks of crude oil
and refined products and to separate them from the operating inventories of the
oil companies. For the period which commenced November 1996 and ended February
1997, the requirement to hold emergency stocks of heavy fuel oil was gradually
reduced. Also, the government intends, in 1997, to separate the storage of
refined products included in the emergency stocks from the storage of
inventories used in current operations, and in the future, to have tender offers
to determine the party who will hold the emergency stocks in storage facilities
specially designated by the government.
In accordance with the government ordinance issued by the Minister of the
Finance and the Minister of National Infrastructures regarding the supplying of
aviation kerosene (hereinafter "ATK") to the airline companies at Ben-Gurion
Airport, as of September 1, 1996, Aviations Services Ltd. (an affiliate of
Granite) (hereinafter, "Aviation Services") ceased to be the sole supplier of
ATK. Sonol was one of the suppliers of ATK to Aviation Services for many years.
As a result of the cancellation of the right of Aviation Services to supply ATK,
Sonol will, like other fuel companies, become a direct supplier of ATK to the
airline companies at Ben-Gurion Airport. The decree also determined the prices
for refueling services and for infrastructure services provided to the airline
companies at Ben-Gurion Airport. In accordance with agreements signed with the
budget division of the Finance Ministry and with the Airports Authority,
Aviation Services will provide the refueling services and its 50% owned
subsidiary, Aviation Properties Ltd., will provide the infrastructure services.
The agreements do not provide Aviation Services with exclusivity in providing
refueling services at Ben-Gurion Airport.
On September 1, 1995, the Israeli government published a decree, the
purpose of which is to regulate infrastructure rates in the fuel economy. The
decree establishes, among other things, the various types of infrastructure
services and the maximum prices allowed, as well as the method for updating the
prices.
An appeal filed by Sonol, together with appeals filed by Paz and Delek,
fuel marketing companies, against a June 1993 ruling by the Controller of
Restrictive Trade Practices declaring that the exclusive agreements entered into
between the fuel marketing companies and filling station operators are
restrictive trade agreements, is now pending in the District Court in Jerusalem.
The Controller of Restrictive Trade Practices, on December 14, 1995,
amended the above ruling following a compromise arrangement reached between
Sonol and Paz in their above mentioned appeals. Under the terms of the
compromise arrangement, Sonol agreed to release 36 stations not subject to an
"Accepted Leasing Agreement" as defined in the arrangement and the Controller of
Restrictive Trade Practices will rescind his ruling regarding other stations in
which Sonol is party to such an "Accepted Leasing Agreement." Several appeals
were filed in the Israeli Supreme Court against this arrangement, all of which
were rejected on December 2, 1996. The Court ruled that the Controller of
Restrictive Trade Practices had the authority to enter into the above
arrangement. As a result, Sonol released the 36 stations from the exclusive
agreements it had with them and is in the process of rescinding its appeal.
Sonol and Delek jointly own the rights to the Dalkan 2000, a computerized
system for marketing fuel products (primarily to automobile fleets). On January
26, 1997, the Controller of Restrictive Trade Practices ruled that the joint
marketing arrangement of the Dalkan 2000 system between Sonol and Delek is a
restrictive trade agreement. As a result of the position taken by the
Controller, Sonol and Delek agreed to divide the Dalkan 2000 system between
themselves so that each company will operate an independent system in a manner
that will enable customers, in accordance with their own preferences, to enter
into an agreement with either of the companies. The implementation of the
separation agreement will be carried out in stages from September 1997 to
December 1998.
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A private legislative proposal dealing with the shortening of the terms of
exclusive agreements entered into between the fuel marketing companies and
filling station owners and operators is currently before the Knesset.
A draft proposal of legislation by the Ministry of Energy and
Infrastructure regarding the term of exclusive contracts between the fuel
marketing companies and station owners has been forwarded to government
ministries, the President of the Supreme Court and law faculties for their
comments.
At this time, it is too early to estimate the effects of the foregoing
developments on the overall Israeli fuel market in general, and on Sonol in
particular.
In order to attempt to offset adverse effects of reforms in the energy
market, Sonol continues to emphasize improving efficiency through modernization
and aggressive but selective expansion. Furthermore, Granite is pursuing a
policy of diversification. In 1993, Granite established a subsidiary, Granite
Hacarmel Properties (1993) Ltd. ("Granite Properties") which invests in real
estate projects in Israel. In early 1996, Granite Properties, through a
subsidiary, entered into an agreement to invest approximately $22 million to
acquire 10% of the equity of Nitzba Holdings Ltd., a company mainly involved in
holding and developing real estate projects. For an additional investment of
Granite, see "Ophir Holdings Ltd."
Sonol is negotiating to acquire franchises from fast food chains and a
fuel pump manufacturer. Furthermore, Sonol has implemented self-operation of
public service stations. As of December 31, 1996, 29 such stations were operated
by Sonol and this figure is expected to increase during 1997.
During 1996, as a result of additional purchases of shares by the Company,
the Company's ownership of Granite increased to 21.5%, as of December 31, 1996.
Warrants held by the Company expired in 1996 and were not exercised. The Company
is party to an agreement with the other shareholders of Granite which expires on
February 8, 1998, and which entitles the Company to appoint three of the eleven
members of Granite's board. The Company and these shareholders, who currently
own an aggregate of 83.2% of Granite, have also agreed to certain restrictions
on transfer and to vote together at general meetings of Granite's shareholders.
This agreement is terminable on 120 days' notice if a party (or a related group)
acquires more than 43% of Granite's share capital. During 1994, one of the
parties to the agreement acquired the interest of another and now owns 56.2% of
Granite's share capital. The shareholder and the Company have agreed to
negotiate a new or amended agreement and have entered into an interim agreement
which provides for the Company's continuing right to designate three members of
Granite's board until February 8, 1998 (the stated expiration date of the
current agreement), provided that there is no change in control of Ampal.
Notwithstanding the recent change in control in Ampal, as long as Ampal
maintains its current representatives on Granite's Board of Director, the
shareholder has agreed not to terminate the interim agreement. If the Company
ceases to exercise "significant influence" over Granite, under applicable
accounting principles (which the Company believes it continues to exercise by
virtue of its ownership interest and board representation) the Company would no
longer be permitted to account for its holdings in Granite under the equity
method of accounting, and the Company's reported earnings could be adversely
affected.
HOTELS AND LEISURE-TIME
- -----------------------
CORAL WORLD INTERNATIONAL LIMITED ("CORAL WORLD")
Coral World, which is 50%-owned by the Company, owns or controls marine
parks in Eilat (Israel) and Perth and Manly (Australia). Coral World's marine
park, located in Eilat is next to coral reefs and visitors at this park view
marine life in its natural coral habitat through large underwater windows. Coral
World's marine parks in Perth and Manly, Australia allow visitors to walk
through a transparent acrylic tube on the bottom of a man-made aquarium
surrounded by marine life. In addition to admission charges, Coral World's food
and beverage facilities and retail outlets are a significant revenue source.
Coral World and its affiliated companies employed a total of 182 persons as of
December 31, 1996.
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In 1996, Coral World's parks had a total of approximately 1.1 million
visitors. In September 1995, Coral World's marine park in St. Thomas was damaged
by two hurricanes and was closed. Under an insurance policy, $1.1 million was
recovered. Coral World is in a dispute with another insurance company and its
agent with respect to its claim for up to $1.2 million of additional coverage.
It is too early to determine the outcome of this dispute or when this park will
be re-opened. On September 27, 1996, a wholly owned subsidiary of Coral World
sold its marine park in Nassau (Bahamas) to an unrelated party for $3.75 million
and Coral World recorded a loss on sale of approximately $5 million (the
Company's share is $2.5 million, $1.7 million net of taxes). In addition, in May
1996, Coral World's management made a decision to sell its marine park in St.
Thomas (U.S. Virgin Islands), and Coral World recorded a loss of approximately
$2 million (the Company's share is $1 million, $0.7 million net of taxes) to
adjust the carrying value of its investment to net realizable value.
Coral World is constructing a new marine park in Maui, Hawaii, at an
estimated cost of $18 million. This facility is expected to open in early 1998.
COUNTRY CLUB KFAR SABA LIMITED ("KFAR SABA")
Kfar Saba operates a country club facility (the "Club") in Kfar Saba, a
town north of Tel Aviv. Kfar Saba holds a long-term lease to the real property
on which the Club is situated. The Club's facilities include swimming pools,
tennis courts and a clubhouse.
The Club, which has a capacity of 2,000 member families, had approximately
1,900 member families for each of the 1995/96 and 1996/97 seasons. The
construction cost of the Club was $5.2 million, which was financed principally
with debt which is expected to be repaid by 2000. Kfar Saba's revenues are
principally attributable to annual memberships. The Company owns 51% of Kfar
Saba.
HOD HASHARON SPORT CENTER (1992) LIMITED PARTNERSHIP ("HOD HASHARON")
On December 31, 1995, the Company purchased from Kfar Saba its 50%
interest in Hod Hasharon for $1.4 million.
Hod Hasharon operates a similar country club facility (the "H.H. Club") in
Hod Hasharon, a town adjacent to Kfar Saba. The H.H. Club, which has a capacity
of 1,600 member families, had approximately 1,560 member families for the
1996/97 season compared with 1,345 member families for the 1995/96 season. The
H.H. Club, which opened in July 1994, was constructed at a cost of $4.8 million,
of which $2.1 million was borrowed from banks.
MORIAH HOTELS LTD. ("MORIAH")
Moriah, which is 46%-owned by the Company, is one of the largest hotel
chains in Israel based both upon the number of rooms and the number of
locations.
The following chart provides certain information with respect to hotels
Moriah owns or operates:
NO. OF MORIAH'S
LOCATION CATEGORY ROOMS INTEREST
- -------- -------- ----- --------
Jerusalem Luxury 292 Owns
Eilat Luxury 306 Owns
Dead Sea Luxury 220 Owns
Tel Aviv Luxury 355 Leases(1)
Tiberias Luxury 265 Leases(2)
Dead Sea First Class 196 Manages(3)
Zichron Yaakov Economy 112 Manages(3)
Nazareth Economy 120 Manages(3)
-----
Total 1,866
- ----------
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(1) Net lease which expires in 2006.
(2) Net lease which expires in 2001.
(3) Management agreement which expires in 2004.
Moriah's competitive position has been enhanced by operating out of more
locations than any other chain in Israel, improving its facilities and providing
high quality service to its guests. During 1996, Moriah spent approximately $18
million on general improvements and renovations, including $12 million on the
Tel Aviv hotel. The Tel Aviv hotel, which has completed a $16 million
renovation, of which $4 million was provided by the landlord, was closed in
November 1995 and partially reopened on April 18, 1996.
Tourist arrivals in Israel during 1996 and 1995 were 2.2 million and 2.5
million, respectively. Moriah's occupancy rate was 63% (65%, exclusive of the
economy hotels) in 1996 and 72% (75%, exclusive of the economy hotels) in 1995.
The average occupancy rate in the Israeli hotel industry during 1996 was 68%.
Moriah's average room rate (expressed in dollars) decreased by 7.6% in 1996
compared to 1995.
Moriah's competitive position could be adversely affected by economic
changes in foreign countries, construction of new hotels in locations which
compete with Moriah's hotels or unrest in Israel or other areas of the Middle
East. As a result of the significant rise in tourism in Israel in recent years,
additional hotels have been or are being constructed and competition is expected
to intensify.
Moriah employed approximately 1,650 persons as of December 31, 1996.
The Moriah-owned Dead Sea hotel is located on the shore of a pool adjacent
to the Dead Sea. Because of industrial activities at the pool, its water level
has been rising to levels that threaten the hotel structure. Moriah litigated
the costs of protective measures and compensatory damages. As a result of a
settlement of the litigation in 1995, all actions and counter-actions filed by
the parties to the litigation were withdrawn. However, Moriah retained the right
to sue Dead Sea Works, one of the original defendants in the litigation, for
damages due to any further rise in the sea level.
In December 1995, Moriah entered into an agreement with Radisson SAS, the
international hotel chain, pursuant to which Moriah has been granted a 30-year
exclusive franchise in Israel. Moriah's hotels have been renamed to include the
Radisson name and are now included in the Radisson reservation network. The
agreement also grants Moriah the right to operate hotels in Jordan under the
name Radisson Moriah.
REAL ESTATE, FINANCE AND OTHER HOLDINGS
- ---------------------------------------
In Israel, most land is owned by the Israeli government. In this Report,
reference to ownership of land means either direct ownership of land or a
long-term lease from the Israeli Government, which is in most respects regarded
in Israel as the functional equivalent of ownership. It is the Israeli
government's policy to renew its long-term leases (which usually have a term of
49 years) upon their expiration.
AM-HAL LTD. ("AM-HAL")
Am-Hal has developed and operates a luxury senior citizens center in
Rishon Lezion, a city located approximately 10 miles south of Tel Aviv. The
center, which was completed in March 1992, includes 160 apartments which were
fully occupied on December 31, 1996 with a waiting list for 5 apartments, an
80-bed geriatric ward which has a 90% occupancy rate, a swimming pool and other
recreational facilities. The geriatric ward is leased by Am-Hal to a
non-affiliated health care provider until 2002. Rental payments are based upon
the profits of the geriatric ward, with a minimum rent of $340,000 per year.
The Company and a subsidiary of The Israel Corporation, a major Israeli
holding company, each own 50% of Am-Hal. The aggregate cost of the center was
approximately $21 million, and was financed principally by loans made or
guaranteed by the shareholders and refundable tenant deposits. These loans have
been repaid.
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Due to the success of this project and the increased demand for such
services, Am-Hal has entered into a joint venture agreement with, among other,
the owner of a property consisting of 2.5 acres of land in Hod Hasharon, a city
located approximately 7 miles north of Tel Aviv. The joint venture intends to
build a senior citizens center on this site, a building of approximately 225,000
square feet (the building in Rishon Le-Zion is approximately 120,000 square
feet) including 4,500 square feet of underground parking. It is anticipated that
the center will include 280 apartments. The joint venture anticipates that the
center will be opened towards the end of 1999.
AMPAL DEVELOPMENT (ISRAEL) LTD. ("AMPAL DEVELOPMENT"), NIR LTD. ("NIR") AND
AMPAL FINANCIAL SERVICES LTD. ("AMPAL FINANCIAL") (TOGETHER, THE "HOLDING
COMPANIES")
Ampal Development, Nir and Ampal Financial, each of which is wholly-owned
by the Company, are engaged in the business of financing acquisitions by the
Company and holding and leasing commercial real estate in Israel. Prior to 1989,
these companies had acted primarily as lenders, and their financing activities
were the principal activities of the Company. In 1990, the Holding Companies
sold substantially all their loan portfolios to Hapoalim, and they relinquished
their banking licenses. The Holding Companies still service certain loans made
by them prior to their ceasing lending activity which are guaranteed by
Hapoalim.
It has been reported in the media that Israeli banks are the subject of
allegations that they engaged in improper business practices regarding lending.
The lending practices engaged in by the Holding Companies were substantially
similar to the lending practices of the other Israeli banks and, to that extent,
the Company may be subjected to the same possible claims. One claim in the
amount of 2.7 million New Israeli Shekels ("NIS" or "shekels") (approximately
$805,970) has already been asserted and a judgment by the High Court of Appeals
has not yet been rendered. It is too early to determine the extent of any
additional claims which may be asserted in this regard or the outcome of any
such claims. However, to the best of the Company's knowledge, the Company's
subsidiaries, which operated as banking institutions, acted within the law and
in accordance with the procedures and customs in effect at the time. The Company
expects to continue to vigorously defend the claim which has been asserted.
Ampal Development owns five commercial properties located in Israel
aggregating approximately 37,000 square feet. Four of these properties are net
leased to Hapoalim. Nir owns four commercial properties located in Israel
aggregating approximately 18,000 square feet. Three of these properties are net
leased to Hapoalim. Ampal Financial owns two commercial properties located in
Israel aggregating approximately 7,000 square feet. Both of these properties are
net leased to Hapoalim. For a discussion of Israeli real estate tax
considerations that may be applicable to certain real property leases of the
Holding Companies, see "Certain United States and Israeli Regulatory
Matters-Certain Israeli Real Estate Tax Matters."
The Holding Companies hold interests in other companies discussed
elsewhere in this Report and also make loans to these and other investees in
furtherance of their businesses.
Ampal Development issued debentures which are publicly traded on the TASE.
An aggregate of approximately $35.6 million of these debentures were outstanding
as of December 31, 1996. Ampal Development has deposited with Hapoalim funds
sufficient to pay all principal and interest on these debentures.
AMPAL (ISRAEL) LTD. ("AMPAL (ISRAEL)")
Ampal (Israel), a wholly-owned subsidiary of Ampal, owns an approximately
57,000 square feet commercial property located in Tel Aviv which houses its
principal offices. A portion of this property is net leased to Hapoalim and
another portion is net leased to Moriah. Ampal (Israel) also acts as a holding
company for other investments discussed elsewhere in this Report.
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AMPAL REALTY CORPORATION ("AMPAL REALTY")
In June 1995, Ampal Realty purchased real property on which an
approximately 290,000 square foot office building is located for, approximately
$45 million. The building is located at 800 Second Avenue, New York, New York.
The building is 43.9%-occupied by the Consulate of the Government of Israel in
New York and many other Israeli government offices. Prior to the conversion (the
"Conversion") of the building into an office condominium, which is described
below, the Government of Israel leased its space under a lease which would have
expired on December 31, 2009, with an option by the lessee to extend for an
additional six years.
The original purchase was partially financed by a loan of $30 million from
Hapoalim at an interest rate based on a three-month London Interbank Offered
Rate plus 1% which was to have matured on the initial expiry date of June 28,
1996. As originally contemplated, Ampal Realty has requested, and Hapoalim has
agreed, to extend the repayment of the balance of the loan until June 28, 2000
with quarterly principal payments commencing March 28, 1997. Ampal guaranteed
$20 million of this loan. Concurrent with the Conversion, Ampal Realty repaid
$15 million of the outstanding principal of the loan and the guarantee was
reduced to $10 million.
On December 12, 1996, the building was converted into an office
condominium. Following the Conversion, on January 31, 1997, the Government of
Israel purchased a condominium unit consisting of floors 10 through 18 for a
purchase price of $31 million.
Currently, 58% of the space owned by Ampal Realty is occupied.
The Company owns 94% of Ampal Realty. An unrelated party owns the
remaining 6%. The Company and the other party have entered into a shareholders'
agreement which requires each of them to provide financing and guarantees on a
basis pro rata to its percentage shareholding in Ampal Realty.
During 1996, Ampal Realty recorded approximately $7.9 million in rent.
Ampal Realty intends to offer for sale or long term lease its remaining
interests in the building.
BAY HEART LIMITED ("BAY HEART")
Bay Heart was established in 1987 to develop and lease a shopping mall
(the "Mall") in the Haifa Bay area. Haifa is the third largest city in Israel.
The Mall, which opened in May 1991, is a modern three-story facility with
approximately 280,000 square feet of rentable space. The Mall is located at the
intersection of two major roads and provides a large mix of retail and
entertainment facilities including seven movie theaters. Approximately 37,500
square feet of the Mall are occupied by Supersol Ltd., one of the two largest
Israeli supermarket chains, and the parent of a co-investor in Bay Heart. Shekem
Department Stores, a major Israeli department store, is the other anchor tenant
under a net lease for approximately 57,600 square feet of retail and
approximately 17,750 square feet of storage and other space expiring in 2001. As
of December 31, 1996, approximately 99% of the Mall premises was occupied,
primarily under two-year leases, with options to extend for four additional
years, except for anchor tenants. The total cost of the Mall was approximately
$53 million, which was financed principally with debt. The Company owns 37% of
Bay Heart.
Bay Heart owns a 50% interest in 875 acres of land adjacent to the Mall.
The remaining 50% interest is held by an unrelated group of investors with whom
Bay Heart entered into a joint venture agreement. Bay Heart also owns 30,000
square feet of land adjacent to the Mall. These plots of land are intended to be
used for the construction of an addition to the Mall.
Bay Heart is a party to a Letter of Intent with both the Ports and
Railways Authority and a subsidiary of the Egged bus company regarding the
establishment of a joint company, in which each will be equal investors, for the
construction of a transportation and business complex next to the Mall. This
project will include the construction of both
15
<PAGE>
a bus terminal and train station. The land for this project is owned by the
Ports and Railways Authority which, pending proper regulatory approval, is
expected to make it available to the joint company.
See "Certain United States and Israeli Regulatory Matters-Certain Israeli
Real Estate Tax Matters" for a discussion of Israeli real estate tax
considerations that may be applicable to certain real property leases of Bay
Heart.
EPSILON INVESTMENT HOUSE LTD. ("EPSILON")
In January 1995, the Company invested $1.5 million and acquired 20% of
Epsilon and its affiliate, Renaissance Investment Company Ltd. ("Renaissance").
Epsilon is an investment bank which provides portfolio management services and
Renaissance provides underwriting services in Israel through its subsidiaries.
ETZ VANIR LTD. ("ETZ VANIR") AND YAKHIN MATAIM LTD. ("YAKHIN MATAIM")
Both Etz Vanir and Yakhin Mataim cultivate orange, grapefruit, clementine,
lemon and avocado groves in Israel, both for export and domestic use, pursuant
to various long-term land leases which, including renewal options, do not expire
until the mid-21st century. These properties are located near the city of
Netanya between an existing and a proposed highway. Approximately 1,200 acres
are presently under cultivation by these two companies.
Ampal owns 50% of the equity of Etz Vanir and Yakhin Mataim. The remaining
50% of the equity of these companies is owned by an unrelated company, Yakhin
Hakal Ltd. ("Yakhin Hakal") which manages their operations. Because of a dispute
between Ampal and Yakhin Hakal regarding the operating agreement for the
companies, Ampal had requested that an Israeli court declare the agreement null
and void, and, in its response, Yakhin Hakal had stated that the companies owed
it approximately $4 million for services it had rendered to the companies. The
court ruled that Ampal and Yakhin Hakal should jointly appoint an additional
director of these companies, who will cast the deciding vote in cases of
dispute. Yakhin Hakal filed an appeal and requested a stay concerning the
implementation of the court's ruling. The appeal was denied by the Israeli
Supreme Court. The parties subsequently agreed to the appointment of the
Honorable Dov Levine, a retired judge, as the additional director with the
deciding vote. In addition, both Ampal and Yakhin Hakal have appointed
independent accountants who will jointly prepare Etz Vanir's and Yakhin Mataim's
financial statements. Etz Vanir and Yahkin Mataim have not reported their
financial results to Ampal since 1990 and therefore, their financial results
have not been included in the Company's financial statements.
In February 1995, Yakhin Hakal and its affiliates commenced a legal
proceeding seeking to cause Etz Vanir and Yakhin Mataim to redeem perpetual
debentures owned by Ampal for approximately $700,000 and to require Ampal to
surrender all of its preferred shares of Etz Vanir and Yakhin Mataim for their
par value, which is nominal. Ampal is contesting this legal proceeding. Though a
hearing has been held, no judgment in this case has been rendered as of the date
hereof. See "Legal Proceedings."
INDUSTRIAL BUILDINGS CORPORATION LTD. ("INDUSTRIAL BUILDINGS")
Industrial Buildings, Israel's largest owner/lessor of industrial
property, is engaged principally in the development and construction of
buildings in Israel for industrial and commercial use and in project management.
Industrial Buildings carries out infrastructure development projects for
industrial and residential purposes, principally for a number of government
agencies and authorities. Industrial Buildings hires and coordinates the work of
contractors, planners and suppliers of various engineering services.
Industrial Buildings owns approximately 12.3 million square feet of space
in industrial buildings throughout Israel. It owns both multi-purpose buildings
and built-to-suit buildings which are constructed in accordance with the
specific requirements of tenants. In certain cases, there is an option in the
tenant's favor to purchase the
16
<PAGE>
leased property, and, in the case of most built-to-suit properties, a commitment
on the part of the tenant to purchase the property.
The buildings which are owned by Industrial Buildings are leased to
approximately 2,430 lessees under net leases having terms of up to ten years.
See "Conditions in Israel-Certain Israeli Real Estate Tax Matters" for a
discussion of Israeli real estate tax considerations that may be applicable to
certain real property leases of Industrial Buildings. The average occupancy rate
in buildings owned or leased by Industrial Buildings was approximately 89% at
December 31, 1996.
Industrial Buildings' plans include building a project in the Tel Aviv
area comprising approximately 448 apartments, a commercial center of
approximately 43,000 square feet, an office building of approximately 156,000
square feet and parking facilities of approximately 883,000 square feet.
Approximately 7.2% of Industrial Buildings' space is located in the
administered territories. Industrial Buildings cannot predict whether the
ongoing peace process will have an effect on this space. See "Conditions in
Israel."
Industrial Buildings was founded as an Israeli Government company in 1961.
In 1988, Industrial Buildings first offered its shares to the public and its
shares are traded on the TASE. In 1993, the Government of Israel privatized the
company by selling its 51.3% stake in Industrial Buildings. Since the
privatization, Industrial Buildings has focused on improving financial results,
by decreasing staff and overhead costs and aggressively negotiating lease
renewal terms. Mivnat Holdings Ltd. ("Mivnat"), a holding company in which Ophir
has a 25% interest, purchased the Government's interest in Industrial Buildings.
Ophir's investment in the holding company was approximately $50 million. Ampal
owns 42.5% of Ophir. Industrial Buildings' policy is to distribute as a dividend
not less than 60% of each year's earnings during the period 1993 through 2000.
In December 1996, Industrial Buildings distributed a dividend of approximately
NIS 45 million ($13.8 million).
Ophir's interest in the holding company and the holding company's interest
in Industrial Buildings are subject to foreclosure in the event of a default by
any of the investors under the bank credit agreements entered into in connection
with the acquisition. Any amounts distributed as a dividend by Industrial
Buildings are required to be applied first to pay then due borrowings.
Industrial Buildings had a staff of approximately 48 permanent employees
as of December 31, 1995.
OPHIR HOLDINGS LTD. ("OPHIR")
Ophir is a holding company that holds interests in high technology and
real estate companies including Teledata Communication, Ltd. and Industrial
Buildings (which are discussed elsewhere in this Report). In addition, Ophir has
invested in two mutual funds and two start-up companies in the fields of
biotechnology and software. Ophir is 42.5%-owned by the Company.
Ophir owns, through a wholly-owned subsidiary, seven real estate
properties located in Israel aggregating approximately 118,360 square feet. Two
of these properties are leased to Hapoalim or its subsidiaries. For a discussion
of Israeli real estate tax considerations that may be applicable to certain real
property leases of Ophir, see "Certain United States and Israeli Regulatory
Matters--Certain Israeli Real Estate Tax Matters."
The Company and ICH, which also owns 42.5% of Ophir, are parties to a
shareholders' agreement regarding joint voting, directorships and rights of
first refusal with respect to Ophir.
Ophir has developed approximately 60,000 square feet of office and
commercial space and approximately 59,000 square feet of parking space on
property owned by it in Petach Tikva, Israel. On December 11, 1996, Ophir
entered into an agreement to sell this space
17
<PAGE>
and property for $11.5 million, with an expected net profit of $2.5 million. The
pre-conditions for this sale have not yet been satisfied.
Ophir owns two acres of land in an industrial park in Netanya, Israel
together with an unrelated party. These parties entered into a joint venture
agreement regarding this site on which they intend to develop a 120,000 square
foot building for both industrial and commercial uses. The estimated cost of
development of this project is $10 million. Ophir's share of the property and
joint venture is 70%. It is anticipated that the joint venture will receive
regulatory approval for the development of an approximately additional 38,700
square feet.
Ophir owns a 16.7% interest in the Shmey-Bar group of companies
("Shmey-Bar"). Shmey-Bar acquired 2.3 million square feet of real estate
properties from Hamashbir Hamerkazi, Ltd. ("Hamashbir Hamerkazi") for $27.7
million. In the same transaction, Shmey-Bar received an option to acquire, for
$26.3 million, an additional 700,000 square feet of real estate properties from
Hamashbir Hamerkazi. These properties are situated in various locations in
Israel. Ophir's interest in Shmey-Bar was acquired with a nominal investment
accompanied by a $2.6 million shareholder's loan.
Ophir is, through a wholly-owned subsidiary, a limited partner in Clark/67
Associates L.P. ("Clark/67") which purchased an office building in New Jersey
for $3.2 million. Ophir invested $250,000 of Clark/67's $500,000 capital.
On October 17, 1996, Memco Software Ltd. ("Memco"), a provider of computer
security solutions, conducted its initial public offering of 3,870,000 ordinary
shares (including 450,000 over-allotment shares) at $15.00 per share. Memco sold
3,450,000 of these shares and received net proceeds of approximately $46
million, and existing shareholders sold 420,000 shares. Prior to the offering,
Ophir owned a 17.9% interest in Memco, which it purchased for $2.5 million.
Ophir sold ordinary shares in the offering, reducing its ownership interest to
13.1%. Ophir continues to hold 2,026,388 shares of Memco. The Company recorded a
fourth quarter gain of approximately $1.2 million, after taxes, with respect to
the offering.
In December 1994, Ophir invested approximately $6.75 million and acquired
33% of a 60,000 square foot property in Tel Aviv. The owners of the property
have begun construction of a building on the property consisting of 229,000
square feet of office space, 22,000 square feet of commercial space and 500
parking spaces at a total cost of approximately $30 million. In addition,
Granite invested $3 million and acquired 17% of this property. Since January
1995, Ophir and Granite have invested additional funds for the construction of
the building. On February 20, 1997, Ophir, Granite, and an unrelated third
party, Zeus Investments Ltd., entered into an agreement with Revadim
(Properties) Ltd., a subsidiary of Hapoalim, to sell their interests in the
property. Pursuant to the agreement, Granite and Ophir will sell their entire
interests and Zeus will sell a portion of its interest. Granite's share of the
consideration will be approximately NIS 36 million (approximately $10.7 million)
and Ophir's share will be approximately NIS 70 million (approximately $20.9
million). Completion of the sale, which will take place upon the completion of
the building, is expected to take place by December 31, 1997. Upon completion of
the building, Ophir and Granite's portion of the total cost of the building will
become available. At such time, Granite and Ophir are expected to announce their
net profits after taxes.
In September 1995, Ophir acquired a 10% interest in a joint venture which
has agreed to purchase 4.4 million square feet of land near Haifa for
approximately $15 million, on which the parties intend to develop a commercial
real estate project for rent. Ophir has obligated itself to invest up to $1.5
million in the first stage of this project and its share of development costs is
estimated to be as much as $30 million.
For information regarding Ophir's interest in Teledata, see "Teledata
Communication Ltd."
18
<PAGE>
RENAISSANCE ISRAEL
In July 1994, the Company agreed to invest $3 million for 15% of
Renaissance Israel, a fund that invests in Israel-related companies generally on
the same terms and conditions as the Renaissance Fund LDC. (the "Renaissance
Fund"). The Renaissance Fund was formed in 1994 to invest primarily in emerging
markets, basic industry and government privatizations in Israel and elsewhere in
the Middle East. The Company had invested an aggregate of $2.8 million in
Renaissance Israel, as of December 31, 1996, with an additional commitment of
$200,000. The Company has a representative on the Executive Committee of the
Renaissance Fund and is entitled to certain potential co-investment
opportunities.
In March 1995, Renaissance Israel and the Renaissance Fund (together, the
"Funds") invested a total of approximately $29 million and acquired a 24.9%
interest in a holding company which acquired 100% of the shares of Shikun
U'Fituach le-Israel Ltd. ("SHOP") from the Israeli government for approximately
$293 million, of which approximately $175 million consisted of non-recourse debt
financing from banks. The Company's interest and share of the investment in this
holding company is 0.7% and $850,000, respectively. SHOP is one of Israel's
largest housing and development companies whose activities include residential
and industrial construction as well as infrastructure for residential areas.
In March 1995, the Funds invested a total of approximately $8 million and
acquired 25.1% of Clalcom Ltd. ("Clalcom"). Clalcom is engaged in the
telecommunications business in Israel and is expected to take part in a bid to
be the second international telecommunications carrier in Israel. On September
3, 1996, the Renaissance Fund made an additional investment in Clalcom in the
form of a capital note, as part of a $3,000,000 investment in Clalcom's American
subsidiary, Network-One Inc. ("NetOne"). NetOne is developing a date fax
transmission network to compete with traditional voice transmission services.
The capital note is convertible into ordinary shares of Clalcom at any time. The
principal amount of the note is payable at any time subsequent to August 2016,
if not earlier converted.
On June 20, 1996, the Company invested $1.5 million for 15% equity
interest in TODD Investment Ltd., which in turn owns 1,000 units of Geotek
Communications Inc. a wireless telecommunications company. Each unit consist of
one share of Series N, Cumulative Convertible Preferred Stock, which is
convertible into ninety-one shares of common stock (subject to adjustment), and
five-year warrants to purchase an additional thirty shares of common stock at an
exercise price of $11.00 per share. The preferred shares will pay a dividend,
payable in common stock, at a rate of 10% per annum.
BASIC INDUSTRY
- --------------
CARMEL CONTAINER SYSTEMS LIMITED ("CARMEL")
Carmel is one of the leading Israeli designers and manufacturers of
paper-based packaging and related products. Carmel manufactures a varied line of
products, including corrugated shipping containers, moisture-resistant
packaging, consumer packaging, triple-wall packaging and wooden pallets and
boxes.
Carmel estimates that it manufactures approximately 25% of the folding
board, approximately 85% of the corrugated triple wall, and approximately 35% of
the corrugated board packaging in Israel. Carmel's products are marketed to a
wide variety of customers for diverse uses, but its principal market is
packaging for agricultural products and for the food and beverage industry.
During the last few years, sales of packaging products to exporters of
agricultural products have declined slightly, but have been partially offset by
an increase in domestic sales.
In 1996, Carmel invested $25 million for machinery and infrastructure. On
December 1996, one of Carmel's plants was relocated to a leased property in
Caesarea, Israel and a second plant is expected to be moved in the Summer of
1997. As of December 31, 1996, Carmel employed 820 persons.
As of December 31, 1996, the Company owned 20.7% of the shares of Carmel,
of which 0.3% were acquired during 1996. Shares of Carmel are listed for trading
on the AMEX under
19
<PAGE>
the symbol "KML." The Company, American Israel Paper Mills Ltd., the largest
paper producer in Israel, and Robert Kraft, a United States investor, are
parties to a shareholders' agreement with respect to their shareholdings (which
aggregate approximately 78% of the shares) in Carmel. The agreement includes
provisions governing board representation, required votes for specified
corporate actions, matters on which the shareholders agree to cooperate and
rights of first refusal with respect to the sale or transfer of the shares owned
by the parties. Carmel has granted to International Forest Products Corporation,
an affiliate of Mr. Kraft, a right to supply up to 80% of Carmel's requirements
for imported paper and forest products in the ordinary course of Carmel's
business and on a competitive basis.
DAVIDSON-ATAI PUBLISHERS LTD. ("DAVIDSON-ATAI")
On February 27, 1997, the Company sold its 20.7% interest in
Davidson-Atai, a publishing company, to principals of Davidson-Atai for
approximately $100,000. The transaction yielded a nominal profit for the
Company.
M.D.F. INDUSTRIES LTD. ("M.D.F.")
M.D.F. the Company's 50%-owned affiliate, which has established a plant in
Israel for the production of medium density fiber boards, and which completed
its running-in period on June 30, 1996, incurred significant losses in 1996. The
losses are primarily attributable to the excess of cost of sales per production
unit over the selling price. M.D.F.'s sales prices were affected by the decrease
in worldwide prices of all wood-connected products and to the establishment of
nearly 30 new plants for the production of medium density fiber boards
throughout the world. In view of the substantial losses incurred by M.D.F. and
the continuing depressed prices with respect to its products, the Company
believes that further substantial losses will be incurred by M.D.F.
Consequently, because of the uncertainty with respect to M.D.F.'s future
operations, the Company has recorded a loss from impairment of this investment
in December 1996 for its full remaining investment in and loans to M.D.F. in the
amount of $8.8 million. This loss, in addition to the $1.3 million loss
previously recorded by the Company in 1996 with respect to M.D.F., resulted in a
total loss attributable to the operations of M.D.F. in the amount of $8.6
million, net of tax benefits. M.D.F. will no longer be accounted for as an
affiliate of the Company under the equity method of accounting. The Company,
however, continues to be contingently liable with respect to $5 million of
guarantees given by the Company with respect to M.D.F.'s bank obligations.
At Ampal's initiative, the Board of Directors of M.D.F. has approved
hiring consultants to study the operations and marketing of M.D.F. to determine
if a recovery plan can be implemented. In addition, the owner of the other 50%
interest in M.D.F. has agreed to provide additional funds in the amount of up to
$2 million to M.D.F., if required for M.D.F. to meet its obligations.
ORLITE INDUSTRIES (1959) LTD. ("ORLITE")
Orlite, formerly known as Orlite Engineering Company Ltd., is one of
Israel's largest manufacturers of composite material products for military and
civilian applications, including specialized fireproof ammunition storage
containers for the Israeli Merkava tank, ballistic helmets for military and
police use, specialized aerospace components, outdoor storage distribution
cabinets for telecommunications, cable and electrical switching equipment and
filament wound non-metallic pressure vessels for agriculture and industrial
water treatment systems.
Orlite's markets are changing due to spending cuts undertaken by the
Israeli Ministry of Defense ("MOD"). As a result, Orlite expects no growth in
sales to the MOD, which previously represented almost 90% of Orlite's sales, and
is focusing on sales of its civilian products which have grown to more than 50%
of Orlite's sales and which Orlite believes will continue to constitute its most
important growth segment.
Orlite's largest growth products are its composite outdoor storage
cabinets which house electrical, cable and telecommunications equipment and are
less susceptible to adverse weather conditions than metal cabinets. In 1996,
Israel Electric Corp. and Bezeq
20
<PAGE>
(the Israeli telephone company) accounted for a substantial portion of Orlite's
civilian sales. Orlite seeks to expand its sales base by, among other methods,
developing other applications for its technology and exporting its products.
As of December 31, 1996, Orlite employed 150 permanent workers and 15
temporary workers. Orlite owns its manufacturing facilities.
During 1996, as a result of additional purchases of shares by the Company,
the Company's direct and indirect ownership of Orlite was increased to 25.3% as
of December 31, 1996.
On December 19, 1996, the Company entered into two agreements with ICH to
sell its direct holding in Orlite and the subsidiary which holds such interest
in Orlite for an aggregate purchase price of $5.2 million, plus interest. The
Company is expected to record a gain of $.8 million ($.5 million net of taxes).
These sales are subject to regulatory approval.
PARADISE INDUSTRIES LTD. ("PARADISE")
Paradise is a leading manufacturer and distributor of mattresses and
fold-out beds in Israel. Paradise manufactures and distributes its mattresses
under the brand names "Paradise," "Mefi" and "Sealy." "Sealy" mattresses are
manufactured and distributed by Paradise under a ten-year exclusive license
covering the Israeli market expiring in 2002 with an option for an additional
five-year term. Paradise owns its own manufacturing facilities and employs
approximately 100 persons. It distributes mattresses through independent stores
and by direct sales to hotels.
Paradise recorded losses in 1996, primarily in the third quarter, because
of increased advertising and promotional expenses in connection with a new
marketing program and general operating expenses.
The Company currently owns 85.1% of the share capital of Paradise.
PRI HA'EMEK (CANNED AND FROZEN FOOD) 88 LTD. ("PRI HA'EMEK")
On December 23, 1996, the Company transferred its 58.5% equity interest in
Pri Ha'emek, which constituted its entire holdings, to Agrifarm International
Limited ("Agrifarm"), an unrelated British company. The sale was made pursuant
to an agreement entered into between Ampal Industries and Agrifarm on October
11, 1996. Pri Ha'emek processes and packages frozen vegetables, canned juices
and other vegetables and citrus products in Israel and markets its products
primarily in Israel and Europe and, to a lesser extent, in North America and
Japan.
As part of the same transaction, the following were effected: (i) the
Company waived its rights to receive the outstanding balance of loans made by it
to Pri Ha'emek in the amount of NIS 7,897,796 (equal to $2,415,967, based upon
the exchange rate between the shekel and the U.S. dollar on the date of
transfer); (ii) the Company assigned to Agrifarm loans in the amount of NIS
3,033,720 (equal to $928,027) due from Pri Ha'emek; (iii) the Company
transferred to Agrifarm $1,500,000, which amount Agrifarm transferred to Pri
Ha'emek in exchange for which Hapoalim released the Company from guarantees of
debts of Pri Ha'emek totaling $1,500,000; (iv) the Company transferred NIS
2,045,812 (equal to $625,822) to Pri Ha'emek; and (v) Agrifarm granted to the
Company an option to repurchase Pri Ha'emek shares from Agrifarm for one and
one-half years at a price of NIS 0.50 per share. Since Agrifarm has purchased
additional shares of Pri Ha'emek from another shareholder of Pri Ha'emek, the
Company's option has been set at a figure equal to 8.3% of Pri Ha'emek's shares.
See "Management's Discussion and Analysis of Financial Condition and Operations"
for information on the results of these transactions.
21
<PAGE>
EMPLOYEES
- ---------
As of December 31, 1996, Ampal had 12 employees including one employee
whose compensation is shared with Hapoalim. Ampal (Israel) had 9 employees and
Ampal Industries (Israel) Ltd. had 5 employees as of that date. Relations
between Ampal and its employees are satisfactory.
CONDITIONS IN ISRAEL
--------------------
Most of the companies in which Ampal directly or indirectly invests,
conduct their principal operations in Israel and are directly affected by the
economic, political, military, social and demographic conditions there. The
following information is included in order to describe certain of these
conditions in Israel. All figures and percentages are approximate. A substantial
portion of the information with respect to Israel presented hereunder has been
taken from Annual Reports of the Bank of Israel, the Israeli Central Bureau of
Statistics and from economic reports of Hapoalim. No independent verification
has been made of such information.
Operations in Israel
A state of hostility has existed, varying as to degree and intensity,
between Israel and the Arab countries. In addition, Israel, and companies doing
business with Israel, have been the subject of an economic boycott by the Arab
countries since Israel's establishment, although its impact has decreased since
1993, with the progress in the peace process, as discussed below. Following the
Six-Day War in 1967, Israel has administered the territories of the West Bank
and the Gaza Strip. A peace agreement between Israel and Egypt was signed in
1979 under which full political relations have been established.
Since 1991, negotiations have taken place between Israel, its Arab
neighbors and the Palestinians to end the state of hostility in the region. In
September 1993, a breakthrough occurred in Israeli-Palestinian relations with
the signing of the Oslo Agreement. This was followed by a joint
Israeli-Palestinian Declaration of Principles (the "Declaration") which was
signed by Israel and the Palestine Liberation Organization ("PLO") in
Washington, D.C., outlining interim Palestinian self-government arrangements. As
a result of these agreements, Palestinian self-rule in the Gaza Strip and other
portions of the administered territories has been implemented and elections of a
Palestinian council were held in January 1996. In addition, PLO Chairman Arafat
sent a letter to then Israeli Prime Minister Rabin in which the PLO recognized
Israel's right to exist in peace and security, renounced terrorism and violence
and affirmed that the clauses of the PLO Covenant denying Israel's right to
exist are no longer valid. In reply, Israel recognized the PLO as the
representative of the Palestinians in the peace negotiations. Since then, Israel
and the PLO have conducted a series of discussions, which have been periodically
interrupted due to events in the region, designed to complete these
arrangements. Israel signed a peace agreement with Jordan which has led to
diplomatic and commercial relations. Israel is currently negotiating a peace
agreement with Syria.
Industrial Buildings, a major owner/lessor of industrial properties in
Israel, owns approximately 1 million square feet of industrial buildings in the
administered territories (approximately 7.2% of its total holdings). The future
status of buildings owned and property leased by Industrial Buildings in the
administered territories is uncertain, but historically the Government of Israel
has compensated property owners for forfeitures resulting from government
actions.
Demographics
Since the beginning of 1990, Israel has been experiencing a new wave of
immigration, primarily from the former Soviet Union. Approximately 75,000 new
immigrants arrived during 1996. During the period 1990 through 1996, Israel's
population increased by approximately 22%. The immigration from the former
Soviet Union may benefit Israel and its economy in the long-term by providing
highly educated, cost-competitive labor and by stimulating its economic growth.
22
<PAGE>
Assistance from the United States
The State of Israel receives approximately $3 billion of annual grants for
economic and military assistance from the United States and will have received
approximately $10 billion of United States Government loan guarantees by 1998,
subject to reduction in certain circumstances. These loan guarantees were
granted over a period of five years ($2 billion per annum) commencing in 1993.
The Israeli economy could suffer material adverse consequences were such aid or
guarantees to be significantly reduced. There is no assurance that foreign aid
from the United States will continue at or near amounts received in the past.
Economic Activity
Israel's gross domestic product ("GDP") increased by 4.4% in 1996 while
business sector GDP rose by 5%. The slowdown in economic activity in 1996
followed six years (1990-1995) during which GDP rose by an annual average of
6.1% and business sector GDP increased by 7.3%. The slowdown in the growth rate
resulted from the Bank of Israel's policy of monetary restraint which led to a
major appreciation of the shekel which, in turn, was responsible for a five
percentage point decrease in exports. The export rate in 1996 fell to 4.6% in
real terms, half the average annual rate of the increases recorded during
1992-95. Imports of goods and services increased by 8%. The concurrent increase
in the import surplus amounted to $12.8 billion. After deducting unilateral
transfers of $7.9 billion, the deficit in the current account for 1996 totalled
$4.9 billion as compared to $4.2 billion in 1995.
In 1996, private consumption rose by 5.5%, amounting to 2.8% in per capita
terms. Private consumption has been growing rapidly since 1990 and nearly always
at a higher rate than the growth in GDP. This has led to a decline in gross
savings from 23% of GDP in 1990 to 20% of GDP in 1996, and to the aforementioned
rise in the current account deficit.
The unemployment rate decreased from an average of 11% in 1992 to 6.7% in
1996, following an increase of 360,000 in the number of employed persons,
300,000 of whom are in the business sector. The average unemployment rate among
immigrants in 1996 declined to 9.3%.
Israel's labor force is among the most highly educated in the world. Its
135 engineers per 10,000 employees ratio is twice as high as the United States'
ratio of 70 per 10,000. Labor productivity is forecast to increase at a rapid
pace as the immigrant employees, 44% of whom have a college education, learn the
language and are absorbed into the economy.
The inflation rate in 1996 was 10.6%. One of the factors responsible for
the relatively low rate was the Bank of Israel's policy of monetary restraint,
which led to a considerable appreciation of the shekel and to a slower pace of
economic growth.
During 1996, the shekel was devalued by 3.7% relative to the United States
dollar from NIS 3.135 to NIS 3.251. This modest devaluation resulted primarily
from the high interest rates in Israel.
To offset the effects of inflation on the purchasing power of the Israeli
currency, the Government of Israel has instituted "linkage" policies which have
also been followed by most private organizations. Through linkage, the amount of
an obligation or payment is increased from time to time by an amount related to
changes in an index which may be the exchange rate of a foreign currency or a
price index. The payee is thus compensated for the relative decline in the
purchasing power of the NIS. Linkage adjustments may be based upon the total or
only a specified percentage of the change in the index being used. Many
obligations or payments in shekels are linked to the United States dollar or the
Israeli CPI, including payment obligations and receivables of many of the
Companies' investees.
23
<PAGE>
The following table sets forth for the periods indicated the effects of
annual inflation on linkage adjustments and annual devaluations, as discussed in
the preceding paragraph.
<TABLE>
<CAPTION>
ISRAEL ANNUAL U.S.
ANNUAL CLOSING INFLATION ANNUAL
INFLATION EXCHANGE ANNUAL ADJUSTED FOR INFLATION
YEAR ENDED DEC. 31 RATE(1) RATE(2) DEVALUATION(3) DEVALUATION(4) RATE(5)
- ------------------ ------- ------- -------------- -------------- -------
<C> <C> <C> <C> <C> <C>
1991.............. 18.0 2.283 11.5 5.85 4.2
1992.............. 9.4 2.764 21.1 (9.64) 3.0
1993.............. 11.2 2.986 8.0 2.93 3.0
1994.............. 14.5 3.018 1.1 13.2 2.6
1995.............. 8.1 3.135 3.9 4.1 2.8
1996.............. 10.6 3.251 3.7 6.6 3.3
</TABLE>
- ----------
(1) "Israel Annual Inflation Rate" is the percentage increase in the Israeli
CPI between December of the year indicated and December of the preceding
year.
(2) "Closing Exchange Rate" is the rate of exchange of one United States
dollar for the NIS at December 31 of the year indicated as reported by the
Bank of Israel.
(3) "Annual Devaluation" is the percentage increase in the value of the United
States dollar in relation to the NIS during the calendar year.
(4) "Annual Inflation Adjusted for Devaluation" is obtained by dividing the
December Israeli CPI by the Closing Exchange Rate, thus first obtaining a
United States dollar-adjusted Israeli CPI, and then calculating the yearly
percentage changes in this adjusted index.
(5) "U.S. Annual Inflation Rate" is obtained by calculating the percentage
change in the United States Consumer Price Index for All Urban Consumers,
as published by the Bureau of Labor Statistics of the United States
Department of Labor.
Israeli Investment
Since the establishment of the State of Israel in 1948, the Government of
Israel has promoted the development of industrial and agricultural projects
through a variety of methods including tax abatements and tax incentives.
Industrial research and development projects in Israel may qualify for
government aid if they deal with the development of commercial products to be
made in Israel for sale abroad. Direct incentives usually are provided in the
forms of grants, regulated in accordance with the Law for Encouragement of
Industrial Research and Development 1984.
Since 1988, the Government of Israel's policy has been one of
privatization aimed at reducing its direct ownership interest in enterprises,
and the Government of Israel has sold or is planning to sell all or part of its
stake in many Government-owned companies.
Trade Agreements
Israel is a member of the United Nations, the International Monetary Fund,
the International Bank for Reconstruction and Development and the International
Finance Corporation. Israel is also a signatory to the General Agreement on
Tariffs and Trade which provides for reciprocal lowering of trade barriers among
its members.
Israel became associated with the European Economic Community ("E.E.C.")
by an agreement concluded on July 1, 1975 which confers certain advantages with
respect to Israeli exports to most European countries and obliges Israel to
lower its tariffs with respect to imports from those countries over a number of
years. A renewal of this
24
<PAGE>
agreement was signed in November 1995. Israel signed a similar agreement with
the European Free Trade Association ("EFTA") in 1992.
In 1985, Israel and the United States entered into an agreement to
establish a Free Trade Area ("FTA") which is intended ultimately to eliminate
all tariff and certain nontariff barriers on most trade between the two
countries. Under the FTA agreement, most products received immediate duty-free
status in 1985, stated reductions are taking place on others and reductions in
tariffs relative to a third category were accelerated between 1990 and 1995, by
which year all tariffs were eliminated. Israel is the only country in the world
with free trade agreements with the United States, EFTA and E.E.C.
On July 31, 1996, Israel and Canada signed a free trade agreement that
eliminated all tariffs on most industrial goods. Duties on a variety of
agricultural products were also reduced or entirely removed. Food trade is not
covered by the agreement and continues to face tariffs as do certain cotton
fabrics and women's swimwear. Discussions are expected to be held within two
years to expand agricultural and food trade between the two countries. The
treaty is expected to help Israel develop closer trade relations with Canada,
especially in the wake of the North American Free Trade Agreement.
On August 28, 1996, Israel signed a security cooperation agreement with
Turkey to extend security ties between the two countries. The agreement among
other things, is aimed at regulating cooperation between the two countries'
military industries, as well as technology sharing. This agreement paved the way
for the implementation of a $600 million project between Israel Aircraft
Industries Ltd. and the Turkish Ministry of Defense to upgrade Turkish Phantom
jet-fighters.
On September 10, 1996, Israel paved the way for its entry into the
Eurobond market by establishing a euro-medium-term note program of up to $750
million over the next three years. This program allows for bonds to be issued on
international markets with interest and principal payments due in the currency
in which the bonds are issued. Seven leading underwriters cooperated with the
Ministry of Finance on the issue, including Merrill Lynch as lead underwriter,
Daiwa Europe Ltd., Deutsche Bank AG London, Goldman Sachs International, Morgan
Stanley & Co. International Ltd., Swiss Bank Corporation and UBS Limited.
The end of the Cold War has enabled Israel to establish commercial and
trade relations with a number of nations, including Russia, China and the
nations of Eastern Europe, with which Israel had not previously had such
relations.
Economic Factors
Israel's defense expenditures, debt service and expenditures for the
absorption of immigrants are very high. As a result, the share of Israeli
resources available for other national purposes is limited. The defense burden,
debt service and expenditures for the absorption of immigrants, development of
the economy and the provision of a minimum standard of living, particularly for
the members of the lower income segments of the community, and the maintenance
of a minimum level of net foreign reserves, have resulted in a high import
surplus for many years. This surplus has been covered primarily by military and
economic aid from the United States, personal remittances from abroad, sales of
Israel Government bonds, primarily in the United States, institutional and free
market loans and contributions from the Jewish community worldwide.
Israel does not have an abundance of raw materials, including oil, and
therefore it is dependent to a large degree on the import of such raw materials.
In 1996, the number of tourists who arrived in Israel was approximately
2.2 million, slightly less than the number of tourists who arrived in 1995. The
tourism industry suffered in 1996 from security related incidents which began in
February with a wave of terrorist attacks. The decline ceased by August and the
level of incoming tourism stabilized during the fourth quarter of 1996.
On December 31, 1994, 1995 and 1996, respectively, Israel's outstanding
net foreign debt was approximately $18.4 billion, $20.2 billion and $20.0
billion, respectively.
25
<PAGE>
Israel had approximately $8.8 billion of foreign exchange reserves at the end of
1996 compared to $8.2 billion at the end of 1995 and $6.8 billion at the end of
1994.
Economic and Monetary Policies
In order to stimulate economic growth, the Israeli government has
continued a policy adopted in 1989 aimed at increasing the availability of
investment capital. This policy increased the availability of such capital by
loosening restrictions on the importation of foreign capital into the country
and freeing additional foreign currency deposits held in Israeli banks for
domestic lending by reducing bank liquidity requirements.
In an effort to stimulate exports and economic growth, the Israeli
government abandoned the fixed exchange rate policy which was followed in
previous years. Commencing in 1989 the rate of exchange was allowed to
fluctuate, within a range of 3% (later changed to 5% and still later to 7%) up
or down, after an initial devaluation of 13.4%. Further fluctuations and
devaluations have occurred or have been declared since then, including a 13.3%
devaluation in the fourth quarter of 1992. The current exchange rate mechanism
adopted in December 1991 allows the exchange rate to fluctuate around a diagonal
mid-band rate which initially was allowed to increase by 9% per annum, and since
July 1993, to increase by 6% per annum.
In the past several years the Israeli government has also liberalized
regulations relating to the Israeli securities market.
CERTAIN UNITED STATES AND ISRAELI REGULATORY MATTERS
S.E.C. Exemptive Order
In 1947, the SEC granted Ampal an exemption from the Investment Company
Act of 1940, as amended (the "1940 Act"), pursuant to an Exemptive Order. The
Exemptive Order was granted based upon the nature of Ampal's operations, the
purposes for which it was organized, which have not changed, and the interest of
purchasers of Ampal's securities in the economic development of Israel. There
can be no assurance that the SEC will not reexamine the Exemptive Order and
revoke, suspend or modify it. A revocation, suspension or material modification
of the Exemptive Order would materially and adversely affect the Company. In the
event that Ampal becomes subject to the provisions of the 1940 Act, it could be
required, among other matters, to make material changes to its management,
capital structure and methods of operation, including its dealings with
principal shareholders and their related companies.
Certain Israeli Real Estate Tax Matters
Under Israeli law, a lease of real property with a term of more than 10
years is required to be reported to the Israeli Appreciation Tax Authorities and
is subject to a land appreciation tax or an income tax and an acquisition tax.
The Israeli Tax Commissioner has taken the position that certain arrangements
for the lease of real property, including multiple leases, leases with renewal
options and leases or options to lease between affiliated companies, which in
the aggregate provide a term exceeding 10 years, are subject to the above
reporting and taxes.
Certain of the investees, including Ophir, Industrial Buildings and
Carmel, are parties (mostly as lessors) to lease transactions which, under the
Commissioner's interpretation, may be deemed leases for terms in excess of 10
years. These investees have all reported their lease income as taxable income
and have recently reported such transactions to the tax authorities. Should the
tax authorities decide to enforce their position and prevail, these investees
would be in breach of Israeli law, and could be subject to material taxes and to
civil and criminal penalties. A similar assessment made against Bay Heart in
this regard by the tax authorities has been abandoned.
The Company's investees have taken the position, which the Company
believes is shared by many of the other affected taxpayers in Israel, that the
Commissioner's position in this matter is incorrect. The Company cannot predict
whether the Commissioner's position will be upheld or, if upheld, the effect on
the Company and its investees.
26
<PAGE>
Israeli Banking Regulations
A provision of the Banking (Licensing) Law, 5741 - 1981, as amended (the
"Banking Law") imposes limitations on the purchase and holding of means of
control of non-banking corporations by Israeli banks. The Banking Law does not
permit Israeli banks, including Hapoalim, to invest more than 25% of its capital
in non-banking corporations, including Ampal or to hold more than 25% of the
means of control of each such corporation. Under the Banking Law, the Company
may not use financing directly or indirectly provided by Hapoalim to make
acquisitions of interests in a non-banking corporation. Hapoalim may not extend
credit to the Company except in the ordinary course of business and on terms
similar to those on which credit is extended to other customers of the same
class.
In addition, under an amendment to the Banking Law enacted in March 1994,
Israeli banks, including Hapoalim, were required to reduce their holdings in and
means of control over grandfathered non-banking corporations, including Ampal,
to 25% by not later than December 31, 1996. Following recommendations of a
committee formed by the Ministry of Finance in order to examine the overall
economic implications of a further reduction in the permitted holdings of banks
in non-banking corporations, the Government of Israel has recently introduced a
new bill to amend the Banking Law. This bill would require banks, including
Hapoalim, to further reduce their holdings in and means of control over
individual non-banking corporations such as Ampal to 20% by December 31, 1999,
and to reduce their overall investment in non-banking corporations to 20% of the
bank's capital by date. Pursuant to this bill, each bank's permitted investments
in non-banking corporations by the end of 2002, would not exceed 15% of each
Israeli bank's capital, with the addition of up to 10% of its capital permitted
to be invested, subject to certain limitations, in certain eligible non-banking
corporations. In order to comply with Banking Law, during 1996, Hapoalim engaged
in a series of transactions which reduced its holdings in Ampal and resulted in
Hapoalim no longer controlling Ampal. See "Significant Developments Since
Beginning of Last Fiscal Year - Change of Control of Ampal."
From time to time, the Company engages in transactions with Hapoalim and
its affiliates. Currently, the Company maintains substantial deposits with
Hapoalim and its subsidiaries. See "Certain Relationships and Related
Transactions."
United States Banking Regulations
Hapoalim is subject, through the United States International Banking Act
of 1978 ("IBA"), to the provisions of the United States Bank Holding Company Act
of 1956 ("BHC"). Due to Ampal's status as a subsidiary of Hapoalim for purposes
of the IBA and BHC, there may be limitations upon the direct or indirect
investment activities of Ampal in the United States. While Ampal itself is a
"grandfathered" investment of Hapoalim under the IBA for purposes of the BHC,
Ampal may not invest in more than 25% of the voting shares or the equity of
United States corporations or non-United States corporations which have a
majority of their assets in or revenues derived from the United States, subject
to certain exceptions. Management of Ampal does not believe that these
limitations contained in the BHC and the regulations of the Board of Governors
of the Federal Reserve System thereunder have had or will have any material
adverse impact upon the Company or its operations.
Israeli Foreign Exchange Regulations
Foreign exchange regulations are in effect in Israel. The regulations are
administered by the Controller of Foreign Currency, an official of the Bank of
Israel, who is appointed by the Minister of Finance. The Company's capital
investments in Israeli enterprises and the payment in U.S. dollars of dividends
on such investments do not require prior approval by the Controller. Under
Israeli law, foreign investors who make foreign currency investments in Israeli
companies are entitled to receive payments of dividends and proceeds upon resale
of the investment in that foreign currency.
To the extent that loans or investments have been or will be made by Ampal
or any of its subsidiaries in or to Israeli enterprises, substantially all such
loans or investments have been, and will be, made in such manner as to permit
the payment of dividends, interest and principal and proceeds of resale thereon
in U.S. dollars.
27
<PAGE>
TAX INFORMATION
Israeli Taxation Of Ampal
Ampal (to the extent that it has income derived in Israel) and Ampal's
Israeli subsidiaries are subject to taxes imposed under the Israeli Income Tax
Ordinance. For 1996, Israeli companies were taxed on their income at a rate of
36%. This reduction to 36% represents the final stage of reforms begun in 1987.
These reforms consisted of combining two separate types of taxes on company
income, company tax and income tax, into one tax, and reducing the effective tax
rate on company income in 1987 from 61% to 45%, with further reductions to
43.5%, 41%, 40% 39%, 38% and 37% from 1990 through 1995.
A tax treaty between Israel and the United States became effective on
December 30, 1994. This treaty has not had a substantial impact on the taxation
of the Company in the United States or in Israel.
Ampal has income from interest, rent and dividends resulting from its
investments in Israel. Under Israeli law, Ampal has been required to file
reports with the Israeli tax authorities with respect to such income. In
addition, as noted below, Ampal is subject to a withholding tax on dividends
received from Israeli companies at a rate of either 25%, 15% or 12.5%, depending
on the percentage ownership of the investment and the type of income generated
by that company (as opposed to dividends payable to Israeli companies, which are
exempt from tax, except for the dividends paid by an approved enterprise to
either residents or non-residents, the tax on which is withheld at a rate of
15%). Under an arrangement with the Israeli tax authorities, such income has
been taxed based on principles generally applied in Israel to income of
non-residents. Ampal has filed reports with the Israeli tax authorities through
1993 and has received "final assessments" with respect to such reports filed
through 1992 (which final assessments are, under Israeli law, subject to
reconsideration by the tax authorities only in certain limited circumstances,
including fraud). Based on the tax returns filed by Ampal through 1993, it has
not been required to make any additional tax payments in excess of the
withholding on its dividends. In addition, under Ampal's arrangement with the
Israeli tax authorities, the aggregate taxes paid by Ampal in Israel and the
United States on interest, rental and dividend income derived from Israeli
sources has not exceeded the taxation which would have been payable by Ampal in
the United States had such interest, rental and dividend income been derived by
Ampal from United States sources. There can be no assurance that this
arrangement will continue in the future. This arrangement does not apply to
taxation of Ampal's Israeli subsidiaries.
Generally, under the provisions of the Income Tax Ordinance, income paid
to non-residents of Israel by residents of Israel is generally subject to
withholding tax at the rate of 25%. However, withholding rates on income paid to
United States residents by residents of Israel are subject to the United
States-Israel tax treaty. No withholding has been made on interest and rent
payable to Ampal under an exemption which Ampal has received from the income tax
authorities on an annual basis. There can be no assurance that this exemption
will continue in the future. The continued tax treatment of Ampal by the Israeli
tax authorities in the manner described above is based on Ampal continuing to be
treated, for tax purposes, as a non-resident of Israel that is not doing
business in Israel.
Under Israeli law, a tax is payable on capital gains of residents and
non-residents of Israel. With regard to non-residents, this tax applies to gains
on sales of assets either located in Israel or which represent a right to assets
located in Israel (including gains arising from the sale of shares of stock in
companies resident in Israel). Since January 1, 1994, the portion of the gain
attributable to inflation prior to that date is taxable at a rate of 10%, while
the portion since that date is exempt from tax, while the remainder of the
profit, if any, was taxable to corporations at 36% in 1996. Non-residents of
Israel are exempt from the 10% tax on the inflationary gain derived from the
sale of shares in companies that are considered Israeli residents if they choose
to compute the inflationary portion of the gain based on the change in the rate
of exchange between Israeli currency and the foreign currency in which the
shares were purchased from the date the shares were purchased until the date the
shares were sold.
28
<PAGE>
The Income Tax Law (Adjustment for Inflation), 1985, which applies to
companies which have business income in Israel or which claim a deduction in
Israel for financing costs, has been in force since the 1985 tax year. The law
provides for the preservation of equity whereby certain corporate assets are
classified broadly into Fixed (inflation resistant) and Non-Fixed (non-inflation
resistant) Assets. Where shareholders' equity, as defined therein, exceeds the
depreciated cost of Fixed Assets, a tax deduction which takes into account the
effect of the annual inflationary change on such excess is allowed, subject to
certain limitations. If the depreciated cost of Fixed Assets exceeds
shareholders' equity, then such excess, multiplied by the annual inflation
change, is added to taxable income.
Individuals and companies in Israel pay VAT at a rate of 17% of the price
of assets sold and services rendered. They can deduct VAT paid on goods and
services acquired by them for the purpose of their business.
United States Taxation Of Ampal
Ampal and its United States subsidiaries (in the following tax discussion,
generally "Ampal") are subject to United States taxation on their consolidated
taxable income from foreign and domestic sources. The gross income of Ampal for
tax purposes includes or may include (i) income earned directly by Ampal, (ii)
Ampal's share of "subpart F income" earned by certain foreign corporations
controlled by Ampal, (iii) Ampal's share of income earned by certain electing
"passive foreign investment companies" of which Ampal is a stockholder and (iv)
an amount (if any) generally equal to Ampal's share of a controlled foreign
corporation's "excess passive assets." Subpart F income includes dividends,
interest and certain rents and capital gains. Excess passive assets of a
controlled foreign corporation for a taxable year are the excess of the average
of the amounts of passive assets held by the corporation as of the close of each
quarter of a taxable year over 25% of the average of the amounts of total assets
held by the corporation at such times. Since 1993, the maximum rate applicable
to domestic corporations is 35%.
Ampal is entitled to claim as a credit against its United States income
tax liability all or a portion of income taxes, or of taxes imposed in lieu of
income taxes, paid to foreign countries. If Ampal receives dividends from a
foreign corporation in which it owns 10% or more of the voting stock, in
determining total foreign income taxes paid by Ampal for purposes of the foreign
tax credit, Ampal is treated as having paid the same proportion of the foreign
corporation's post-1986 foreign income taxes as the amount of such dividends
bears to the foreign corporation's post-1986 undistributed earnings.
In general, the total foreign tax credit that Ampal may claim is limited
to the proportion of Ampal's United States income taxes that its foreign source
taxable income bears to its taxable income from all sources, foreign and
domestic. The Internal Revenue Code of 1986, as amended (the "Code"), also
limits the ability of Ampal to offset its United States tax liability with
foreign tax credits by subjecting various types of income to separate
limitations. Source of income and deduction rules may further limit the use of
foreign taxes as an offset against United States tax liability. As a result of
the operation of these rules, Ampal may choose to take a deduction for foreign
taxes in lieu of the foreign tax credit.
Ampal may be subject to the alternative minimum tax ("AMT") on
corporations. Generally, the tax base for the AMT on corporations is the
taxpayer's taxable income increased or decreased by certain adjustments and tax
preferences for the year. The resulting amount, called alternative minimum
taxable income, is then reduced by an exemption amount and subject to tax at a
20% rate. As with the regular tax computation, AMT can be offset by foreign tax
credits (separately calculated under AMT rules and generally limited to 90% of
AMT liability as specially computed for this purpose).
In connection with the transfers in 1992 of its stock in Granite and in
1994 of its stock in Orlite to separate foreign subsidiaries, Ampal entered into
gain recognition agreements with the Internal Revenue Service. Under these
agreements, if either foreign subsidiary sells all or a portion of its stock in
Granite before 2003 or in Orlite before 2005, Ampal generally will be required
to recognize for tax purposes a proportionate amount of gain based upon the fair
market value of the stock sold on the date of the
29
<PAGE>
transfer to the foreign subsidiary, and to pay tax due in respect of such gain
together with interest accrued on such tax since the date of the gain
recognition agreement.
ITEM 2. PROPERTY
--------
Ampal subleases 2,825 square feet of office space leased by Hapoalim at
1177 Avenue of the Americas, New York City under a sublease which expires on
August 30, 2009. The base rent, which commenced in September 1994, is $170,000,
subject to escalation. In 1996, Ampal's total payment to Hapoalim in connection
with this lease was $171,247.
Ampal or its subsidiaries leases office space in various locations in the
United States and Israel to Hapoalim and its subsidiaries, pursuant to leases
which will generally expire in the years between 2000 and 2003, in exchange for
total annual rental payments of approximately $3,454,000. Generally, the annual
payments are based upon 10% of the value of the property linked to the CPI.
Other properties of the Company, and the Company's acquisition of a
building located at 800 Second Avenue, New York, New York and the building's
subsequent conversion into an office condominium, are discussed elsewhere in
this Report. See "Business."
ITEM 3. LEGAL PROCEEDINGS
-----------------
In February 1995, Yakhin Hakal and its affiliates commenced a legal
proceeding in Tel Aviv District Court seeking to cause Etz Vanir and Yakhin
Mataim to redeem the perpetual debentures owned by Ampal for approximately
$700,000 and to require Ampal to surrender all of its preferred shares of Etz
Vanir and Yakhin Mataim for their par value (which is a nominal amount), on the
alleged grounds that the perpetual debentures are debt and not equity
investments. It is Ampal's view that its investments in these companies, which
were made in the 1950's, are equity investments and are not subject to
redemption by these companies, other than upon liquidation. Ampal is contesting
this legal proceeding. A hearing was held in the spring of 1996 though no
judgment has yet been rendered.
For a description of a claim for NIS 2.7 million asserted against Ampal
Financial, see "Real Estate, Finance and Other Holdings - Ampal Development
(Israel) Ltd., Nir Ltd. and Ampal Financial Services Ltd."
For a description of the Israeli Tax Commissioner's position concerning
certain reporting requirements and taxes, see "Certain United States and Israeli
Regulatory Matters - Certain Israeli Real Estate Tax Matters."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
On October 3, 1996, at Ampal's Annual Meeting of Shareholders, the
following persons were elected as directors by the following vote:
(i) CLASS A FOR AUTHORITY WITHHELD
------- --- ------------------
H.B. Henshel 16,316,952 97,720
I. Hochberg 16,316,698 97,974
H. Kronish 16,316,039 98,633
E. Sommer 16,317,348 97,324
30
<PAGE>
(ii) COMMON/CLASS A FOR AUTHORITY WITHHELD
-------------- --- ------------------
A. Abend 32,659,467 169,877
M. Arnon 32,731,863 97,481
S.I. Batkin 32,731,263 98,081
Y. Elinav 32,725,520 103,824
L. Lefkowitz 32,725,583 103,761
H. Peled 32,731,520 97,824
S. Ravid 32,731,362 97,982
S. Recht 32,731,870 97,474
M.W. Sonnenfeldt 32,725,520 103,824
R. Steinmetz 32,734,020 95,324
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
---------------------------------------------------------------------
PRICE RANGE OF CLASS A STOCK
----------------------------
Ampal's Class A Stock is listed on the AMEX under the symbol "AIS.A." The
following table sets forth the high and low sales prices for the Class A Stock,
as reported on the consolidated transaction reporting system for each calendar
quarter during the periods indicated:
HIGH LOW
---- ---
1996:
Fourth Quarter.......................... $ 5 1/8 $ 4 9/16
Third Quarter........................... 5 1/8 4 3/8
Second Quarter.......................... 5 15/16 4 5/8
First Quarter........................... 7 1/8 5 1/8
1995:
Fourth Quarter.......................... 6 1/4 5 1/8
Third Quarter........................... 7 3/16 5 3/4
Second Quarter.......................... 6 7/8 5 5/8
First Quarter........................... 7 1/8 5 1/2
As of March 24, 1997, there were 1,274 record holders of Class A Stock.
Redeemable Warrants to purchase Class A Stock, issued in connection with
Ampal's 1994 public offering, are listed on the AMEX under the symbol "AIS.WS."
The warrants are exercisable until January 31, 1999, but became callable by
Ampal, in whole or in part, on February 1, 1996 without payment to the holder.
As of March 18, 1997, there were no shares of Common Stock outstanding.
VOTING RIGHTS
Unless dividends on any outstanding preferred stock are in arrears for
three successive years as discussed below, the holders of Class A Stock are
entitled to one vote per share on all matters voted upon by shareholders and,
voting as a class, have the right to elect the Class A Directors. The Class A
Directors constitute 25% of the total number of directors. Other than in the
election of Class A Directors, the holders of Common Stock, voting as a class,
are entitled to as many votes as shall equal the number of votes to which the
holders of Class A Stock are entitled, but in no event more than ten votes per
share of Common Stock. Notwithstanding the above, if dividends on any
outstanding series of preferred stock are in arrears for three successive years,
the holders of all outstanding series of preferred stock as to which dividends
are in arrears shall have the exclusive right to vote for the election of
directors until all cumulative dividend arrearages are paid. The shares of
Common Stock and Class A Stock do not have cumulative
31
<PAGE>
voting rights, which means that any holder of at least 50% of the Common Stock
can, as long as such person owns at least one share of Class A Stock, can elect
all of the members of Ampal's Board other than the Class A Directors.
As a result of the exchange by Hapoalim, on December 11, 1997, of
3,000,000 shares of Common Stock for 3,000,000 shares of Class A Stock, no
Common Stock is currently outstanding. Therefore, notwithstanding the previous
paragraph, the holders of Class A Stock now elect all the members of Ampal's
Board of Directors. See "Significant Recent Developments Since Beginning of Last
Fiscal Year - Change of Control of Ampal." At the Annual Meeting of Ampal's
shareholders, to be held on May 28, 1997, Ampal's shareholders will be asked to
amend Ampal's Certificate of Incorporation by eliminating the Common Stock, all
references to the Common Stock and the rights of holders of Class A Stock,
voting as a class, to elect 25% of Ampal's directors. As a result, the Class A
Stock will be the only authorized voting stock (unless dividends on outstanding
preferred stock are in arrears for more than three years, as discussed above)
and the distinction between Class A Directors and the remaining directors will
be eliminated.
DIVIDEND POLICY
In 1995, Ampal paid a dividend of $.21 per share on its Class A Stock and
Common Stock. From 1989 through 1994 and in 1996, Ampal did not pay a dividend
on the Class A Stock and Ampal has never paid a dividend on its Common Stock
other than in 1995. Past decisions not to pay cash dividends reflected the
policy of Ampal to apply retained earnings, including funds realized from the
disposition of holdings, to finance its business activities and to redeem
debentures. The payment of cash dividends in the future will depend upon the
Company's operating results, cash flow, working capital requirements and other
factors deemed pertinent by the Board.
Dividends on all classes of Ampal's shares are payable as a percentage of
par value. The holders of Ampal's presently authorized and issued 4% Preferred
Stock and 6 1/2% Preferred Stock (each having a $5.00 par value) are entitled to
receive cumulative dividends at the rates of 4% and 6 1/2% per annum,
respectively, payable out of surplus or net earnings of Ampal before any
dividends are paid on the Common Stock or Class A Stock. If Ampal fails to pay
such dividend on the preferred stock in any calendar year, such deficiency must
be paid in full, without interest, before any dividends may be paid on the Class
A Stock or Common Stock. After the payment of all cumulative dividends on the
preferred stock and a non-cumulative 4% dividend on the Class A Stock, the Board
may, but is not required to, declare dividends out of any remaining surplus or
net earnings of Ampal, which dividends are participated in by the holders of 4%
Preferred Stock and Class A Stock to the extent of an additional 8% each, before
the holders of the Common Stock are entitled to receive any dividends. If after
the payment of the aforesaid dividends on the preferred stock and Class A Stock
there remains any surplus, the Board may, but is not required to, declare
dividends out of any remaining surplus in an amount of up to 12% on the Common
Stock. If, thereafter, there remains any surplus, any dividends declared are to
be participated in by the holders of 4% Preferred Stock, Class A Stock and
Common Stock, pro rata.
RECENT SALES OF UNREGISTERED SECURITIES
On December 11, 1996, Hapoalim and Ampal entered into the Exchange
Agreement pursuant to which Hapoalim exchanged with Ampal all 3,000,000 shares
of Common Stock held by Hapoalim for 3,000,000 shares of Class A Stock. Such
exchange was exempted from registration under the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to Sections 3(a)(9) and 4(2) of the
Securities Act. See "Significant Developments Since Beginning of Last Fiscal
Year - Change of Control of Ampal."
32
<PAGE>
Item 6.
SELECTED FINANCIAL DATA
- -----------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues ........................ $ 44,360 $ 44,713(1) $ 43,745(1) $ 42,679(1) $ 54,149(1)
Net (loss)income ................ (10,252)(2) 2,166(2) 7,334(2) 226(2)(3) 10,324(2)
(Loss) earnings per Class A share $ (.37)(2) $ .08(2) $ .27(2) $ .01(2)(3) $ .44(2)
Total assets .................... 283,551 312,094(1) 301,194(1) 271,124(1) 301,550(1)
Notes, deposits and
debentures payable ............. 102,414 115,881(1) 95,995(1) 124,745(1) 149,922(1)
Dividends declared per
Class A share .................. -- $ .21 -- -- --
</TABLE>
(1) Restated to reflect Pri Ha'emek (Canned and Frozen Food) 88 Ltd. as a
discontinued operation.
(2) Includes (loss) income from discontinued operations, as follows:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(Loss) income from discontinued
operations $(2,892) $(4,315) $ 969 $ (214) $ 684
(Loss) earnings per Class A
share from discontinued
operations $ (.10) $ (.15) $ .04 $ (.01) $ .03
</TABLE>
(3) Includes cumulative effect on prior years of change in accounting principle
of $(4,982), equal to $(.21) per share.
33
<PAGE>
Items 7 & 8.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
GENERAL
- -------
The "Company" (refers to Ampal-American Israel Corporation ("Ampal"), and its
consolidated subsidiaries) acquires interests in businesses located in the State
of Israel or that are Israel-related. An important objective of Ampal is to make
investments in companies that take advantage of growth in Israel's domestic
economy. The Company has diversified interests in the following sectors: high
technology and communications, hotels and leisure-time, real estate, finance,
energy distribution and basic industry. The Company generally seeks to acquire
and maintain a sufficient equity interest in a company to permit it, on its own
or with investment partners, to have influence in the management and operation
of that company. In determining whether to acquire an interest in a specific
company, the Company considers quality of management, qualifications of
investment partners, potential return on investment, projected cash flow, market
share and growth potential.
The Company emphasizes long-term appreciation over short-term returns and
liquidity. The Company often makes equity investments accompanied by more
significant loans or loan guarantees with the intention that cash flow from
operations of the investee companies will repay these loans.
The Company's results of operations are directly affected by the results of
operations of its investees. The results of companies which are greater than
50%-owned are included in the consolidated financial statements of the Company.
The Company accounts for its holdings in investees over which the Company
exercises significant influence, generally 20%- to 50%-owned companies
("affiliates"), under the equity method. Under the equity method, the Company
recognizes its proportionate share of such companies' income based on its
percentage of direct and indirect equity interests in earnings of those
companies. If the Company's interest in a subsidiary were to be reduced to
20%-50%, the investment would be recorded under the equity method. The Company's
results of operations are affected by capital transactions of the affiliates.
Thus, the issuance of shares by an affiliate at a price per share above the
Company's carrying value per share for such affiliate results in the Company
recognizing income for the period in which such issuance is made, while the
issuance of shares by such affiliate at a price per share that is below the
Company's carrying value per share for such affiliate results in the Company
recognizing a loss for the period in which such issuance is made. The Company
accounts for its holdings in investees, other than those described above, on the
cost method or in accordance with Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities."
A comparison of the Company's financial statements from year to year must be
considered in light of the Company's acquisitions and divestitures during each
period.
The Company's effective tax rates have been, and in the future may be, above
United States statutory rates, in part, because of taxes paid in foreign
jurisdictions by investees for which Ampal does not fully receive tax credits in
the United States.
For those subsidiaries and affiliates whose functional currency is considered to
be the New Israeli Shekel ("NIS"), assets and liabilities are translated at the
rate of exchange at the end of the reporting period and revenues and expenses
are translated at the average rates of exchange during the reporting period.
Translation differences of those foreign companies' financial statements are
included in the cumulative translation adjustment account of shareholders'
equity.
Should the NIS be devalued against the dollar, cumulative translation
adjustments are likely to result in reductions of shareholders' equity. As of
December 31, 1996, the effect on shareholders' equity was a decrease of
approximately $6.5 million. Upon
34
<PAGE>
disposition of an investment, the related cumulative translation adjustment
balance will be recognized in determining gains or losses.
DISCONTINUED OPERATIONS
- -----------------------
Pri Ha'emek (Canned and Frozen Food) 88 Ltd. ("Pri Ha'emek"), which was the
Company's 58.5%-owned food processing subsidiary, initiated a recovery plan at
the end of 1995, and recorded further losses in 1996. Its food processing
revenues decreased in 1996 as a result of decreased sales volume in the domestic
market. Food processing expenses increased in 1996 due to the increases in labor
costs and costs of raw materials, which were linked to the increases in the
Consumer Price Index in Israel ("CPI"), decreased labor productivity and a
reduction of discounts from suppliers. Therefore, on December 23, 1996, the
Company sold all of its equity interest in Pri Ha'emek to Agrifarm International
Limited ("Agrifarm"), a British company. Accordingly, the results of Pri
Ha'emek, whose financial statements were previously consolidated with the
Company's financial statements, have been presented as discontinued operations
in the Company's 1996 consolidated financial statements. The Company's 1995 and
1994 consolidated financial statements have been restated to conform with the
current year's presentation. In connection with the sale, the Company recorded a
loss on disposition of $3.2 million and a tax benefit of $3.9 million which was
based on a total loss of its investment in Pri Ha'emek in the amount of $9.7
million. In 1995 and 1994 Pri Ha'emek generated revenues in the amounts of $31.4
million and $34.1 million, respectively.
RESULTS OF OPERATIONS
- ---------------------
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
- ---------------------------------------------------------------------
Consolidated income from continuing operations decreased from $6.5 million for
the year ended December 31, 1995, to a loss of $7.4 million for the same period
in 1996. The decrease in income in 1996 resulted primarily from the loss
recorded with respect to the impairment of the Company's investment in M.D.F.
Industries Ltd. ("M.D.F."), decreases in equity in earnings of affiliates,
unrealized losses on investments, losses incurred by the Company's manufacturing
subsidiary Paradise Industries Ltd. ("Paradise"), higher net interest expense
and an unrealized loss on rental property. These decreases were partially offset
by an increase in net rental income.
M.D.F., the Company's 50%-owned affiliate, which has established a plant in
Israel for the production of medium density fiber boards, and which completed
its running-in period on June 30, 1996, incurred significant losses in 1996. The
losses are primarily attributable to the excess of cost of sales per production
unit over the selling price. M.D.F.'s sales prices were affected by the decrease
in worldwide prices of all wood-connected products, and to the establishment of
nearly 30 new plants for the production of medium density fiber boards
throughout the world. In view of the substantial losses incurred by M.D.F. and
the continuing depressed prices with respect to its products, the Company
believes that further substantial losses will be incurred by M.D.F.
Consequently, because of the uncertainty with respect to M.D.F.'s future
operations, the Company has recorded a loss from impairment of this investment
in December 1996 for its full remaining investment in and loans to M.D.F. in the
amount of $8.8 million. This loss, in addition to the $1.3 million loss
previously recorded by the Company in 1996 with respect to M.D.F., resulted in a
total loss attributable to the operations of M.D.F. in the amount of $8.6
million, net of tax benefits. M.D.F. will no longer be accounted for as an
affiliate of the Company under the equity method of accounting; however, the
Company continues to be contingently liable with respect to $5 million of
guarantees given by the Company with respect to M.D.F.'s bank obligations. At
Ampal's initiative, the Board of Directors of M.D.F. has approved hiring
consultants to study the operations and marketing of the company to determine if
a recovery plan can be implemented. In addition, the owner of the other 50%
interest in M.D.F. has agreed to provide additional funds in the amount of up to
$2 million to M.D.F., if required for M.D.F. to meet its obligations.
Equity in earnings of affiliates decreased from $7.4 million for the year ended
December 31, 1995, to $6.3 million for the same period in 1996. The decrease is
primarily attributable to losses recorded by the Company's 50%-owned affiliate,
Coral World International Limited ("CWI"). On September 27, 1996, a wholly-owned
subsidiary of CWI sold its marine park in Nassau (Bahamas) to an unrelated party
for $3.75 million and CWI recorded a loss on sale of approximately $5 million
(the Company's share is $2.5 million,
35
<PAGE>
$1.7 million net of taxes). In addition, in May 1996, CWI's management made a
decision to sell its marine park in St. Thomas (U.S. Virgin Islands), and CWI
recorded a loss of approximately $2 million (the Company's share is $1 million,
$.7 million net of taxes) to adjust the carrying value of its investment to net
realizable value.
Moriah Hotels Ltd. ("Moriah"), the Company's 46%-owned affiliate, which is one
of the largest hotel chains in Israel, recorded lower earnings in 1996 primarily
because its Tel Aviv hotel was closed for renovations for part of the period.
Moriah also experienced decreases in room rates which resulted from the decrease
in tourism to Israel in 1996. The Tel Aviv hotel, which has undergone a $16
million renovation, of which $4 million is to be provided by the landlord,
partially reopened in April 1996, and its renovations were completed in the
fourth quarter of 1996.
The decreases noted above were partially offset by the increased earnings
recorded by the Company's 50%-owned affiliate, Trinet Venture Capital Ltd.
("Trinet"), a high technology venture capital fund, which recorded unrealized
gains on its investments in Smart-Link Ltd. ("Smart-Link"), Imagenet Ltd.
("Imagenet") and Logal Software and Educational Systems Ltd. ("Logal").
Smart-Link, which is engaged in development of products in the field of
multimedia and computers, issued 27.3% of its shares to various investors for $3
million in November 1996. Imagenet, which develops and markets computer-aided
network engineering software products, completed a $2.5 million private
placement for 26.7% of its shares in June 1996. Logal, which markets
computerized educational systems for learning sciences in high schools and
colleges, completed a $13 million public offering in February 1996 in the United
States. In addition, Ophir Holdings Ltd. ("Ophir") the Company's 42.5%-owned
affiliate, reported improved results in 1996 which are primarily attributable to
gains it recorded with respect to the initial public offering conducted by its
affiliate, Memco Software, Ltd. on October 17, 1996, and to the increased
earnings of its affiliate, Teledata Communication Ltd. ("Teledata"). Teledata's
earnings improved as a result of increased sales, mainly because of its more
successful marketing efforts.
Manufacturing revenues and expenses reflect the operations of Paradise, the
Company's 85.1%-owned subsidiary, which is a leading manufacturer and
distributor of mattresses and fold-out beds in Israel. Paradise recorded losses
in 1996, primarily in the third quarter, because of increased advertising and
promotional expenses in connection with a new marketing program.
Interest income decreased in 1996 primarily as a result of lower balances of
interest-earning assets and lower interest rates in 1996. Interest expense
increased in 1996 mainly because of debt incurred in connection with the
purchase of an office building ("800 Second Avenue") located in New York City.
On June 28, 1995, the Company's 94%-owned subsidiary purchased 800 Second Avenue
for approximately $45 million. The approximately 290,000 rentable square-foot
office building houses the Consulate of the Government of Israel (the
"Government") in New York and other Israeli government offices as well as other
tenants. The property was converted into a condominium in December 1996. On
January 31, 1997, the Company sold to the Government the portion of the building
which it occupies for $31 million. As a result of this transaction, the Company
recorded a loss of $1.1 million ($.6 million net of taxes) in its December 31,
1996 financial statements.
The increases in rental income and rental property expenses are attributable to
the operations of 800 Second Avenue.
The Company recorded $.6 million of unrealized losses and $.3 million of
unrealized gains on marketable securities and $2 million and $1.9 million of
gains on sale of investments in the years ended December 31, 1996 and 1995,
respectively. The realized gains recorded in 1996 were mainly attributable to
the Company's investments in Teledata and M-Systems Flash Disk Pioneers Ltd.
("M-Systems"), whereas the gains recorded in 1995 were mainly attributed to the
Company's investment in Mercury Interactive Corporation ("Mercury"). Unrealized
losses in 1996 were attributed to the Company's investments in Idan Software
Industries I.S.I., Ltd. ("Idan")and in Mercury.
The change in the effective income tax rate in 1996 is mainly attributable to
the losses of certain Israeli subsidiaries and affiliates (including M.D.F.)
from which no tax benefits are available.
36
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
- ---------------------------------------------------------------------
Consolidated income from continuing operations increased from $6.4 million for
the year ended December 31, 1994, to $6.5 million for the year ended December
31, 1995. The increase in net income resulted primarily from an increase in net
rental income and equity in earnings of affiliates in 1995 which were offset by
lower realized and unrealized gains on investments.
Equity in earnings of affiliates increased for the year ended December 31, 1995,
as compared to the same period in 1994. The earnings of Ophir increased in 1995
because of realized gains recorded on its investment in DSP Communications, Inc.
as well as decreased interest expense on its CPI-linked bank borrowings in 1995
due to the lower rate of increase in the CPI in Israel. In 1995, the Company
recorded its share of earnings of its then 49%-owned affiliate, Bank Hapoalim
(Cayman) Ltd. ("Cayman") through the date of sale of Cayman, whereas in 1994 the
Company recorded its share of losses of Cayman, mainly because Cayman recorded
unrealized losses on its marketable securities. Bay Heart Limited, the Company's
37%-owned affiliate which owns and operates a shopping mall near Haifa, reported
improved results in 1995 mainly because of lower interest expense on its
CPI-linked borrowings in 1995 due to the lower rate of increase in the CPI in
Israel. Carmel Container Systems Limited ("Carmel"), the Company's 20.4%-owned
affiliate, which is a manufacturer of paper-based packaging, also reported
higher earnings in 1995 because of increased sales volume and selling prices
which were adjusted for the continuing increase in the price of paper on
international markets in 1995. At the same time, Carmel's gross profit increased
due to greater efficiency and improvements originating from investments in
equipment as well as the renovation of production lines at its plants. Am-Hal
Ltd., the Company's 50%-owned affiliate which operates a luxury senior citizens
center in Rishon Lezion, recorded higher earnings in 1995 resulting from a
higher occupancy rate which reached 100% in 1995 and a decrease in finance
expenses resulting from loan repayments. These increases were partially offset
by the decrease in the 1995 earnings of Granite Hacarmel Investments Limited
("Granite"), the Company's 21.3%-owned affiliate, because of decreased income
from dividends, higher financing expenses, and increased provision for taxes
which resulted from the unavailability of tax benefits in 1995 which were
available in 1994. In addition, equity in earnings of affiliates was also
affected by the Company's share of losses recorded by Teledata as a result of
decreases in its sales prices because of increased competition, losses incurred
by a marine park in Nassau (Bahamas) which is owned by the Company's 50%-owned
affiliate, CWI, and losses recorded by the Company's start-up affiliates.
Interest income from related parties and interest expense to others decreased as
a result of the lower rate of the CPI in 1995 and because of the repayments of
deposits, notes and loans receivable and scheduled debenture redemptions.
The increases in rental income and rental property operating expenses are
attributable to the operations of 800 Second Avenue.
The Company recorded $.3 million and $2.4 million of unrealized gains on
marketable securities and $1.9 million and $3.1 million of gains on sale of
investments in the years ended December 31, 1995 and 1994, respectively. These
gains were mainly attributed to the Company's investments in DSP Group, Inc.
("DSP Group") and Mercury. In addition, on August 15, 1995, Ampal sold all of
its Ordinary Shares and 7% Preferred Shares of Cayman, which constituted 49% and
50% of each series, respectively, to Bank Hapoalim B.M. ("Hapoalim"). The sales
price was approximately $20.3 million and the Company recorded a gain on sale of
approximately $.4 million ($.2 million, net of taxes). The Company obtained an
opinion from an independent investment consultant that the consideration
received in the sale was fair to the Company. The aggregate fair value of
trading securities amounted to approximately $3.3 million and $7.1 million at
December 31, 1995 and 1994, respectively.
On November 6, 1995, Ampal sold its property located at 174 North Michigan
Avenue, Chicago, Illinois to an unrelated party for $.85 million. In connection
therewith, Ampal received $.55 million from Hapoalim and Ampal, as landlord, and
Hapoalim, as tenant, released each other from their respective obligations under
a lease which was scheduled to
37
<PAGE>
expire in 2007. Ampal obtained an opinion from an independent real estate
consultant that the consideration received from Hapoalim was fair to Ampal. The
Company recorded a total gain of approximately $.5 million ($.3 million, net of
taxes).
The increase in the effective income tax rate from 43% in 1994 to 48% in 1995 is
attributable to changes in the components of taxable income.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At December 31, 1996, cash and cash equivalents were $9.7 million as compared
with $16 million at December 31, 1995. In addition, Ampal had approximately $25
million of highly liquid interest-bearing securities included in the investments
caption at December 31, 1996, as compared with $34 million at December 31, 1995.
The decrease in cash and cash equivalents and short-term investments is
primarily related to the scheduled redemptions of debentures, additional
investments, including $1.5 million indirectly invested in Geotek
Communications, Inc., an international wireless telecommunications company, and
an additional investment made in Pri Ha'emek in the amount of $4.5 million.
These cash outflows were partially offset by the scheduled repayments of
deposits, notes and loans receivable.
As of December 31, 1996, the Company had issued guarantees on certain
outstanding loans to its investees and subsidiaries in the aggregate principal
amount of $17.1 million, and has commitments issued to its investees of up to
$14.7 million.
In 1996 Ampal paid dividends in the amount of $.20 and $.325 per share on its 4%
and 6-1/2% Preferred Stock. In 1995, Ampal paid dividends on its Class A Stock
and Common Stock in the amount of $.21 per share, and $1.05 and $.325 per share
on its 4% and 6-1/2% Preferred Stock, respectively. Total dividends paid in 1996
amounted to $.4 million as compared with 1995 dividends of $5.6 million.
CHANGE OF CONTROL OF AMPAL
- --------------------------
On June 6, 1996, Hapoalim completed the sale of 5,742,351 shares of Ampal's
Class A Stock (equal to 27.9% of the outstanding Class A Stock as of that date,
not assuming conversion of Hapoalim's Preferred Stock) at a price of $7.87 per
share to Rebar Financial Corp. ("Rebar"), a company controlled by the Steinmetz
family. This sale of shares was made within the framework of the reduction of
the non-banking holdings of Hapoalim according to the Banking (Licensing) Law in
effect in Israel, which required Hapoalim to sell non-banking holdings in excess
of 25% by the end of 1996. Furthermore, on December 11, 1996, Hapoalim delivered
to Rebar an additional 1,500,001 shares of Ampal's Class A Stock.
Hapoalim continues to hold 5,874,281 shares of Ampal's Class A Stock (equal to
24.8% of the outstanding Class A Stock as of December 31, 1996, without assuming
conversion of shares of Ampal's Preferred Stock owned by Hapoalim). As of
December 31, 1996, Rebar held 7,391,952 shares of Ampal's Class A Stock (equal
to 31.25% of the outstanding shares of Class A Stock).
Also, on December 11, 1996, but prior to the sale of shares referred to above,
Hapoalim and Ampal entered into an exchange agreement pursuant to which Hapoalim
and Ampal exchanged all 3,000,000 shares of Ampal's Common Stock owned by
Hapoalim for 3,000,000 shares of Ampal's Class A Stock. Ampal's Board had formed
a "Special Committee" consisting of five outside directors to consider
Hapoalim's request to (i) equalize the voting rights of the Common Stock with
the voting rights of the Class A Stock, and (ii) compensate Hapoalim for the
reduction in its voting rights which would result from such equalization. The
Special Committee was authorized to negotiate, approve or disapprove any such
transaction on Ampal's behalf. The Special Committee retained independent
counsel and an independent investment bank to advise it in connection with
Hapoalim's proposal. The Special Committee unanimously approved the exchange
transaction and recommended that Ampal's Board also approve such transaction and
take all actions appropriate to effectuate it. Ampal's Board approved the
exchange transaction and the exchange agreement by the unanimous vote of all
directors then present and voting at a meeting held on December 11, 1996.
In the exchange agreement, Ampal agreed to recommend to its shareholders that
they vote their shares at the next meeting of Ampal's shareholders in favor of
an amendment to the
38
<PAGE>
Certificate of Incorporation ("Certificate") to provide for the removal and
elimination of the Common Stock from Ampal's authorized shares and the
cancellation of any reference to the Common Stock in Ampal's Certificate. In
addition, Ampal agreed that until its Certificate is amended as provided above,
Ampal will not reissue, resell, transfer, distribute or take any other action
with respect to any or all of the Common Stock. Furthermore, until the later of
such time as the Certificate is amended as so provided or such time as
Hapoalim's interest in Ampal, whether directly or through subsidiaries of
Hapoalim, is less than 10% of all the outstanding shares of the Class A Stock,
Ampal will not issue any class of equity security with voting rights that are
preferential to the voting rights of the Class A Stock, other than preferred
stock that has customary voting rights with respect to the election of members
of the Board only in the event of the non-payment of preferential dividends. On
March 27,1997, the Board of Directors of Ampal authorized the submission to the
shareholders of a proposal to eliminate the Common Stock from Ampal's
capitalization at the next annual meeting to be held May 28, 1997.
Prior to the consummation of the transactions described above, Hapoalim
beneficially owned 3,000,000 shares of Ampal's Common Stock (representing 100%
of outstanding Common Stock) and 10,500,991 shares (assuming conversion of
shares of Ampal's Preferred Stock owned by Hapoalim) of Ampal's Class A Stock
(representing 50.2% of the outstanding Class A Stock). As the holder of all the
outstanding Common Stock, as to matters submitted to the vote of the
shareholders of Ampal (including the election of directors other than 25% of the
Board for whom only holders of Class A Stock could vote), Hapoalim was entitled
to cast a number of votes equal to the total number of votes cast by the holders
of Class A Stock, but, in no event, more than ten votes per share of Common
Stock. Thus, before the exchange of Hapoalim's Common Stock for Class A Stock,
as described above, Hapoalim had the power to elect at least approximately 75%
of Ampal's directors.
39
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Ampal-American Israel Corporation:
We have audited the accompanying consolidated balance sheets of Ampal-American
Israel Corporation (a New York Corporation) and subsidiaries (the "Company") as
of December 31, 1996 and 1995, and the related consolidated statements of
income, changes in shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of certain consolidated subsidiaries, which statements
reflect assets and revenues of 43% and 44%, respectively, in 1996, 38% and 35%,
respectively, in 1995, and revenues of 49% in 1994, of the related consolidated
totals. Also, we did not audit the financial statements of certain affiliated
companies, the investments in which are reflected in the accompanying financial
statements using the equity method of accounting, or the financial statements of
a discontinued operation. The Company's equity in net earnings (loss) of these
affiliated companies and the (loss) income from discontinued operations in 1995
and 1994 represents $10,443,000, $4,376,000, and $5,305,000 of consolidated net
income (loss) for the years ended December 31, 1996, 1995 and 1994,
respectively. The statements of these subsidiaries, affiliated companies and
discontinued operation were audited by other auditors whose reports have been
furnished to us and our opinion, insofar as it relates to the amounts included
for those entities, is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Ampal-American Israel Corporation and subsidiaries as
of December 31, 1996 and 1995, and the results of their operations and cash
flows for each of the three years in period ended December 31, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
March 26, 1997
40
<PAGE>
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1996 1995 1994
- --------------------------------------------------------------------------------
(Dollars in thousands, except per share data) (Note 2) (Note 2)
REVENUES:
Equity in earnings of affiliates (Note 10) .... $ 6,333 $ 7,424 $ 5,793
Manufacturing ................................. 10,891 10,159 9,624
Interest:
Related parties .............................. 9,918 10,811 15,766
Others ....................................... 1,956 3,629 1,713
Rental income ................................. 11,663 7,793 3,139
Realized and unrealized gains on investments
(Notes 1(d) and 3) ........................... 1,342 2,193 5,525
Gain on sale of real estate rental property
(Note 3) ..................................... -- 526 --
Other ......................................... 2,257 2,178 2,185
-------- -------- --------
Total revenues ........................... 44,360 44,713 43,745
-------- -------- --------
EXPENSES:
Manufacturing ................................. 12,027 9,436 8,898
Interest:
Related parties .............................. 3,918 3,108 2,878
Others ....................................... 10,163 9,813 13,356
Rental property operating expenses ............ 5,670 2,886 507
Loss from impairment of investment (Note 10(c)) 10,083 -- --
Unrealized loss on rental property (Note 3) ... 1,095 -- --
Other ......................................... 6,865 7,122 6,950
-------- -------- --------
Total expenses ........................... 49,821 32,365 32,589
-------- -------- --------
(Loss) income from continuing operations
before income taxes .......................... (5,461) 12,348 11,156
Income taxes (Note 9) ......................... 1,899 5,867 4,791
-------- -------- --------
(Loss) income from continuing operations ...... (7,360) 6,481 6,365
-------- -------- --------
Discontinued operations (Note 2):
Loss from operations ......................... (3,610) (4,315) (576)
Gain on issuance, net of taxes ............... -- -- 1,545
Loss on disposition of $3,169, net of
applicable tax benefit of $3,887 ............ 718 -- --
-------- -------- --------
(Loss) income from discontinued operations .... (2,892) (4,315) 969
-------- -------- --------
NET (LOSS) INCOME ........................ $(10,252) $ 2,166 $ 7,334
======== ======== ========
(Loss) earnings per Class A share:
(Loss) earnings from continuing operations ... $ (.27) $ .23 $ .23
(Loss) earnings from discontinued operations . (.10) (.15) .04
-------- -------- --------
(Loss) earnings per Class A share (Note 8) .... $ (.37) $ .08 $ .27
======== ======== ========
Weighted average number of Class A and
equivalent shares outstanding (in thousands) . 24,844 24,980 24,526
Dividends per Class A share ................... $ -- $ .21 $ --
The accompanying notes are an integral part of the consolidated financial
statements.
41
<PAGE>
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
CONSOLIDATED BALANCE SHEETS
December 31, DECEMBER 31,
ASSETS AS AT 1996 1995
- --------------------------------------------------------------------------------
(Dollars in thousands) (Note 2)
Cash and cash equivalents .............................. $ 9,685 $ 15,976
Deposits, notes and loans receivable (Note 4) .......... 57,041 73,935
Investments (Notes 3 and 10) ........................... 134,032 142,583
Real estate rental property, less accumulated
depreciation of $6,215 and $4,994 (Note 3) ............ 58,199 57,289
Property and equipment, less accumulated
depreciation of $4,041 and $3,731 ..................... 5,571 6,097
Other assets ........................................... 19,023 13,636
Net assets of discontinued operations (Note 2) ......... -- 2,578
-------- --------
TOTAL ASSETS ........................................... $283,551 $312,094
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
42
<PAGE>
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND December 31, DECEMBER 31,
SHAREHOLDERS' EQUITY AS AT 1996 1995
- --------------------------------------------------------------------------------
(Dollars in thousands) (Note 2)
LIABILITIES
Notes and loans payable: (Note 5)
Related parties ........................................ $ 34,005 $ 37,326
Others ................................................. 10,538 4,177
Debentures (Note 6) ...................................... 57,871 74,378
Accounts and income taxes payable, accrued
expenses and minority interests ......................... 29,017 31,798
--------- ---------
Total liabilities ................................ 131,431 147,679
--------- ---------
SHAREHOLDERS' EQUITY (Notes 7 and 14)
4% Cumulative, Participating, Convertible
Preferred Stock, $5 par value; authorized
650,000 shares; issued and outstanding
190,936 and 199,030 shares .............................. 955 995
6-1/2% Cumulative, Convertible Preferred Stock,
$5 par value; authorized 4,282,850 shares;
issued and outstanding 1,002,483 and 1,052,599
shares .................................................. 5,012 5,263
Class A Stock, $1 par value; authorized 60,000,000 shares;
issued 24,256,420 and 21,065,392 shares; outstanding
23,651,020 and 20,459,992 shares ........................ 24,257 21,066
Common Stock, $1 par value; authorized, 3,000,000
shares, issued and outstanding
3,000,000 shares in 1995 ................................ -- 3,000
Additional paid-in capital ............................... 57,410 57,310
Retained earnings ........................................ 74,943 85,559
Treasury Stock, 605,400 shares of Class A Stock,
at cost ................................................. (3,829) (3,829)
Cumulative translation adjustments ....................... (6,530) (4,354)
Unrealized loss on marketable securities ................. (98) (595)
--------- ---------
Total shareholders' equity ....................... 152,120 164,415
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............... $ 283,551 $ 312,094
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
43
<PAGE>
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996 1995 1994
- --------------------------------------------------------------------------------
(Dollars in thousands) (Note 2) (Note 2)
Cash flows from operating activities:
Net (loss) income ............................ $(10,252) $ 2,166 $ 7,334
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in earnings of affiliates ............ (6,333) (7,424) (5,793)
Loss (income) from discontinued operations .. 2,892 4,315 (969)
Gain on issuance of shares by affiliate ..... -- -- (351)
Realized and unrealized gains on investments (1,342) (2,193) (5,525)
Gain on sale of real estate rental property . -- (526) --
Unrealized loss on rental property .......... 1,095 -- --
Depreciation expense ........................ 2,038 1,627 1,318
Amortization expense ........................ 3,587 4,446 5,014
Loss from impairment of equity investment ... 10,083 -- --
Minority interests .......................... (551) (298) (471)
(Increase) decrease in other assets .......... (3,158) (1,331) 1,759
(Decrease) increase in accounts and income
taxes payable, accrued expenses and minority
interests ................................... (232) (2,371) 1,688
Investments made in trading securities ....... (2,391) (6,403) (2,099)
Proceeds from sale of trading securities ..... 3,254 13,379 3,012
Dividends received from affiliates ........... 1,806 4,898 4,767
-------- -------- --------
Net cash provided by operating activities ... 496 10,285 9,684
-------- -------- --------
Cash flows from investing activities:
Deposits, notes and loans receivable collected 17,546 26,958 40,215
Deposits, notes and loans receivable granted . (2,046) (5,426) (8,736)
Investments made in:
Available-for-sale securities ............... (228) (1,369) --
Affiliates and others ....................... (11,497) (34,143) (24,604)
Proceeds from sale of investments:
Affiliates and others ....................... 13,744 26,633 4,715
Purchase of property and equipment ........... (380) (499) (592)
Purchase of real estate rental property ...... (2,475) (45,408) --
Proceeds from sale of real estate rental
property .................................... -- 1,426 --
-------- -------- --------
Net cash provided by (used in) investing
activities ................................. 14,664 (31,828) 10,998
-------- -------- --------
The accompanying notes are an integral part of the consolidated financial
statements.
44
<PAGE>
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996 1995 1994
- --------------------------------------------------------------------------------
(Dollars in thousands) (Note 2) (Note 2)
Cash flows from financing activities: Notes and
loans payable received:
Related parties ............................. $ 2,187 $ 30,892 $ 332
Others ...................................... 8,201 1,056 669
Notes and loans payable repaid:
Related parties ............................. (4,866) (5,890) (17,234)
Others ...................................... (1,950) (958) (2,177)
Debentures repaid ............................ (22,180) (10,909) (20,486)
Proceeds from issuance of shares to minority
interests ................................... -- 50 --
Proceeds from issuance of shares ............. -- -- 50,724
Dividends paid ............................... (364) (5,614) (406)
Purchase of treasury shares .................. -- (3,829) --
-------- -------- --------
Net cash (used in) provided by financing
activities ................................. (18,972) 4,798 11,422
-------- -------- --------
Effect of exchange rate changes on cash and
cash equivalents ............................. (2,479) (1,275) (1,270)
-------- -------- --------
Net (decrease) increase in cash and cash
equivalents .................................. (6,291) (18,020) 30,834
Cash and cash equivalents at beginning of year 15,976 33,996 3,162
-------- -------- --------
Cash and cash equivalents at end of year ...... $ 9,685 $ 15,976 $ 33,996
======== ======== ========
Supplemental Disclosure of Cash Flow
Information
Cash paid during the year:
Interest:
Related parties ............................. $ 2,384 $ 1,611 $ 871
Others ...................................... 3,309 3,084 4,380
-------- -------- --------
Total interest paid ....................... $ 5,693 $ 4,695 $ 5,251
======== ======== ========
Income taxes paid ........................... $ 3,729 $ 6,903 $ 1,878
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
45
<PAGE>
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 1995 1994
- -------------------------------------------------------------------------------------
(Dollars in thousands, except share amounts and per share data)
<S> <C> <C> <C>
4% PREFERRED STOCK
Balance, beginning of year .......................... $ 995 $ 1,033 $ 1,068
Conversion of 8,094, 7,578 and 7,112 shares
into Class A Stock ................................. (40) (38) (35)
-------- -------- --------
Balance, end of year ................................ $ 955 $ 995 $ 1,033
======== ======== ========
6-1/2% PREFERRED STOCK
Balance, beginning of year .......................... $ 5,263 $ 5,575 $ 6,011
Conversion of 50,116, 62,328 and 87,415 shares
into Class A Stock ................................. (251) (312) (436)
-------- -------- --------
Balance, end of year ................................ $ 5,012 $ 5,263 $ 5,575
======== ======== ========
CLASS A STOCK
Balance, beginning of year .......................... $ 21,066 $ 20,841 $ 16,225
Issuance of shares upon exchange of Common Stock .... 3,000 -- --
Issuance of shares upon conversion of
Preferred Stock .................................... 191 225 298
Issuance of shares in a public offering* ............ -- -- 4,318
-------- -------- --------
Balance, end of year ................................ $ 24,257 $ 21,066 $ 20,841
======== ======== ========
COMMON STOCK
Balance, beginning of year .......................... $ 3,000 $ 3,000 $ 3,000
Exchange for Class A Stock .......................... (3,000) -- --
-------- -------- --------
Balance, end of year ................................ $ -- $ 3,000 $ 3,000
======== ======== ========
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of year .......................... $ 57,310 $ 57,185 $ 10,605
Conversion of Preferred Stock ....................... 100 125 173
Proceeds from issuance of shares in a public
offering ........................................... -- -- 46,407
-------- -------- --------
Balance, end of year ................................ $ 57,410 $ 57,310 $ 57,185
======== ======== ========
RETAINED EARNINGS
Balance, beginning of year .......................... $ 85,559 $ 89,007 $ 82,079
Net (loss) income ................................... (10,252) 2,166 7,334
Dividends:
4% Preferred Stock - $.20, $1.05 and $.20 per share (38) (209) (42)
6-1/2% Preferred Stock - $.325 per share .......... (326) (351) (364)
Class A Stock - $.21 per share .................... -- (4,424) --
Common Stock - $.21 per share ..................... -- (630) --
-------- -------- --------
Balance, end of year ................................ $ 74,943 $ 85,559 $ 89,007
======== ======== ========
TREASURY STOCK (Note 7)
Balance, beginning of year .......................... $ (3,829) $ -- $ --
Purchase of 605,400 shares of Class A Stock
at cost ............................................ -- (3,829) --
-------- -------- --------
Balance, end of year ................................ $ (3,829) $ (3,829) $ --
======== ======== ========
</TABLE>
* Issuance of 4,500,000 shares, including 182,066 held in treasury.
46
<PAGE>
The accompanying notes are an integral part of the consolidated financial
statements.
47
<PAGE>
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1996 1995 1994
- --------------------------------------------------------------------------------
(Dollars in thousands, except share amounts and per share data)
CUMULATIVE TRANSLATION ADJUSTMENTS
Balance, beginning of year .................. $(4,354) $(2,636) $(2,171)
Foreign currency translation adjustment ..... (2,176) (1,718) (465)
------- ------- -------
Balance, end of year ........................ $(6,530) $(4,354) $(2,636)
======= ======= =======
UNREALIZED LOSS ON MARKETABLE SECURITIES
Balance, beginning of year .................. $ (595) $ (511) $ 4,300**
Transfer to trading securities .............. 67 -- (3,800)
Write-down due to permanent impairment ...... 511 -- --
Unrealized loss, net ........................ (81) (84) (1,011)
------- ------- -------
Balance, end of year ........................ $ (98) $ (595) $ (511)
======= ======= =======
** Represents cumulative effect of adoption of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt
and Equity Securities."
The accompanying notes are an integral part of the consolidated financial
statements.
48
<PAGE>
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS)
Note 1 - Summary of Significant Accounting Policies
(a) The Company
As used in these financial statements, the term the "Company" refers to
Ampal-American Israel Corporation ("Ampal") and its consolidated subsidiaries. A
substantial portion of the Company's operations involves transactions with Bank
Hapoalim B.M. ("Hapoalim") and companies affiliated or related thereto.
Hapoalim, the largest bank in Israel, and its wholly-owned subsidiary, Atad
Hevra Lehashkaot Limited ("Atad"), were Ampal's controlling shareholders through
December 11, 1996. (See Note 14). At December 31, 1996, Hapoalim and Atad owned
24.8% of Ampal's outstanding Class A Stock.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(b) Consolidation
The consolidated financial statements include the accounts of Ampal and its
subsidiaries. Certain prior year amounts have been reclassified to conform with
the current year's presentation.
Investments in which the Company exercises significant influence, generally
20%-to 50%-owned companies ("affiliates"), are accounted for by the equity
method, whereby the Company recognizes its proportionate share of such
companies' net income or loss. Goodwill, representing the excess of the purchase
price over the fair value of the net assets of the acquired entities, is being
amortized on a straight-line basis over the period of expected benefit of ten
years.
(c) Translation of Foreign Currencies
For those subsidiaries and affiliates whose functional currency is
considered to be the New Israeli Shekel, assets and liabilities were translated
at the rate of exchange at the end of the reporting period and revenues and
expenses were translated at the average rates of exchange during the reporting
period. Translation differences of those foreign companies' financial statements
are included in the cumulative translation adjustment account of shareholders'
equity.
Assets and liabilities of foreign subsidiaries and companies accounted for
by the equity method whose functional currency is the U.S. dollar are translated
using year-end rates of exchange, except for property and equipment and certain
investment and equity accounts which are translated at rates of exchange
prevailing on the dates of acquisition. Revenues and expenses are translated at
average rates of exchange during the year except for revenue and expense items
relating to assets translated at historical rates which are translated on the
same basis as the related asset. Translation gains and losses for these
companies are reflected in the consolidated statement of income.
(d) Investments
The Company applies the principles of Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities,"
49
<PAGE>
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
which requires that marketable equity securities, other than equity securities
accounted for by the equity method, be reported at fair value. For those
securities which are classified as trading securities, unrealized gains and
losses are reported in the statement of income. Unrealized gains and losses from
those securities which are classified as available-for-sale are reported as a
separate component of shareholders' equity. At December 31, 1996 and 1995, the
aggregate fair values of available-for-sale securities were $1.4 million
(cost-$2.1 million) and $2.6 million (cost-$3.1 million), respectively, and the
aggregate fair values of trading securities were $4.5 million (cost- $3.5
million) and $3.2 million (cost-$2.2 million), respectively.
In the years ended December 31, 1996, 1995 and 1994, the Company recorded
$(.6) million, $.3 million and $2.4 million of unrealized (losses) gains,
respectively, on marketable securities in the statement of income. In 1996 and
1994, included in those amounts were gross (losses) gains of $(.1) million and
$4.6 million, respectively, on trading securities, and $(.5) million and $(2.2)
million, respectively, on available-for-sale securities where the impairment in
value is other than temporary.
In 1994, the Company's then 49%-owned affiliate, Bank Hapoalim (Cayman)
Ltd., recorded an unrealized loss on marketable securities, the Company's share
of which was approximately $.8 million, which resulted from the transfer of
securities from the available-for-sale category to the trading security
category.
During 1996, 1995 and 1994, the Company invested approximately $2.4
million, $6.4 million and $2.1 million in marketable securities, which are
classified as trading securities.
(e) Property and Equipment
The Company's policy is to record long-lived assets at cost, amortizing
these costs over the expected useful life of the related assets. In accordance
with Statement of Financial Accounting Standards No. 121 ("SFAS No. 121")
"Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to
be Disposed of.", these assets are reviewed on a quarterly and annual basis for
impairment whenever events or changes in circumstances indicate that the
carrying amounts of the assets may not be reasonable. Furthermore, the assets
are evaluated for continuing value and proper useful lives by comparison to
expected future cash flows. For the year ended December 31, 1996, the adoption
of SFAS No. 121 did not have a material effect on the Company.
(f) Income Taxes
The Company applies the deferred method of accounting for income taxes
whereby deferred taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates to differences between
financial statements carrying amounts and the tax bases of existing assets and
liabilities.
Deferred income taxes are not provided on undistributed earnings of foreign
subsidiaries totalling approximately $33 million, since such earnings are
currently expected to be permanently reinvested outside the United States. If
the earnings were not considered permanently invested, approximately $11 million
of deferred income taxes would have been provided. Deferred income taxes are
provided on equity in earnings of affiliates, and gains on issuances of shares
by affiliates, and unrealized gains on investments. Ampal's foreign subsidiaries
file separate tax returns and provide for taxes accordingly.
(g) Cash Equivalents
Cash equivalents include time deposits and notes receivable with maturities
at acquisition of 90 days or less.
50
<PAGE>
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Discontinued Operations
On December 23, 1996, the Company sold all of its equity interest in its
food processing subsidiary, Pri Ha'emek (Canned and Frozen Food) 88 Ltd. ("Pri
Ha'emek") to Agrifarm International Limited ("Agrifarm"), a British company. In
connection with the sale, the Company recorded a loss on disposition of $3.2
million and a tax benefit of approximately $3.9 million, which was based on a
total loss of its investment in Pri Ha'emek in the amount of $9.7 million. In
1995 and 1994 Pri Ha'emek generated revenues in the amounts of $31.4 million and
$34.1 million, respectively.
Accordingly, the results of Pri Ha'emek, whose financial statements were
previously consolidated with the Company's financial statements have been
presented as discontinued operations in the Company's 1996 consolidated
financial statements. The Company's 1995 and 1994 consolidated financial
statements and the notes to the consolidated financial statements have been
restated to conform with the current year's presentation.
Note 3 - Acquisitions and Dispositions
(a) In June 1996, the Company made a $1.5 million indirect investment in Geotek
Communications, Inc., an international wireless telecommunications company.
During 1996, the Company also invested $1.6 million ($.8 million to acquire
additional interests) in its existing affiliates.
(b) In 1996, the Company received gross proceeds in the amount of $2 million
from sale of 113,624 shares of Teledata Communications Ltd. ("Teledata") and
realized a gain on sale of $1.5 million ($1 million after taxes).
(c) Also in 1996, the Company received gross proceeds in the amount of $.7
million from sale of 55,200 shares of M-Systems Flash Disk Pioneers Ltd. and
realized a gain on sale of $.5 million ($.3 million after taxes).
(d) On June 28, 1995, the Company's 94%-owned subsidiary purchased a property
("800 Second Avenue") for approximately $45 million. The approximately 290,000
square-foot office building is located at 800 Second Avenue, New York, New York
and houses the Consulate of the Government of Israel (the "Government") in New
York and other Israel government offices as well as other tenants. The property
was converted into a condominium in December 1996. The purchase was partially
financed by a loan of $30 million from Hapoalim (see Note 5). The Company
financed the balance of the acquisition from its own funds. On January 31, 1997,
the Company sold to the Government the portion of the building which it occupies
for $31 million. As a result of this transaction, the Company recorded a loss of
$1.1 million ($.6 million net of taxes) in its December 31, 1996 financial
statements.
(e) In January 1995, the Company invested $1.5 million to acquire a 20% equity
interest in Epsilon Investment House Ltd. ("Epsilon") and its affiliate,
Renaissance Investment Company Ltd. ("Renaissance"). Epsilon is an investment
bank which provides portfolio management and Renaissance provides underwriting
services in Israel through its subsidiaries.
(f) In September 1995, the Company invested $1.3 million to acquire a 21.9%
equity interest and three-year options to acquire an additional 4.4% equity in
U.D.S. - Ultimate Distribution Systems Ltd., an Israeli-based software company
specializing in the management and optimization of a variety of logistic tasks
for the distribution industry.
(g) In 1995, the Company invested an aggregate of approximately $2.6 million for
13.6% of Breeze Wireless Communications Ltd., an Israeli company which develops,
manufactures and markets wireless local area networks for computers, 4.1% of
M-Systems Flash Disk Pioneers Ltd., an Israeli company which develops,
manufactures and markets data storage media based on "flash memory," a silicon
memory chip, and 5.8% of Comfy Interactive Movies Ltd., an Israeli company which
develops and markets a computer keyboard and interactive movies specially
designed for children ages 1-6. The Company also invested approximately $1.6
million to acquire additional interests in its existing subsidiaries and
affiliates.
51
<PAGE>
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(h) On August 15, 1995 Ampal sold all of its Ordinary Shares and 7% Preferred
Shares of Bank Hapoalim (Cayman) Ltd. ("Cayman"), which constituted 49% and 50%
of each series, respectively, to Hapoalim. The sales price was approximately
$20.3 million and the Company recorded a gain on sale of approximately $.4
million ($.2 million, net of taxes). The Company obtained an opinion from an
independent investment consultant that the consideration received in the sale
was fair to the Company. The Company recorded its share of earnings in Cayman
through the date of sale.
(i) On November 6, 1995, Ampal sold its property located at 174 North Michigan
Avenue, Chicago, Illinois to an unrelated party for $.85 million. In connection
therewith, Ampal received $.55 million from Hapoalim and Ampal, as landlord, and
Hapoalim, as tenant, released each other from their respective obligations under
a lease which was scheduled to expire in 2007. Ampal obtained an opinion from an
independent real estate consultant that the consideration received from Hapoalim
was fair to Ampal. The Company recorded a total gain of approximately $.5
million ($.3 million, net of taxes).
(j) In 1995 and 1994, the Company received gross proceeds in the amounts of $1.9
and $2.6 million from sales of 106,000 and 120,000 shares of DSP Group, Inc.
("DSP Group") and recorded a loss of $.1 million and a gain of $2 million ($.1
million and $1.3 million after taxes), respectively.
(k) In 1995 and 1994, the Company received gross proceeds in the amounts of $4
million and $1.9 million from sales of 237,000 and 155,000 shares of Mercury
Interactive Corporation ("Mercury"), which the Company acquired in 1992, and
recorded gains of approximately $.9 million and $1.5 million ($.6 million and $1
million after taxes), respectively.
Note 4 - Deposits, Notes and Loans Receivable
Deposits, notes and loans receivable earn interest at varying rates
depending upon their linkage provisions. The deposits are guaranteed by
Hapoalim. Deposits, notes and loans receivable have maturities of up to 9 years.
Note 5 - Notes and Loans Payable
Notes and loans payable consist primarily of bank borrowings either in U.S.
Dollars, linked to the U.S. Dollar or in unlinked shekels with interest rates
varying depending upon their linkage provision and mature through 2000.
On June 28, 1995, in connection with the purchase of 800 Second Avenue (see
Note 3(d)), the Company borrowed $30 million from Hapoalim at an interest rate
based on London Interbank Offered Rates plus 1% (6.6875% at December 31, 1995).
On January 31, 1997, in connection with the sale of a portion of the premises to
the Government, $15 million received from the Government was used to repay a
portion of the loan to Hapoalim. The remaining balance of the loan of $15
million is due on February 28, 1998 and bears interest at the rate of 6.617% at
December 31, 1996.
The weighted average interest rates on the balances of short-term
borrowings at year-end are as follows: 9.05% on $20.6 million and 7.25% on $34.3
million in 1996 and 1995, respectively.
52
<PAGE>
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - Debentures
Debentures outstanding at December 31 consist of:
1996 1995
------------------
Ampal:
- ------
Various series with interest rates ranging from
10%-12%, maturing 1997-2003 ............................. $31,458 $47,934
Ampal Development (Israel) Ltd.:
Various series with interest rates ranging from
6.2%-7.5%, linked to the Consumer Price Index in
Israel, maturing 1997-2005, secured by assets of
$37 million ............................................. 35,559 38,992
------- -------
67,017 86,926
Less: Unamortized discounts .............................. 9,146 12,548
------- -------
Total .................................................... $57,871 $74,378
======= =======
Certain debentures are presentable for early redemption. If presented for
early redemption, maturities (including required obligations) for the five years
ending December 31 would be:
1997 - $28,107*
1998 - 6,186
1999 - 6,186
2000 - 6,781
2001 - 2,024
Thereafter - 8,195
* If no debentures are presented for early redemption, scheduled maturities will
amount to $17,332.
Note 7 - Shareholders' Equity
Capital Stock
The 4% and 6-1/2% preferred shares are convertible into 5 and 3 shares of
Class A Stock, respectively. At December 31, 1996, a total of 8,583,254 shares
of Class A Stock is reserved for issuance upon the conversion of the Preferred
Stock and the exercise of warrants and options.
The 4% and 6-1/2% Preferred Stock are preferred as to dividends on a
cumulative basis. Additional dividends out of available retained earnings, if
declared, are payable on an annual non-cumulative basis as a percentage of par
value as follows:
(i) up to 4% on Class A Stock, then
(ii) up to 8% on Class A Stock and 4% Preferred
(iii) up to 12% on Common Stock, then
(iv) on 4% Preferred Stock, Class A Stock and Common Stock, ratably.
Preferred shares are nonvoting unless dividends are in arrears for three
successive years. At December 31, 1996, there are no dividend arrearages.
On December 11, 1996, Ampal issued 3,000,000 shares of Class A Stock in
exchange for the 3,000,000 shares of Common Stock held by Hapoalim (See Note
14).
On February 1, 1994, Ampal completed a public offering of 4.5 million
units, each consisting of one share of Class A Stock and one redeemable warrant
to purchase one share of Ampal's Class A Stock for $12.125 per unit. The
warrants are exercisable at $16 per share at any time until January 31, 1999,
and are callable by Ampal, in whole or in part,
53
<PAGE>
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
from and after February 1, 1996, without payment to the holder. The net proceeds
which Ampal received from this offering amounted to approximately $51 million.
In March 1995, the Board of Directors of Ampal approved the repurchase by
Ampal of up to 2 million shares of its Class A Stock, at market prices from time
to time. As of December 31, 1995, Ampal had repurchased 605,400 shares of its
Class A Stock for approximately $3.8 million. On February 21, 1996, Ampal
announced that it had temporarily suspended purchases under this program.
On November 8, 1995, at a Special Meeting of Shareholders of Ampal, the
shareholders voted to approve an amendment to Ampal's Certificate of
Incorporation increasing the number of authorized shares of Class A Stock from
30,000,000 to 60,000,000.
On November 5, 1993, Ampal's Board of Directors approved a stock option
plan which provides for grants of options to purchase up to 200,000 shares of
Class A stock in the aggregate to employees, officers and directors of Ampal and
certain subsidiaries of Ampal. On January 25, 1994, the Stock Option Committee
of the Board of Directors approved the issuance of 134,900 options (of which
13,775 options have been cancelled) in the aggregate at an exercise price of
$10.91 per share (a 10% discount from market price on the date of grant). The
entire discount was recorded as compensation expense in 1994. The Stock Option
Plan was approved by Ampal's shareholders on September 22, 1994. At December 31,
1996, 121,125 options are exercisable.
Retained Earnings
At December 31, 1996, retained earnings include $58 million for affiliates
accounted for by the equity method, of which $33.8 million and an additional $42
million from subsidiaries is not available for the payment of dividends. In most
cases this results from Israeli requirements that dividends may only be paid on
the basis of shekel-denominated and not dollar-denominated retained earnings.
Note 8 - Earnings Per Class A Share
Earnings per share ("EPS") is reflected for Class A Stock and not for
Common Stock since Class A Stock is publicly held whereas the Common Stock is
not. At December 31, 1996, Common Stock was no longer outstanding (See Note 14).
EPS assumes the conversion of the 4% and 6-1/2% Preferred Stock into Class A
Stock during the year and gives effect to the participatory rights of the
weighted average number of shares of Common Stock outstanding during the year,
as follows: 1996-2,769,000 shares; 1995 and 1994-3,000,000 shares. The exercise
of warrants and options is not included in the calculation of EPS because their
effect would be anti-dilutive. Therefore, EPS is calculated by dividing net
income by 27.6 million, 28 million and 27.5 million shares in 1996, 1995 and
1994, respectively.
Note 9 - Income Taxes
The components of current and deferred
income tax expense (benefit) are: 1996 1995 1994
-----------------------------------
Current:
State and local ........................... $ 65 $ 65 $ 60
Federal ................................... 912 6,239 1,311
Foreign ................................... 999 1,153 796
Deferred:
State and local ........................... (214) 60 --
Federal ................................... (60) (1,772) 1,299
Foreign ................................... 197 122 1,325
-------- -------- --------
Total .................................. $ 1,899 $ 5,867 $ 4,791
======== ======== ========
54
<PAGE>
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of deferred income
tax (benefit) expense are:
Equity in earnings of affiliates ........... $ 404 $ (1,808) $ 1,066
Net operating loss carryforwards ........... (577) -- --
Unrealized gains (losses) .................. 336 (30) 2,240
Gains on issuances of shares ............... -- -- 145
Debenture selling expenses ................. (21) (27) (240)
Other ...................................... (219) 275 (587)
-------- -------- --------
Total ................................... $ (77) $ (1,590) $ 2,624
======== ======== ========
The domestic and foreign components
of income (loss) from continuing
operations before income taxes are:
Domestic ................................... $ (1,894) $ 1,571 $ 253
Foreign .................................... (3,567) 10,777 10,903
-------- -------- --------
Total ................................... $ (5,461) $ 12,348 $ 11,156
======== ======== ========
A reconciliation of income taxes
between the statutory and effective
tax is as follows:
Federal income tax at 34%, 35% and 34% ..... $ (1,857) $ 4,321 $ 3,905
Taxes on foreign income in excess of
U.S. rate .................................. 4,040 1,516 900
Other ...................................... (284) 30 (14)
-------- -------- --------
Total effective tax: (35%), 48% and 43% .... $ 1,899 $ 5,867 $ 4,791
======== ======== ========
Other assets include approximately $3.2 million ($1.5 million in 1995) of
deferred tax assets which represent the tax benefit of the temporary differences
between the carrying values of the fixed assets in the financial statements and
their income tax bases and $2.5 million of income tax receivable recorded with
respect to the losses incurred in Pri Ha'emek. Accounts and income taxes payable
and accrued expenses include approximately $22.2 million ($22.6 million in 1995)
of deferred tax liability provided on undistributed earnings of affiliates.
Note 10 - Investments in Affiliates and Others
The companies accounted for by the equity method and the Company's share of
equity in those investees are:
1996 1995 1994
---------------------
Am-Hal Ltd. ............................................ 50% 50% 50%
Bank Hapoalim (Cayman) Ltd.(See Note 3(h)).............. -- -- 49
Bay Heart Limited (a) .................................. 37 37 37
Carmel Containers Systems Limited ...................... 20.7 20.4 20
Coral World International Limited(b) ................... 50 50 50
Epsilon Investment House Ltd............................ 20 20 --
Hod Hasharon Sport Center (1992) Limited
Partnership ........................................... 50 50 25.5
Granite Hacarmel Investments Limited ................... 21.5 21.3 21.2
M.D.F. Industries Ltd.(c)............................... -- 50 --
Moriah Hotels Ltd. ..................................... 46 46 46
Ophir Holdings Ltd.(d) ................................. 42.5 42.5 42.5
Orlite Industries (1959) Ltd. ("Orlite")................ 25.3 22.7 22
Renaissance Investment Company Ltd. .................... 20 20 --
Trinet Investment in High-Tech Ltd. .................... 37.5 37.5 37.5
Trinet Venture Capital Ltd.(e) ......................... 50 50 50
U.D.S. - Ultimate Distribution Systems Ltd.............. 21.9 21.9 --
55
<PAGE>
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Combined summarized financial information for the above companies is as follows:
1996 1995 1994
-----------------------------
Revenues ......................................... $788,169 $748,170 $590,872
Gross profit ..................................... 184,533 163,962 118,689
Net income ..................................... 36,346 23,439 26,176
Property and equipment ........................... $356,901 $329,150 $282,842
Other assets ..................................... 503,255 426,581 474,813
-------- -------- --------
Total assets ................................... $860,156 $755,731 $757,655
======== ======== ========
Total liabilities, including bank borrowings ..... $546,457 $457,408 $435,756
======== ======== ========
The carrying value of the Company's investments in shares of its publicly traded
affiliates and others at December 31, 1996, amounted to $46.7 million and had a
market value of $45.4 million, based upon quoted market prices of shares traded
on the American Stock Exchange, NASDAQ National Market and the Tel Aviv Stock
Exchange. There is no assurance that any of these investments could be realized
at the quoted market price.
(a) At December 31, 1996, the Company had a note receivable from Bay Heart
Limited in the amount of $5.8 million and recorded interest income in the amount
of $294 for the year.
(b) On September 27, 1996, a wholly-owned subsidiary of Coral World
International Limited ("CWI"), the Company's 50%-owned affiliate, sold its
marine park in Nassau (Bahamas) to an unrelated party for $3.75 million and CWI
recorded a loss on sale of approximately $5 million (the Company's share is $2.5
million, $1.7 million net of taxes). In addition, in May 1996, CWI's management
made a decision to sell its marine park in St. Thomas (U.S. Virgin Islands), and
CWI recorded a loss of approximately $2 million (the Company's share is $1
million, $.7 million net of taxes) to adjust the carrying value of its
investment to net realizable value.
At December 31, 1996, the Company had a note receivable from CWI in the
amount of $.6 million and recorded interest income in the amount of $69 for the
year.
(c) M.D.F. Industries Ltd. ("M.D.F."), the Company's 50%-owned affiliate, which
has established a plant in Israel for the production of medium density fiber
boards, and which completed its running-in period on June 30, 1996, incurred
significant losses in 1996.
The losses are primarily attributable to the excess of cost of sales per
production unit over the selling price. In view of the substantial losses
incurred by M.D.F. and the continuing depressed prices with respect to its
products, the Company believes that further substantial losses will be incurred
by M.D.F. Consequently, because of the uncertainty with respect to M.D.F.'s
future operations, the Company has recorded a loss from impairment of this
investment in December 1996 earnings for its full remaining investment in and
loans to M.D.F. in the amount of $8.8 million. This loss, in addition to the
$1.3 million loss previously recorded by the Company in 1996 with respect to
M.D.F., resulted in a total loss attributable to the operations of M.D.F. in the
amount of $8.6 million, net of tax benefits. M.D.F. will no longer be accounted
for as an affiliate of the Company under the equity method of accounting,
however, the Company continues to be contingently liable with respect to $5
million of guarantees given by the Company with respect to M.D.F.'s bank
obligations.
(d) At December 31, 1996, the Company had a note receivable from Ophir in the
amount of $4.5 million and recorded interest income in the amount of $178 for
the year. Also at December 31, 1996, the Company had a non-interest bearing note
payable to Ophir in the amount of $1.2 million.
(e) At December 31, 1996, the Company had a non-interest bearing note receivable
from Trinet Venture Capital Ltd. in the amount of $3.3 million.
56
<PAGE>
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 - Segment Information
Segment information presented below results primarily from operations in Israel.
YEAR ENDED DECEMBER 31, 1996 1995 1994
- --------------------------------------------------------------------------------
Revenues:
- ---------
Finance ........................... $ 15,154 $ 17,982 $ 27,258
Real estate rental ................ 11,405 8,344(d) --(e)
Mattress manufacturing ............ 10,892 10,174 9,625
Leisure-time ...................... 1,671 1,514 1,411
Intercompany adjustments .......... (1,095) (725) (342)
--------- --------- ---------
Total ........................ $ 38,027 $ 37,289 $ 37,952
========= ========= =========
Equity in (Losses) Earnings
- ---------------------------
of Affiliates:
--------------
Finance ........................... $ -- $ 566(b) $ (2,531)(b)
Real estate rental ................ (1,083)(c) (678)(c) --(e)
Mattress manufacturing ............ -- -- --
Leisure-time ...................... (2,336)(a) 1,779(a) 3,647(a)
--------- --------- ---------
Total ........................ $ (3,419) $ 1,667 $ 1,116
========= ========= =========
Pretax Operating (Loss) Income:
- -------------------------------
Finance ........................... $ (12,076) $ 1,125 $ 5,380
Real estate rental ................ 1,855 3,803 --(e)
Mattress manufacturing ............ (1,516) 428 401
Leisure-time ...................... (608) (730) (889)
--------- --------- ---------
Total ........................ $ (12,345) $ 4,626 $ 4,892
========= ========= =========
Total Assets:
- -------------
Finance ........................... $ 230,318 $ 257,985 $ 290,983
Real estate rental ................ 62,745 61,804 --(e)
Mattress manufacturing ............ 8,520 7,912 8,328
Leisure-time ...................... 3,262 4,949 4,792
Intercompany adjustments .......... (21,294) (23,134) (7,991)
--------- --------- ---------
Total ........................ $ 283,551 $ 309,516 $ 296,112
========= ========= =========
57
<PAGE>
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996 1995 1994
- --------------------------------------------------------------------------------
Investments in Affiliates:
- --------------------------
Finance .............................. $ -- $ -- $28,913(b)
Real estate rental ................... 8,902(c) 9,768(c) --(e)
Mattress manufacturing ............... -- -- --
Leisure-time ......................... 34,489(a) 37,108(a) 35,194(a)
------- ------- -------
Total ........................... $43,391 $46,876 $64,107
======= ======= =======
Capital Expenditures:
- ---------------------
Finance .............................. $ 48 $ 26 $ 154
Real estate rental ................... 2,475 45,408 --(e)
Mattress manufacturing ............... 262 368 334
Leisure-time ......................... 70 105 104
------- ------- -------
Total ........................... $ 2,855 $45,907 $ 592
======= ======= =======
Depreciation and Amortization:
- ------------------------------
Finance .............................. $ 3,476 $ 4,322 $ 5,276
Real estate rental ................... 1,291 809 --(e)
Mattress manufacturing ............... 581 650 725
Leisure-time ......................... 277 292 331
------- ------- -------
Total ........................... $ 5,625 $ 6,073 $ 6,332
======= ======= =======
Corporate office expense is principally applicable to the financing operation
and has been charged to that segment above. Revenues and pretax operating income
above exclude equity in earnings of affiliates and minority interests. Total
assets exclude assets from discontinued operations.
(a) Operations in Australia, Bahamas (see Note 10), Israel, U.S. Virgin Islands
and United States.
(b) Operations in Israel (1994 only) and Cayman Islands.
(c) Operations in Israel.
(d) Includes gains on sale of real estate rental property (see Note 3).
(e) The Company did not have a real estate rental segment in 1994; all amounts
related to real estate rental for this year is reflected in the finance
segment.
The real estate rental segment consists of rental property owned in Israel and
the United States leased to related and unrelated parties. The mattress
manufacturing segment consists of Paradise Industries, Ltd., which is a leading
manufacturer and distributor of mattresses and fold-out beds in Israel whose
customer base consists of independent stores as well as hotel chains. The
leisure-time segment consists primarily of Moriah Hotels Ltd. (hotel chain in
Israel), Coral World International Limited (marine parks located around the
world) and Country Club Kfar Saba (the company's 51%-owned subsidiary located in
Israel).
Note 12 - Disclosures about Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
(a) Cash and Cash Equivalents
For short-term investments, the carrying amount is a reasonable estimate of
fair value.
58
<PAGE>
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(b) Deposits, Notes and Loans Receivable
The fair value of these deposits, notes and loans is estimated by
discounting the future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities.
(c) Investments
For financial instruments with maturities between 91 days and 1 year, and
all marketable securities, the carrying amount is a reasonable estimate of fair
value.
(d) Commitments
Due to the relatively short term of commitments discussed in Note 13, their
contract value is considered to be their fair value.
(e) Deposits, Notes and Loans Payable and Debentures
The fair value of notes and loans payable, deposits payable and debentures
outstanding is estimated by discounting the future cash flows using the current
rates offered by lenders for similar borrowings with similar credit ratings and
for the same remaining maturities.
1996 1995
-------------------- --------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
Financial assets:
Cash and cash equivalents ...... $ 9,685 $ 9,685 $ 15,976 $ 15,976
Deposits, notes and loans
receivable .................... 57,041 56,752 73,935 72,955
Investments .................... 31,341 31,341 40,100 40,100
-------- -------- -------- --------
$ 98,067 $ 97,778 $130,011 $129,031
======== ======== ======== ========
Financial liabilities:
Deposits, notes and loans
payable ....................... $ 44,543 $ 44,514 $ 41,503 $ 41,025
Debentures outstanding ......... 57,871 59,795 74,378 77,403
-------- -------- -------- --------
$102,414 $104,309 $115,881 $118,428
======== ======== ======== ========
Note 13 - Commitments and Contingencies
(a) The combined minimum annual lease payments on Ampal's corporate offices,
Country Club Kfar Saba and Paradise, without giving effect to future
escalations, are approximately $.7 million a year for the years 1997 through
2001, and $8 million in the aggregate, thereafter. The leases expire in 2009,
2038 and 2001, respectively.
(b) For the years 1997 through 2001, the combined minimum lease receipts to be
received by the Company from rental properties are approximately $4.8 million in
1997 ($2.8 million from related parties); $4.2 million in 1998 ($2.3 million
from related parties); $3.8 million in 1999 ($1.9 million from related parties);
$3.1 million in 2000 ($1.4 million from related parties); $1.8 million in 2001
(all from non-related parties); and $12.4 million in the aggregate, thereafter
(all from non-related parties).
(c) The Company has issued guarantees on bank loans to its investees and
subsidiaries totalling $17.1 million (includes $5 million of guarantees with
respect to M.D.F.).
The Company's commitments to its investees amounted to $14.7 million.
(d) An appeal filed by Sonol, a subsidiary of the Company's investee, Granite,
59
<PAGE>
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
together with appeals filed by Paz and Delek, the other two major fuel marketing
companies, against the June 1993 ruling by the Controller of Restrictive Trade
Practices declaring that exclusive agreements entered into between the fuel
marketing companies and filling station operators are restrictive trade
agreements, is now pending in the District Court in Jerusalem.
The Controller of Restrictive Trade Practices, on December 14, 1995,
amended the above ruling following a compromise agreement reached between Sonol
and Paz in their above mentioned appeals. Under the terms of the compromise
arrangement, Sonol will release 36 stations not subject to an "Accepted Leasing
Agreement" as defined in the arrangement and the Controller will rescind his
ruling regarding other stations in which Sonol is party to such an "Accepted
Leasing Agreement." Several appeals were filed in the supreme court against this
arrangement, which were rejected on December 2, 1996. The court ruled that the
Controller of Restrictive Trade Practices had the authority to enter into the
above arrangement and that it is in effect. As a result, Sonol released the 36
stations from the exclusive agreements it had with them and is in the process of
rescinding its appeal.
Sonol and "Delek" the Israel Fuel Corporation Ltd. ("Delek") jointly own
the rights to the "Dalkan 2000," a computerized system for marketing fuel
products (primarily to automobile fleets). On January 26, 1997, the Controller
of Restrictive Trade Practices ruled that the joint marketing arrangement of the
"Dalkan 2000" system by Sonol and Delek is a restrictive trade agreement. As a
result of the position taken by the Controller, both Sonol and Delek agreed to
divide the "Dalkan 2000" system between themselves so that each company will
operate an independent system in a manner that will enable customers, in
accordance with their own preference, to enter into an agreement with either of
the companies. The implementation of the separation agreement will be carried
out in stages from September 1997 to December 1998.
60
<PAGE>
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A private legislative proposal dealing with the shortening of the terms of
exclusive agreements entered into between the fuel marketing companies and
filling station owners and operators has passed its first reading in the
Knesset, the Israeli parliament. The Economics Committee of the current Knesset
has decided that the rule of "Continuity" will be in effect and shall continue
dealing with this proposal.
A draft proposal of legislation by the Ministry of Energy and
Infrastructure regarding the term of exclusive contracts between the fuel
marketing companies and station owners has been forwarded to government
ministries, the President of the Supreme Court and law faculties for their
comments.
At this time, it is too early to estimate the effects of the said
developments on the overall Israeli fuel market in general, and on Granite in
particular.
(e) Under Israeli law, a lease of real property with a term of more than 10
years is required to be reported to the Israeli Appreciation Tax Authorities and
is subject to a land appreciation tax or an income tax and an acquisition tax.
The Israeli Tax Commissioner has taken the position that certain arrangements
for the lease of real property, including multiple leases, leases with renewal
options and leases or options to lease between affiliated companies, which in
the aggregate provide a term exceeding 10 years, are subject to the above
reporting and taxes.
Certain of the investees, including Ophir, Industrial Buildings and Carmel,
are parties (mostly as lessors) to lease transactions which, under the
Commissioner's interpretation, may be deemed leases for terms in excess of 10
years. These investees have all reported their lease income as taxable income
and have recently reported such transactions to the tax authorities. Should the
tax authorities decide to enforce their position and prevail, these investees
would be in breach of Israeli law, and could be subject to material taxes and to
civil and criminal penalties. An assessment made against Bay Heart Limited in
this regard by the tax authorities has been abandoned.
The Company's investees have taken the position, which the Company believes
is shared by many of the other affected taxpayers in Israel, that the
Commissioner's position in this matter is incorrect. The Company cannot predict
whether the Commissioner's position will be upheld or, if upheld, the effect on
the Company and its investees.
61
<PAGE>
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(f) In February 1995, Yakhin Hakal and its affiliates commenced a legal
proceeding in Tel Aviv District Court seeking to cause Etz Vanir Ltd. ("Etz
Vanir") and Yakhin Mataim Ltd. ("Yakhin Mataim") to redeem the perpetual
debentures owned by Ampal for approximately $.7 million and to require Ampal to
surrender all of its preferred shares of Etz Vanir and Yakhin Mataim for their
par value, on the alleged grounds that these are debt and not equity
investments. It is Ampal's view, that its investments in these companies, which
were made in the 1950's, are equity investments and are not subject to
redemption by these companies, other than upon liquidation. Ampal is contesting
this legal proceeding. Though a hearing has been held no judgment in this case
has been rendered as of the date hereof.
Note 14 - Change of Control of Ampal
On June 6, 1996, Hapoalim completed the sale of 5,742,351 shares of Ampal's
Class A Stock (equal to 27.9% of the outstanding Class A Stock as of that date,
not assuming conversion of Hapoalim's Preferred Stock) at a price of $7.87 per
share to Rebar Financial Corp. ("Rebar"), a company controlled by the Steinmetz
family. This sale of shares was made within the framework of the reduction of
the non-banking holdings of Hapoalim according to the Banking (Licensing) Law in
effect in Israel, which required Hapoalim to sell non-banking holdings in excess
of 25% by the end of 1996. Furthermore, on December 11, 1996, Hapoalim delivered
to Rebar an additional 1,500,001 shares of Ampal's Class A Stock.
Hapoalim continues to hold 5,874,281 shares of Ampal's Class A Stock (equal to
24.8% of the outstanding Class A Stock as of December 31, 1996, without assuming
conversion of shares of Ampal's Preferred Stock owned by Hapoalim). As of
December 31, 1996, Rebar held 7,391,952 shares of Ampal's Class A Stock (equal
to 31.25% of the outstanding shares of Class A Stock).
Also, on December 11, 1996, but prior to the sale of shares referred to above,
Hapoalim and Ampal entered into an exchange agreement pursuant to which Hapoalim
and Ampal exchanged all 3,000,000 shares of Ampal's Common Stock owned by
Hapoalim for 3,000,000 shares of Ampal's Class A Stock. Ampal's Board had formed
a "Special Committee" consisting of five outside directors to consider
Hapoalim's request to (i) equalize the voting rights of the Common Stock with
the voting rights of the Class A Stock, and (ii) compensate Hapoalim for the
reduction in its voting rights which would result from such equalization. The
Special Committee was authorized to negotiate, approve or disapprove any such
transaction on Ampal's behalf. The Special Committee retained independent
counsel and an independent investment bank to advise it in connection with
Hapoalim's proposal. The Special Committee unanimously approved the exchange
transaction and recommended that Ampal's Board also approve such transaction and
take all actions appropriate to effectuate it. Ampal's Board approved the
exchange transaction and the exchange agreement by the unanimous vote of all
directors then present and voting at a meeting held on December 11, 1996.
In the exchange agreement, Ampal agreed to recommend to its shareholders that
they vote their shares at the next meeting of Ampal's shareholders in favor of
an amendment to the Certificate of Incorporation ("Certificate") to provide for
the removal and elimination of the Common Stock from Ampal's authorized shares
and the cancellation of any reference to the Common Stock in Ampal's
Certificate. In addition, Ampal agreed that until its Certificate is amended as
provided above, Ampal will not reissue, resell, transfer, distribute or take any
other action with respect to any or all of the Common Stock. Furthermore, until
the later of such time as the Certificate is amended as so provided or such time
as Hapoalim's interest in Ampal, whether directly or through subsidiaries of
Hapoalim, is less than 10% of all the outstanding shares of the Class A Stock,
Ampal will not issue any class of equity security with voting rights that are
preferential to the voting rights of the Class A Stock, other than preferred
stock that has customary voting rights with respect to the election of members
of the Board only in the event of the non-payment of preferential dividends. In
March 1997, the Board of Directors of Ampal authorized the submission to the
shareholders of a proposal to eliminate the Common Stock from Ampal's
capitalization at the next annual meeting to be held May 28, 1997.
Prior to the consummation of the transactions described above, Hapoalim
beneficially owned 3,000,000 shares of Ampal's Common Stock (representing 100%
of outstanding Common Stock)
62
<PAGE>
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and 10,500,991 shares (assuming conversion of shares of Ampal's Preferred Stock
owned by Hapoalim) of Ampal's Class A Stock (representing 50.2% of the
outstanding Class A Stock). As the holder of all the outstanding Common Stock,
as to matters submitted to the vote of the shareholders of Ampal (including the
election of directors other than 25% of the Board for whom only holders of Class
A Stock could vote), Hapoalim was entitled to cast a number of votes equal to
the total number of votes cast by the holders of Class A Stock, but, in no
event, more than ten votes per share of Common Stock. Thus, before the exchange
of Hapoalim's Common Stock for Class A Stock, as described above, Hapoalim had
the power to elect at least approximately 75% of Ampal's directors.
Note 15 - Subsequent Events
The Company has entered into two agreements as of December 19, 1996, with
Investment Company of Bank Hapoalim to sell its direct holding in Orlite and a
wholly-owned subsidiary which holds a separate interest in Orlite for an
aggregate purchase price of $5.2 million, plus interest. The Company is expected
to record a gain of $.8 million, ($.5 million net of taxes) in 1997. These sales
are subject to regulatory approval.
63
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA
- ---------------------------------
(Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------------------------------------------------------
(Dollars in thousands, except per share data)
Year Ended
December 31, 1996(1)
<S> <C> <C> <C> <C> <C>
Revenues ......................... $ 7,998 $ 14,562 $ 7,300 $ 14,500 $ 44,360
Net interest (expense) ........... (247) (416) (429) (1,115) (2,207)
Manufacturing operations ......... (112) (139) (799) (86) (1,136)
(Loss) income from continuing
operations ....................... $ (1,401) $ 2,953 $ (2,565) $ (6,347) $ (7,360)
(Loss) from discontinued
operations ....................... (1,501) (1,074) (60) (257) (2,892)
-------- -------- -------- -------- --------
Net (loss) income ................ $ (2,902) $ 1,879 $ (2,625) $ (6,604) $(10,252)
======== ======== ======== ======== ========
(Loss) earnings per Class A share:
(Loss) earnings from continuing
operations ....................... $ (.05) $ .10 $ (.09) $ (.23) $ (.27)
(Loss) from discontinued
operations ....................... (.06) (.03) -- (.01) (.10)
-------- -------- -------- -------- --------
(Loss) earnings per
Class A share ................... $ (.11) $ .07 $ (.09) $ (.24) $ (.37)
======== ======== ======== ======== ========
Year Ended
December 31, 1995(2)
Revenues ......................... $ 10,739 $ 11,082 $ 12,228 $ 10,664 $ 44,713
Net interest income (expense) .... 687 29 (170) 973 1,519
Manufacturing operations ......... 158 331 194 40 723
Income from continuing operations $ 1,757 $ 1,775 $ 1,668 $ 1,281 $ 6,481
(Loss) from discontinued
operations ..................... (171) (774) (1,183) (2,187) (4,315)
-------- -------- -------- -------- --------
Net income (loss) ................ $ 1,586 $ 1,001 $ 485 $ (906) $ 2,166
======== ======== ======== ======== ========
Earnings (loss) per Class A share:
Earnings from continuing
operations ....................... $ .07 $ .06 $ .06 $ .04 $ .23
(Loss) from discontinued
operations ....................... (.01) (.03) (.04) (.07) (.15)
-------- -------- -------- -------- --------
Earnings (loss) per
Class A share ................... $ .06 $ .03 $ .02 $ (.03) $ .08
======== ======== ======== ======== ========
</TABLE>
1. The first and second quarters have been restated to reflect the results of
Pri Ha'emek (Canned and Frozen Food) 88 Ltd. as a discontinued operation.
2. Each quarter has been restated to reflect the results of Pri Ha'emek
(Canned and Frozen Food) 88 Ltd. as a discontinued operation.
64
<PAGE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
----------------------------------------------------
None
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
MANAGEMENT
The following table sets forth certain information regarding Ampal's
directors and executive officers:
NAME POSITION
Raz Steinmetz (1)............ Director and Chairman of the Executive Committee
Shlomo Recht(1)*............. Chairman of the Board and Director
Lawrence Lefkowitz(1)........ President, Chief Executive Officer and Director*
Moshe Mor**.................. Executive Vice President
Yehoshua Gleitman............ Executive Vice President of Ampal and Managing
Director of Ampal (Israel)***
Alan L. Schaffer............. Vice President-Finance and Treasurer
Alla Kanter.................. Vice President-Accounting and Controller
Isaiah Halivni............... Vice President-Legal and Secretary
Miri Lent Sharir............. Assistant Vice President-Israel Operations
Harry B. Henshel(2)(5)(6).... Class A Director****
Herbert Kronish(5)(6)........ Class A Director****
Evelyn Sommer(2)(3)(5)(6).... Class A Director****
Irwin Hochberg(3)(5)(6)...... Class A Director****
Arie Abend(2)................ Director
Michael Arnon................ Director
Stanley I. Batkin(1)(3)(5)(6) Director
Yaacov Elinav(1)(4).......... Director
Hillel Peled................. Director
Shimon Ravid(4).............. Director
Michael W. Sonnenfeldt....... Director
- ----------
* Mr. Recht resigned as Chairman of the Board and Director of Ampal,
effective December 31, 1996. Pending election of a new Chairman of the
Board, Mr. Lefkowitz has assumed the duties of the Chairman of the Board.
** Mr. Mor has submitted his resignation as Executive Vice President of
Ampal, effective April 12, 1997, though he will continue to be an employee
of Ampal (Israel).
*** Ampal (Israel) is a wholly-owned subsidiary of Ampal. Mr. Gleitman's
appointment is effective April 1, 1997.
**** Only holders of Class A Stock are entitled to vote for the Class A
Directors. See "Market for Registrant's Common Equity and Related
Stockholders Matters - Voting Rights."
The numbers listed below, which follow the names of some of the foregoing
directors, designate committee membership:
(1) Member of the Executive Committee of the Board which meets as necessary
between regularly scheduled Board meetings and, consistent with certain
statutory limitations, exercises all the authority of the Board.
65
<PAGE>
(2) Member of the Audit Committee of the Board which reviews functions of the
outside auditors, auditors' fees and related matters.
(3) Member of the Related Party Transactions Committee of the Board which
reviews and passes upon the fairness of business transactions between
Ampal and related parties.
(4) Member of the Stock Option Committee of the Board which administers
Ampal's 1993 Stock Option Plan. For a description of such plan, see
"Executive Compensation - Stock Option Plan."
(5) Member of the Special Committee of the Board which was formed to consider
Hapoalim's request to equalize the voting rights of the Common Stock with
those of the Class A Stock, and to negotiate, approve or disapprove any
such transaction on Ampal's behalf. This committee has completed its work
and has been discharged.
(6) Member of the Share Repurchase Committee which administers Ampal's stock
repurchase program.
In 1996, the Board of Directors met four times and acted by written
consent two times, the Executive Committee did not meet but acted by written
consent seven times, the Audit Committee met once, the Related Party
Transactions Committee did not meet but acted by written consent one time and
the Stock Option Committee did not meet. The Special Committee was formed in
February 1996 and met four times before being discharged on December 11, 1996.
Ampal does not have a nominating committee or compensation committee. Other than
Messrs. Raz Steinmetz and Peled, all directors attended more than 75% of the
aggregate of (1) the total number of Board of Directors meetings held during the
period in 1996 for which such individual was a director and (2) the total number
of meetings held by all committees of the Board on which such individual served
in 1996 (during the period of such service).
The following sets forth the ages of all of the above-mentioned directors
and officers, all positions and offices with Ampal or its subsidiaries held by
each director and officer and the term of office of each such director and
officer.
RAZ STEINMETZ, 33, has managed various investments for his family,
including real estate, financial investments and others, since September 1994.
From September 1993 through September 1994, he worked as a trainee at Republic
National Bank of New York. From September 1991 through July 1993, he attended
University of Pennsylvania, Wharton Business School, where he received a Masters
Degree in Business Administration. He became a director of Ampal in June 1996
and Chairman of the Executive Committee in December 1996. Mr. Steinmetz is the
son of Daniel Steinmetz.
SHLOMO RECHT, 55, was Chairman of the Board of Directors of Ampal from
July 1994 until his resignation, effective December 31, 1996. From March 1994
until July 1994, he was Vice Chairman of the Board of Directors of Ampal. From
April 1990 until March 1994, he was Managing Director of Poalim Capital Markets
and Investments Ltd. From 1988 until 1989, and from 1994 to 1996, he served as a
director of Ampal.
LAWRENCE LEFKOWITZ, 59, has been President and Chief Executive Officer of
Ampal since November 1990. Since August 1990 at the request of, and pursuant to
the terms of his employment agreement with, Ampal, he has been Counsel to
Hapoalim and rendered legal services to its United States Branches.
MOSHE MOR, 61, has been Executive Vice President of Ampal since December
1995. Prior thereto, he was Vice President-Israel Operations of Ampal for more
than five years. Mr.
66
<PAGE>
Mor has submitted his resignation, effective April 12, 1997, though he will
continue to be an employee of Ampal (Israel).
YEHOSHUA GLEITMAN, 47, will become Executive Vice President of Ampal and
Managing Director of Ampal (Israel), head of Ampal's Israeli operations, on
April 1, 1997. From August 1996 until February 1997, he was Director General of
the Israeli Ministry of Industry and Trade and was Chief Scientist at the
Ministry of Industry and Trade from January 1993 until February 1997. Prior to
his tenure with Ministry of Industry and Trade, Mr. Gleitman was Director
General of AIMS Limited, a trading company.
ALAN L. SCHAFFER, 54, has been Vice President-Finance and Treasurer of
Ampal since August 1990.
ALLA KANTER, 39, has been Vice President-Accounting of Ampal since
September 1995 and Controller of Ampal since August 1990.
ISAIAH HALIVNI, 30, has been Vice President-Legal and Secretary of Ampal
since February 1997. From November 1993 until January 1997, he was an associate
at Kronish, Lieb, Weiner & Hellman LLP ("KLWH"). From October 1992 until May
1993, he was an attorney employed by the law firm of Yigal Arnon & Co., a Tel
Aviv law firm. From August 1989 until May 1992, he attended Columbia University
School of Law.
MIRI LENT SHARIR, 40, has been Assistant Vice President-Israel Operations
of Ampal since July 1988 and has been employed by Ampal (Israel) for more than
five years. She also serves as a director of Teledata Communications Ltd. (of
which Ampal indirectly owned 8.0% as of December 31, 1996) and Carmel Container
Systems Limited (of which Ampal directly and indirectly owned 20.7% as of
December 31, 1996).
HARRY B. HENSHEL, 78, has been Vice Chairman of the Board of Bulova
Corporation ("Bulova") since 1996. He was Chairman of the Board of Bulova from
1974 until 1996. He has also served as Chairman of the Chief Executives Council
of Omega Group since 1990 and as a director of the Ponce Hotel Corporation for
more than 20 years and the Universal Holdings Corp. since 1993. He has been a
member of the Advisory Board of the New York State Business Partnership for more
than five years and a trustee of the New York Backstretch Employees Pension
Trust for more than 10 years. He served on the Board of Directors of Ampal
Industries from 1982 until 1990. He became a director of Ampal in 1993.
HERBERT KRONISH, 70, has been a Senior Partner of KLWH since 1958. KLWH
has been legal counsel to Ampal since 1982. He became a director of Ampal in
1994.
EVELYN SOMMER, 58, has been President of Women's International Zionist
Organization-USA, and a representative of Women's International Zionist
Organization to the United Nations for more than five years, has been Chairman,
American Section of the World Jewish Congress for more than five years and has
been Chairman, North American Section of the World Jewish Congress since January
1996. She became a director of Ampal in 1982.
IRWIN HOCHBERG, 68, has been a Senior Partner and President of Bloom
Hochberg & Co., P.C., which provides accounting, auditing and tax service,
professional and consulting services to commercial and individual clients, for
more than five years. He also serves as a director of Transmedia Network, Inc.
He became a director of Ampal in 1994.
ARIE ABEND, 59, has been a Joint Managing Director of Hapoalim and
Regional Manager, Western Hemisphere of Hapoalim since June 1994. From March
1991 until May 1994, he was a Senior Executive Vice President of Hapoalim. In
1984, 1985 and 1991, he served as a director of Ampal. He became a director
again in 1994.
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<PAGE>
MICHAEL ARNON, 71, was Chairman of the Board of Directors of Ampal from
November 1990 to July 1994. From July 1986 until November 1990, he was President
and Chief Executive Officer of Ampal. He became a director of Ampal in 1986.
STANLEY I. BATKIN, 82, served on the Board of Directors of Ampal
Industries from 1983 until 1990 and was a member of its Executive Committee from
1986 until 1990. From 1976 to 1983, he served as a director of Ampal. He became
a director again in 1991.
YAACOV ELINAV, 52, has been a Senior Deputy Managing Director of Hapoalim
since August 1992. From October 1991 to August 1992, he was a Deputy Managing
Director of Hapoalim. From October 1988 to October 1991, he was head of the
Corporate Division of Hapoalim. He became a director of Ampal in 1992.
HILLEL PELED, 49, has been President of Inveco International, Inc., a
private investment company, since January 1990. From January 1982 to June 1986,
he served as Vice President-Finance and Treasurer of Ampal. He became a director
of Ampal in June 1996.
SHIMON RAVID, 60, has been a Joint Managing Director of Hapoalim since
February 1994. From October 1989 until February 1994, he was a Senior Deputy
Managing Director of Hapoalim. He became a director of Ampal in 1990.
MICHAEL W. SONNENFELDT, 40, is the founder and Managing Director of Emmes
& Company LLC, a private real estate investment group headquartered in New York
City. He became a director of Ampal in June 1996.
At the Annual Meeting, to be held on May 28, 1997, Messrs. Batkin, Henshel
and Kronish will not be nominees for directors of Ampal. In addition to the
other 10 current directors, the following individuals will be nominees for
directors at the Annual Meeting:
BENZION BENBASSAT, 59, has been the President and Chief Executive Officer
of D.R.B. Investments Ltd., an investment company, for more than the past five
years. He also serves as a director of Paradise Industries Ltd. (of which Ampal
indirectly owns 85.1%).
KENNETH L. HENDERSON, 42, is an attorney and has been a partner at
Robinson Silverman Pearce Aronsohn & Berman LLP ("Robinson") since 1987.
Robinson provided legal services to Ampal during 1996.
DANIEL STEINMETZ, 59, has managed family diamond trading businesses in
Israel for more than the past five years. Mr. Steinmetz is the father of Raz
Steinmetz.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires Ampal's officers and directors,
and persons who own more than 10% of a registered class of Ampal's equity
securities, to file reports of ownership and changes in ownership with the SEC
and the American Stock Exchange. These persons are required by regulation of the
SEC to furnish Ampal with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, Ampal believes that during 1996, Ampal's officers,
directors and greater than 10% beneficial owners complied with all applicable
Section 16(a) filing requirements.
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<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
----------------------
SUMMARY COMPENSATION TABLE
- --------------------------
The table below presents information regarding remuneration paid or accrued
for services to Ampal and its subsidiaries by the executive officers named below
during the three fiscal years ended December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------- -------------------
Securities
Name and Principal Other Annual Underlying All Other
Position Year Salary Bonus Compensation Options* Compensation
-------- ---- ------ ----- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Lawrence Lefkowitz(1) 1996 $220,851 $8,123(4) $28,800(5)
(President and 1995 212,351 $16,335 9,088(4) 26,055(6)
Chief Executive Officer) 1994 204,351 8,710(4) 16,000 24,619(7)
Moshe Mor(2) 1996 193,751 23,364(8)
(Executive Vice President) 1995 145,880 37,185 17,982(8)
1994 120,377 15,150 15,930(8)
Alan L. Schaffer 1996 147,950 19,527(9)
(Vice President-Finance 1995 142,250 10,942 16,467(10)
and Treasurer) 1994 136,750 13,000 14,413(11)
Miri Lent Sharir 1996 120,272 19,239(8)
(Assistant Vice President- 1995 111,767 29,880 17,463(8)
Israel Operations) 1994 93,777 11,500 14,749(8)
Shlomo Recht(3) 1996 122,791 9,286 13,436(8)
(Chairman of the Board) 1995 114,633 10,455 13,337(8)
1994 79,174 7,662 9,333(8)
</TABLE>
- ----------
* Indicates number of shares of Class A Stock underlying stock options
(1) Hapoalim reimbursed Ampal $100,000 per year from August 1990 through
December 1995 for Mr. Lefkowitz's legal services. By agreement between
Ampal and Hapoalim, beginning in January 1996, Hapoalim reimbursed Ampal
$120,000 per year. Mr. Lefkowitz is employed pursuant to an employment
agreement expiring September 12, 1998, renewable thereafter automatically
for successive one-year terms unless one year's prior notice is given,
providing for the payment of salary which shall not be less than the
salary paid to him in 1992 ($191,961) and which salary is subject to
annual review.
(2) Mr. Mor has submitted his resignation as Executive Vice President of
Ampal, effective April 12, 1997, though he will continue to be an employee
of Ampal Israel.
(3) Mr. Recht resigned his position with Ampal, effective December 31, 1996.
(4) Consists of amounts reimbursed for the payment of taxes.
(5) Comprised of Ampal's contribution pursuant to (i) Ampal's pension plan of
$15,476; (ii) Ampal's Supplementary Executive Retirement Plan of $8,899
and (iii) Ampal's Savings Plan of $4,425. See "Other Benefits" below for a
description of such plans.
(6) Comprised of Ampal's contribution pursuant to: (i) Ampal's Pension Plan of
$15,562; (ii) Ampal's Supplementary Executive Retirement Plan of $9,993
and (iii) Ampal's Savings Plan of $500.
(7) Comprised of Ampal's contribution pursuant to: (i) Ampal's Pension Plan of
$15,596; (ii) Ampal's Supplementary Executive Retirement Plan of $8,523
and (iii) Ampal's Savings Plan of $500.
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<PAGE>
(8) Comprised of Ampal (Israel)'s contribution to its pension plan.
(9) Comprised of Ampal's contribution pursuant to (i) Ampal's pension plan of
$15,117 and (ii) Ampal's Savings Plan of $4,410.
(10) Comprised of Ampal's contribution pursuant to: (i) Ampal's Pension Plan of
$15,562; (ii) Ampal's Supplementary Executive Retirement Plan of $405 and
(iii) Ampal's Savings Plan of $500.
(11) Comprised of Ampal's contribution pursuant to Ampal's Savings Plan of $500
and the remainder pursuant to Ampal's Pension Plan.
FISCAL YEAR-END OPTION VALUES(1)
Number of Securities
Underlying Unexercised
Name Options at Fiscal Year-End(2)
- ---- -----------------------------
Exercisable Unexercisable
----------- -------------
Lawrence Lefkowitz 16,000 0
Moshe Mor 15,150 0
Alan L. Schaffer 13,000 0
Miri Lent 11,500 0
Shlomo Recht 0 0
(1) No options were granted to or exercised by any named executive officer
during 1996, and no options were in-the-money as of December 31, 1996.
(2) This represents the total number of shares of Class A Stock subject to
stock options held by the named executive at December 31, 1996.
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<PAGE>
OTHER BENEFITS
Ampal maintains a money purchase pension plan ("Pension Plan") for its
eligible employees. Eligible employees are all full-time employees of Ampal
except non-resident aliens, night-shift employees and employees represented by a
collective bargaining unit. In 1990, the Pension Plan was amended so that
Ampal's annual contribution was equal to 7% of each employee's compensation plus
5.4% of the employee's compensation in excess of the Social Security taxable
wage base for that year. In 1994, the Pension Plan was amended so that Ampal's
contribution is equal to 7% of each employee's compensation plus 5.7% of the
compensation in excess of the Social Security taxable wage base for that year.
Employees become vested in amounts contributed by Ampal depending on the
number of years of service worked, as provided in the following table:
Vested
Years of Service Percentage:
---------------- -----------
less than 2 years 0%
2 but less than 3 years 20%
3 but less than 4 years 40%
4 but less than 5 years 60%
5 but less than 6 years 80%
6 or more years 100%
Benefits under the Pension Plan are paid in a lump sum, in an annuity form
or in installments.
71
<PAGE>
Ampal maintains a Savings Plan for its eligible employees pursuant to
Section 401(k) of the Internal Revenue Code of 1986, as amended (the "Code").
Eligible employees are all employees of Ampal except non-resident aliens,
night-shift employees and employees represented by a collective bargaining unit.
Participation by employees in the Savings Plan is voluntary. Participating
employees may direct that a specific percentage of their annual compensation (up
to 15%) be contributed to a self-directed 401(k) savings account. The amount
which any employee could contribute to his or her 401(k) savings account in
1996, was limited under the Code to $9,500. For each plan year up to and
including 1995, Ampal matched 50% of each employee's contribution up to a
maximum matching contribution of $500 for each participant. Effective January 1,
1996, the Savings Plan was amended so that Ampal matches 50% of each employee's
contribution up to a maximum of 3% of the employee's compensation. Employees who
were eligible to participate in the Savings Plan as of December 31, 1995 are
100% vested at all times in the account balances maintained in their 401(k)
savings account and employees who became eligible to participate in the Savings
Plan on or after January 1, 1996, become vested in amounts contributed by Ampal
depending on the number of years of service worked, as provided in the following
table:
Vested
Years of Service Percentage:
---------------- -----------
less than 2 years 0%
2 but less than 3 years 20%
3 but less than 4 years 40%
4 but less than 5 years 60%
5 but less than 6 years 80%
6 or more years 100%
Benefits under the Savings Plan are required to be paid in a single,
lump-sum distribution. Payment is usually made after termination of employment.
In 1994, Ampal established a Supplementary Executive Retirement Plan
("SERP") for its eligible employees. Ampal's obligation under the SERP is to pay
to affected employees the amount that would have been paid to them by the
Pension Plan but for the operation of Section 401(a)(17) of the Code.
COMPENSATION OF DIRECTORS
Directors of Ampal who are not employees of Ampal or Hapoalim receive $500
per Board meeting attended. Such persons also receive the same amount for
attendance at meetings of committees of the Board, provided that such committee
meetings are on separate days and on a day other than the day of a regularly
scheduled Board meeting.
STOCK OPTION PLAN
In November 1993, the Board approved a stock option plan (the "Stock
Option Plan") which provides for grants of options to purchase up to 200,000
shares of Ampal Class A Stock in the aggregate to employees, officers and
directors of Ampal and certain subsidiaries of Ampal. Options granted under the
Stock Option Plan may be either options which are intended to qualify as
"incentive stock options" within the meaning of Section 422 of the Code
("ISOs"), or options that are not intended to so qualify ("Non-ISOs"). The Stock
Option Plan was approved by Ampal's shareholders on September 22, 1994.
The Stock Option Plan is administered by the Board or by a Stock Option
Committee thereof (the "Committee") consisting exclusively of directors who are
not to be granted options under the Stock Option Plan. The Board (or the
Committee) determines, subject to the terms of the Stock Option Plan, the
individuals to whom options are to be granted and the terms of the options,
including the exercise price, number of shares subject to each option, whether
the option is to qualify as an ISO and the vesting of rights to exercise each
option. Currently, the Stock Option Committee is administered by a committee
consisting of Mr. Elinav and Mr. Ravid.
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<PAGE>
The exercise price of each ISO granted under the Plan must not be less
than the fair market value of the shares on the date of grant or 110% of the
fair market value on the date of grant if the ISO grantee owns stock
representing more than 10% of the voting power of Ampal's capital stock or value
of all classes of stock of Ampal or a subsidiary corporation. The exercise price
of each Non-ISO granted under the Stock Option Plan, which may be less than fair
market value on the date of grant, will be fixed by the Board (or the Committee)
at the time the Non-ISO is granted.
The Board (or the Committee) shall determine the dates on which each
option shall be exercisable and the conditions precedent to such exercise.
However, all options, other than those granted to non-employee directors of
Ampal, may not be exercisable prior to the second anniversary of their date of
grant. Options granted to non-employee directors of Ampal shall be exercisable
immediately upon grant. The terms of options granted under the Stock Option Plan
may not exceed five years.
To the extent that a grant of options results in the aggregate fair market
value of the shares of Class A Stock with respect to which ISOs are exercisable
for the first time by an optionee during any calendar year exceeding $100,000,
such options are treated as Non-ISOs.
Pursuant to an amendment to the Stock Option Plan, dated March 23, 1994,
optionees may pay the exercise price or their tax withholding obligation with
the shares of Class A Stock which are to be delivered upon exercise.
In January 1994, pursuant to the Stock Option Plan, Non-ISO Options to
purchase 134,900 Class A shares were granted to employees, officers, and
directors of Ampal and certain subsidiaries of Ampal. No stock options were
granted under the Stock Option Plan during 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996, members of the Executive Committee of the Board of Directors
which functions as the compensation committee of Ampal included: Mr. Lawrence
Lefkowitz, President and Chief Executive Officer of Ampal; Mr. Stanley I.
Batkin; Mr. Yaacov Elinav, Senior Deputy Managing Director of Hapoalim; Mr.
Shlomo Recht, Chairman of the Board of Directors of Ampal in 1996; and Mr. Raz
Steinmetz. Mr. Michael Arnon, formerly Chairman of the Board, Chief Executive
Officer and President of Ampal, was a member of the Executive Committee until
his resignation in June 1996. Mr. Steinmetz became a member of the Executive
Committee in June 1996 and Chairman of the Executive Committee in December 1996.
For a description of business transactions between Ampal and Hapoalim, see
"Certain Relationships and Related Transactions."
ITEM. 12. SECURITY OWNERSHIP OF CERTIAN BENEFICAL OWNERSHIP AND MANAGEMENT
----------------------------------------------------------------
PRINCIPAL SHAREHOLDERS OF AMPAL
The following table sets forth information as of March 24, 1997 as to the
holders known to Ampal who beneficially own more than 5% of the Class A Stock,
the only outstanding series of voting securities. For purposes of computation of
the percentage ownership of Class A Stock set forth in the table, conversion of
any 4% Cumulative Convertible Preferred Stock (the "4% Preferred Stock") and
6-1/2% Cumulative Convertible Preferred Stock (the "6-1/2% Preferred Stock")
owned by such beneficial owner has been assumed, without increasing the number
of shares of Class A Stock outstanding by amounts arising from possible
conversions of convertible securities held by shareholders other than such
beneficial owner. As at March 24, 1997, there were outstanding 23,678,984 (not
including treasury shares) shares of Class A Stock of Ampal and no shares of
Common Stock. In addition, there were outstanding 989,185 non-voting shares of
6-1/2% Preferred Stock (each convertible into 3 shares of Class A Stock) and
189,322 non-voting shares of 4% Preferred Stock (each convertible into 5 shares
of Class A Stock).
73
<PAGE>
Certain Beneficial Owners
<TABLE>
<CAPTION>
Name and Address Amount and Nature Percent
of Beneficial Owner Title of Class of Beneficial Ownership of Class
- ------------------- -------------- ----------------------- --------
<S> <C> <C> <C>
Daniel Steinmetz Class A Stock 7,446,652 shs.(1) 31.4%
Rebar Financial Corp.
c/o Icaza, Gonzalez-Ruiz
& Aleman (BVI) Ltd.
Wickhams Cay, Road Town,
Tortola, British Virgin Islands
Raz Steinmetz Class A Stock 7,446,652 shs.(1) 31.4%
Rebar Financial Corp.
c/o Icaza, Gonzalez-Ruiz
& Aleman (BVI) Ltd.
Wickhams Cay, Road Town,
Tortola, British Virgin Islands
Rebar Financial Corp. Class A Stock 7,446,652 shs.(1) 31.4%
c/o Icaza, Gonzalez-Ruiz
& Aleman (BVI) Ltd.
Wickhams Cay, Road Town,
Tortola, British Virgin Islands
Bank Hapoalim B.M. Class A Stock 6,258,639 shs.(2) 26.0%
50 Rothschild Blvd.
Tel Aviv, Israel
</TABLE>
- ----------
(1) As reported by Mr. Daniel Steinmetz, Mr. Raz Steinmetz and Rebar on Forms
4 for the month of February 1997 filed with the SEC on March 28, 1997.
Consists of 7,446,652 shares of Class A Stock held directly by Rebar. Mr.
Raz Steinmetz is the President of Rebar and Mr. Daniel Steinmetz is the
Vice President. They are the sole directors of Rebar and beneficially own,
directly and indirectly, 96% and 4% of the outstanding equity of Rebar,
respectively.
(2) As reported by Hapoalim on Amendment No. 34, dated December 18, 1996, to
its Statement on Schedule 13D filed with the SEC. These shares represent
all of the shares owned directly by its wholly-owned subsidiary Atad.
Assumes conversion of 122,536 shares of 6-1/2% Preferred Stock and 3,350
shares of 4% Preferred Stock.
Security Ownership Of Management
The following table sets forth information as of March 24, 1997 as to each
class of equity securities of Ampal or any of its subsidiaries beneficially
owned by each director and named executive officer of Ampal listed in the
Summary Compensation Table and by all directors and named executive officers of
Ampal as a group. All ownerships are direct unless otherwise noted. The table
does not include directors or named executive officers who do not own any such
shares:
74
<PAGE>
Ampal-American Israel Corporation
- ---------------------------------
CLASS A STOCK
- -------------
Amount and Nature Percent of
Name of Beneficial Ownership Outstanding Shares
---- ----------------------- ------------------
Michael Arnon 7,500(1) *
Stanley I. Batkin 10,000(2) *
Harry B. Henshel 22,000(2) (3) *
Irwin Hochberg 3,000(4) *
Herbert Kronish 1,000 *
Lawrence Lefkowitz 48,375(5) *
Miri Lent Sharir 16,630(6) *
Moshe Mor 15,150(1) *
Shlomo Recht 2,000 *
Alan L. Schaffer 13,000(1) *
Evelyn Sommer 5,000(2) *
Raz Steinmetz 7,446,652(7) 31.4%
All Directors and Executive
Officers as a Group 7,590,307(8) 31.9%
WARRANTS TO PURCHASE
- --------------------
CLASS A STOCK
-------------
Amount and Nature Percent of
Name of Beneficial Ownership Outstanding Shares
---- ----------------------- ------------------
Harry B. Henshel 15,000 *
All Directors and Executive
Officers as a Group 15,000(9) *
- ----------
* Represents less than 1% of the class of securities.
(1) Consists of options to purchase shares of Class A Stock which are
currently exercisable.
(2) Includes options to purchase 5,000 shares of Class A Stock which are
currently exercisable.
(3) Includes warrants to purchase 15,000 shares of Class A Stock which are
currently exercisable.
(4) Includes 1,000 shares of Class A Stock held of record by Mr. Hochberg's
wife.
(5) Includes 23,100 shares of Class A Stock held by a trust under an estate as
to which Mr. Lefkowitz is co-personal representative and options to
purchase 16,000 shares of Class A Stock which are currently exercisable.
(6) Includes options to purchase 11,500 shares of Class A Stock which are
currently exercisable.
(7) Attributable to 7,446,652 shares of Class A Stock held directly by Rebar.
For Mr. Steinmetz's affiliation with Rebar, see "Certain Beneficial
Owners."
(8) Includes warrants to purchase 14,000 shares of Class A Stock which are
currently exercisable and options to purchase 63,000 shares of Class A
Stock which are currently exercisable. Includes equity securities owned by
Mr. Mor who will no longer be an executive officer after April 12, 1997
and Mr. Recht who is no longer an officer or director of Ampal.
75
<PAGE>
(9) Consists of warrants to purchase 15,000 shares of Class A Stock held by
Mr. Henshel.
See "Significant Developments Since Beginning of Last Fiscal Year - Change
of Control of Ampal" for the change of control of Ampal that took place in 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The Board of Directors of Ampal maintains a Related Party Transactions
Committee comprised of independent directors which reviews and passes upon the
fairness of any business dealings and arrangements (other than borrowings on
then prevailing market terms or deposits made in the ordinary course of
business) between Ampal and any affiliated party. With certain exceptions, Ampal
may not enter into transactions with any officer, director or principal
shareholder of Ampal, without first obtaining the approval of the Related Party
Transactions Committee, the disinterested members of the Board of Directors or
the shareholders. In addition, in connection with the Exchange Agreement, the
Special Committee considered Hapoalim's request to (i) equalize the voting
rights of the Common Stock with the voting rights of the Class A Stock and (ii)
compensate Hapoalim for the reduction in its voting rights which would result
from such equalization.
The management of Ampal believes that all of the following transactions
were done on terms which were no less advantageous to Ampal than could have been
obtained from unaffiliated third parties.
Ampal borrows and receives deposits from Hapoalim and its subsidiaries.
During 1996, the largest amount of such indebtedness outstanding at any one time
was $34,798,000 and interest expense thereon was $3,861,000. Additionally, Ampal
makes loans to and maintains deposits with Hapoalim and its subsidiaries. The
largest amount of such loans and deposits at any one time during 1996 was
$68,133,000 and interest income thereon was $7,252,000. As of December 31, 1996,
the amount of borrowings and deposits from Hapoalim and its subsidiaries was
$32,375,000 and the amount of loans to and deposits with Hapoalim and its
subsidiaries was $45,866,000. Ampal is the beneficiary of a $2 million committed
line of credit from Hapoalim which expires in October 1997. Borrowings under
this line of credit bear interest at a variable rate of interest equal to LIBOR
plus 1/2%. Such loans and borrowings are made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with unaffiliated third persons and, in the opinion of
the management of Ampal, do not involve more than normal risk of collectibility
or present other unfavorable features.
Ampal subleases 2,825 square feet of office space leased by Hapoalim at
1177 Avenue of the Americas, New York City under a sublease which expires on
August 30, 2009. The base rent which commenced in September 1994, is $170,000,
subject to escalation. In 1996, Ampal's total payments to Hapoalim in connection
with this lease totalled $171,247.
Ampal or its subsidiaries leases office space in various locations in the
United States and Israel to Hapoalim and its subsidiaries, pursuant to leases
which will generally expire in the years between 2000 and 2003, in exchange for
total annual rental payments of approximately $3,454,000. Generally, the annual
payments are based upon 10% of the value of the property linked to the Israeli
CPI.
In 1991, Ampal agreed that its third lien on certain assets of Pri Ha'emek
(Canned and Frozen Food) 88 Ltd. ("Pri Ha'emek"), an Ampal subsidiary, would
rank behind the lien of Hapoalim on those assets. On December 23, 1996, Ampal
sold its interest in Pri Ha'emek to an unrelated third party.
At the request of, and pursuant to the terms of an employment agreement
with, Ampal, Mr. Lefkowitz has been counsel to Hapoalim and has rendered legal
services to its United
76
<PAGE>
States branches since August 1990. In 1996, Hapoalim reimbursed Ampal $120,000
for the services of Mr. Lefkowitz under the arrangement.
On December 11, 1996, Hapoalim exchanged 3,000,000 shares of Common Stock
for 3,000,000 shares of Class A Stock and Ampal agreed to recommend to its
shareholders that the Certificate be amended by eliminating the Common Stock and
removing any reference in the Certificate to the Common Stock. See "Significant
Developments Since Beginning of Last Fiscal Year - Change in Control of Ampal."
77
<PAGE>
PART IV
-------
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
(a) The following documents are filed as a part of this report:
Page
Reference*
----------
(1) Financial Statements and Supplementary Data
Ampal-American Israel Corporation and Subsidiaries
Report of Independent Public Accountants........... 40
Consolidated Statements of Income for the years
ended December 31, 1996, 1995 and 1994.......... 41
Consolidated Balance Sheets as at
December 31, 1996 and 1995...................... 42
Consolidated Statements of Cash Flows for the
years ended December 31, 1996, 1995 and 1994.... 44
Consolidated Statements of Changes in Shareholders'
Equity for the years ended December 31, 1996,
1995 and 1994................................... 46
Notes to Consolidated Financial Statements......... 49
Supplementary Data:
Selected quarterly financial data for the years
ended December 31, 1996 and 1995................ 64
(2) Financial Statement Schedules
Schedules which have been omitted are not
applicable or the required information is shown in
the financial statements or notes thereto.
(i) Schedule of Representative Rates of Exchange
between the U.S. dollar and New Israeli Shekel
for three years ended December 31, 1996............ 87
(ii) Consolidated financial statements filed pursuant to
Rule 3-09 of Regulation S-X
Bay Heart Ltd. & its Subsidiary
Report of Independent Public Accountants........... 90
Consolidated Balance Sheets as at
December 31, 1996 and 1995...................... 92
Consolidated Statements of Income for the
years ended December 31, 1996, 1995 and 1994.... 95
Consolidated Statements of Changes in Shareholders'
Equity for the years ended
December 31, 1996, 1995 and 1994................ 96
Consolidated Statements of Cash Flows for the
years ended December 31, 1996, 1995 and 1994.... 97
Notes to Consolidated Financial Statements......... 101
78
<PAGE>
Page
Reference*
----------
Carmel Container Systems Ltd. and its Subsidiaries
Report of Independent Auditors..................... 129
Consolidated Balance Sheets as at
December 31, 1996 and 1995...................... 130
Consolidated Statements of Income for the
years ended December 31, 1996, 1995 and 1994.... 132
Consolidated Statements of Changes in Shareholders'
Equity for the years ended
December 31, 1996, 1995 and 1994................ 133
Consolidated Statements of Cash Flows for the
years ended December 31, 1996, 1995 and 1994.... 134
Notes to Consolidated Financial Statements......... 136
Coral World International Ltd. and Subsidiaries
Report of Independent Public Accountants .......... 181
Consolidated Balance Sheets as at December 31,
1996 and 1995 .................................. 182
Consolidated Statements of Income for the years
ended December 31, 1996, 1995 and 1994 ......... 184
Consolidated Statements of Cash Flows for the
years ended December 31, 1996, 1995 and 1994 .. 185
Consolidated Statements of Changes in
Shareholders' Equity for the years ended
December 31, 1996, 1995 and 1994 .............. 187
Notes to Consolidated Financial Statements ........ 188
Granite Hacarmel Investments Limited and Subsidiaries
Report of Certified Public Accountants............. 194
Consolidated Balance Sheets as at
December 31, 1996, and 1995..................... 196
Consolidated Statements of Income for the
years ended December 31, 1996, 1995 and 1994.... 198
Consolidated Statements of Shareholders'
Equity for the years ended
December 31, 1996, 1995 and 1994................ 199
Consolidated Statements of Cash Flows for the
years ended December 31, 1996, 1995 and 1994.... 200
Notes to Consolidated Financial Statements......... 204
Moriah Hotels Ltd.
Report of Certified Public Accountants............. 252
Consolidated Balance Sheets as at
December 31, 1996 and 1995...................... 253
Consolidated Statements of Income for the
years ended December 31, 1996, 1995 and 1994.... 255
Consolidated Statements of Changes in
Shareholders' Equity for the years ended
December 31, 1996, 1995 and 1994................ 256
Consolidated Statements of Cash Flows for the
years ended December 31, 1996, 1995 and 1994.... 257
Notes to Consolidated Financial Statements......... 259
Ophir Holdings Ltd.
Report of Independent Auditors..................... 277
Consolidated Balance Sheets as at
December 31, 1996 and 1995...................... 279
Consolidated Statements of Income for the
years ended December 31, 1996, 1995 and 1994.... 281
Consolidated Statements of Changes in
Shareholders' Equity for the years ended
December 31, 1996, 1995 and 1994................ 283
Consolidated Statements of Cash Flows for the
years ended December 31, 1996, 1995 and 1994.... 285
Notes to Consolidated Financial Statements......... 289
Orlite Industries (1959) Ltd.
Report of Certified Public Accountants............. 331
Balance Sheets as at December 31, 1996 and 1995.... 332
Statements of Income for the years ended
December 31, 1996, 1995 and 1994................ 333
Statements of Changes in Shareholders' Equity for
the years ended
79
<PAGE>
Page
Reference*
----------
December 31, 1996, 1995 and 1994................ 334
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994................ 335
Notes to the Financial Statements.................. 337
Trinet Venture Capital Ltd.
Report of Certified Public Accountants............. 363
Balance Sheets as at December 31, 1996 and 1995.... 365
Statements of Operations for the years ended
December 31, 1996, 1995 and for the period from
commencement of operations (February 1, 1994)
through December 31, 1994....................... 366
Statements of Changes in Shareholders' Deficiency
for the years ended December 31, 1996, 1995
and 1994........................................ 367
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994................ 368
Notes to the Financial Statements.................. 370
(iii) Reports of Other Certified Public Accountants
filed pursuant to Rule 2-05 of Regulation S-X:
AM-HAL Ltd......................................... 383
Ampal Engineering (1994) Ltd....................... 384
Ampal Enterprises Ltd.............................. 386
Ampal Financial Services Ltd....................... 387
Ampal Holding (1991) Ltd........................... 388
Ampal Industries (Israel) Ltd...................... 390
Ampal (Israel) Ltd................................. 391
Ampal Properties Ltd............................... 393
Bank Hapoalim (Cayman) Ltd......................... 395
Country Club Kfar Saba Limited..................... 397
Epsilon Investment House Ltd....................... 399
Hapoalim (Latin America) Casa Bancaria S.A......... 400
Hod Hasharon Sport Center (1992) Limited
Partnership..................................... 402
Mivnat Holdings Ltd................................ 404
Nir Ltd............................................ 405
Paradise Industries Ltd. (U.S. Dollars)............ 407
Pri Ha'emek (Canned and Frozen Food) 88 Ltd. ...... 410
Red Sea Marineland Holding (1973) Ltd.............. 411
Red Sea Underwater Observatory Ltd................. 413
Renaissance Investment Co. Ltd..................... 415
Shmey-Bar Real Estate 1993 Ltd..................... 416
Shmey-Bar (T.H.) 1993 Ltd.......................... 418
Teledata Communication Ltd......................... 420
Trinet Investment in High-Tech Ltd................. 421
U.D.S.-Ultimate Distribution Systems Ltd........... 422
80
<PAGE>
Page
Reference*
----------
(3) List of Exhibits
Exhibit 3 - Articles of Incorporation and By-Laws
3a. --Restated Certificate of Incorporation dated
December 23, 1982. (Filed as Exhibit 3a. to
Form 10-K for the fiscal year ended December
31, 1995 and incorporated herein by
reference. File No. 0-538).
3b. --Certificate of Correction of Certificate of
Amendment to the Certificate of Incorporation
dated December 27, 1982. (Filed as Exhibit
3b. to Form 10-K for the fiscal year ended
December 31, 1995 and incorporated herein by
reference. File No. 0-538).
3c. --Certificate of Amendment of the Certificate
of Incorporation dated March 17, 1983. (Filed
as Exhibit 3c. to Form 10-K for the fiscal
year ended December 31, 1995 and incorporated
herein by reference. File No. 0-538).
3d. --Certificate of Amendment of the Certificate
of Incorporation dated July 14, 1988. (Filed
as Exhibit 3d. to Form 10-K for the fiscal
year ended December 31, 1995 and incorporated
herein by reference. File No. 0-538).
81
<PAGE>
3e. --Certificate of Amendment of the Certificate
of Incorporation dated November 30, 1995.
(Filed as Exhibit 3e. to Form 10-K for the
fiscal year ended December 31, 1995 and
incorporated herein by reference. File No.
0-538).
3f. --By-Laws of the registrant as amended (filed
as Exhibit 3d to Form 10-K for fiscal year
ended December 31, 1992 and incorporated
herein by reference. File 0-538).
Exhibit 4 - Instruments defining the rights of security holders,
including indentures
4a. --Form of Indenture dated as of November 1, 1984 (filed
as Exhibit 4a to Registration Statement No.
2-88582 and incorporated herein by reference).
4b. --Form of Indenture dated as of May 1, 1986 (filed
as Exhibit 4a to Pre-Effective Amendment No. 1
to Registration Statement No. 33-5578 and
incorporated herein by reference).
82
<PAGE>
Exhibit 10 -- Material contracts
10a. --Employment contract of Lawrence Lefkowitz,
dated July 26, 1993. (Filed as Exhibit 10.2 to
Pre-Effective Amendment No. 1 to Registration
Statement No. 33-51023 and incorporated herein by
reference).
10b. --Legal Services Agreement dated as of August 1,
1990 between Bank Hapoalim B.M. and Ampal-American
Israel Corporation. (Filed as Exhibit 10i to Form
10-K for fiscal year ended December 31, 1990 and
incorporated herein by reference. File No.
0-538).
10c. --Warrant Agreement between Ampal-American Israel
Corporation and Chemical Bank, dated as of
February 1, 1994. (Filed as Exhibit 10e to Form
10-K for the fiscal year ended December 31, 1993
and incorporated herein by reference. File No.
0-538).
10d. --Agreement dated February 7, 1992 among
Inerta-Energies Future Technologies Ltd., Yehuda
(Yuli) Offer, Offer Brothers (Management) Ltd.,
Offer Shipping Ltd., Offer Ship Holdings Ltd.,
L.I.N. (Holdings) Ltd., I.I.Z. European
Enterprise B.V., Amnon Leon, Ampal Industries Inc.
and Yeshayahu Landau (Translation). (Filed as
Exhibit 10.1 to Pre-Effective Amendment No. 1 to
Registration Statement No. 33-51023 and
incorporated herein by reference).
10e. --Ampal-American Israel Corporation's 1993 Stock Option
Plan. (Filed as Exhibit 10.3 to Pre-Effective
Amendment No. 1 to Registration Statement No.
33-51023 and incorporated herein by reference).
83
<PAGE>
Page
Reference*
----------
10f. --Amendment dated as of March 23, 1994 to Ampal-American
Israel Corporation's 1993 Stock Option Plan.
(Filed as Exhibit 10h to Form 10-K for the fiscal
year ended December 31, 1993 and incorporated
herein by reference. File No. 0-538).
10g. --Agreement dated March 22, 1993 between the Investment
Company of Bank Leumi, Ltd., and Ophir Holdings
Ltd., Mercazim Investments Ltd., Diur B.P. Ltd.
and Mivnat Holdings Ltd. (Filed as Exhibit 10.4
to Pre-Effective Amendment No. 1 to Registration
Statement No. 33-51023 and incorporated herein by
reference).
10h. --Committed Line of Credit Agreement dated as of June 5,
1992 and amendments dated October 31, 1992 and
October 31, 1993. (Filed as Exhibit 10.5 to
Pre-Effective Amendment No. 1 to Registration
Statement No. 33-51023 and incorporated herein by
reference).
10i. --Agreement dated January 18, 1994 between Ampal
Industries, Inc. and Inerta-Energies and Future
Technologies Ltd. (Translation). (Filed as Exhibit
10.6 to Pre-Effective Amendment No. 1 to
Registration Statement No. 33-51023 and
incorporated herein by reference).
10j. --Agreement dated March 30, 1994 between Investment
Company of Bank Hapoalim Ltd., Ampal (Israel) Ltd.
and Ampal Industries (Israel) Ltd. (Translation).
(Filed as Exhibit 10l to Form 10-K for the fiscal
year ended December 31, 1994 and incorporated
herein by reference. File No. 0-538).
10k. --Agreement of Sale and Purchase, dated April 12, 1995
between Massachusetts Mutual Life Insurance
Company and Ampal Realty Corporation (Filed as
Exhibit (1) to Form 8-K, dated June 28, 1995 and
incorporated herein by reference. File No.
0-538).
10l. --Amendment dated June 12, 1995 to Exhibit 10l. (Filed
as Exhibit (2) to Form 8-K, dated June 28, 1995
and incorporated herein by reference. File No.
0-538).
10m. --Agreement dated August 15, 1995 by and among Ampal-
American Israel Corporation and Bank Hapoalim B.M.
(Filed as Exhibit 10m. to Form 10-K for the fiscal
year ended December 31, 1995 and incorporated
herein by reference. File No. 0-538).
10n. --Share Purchase Contract dated October 11, 1996
between Ampal Industries, Inc. and Agrifarm
International Ltd. (Translation). (Filed as
Exhibit 10 to Form 10-Q for the quarterly period
ended September 30, 1996 and incorporated herein
by reference. File No. 2-5061).
10o. --Exchange Agreement dated as of December 11,
1996 between Ampal-American Israel Corporation
Ampal and Bank Hapoalim B.M. (Filed as Exhibit 2
to Amendment No. 34 of Schedule 13D filed by Bank
Hapoalim B.M. on December 20, 1996 and
incorporated herein by reference).
10p. --Agreement of Sale dated December 12, 1996
between Ampal Realty Corporation and The
Government of Israel. E-2
10q. --Declaration Establishing a Plan for Condominium
84
<PAGE>
Ownership of Premises 800 Second Avenue, New York,
New York, dated December 12, 1996 (Filed as Exhibit
A to Exhibit 10p of this Report). E-27
85
<PAGE>
Page
Reference*
----------
Exhibit 11 -- Statement re Computation of earnings per share... E-114
Exhibit 12 -- Statement re Computation of Ratios............... E-115
Exhibit 21 -- Subsidiaries of the Registrant................... E-116
Exhibit 23 -- Consents of Auditors:
AM-HAL Ltd......................................... E-117
Ampal-American Israel Corporation.................. E-118
Ampal Engineering (1994) Ltd....................... E-119
Ampal Enterprises Ltd.............................. E-120
Ampal Financial Services Ltd....................... E-121
Ampal Holding (1991) Ltd........................... E-122
Ampal Industries (Israel) Ltd...................... E-123
Ampal (Israel) Ltd................................. E-124
Ampal Properties Ltd............................... E-125
Bank Hapoalim (Cayman) Ltd......................... E-126
Bay Heart, Ltd .................................... E-127
Carmel Container Systems Ltd. ..................... E-128
Coral World International Ltd. .................... E-129
Country Club Kfar Saba Limited..................... E-130
Epsilon Investment House Ltd....................... E-131
Granite Hacarmel Investments Limited............... E-132
Hapoalim Mayo Casa (Uruguay) S.A................... E-133
Hod Hasharon Sport Center (1992) Ltd. Partnership.. E-134
Mivnat Holdings Ltd................................ E-135
Moriah Hotels Ltd.................................. E-136
Nir Ltd............................................ E-137
Ophir Holdings Ltd................................. E-138
Orlite Industries (1959) Ltd....................... E-139
Paradise Industries Ltd............................ E-140
Pri Ha'emek (Canned and Frozen Food) 88 Ltd. ...... E-141
Red Sea Marineland Holding (1973) Ltd.............. E-142
Red Sea Underwater Observatory Ltd................. E-144
Renaissance Investment Co. Ltd..................... E-146
Shmey-Bar Real Estate 1993 Ltd..................... E-147
Shmey-Bar (T.H.) 1993 Ltd.......................... E-148
Teledata Communication Ltd......................... E-149
Trinet Investment in High-Tech Ltd................. E-150
Trinet Venture Capital Ltd......................... E-151
U.D.S.-Ultimate Distribution Systems Ltd........... E-152
Exhibit 24 -- Powers of Attorney............................... E-153
(b) A Current Report on Form 8-K, dated December 11, 1996
was filed by the Registrant which listed an Item 1
event relating to a change of control of Registrant
and an Item 5 event, the resignation of Shlomo Recht
as Chairman of the Board of Directors of Registrant.
A second Current Report on Form 8-K, dated December
23, 1996, which described in Item 2 event, the
transfer of Ampal's interest in Pri Ha'emek to
Agrifarm, was also filed.
* Page references preceded by the letter "E" refer to the separately bound
volume of exhibits.
86
<PAGE>
REPRESENTATIVE RATES OF EXCHANGE
BETWEEN THE U.S. DOLLAR AND THE NEW ISRAELI SHEKEL
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
-------------------------------------------
The following table shows the amount of New Israeli Shekels equivalent to one
U.S. Dollar on the dates indicated:
1996 1995 1994
----------------------------------------
March 31 3.111 2.968 2.969
June 30 3.203 2.951 3.033
September 30 3.220 2.995 3.013
December 31 3.251 3.135 3.018
87
<PAGE>
BAY HEART LTD. & ITS SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996
88
<PAGE>
BAY HEART LTD. & ITS SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996
INDEX
Page
-------------
Report of Independent Auditors 90-91
Balance Sheets 92-94
Statements of Income 95
Statements of Changes in Shareholders' Equity 96
Statements of Cash Flows 97-100
Notes to Financial Statements 101-127
89
<PAGE>
[Letterhead of Ronel Stettner & Co.]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
BAY HEART LTD.
We have audited the balance sheets of Bay Heart Ltd. ("the Company") as of
December 31, 1996 and 1995, and the consolidated balance sheets of the Company
and its subsidiary ("the consolidated") as of December 31, 1996 and 1995, and
the related statements of income, statements of changes in shareholders' equity
and statements of cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed under the auditors Regulations (Auditor's
Mode of Performance), 1973 and, accordingly, we has performed such auditing
procedures as we considered necessary in the circumstances. For purposes of
these financial statements, there is no material difference between generally
accepted Israeli auditing standards and auditing standards generally accepted in
the U.S. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentations.
We believe that our audits provide a reasonable basis for our opinion.
The above statements have been prepared on the basis of historical cost as
adjusted for the changes in the general purchasing power of the Israeli currency
in accordance with opinion issued by the Institute of Certified Public
Accountants in Israel.
Condensed statements in historical values which formed the basis of the adjusted
statements, appear in Note 23 to the financial statements. These amounts have
been translated into U.S. dollars using the method described in Note 24.
In our opinion, based on our audit, the above mentioned consolidated financial
statements present fairly the financial position consolidated and Company - as
of December 31, 1996 and 1995, the results of its operations, the changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1996, in conformity with accounting principles generally
accepted in Israel, consistently applied.
Also, in our opinion, the condensed - consolidated and the Company's financial
statements based on nominal data as presented in Note 24 present fairly, in
conformity with generally accepted accounting principles, the financial position
of the Company as at December 31, 1996 and 1995, and the results of operations,
changes in shareholder's equity, and its cash flows for each of the three years
in the period ended December 31, 1996, on the basis of the historical cost
convention.
90
<PAGE>
[Letterhead of Ronel Stettner & Co.]
Accounting principles generally accepted in Israel differ in certain respects
from accounting principles generally accepted in the United States. The
application of the latter would have affected the determination of historical
net income (loss) and shareholder's equity to the extent summarized in Note
24(g) to the financial statements.
/s/ [Illegible]
Haifa, Israel, RONEL STETTNER & CO.
February 10, 1997 Certified Public Accountants (Israel)
91
<PAGE>
CONSOLIDATED BALANCE SHEET
92
<PAGE>
BAY HEART LTD. & ITS SUBSIDIARY
BALANCE SHEETS
----------------------------------------------------------------------------
Adjusted to the NIS of December 1996
<TABLE>
<CAPTION>
Consolidated The Company
---------------------------- ----------------------------
December 31, December 31,
---------------------------- ----------------------------
1996 1995 1996 1995
----------- ------------ ----------- ------------
Note Adjusted NIS
-------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 1 1 1 1
Trade receivables 3 1,353 1,534 1,353 1,534
Accounts receivable 4 564 258 476 258
----------- ------------ ----------- ------------
1,918 1,793 1,830 1,793
----------- ------------ ----------- ------------
INVESTMENT LOANS AND LONG-TERM 5 978 452 8,084 7,803
RECEIVABLES
----------- ------------ ----------- ------------
FIXED ASSETS, NET 202,823 206,844 195,101 199,327
----------- ------------ ----------- ------------
205,719 209,089 205,015 208,923
=========== ============ =========== ============
</TABLE>
/s/ M. Mor
---------------------------------------------
Mr. M. Mor
Chairman of the Board
/s/ Y. Freidenberg
---------------------------------------------
Mr. Y. Freidenberg
Director
/s/ U. Dori
---------------------------------------------
Mr. U. Dori
Director
February 10, 1997
----------------------------
Date
The accompanying notes are an integral part of the financial statements.
93
<PAGE>
BAY HEART LTD. & ITS SUBSIDIARY
BALANCE SHEETS
----------------------------------------------------------------------------
Adjusted to the NIS of December 1996
<TABLE>
<CAPTION>
Consolidated The Company
---------------------------- ----------------------------
December 31, December 31,
---------------------------- ----------------------------
1996 1995 1996 1995
----------- ------------ ----------- ------------
Note Adjusted NIS
-------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Credits from banks 7 20,506 20,007 20,506 20,007
Trade payables 8 1,614 1,340 1,614 1,340
Accounts payable and accrudes 9 3,538 4,384 2,834 4,218
----------- ------------ ----------- ------------
25,658 25,731 24,954 25,565
----------- ------------ ----------- ------------
LONG TERM LIABILITIES:
Deferred taxes on income 10 8,536 7,374 8,536 7,374
Liabilities in respect of employee 11 2 10 2 10
rights upon retirement, net
Liabilities to banks 12 78,560 91,698 78,560 91,698
Liabilities to related parties 13 50,298 47,220 50,298 47,220
Tenants' deposits 1,214 1,287 1,214 1,287
----------- ------------ ----------- ------------
138,610 147,589 138,610 147,589
----------- ------------ ----------- ------------
CHARGES,COLLATERALS,COMMITMENTS
AND CONTINGENCIES 14
SHAREHOLDERS' EQUITY 15 41,451 35,769 41,451 35,769
----------- ------------ ----------- ------------
205,719 209,089 205,015 208,923
=========== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
94
<PAGE>
BAY HEART LTD. & ITS SUBSIDIARY
STATEMENTS OF INCOME
----------------------------------------------------------------------------
Adjusted to the NIS of December 1996
<TABLE>
<CAPTION>
The Company and Consolidated (Note 1)
--------------------------------------------------
Year ended December 31,
1996 1995 1994
------------ ------------ -----------
Note Adjusted NIS
-------- ---------------------------------------------------
(In thousands except per share data)
<S> <C> <C> <C> <C>
Revenues 16 31,992 31,631 31,173
Operating expenses 17 12,680 13,170 12,337
------------ ------------ -----------
Gross profit 19,312 18,461 18,836
General and administrative expenses 18 1,642 1,519 1,433
------------ ------------ -----------
Income from ordinary operations 17,670 16,942 17,403
Financial expenses, net (8,704) (8,720) (7,948)
Other income 19 - - 844
Capital loss (11) (51) -
------------ ------------ -----------
Income before taxes 8,955 8,171 10,299
Taxes on income 20 3,273 3,103 4,428
------------ ------------ -----------
Net income for the year 5,682 5,068 5,871
============ ============ ===========
Earnings per share (in adjusted NIS)
Earnings per NIS 1.- par value shares 21 1.36 1.21 1.40
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
95
<PAGE>
BAY HEART LTD. & ITS SUBSIDIARY
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
----------------------------------------------------------------------------
Adjusted to the NIS of December 1996
<TABLE>
<CAPTION>
Receipts
Share on account Retained
capital of shares earnings Total
------------ ---------- ------------ ------------
Adjusted NIS
-----------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Balance at January 1, 1994 14,678 1,427 8,725 24,830
Net income for the year - - 5,871 5,871
------------ ------------ ------------ ------------
Balance at December 31, 1994 14,678 1,427 14,596 30,701
Net income for the year - - 5,068 5,068
------------ ------------ ------------ ------------
Balance at December 31, 1995 14,678 1,427 19,664 35,769
Net income for the year - - 5,682 5,682
------------ ------------ ------------ ------------
Balance at December 31, 1996 14,678 1,427 25,346 41,451
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
96
<PAGE>
BAY HEART LTD. & ITS SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------------------------------------------------------
Adjusted to the NIS of December 1996
<TABLE>
<CAPTION>
CONSOLIDATED
---------------------------------------------------
For the Year Ended December 31,
---------------------------------------------------
1996 1995 1994
------------ ------------ -----------
Adjusted NIS
---------------------------------------------------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income for the year 5,682 5,068 5,871
Adjustment to reconcile net income to net cash
provided by operating activities (Appendix A) 5,169 7,846 8,500
------- ------- -------
Net cash provided by operating activities 10,851 12,914 14,371
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in fixed assets (885) (1,658) (11,639)
Long-term loans and receivables (230) (452) --
Disposal of fixed assets 45 8 17
------- ------- -------
Net cash used by investing activities (1070) (2,102) (11,622)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term loans from received related parties 3,295 3,227 9,337
Short-term loans repaid from related parties -- -- (2,992)
Long-term loans received from banks 2,646 -- --
Repaid long-term loans from banks (15,349) (14,592) (12,704)
Short-term credits from banks, net (300) 585 3,678
Decrease in tenant's deposits (73) (42) (101)
------- ------- -------
Net cash used by financing activities (9,781) (10,822) (2,782)
------- ------- -------
DECREASE IN CASH AND CASH EQUIVALENTS -- (10) (33)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
1 11 44
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR 1 1 11
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
97
<PAGE>
BAY HEART LTD. & ITS SUBSIDIARY
APPENDIX A: ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
----------------------------------------------------------------------------
Adjusted to the NIS of December 1996
<TABLE>
<CAPTION>
CONSOLIDATED
---------------------------------------------------
For the Year Ended December 31,
---------------------------------------------------
1996 1995 1994
------------ ------------ -----------
Adjusted NIS
---------------------------------------------------
(In thousands)
<S> <C> <C> <C>
INCOME AND EXPENSES NOT INVOLVING
CASH FLOWS:
Depreciation and amortization 5,115 5,467 5,435
Erosion of long-term loans 147 (1,089) (244)
Deferred taxes on income 1,162 1,293 1,995
Increase (decrease) in liability regarding employee's
rights upon retirement (8) 8 (42)
Capital loss 11 51 --
------ ------ ------
6,427 5,730 7,144
------ ------ ------
CHANGES IN OPERATING ASSETSAND LIABILITY ITEMS:
Decrease (increase) in trade receivables 181 251 (355)
Decrease (increase) in trade receivables (330) 111 1,557
Collection of war damage claims -- 2,534 --
Increase (decrease) in trade payables 274 593 (316)
Increase (decrease) in accounts payable and accruals (1,383) (1,373) 470
------ ------ ------
(1,258) 2,116 1,356
------ ------ ------
------ ------ ------
5,169 7,846 8,500
====== ====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
98
<PAGE>
BAY HEART LTD. & ITS SUBSIDIARY
STATEMENT OF CASH FLOWS
----------------------------------------------------------------------------
Adjusted to the NIS of December 1996
<TABLE>
<CAPTION>
THE COMPANY
---------------------------------------------------
For the Year Ended December 31,
1996 1995 1994
------------ ----------- ------------
Adjusted NIS
---------------------------------------------------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 5,682 5,068 5,871
Adjustment to reconcile net income to cash net
provided by operating activities (Appendix A) 5,169 7,846 8,500
------- ------- -------
Net cash provided by operating activities 10,851 12,914 14,371
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in fixed assets (691) (1,067) (4,937)
Long-term loan to subsidiary (424) (1,042) (6,703)
Disposal of fixed assets 45 8 17
------- ------- -------
Net cash used by investing activities (1070) (2,101) (11,623)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term loans received from related parties 3,295 3,227 9,337
Short-term loans repaid from related parties -- -- (2,992)
Long-term loans received from banks 2,646 -- --
Long-term loans repaid from banks (15,349) (14,592) (12,704)
Short-term credits from banks, net (300) 585 3,678
Decrease in tenant's deposits (73) (42) (101)
------- ------- -------
Net cash used by financing activities (9,781) (10,822) (2,782)
------- ------- -------
DECREASE IN CASH AND CASH EQUIVALENTS: -- (9) (34)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
1 10 44
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR 1 1 10
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
99
<PAGE>
BAY HEART LTD. & ITS SUBSIDIARY
APPENDIX A: ADJUSTMENT TO RECONCILE NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
----------------------------------------------------------------------------
Adjusted to the NIS of December 1996
<TABLE>
<CAPTION>
THE COMPANY
---------------------------------------------------
For the Year Ended December 31,
1996 1995 1994
------------ ----------- ------------
Adjusted NIS
---------------------------------------------------
(In thousands)
<S> <C> <C> <C>
INCOME AND EXPENSES NOT INVOLVING
CASH FLOWS:
Depreciation and amortization 5,115 5,467 5,435
Erosion of long-term loans 147 (1,089) (244)
Deferred taxes on income 1,162 1,293 1,995
Increase (decrease) in liability I respect of
employee's rights upon retirement, net (8) 8 (42)
Capital loss 11 51 --
------ ------ ------
6,427 5,730 7,144
------ ------ ------
CHANGES IN OPERATING ASSETS AND
LIABILITY ITEMS:
Decrease (increase) in accounts receivable 181 251 (355)
Decrease (increase) in trade receivables (330) 111 1,557
Collection of war damage claims -- 2,534 --
Increase(decrease) in trade payables 274 593 (316)
Increase (decrease) in accounts payable and accruals
(1,383) (1,373) 470
------ ------ ------
(1,258) 2,116 1,356
------ ------ ------
------ ------ ------
5,169 7,846 8,500
====== ====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
100
<PAGE>
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
NOTE 1:- THE COMPANY AND ITS ACTIVITIES
The Company is a private company, owning and operating a shopping
center in the Haifa Bay area, known as "Bay Heart".
A wholly owned subsidiary, Bay Heart Properties (1994) Ltd. (BHP)
has acquired 50% of the titles in adjacent land. In 1996 BHP was
engaged in the planning of a commercial center on the adjacent
land. All erection costs were charged to cost of land. BHP was
engaged in no other activities, and there is no statement of income
to be attached.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
a. Financial statements in adjusted Israeli currency:
--------------------------------------------------
1. The financial statements are presented on the basis of the
historical cost adjusted to the changes in the general
purchasing power of the Israeli currency (NIS), in accordance
with the principles determined by the Institute of Certified
Public Accountants in Israel ("the Israeli Institute").
All figures in the accompanying financial statements
(including comparative figures) are presented in adjusted NIS,
which have a stable purchasing power (NIS of December 1996),
based upon the changes in the Israeli CPI.
The financial statements are adjusted based on the accounts of
the Company maintained in nominal NIS. A summary of the
financial statements in nominal NIS is presented in Note 23.
2. The adjusted amounts of non-monetary assets do not necessarily
represent realizable or current economic value, but only the
originla historical cost of those assets in terms of adjusted
NIS. The term "cost" in these financial statements signifies
cost in adjusted NIS.
b. Principles of adjustment:
-------------------------
1. Non-monetary balance sheet items and the related components of
statement of income:
a) Non-monetary items (mainly fixed assets and related
accumulated depreciation, inventories and related customer
advances, work in progress and the related customer
advances, intangible assets and deferred charges, and share
capital and capital surplus derived from cash flow from
shareholders) have been adjusted on the basis of the
Israeli CPI at the time the related transactions were
carried out. The components of the statement of income
relating to non-monetary items (mainly changes in
inventories and work in progress, depreciation and
amortization) have been adjusted on the same basis used for
the adjustment of the related balance sheet items.
101
<PAGE>
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
b) Deferred taxes are computed on the basis of the adjusted
figures (see 2f. below).
c) Share capital and capital surplus derived from retained
earnings (by way of distribution of bonus shares or by
other transfers from retained earnings to capital surplus)
have been reflected in these financial statements only if
they represent capitalization of earnings in real terms.
d) Monetary items (items whose amounts in the balance sheet
reflect current or realizable values) are presented in the
balance sheet as of December 31, 1996 in their nominal
amounts (figures for the preceding years have been adjusted
to the December 1996 Israeli CPI).
2. Statement of income:
--------------------
a) The components of the statement of income (exept for
financing), relating to transactions carried out during the
year - sales, expenses, etc, have been adjusted on the
basis of receipt or at the time of payment until balance
sheet date of the changes in the Israeli CPI at the time.
The erosion of monetary balances relating to the aforesaid
transactions has been included in the relevant items in the
statement of income..
b) The components of the statement of income relating to
non-monetary items have been adjusted on the same basis
used for the adjustment of the related balance sheet items
(mainly depreciation, capital gain, etc).
c) The components of the statement of income relating to
provisions included in the balance sheet, such as liability
in respect of employee rights upon retirement, net and
provisions for vacation pay, have been determined on the
basis of the changes in the balances of the related balance
sheet items after their relative cash flows are taken into
account.
d) Equity in results of subsidiaries has been determined on
the basis of the adjusted financial statements of the
subsidiaries.
e) The financial expenses, net reflect real financial income
and expenses.
f).Deferred taxes:
---------------
Deferred taxes are computed in respect of differences
between the amount, included in these financial statements
and those to be considered for tax purposes. The main
components in respect of which deferred taxes have been
incluede are as follows:
1. Differences between the value of fixed assets in the
financial statements and for depreciation differences
of buildings whose depreciation period exceeds 20
years.
2. Change in balances of taxes due to different timing.
The amounts included in these financial statements and
those to be considered for tax purposes
102
<PAGE>
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
Adjusted to the NIS of December 1996
3. Deferred tax balances are computed at the enacted
tax rate expected to be in effect at the time when
these taxes will be released to the statement of
income. No deferred taxes were computed in respect
of capital gains that would be due in the event that
the investments in subsidiary was realized, since
the company intends to hold such investments.
g. Data regarding Israeli CPI and exchange rate of foreign currency:
-----------------------------------------------------------------
Below are Israeli CPI's and rates of exchange of one U.S. dollar:
<TABLE>
<CAPTION>
Exchange rate of
At the year ended one U.S. dollar Israeli CPI *
------------------------------ ------------------ ----------------------
<S> <C> <C> <C>
December 1996 NIS 3.251 143.1 points
December 1995 NIS 3.135 129.4 points
December 1994 NIS 3.018 119.7 points
December 1993 NIS 2.986 94.0 points
Changes during the year
------------------------------
December 1996 3.7% 10.6%
December 1995 3.9% 8.1%
December 1994 1.1% 14.5%
Real increase in the Israeli
CPI relative to the exchange
rate of the dollar during
the year
------------------------------
December 1996 6.7%
December 1995 4.0%
December 1994 13.2%
</TABLE>
*) According to the index for the month ending on balance sheet date on an
average basis of 1993=100.
103
<PAGE>
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
NOTE 3:-TRADE RECEIVABLE
<TABLE>
<CAPTION>
Consolidated The Company
------------------------ -------------------------
December 31, December 31,
------------------------ -------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
Adjusted NIs
---------------------------------------------------------
(In thousands)
-
<S> <C> <C> <C> <C>
Open balances 746 1,227 746 1,227
Checks receivable 610 332 610 332
------ ------ ------ ------
1,356 1,559 1,356 1,559
Less allowance for doubtful accounts (3) (25) (3) (25)
------ ------ ------ ------
1,353 1,534 1,353 1,534
====== ====== ====== ======
NOTE 4:- ACCOUNTS RECEIVABLE
Current maturities of long-term receivables 29 40 29 40
Institutions 196 -- 108 --
Other accounts receivable 339 218 339 218
------ ------ ------ ------
564 258 476 258
====== ====== ====== ======
</TABLE>
104
<PAGE>
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
NOTE 5:- LONG-TERM LOANS AND RECEIVABLES
<TABLE>
<CAPTION>
Consolidated The Company
-------------------------- --------------------------
December 31, December 31,
-------------------------- --------------------------
1996 1995 1996 1995
---------- ----------- ----------- ----------
Adjusted NIS
-----------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Long-term loan - extension of
shopping center (a) 891 452 - -
Prepaid expenses, less amortization (b) 116 40 116 40
---------- ----------- ----------- ----------
1,007 492 116 40
Less current maturities (b) (29) (40) (29) (40)
---------- ----------- ----------- ----------
978 452 87 -
Investment in subsidiary
---------- ----------- ----------- ----------
Long-term loans (c) - - 7,997 7,803
---------- ----------- ----------- ----------
978 452 8,084 7,803
========== =========== =========== ==========
</TABLE>
(a) The Company is committed, under an agreement with the parties
to a joint venture (Note 14b) to provide the financing of the
erection costs (mainly: planning and taxes) of the joint
project, pending the obtainment of an accompanying bank
financing scheme. The share of the other parties in the joint
venture, financed by the Company as aforesaid (50%), amounted
to NIS 891 thousand. This amount is presented as a long-term
loan to other parties. This loan will bear interest at the
rate which will be applicable to the said bank financing.
At this stage, accompanying bank financing has not yet been
obtained, and the long-term loan was linked to the changes in
the Israeli CPI.
Pursuant to the agreement, the loan will be secured by a lien
on the rights to land of the other parties, as mentioned, as
welll as by a note via a lien on the rights to revenues from
the shopping center.
(b) Prepaid expenses in respect of using the parking loat are
amortized over the period of the agreement (5 years) ending in
January 2001.
(c) The loan is linked to the Israeli CPI. Repayment date is to be
determined by the Company's Board of Directors, subject to
fifteen months' advance notice to the subsidiary company.
105
<PAGE>
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
NOTE 6:- FIXED ASSETS:
Consolidated:
<TABLE>
<CAPTION>
Machinery Furniture
and and office
Land (a) equipment equipment Vehicles Total
----------- -------------- -------------- ----------- ------------
Adjusted NIS
--------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Cost:
Balance at January 1, 1996 203,968 11,465 822 110 216,365
Additions during year 168 288 50 177 628
Disposals during year - - - (110) (110)
----------- -------------- -------------- ----------- ------------
Balance at December 31, 1996 204,136 11,753 872 177 216,883
----------- -------------- -------------- ----------- ------------
Accumulated depreciation
Balance at January 1, 1996 17,473 5,227 293 39 23,032
Additions during year 3,784 1,161 84 21 5,050
Disposals during year - - - (52) (52)
----------- -------------- -------------- ----------- ------------
Balance at December 31, 1996 21,257 6,388 377 8 28,030
----------- -------------- -------------- ----------- ------------
----------- -------------- -------------- ----------- ------------
Depreciated cost at the end of the year 182,879 5,365 495 169 188,908
Payments on account of fixed assets 143 - - - 143
Investment in erection of shopping
center (b) 12,038 - - - 12,038
Vacant land 1,734 - - - 1,734
----------- -------------- -------------- ----------- ------------
Depreciated cost at December 31,1996 196,794 5,365 495 169 202,823
=========== ============== ============== =========== ============
Depreciated cost at December 31, 1995 200,007 6,237 528 72 206,844
=========== ============== ============== =========== ============
</TABLE>
106
<PAGE>
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
The Company:
Fixed assets include the above amount excluding land in the amount of
NIS 7,722 thousand.
(a) The Company has ownership rights to land, except an area of 379 sqm
held under capitalized leasehold from the Israel Land Authority. The
Israel Land Authority, approved the sale of ownership to the Company,
and the consideration thereof was paid. The ownership agreement has
not yet been signed.
(b) (1) Investment in the erection of shopping center include land of the
Company in the amount of NIS 4,316 thousand and the share of the
subsidiary (50%) in land in the amount of NIS 6,568 thousand and
in the planning and erection expenses in the amount of NIS 1,154
thousand. The land of the subsidiary has not yet been registered
in the name of the subsidiary in the Land Registry offfice due to
various procedures that the sellers have to complete. To secure
the registration, a mortage of the land in favor of the
subsdiary, was recorded.
(2) Land in the amount of NIS 1,734 thousand was purchased from a
company under liquidation. The land has not yet been recorded in
the name of the Company due to a debt of the land owners to
Haifa's Municipality which was not yet paid by the receiver.
Pursuant to the purchase agreement, the receiver obligated to
deposit the proceeds with a deposit under its name, if not, those
proceeds be used unitl the land is registered in the name of the
Company. The debt of the landowners to Haifa's Municipality
totals NIS 129 thousand.
(c) As for charges - see Note 14.
<TABLE>
<CAPTION>
December 31,
-------------------------------
NOTE 7:- CREDITS FROM BANKS Interest 1996 1995
Rate ------------- ------------
% Adjusted NIS
----------- -------------------------------
(In thosuands)
<S> <C> <C> <C>
Banks-overdrafts 19.2 439 437
Banks short-term loans 16.2 3,900 4,202
Banks - Current maturities of long-term loans 16,167 15,368
------ ------
20,506 20,007
====== ======
NOTE 8:- TRADE PAYABLES
Open balances 1,604 1,182
Checks payable 10 486
------ ------
1,614 1,668
====== ======
</TABLE>
107
<PAGE>
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Consolidated The Company
---------------------------- ----------------------------
December 31, December 31,
1996 1995 1996 1995
------------ ----------- ------------ ------------
Adjsuted NIS
---------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
NOTE 9:- ACCOUNTS PAYABLE AND
ACCRUALS
Revenues received in advance 815 1,064 815 1,064
Employee's salaries and related expenses 336 321 336 321
Related parties 345 332 345 332
Institutions 996 996 296 830
Interest payable 657 761 657 761
Other accounts payable and accruals 389 582 385 582
----- ----- ----- -----
3,538 4,056 2,834 3,890
===== ===== ===== =====
</TABLE>
NOTE 10:-DEFERRED TAXES ON INCOME
<TABLE>
<CAPTION>
a. Composition:
Balance Transfer
at the to Balance at
beginning statement the end of
of the year of income the year
------------- ------------- ------------
Adjusted NIS
-------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
The caption includes the tax effect of the
following items:
Accelerated depreciation of buildings 7,440 1,147 8,587
Timing differences of allowable expenses (66) 15 (51)
------ ------ ------
7,374 1,162 8,536
====== ====== ======
</TABLE>
Deferred taxes are computed at tax rate of 36%, applicable when payments
will fall due.
b. The depreciated balance of certain depreciable fixed assets
(buildings) includes amounts which will not be recognized for tax
purposes as deductible depreciation, and which, in accordance with
the provisions of the Institute of Certified Public Accountants in
Israel are treated as permanent differences, in respect of which no
deferred taxes need to be provided.
108
<PAGE>
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
December 31,
----------------------------------
1996 1995
------------ ------------
Adjusted NIS
----------------------------------
(In thousands)
Balance at the beginning of the year 1,832 1,877
Changes during the year 16 (45)
------------ ------------
Balance at the end of the year 1,848 1,832
============ ============
NOTE 11:-LIABILITY IN RESPECT OF EMPLOYEE'S RIGHTS UPON RETIREMENT, NET
December 31,
----------------------------------
1996 1995
------------ ------------
Adjsuted NIS
----------------------------------
(In thousands)
Severance pay 331 300
Less: amounts funded (329) (290)
------------- ------------
2 10
============= ============
The Company's liability for severance pay is fully covered by the
provision for severance pay -amounts funded in managers' insurance
policies and in provident funds.
Amounts funded include accruals, and may be withdrawn only open
fullfilment of provisions of the Severance Pay Law, and related to
income tax withholding.
109
<PAGE>
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
NOTE 12:- LIABILITIES TO BANKS
Principal and interest are linked to the Israeli CPI, at the following
terms:
Consolidated
and
the Company
--------------------
December 31, 1996
--------------------
Adjusted NIS
--------------------
Annual Interest Rates (In thousands)
-----------------------------
8.075% 6,962
5.675%- 6.575% 22,877
5.25% - 5.50% 31,466
4.75% - 4.85% 33,422
-----------
94,727
Less - current authorities (16,167)
-----------
78,560
===========
The maturities are as follows:
Second year 21,011
Third year 17,063
Fourth year 12,780
Fifth year 7,323
Sixth year and thereafter 20,383
-----------
78,560
===========
As for charges - see Note 14.
NOTE 13:-LIABILITIES TO REALTED PARTIES
Consolidated
and
the Company
--------------------
December 31, 1996
--------------------
Adjusted NIS
--------------------
Annual Interest Rates (In thousands)
-----------------------------
Shareholders 15,315
Related parties 34,983
-----------
50,298
===========
The loans are linked to the Israeli CPI and bear annual interest at the
rate of 5.4%-5.5%. Interest accrued is during the year added to
principal. The maturity dates of the loans, will be determined by the
Board of Directors of the Company, subject to prior notice of 15 months.
110
<PAGE>
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
NOTE 14:-CHARGES, COLLATERALS, COMMITMENTS AND CONTINGENCIES
a. Charges and collaterals
Long-term loans from banks, amounting on December 31, 1996 to NIS
94,727 thousand, are secured by unlimited fixed and floating
charges on all of the Company's assets. Part of the loans are also
secured by lien on rental contracts.
b. Commitments:
1. A wholly owned subsidiary of the Company acquired 50% of the
rights in adjacent land. The subsidiary and the sellers
undertook to carry out a joint venture for the planning,
construction, renting and managing of a shopping center on the
said land. The subsidiary undertook to provide banking
facilities to finance the said project.
The parties undertook to mortgage the said land, and to assign
the rental agreements as security for the said financing..
As of balance sheet date, various planning expenses relating
to the above project aggregated to NIS 1 million. The total
scope of investment in the project is estimated by the parties
at $25 million.
The subsidiary and the partners to the joint venture examin
the possibility of postponing the erection of the above
project and erecting a smaller project as an interim-stage.
2. On August 22, 1995, the Company signed an agreement to erect a
transportation complex in the vicinity of the Company's
shopping center. The parties to the agreement are the Ports
and Railways Authority, "Nitzba" (affiliate of Egged), and the
Company, in equal share. The agreement is subject to approval
by the Government of Israel. The complex is to include a
railway station, a bus terminal, commercial space and a
parking lot. The projected inclusive cost is estimated by the
parties at $25 million.
111
<PAGE>
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
c. Long-term leases
1. Future minimum lease revenues under all leases with initial
or remaining non-cancelable lease terms in excess of one
year as of December 31, 1996, are as follows:
Year Adjusted NIS
----------------------------------- -----------------
(In thousands)
1997 17,045
1998 11,552
1999 8,601
2000 7,359
2001 3,438
2002 and thereafter 12,652
-----------------
Total minimum lease revenues 60,647
=================
2. Total rentals pending on revenues from sales, for the year
ended December 31, 1996 amount to NIS 3,597 thousand.
3. In addition, lessees undertook to pay maintenance and
management fees.
4. Lease payments are linked to the Israeli CPI.
5. Lease agreements usually include renewal options.
112
<PAGE>
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
d. Contingencies:
1. The Company provided to the Municipality of Haifa a bank
guarantee in the amount of NIS 58 thousand to secure the
terms of the building permits.
2. Tax assessments by the Betterment Tax Authorities, have been
received by the Company for an additional payment of
purchase tax in respect of purchase of land in the amount of
NIS 147 thousand. The Company has objections to these
assessments, however, a resolution has not yet been
obtained. In order to enable the registration of the rights
to that land, the payment of the purchase tax was guaranteed
by issuing a bank guarantee in the amount of NIS 141
thousand.
Based on legal counsel's opinion, the Company believes that
the prospects of its objection being ultimately sustained
and upheld are good, and therefore no provision was
recorded.
e. Claims in dispute:
The Company has recognized a provision for the full exposure of
excess, as provided in its insurance policies. Injury claims
filed against the Company are based on legal counsel's opinion
and Company management covered by insurance policies.
113
<PAGE>
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
NOTE 15:-SHARE CAPITAL
Issued and
Authorized outstanding
-------------- ---------------
Ordinary shares of NIS 1 par value each
Number of shares 5,000,000 4,189,289
========= =========
Nominal amount 5,000 4,189
=========
Remeasurement supplement 10,489
---------
14,678
=========
The ordinary shares entitle their holders to attend and vote at
shareholder meetings, and to participate in distribution of profits and
in the excess of assets over liabilities upon winding-up.
114
<PAGE>
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------------------
1996 1995 1994
---------- ---------- ----------
Adjusted NIS
----------------------------------------------
(In thousands)
<S> <C> <C> <C>
NOTE 16:-REVENUES
Rental 25,131 24,975 24,576
Management fees 6,861 6,656 6,597
---------- ---------- ----------
Operating expenses 31,992 31,631 31,173
========== ========== ==========
NOTE 17:-OPERATING COSTS
Salaries and related expenses 1,484 1,517 1,222
Depreciation and amortization 5,115 5,467 5,435
Cleaning and security 2,520 2,400 2,138
Electricity and water 811 991 1,030
Insurance and municipal taxes 737 951 892
Advertising 1,043 939 849
Other expenses 970 905 771
---------- ---------- ----------
12,680 13,170 12,337
========== ========== ==========
NOTE 18:-GENERAL AND ADMINISTRATIVE
EXPENSES
Salaries and related expenses 527 593 468
Professional fees 341 447 804
Management fees 332 332 -
Other expenses 442 147 161
---------- ---------- ----------
1,642 1,519 1,433
========== ========== ==========
</TABLE>
NOTE 19:-OTHER INCOME
The amount relates to the collection of debt which was considered
as bad debt in previous years.
115
<PAGE>
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
NOTE 20:-TAXES ON INCOME
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------------
1996 1995 1994
---------- ---------- ---------
Adjusted NIS
---------------------------------------------
(In thousands)
<S> <C> <C> <C>
a. Composition:
Current taxes on income 1,970 1,788 2,404
Erosion of tax prepayment 70 22 29
Deferred taxes 1,310 1,293 1,995
Deferred taxes in respect of
previous years (148) -- --
Taxes in respect of previous years 71 -- --
------ ----- -----
3,273 3,103 4,428
====== ===== =====
</TABLE>
b. Effective tax rate
Reconciliation between the theoretical tax expense assuming all the income
of the company were taxed at the regular rates applicable to companies in
Israel and the actual tax expense as reported in the statement of income:
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------------
1996 1995 1994
---------- ---------- ---------
Adjusted NIS
---------------------------------------------
(In thousands)
<S> <C> <C> <C>
Statutory
Regular tax rates 36% 37% 38%
====== ===== =====
Theoretical tax expense in respect of this income 3,227 3,025 3,914
Effect of disallowable expenses for tax purposes 42 35 --
Measurement base differences between financial
statements and reporting for tax purposes and other
differences, net 11 21 4
Erosion of advance payment 70 22 29
Adjustment of provision for
accelerated depreciation of
building -- -- 481
Taxes in respect of previous years (77) -- --
------ ----- -----
3,273 3,103 4,428
====== ===== =====
</TABLE>
c. Tax assessments:
Final tax assessments have been received by the Company through tax year
1994.
116
<PAGE>
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
NOTE 21:-EARNINGS PER NIS 1 PAR VALUE OF ORDINARY SHARES
The net income and the par value of shares used in the computation of
net earnings per NIS1 par value of shares are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------
1996 1995 1994
---------- ---------- ----------
Adjusted NIS
---------------------------------------------
(In thousands)
<S> <C> <C> <C>
Weighted number of shares used in the computation of net
earnings per share 4,189 4,189 4,189
========== ========== ==========
Net income 5,682 5,068 5,871
========== ========== ==========
NOTE 22:-TRANSACTIONS WITH RELATED PARTIES
a. Liabilitites to related parties:
See Notes 9 and 13.
b. Benefits granted to and transactions with related parties:
Year ended December 31,
---------------------------------------------
1996 1995 1994
---------- ---------- ----------
Adjusted NIS
---------------------------------------------
(In thousands)
1. Payments:
Interest on short-term loans (in nominal NIS) -- -- 342
Interest on long-term loans 2,964 3,132 1,591
2. Revenues- rental and management fees 3,138 3,138 3,111
3. Related party employed by the Company - salary 488 459 436
4. Management fee 332 332 --
5. A related party has placed a guarantee on long-term loan from bank in the amount of NIS 2,669 thousand.
</TABLE>
117
<PAGE>
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
NOTE 23:-A SUMMARY OF THE FINANCIAL STATEMENTS IN NOMINAL (HISTORICAL) VALUES
a. Balance sheets:
December 31
1996 1995
---------- -------
NIS
----------------------
(In thousands)
Assets:
-------
Current assets 1,827 1,608
Loan to subsidiary 7,997 7,056
Long-term loans and receivables 82 --
Fixed assets, net 103,661 105,140
---------- ---------
113,567 113,804
========== =========
Liabilities less shareholders' deficiency
-----------------------------------------
Current liabilities 24,954 23,117
Long-term liabilities 130,074 126,791
Shareholders' deficiency (41,461) (36,104)
---------- ---------
113,567 113,804
========== =========
118
<PAGE>
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
b. Statements of operations:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------
1996 1995 1994
----------- ----------- -----------
NIS
------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Revenues: 30,776 27,424 24,524
------- ------- -------
Operating expenses 9,014 8,099 6,693
Depreciation and amortization 2,725 2,902 2,872
------- ------- -------
11,739 11,001 9,595
------- ------- -------
Income from ordinary operations 19,037 16,423 14,959
Financial expenses, net (22,357) (18,049) (23,990)
Other income -- -- 700
Capital gain (loss) 4 (23) --
------- ------- -------
Loss before tax on income (3,316) (1,649) (8,331)
Taxes on income (2,041) (1,617) (2,012)
------- ------- -------
Loss for the year (5,357) (3,266) (10,343)
======= ======= =======
</TABLE>
c. Statement of changes in shareholders' deficiency:
<TABLE>
<CAPTION>
Receipts
Share on account
capital of shares Deficit Total
------------ ------------ ------------ ------------
NIS
------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Balance at January 1, 1994 4,189 484 (27,168) (22,495)
Loss for the year - - (10,343) (10,343)
------------ ------------
------------ ------------
Balance at December 31, 1994 4,189 484 (37,511) (32,838)
Net loss for the year - - (3,266) (3,266)
------------ ------------ ------------ ------------
Balance at December 31, 1995 4,189 484 (40,777) (36,104)
Net loss for the year - - (5,357) (5,357)
------------ ------------ ------------ ------------
Balance at December 31, 1996 4,189 484 (46,134) (41,461)
============ ============ ============ ============
</TABLE>
119
<PAGE>
NOTE 24:TRANSLATION INTO U.S. DOLLARS
INDEX
Page
----------
(a) Principles of Remeasurement 121
(b) Condensed Consolidated Balance Sheets 122
(c) Condensed Consolidated Statement of Income 123
(d) Condensed Consolidated Statement of Shareholders' Equity 124
(e) Condensed Consolidated Statement of Cash Flow 125
(f) Taxes on Income 127
(g) Effect of Translation 127
120
<PAGE>
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
NOTE 24:-CONDENSED CONSOLIDATED FINANCIAL STATEMENTS TRANSLATED INTO U.S.
DOLLARS
(a) Principles of Translation
-------------------------
The primary financial statements of the company are presented in
Isarel Shekels. They have been prepared on the basis of historical
cost as adjusted for the changes in the general purchasing power of
the Israel currency, in accordance with opinions issued by the
Institute of Certified Public Accountants in Israel.
The accounting principles generally accepted in the United States
differ from the aforesaid principles accepted in Israel.
The consolidated financial statements, hereafter presented in this
note, are based on the nominal financial statements in Israel Shekels,
as adjusted to comply with the accounting principles generally
accepted in the United States, as specified hereunder.
The accompanying statements are based on the December 31, 1992, dollar
statements. These were reported in U.S. dollars as if the U.S. dollar
were the functional currency.
For the purpose of the accompanying statements, the 1992 dollar
statements were translated into New Israel Sheklels (NIS) at the rate
of exchange prevailing on December 31, 1992. Commencing January 1,
1993, the nominal shekel was adopted as functional currency,
irrespective of the effects of inflation, and translated into U.S.
dollars at the following rates of exchange:
Assets and liabilities - rate at each Balance Sheet date.
Revenues expenses, gains and losses - annual average rate of each
year.
The resulting translation adjustments are reflected as a component of
shareholders' equity.
The translated amounts do not necessarily purport to represent U.S.
dollars, nor the real value of the assets in dollar terms.
121
<PAGE>
BAY HEART LTD. & ITS SUBSIDIARY
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS TRANSLATED INTO U.S DOLLARS
----------------------------------------------------------------------------
(b) Condensed Consolidated Balance Sheet
------------------------------------
<TABLE>
<CAPTION>
In NIS In USD
------------------------- --------------------------
December 31 December 31
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ASSETS
------
CURRENT ASSETS 1,915 1,614 589 515
LONG-TERM LOANS AND
RECEIVABLES 973 409 299 130
DEFERRED TAXES ON INCOME 8,983 5,739 2,763 1,830
FIXED ASSETS
Cost, net of depreciation 143,002 144,384 43,987 46,056
------- ------- ------ ------
154,873 152,146 47,638 48,531
======= ======= ====== ======
In NIS In USD
------------------------- --------------------------
December 31 December 31
1996 1995 1996 1995
---------- ---------- ---------- ----------
LIABILITIES AND SHAREHOLDERS'
-----------------------------
EQUITY
------
CURRENT LIABILITIES 25,658 23,267 7,892 7,422
LONG-TERM DEBT 130,074 126,791 40,010 40,444
SHAREHOLDERS' EQUITY (859) 2,088 (264) 665
---------- ---------- ---------- ----------
154,873 152,146 47,638 48,531
========== ========== ========== ==========
</TABLE>
122
<PAGE>
BAY HEART LTD. & ITS SUBSIDIARY
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS TRANSLATED INTO U.S DOLLARS
----------------------------------------------------------------------------
(c) Condensed Consolidated Statement of Income
------------------------------------------
<TABLE>
<CAPTION>
In NIS In USD
---------- -----------
For the year ended For the year ended
1996 1995 1994 1996 1995 1994
---------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Rental and management
income 30,776 27,424 24,524 9,659 9,107 8,182
------- ------- ------- ------ ------ ------
Less:
Maintenenace general and
administrative expenses 9,014 8,099 6,693 2,829 2,690 2,233
Depreciation and
amortization 3,561 3,824 3,792 1,117 1,269 1,265
------- ------- ------- ------ ------ ------
12,575 11,923 10,485 3,946 3,959 3,498
------- ------- ------- ------ ------ ------
------- ------- ------- ------ ------ ------
Operating Profit 18,201 15,501 14,039 5,713 5,148 4,684
Finance expenses, net (22,357) (18,023) (23,990) (7,016) (5,985) (8,004)
Other income (Expenses) -- -- 700 -- -- 234
Capital gain (loss) 6 (32) -- 2 (11) --
------- ------- ------- ------ ------ ------
Net loss before taxes (4,150) (2,554) (9,251) (1,301) (848) (3,086)
Taxes of income see (f)
hereunder 1,203 858 2,999 377 285 1,000
------- ------- ------- ------ ------ ------
Net loss for the year (2,947) (1,696) (6,252) (924) (563) (2,086)
======= ======= ======= ====== ====== ======
</TABLE>
123
<PAGE>
BAY HEART LTD. & ITS SUBSIDIARY
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS TRANSLATED INTO U.S DOLLARS
----------------------------------------------------------------------------
(d) Condensed Consolidated Statement of Change of Shareholders' Equity
------------------------------------------------------------------
<TABLE>
<CAPTION>
Share Capital
and Receipt
on Account Translation Retained
Shares Adjustment Earnings Total
--------------- --------------- ------------- ----------
Adjusted NIS
------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Balance January 1, 1994 8,052 (3,698) 5,682 10,036
Net loss for the year -- -- (6,252) (6,252)
----- ------ ------ -------
Balance December 31, 1994 8,052 (3,698) (570) 3,784
Net loss for the year -- -- (1,696) (1,696)
----- ------ ------ -------
Balance December 31, 1995 8,052 (3,698) (2,266) 2,088
Net loss for the year -- -- (2,947) (2,947)
----- ------ ------ -------
Balance December 31, 1996 8,052 (3,698) (5,213) (859)
===== ====== ====== =======
(As translated into US $, in thousands)
Balance January 1, 1994 2,913 (1,653) 2,101 3,361
Translation adjustment for the year 1994 -- (20) -- (20)
Net loss for the year -- -- (2,086) (2,086)
----- ------ ------ ------
Balance December 31, 1994 2,913 (1,673) 15 1,255
Translation adjustment for the year 1995 -- (27) -- (27)
Net loss for the year -- -- (563) (563)
----- ------ ------ ------
Balance December 31, 1995 2,913 (1,700) (548) 665
Translation adjustment fort the year 1996 -- (5) -- (5)
Net loss for the year -- -- (924) (924)
----- ------ ------ ------
Balance December 31, 1996 2,913 (1,705) (1,472) (264)
===== ====== ====== ======
</TABLE>
124
<PAGE>
BAY HEART LTD. & ITS SUBSIDIARY
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS TRANSLATED INTO U.S DOLLARS
----------------------------------------------------------------------------
(e) Condensed Consolidated Statement of Cash Flow
----------------------------------- ---------
<TABLE>
<CAPTION>
In NIS In USD
------------- ------------
For the year For the year
ended ended
1996 1995 1994 1996 1995 1994
---------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss (2,947) (1,696) (6,252) (924) (563) (2,086)
Reconciliation of net
income to cash provided
by operating activities
(Appendix A) 14,750 13,414 17,064 4,630 4,455 5,695
------- ---------- ----------- ---------- ---------- -----------
Cash provided by
operating activities 11,803 11,718 10,812 3,706 3,892 3,609
------- ---------- ----------- ---------- ---------- -----------
INVESTING ACTIVITIES
Investment in fixed assets (2,185) (2,393) (9,710) (686) (795) (3,240)
Long-term loan (594) (409) - (187) (136) -
Disposal of fixed assets 45 6 13 14 2 4
---------- ---------- -------- --------- ---------- -----------
Net cash used by
investment activities (2,734) (2,796) (9,697) (859) (929) (3,236)
---------- ---------- --------- --------- ---------- -----------
FINANCING ACTIVITIES
Long-term loans from
related parties 2,964 2,918 7,810 930 969 2,606
Long-term loans from
banks 2,500 - - 785 - -
Repayment of long-term
loans from banks (14,727) (12,704) (9,944) (4,622) (4,219) (3,318)
Short-term loans from
shareholders and related
parties - - (2,188) - - (730)
Increase in bank short-
term credits 144 804 3,117 45 267 1,040
Deposits from tenants 50 52 67 15 17 22
---------- ---------- ----------- ---------- ---------- ----------
Cash used by financing
activities (9,069) (8,930) (1,138) (2,847) (2,966) (380)
---------- ---------- ----------- ---------- ---------- -----------
Effect of exchange rate
changes - - - - - (1)
---------- ---------- ----------- ---------- ---------- -----------
---------- ---------- ----------- ---------- ---------- -----------
DECREASE IN CASH AND
CASH EQUIVALENTS - (8) (23) - (3) (8)
CASH AND CASH
EQUIVALENTS AT
BEGINNING OF YEAR
AT END OF YEAR 1 9 32 - 3 11
---------- ---------- ----------- ---------- ---------- -----------
1 1 9 - - 3
========== ========== =========== ========== ========== ===========
</TABLE>
125
<PAGE>
BAY HEART LTD. & ITS SUBSIDIARY
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS TRANSLATED INTO U.S DOLLARS
----------------------------------------------------------------------------
APPENDIX A: RECONCILIATION OF NET INCOME TO CASH PROVIDED
BY OPERATING ACTIVITIES
<TABLE>
<CAPTION>
In NIS In USD
------------- ------------
For the year For the year
ended ended
1996 1995 1994 1996 1995 1994
---------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
INCOME AND EXPENSES
NOT INVOLVING CASH-
FLOWS
Depreciation and amortization 3,561 3,824 3,792 1,118 1,270 1,265
Deferred taxes (3,244) (2,474) (5,011) (1,018) (822) (1,672)
Linkage increment on long-term
loans 14,773 9,828 17,107 4,637 3,264 5,708
Termination of employment (7) 7 (30) (2) 2 (10)
Capital loss (gain) (6) 32 -- (2) 11 --
Provision for doubtful debts -- -- -- -- -- --
------- ------- ------- ------ ------ ------
15,077 11,217 15,858 4,733 3,725 5,291
------- ------- ------- ------ ------ ------
CHANGES IN OPERATING
ASSETS AND LIABILITIES:
Decrease (increase) in accounts
receivable and other debtors (337) 281 648 (106) 93 217
Decrease (increase) in war damage
claim 33 2,107 (288) 10 700 (96)
Increase (decrease) in suppliers and
other credit balances (23) (191) 846 (7) (63) 283
------- ------- ------- ------ ------ ------
(327) 2,197 1,206 (103) 730 404
------- ------- ------- ------ ------ ------
------- ------- ------- ------ ------ ------
14,750 13,414 17,064 4,630 4,455 5,695
======= ======= ======= ====== ====== ======
</TABLE>
126
<PAGE>
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------------------
(f) Taxes on income consists:
<TABLE>
<CAPTION>
In NIS In USD
------------- ------------
For the year For the year
ended ended
1996 1995 1994 1996 1995 1994
---------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Current tax payable 2,041 1,616 266 556 537 89
Transfer to deferred taxes,
assets. 3,244 2,474 3,265 933 822 1,089
========== =========== ========== ========== ========== ==========
1,203 858 2,999 377 285 1,000
========== =========== ========== ========== ========== ==========
</TABLE>
(g) Effect of Translation
---------------------
Shareholders' Equity (deficit)
------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Primary statements, in conformity with
accounting principles generally
accepted in Israel (1) 12,750 10,317 8,509
Dollar statements, in conformity with
accounting principles generally
accepted in the United States (264) 665 1,255
Net Income (Loss)
-----------------
Primary statements, in conformity
with accounting principles
generally accepted in Israel (1) 1,748 1,462 1,627
Dollar statements, in conformity with
accounting principles generally
accepted in the United States (924) (563) (2,086)
(1) The amounts are presented in U.S. Dollars at the rate of balance sheet date.
</TABLE>
127
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996
ADJUSTED TO THE NIS OF DECEMBER 1996
INDEX
Page
----
Report of Independent Auditors 129
Consolidated Balance Sheets 130-131
Consolidated Statements of Income 132
Statements of Changes in Shareholders' Equity 133
Consolidated Statements of Cash Flows 134
Notes to Financial Statements 136-178
128
<PAGE>
[GRAPHIC OMITTED]
KOST LEVARY & FORER
A MEMBER OF
ERNST & YOUNG INTERNATIONAL
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
CARMEL CONTAINER SYSTEMS LTD.
We have audited the accompanying consolidated balance sheets of Carmel
Container Systems Ltd. and its subsidiaries as of December 31, 1995 and 1996,
and the related consolidated statements of income, changes in shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We did not audit the financial statements of subsidiaries, whose assets
as of December 31, 1995 and 1996 constitute approximately 22% and 21%,
respectively, of total consolidated assets and whose revenues for the three
years in the period ended December 31, 1996 constitute approximately 32%, 30%
and 30%, respectively, of total consolidated revenues. The financial statements
referred to above were audited by other auditors, whose reports have been
furnished to us, and our opinion, insofar as it relates to the amounts included
for these subsidiaries, is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards in Israel, including those prescribed by the Israeli Auditors (Mode of
Performance) Regulations, 1973, which do not differ significantly from generally
accepted auditing standards in the United States. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement either originating within
the financial statements themselves, or due to any misleading statement included
therein. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of the other auditors provide a
reasonable basis for our opinion.
The aforementioned consolidated financial statements have been prepared
on the basis of the historical costs adjusted for the changes in the general
purchasing power of the Israeli currency as measured by the changes in the
Israeli Consumer Price index, in accordance with statements No. 36 and 50 of the
Institute of Certified Public Accountants in Israel.
In our opinion, based upon our audits and the reports of the other
auditors, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Carmel Container
Systems Ltd. and its subsidiaries as of December 31, 1995 and 1996 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles in Israel which differ in certain respects from
those followed in the United States as described in Note 22 to the consolidated
financial statements.
/s/ Kost, Levary and Forer
----------------------------------------
Tel-Aviv, Israel KOST, LEVARY and FORER
March 10, 1997 Certified Public Accountants (Israel)
A member of Ernst & Young International
129
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
Adjusted to the NIS of December 1996
<TABLE>
<CAPTION>
December 31, December 31, 1996
------------------------------ -----------------------
1995 1996 Convenience
------------- ------------- translation into
Adjusted NIS U.S. dollars
-------------------------- -----------------------
(In thousands)
ASSETS (Notes 16 and 19)
CURRENT ASSETS:
<S> <C> <C> <C>
Cash and cash equivalents 1,570 820 252
Trade receivables (Note 3) 100,776 91,890 28,265
Accounts receivable (Note 4) *) 6,043 7,849 2,414
Inventories (Notes 2e and 5) 80,421 65,722 20,216
------------- ------------ ---------
188,810 166,281 51,147
------------- ------------ ---------
FIXED ASSETS (Notes 2g and 6):
Cost 201,948 283,817 87,301
Less - accumulated depreciation 107,061 121,709 37,437
------------- ------------ ---------
94,887 162,108 49,864
------------- ------------ ---------
OTHER ASSETS (Notes 2h and 7) 1,811 1,221 376
------------- ------------ ---------
285,508 329,610 101,387
============= ============ =========
</TABLE>
*) Reclassified.
The accompanying notes are an integral part of the financial statements.
130
<PAGE>
<TABLE>
<CAPTION>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------------------------------------------
Adjusted to the NIS of December 1996
December 31, December 31, 1996
------------------------------ --------------------------
1995 1996 Convenience
------------- -------------
translation into
Adjusted NIS U.S. dollars
------------------------------ --------------------------
(In thousands)
LIABILITIES AND SHAREHOLDERS'
EQUITY (Note 20)
CURRENT LIABILITIES:
<S> <C> <C> <C>
Credit from banks and others
(Notes 9, 12 and 13) 30,460 47,554 14,627
Trade payables (Note 10) 73,659 83,604 25,716
Accounts payable and accruals (Note 11) 33,055 24,998 7,689
------------- ------------- ----------------
137,174 156,156 48,032
------------- ------------- ----------------
LONG-TERM LIABILITIES:
Debentures (Note 12) 26,302 19,779 6,084
Liabilities to banks (Note 13a) 14,359 29,096 8,950
Liabilities to related parties (Note 13b) 2,778 2,778 855
Liability in respect of employee rights
upon retirement, net (Note 15) 1,057 1,658 510
Deferred income taxes (Note 19e) 9,925 11,338 3,488
------------- ------------- ----------------
54,421 64,649 19,887
------------- ------------- ----------------
MINORITY INTEREST IN A SUBSIDIARY (* 7,705 9,256 2,846
------------- ------------- ----------------
SHAREHOLDERS' EQUITY:
Share capital (Note 18) 19,001 19,001 5,845
Capital surplus 36,069 36,091 11,102
Retained earnings 31,339 44,689 13,746
------------- ------------- ----------------
86,409 99,781 30,693
Less shares held by a subsidiary 201 232 71
------------- ------------- ----------------
86,208 99,549 30,622
------------- ------------- ----------------
285,508 329,610 101,387
============= ============= ================
*) Reclassified.
The accompanying notes are an integral part of the financial statements.
March 10, 1997 /s/ Yoram Shetrit /s/ Ya'acov Yerushalmi /s/ Robert Kraft
- --------------------- --------------------- ----------------------- -----------------------
Date of approval of Yoram Shetrit Ya'acov Yerushalmi Robert Kraft
financial statements General Manager Vice Chairman of Chairman of the Board
the Board of Directors of Directors
</TABLE>
131
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
Adjusted to the NIS of December 1996
<TABLE>
<CAPTION>
Year ended December 31, Year ended December 31, 1996
------------------------------------------------------------------------
1994 1995 1996 Convenience translation
--------------- ------------ ---------
Adjusted NIS into U.S. dollars
------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues from sales, net (Note 21a) 316,376 374,650 363,373 111,773
Cost of sales (Note 21b) 255,108 303,016 295,967 91,039
--------------- ------------ --------- ----------------
Gross profit 61,268 71,634 67,406 20,734
--------------- ------------ --------- ----------------
Selling expenses (Note 21c) 12,275 13,886 15,134 4,655
General and administrative expenses (Note 21d) 18,320 19,197 19,658 6,047
Reorganization plan expenses (Note 21g) 3,599 2,577 - -
--------------- ------------ --------- ----------------
34,194 35,660 34,792 10,702
--------------- ------------ --------- ----------------
Income from ordinary operations 27,074 35,974 32,614 10,032
Financial expenses, net (Note 21e) 5,000 7,374 10,104 3,108
--------------- ------------ --------- ----------------
22,074 28,600 22,510 6,924
Other income (expenses), net (Note 21f) (1,623) 32 371 114
--------------- ------------ --------- ----------------
Income before taxes on income 20,451 28,632 22,881 7,038
Taxes on income (Note 18d) 7,491 9,182 7,980 2,455
--------------- ------------ --------- ----------------
12,960 19,450 14,901 4,583
Minority interest in a subsidiary, net 1,502 1,957 1,551 477
--------------- ------------ --------- ----------------
Net income for the year 11,458 17,493 13,350 4,106
=============== ============ ========= ================
Earnings per NIS 1 par value of shares (in adjusted NIS) 4.56 6.97 5.31 1.63
=============== ============ ========= ================
Weighted average number of shares outstanding 2,511 2,511 2,512 2,512
=============== ============ ========= ================
</TABLE>
The accompanying notes are an integral part of the financial statements.
132
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------------------------------
Adjusted to the NIS of December 1996
Share Shares Total
capital Capital Retained held by a shareholders'
(Note 18) surplus earnings subsidiary equity
------------- ----------- ------------ -------------- ---------------
Adjusted NIS
------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 19,001 36,069 2,388 (187) 57,271
Net income - - 11,458 - 11,458
------------- ----------- ------------ ------------- ---------------
Balance at December 31, 1994 19,001 36,069 13,846 (187) 68,729
Shares held by a subsidiary - - - (14) (14)
Net income - - 17,493 - 17,493
------------- ----------- ------------ ------------- ---------------
Balance at December 31, 1995 19,001 36,069 31,339 (201) 86,208
Shares held by a subsidiary - - - (31) (31)
Compensation expenses in
respect of options issued to - 22 - - 22
employees
Net income - - 13,350 - 13,350
------------- ----------- ------------ ------------- ---------------
Balance at December 31, 1996 19,001 36,091 44,689 (232) 99,549
============= =========== ============ ============= ===============
Convenience translation into U.S. dollars
------------------------------------------------------------------------------------
(In thousands)
Balance at January 1, 1996 5,845 11,095 9,640 (61) 26,519
Shares held by a subsidiary - - - (10) (10)
Compensation expenses in
respect of options issued to - 7 - - 7
employees
Net income - - 4,106 - 4,106
------------- ----------- ------------ ------------- ---------------
Balance at December 31, 1996 5,845 11,102 13,746 (71) 30,622
============= =========== ============ ============= ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
133
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
Adjusted to the NIS of December 1996
<TABLE>
<CAPTION>
Year ended
Year ended December 31, December 31,1996
------------------------------- -----------------
1994 1995 1996 Convenience
----------- -------- ------- translation into
Adjusted NIS U.S. dollars
--------------------------------- -----------------
(In thousands)
Cash flows from operating activities:
<S> <C> <C> <C> <C>
Net income for the year 11,458 17,493 13,350 4,106
Adjustments to reconcile net income to net cash provided by operating
activities:
Minority interest in a subsidiary, net 1,502 1,957 1,551 477
Depreciation and amortization 12,959 14,787 17,060 5,248
Deferred income taxes, net 128 (18) 1,413 435
Increase (decrease) in liability in respect of employee rights upon
retirement, net (554) (355) 601 185
Capital losses (gains), net 875 (95) (398) (122)
Increase in value of long-term loans and other liabilities (1,911) (708) (798) (245)
Compensation expenses in respect of options issued to employees -- -- 22 7
Decrease (increase) in trade receivables (6,407) (8,983) 8,886 2,733
Decrease (increase) in accounts receivable (622) 2,464 (1,370) (421)
Decrease (increase) in inventories (14,805) (25,526) 14,699 4,521
Increase in trade payables 10,484 10,862 9,945 3,059
Increase (decrease) in accounts payable and accruals 5,900 11,072 (8,412) (2,588)
------- ------- ------- -------
Net cash provided by operating activities 19,007 22,950 56,549 17,395
------- ------- ------- -------
Cash flows from investing activities:
Sources:
Proceeds from sale of fixed assets 1,349 792 663 204
Proceeds from Government loans 70 -- -- --
Short-term loans collected, net -- 480 -- --
Uses:
Purchase of fixed assets (25,109) (18,267) (84,546) (26,006)
Shares held by a subsidiary -- (14) (31) (10)
Short-term credit granted, net (481) -- -- --
------- ------- ------- -------
Net cash used in investing activities (24,171) (17,009) (83,914) (25,812)
------- ------- ------- -------
</TABLE>
The accompanying notes are an integral part of the financial statements.
134
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
Adjusted to the NIS of December 1996
<TABLE>
<CAPTION>
Year ended
Year ended December 31, December 31, 1996
------------------------------------------ -------------------------
1994 1995 1996 Convenience
------------ ----------- --------------- translation
Adjusted NIS into U.S. dollars
------------------------------------------ -------------------------
(In thousands)
Cash flows from financing activities:
Sources:
<S> <C> <C> <C> <C>
Proceeds from long-term loans 6,739 3,570 21,953 6,753
Short-term credit from bank and others, net 6,621 4,492 17,485 5,378
Issue of shares to minority in a subsidiary 568 166 - -
Uses:
Principal payments on long-term liabilities (7,218) (16,581) (12,823) (3,944)
------------ ----------- --------------- -----------------
Net cash provided by (used in) financing activities 6,710 (8,353) 26,615 8,187
------------ ----------- --------------- -----------------
Net increase (decrease) in cash and cash equivalents 1,546 (2,412) (750) (230)
Cash and cash equivalents at the beginning of the year 2,436 3,982 1,570 482
------------ ----------- --------------- -----------------
Cash and cash equivalents at the end of the year 3,982 1,570 820 252
============ =========== =============== =================
Additional information regarding investing and
financing activities which do not involve cash:
In 1994, capital notes in a subsidiary, in the amount
of NIS 3,422 thousand were converted into share capital.
Cash paid during the year for:
Interest 3,499 4,382 6,122 1,883
============ =========== =============== =================
Income taxes 4,739 1,334 6,376 1,961
============ =========== =============== =================
</TABLE>
The accompanying notes are an integral part of the financial statements
135
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1:- GENERAL
Carmel Container Systems Ltd. ("Carmel Systems" or "the Company"), an
Israeli Corporation, is an industrial company. Carmel Systems and its
subsidiaries (the "Group") are designers, manufacturers and marketers
of paper - based packaging products.
The Group designs and produces shipping containers and corrugated
cardboard panels, triple-walled cardboard containers, corrugated
cardboard and other types of paper consumer packaging, as well as
wooden pallets. The companies' sales are to a large number of
customers mainly in Israel.
In December 1995, C.D. Packaging Systems Ltd. established together
with KNP BT Solid Board Division B.V. (a Dutch company) the packaging
company - Solid Packaging Board Ltd. which is engaged in marketing
products manufactured by C.D. Packaging Systems Ltd., using the
know-how of the Dutch company as well as products manufactured by the
Dutch company.
Commencing December 1995, the financial statements of Solid Packaging
Board Ltd. are consolidated with the financial statements of the
Company (by the proportionate consolidation method)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
a. Financial statements in adjusted new Israeli shekels:
The Group maintains its accounts in nominal new Israeli shekels
(NIS).
The accompanying financial statements are presented in NIS
adjusted for changes in the general purchasing power of the
Israeli currency, as measured by the changes in the Israeli
Consumer Price Index, in accordance with Statements of the
Institute of Certified Public Accountants in Israel.
The adjusted amounts of non-monetary assets do not necessarily
represent realization value or current economic value, but rather
the original historical cost of those assets in terms of adjusted
NIS.
The term "cost" in these financial statements signifies cost in
adjusted NIS.
136
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
b. All nominal figures, including those of previous years, have been
adjusted to the Israeli Consumer Price Index published for
December 1996 as follows:
1. Balance sheet:
Non-monetary items (such as fixed assets and the related
accumulated depreciation, other assets and the related
accumulated amortization, inventories, and capital surplus
and share capital derived from cash received from
shareholders) were adjusted on the basis of the Israeli
Consumer Price Index published for the month in which they
were acquired or incurred.
Equity, the "initial difference" deriving from investments
in subsidiaries and minority interest in a subsidiary are
included on the basis of the adjusted financial statements
of those companies.
Deferred income taxes are computed based on the adjusted
figures (see i. below).
Monetary items are reflected in the balance sheet as of
December 31, 1996 in their nominal amounts. Figures for the
preceding year have been adjusted to the December 1996
Israeli Consumer Price Index.
2. Statement of income:
The components of the statement of income (except for
financing), relating to transactions carried out during the
year - sales, purchases, labor costs, etc., have been
adjusted at indices for the months in which the transactions
occurred. The erosion of monetary balances relating to the
aforesaid transactions has been included in financial income
or expenses.
Income and expense items related to non-monetary items (such
as depreciation and amortization, changes in inventories,
capital gains or losses, and minority interest in a
subsidiary) were adjusted on the same basis as the related
balance sheet items.
Income and expense items related to provisions included in
the balance sheet have been included on the same basis as
the analysis of the adjusted change in the related balance
sheet items.
The financing component represents financial income and
expenses in real terms, as well as the erosion of monetary
items during the year.
137
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Taxes on income:
Current taxes are composed of payments on account during the
year and (or net of) the amounts outstanding as of balance
sheet date. The payments on account (or claimed as returns)
have been adjusted based on the Israeli Consumer Price Index
on the date of each payment and the amounts outstanding are
not adjusted.
In this manner, the current taxes also include the expense
which derives from the erosion of the value of the payments
on account from the date of payment to the end of the year.
Deferred income taxes - see i. below.
3. Convenience translation into U.S. dollars:
The adjusted financial statements as of December 31, 1996
have been translated into United States dollars using the
rate of exchange of the United States dollar as of December
31, 1996 (U.S. $ 1.00 - NIS 3.251). The translation was made
solely for the convenience of the readers.
It should be noted that the adjusted NIS figures do not
necessarily represent the current cost amounts of the
various elements presented and that the translated United
States dollar figures should not be construed as a
representation that the Israeli currency amounts actually
represent, or could be converted into, dollars.
c. Principles of consolidation:
The consolidated financial statements include the accounts of Carmel
Systems and its over 50% controlled subsidiaries and a subsidiary
consolidated by the proportional consolidation method (see Note 23).
Material Intercompany balances and transactions among the Company and
the subsidiaries (wholly consolidated or consolidated by the
proportionate consolidation method) have been eliminated.
As for tax aspects, see i. below.
d. Allowance for doubtful debts:
Such allowance is determined in respect of specific debts which, based
on management's estimation, are doubtful of collection.
e. Inventories:
Inventories are stated at the lower of cost or market value.
138
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Cost is determined as follows:
Work in progress and finished products - on the basis of computed
manufacturing costs;
Raw materials - by the "first-in, first-out" method;
Auxiliaries and packaging materials - on the basis of
moving-average cost.
f. Cash and cash equivalents:
Cash and cash equivalents are considered by the Company to be highly
liquid investments, which include short-term bank deposits, with
original maturities of less than three months.
g. Fixed assets:
1. These assets are stated at cost, net of related investment grants
received from the State of Israel under the terms of the Law for
the Encouragement of Capital Investments. Cost of pallets and
spare parts has been determined according to the base stock
method.
2. Depreciation is computed by the straight-line method over the
estimated useful lives of the assets.
The annual depreciation rates are as follows:
%
--------------------
Buildings 8
Machinery and equipment 6 - 8
Motor vehicles and forklifts 10 - 15
Office furniture and equipment 6 - 20
Leasehold improvements 15 - 20
h. Other assets:
1. Excess of cost over the fair value of assets:
Excess of cost over the fair value of the net assets of
subsidiary at the date of acquisition of subsidiary, is amortized
over a period of ten years.
139
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. Issuance and discount expenses of debentures:
Issuance and discount expenses of debentures are stated at cost
and are amortized over the redemption period of the debentures,
using the effective interest rate on the debenture issuance.
i. Income taxes:
1. Deferred tax are computed in respect of temporary differences
between the carrying amounts of the assets and liabilities
included in these financial statements and those to be considered
for tax purposes. As to the main components in respect of which
deferred taxes have been included - see Note 18e.
2. Deferred tax balances are computed at the enacted tax rate
expected to be effect at the time when these taxes will be
released to the statement of income. The amount presented in the
statement of income represents the changes in the said balances
during the reported year.
3. The Company has not recorded deferred taxes for the realization
of investments in subsidiaries that management intends to retain.
Similarly, deferred taxes have not been provided for future
taxable distributions from subsidiaries, since it is the Group's
policy not to initiate a distribution of a dividend that involves
an additional tax liability for the Group.
140
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
j. Consumer Price Index and rates of exchange:
The following are details of the Consumer Price Index and the rate of
exchange of the U.S. dollar:
Consumer Price Rate of exchange
As of the end of the year: Index (points)*) of the U.S. dollar
-------------------------- ----------------- --------------------
1996 143.1 NIS 3.251
1995 129.4 NIS 3.135
1994 119.7 NIS 3.018
1993 104.6 NIS 2.986
The change during the year:
---------------------------
1996 10.6% 3.7%
1995 8.1% 3.9%
1994 14.5% 1.1%
*) According to the Consumer Price Index for the month ending on the
balance sheet date on an average basis of 1993 = 100.
k. Revenue recognition:
Revenues from sales are recognized upon delivery when no significant
vendor obligations remain and collection is deemed probable.
l. Earnings per share:
Earnings per share are computed based on the weighted average number
of shares outstanding during the year, in accordance with Opinion No.
55 of the Institute of Certified Public Accountants in Israel.
m. Hedging transactions and foreign currency options:
The Company enters into foreign exchange contracts to hedge certain of
its operational commitments and balance sheet exposure against changes
in foreign currency exchange rates. Such exposure is a result of the
portion of the Company's operations, assets and liabilities that are
denominated in currencies other than NIS. When the Company's foreign
exchange contracts hedge operational commitments, the effects of
movements in currency exchange rates on these instruments are
recognized when the related operating revenue and expenses are
recognized. When foreign exchange contracts hedge balance sheet
exposure, such effects are recognized when the exchange rate changes.
Because the impact of
141
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
movements in currency exchange rates on foreign exchange contracts
offsets the related impact on the underlying items being hedged, these
instruments do not subject the Company to risk that would otherwise
result from changes in currency exchange rates.
The Company had foreign exchange contracts of NIS 2.2 million
outstanding at December 31, 1996. The foreign exchange contracts
require the Company to exchange foreign currencies for NIS and
generally mature within three months.
The Company neither holds nor issues financial instruments for trading
purposes.
The unrealized gains and losses due to the hedging transaction
designated to reduce the Company's exposure to foreign currency risk
included in the statement of income, are insignificant.
All of the foreign exchange contracts will be completed by March 1997.
n. Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates.
o. Accounting for stock issued to employees:
The Company accounts for stock based compensation in accordance with
the requirements of APB-25. "Accounting for Stock Issues to
Employees". Pro forma information with respect to the fair value of
the options is provided according to the requirements of FAS-123
"Accounting for Stock Based Compensation".
142
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Under APB-25, the difference between the fair value of the Ordinary
Shares on the date of grant of the options and the exercise price of
such options, if any, will be charged to income over the vesting
periods. The amount of the difference will correspondingly be
presented as capital surplus.
p. Concentration of credit risk:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents
and trade receivables.
The Company's cash and cash equivalents are invested in deposits in
major Israeli banks. Management believes that the financial
institutions that hold the Company's investment are financially sound
and, accordingly, minimal credit risk exists with respect to these
investments.
Concentrations of credit risk with respect to trade receivables are
limited due to the large number of entities comprising the Company's
customer base and their dispersion across many different industries.
The Company performs ongoing credit evaluations of its debtors. In
management's estimations, the allowance for doubtful debts adequately
covers anticipated losses in respect of its accounts receivable
credits risks.
q. Fair value of financial instruments:
1. The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents. - The carrying amount reported in the
-------------------------
balance sheet for cash and cash equivalents approximates its fair
value.
Debentures - Fair values of debentures issued to the public are
----------
based on the quoted market prices.
Long - and short-term debt - The carrying amounts of the
--------------------------
Company's borrowings under its short-term credit agreements
approximate their fair value. The fair value of the Company's
long-term debt is estimated using discounted cash flows analyses,
based on the Company's current incremental borrowing rates for
similar types of borrowing arrangements.
143
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. The carrying amounts and fair value of the Company's financial
instruments at December 31, 1996, are as follows (amounts in
thousands):
Carrying
amount Fair value
------------- --------------
Cash and cash equivalents 820 820
Short-term debt 34,433 34,433
Debentures 26,332 25,678
Long-term debt 38,442 38,442
NOTE 3:- TRADE RECEIVABLES
a. Composed as follows:
<TABLE>
<CAPTION>
December 31, December 31, 1996
------------------------------ ----------------------
1995 1996 Convenience
------------- --------------- translation into
Adjusted NIS U.S. dollars
----------------------------- ----------------------
(In thousands)
<S> <C> <C> <C>
Open accounts 90,110 85,444 26,282
Notes receivable 12,623 10,365 3,188
------------- --------------- ---------------
102,733 95,809 29,470
Less - allowance for
doubtful debts 1,957 3,919 1,205
------------- --------------- ---------------
100,776 91,890 28,265
============= =============== ===============
</TABLE>
b. As for balances with related parties, see Note 2l.
144
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4:- ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
December 31, December 31, 1996
------------------------------ ----------------------
1995 1996 Convenience
------------- --------------- translation into
Adjusted NIS U.S. dollars
------------------------------ ----------------------
(In thousands)
<S> <C> <C> <C>
Related parties - 436 134
Employees 409 251 77
Government authorities - 1,810 557
Other receivables *) 5,634 5,352 1,646
----------- ------------- --------------
6,043 7,849 2,414
=========== ============= ==============
*) Reclassified.
NOTE 5:- INVENTORIES
Raw materials 60,257 42,416 13,047
Auxiliaries and packaging materials
2,968 2,457 756
Work in progress 2,169 2,625 807
Finished products 13,099 13,064 4,018
----------- ------------- --------------
78,493 60,562 18,628
Goods in transit 1,928 5,160 1,588
----------- ------------- --------------
80,421 65,722 20,216
=========== ============= ==============
</TABLE>
145
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6:- FIXED ASSETS
a. Composed as follows:
<TABLE>
<CAPTION>
Motor Office Pallets
Freehold Machinery vehicles furniture and spare
land and and and and Leasehold parts -
buildings equipment *) forklifts equipment improvements base stock
----------- ------------- --------- ------------ --------------- ------------
Adjusted NIS
-----------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Cost at January 1, 1996 7,512 144,815 10,575 11,208 9,810 7,215
Additions during the year - 85,989 905 1,980 582 -
Deductions during the year - 1,300 366 23 988 -
--------- ------------- ---------- ------------ --------------- ------------
Balance at December 31, 7,512 229,504 11,114 13,165 9,404 7,215
1996
--------- ------------- ---------- ------------ --------------- ------------
Accumulated depreciation
at January 1, 1996 6,531 80,552 4,375 8,399 7,204 -
Additions during the year 218 13,032 1,329 1,230 1,251 -
Deductions during the year - 1,300 166 23 923 -
--------- ------------- ---------- ------------ --------------- ------------
Balance at December 31, 6,749 92,284 5,538 9,606 7,532 -
1996
--------- ------------- ---------- ------------ --------------- ------------
Depreciated cost at
December 31, 1996 763 137,220 5,576 3,559 1,872 7,215
========= ============= ========== ============ =============== ============
Depreciated cost at
December 31, 1995 981 64,263 6,200 2,809 2,606 7,215
========= ============= ========== ============ =============== ============
<CAPTION>
Total
----------------
Payments Convenience
on account translation
of machinery into
and equipment Total U.S. dollars
------------- ---------- ----------------
Adjusted NIS
---------------------------
(In thousands)
<S> <C> <C> <C>
Cost at January 1, 1996 10,813 201,948 62,118
Additions during the year (4,910) 84,546 26,006
Deductions during the year - 2,677 823
---------------- ---------- ----------------
Balance at December 31, 5,903 283,817 87,301
1996
---------------- ---------- ----------------
Accumulated depreciation
at January 1, 1996 - 107,061 32,931
Additions during the year - 17,060 5,248
Deductions during the year - 2,412 742
146
<PAGE>
---------------- ---------- ----------------
Balance at December 31, - 121,709 37,437
1996
---------------- ---------- ----------------
Depreciated cost at
December 31, 1996 5,903 162,108 49,864
================ ========== ================
Depreciated cost at
December 31, 1995 10,813 94,887
================ ==========
</TABLE>
*) Net of investment grant (see Note 2g) amounting to NIS 8,283 ($
2,548) (1995 - NIS 8,730).
b. For charges - see Note 16.
c. For claims - see Note 15c.
147
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7:- OTHER ASSETS
<TABLE>
<CAPTION>
December 31, December 31, 1996
-------------------------------- ------------------------
1995 1996 Convenience
------------- ---------------- translation into
Adjusted NIS U.S. dollars
-------------------------------- ------------------------
(In thousands)
a. Cost:
<S> <C> <C> <C>
Initial difference 1,874 1,874 576
Issuance and discount
expenses of debentures 4,800 3,840 1,182
-------------- ------------- -----------------
6,674 5,714 1,758
-------------- ------------- -----------------
b. Accumulated amortization:
Initial difference 1,874 1,874 576
Issuance and discount
expenses of debentures 2,989 2,619 806
-------------- ------------- -----------------
4,863 4,493 1,382
-------------- ------------- -----------------
1,811 1,221 376
============== ============= =================
</TABLE>
NOTE 8:- LEASES
a. Carmel Systems signed a lease agreement for the rental of an
industrial building in Holon. The agreement has been extended until
June 30, 1997.
b. Carmel Systems leases a warehouse for finished products in Rosh
Ha'ayin. The agreement is valid until September 1997.
c. Carmel Systems leases an industrial building in Carmiel under
agreements ending in April 2001, subject to a renewal option for three
additional years.
d. Carmel Systems signed a lease agreement for the rental of an
industrial building in Caesarea for 20 years commencing August 1996.
The Company has an option to purchase the building at market value
after the 13th year.
148
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
e. C.D. Packaging Systems Ltd. leases an industrial building in Migdal
Ha'emek until January 2004, and also sub-leases offices in Petah-Tikva
from a subsidiary of a shareholder.
f. Tri-Wall Containers Ltd. leases an industrial building in Netanya
until November 1997, and also leases offices in Tel-Aviv.
Minimum rental payments under the aforementioned leases, all of which are
operating leases and linked to the exchange rate of the U.S. dollar or to
the Consumer Price Index, are as follows:
December 31, 1996 December 31, 1996
--------------------- ------------------
Convenience
translation into
Adjusted NIS U.S. dollars
--------------------- ------------------
(In thousands)
For the year ended
December 31,
1997 9,510 2,925
1998 8,347 2,568
1999 8,347 2,568
2000 8,347 2,568
2001 and thereafter 51,577 15,864
--------------------- ------------------
86,128 26,493
===================== ==================
149
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9:- CREDIT FROM BANKS AND OTHERS
a. Composition:
<TABLE>
<CAPTION>
December 31, 1995
------------------------------------------------------
In foreign
Weighted currency
average Linked or linked
interest rate to CPI Unlinked thereto Total
-------------------- --------- ----------- ------------ ----------
1995 1996
--------- --------
% Adjusted NIS
-------------------- --------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Overdrafts 19 18 - 1,427 - 1,427
Short-term
credit from
banks 17 16 - 12,123 - 12,123
Short-term
credit from
others 24 23 - 3,318 - 3,318
Current
maturities
of
long-term
loans and
debentures 6 6 9,522 - 4,070 13,592
--------- ---------- --------- ----------
9,522 16,867 4,070 30,460
========= ========== ========= ==========
<CAPTION>
December 31, 1996
------------------------------------------------------------------
In foreign
currency
Linked or linked
to CPI Unlinked thereto Total Total
--------- ---------- ----------- ------- -----------
Convenience
translation
into U.S.
Adjusted NIS dollars
------------------------------------------------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Overdrafts - 2,433 - 2,433 748
Short-term
credit from
banks - 29,000 - 29,000 8,920
Short-term
credit from
others - 3,000 - 3,000 923
Current
maturities
of
long-term
loans and
debentures 9,591 - 3,530 13,121 4,036
-------- ------------ --------- -------- ------------
9,591 34,433 3,530 47,554 14,627
150
<PAGE>
======== ============ ========= ======== ============
</TABLE>
b. See Note 16 in regard to charges to collateralize part of the
short-term loans and credit.
151
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10:- TRADE PAYABLES
<TABLE>
<CAPTION>
December 31, December 31, 1996
------------------- -----------------
1995 1996 Convenience
---- ---- translation into
Adjusted NIS U.S. dollars
------------------- -----------------
(In thousands)
<S> <C> <C> <C>
Trade payables 71,275 79,336 24,403
Checks and notes payable 2,384 4,268 1,313
------ ------ ------
73,659 83,604 25,716
====== ====== ======
Including shareholders 12,711 13,938 4,287
====== ====== ======
Including related parties 18,551 21,875 6,729
====== ====== ======
NOTE 11:- ACCOUNTS PAYABLES
AND ACCRUALS
Liabilities to related parties 984 1,339 412
Liabilities to employees and payroll
accruals
liabilities for wages and salaries 15,630 19,138 5,887
Government authorities 10,620 1,296 399
Other 5,821 3,225 991
------ ------ ------
33,055 24,998 7,689
====== ====== ======
</TABLE>
152
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12:- DEBENTURES
a. Composition:
<TABLE>
<CAPTION>
Weighted average December 31, December 31, 1996
interest rate at ----------------- -----------------
Linkage terms December 31, 1996 1995 1996 Convenience
------------- ----------------- ------ ------ translation into
% Adjusted NIS U.S. dollars
----------------- ------------------ -----------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Debentures Israeli CPI 5.1% 32,830 26,332 8,100
Less - current maturities 6,528 6,553 2,016
------ ------ -----
26,302 19,779 6,084
====== ====== =====
b. The debentures are redeemable
as follows:
First year (current maturities) 6,528 6,553 2,016
------ ------ -----
Second year 6,528 6,553 2,016
Third year 6,528 6,553 2,016
Fourth year 6,528 6,673 2,052
Fifth year 6,718 -- --
------ ------ -----
26,302 19,779 6,084
------ ------ -----
32,830 26,332 8,100
====== ====== =====
</TABLE>
c. See Note 16 in regard to securities to collateralize the
abovementioned debentures.
153
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13:- LIABILITIES TO BANKS AND RELATED PARTIES
a. 1. Liabilities to banks are composed as follows:
<TABLE>
<CAPTION>
December 31, December 31, 1996
--------------------- -----------------
1995 1996 Convenience
------ ------ translation into
Adjusted NIS U.S. dollars
--------------------- -----------------
(In thousands)
<S> <C> <C> <C>
Banks 21,424 35,664 10,970
Less - current maturities 7,065 6,568 2,020
------ ------ ------
14,359 29,096 8,950
====== ====== ======
</TABLE>
2. Linkage terms and rates of interest of the loans:
<TABLE>
<CAPTION>
Weighted average
interest rate at
Linkage terms December 31, 1996
------------------------------ -----------------
%
-----------------
<S> <C> <C> <C> <C>
Israeli CPI 3.75 9,883 19,119 5,881
Foreign currency - U.S. dollar 9.50 8,174 14,863 4,572
Foreign currency - Yen 1.45 3,367 1,682 517
------ ------ ------
21,424 35,664 10,970
====== ====== ======
</TABLE>
154
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. The long-term loans are repayable as follows:
<TABLE>
<CAPTION>
December 31, December 31, 1996
--------------------- -----------------
1995 1996 Convenience
------ ------ translation into
Adjusted NIS U.S. dollars
--------------------- -----------------
(In thousands)
<S> <C> <C> <C>
First year (current maturities) 7,065 6,568 2,020
------ ------ ------
Second year 6,949 5,517 1,697
Third year 3,299 6,429 1,978
Fourth year 2,568 5,744 1,767
Fifth year 1,543 5,744 1,767
Sixth year and thereafter -- 5,662 1,741
------ ------ ------
14,359 29,096 8,950
------ ------ ------
21,424 35,664 10,970
====== ====== ======
</TABLE>
b. Liabilities to related parties:
1. Composed as follows:
<TABLE>
<CAPTION>
Weighted average
Linkage terms interest rate
------------- -----------------
%
-----------------
<S> <C> <C> <C> <C>
Shareholders Israeli CPI -- 2,778 2,778 855
===== ===== ===
</TABLE>
2. Maturity dates will be determined by the provider of the loans but not
before January 1, 1998.
c. See Note 16 in regard to securities to collateralize the abovementioned
loans.
155
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14:- LIABILITY IN RESPECT OF EMPLOYEE RIGHTS UPON RETIREMENT, NET
a. Severance pay and retirement grants:
1. Under Israeli law and labor agreements, the companies in the
Group are required to make severance or pension payments and
retirement grants in addition to pension entitlement to
dismissed employees and to employees leaving employment under
certain circumstances.
In respect of these liabilities, regular deposits are made
with various severance pay and pension funds; the balance
sheet accrual represents the unfunded balance of the
liabilities. Where the custody and management of the fund is
independent of the Company, the funded amounts are not
reflected in the balance sheet.
The above deposits and the balance sheet accrual fully cover
the Company's liabilities in respect of employee rights upon
retirement.
Employees dismissed from service before attaining retirement
age are entitled to severance pay, computed on the basis of
the most recent salary. As to part of the Group's employees -
in the event that the amounts accumulated in the pension fund
are insufficient to cover the severance pay computed as above
- the Group is obligated to supplement the balance.
Generally, monthly employees continue in service until the age
of retirement. Consequently, management is of the opinion that
any additional liability for supplemental payment as mentioned
above for employees who may be dismissed in the future is
insignificant.
The Company's employees are participants in a pension fund to
which the Company makes current monthly payments. The Company
has no further commitments to pay pension payments in excess
of the amounts provided to the pension funds. The pension fund
is external and independent of the Company.
2. The liability for salary payments to certain employees who
were dismissed from service is included in liabilities in
respect of employee rights upon retirement, discounted at an
annual real interest rate of 5%.
156
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company's pension and severance expense is as follows:
Year ended December 31, Year ended
----------------------- December 31,
1994 1995 1996 1995
---- ----- ----- ----------------
Convenience
translation into
Adjusted NIS U.S. dollars
----------------------- ----------------
(In thousands)
4,473 4,483 4,521 1,391
===== ===== ===== =====
b. Under employment agreements, some of the employees retiring after
the age of 55, who have utilized no more than 65% of the sick leave
to which they are entitled, will receive compensation for unutilized
sick leave.
c. The amounts funded for compensation are deposited with the central
fund for compensation and with a provident fund in the name of the
employees. Withdrawal of the amounts funded is conditioned upon
fulfillment of the regulations outlined in the Severance Pay Law.
d. Below are the amounts of liabilities in respect of employee rights
upon retirement, retirement grants and compensation for unused sick
leave, as presented in balance sheet:
December 31,
------------------- December 31,
1995 1996 1996
---- ---- ----------------
Convenience
translation into
Adjusted NIS U.S. dollars
------------------- ----------------
(In thousands)
Liabilities in respect of
employee rights
upon retirement (1) 8,647 9,214 2,834
Less amounts funded 7,825 7,791 2,396
----- ----- -----
822 1,423 438
Liabilities for unutilized
sick leave 235 235 72
----- ----- -----
1,057 1,658 510
===== ===== =====
(1) Including liabilities
for salaries to
retired employees 842 1,395 429
===== ===== =====
157
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15:- CONTINGENT LIABILITIES AND COMMITMENTS
a. A shareholder, who is also a supplier of raw materials to the
Company, has a first refusal right regarding the purchase of raw
materials from other suppliers, for a period of ten years commencing
in October 1988. The Company purchases materials from its
shareholder in the ordinary course of business (see Note 20f. with
respect to the amounts of purchases).
b. The Company is committed to pay royalties at a rate of 2.5% on sales
of trays assembled by certain machines leased to the Company.
c. 1. Tri-Wall Ltd. a consolidated subsidiary has filed a claim
against Kol-Bo Tagar Ltd. in order to realize the option of
acquisition of an asset, in accordance with a rental
agreement, and to receive a refund of amounts invested in the
rented property. After the claim was lodged, a counter claim
of NIS 11 million was made by Kol-Bo Tagar Ltd. against
Tri-Wall for breach of the rental agreement.
The decision of the arbitrator stated among other matters,
that Tri-Wall is entitled to realize the option. A manner to
realize it was formulated which also rejected the counter
claim of Kol-Bo Tagar. Kol-Bo Tagar presented a petition to
nullify the arbitrator's decision.
The deliberation in regard to the petition have not yet taken
place and evidence is to be heard.
2. The landowners cited in the aforementioned claim, from whom
Kol-Bo Tagar rents its asset, brought a claim against Kol-Bo
Tagar and Tri-Wall to cancel the option for acquisition of the
asset, which was granted to Kol-Bo Tagar, claiming that Kol-Bo
Tagar has breached the contract.
3. The Government of Israel brought a claim against Tri-Wall to
demolish the buildings that were built without building
permits (on the land mentioned in the claim see article 1. and
2. above).
On November 5, 1995, it was resolved to demolish the buildings
without permits (without conviction). The implementation of
the demolition order was postponed to 3 years from the
resolution date.
d. The Company is party to claims concerning employer liability. In the
opinion of the Company's legal advisors, two of the claims have
little prospect to of succeeding. In regard to another claim, a
provision in the amount determined by the Company's legal advisors
was made.
e. The Company was asked to return an amount received in respect of the
sale of Ofek and its subsidiaries. According to the opinion of
management, there is no substance to the request and no provision
has been made in the books of the Company.
158
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
f. The tax benefits and the investment grant resulting from the
approvals as "Approved Enterprises" (see Note 18a) are pending upon
the fulfillment of the conditions of the approvals. Through December
31, 1996 the subsidiaries have complied with the conditions of the
approvals.
g. As to guarantees among the companies of the Group - see Note 16.
h. As to future hedging transactions - see Note 2m.
NOTE 16:- CHARGES (ASSETS PLEDGED)
a. As collateral for the Company and subsidiaries' loans from banks,
the State of Israel and a shareholder, a fixed charge has been
placed, in an unlimited amount, on any unpaid share capital,
goodwill, equipment, machinery, insurance rights and rights to
marketable securities and the shares in Tri-Wall. A floating charge
has been placed on all other assets of the Group.
b. The Company is the guarantor for its investees for lines of credit
from banks, which will be at the disposal of the Group's companies,
from time to time.
As collateral for this guarantee, the Company and its subsidiaries
have assigned a debenture and placed a fixed charge in an unlimited
amount, as well as mortgaged the unpaid share capital, goodwill,
part of the plant and equipment, securities, cash and insurance
rights, and a floating charge on all the assets.
c. As collateral for the debentures and interest thereon, the Company
has placed a floating charge on all of the assets of the Company as
they exist in the present and as they will exist in the future,
including insurance rights thereon.
d. The Company obtained bank guarantees totaling NIS 1,263 thousand
($388 thousand) to secure the rental fees of the plant of Carmel
Containers, and NIS 90 thousand ($27.7 thousand) to secure other
liabilities.
159
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
e. The collateralized liabilities are as follows:
December 31, December 31, 1996
------------------- -----------------
1995 1996 Convenience
---- ---- translation into
Adjusted NIS U.S. dollars
------------------- -----------------
(In thousands)
Short-term loans and credits 13,550 31,433 9,668
Long-term liabilities, including
current maturities 54,254 61,996 19,070
------ ------ ------
67,804 93,429 28,738
====== ====== ======
NOTE 17:- SHARE CAPITAL
a. The Company's shares are traded on the American Stock Exchange in
the United States.
b. The share capital as of December 31, 1996 and 1995 is composed as
follows:
Issued and
Authorized outstanding
---------- -----------
Number of shares
--------------------------------
Ordinary shares of NIS 1
par value each 10,000,000 2,520,000
========== =========
The ordinary shares entitle their holders to voting rights, the
right to participate in meetings, the right to receive profits and
the right to participate in the excess of assets upon liquidation of
the Company.
c. Key employee equity incentive plan:
In August 1996, the Company's Board of Directors approved the plan
for the allocation of up to 100,000 options to employees,
convertible into 100,000 shares, exercisable at $ 8.50 per share
(the market price at the grant date was $10 per share).
Half of the options are exercisable after two years and the other
half are exercisable after three years. Through December 31, 1996,
64,000 options were allocated. The aggregate amount of deferred
compensation related to these options is NIS 312,000 ($96,000) which
will be accounted for over the three year vesting period.
160
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following table is summary of activity for the Company's Stock Options
Plan:
Options Outstanding
-----------------------------------------------
Weighted
Numbers average
Available of Price per price
for grant options share per share
----------- --------- ----------- ----------
Balance as of
August 1996 -- -- -- --
Shares authorized 100,000 -- -- --
Options granted (8
employees) (64,000) 64,000 8.5 8.5
-------- ------ --- ---
Balance as of
December 31,1996 36,000 64,000 8.5 8.5
======== ====== === ===
d. The Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25)
and related Interpretations in accounting for its employee stock
options because, as discussed below, the alternative fair value
accounting provided for under FASB Statement No. 123, "Accounting
for Stock-Based Compensation", requires the use of option valuation
models that were not developed for use in valuing employee stock
options.
e. Pro forma information regarding net income on earnings per share is
required by FASB Statement No. 123, and has been determined as if
the Company had accounted for its employee stock options under the
fair value method of that Statement. The fair value for these
options was estimated at the grant date using a Black - Scholes
option pricing model with the following weighted-average assumptions
for 1996: risk-free interest rates of 7.5%, a volatility factor of
the expected market price of the Company's common stock of 0.1, and
a weighted-average expected life of three years of the option.
The Black - Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions,
including the expected stock price volatility. Because the Company's
employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide
a reliable single measure of the fair value of its employee stock
options. For purposes of pro forma disclosures, the estimated fair
value of the options is amortized to expense over the options'
vesting period.
161
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Pro forma information under FAS 123:
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------
Convenience
translation into
Adjusted NIS U.S. dollars
------------ ----------------
(In thousands except per share amounts)
<S> <C> <C>
Pro forma income 13,333 4,101
======== ========
Pro forma income per share 5.31 1.63
======== ========
</TABLE>
The total compensation expense included in the income
statements for 1996 is NIS 21,526 ($6,666).
NOTE 18:- TAXES ON INCOME
a. Tax benefits available under various tax laws:
1. "Approved Enterprise": The production facilities of C.D.
Packaging (subsidiary) have been granted status as an
"Approved Enterprise" under the law for the Encouragement of
Capital Investments, 1959, as amended.
During the seven-year benefit period it is exempt from income
tax and subject to corporate tax, at a rate of 25%. The
benefit period for the main plant and for its expansion
commenced in 1996 and will terminate in 2001 and 2006,
respectively. The benefits detailed above are pending to
compliance with the terms stipulated in the Law and in the
related regulations, and as determined in the approvals,
according to which the investments in the "approved
enterprise" were carried out.
2. "Industrial Companies": The Company and its subsidiaries are
"Industrial Companies" under the Law for the Encouragement of
Industry (Taxation), 1969, as amended, and as such are
entitled to certain tax benefits, mainly accelerated
depreciation.
3. Income Tax (Inflationary Adjustments) Law, 1985: The
adjustments required by this law are designed to reflect
nominal results for tax purposes in terms of end of year NIS
(in accordance with the changes in the Israeli CPI).
b. Deferred income taxes:
1. Deferred taxes are computed in respect of differences between
the amounts included in these financial statements and those
to be considered for tax purposes.
162
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The main factors in respect of which deferred taxes have been
included are as follows:
Depreciation in respect of fixed assets in the adjusted
financial statements and for tax purposes; differences between
the value of inventories in the adjusted financial statements
and its value for tax purposes; differences in charging income
and expenses items in the adjusted financial statements and
for tax purposes (mainly provisions for accrued employee
rights); carryforward losses and deductions.
2. The remaining balance of carryforward tax losses amounts to
adjusted NIS 0 thousand (previous year - adjusted NIS 2,900
thousand).
3. The outstanding balance of carryforward tax losses in respect
of which no deferred taxes were recorded in the consolidated
financial statements, as of December 31, 1996 was adjusted NIS
0 thousand (December 31, 1995 - adjusted NIS 1,155 thousand).
163
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
c. Income tax reconciliation:
A reconciliation between the theoretical tax expense assuming all
income is taxed at the statutory rate applicable to income of the
Company and the actual tax expense is as follows:
<TABLE>
<CAPTION>
Year ended
Year ended December 31, December 31, 1996
------------------------- -----------------
1994 1995 1996 Convenience
---- ---- ---- translation into
Adjusted NIS U.S. dollars
------------------------- -----------------
(In thousands)
<S> <C> <C> <C> <C>
Theoretical tax expense computed at the rate
applicable to an ordinary company - 36%
(1995 - 37%, 1994 - 38%) 7,771 10,594 8,237 2,533
Increase (reduction) of income taxes resulting from:
Tax adjustments in respect of inflation in Israel and others (148) 83 (157) (48)
Erosion resulting from income tax prepayments 418 64 324 100
Non-deductible expenses and other 312 306 296 91
Decrease in tax expense due to reduced tax rates in
companies which were granted the status of approved
enterprise (468) (358) (304) (93)
Carryforward losses and capital losses which have not
been recorded as an asset 364 155 -- --
Utilization of carryforward losses on which a deferred tax
asset had not been recorded in previous years (758) (1,662) (416) (128)
------ ------- ------ ------
Actual tax expense 7,491 9,182 7,980 2,455
====== ======= ====== ======
d. Taxes on income included in the statements of income:
Current taxes 7,363 9,200 6,567 2,020
Deferred taxes, net 128 (18) 1,413 435
-------- ------- ------ ------
7,491 9,182 7,980 2,455
======== ======= ====== ======
</TABLE>
164
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
e. Deferred taxes:
Composition and changes in deferred income tax liabilities (assets) as
presented in the consolidated balance sheet:
<TABLE>
<CAPTION>
In respect of balance sheet items
----------------------------------------------------------------
Provisions Allowance
Depreciable for employee for doubtful
assets Inventories rights debts Other
----------- ----------- ------------ ------------ ------
Adjusted NIS
-----------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at January 1,
1995 14,086 192 (1,769) (1,277) (1,289)
Changes during 1995:
Amounts charged to
the statement of
income 991 320 (212) 573 (1,690)
------ --- ------ ------ ------
Balance as of
December 31, 1995 15,077 512 (1,981) (704) (2,979)
Changes during 1996:
Amounts charged to
the statement of
income 2,100 376 (697) (84) (282)
------ --- ------ ------ ------
Balance as of
December 31, 1996 17,177 888 (2,678) (788) (3,261)
====== === ====== ====== ======
</TABLE>
In respect Total
of tax loss Valuation ----------------
carryforward allowance Total Convenience
------------ --------- ----- translation into
U.S. dollars
-----------------------------------------------------
Balance at January 1,
1995 -- -- 9,943
Changes during 1995:
Amounts charged to
the statement of
income 416 (416) (18)
---- ---- ------ -----
Balance as of
December 31, 1995 416 (416) 9,925 3,053
Changes during 1996:
Amounts charged to
the statement of
income (416) 416 1,413 435
---- ---- ------ -----
Balance as of
December 31, 1996 -- -- 11,338 3,488
==== ==== ====== =====
f. Income tax assessments:
Final tax assessments have been received as follows:
Carmel Systems - up to and including the 1989 tax year, and by force of
165
<PAGE>
law, up to and including the 1990 tax year.
C.D. Packaging Systems Ltd. - up to and including the 1990 tax year.
Tri-Wall Containers (Israel) Ltd.- up to and including the 1992 tax year.
Solid Packaging Board Ltd. - have not been assessed since incorporation.
166
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTES 19:- LINKAGE TERMS OF MONETARY BALANCES
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1996
--------------------------------------------- -------------------------------------------------
Linked to In foreign Linked to In foreign
the currency or the currency or
Consumer linked Consumer linked
Price Index thereto Unlinked Total Price-Index thereto Unlinked Total
----------- ----------- -------- ------- ------------ ----------- -------- -----
Adjusted NIS
------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Current assets:
Cash and cash
equivalents -- -- 1,570 1,570 -- -- 820 820
Trade receivables -- 647 100,129 100,776 -- 3,320 88,570 91,890
Accounts
receivables 409 -- 5,634 6,043 2,246 -- 5,603 7,849
------ ------- ------- ------- ------ ------ ------- -------
409 647 107,333 108,389 2,246 3,320 94,993 100,559
====== ======= ======= ======= ====== ====== ======= =======
Liabilities:
Current liabilities:
Credit from banks
and others -- -- 16,867 16,867 -- -- 34,433 34,433
Trade payables -- 59,855 13,804 73,659 -- 51,683 31,921 83,604
Accounts payables
and accruals -- -- 33,055 33,055 -- -- 24,998 24,998
Debentures, liabilities to
banks and others 45,491 11,541 -- 57,032 48,229 16,545 -- 64,774
------ ------- ------- ------- ------ ------ ------- -------
45,491 71,396 63,726 180,613 48,229 68,228 91,352 207,809
====== ======= ======= ======= ====== ====== ======= =======
</TABLE>
167
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1996
-----------------------------------------------------
Linked to In foreign
the currency or
Consumer linked
Price Index thereto Unlinked Total
----------- ----------- -------- -----
Convenience translation into U.S. dollars
-----------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Assets:
Current assets:
Cash and cash equivalents -- -- 252 252
Trade receivables -- 1,021 27,244 28,265
Accounts receivable 691 -- 1,723 2,414
------ ------ ------ ------
691 1,021 29,219 30,931
====== ====== ====== ======
Liabilities:
Current liabilities:
Credit from banks and others -- -- 10,591 10,591
Trade payables -- 15,898 9,818 25,716
Accounts payable and accruals -- -- 7,689 7,689
Debentures, liabilities to banks and others 14,836 5,089 -- 19,925
------ ------ ------ ------
14,836 20,987 28,098 63,921
====== ====== ====== ======
</TABLE>
NOTE 20:- TRANSACTIONS AND BALANCES WITH RELATED PARTIES
a. Long-term loans from related parties:
<TABLE>
<CAPTION>
December 31, December 31, 1996
Weighted average ------------------- -----------------------
interest rate 1995 1996
---------------- ---- ---- Convenience translation
Linkage terms % Adjusted NIS into U.S. dollars
------------- ---------------- ------------------- -----------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Shareholder Israeli CPI -
2,778 2,778 855
===== ===== ===
</TABLE>
The date for repayment of the above loans has not yet been determined.
168
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
b. Current liabilities to related parties:
<TABLE>
<CAPTION>
December 31, December 31, 1996
Weighted average ---------------- -----------------
interest rate 1995 1996 Convenience
----------------- ------- ------ translation into
Linkage terms % Adjusted NIS U.S. dollars
------------------ ----------------- ---------------- -----------------
(In thousands)
<S> <C> <C> <C> <C> <C>
1. Trade payables:
Shareholders Foreign currency -
U.S. dollar Interest free 12,711 13,938 4,287
Related companies Foreign currency -
U.S. dollar Interest free 18,551 21,875 6,729
2. Accounts payable and accruals:
Shareholders Israeli CPI Interest free 984 1,339 412
c. Current assets from related parties:
Trade receivables:
Companies controlled by a shareholder Unlinked Interest free 1,017 266 82
Highest balance: 1,884 1,017 313
Other receivables:
Companies controlled by a shareholder Israeli CPI Interest free -- 436 134
Highest balance: 480 522 161
</TABLE>
d. Guarantees:
1. The Company has provided a guarantee to the banks amounting to NIS
500 thousand in favor of C.D. Packaging (such guarantee is not to
exceed 50% of the Company's debt to the bank) and in favor of the
State of Israel in an unlimited amount, in respect of C.D.
Packaging's debt relating to the "Approved Enterprise".
2. The Company has provided a guarantee to the Custom Authorities
amounting to NIS 163 thousand in favor of Tri-Wall.
169
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
e. Salaries and related benefits to interested parties:
<TABLE>
<CAPTION>
Year ended
Year ended December 31, December 31, 1996
----------------------- -----------------------
1994 1995 1996
---- ---- ---- Convenience translation
Adjusted NIS into U.S. dollars
----------------------- -----------------------
(In thousands)
<S> <C> <C> <C> <C>
Salaries, related benefits and
severance pay to the general manager 1,098 1,263 1,388 427
===== ===== ===== ===
Directors' fees and reimbursement of
expenses to twelve members of the
Board of Directors 228 164 192 59
===== ===== ===== ===
</TABLE>
f. Transactions with related parties, excluding directors:
The Company sells to subsidiaries, shareholders, and investees of
shareholders and purchases raw material from investees of shareholders,
shareholders and subsidiaries. Such sales, purchases and transactions are
as follows:
<TABLE>
<CAPTION>
Companies
controlled by a
shareholder Shareholders Total Total
--------------- ------------ ----- ----------------
Convenience
translation into
Adjusted NIS U.S. dollars
--------------------------------------------------------------
<S> <C> <C> <C> <C>
(In thousands)
In 1996:
Expenses:
Purchases 30,234 47,662 77,896 23,961
Financing and
commissions -- 489 489 150
Lease fees and
equipment lease 262 -- 262 81
------ ------- ------- -------
30,496 48,151 78,647 24,192
====== ======= ======= =======
Revenues:
Sales 4,515 7,250 11,765 3,619
Lease fees and
equipment lease 373 -- 373 115
------ ------- ------- -------
4,888 7,250 12,138 3,734
====== ======= ======= =======
In 1995:
Expenses:
Purchases 73,370 52,526 125,896
Financing and
commissions -- 133 133
Lease fees and
equipment lease 384 -- 384
------ ------- -------
73,754 52,659 126,413
====== ======= =======
Revenues:
170
<PAGE>
Sales 9,220 6,654 15,874
Lease fees and
equipment lease 349 -- 349
------ ------- -------
9,569 6,654 16,233
======= ======= =======
</TABLE>
171
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Companies
controlled by a
shareholder Shareholders Total
------------------- ---------------- --------------
Adjusted NIS
-------------------------------------------------------
(In thousands)
In 1994:
Expenses:
Purchases 40,037 48,886 88,923
Financing -- 84 84
Lease fees 267 -- 267
------ ------ ------
40,304 48,970 89,274
====== ===== ======
Revenues:
Sales 10,052 7,613 17,665
====== ===== ======
172
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 21:- SUPPLEMENTARY INFORMATION TO STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended
Year ended December 31, December 31, 1996
------------------------------------------------ ---------------------
1994 1995 1996
-------------- -------------- -------------- Convenience
translation into
Adjusted NIS U.S. dollars
------------------------------------------------ ---------------------
(In thousands)
<S> <C> <C> <C> <C>
a. Revenues from sales, net:
Sales classified by
geographic distribution:
Local 314,814 372,090 360,863 111,001
Export:
South America 1,104 1,700 2,221 683
Europe 458 860 289 89
------- ------- ------- -------
316,376 374,650 363,373 111,773
======= ======= ======= ======
b. Cost of sales:
Materials consumed (1) 163,518 214,082 188,501 57,982
Salaries, wages and
employee benefits 46,088 49,398 53,933 16,590
Subcontracted work 3,984 3,890 3,662 1,126
Other manufacturing
costs 28,975 26,652 34,875 10,727
Depreciation 11,574 13,312 15,417 4,743
------- ------- ------- -------
254,139 307,334 296,388 91,168
Add (less) decrease
(increase) in inventories
of finished products 247 (3,959) 35 11
Add (less) decrease
(increase) in inventories
of work in progress 722 (359) (456) (140)
------- ------- ------- -------
255,108 303,016 295,967 91,039
======= ======= ======= ======
</TABLE>
(1) See Note 20f with respect to purchases from shareholders.
173
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended
December 31,
Year ended December 31, 1996
-------------------------------------- ----------------
1994 1995 1996
---- ---- ---- Convenience
translation into
Adjusted NIS U.S. dollars
-------------------------------------- ----------------
(In thousands)
<S> <C> <C> <C> <C>
c. Selling expenses:
Salaries and employee benefits 5,874 6,174 6,545 2,013
Advertising expenses 398 349 400 123
Depreciation and amortization 181 148 208 64
Other selling expenses (1) 5,822 7,215 7,981 2,455
------ ------ ------ -----
12,275 13,886 15,134 4,655
====== ====== ====== =====
(1) Including allowance for doubtful debts
506 1,040 2,046 629
====== ====== ====== =====
d. General and administrative expenses:
Salaries and employee benefits 11,790 12,024 12,316 3,788
Depreciation and amortization 1,204 1,327 1,435 441
Office maintenance and other expenses 5,326 5,846 5,907 1,818
------ ------ ------ -----
18,320 19,197 19,658 6,047
====== ====== ====== =====
e. Financial expenses, net:
Interest expenses and bank charges:
On short-term credit 1,510 2,666 4,376 1,346
On long-term loans, net 1,958 4,167 2,851 877
------ ------ ------ -----
3,468 6,833 7,227 2,223
Interest income 232 667 151 46
------ ------ ------ -----
3,236 6,166 7,076 2,177
Losses arising from inflationary
erosion of the Israeli currency 1,764 1,208 3,028 931
------ ------ ------ -----
5,000 7,374 10,104 3,108
====== ====== ====== =====
</TABLE>
174
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended
Year ended December 31, December 31, 1996
----------------------------------- -------------------
1994 1995 1996 Convenience
---- ---- ---- translation into
Adjusted NIS U.S. dollars
----------------------------------- -------------------
(In thousands)
<S> <C> <C> <C> <C>
f. Other income (expenses), net:
Loss on sale of an investee (875) (8) - -
Gain on sale of assets - 103 398 122
Other expenses (748) (63) (27) (8)
------ ------ ------ ------
(1,623) 32 371 114
====== ====== ====== ======
</TABLE>
g. Reorganization plan expenses:
The extraordinary expense is in respect of reorganization plan of
the Company's plants.
NOTE 22:- DIFFERENCES BETWEEN ISRAELI AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
a. Discount expenses:
Discount on debentures is presented as a deferred charge, whereas
according to accounting principles generally accepted in the United
States, such discount should be deducted from the carrying value of
the debentures. The amount of discount on debentures, net of
amortization as of December 31, 1995 and December 31, 1996, is NIS
1,811 thousand and NIS 1,221 thousand ($ 376 thousand),
respectively.
b. Accrued severance pay, net:
The amounts funded in regard to liabilities in respect of employee
rights upon retirement are presented as a deduction from the
liabilities in Note 15d, whereas according to U.S. GAAP such amounts
funded would be presented in the balance sheet as a long-term
assets.
The amount funded in regard to liabilities in respect of employee
rights upon retirement as of December 31, 1995 and December 31,
1996, is NIS 7,825 thousand and NIS 7,791 thousand ($ 2,396
thousand), respectively.
Income from earnings on amounts funded is netted from severance pay
expenses whereas according to U.S. GAAP, such amounts should be
presented on a gross basis.
175
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
c. Effect of inflation:
The Company, in accordance with Israeli GAAP, comprehensively
includes the effect of price level changes in the accompanying
consolidated financial statements, as described in Note 2a. Such
Israeli accounting principles measure the effects of price level
changes in the inflationary Israeli economy and, as such, is
considered a more meaningful presentation than financial reporting
based on historical cost for Israeli and U.S. accounting purposes.
Accordingly, price level adjustments have not been reversed and
included in a reconciliation of Israeli accounting principles to
U.S. accounting principles (U.S. GAAP).
d. Treatment of deferred taxes on income:
1. Under Israeli Accounting, income taxes are determined under
the liability method of accounting.
2. Under the Israeli Law for Encouragement of Capital Investment,
1959, the companies who are entitled to a "Approved
Enterprise" benefits (C.D. Packaging Systems Ltd. and Tri-Wall
Containers (Israel) Ltd.) are generally taxed at a rate of 25%
of attributable income during "the period of benefits".
Dividends paid to shareholders from the profits of an
"approved enterprise" are subject to income tax at a rate of
15%. Shareholders that are companies are entitled to a 15% tax
credit if and when this dividend is paid to their
shareholders.
Under Israeli GAAP, income taxes are not provided on the
undistributed tax exempt profits of approved enterprise, where
such profits have been reinvested and will not be distributed
to the company shareholders.
Under U.S. GAAP, deferred income taxes should be provided on
the undistributed tax exempt profits of domestic subsidiaries
that arose in fiscal years beginning after December 15, 1992.
Both Tri-Wall and C.D. Packaging have immaterial profits from
approved enterprises, and therefore, in the reconciliation
there is no effect from providing deferred taxes on the
undistributed tax exempt profits of an approved enterprise.
e. Proportionate consolidation:
Under Israeli GAAP, jointly controlled entities are included in the
Company's consolidated financial statements according to the
proportionate consolidation method. Under U.S. GAAP, investments in
jointly controlled entities are accounted for by the equity method.
Proportionate consolidation is permitted by the U.S. Securities and
Exchange Commission rules applicable to foreign private issuers,
provided certain supplemental information is provided in the notes
to the financial statements. The supplemental information regarding
the jointly controlled entity is not material to the consolidated
financial statements of the Company.
176
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
f. Earning per share:
1. According to U.S. GAAP:
Options are always considered as common stock equivalents;
their dilutive effect on primary earnings per shares is
computed by applications of the "treasury stock" method.
According to Israeli GAAP (Opinion No. 55):
The dilutive effect of options and warrants is included in the
computation of primary earnings per share only if their
exercising is considered to be probable, based on the ordinary
relationship between the market price of the shares stemming
from the exercise of the warrants and the discounted present
value of the future proceeds derived from the exercise of the
options.
2. According to U.S. GAAP a disclosure is required for diluted
earnings per share even when the dilution is more than 3%,
while according to Israeli GAAP such a disclosure is not
required when the dilution is less than 5%.
The effect of the differences between Israeli and U.S. GAAP of
the abovementioned items on the financial statements is
insignificant.
g. Foreign currency cash flows:
According to U.S. GAAP, the statement of cash flows shall report the
effect of exchange rate changes on cash balances held in foreign
currencies as a part of the reconciliation of the change in cash and
cash equivalents during the period. Under Israeli GAAP, such effect
is included in cash flows from operating activities.
The difference between the two methods described above is
immaterial.
h. Base stock:
Pallets and spare parts are presented as base stock among fixed
assets, while new purchases charged as an expense. According to U.S.
GAAP, such amounts should be capitalized and depreciated over the
useful lives of the assets.
The effect of this difference on both income and equity is not
material.
177
<PAGE>
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 23- INVESTEES
Percentage of
------------------
Name of the company Ownership Control
----------------------------- --------- -------
a. Subsidiaries:
C.D. Packaging Systems Ltd. 50 50.1
Tri-Wall Containers 100 100
(Israel) Ltd.
Solid Packaging Board Ltd. *) 50 50
b. Inactive companies:
Hadass Firing Range 50 50
Systems Ltd.
Roboraz Ltd. 100 100
Plaro Container Systems 100 100
(1989) Ltd.
Tri-Wall Pallets (1973) Ltd. 100 100
*) Percentage of control represents the percentage of control of C.D.
Packaging Systems Ltd. in its subsidiary.
178
<PAGE>
CORAL WORLD INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
TOGETHER WITH AUDITORS' REPORT
179
<PAGE>
CORAL WORLD INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Table of Contents
Page
----
Report of Independent Public Accountants 181
Consolidated Balance Sheets 182
Consolidated Statements of Income 184
Consolidated Statements of Cash Flows 185
Consolidated Statements of Changes in Shareholders' Equity 187
Notes to Consolidated Financial Statements 188
180
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Coral World International Ltd.;
We have audited the accompanying consolidated balance sheets of Coral World
International Ltd. (a Guernsey corporation) and subsidiaries (the "Company") as
of December 31, 1996 and 1995, and the related consolidated statements of
income, changes in shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of certain consolidated subsidiaries, which statements
reflect total assets and total revenues of 47% and 60%, respectively, in 1996,
52% and 49%, respectively, in 1995, and revenues of 40% in 1994, of the related
consolidated totals. Those statements were audited by other auditors whose
reports have been furnished to us and our opinion, insofar as it relates to the
amounts included for those entities, is based solely on the reports of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Coral World International Ltd. and subsidiaries as of
December 31, 1996 and 1995 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
March 26, 1997
New York, New York
181
<PAGE>
CORAL WORLD INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS AS AT DECEMBER 31, 1996 1995
- --------------------------------------------------------------------------------
(Dollars in thousands)
Current assets:
Cash and cash equivalents ............................ $ 1,818 $ 5,018
Accounts receivable, net of allowance for
doubtful accounts of $217 in 1995 .................. 1,521 1,319
Inventories .......................................... 940 1,202
Prepaid expenses and other ........................... 61 460
Assets held for sale (Note 3b) ....................... 894 5,376
Note receivable - short-term (Note 2) ................ 375 --
------- -------
Total current assets ....................... 5,609 13,375
Note receivable - long-term (Note 2) ................. 1,500 --
Property and equipment, net (Note 3a) ................ 15,597 9,077
Other assets:
Severance funding (Note 5) ......................... 460 414
Deferred income taxes .............................. 292 109
Other .............................................. 764 1,264
------- -------
Total other assets ......................... 1,516 1,787
------- -------
TOTAL ASSETS ......................................... $24,222 $24,239
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
182
<PAGE>
CORAL WORLD INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES &
SHAREHOLDERS' EQUITY AS AT DECEMBER 31, 1996 1995
- --------------------------------------------------------------------------------
(Dollars in thousands)
LIABILITIES:
Current liabilities:
Accounts payable and accrued expenses ................ 2,497 $ 2,921
Notes payable - short-term (Note 4) .................. 1,231 956
-------- --------
Total current liabilities .................. 3,728 3,877
Notes payable - long-term (Note 4) ................... 1,805 2,756
Provision for severance benefits (Note 5) ............ 877 639
-------- --------
Total liabilities .......................... 6,410 7,272
-------- --------
MINORITY INTEREST .................................... 1,430 1,123
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 9)
SHAREHOLDERS' EQUITY (Note 6):
A Management shares, $2 par value; authorized
5,000 shares; issued and outstanding 2,500
shares ............................................ 5 5
B Management shares, $2 par value; authorized
5,000 shares; issued and outstanding 2,500
shares ............................................ 5 5
C Preference shares, $2 par value; authorized
1,000 shares; issued and outstanding 1,000
shares ............................................ 2 2
Additional paid-in capital ........................... 17,550 17,550
Accumulated deficit .................................. (792) (1,274)
Cumulative translation adjustments ................... (388) (444)
-------- --------
Total shareholders' equity ................. 16,382 15,844
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ........... $ 24,222 $ 24,239
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
183
<PAGE>
CORAL WORLD INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1996 1995 1994
- --------------------------------------------------------------------------------
(Dollars in thousands)
REVENUE:
Marine park admissions ...................... $ 10,188 $ 11,001 $ 11,300
Store and restaurant sales .................. 7,043 7,974 7,359
Transportation revenue ...................... 2,078 1,945 1,575
Hotel revenue ............................... 332 518 545
-------- -------- --------
Total operating revenue ............. 19,641 21,438 20,779
EXPENSES:
Operating costs ............................. 13,585 17,196 16,061
General and administrative (includes
management fee to a related party of $17
in 1996, $50 in 1995, and $100 in 1994) .... 5,080 3,550 2,988
-------- -------- --------
Total operating expenses ............ 18,665 20,746 19,049
-------- -------- --------
Operating income ............................ 976 692 1,730
-------- -------- --------
OTHER INCOME (EXPENSE):
Other income ................................ 525 791 461
Net interest income (expense) ............... 82 49 (268)
Write-off of pre-opening costs .............. -- (1,617) --
Write-down of inventory, property and
equipment and investments ................. (351) (5,899) --
-------- -------- --------
Total other income (expense) ........ 256 (6,676) 193
-------- -------- --------
Income (loss) before provision (benefit)
for income taxes, and minority interest ... 1,232 (5,984) 1,923
Provision (benefit) for income taxes ........ 509 687 (76)
-------- -------- --------
Income (loss) before minority interest ...... 723 (6,671) 1,999
Minority interest ........................... 241 209 170
-------- -------- --------
NET INCOME (LOSS) ........................... $ 482 $ (6,880) $ 1,829
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
184
<PAGE>
CORAL WORLD INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996 1995 1994
- --------------------------------------------------------------------------------
(Dollars in thousands)
Cash flows from operating activities:
Net income (loss) ............................... $ 482 $(6,880) $ 1,829
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .................. 1,463 1,716 1,648
Provision for doubtful accounts ................ (217) 24 46
Loss (gain) on sale of equipment ............... 44 (5) 40
Write-down of investment ....................... 107 -- 76
Write-off of pre-opening costs ................. -- 1,617 --
Write-down of inventory, property and
equipment ..................................... 191 5,899 --
Proceeds from insurance claim .................. 1,025 150 --
Minority interest .............................. 241 209 170
Net changes in operating assets and liabilities:
(Increase) decrease in accounts receivable ...... (363) 110 (467)
Decrease (increase) in inventories .............. 262 (134) (213)
Decrease in prepaid expenses and other .......... 399 43 26
(Increase) decrease in other assets ............. (291) (4) 316
(Decrease) increase in accounts payable
and accrued expenses ........................... (408) 722 (138)
Increase (decrease) in other liabilities ........ 238 (78) (207)
------- ------- -------
Net cash provided by operating activities ........ 3,173 3,389 3,126
------- ------- -------
Cash flows from investing activities:
Purchase of investments ......................... -- -- (342)
Purchase of land ................................ (5,018) -- --
Purchase of property and equipment .............. (2,733) (2,302) (1,598)
Proceeds from sale of property and
equipment ...................................... 1,910 21 220
------- ------- -------
Net cash used in investing activities ............ (5,841) (2,281) (1,720)
------- ------- -------
Cash flows from financing activities:
Investment in subsidiary ........................ -- -- 300
Capital contribution ............................ -- -- 701
Proceeds from notes payable ..................... 1,791 -- --
Repayment of notes payable ...................... (2,467) (2,057) (993)
------- ------- -------
Net cash (used in) provided by financing
activities ..................................... (676) (2,057) 8
------- ------- -------
Effect of exchange rate changes on cash and
cash equivalents ................................ 144 (150) (152)
------- ------- -------
Net (decrease) increase in cash and cash
equivalents ..................................... (3,200) (1,099) 1,262
Cash and cash equivalents, January 1 ............. 5,018 6,117 4,855
------- ------- -------
Cash and cash equivalents, December 31 ........... $ 1,818 $ 5,018 $ 6,117
======= ======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
185
<PAGE>
CORAL WORLD INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996 1995 1994
- --------------------------------------------------------------------------------
(Dollars in thousands)
Supplemental disclosure of cash flow
information
Cash paid during the year for:
Interest ........................................ $313 $448 $564
==== ==== ====
Income taxes, net ............................... $638 $152 $125
==== ==== ====
The accompanying notes are an integral part of the consolidated financial
statements.
186
<PAGE>
CORAL WORLD INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1996 1995 1994
- --------------------------------------------------------------------------------
(Dollars in thousands)
ADDITIONAL PAID-IN CAPITAL
Balance, January 1 ......................... $ 17,550 $ 17,550 $ 16,187
Capital contribution* ...................... -- -- 1,363
-------- -------- --------
Balance, December 31 ....................... $ 17,550 $ 17,550 $ 17,550
======== ======== ========
RETAINED EARNINGS (ACCUMULATED DEFICIT)
Balance, January 1 ......................... $ (1,274) $ 5,606 $ 3,777
Net income (loss) .......................... 482 (6,880) 1,829
-------- -------- --------
Balance, December 31 ....................... $ (792) $ (1,274) $ 5,606
======== ======== ========
CUMULATIVE TRANSLATION ADJUSTMENTS
Balance, January 1 ......................... $ (444) $ 100 $ (483)
Foreign currency translation adjustment .... 56 (544) 583
-------- -------- --------
Balance, December 31 ....................... $ (388) $ (444) $ 100
======== ======== ========
* Includes $662 for the year ended December 31, 1994 for issuance by a
subsidiary of common stock to a shareholder of the Company at amounts less
than book value in connection with a realignment of interests among the
existing shareholders.
The accompanying notes are an integral part of the consolidated financial
statements.
187
<PAGE>
CORAL WORLD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands)
Note 1 - Summary of Significant Accounting Policies
a. The Company:
As used in these financial statements, the term the "Company" refers
to Coral World International Ltd. ("CWI") and its subsidiaries. CWI
was incorporated on December 3, 1987 under the laws of the Island of
Guernsey, Channel Islands for purposes of owning and operating
marine parks in various locations. CWI is owned 50% by
Ampal-American Israel Corporation and 50% by Marine Parks Holding
Ltd.
The Company has two wholly-owned subsidiaries: Coral World Bahamas
Hotels (1984) Limited ("CWB") (see Note 2 for discussion of sale of
assets during 1996) and Coral World (V.I.) Inc. ("CWVI") (which
operated the St. Thomas facility until September 30, 1995 when
operations ceased) and four 92.1%-owned operating subsidiaries:
Coral World Australia Pty, Ltd. ("CWA"), Coral World Manly Pty,
Ltd., Red Sea Underwater Observatory Ltd. ("RSUO") and Maui Ocean
Center, Inc.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
During the last quarter of 1996, the Company entered into
negotiations with a potential buyer to recapitalize CWVI by selling
a share of the Company's holdings and for the Company and new
investor to then inject additional capital into CWVI in order to
commence reconstruction. Management plans to begin operating the
Park again as it believes tourism is recovering in St. Thomas. In
the event this deal does not materialize, the Company will continue
to maintain the Park and the related carrying costs and search for
alternative buyers.
Maui Ocean Center, Inc. ("MOC") is developing a new park in Maui,
Hawaii which is expected to open in December 1997.
b. Consolidation:
The consolidated financial statements include the accounts of the
Company. All material intercompany transactions have been
eliminated.
c. Inventories:
Inventories of store merchandise are stated at the lower of weighted
average cost or market.
d. Property and Equipment:
The Company's policy is to record long-lived assets at cost,
amortizing these costs over the expected useful life of the related
assets on a straight-line basis. In accordance with Statement of
Financial Accounting Standards ("SFAS") No. 121 "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be
Disposed Of," these assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amounts of the assets may not be realizable. Furthermore, the assets
are evaluated for continuing value and proper useful lives by
comparison to expected future cash flows. For the year ended
December 31, 1996 the adoption of SFAS No. 121 did not have a
material effect on the financial statements of the Company.
188
<PAGE>
CORAL WORLD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
e. Taxation:
CWI is exempt from taxation; the subsidiaries are taxed under the
laws of the jurisdictions in which they operate. All tax paying
subsidiaries account for income taxes by use of the liability
method.
The Company has provided for taxes on its Israeli operations for the
years 1994 to 1996 where it enjoys a partial status of "Approved
Enterprise" under the Law for the Encouragement of Capital
Investments which results in lower effective tax rates. These
benefits are expected to terminate in 1998. Income taxes were not
provided on the operations of the St. Thomas and Australian
subsidiaries because they did not have taxable income. The Bahamas
(CWB) is exempt from taxation.
A reconciliation of income taxes between the statutory and effective
tax is as follows:
1996 1995 1994
---- ---- ----
Federal income tax at statutory rate ............ $-- $-- $--
Tax on foreign income in excess
of statutory rates ............................. 509 687 (76)
---- ---- ----
Total effective tax .......................... $509 $687 $(76)
==== ==== ====
f. Translation of Foreign Currencies:
Based on the guidelines of SFAS No. 52, "Foreign Currency
Translation," assets and liabilities of subsidiaries (for the
Israeli subsidiaries in 1996 and 1995 only) are translated using
year-end rates of exchange and revenues and expenses are translated
at the average rates of exchange during the reporting period.
Translation differences of these foreign companies' financial
statements are included in a cumulative translation adjustment
account of shareholders' equity. During 1995, as a result of changes
in economic conditions, the Israeli subsidiaries determined the
Israeli shekel to be their functional currency. For the years prior
to 1995, the Israeli subsidiaries were deemed to have the U.S.
dollar as their functional currency. Assets and liabilities of these
subsidiaries were translated using year-end rates of exchange,
except for property and equipment and certain investment and equity
accounts which were translated at rates of exchange prevailing on
the dates of acquisition. Revenues and expenses were translated at
average rates of exchange during the year. Revenue and expense items
relating to assets translated at historical rates were translated on
the same basis as the related asset. Translation gains and losses
for these subsidiaries were reflected in the consolidated statements
of income.
g. Cash and Cash Equivalents:
All highly liquid investments with original maturities of 90 days or
less are classified as cash and cash equivalents.
h. Reclassifications:
Certain prior year amounts have been reclassified to conform with
the current year's presentation.
189
<PAGE>
CORAL WORLD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Note Receivable
On September 27, 1996, CWI's wholly-owned subsidiary CWB sold its
marine park to an unrelated party for $3.75 million. In 1995, in
anticipation of this sale, the Company adjusted the carrying value
of the property to $3.75 million and recorded a loss of $5.8
million, including the write-off of pre-opening costs. As a result
of the sale in 1996, the recorded loss was adjusted to $6.1 million.
The buyer paid $3.75 million consisting of a $1.875 million
downpayment and issued a note to CWB in the amount of $1.875 million
payable in five equal annual installments of $375 commencing on
September 27, 1997. Interest is payable monthly at the rate of 8%
per annum commencing on October 27, 1996.
Note 3 - Property and Equipment
a. Property and Equipment:
1996 1995
------- -------
Marine park improvements, land,
hotel, buildings, installations,
towers and bridges ............................. $18,755 $12,236
Equipment, furniture and fixtures ................ 1,469 1,436
------- -------
20,224 13,672
Less: Accumulated depreciation .................. 6,766 5,543
------- -------
13,458 8,129
Pre-construction costs, Maui Ocean
Center, Inc. .................................... 2,139 948
------- -------
$15,597 $ 9,077
======= =======
b. Assets Held for Sale:
This caption includes the assets of CWB and CWVI. For 1996, the
amounts were $178 and $716 respectively and for 1995, $3,750 and
$1,626, respectively.
Note 4 - Notes Payable
Repayment of notes payable is as follows:
(a) (b) (c) (d) (e) Total
------ ------ ------ ------ ------ ------
1997 $ 316 $ 220 $ 488 $ 207 $ -- $1,231
1998 317 220 -- -- 112 649
1999 158 110 -- -- 112 380
2000 -- -- -- -- 112 112
2001 -- -- -- -- 112 112
2002-2006 -- -- -- -- 552 552
------ ------ ------ ------ ------ ------
$ 791 $ 550 $ 488 $ 207 $1,000 $3,036
====== ====== ====== ====== ====== ======
(a) In February 1996, the Company borrowed $791 from a bank. As of December
31, 1996 interest terms on this loan have not yet been finalized.
Principal is payable quarterly, beginning February 1997 with the final
payment due in May 1999. The loan is secured by all of the assets of Coral
World Australia Pty Ltd. which amounted to approximately $8.2 million.
(b) In September 1991, the Company borrowed $2,450 from Ampal-American Israel
Corporation, which has been partially repaid. The remaining principal
balance and interest is payable quarterly. The loan bears interest at a
rate of Prime plus 2% (10.25% at December 31, 1996 and 10.5% at December
31, 1995 and 1994).
190
<PAGE>
CORAL WORLD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(c) In December 1990, the Company borrowed $4,250 from a related party. The
loan bore interest at various rates (at December 31, 1995: $800 at 9.25%
and $1,600 at Libor plus 1.75%, which was 7.4375% on that date; at
December 31, 1994: $800 at 9.95%, $800 at 9.25% and $1,200 at 8.75%). On
September 27, 1996 the loan was renegotiated as a result of the sale of
CWB to an unrelated party. The loan bears interest at a rate based on the
30-day Libor rate plus 1 3/4%, payable monthly. At December 31, 1996 the
interest rate was 7.41%. The bank loan is secured by a floating charge
over the remaining assets of CWB, which amounted to $2.2 million.
(d) The Company had an obligation, secured by a mortgage, which bears interest
at a rate of 8.12% per annum. This obligation was collateralized by the
condominium at CWVI. On January 22, 1997, the condominium and related
furniture securing this mortgage was sold for $180 and the entire debt
then outstanding (inclusive of interest) of $230 was satisfied in full.
(e) On September 3, 1996, the Company borrowed $1,000 from a bank. The loan
bears interest at a rate based on Libor plus 1%. At December 31, 1996 the
interest rate was 6.625%. The bank loan is secured by a charge on part of
the leased property, which amounted to $2.15 million of RSUO.
Note 5 - Severance Obligations
In accordance with Israeli law employers are required to record a
liability for and to fund severance benefits for all full-time employees
in an amount equal to one month's salary for each year of employment.
Accordingly, the data shown below relates to RSUO:
1996 1995
----- -----
Provision for severance benefits ....................... $(877) $(639)
Deposits with insurance companies and bank ............. 460 414
----- -----
$(417) $(225)
===== =====
Note 6 - Shareholders' Equity
The "A" and "B" management shares are the only voting shares and hold
equal voting rights. The holders of a majority of the "A" management
shares elect one-half of the Board and the holders of a majority of the
"B" management shares elect the other half. The "C" Preference Shares have
no rights except to receive dividends, if declared.
191
<PAGE>
CORAL WORLD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - Geographic Information
Substantially all of the CWI assets are engaged in the operation of underwater
observatories and marine parks from which it derives its revenues.
Geographic information is as follows:
Australia Caribbean* Israel Hawaii Total
---------------------------------------------------
December 31, 1996
- -----------------
Operating revenue $ 5,812 $ 2,355 $ 11,474 $ -- $ 19,641
Operating income (loss) 93 (1,731) 2,715 (101) 976
Total assets 5,529 3,062 8,116 7,515 24,222
Capital expenditures 179 29 1,323 6,220 7,751
Depreciation and amortization 654 366 443 -- 1,463
December 31, 1995
- -----------------
Operating revenue $ 4,980 $ 6,039 $ 10,419 $ -- $ 21,438
Operating (loss) income (293) (1,789) 2,774 -- 692
Total assets 5,914 7,274 9,868 1,183 24,239
Capital expenditures 447 583 1,031 538 2,599
Depreciation and amortization 547 715 396 -- 1,658
December 31, 1994
- -----------------
Operating revenue $ 5,427 $ 7,077 $ 8,275 $ -- $ 20,779
Operating income (loss) 159 (148) 1,719 -- 1,730
Total assets 6,770 15,788 9,192 680 32,430
Capital expenditures 100 167 898 433 1,598
Depreciation and amortization 558 697 393 -- 1,648
* Since September 1995, the St. Thomas facility has not conducted any
operations.
Headquarters' revenues, assets and operating losses were allocated pro
rata to each geographical area.
Note 8 - Disclosures about Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is
practicable to estimate that value:
(a) Note Receivable
The fair value of the note receivable is estimated by
discounting the future cash flow using the current rate at
which a similar loan would be made to borrowers with similar
credit ratings and for the same remaining maturities.
(b) Commitments
Due to the relatively short term of commitments discussed in
Note 9, their contract value is considered to be their fair
value.
(c) Notes Payable
The fair value of notes payable is estimated by discounting
the future cash flows using the current rates offered by
lenders for similar borrowings with similar credit ratings and
for the same remaining maturities.
192
<PAGE>
1996 1995
----------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
Financial assets:
Note receivable ................. $1,875 $1,940 $ -- $ --
====== ====== ========= ======
Financial liabilities:
Notes payable ................... $3,036 $3,173 $ 3,712 $4,090
====== ====== ========= ======
Note 9 - Commitments and Contingencies
Coral World Australia Pty Ltd. has provided a $79 guarantee in favor of the
Australian Minister of Transport.
CWA has commitments in relation to non-cancelable operating leases which expire
in 2008. These are payable at $94 annually from 1997 through 2001, and $656
thereafter.
A floating charge has been registered by RSUO on all its assets totalling
$18,146 in favor of the State of Israel to secure the repayment of investment
grants in the event of non-compliance with stipulated terms.
In September 1995, Coral World's marine park in St. Thomas (CWVI) was damaged by
two hurricanes and was closed. Insurance proceeds of $150 were received in 1995
and $1.025 million was received in April 1996. Coral World is in a dispute with
another insurance company and its agent with respect to its claim for up to $1.2
million of additional coverage. The outcome of this dispute is not determinable
at this time and no accounting recognition has been reflected in the
accompanying financial statements for any future additional insurance receipts.
In November 1995, MOC entered into an $8 million term loan agreement with Bank
Hapoalim B.M. Under the terms of the agreement MOC may borrow up to $8 million
before June 30, 1997 for the acquisition and development of Maui Ocean Center.
These borrowings will be repaid in 13 conservative quarterly principal payments
beginning on December 31, 1997 and ending on December 31, 2000, the maturity
date. Borrowings under the agreement will accrue interest at Libor plus 1.5%. As
of December 31, 1996, MOC has not drawn any amounts against this agreement.
193
<PAGE>
[LETTERHEAD OF Somekh Chaikin]
Tirat Hacarmel, March 10, 1997
Auditors' Report to the Shareholders of
Granite Hacarmel Investments Limited
We have audited the accompanying balance sheets of Granite Hacarmel Investments
Limited (the Company) as at December 31, 1996 and 1995 and the consolidated
balance sheets of the Company and its subsidiaries as at such dates, and the
related statements of income, shareholders' equity and cash flows, for each of
the three years, the last of which ended December 31, 1996. These financial
statements are the responsibility of the Company's Board of Directors and of its
Management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We did not audit the financial statements of a consolidated subsidiary whose
assets constitute 3.6% and 4% of the total consolidated assets as at December
31, 1996 and 1995 respectively, and whose revenues constitute 3%, 2.7% and 2.8%
of the total consolidated revenues of the years ended December 31, 1996, 1995
and 1994 respectively. These financial statements of the subsidiary were audited
by another auditor whose report thereon was furnished to us. Our opinion,
insofar as it relates to amounts emanating from the financial statements of such
subsidiary, is based solely on the said report of the other auditor.
Furthermore, the data included in the financial statements relating to the net
asset value of the Company's investments in affiliates and to its equity in
their operation results, is based on the financial statements of such
affiliates, some of which were audited by other auditors.
We conducted our audits in accordance with generally accepted auditing
standards, including standards prescribed by the Auditors Regulation (Manner of
Auditor's Performance) 1973. Such standards require that we plan and perform the
audit to obtain reasonable assurance that the financial statements are free of
material misstatement, whether due to error or intentional misrepresentation. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the Board of
Directors and by Management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
The above mentioned financial statements were prepared on the basis of the
historical cost convention, in historical values adjusted for the changes in the
general purchasing power of the Israeli currency, in accordance with opinions of
the Institute of Certified Public Accountants in Israel.
194
<PAGE>
In our opinion, based on our audit and on the reports of the above mentioned
other auditors, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company and the
consolidated financial position of the Company and its subsidiaries as at
December 31, 1996 and 1995 and the results of their operation, the changes in
the shareholders' equity and their cash flows for each of the three years, the
last of which ended December 31, 1996 in conformity with generally accepted
accounting principles. Furthermore, these statements have, in our opinion, been
prepared in accordance with the Securities Regulation (Preparation of Annual
Financial Statements) 1993.
The consolidated financial statements, stated in U.S. dollars in accordance with
U.S. generally accepted accounting principles, are translated according to the
principles prescribed by Statement of Financial Accounting Standards N. 52
(F.A.S.B. 52) Those statements are based on historical nominal amounts and are
included in Note 30. to the financial statements.
Without qualifying our opinion, we would like to bring to attention Note 27 to
the financial statements regarding the compromise agreement with the Controller
of Restrictive trade Practices pertaining to filling station owners and
operators; the Controller of Restrictive trade Practices' ruling of the
existence at a restrictive arrangement in regard to the refueling system for
automobile fleets; the proposal to shorten agreements made by a consolidated
company with filling station operators and owners; and with legislation proposed
by the Ministry of Energy dealing with the fuel market. At this time, it is not
possible to estimate the effect of the above on the fuel market in general and
on the Company in particular.
/s/ Somekh Chaikin
Certified Public Accountants (Israel)
195
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
-----------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
Adjusted to the Index of December 1996
--------------------------------------
N December 31, December 31,
o ------------ ------------
t 1996 1995
e ---- ----
- Adjusted NIS. (thousands)
-------------------------
Current assets
- --------------
Cash and cash equivalents 10,156 20,464
Marketable securities 4 4,861 237
Compulsory Government loan 4.A. 158 624
Trade receivables 5 487,302 366,125
Accounts receivable 5 33,422 61,378
Inventories 6 299,270 316,706
--------- ---------
835,169 765,534
--------- ---------
Investments, long-term
loans and debit balances
Subsidiaries, affiliated
companies and others 7 131,584 64,980
Long-term loans 8 50,847 23,196
Compulsory Government loan -- 232
--------- ---------
182,431 88,408
--------- ---------
Fixed assets 9
------------
Cost 1,235,008 1,158,389
Less: Accumulated depreciation 628,715 573,323
--------- ---------
606,293 585,066
--------- ---------
Intangible assets and
---------------------
deferred charges, net 10 30,615 20,238
--------------------- --------- ---------
1,654,508 1,459,246
========= =========
196
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
-----------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
Adjusted to the Index of December 1996
--------------------------------------
N December 31, December 31,
o ------------ ------------
t 1996 1995
e ---- ----
- Adjusted NIS. (thousands)
-------------------------
Current liabilities
-------------------
Credits from banks and others 11 252,262 157,013
Current portion of
convertible debentures 14 37,965 40,345
Trade payables 12 179,210 153,315
Accounts payable 13 125,196 69,871
------- -------
594,633 420,544
------- -------
Long-term liabilities
---------------------
Long-term loans 14 63,487 8,316
Debentures convertible into
shares of the company 14 179,604 229,846
Debentures convertible into
shares of a subsidiary 14 2,044 4,071
Customers' deposits 15 60,228 62,557
Liabilities for employee rights
upon retirement, net 16 9,227 8,437
Deferred taxes, net 17 2,645 5,701
Capital notes issued by
a consolidated company 215 314
------- -------
317,450 319,242
------- -------
Minority interest 9,517 9,207
------------------ ------- -------
Collaterals, commitments and contingent
---------------------------------------
liabilities 26,27
-----------
Shareholders' equity 732,908 710,253
-------------------- ------- -------
1,654,508 1,459,246
========= =========
J. Rosen - Chairman of the Board
M. Mor - Director
M. Erez - Managing Director
Date: March 10, 1997.
The accompanying notes are an integral part of the financial statements.
197
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
-----------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
Adjusted to the Index of December 1996
--------------------------------------
N Year ended December 31,
o -----------------------
t 1996 1995 1994
e ---- ---- ----
- Adjusted NIS. (thousands)
----------------------------------
Sales 2,909,342 2,700,100 2,373,783
Less: Government imposts 1,127,209 937,547 904,461
--------- --------- ---------
Net sales 1,782,133 1,762,553 1,469,322
Cost of sales 20 1,394,959 1,400,224 1,140,265
--------- --------- ---------
Gross profit 387,174 362,329 329,057
--------- --------- ---------
Selling and marketing expenses 21 236,175 * 204,085 * 194,231
General and administrative expenses 22 48,246 * 51,789 * 44,988
--------- --------- ---------
284,421 255,874 239,219
--------- --------- ---------
Income from operations 102,753 106,455 89,838
--------- --------- ---------
Financing expenses, net 23 (23,067) (14,503) (11,027)
Other income, net 24 7,415 * 2,675 * 6,312
--------- --------- ---------
(15,652) (11,828) (4,715)
--------- --------- ---------
Income before taxes on income 87,101 94,627 85,123
Taxes on income 25 35,671 39,786 25,205
--------- --------- ---------
Income after taxes on income 51,430 54,841 59,918
Company's share in income (loss)
of affiliates, net 666 (3,091) 816
Minority interest in income
of consolidated subsidiaries (1,471) (628) (351)
--------- --------- ---------
Net income 50,625 51,122 60,383
========= ========= =========
Earnings per ordinary share
(in adjusted NIS.):
Primary 0.41 0.42 0.49
==== ==== ====
Fully diluted 0.28 0.27 0.21
==== ==== ====
*Reclassified.
The accompanying notes are an integral part of the financial statements.
198
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
-----------------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
-----------------------------------------------
Adjusted to the Index of December 1996
--------------------------------------
<TABLE>
<CAPTION>
Capital Premium Retained Total
Earnings
------- ------- -------- -----
Adjusted NIS. (thousands)
----------------------------------------------
<S> <C> <C> <C> <C>
Balance as at January 1, 1994 198,345 99,801 355,585 653,731
Changes in 1994:
Net income for the year -- -- 60,383 60,383
Proceeds from exercise
of stock options 3,112 14,691 -- 17,803
Dividend declared, net (*) -- -- (45,812) (45,812)
------- ------- ------- -------
Balance as at December 31, 1994 201,457 114,492 370,156 686,105
Changes in 1995:
Net income for the year -- -- 51,122 51,122
Dividend paid, net (*) -- -- (26,974) (26,974)
------- ------- ------- -------
Balance as at December 31, 1995 201,457 114,492 394,304 710,253
Changes in 1996:
Net income for the year -- -- 50,625 50,625
Dividend paid -- -- (27,970) (27,970)
------- ------- ------- -------
Balance as at December 31, 1996 201,457 114,492 416,959 732,908
======= ======= ======= =======
</TABLE>
(*) Net of erosion of dividend declared in previous year.
The accompanying notes are an integral part of the financial statements.
199
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
-----------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOW
------------------------------------
Adjusted to the Index of December 1996
--------------------------------------
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------
1996 1995 1994
---- ---- ----
Adjusted NIS. (thousands)
--------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
- ------------------------------------
Net income 50,625 51,122 60,383
Adjustments to reconcile net income
to operating cash flows (A): 13,068 106,850 88,020
------- ------- -------
Net cash provided by operating activities 63,693 157,972 148,403
------- ------- -------
Cash flows from investing activities
- ------------------------------------
Acquisition of fixed assets (88,284) (84,950) (99,584)
Investment grant -- -- 604
Proceeds from sale of fixed assets 3,404 1,758 3,455
Dividend received from affiliates 1,458 -- --
Loan granted to an affiliated company -- -- (13,009)
Long-term loans granted (1) (13,662) (3,413) (2,114)
Collection of long-term loans 10,170 6,890 6,612
Investment in intangible and deferred charges (14,375) (5,567) (3,058)
Investment in an affiliated company (68,471) (5,718) --
Proceeds from redemption of compulsory
government loan 730 740 776
Proceeds from (investments in)
marketable securities, net (3,833) 5,632 7,439
Proceeds from (investment in) short-term deposit -- 37,260 (35,865)
Investment in capital note of an affiliated company -- -- (7,511)
Repayment of part of an investment in an
affiliated company -- -- 484
Reduction of investments in
companies by dividend received -- -- 6,910
Acquisition of shares in a subsidiary company (1,622) -- --
Acquisition of an affiliated company -- -- (101)
Repayment of capital notes of interested parties 11,075 30,991 --
Acquisition of an initially
consolidated company (B) (36) 2 --
------- ------- -------
Net cash used for investing activities (163,446) (16,375) (134,962)
------- ------- -------
C/F (99,753) 141,597 13,441
------- ------- -------
</TABLE>
200
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
-----------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOW (CONTINUED)
------------------------------------------------
Adjusted to the Index of December 1996
--------------------------------------
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------
1996 1995 1994
---- ---- ----
Adjusted NIS. (thousands)
--------------------------------
<S> <C> <C> <C>
B/F (99,753) 141,597 13,441
------- ------- -------
Cash flows from financing activities:
- -------------------------------------
Dividend paid (27,970) (74,638) (80,244)
Dividend paid to minority shareholders
in a consolidated subsidiary (305) (342) (138)
Short-term credit from banks, net 85,040 (34,850) 74,665
Short-term loans from others, net 10,000 (5,959) (5,177)
Long-term loans received 60,223 -- 333
Long-term loans repaid (2) (947) (1,376) (1,100)
Redemption of capital notes issued
by a consolidated company (77) -- (2,809)
Customers' deposits received 2,080 1,905 1,967
Customers' deposits repaid (627) (786) (1,151)
Redemption of debentures (37,972) (12,335) --
Expenses regarding conversion
of debentures into shares (3) -- -- (31)
------- ------- -------
Net cash provided by (used for)
financing activities 89,445 (128,381) (13,685)
------- ------- -------
(Decrease) Increase in cash and
cash equivalents (10,308) 13,216 (244)
Cash and cash equivalents at beginning of year 20,464 7,248 7,492
------- ------- -------
Cash and cash equivalents at end of year 10,156 20,464 7,248
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
201
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
-----------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOW (CONTINUED)
------------------------------------------------
Adjusted to the Index of December 1996
--------------------------------------
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------
1996 1995 1994
---- ---- ----
Adjusted NIS. (thousands)
------------------------------
<S> <C> <C> <C>
(A)
Adjustments to reconcile net
- ----------------------------
income to operating cash flows:
-------------------------------
Income and expenses not requiring cash flows -
Depreciation and amortization 68,873 63,684 59,598
Deferred taxes, net (2,777) (7,223) (5,567)
Increase (Decrease) in liabilities for
employee rights upon retirement, net 913 (1,663) 3,757
Minority interest in income of
consolidated subsidiaries 1,471 628 352
Company's share in undistributed
loss of affiliates, net 880 4,971 1,022
Income from decrease in holding in
a consolidated subsidiary pursuant to
conversion of its debentures into shares -- -- (618)
Capital gains (310) (439) (1,192)
Erosion of investments in capital notes, net (172) (455) 1,203
Erosion of long-term loans,
debentures and capital notes issued (16,095) (11,592) (38,906)
Erosion of loans granted 1,212 729 (81)
(Increase) Decrease in value of compulsory
Government loan and securities, net (956) (212) 1,482
Erosion of customers' deposits (3,782) (2,417) (8,817)
Erosion of short-term deposit -- (1,241) (153)
Partial write-off of investment in
an affiliated company -- 3,318 --
Changes in assets and liabilities -
(Increase) Decrease in trade and
accounts receivable (1)(2) (134,631) 14,088 (5,914)
Decrease in inventories 17,436 51,894 46,036
Increase (Decrease) in trade
and accounts payable 81,006 (7,220) 35,818
-------- ------- ------
13,068 106,850 88,020
======== ======= ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
202
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
-----------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOW (CONTINUED)
------------------------------------------------
Adjusted to the Index of December 1996
--------------------------------------
Year ended December 31,
----------------------------
1996 1995 1994
---- ---- ----
Adjusted NIS. (thousands)
----------------------------
(B)
Acquisition of an initially
- ---------------------------
consolidated company
- --------------------
Assets and liabilities of the said
company as at the acquisition date:
Working capital (not including
cash and cash equivalents) 26 (95) --
Fixed assets, net (5) (749) --
Long-term debt, net -- 846 --
Reserve for the loss of the affiliated
company as of the day of changeover to
a consolidated company -- 406 --
Goodwill (1,028) (406) --
Minority interest 971 -- --
------ ----- -----
(36) 2 --
====== ===== =====
Activities not requiring cash flow:
(1) In 1996, current receivables from customers were converted into long-term
loans in the amount of NIS.27,634 thousand (1995 - NIS.10,899 thousand,
1994 - NIS. 2,974 thousand).
(2) In 1996, the redemption of a loan received from an affiliated company in
the amount of NIS. 4,500 thousand was offset against a receivable from an
affiliated company.
(3) In 1994, 11,473,515 debentures (series 2) were converted into 2,294,703
ordinary shares. In 1995, 110 debentures were converted into 20 ordinary
shares.
The accompanying notes are an integral part of the financial statements.
203
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
-----------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
NOTE 1 - CONSOLIDATED FINANCIAL STATEMENTS IN ADJUSTED VALUES
A. General
-------
1. The financial records of the Company and its consolidated
subsidiaries are maintained on a current basis in historical New
Israel Shekels. In accordance with Opinions issued by the
Institute of Certified Public Accountants in Israel, the
consolidated financial statements are stated in terms of December
1996 New Israel Shekels ("adjusted shekels") which reflect a
uniform purchasing power. Such shekel statements are henceforth
referred to as "adjusted statements".
The comparative figures (including the monetary items) in the
adjusted statements - (balance sheets, statements of income,
statements of changes in shareholders' equity, statements of cash
flows) - are also stated in terms of December 1996 adjusted
shekels.
2. The adjusted values presented in the adjusted statements do not
necessarily reflect realizable value or current economic value,
but rather the original historical value or the value including
excess of cost over net asset value related to specific assets,
adjusted for the changes in the general purchasing power of the
Israel currency, to permit comparison of the data on a uniform
basis.
3. The term "cost" used in the adjusted statements means cost in
adjusted shekels unless otherwise stated.
B. Basis of Adjustment - Consumer Price Index
------------------------------------------
The adjusted amounts are expressed in New Israel Shekels, the
purchasing power of which reflects the average price level of the
month of December 1996, based on the Consumer Price Index published by
the Central Bureau of Statistics ("Index"), on January 15, 1997 (see
Note 2.G.1.)
C. Principles of Adjustment
1. Balance Sheet
a. The non-monetary items (the balance sheet amounts which
represent their historical value at the time of their
acquisition or creation-see below) were adjusted for the
changes in the Index since their acquisition or creation and
until the balance sheet date. The following items were
treated as non-monetary items: fixed assets and related
accumulated depreciation, investments carried at cost,
inventories, except for inventories of crude oil and refined
products, (see Note 2.C.2) deferred charges and the related
accumulated amortization, and shareholders' equity.
204
<PAGE>
NOTE 1 - CONSOLIDATED FINANCIAL STATEMENTS IN ADJUSTED VALUES (CONTINUED)
b. The value of the investments in affiliated companies carried
on the equity basis was computed on the basis of the
adjusted statements of the affiliated companies.
c. Deferred taxes, net were computed on the basis of the
adjusted data.
d. Monetary items are stated in the adjusted statements at
their nominal value.
2. Statement of Income
-------------------
The items of the statement of income were adjusted in accordance
with the changes in the consumer price index as follows:
a. Amounts relating to non-monetary items in the balance sheet
(e.g. depreciation and amortization), or provisions included
in the balance sheet (e.g. severance indemnities, vacation
pay) were adjusted in accordance with the changes in the
corresponding balance sheet items.
b. Other amounts in the statement of income (e.g. sales,
purchases, other current costs), except for financing
expenses (income) net, are stated at their adjusted amounts
based on the index for the month of the related
transactions.
c. The net financing item, which cannot be independently
calculated, is derived from the other items in the statement
of income. The item includes, inter alia, amounts required
for the adjustment of various items in the statement of
income in respect of the inflationary component of the
financing included therein.
d. The Company's equity in the operating results of the
affiliated companies and the minority interest in the
results of consolidated subsidiaries were determined on the
basis of the adjusted statements of the investee companies.
e. Current taxes are composed of payments on account during the
year in addition to amounts payable as of the balance sheet
date (or net of refunds claimed as of the balance sheet
date). The payments on account were adjusted based on the
prevailing index on the date of each payment, while the
amounts payable (or claimed as refund) are included without
adjustment. Accordingly, the current taxes include the
expenses arising from the erosion of the payments on account
taxes from the date of payments to the balance sheet date.
Deferred taxes - see Note 2.J.
3. Comparative figures were adjusted to the December 1996 index.
205
<PAGE>
NOTE 2 - SIGNIFICANT REPORTING AND ACCOUNTING POLICIES
A. Principles of consolidation
---------------------------
1. The consolidated financial statements of the Company include the
consolidated financial statements of the Company and its
subsidiaries. The list of subsidiaries which are included in the
consolidated financial statements and the percent ownership and
control therein are included in a separate schedule to the
financial statements.
2. Intercompany balances and transactions of consolidated companies
have been eliminated.
B. Investments in subsidiary and affiliated companies
--------------------------------------------------
1. The investments in subsidiaries and affiliated companies are
reflected in the financial statements in accordance with their
equity adjusted to the balance sheet date together with the
balance of the excess cost or net of the balance of deferred
credits. Other investments are stated at cost which does not
exceed equity as of the balance sheet date. Subsidiary companies
own several other inactive and/or insignificant subsidiaries and
therefore are not consolidated and are carried at cost, which
does not exceed equity as at the balance sheet date.
2. The excess of cost of investments in consolidated subsidiaries,
which is not related to specific assets, over the value of net
assets acquired ("Goodwill"), is included in "Intangible assets
and deferred charges, net" and is amortized on the straight-line
method over a period of ten years.
The excess value of net assets acquired over cost of investments
in affiliated companies, which is not related to specific assets,
is set off against excess of cost included in "Intangible assets
and deferred charges, net" and is amortized on the straight line
method over a period of ten years.
3. The investements of the Company in capital notes of affiliated
companies are presented in the financial statements of the
Company in accordance with the requirements of the Securities
Authority regarding transactions between the Company and its
interested parties.
4. A list of affiliated companies is included in a schedule attached
to the financial statements.
C. Valuation of inventories
1. Inventory of crude oil and refined products
The major part of the crude oil and refined product inventories
of the wholly-owned subsidiary, Sonol Israel Limited ("Sonol"),
consists of Emergency inventories. The Emergency inventories are
valued based on current value, which does not exceed market value
in accordance with the lower of the changes in the exchange rate
determined by the Fuel Authority ("Fuel Authority rate") or the
dollar exchange rate. In all instances, the Emergency inventories
valued at the Fuel Authority rate are guaranteed by the
Government by way of setting Sonol's recovery price based on the
Fuel Authority rate in accordance with the Commodities and
Services Control Order (Arrangements in the Oil Economy - 1988).
206
<PAGE>
NOTE 2 - SIGNIFICANT REPORTING AND ACCOUNTING POLICIES (CONTINUED)
The commercial inventories (crude oil and refined products) are
stated at the lower of cost or market.
The cost is determined by the first-in, first-out method.
2. Other inventories
-----------------
The inventories of luboils, spare parts and others are stated at
the lower of cost or market.
The cost is determined by the first-in, first-out method except
for spare parts which are valued by the moving average method.
D. Fixed assets
------------
Fixed assets are carried at cost, net of investment grants, or at cost
together with the addition of excess of cost over net asset value
related to specific assets. Betterments and improvements are charged
to assets while maintenance and repair expenses are charged as
incurred to the statement of income.
E. Depreciation and Amortization
-----------------------------
Depreciation is computed on the straight line method at annual rates
considered to be sufficient for depreciating the assets over their
estimated useful lives.
The annual rates of depreciation are as follows:
%
---
Buildings (including temporary
and rental buildings) 2 - 6.5
Machinery and equipment 5 - 15
Vehicles 15 - 20
Computers 20 - 25
Furniture and office equipment (reflected
in machinery and equipment) 6 - 10
The excess of cost over net asset value related to specific assets is
depreciated over the remaining useful life as determined at the time
the excess of cost was related to those assets.
Leasehold rights are amortized over the term of the lease.
F. Debentures convertible into shares
----------------------------------
1. Convertible debentures are presented in accordance with the
Opinion No. 53 of the Institute of Certified Public Accountants
in Israel on the basis of the probability of their conversion
into shares. Debentures are reflected in the financial statements
at their liability value.
207
<PAGE>
NOTE 2 - SIGNIFICANT REPORTING AND ACCOUNTING POLICIES (CONTINUED)
2. Costs relating to the issuance of convertible debentures are
amortized over the remaining period until their maturity.
G. Foreign currency and linkage basis
----------------------------------
1. Assets (other than securities) and liabilities in foreign
currencies or linked thereto are stated at the exchange rates in
effect for the balance sheet date.
Assets (other than securities) and liabilities linked to the
Index, are stated according to the linkage conditions applying to
each balance.
The Index, the exchange rates and the rate of changes therein
were as follows:
<TABLE>
<CAPTION>
December 31, Changes in %
------------ ------------
1996 1995 1994 1996 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Index 143.1 129.4 119.7 10.6 8.1 14.5
Exchange rate of
the U.S. dollar 3.251 3.135 3.018 3.7 3.9 1.1
</TABLE>
2. Income and expenses in foreign currencies or linked thereto are
included in the appropriate items of the statements of income
based on the exchange rate in effect when such items were
recorded.
3. Exchange rate or linkage differences resulting from the
adjustment of assets and liabilities in foreign currency or of
assets and liabilities linked to the Index are included in the
statements of income in the appropriate items at the time
incurred.
H. Investments
-----------
1. Government loan
---------------
The investment in a Government Loan is reflected at its present
discounted value as calculated in accordance with directions
specified in the opinions of the Institute of Certified Public
Accountants in Israel. The change in the value of the Government
loan is included in the statement of income.
2. Marketable Securities
---------------------
The marketable securities are carried at their market value on
the date of the balance sheet. The changes in the value of the
securities are reflected in the statement of income.
208
<PAGE>
NOTE 2 - SIGNIFICANT REPORTING AND ACCOUNTING POLICIES (CONTINUED)
I. Provision for doubtful receivables
----------------------------------
The Company provides specifically for receivables the collection of
which is doubtful in the opinion of the management.
J. Deferred taxes
--------------
Deferred taxes are computed for the purpose of the adjusted financial
statements in respect of those components which create the difference
between results measured in the adjusted financial statements and the
results measured for income tax purposes.
The deferred taxes are calculated according to the liability method at
tax rates that will be in effect when the deferred taxes will be
utilized, using tax rates that are known at the time of preparation of
the financial statements (See note 25.b.).
1. The main factors in respect of which deferred taxes have been
included are as follows:
a. Differences in depreciation and amortization for accounting
and tax purposes;
b. Differences between the value of inventories for accounting
and tax purposes;
c. Timing differences in recognition of income and expense
items for accounting and tax purposes (mainly linkage
differences on customers' deposits and provisions for
employee post-retirement benefits).
2. The main factors in respect of which deferred taxes have not been
computed:
a. Amounts of adjustment for the change in the purchasing power
of the New Israel Shekels relating to buildings and private
motor cars, in accordance with the rules determined by the
Institute of Certified Public Accoutants in Israel.
b. Investments in subsidiaries and affiliates, because it is
the Company's intention to hold these investments rather
than to sell them.
K. Recognition of income
---------------------
1. Products sales - Income from the sale of products is recorded
upon dispatch to the customer.
2. Rental income - Rental income is recorded upon receipt of
payment, proportionately to the relevant period.
209
<PAGE>
NOTE 2 - SIGNIFICANT REPORTING AND ACCOUNTING POLICIES (CONTINUED)
L. Provision for linkage increments on customers' deposits
-------------------------------------------------------
The wholly-owned subsidiary, Supergas Israel Gas Distribution Company
Ltd. ("Supergas") is obligated under a Government decree to pay
customers terminating their gas purchasing agreement an amount equal
to the latest approved deposit authorized by the Ministry of Trade and
Industry, together with linkage increments from the date of the last
approval to the date of payment. In periods subsequent to the last
approval, Supergas provides for amending the amounts of the deposits
on the basis of the expected next updating that it will request.
Supergas provides for this liability on a discounted present value
basis.
M. Earning per share
-----------------
1. Primary earnings
----------------
The earnings per share are computed in accordance with the
Opinion No. 55 of the Institute of Certified Public Accountants
in Israel, based on the weighted average of shares outstanding,
taking into consideration the retroactive effect of the options.
2. Fully diluted earnings
----------------------
The fully diluted earnings per share are computed on the basis of
the computation of the primary earnings per share taking into
consideration theoretical conversion of the convertible
securities subject to an anti dilutive test as stated in the
aforementioned Opinion.
N. Foreign currency futures transactions
-------------------------------------
Sonol Israel Limited entered into a "free dollar transaction" with a
bank by which it acquired U.S. dollars bearing interest at flexible
rates, against an unlinked shekel loan, bearing interest at flexible
rates. The transaction may be closed at any time by netting the
liability against the asset. The accumulated effect of the transaction
is reflected in the statements of income.
O. Fair value of financial instruments
-----------------------------------
There is no significant difference between the fair value of the
financial instruments of the Company and their value as stated in the
balance sheet, except for debentures convertible into shares (see note
14).
210
<PAGE>
NOTE 3 - ACCOUNTING WITH THE FUEL AUTHORITY AND THE REFORM IN THE ENERGY SECTOR
A. Sonol
-----
1. Amounts due to or from the Fuel Authority, to the extent still
provisional, are included each year in the accounts according to
estimates prepared by Sonol based on past experience. Differences
which subsequently arise are reflected in the results of the year
in which such differences are determined.
2. All costs and expenses related to the holding of Emergency
inventories are fully recoverable from the government while the
holding of Commercial inventories is at the risk of the oil
marketing companies.
3. Government retail price controls have been lifted from all fuel
products marketed through public stations with the exception of
benzine 95 and 96 octane.
211
<PAGE>
NOTE 3 - ACCOUNTING WITH THE FUEL AUTHORITY AND THE REFORM FOR THE ENERGY SECTOR
(CONTINUED)
4. Further to the recommendations of the committee previously
appointed by the Minister of Energy and Infrastructure, the
Minister of Energy has announced his intention to change the
policy regarding the holdings of Emergency Stocks of crude oil
and refined products and to separate them from the operating
inventories of the oil companies. To date, ownership of Emergency
Stocks of heavy fuel oil held at the Israel Electric Corporation
has been transferred to the Israel Electric Corporation.
For the period which commenced November 1996 and ended February
1997, the requirement to hold Emergency Stocks of heavy fuel oil
was graduelly cancelled. Also, the Government intends, in 1997,
to separate the storage of distillates included in the Emergency
Stocks from the storage of distillates used in current
operations, and in the future, to have tender offers to determine
the party who will hold the Emergecny Stocks in warehouses
specially designated by the State.
In the opinion of the Company, no negative effect on the
financial position and profitability of the subsidiary company,
Sonol, is expected as a result of the above changes.
5. In accordance with the Government ordinance issued by the
Minister of the Treasury and the Minister of National
Infrastructures regarding the supplying of aviation kerosene
(hereinafter "ATK") to the airline companies at Ben-Gurion
Airport, as of September 1, 1996, Aviations Services Ltd. (an
affiliated company) (hereinafter "Aviation Services") ceased to
be the sole supplier of ATK. Sonol was one of the suppliers of
ATK to Aviation Services for many years. As a result of the
cancellation of the right of Aviation Services to supply ATK,
Sonol will, like other fuel companies, become a direct supplier
of ATK to the airline companies at Ben-Gurion airport. The decree
also determined the prices for refueling services and for
infrastrcture services provided to the ariline companies at
Ben-Gurion airport. In accordance with agreements signed with the
budget division of the Finance Ministry and with the Airports
Authority, Aviation Services will provide the refueling services
and its subsidiary (50% owned), Aviation Properties Ltd., will
provide the infrastructure services. The agreements do not
provide Aviation Services with exclusivity in providing refueling
services at Ben-Gurion airport.
At this time, it is too early to determine the effect of these
changes on the fule market in general and on Sonol, in
particular.
6. On September 1, 1995 the Government published a decree the
purpose of which is to regulate infrastructure rates in the fuel
economy-decree for the Stability of Products and Services
(Temporary Order) (Infrastructure Rates in the Fuel Economy)
1995.
The decree establishes, inter alia, the various types of
infrastructure services and the maximum prices allowed, as well
as the method for updating the prices.
212
<PAGE>
NOTE 3 - ACCOUNTING WITH THE FUEL AUTHORITY AND THE REFORM FOR THE ENERGY SECTOR
(CONTINUED)
B. Supergas
--------
1. As of August 1, 1989 the Law of Arrangements in the State Economy
(Amended Statutes) - 1989, entered into effect which provides
inter-alia for the following:
a. Licensing of new gas marketing companies;
b. Direct sales of gas by the refineries to gas marketing
companies;
c. Allowing the cancellation of existing contracts between gas
suppliers and individual customers, at the customers'
election.
The above changes ("the Gas Reform") resulted in increased
competition, particularly in the more profitable bulk supply
sector. Such competition manifested itself primarily through
price discounting and increased customer credit. In January 1995,
a convention was signed between the Ministry of Energy and
several gas companies, among them Supergas, establishing
standards of service to their clients. In May 1995, price
controls in effect on the price of gas were lifted. Concurrently,
the companies who are parties to the convention have undertaken
not to deviate, when setting their prices to the consumer, from
an agreed upon formula for an interim period ending on December
31, 1996.
2. Supergas lodged a claim in the District Court for a declarative
judgement against the Ministry of Energy and Infrastructure, the
Fuel Authority, regarding two matters relating to the period
before the Gas Reform.
In its ruling, the Court accepted Supergas' claim on one matter
and rejected the second claim. The Government and Supergas
submitted an appeal to the Supreme Court and concurrently they
negotiated to compromise the dispute.
In December 1996, the parties reached a compromise agreement
which received the status of a Supreme Court ruling and under
whose terms the government paid to Supergas the amont of NIS.
5.2. million, net which has been netted in "Government imposts"
in the statement of income.
213
<PAGE>
NOTE 4 - MARKETABLE SECURITIES
Consist of:
December 31,
----------------
1996 1995
---- ----
Adjusted NIS. (thousands)
-------------------------
Shares 4,757 89
Convertible debentures 104 148
----- --
4,861 237
===== ===
NOTE 4.A. COMPULSORY GOVERNMENT LOAN
The compulsory Government loan is Hagalil Peace loan (Note 2.H.1). The
nominal value of the Hagalil Peace loan is linked, at the Company's
discretion, to 80% of the increase in the Index in addition to index
linked interest of 1% per annum, or to the increase in the
representative rate of exchange of the dollar, without interest. The
loans are redeemable in four annual payments commencing in the year
1993.
NOTE 5 - TRADE RECEIVABLES AND ACCOUNTS RECEIVABLE
December 31,
------------
1996 1995
---- ----
Adjusted NIS. (thousands)
-------------------------
Trade receivables
-----------------
Consist of:
Customers - open accounts 401,232 312,009
Checks and notes receivable 37,656 27,289
Credit cards companies 48,826 30,533
Short-term loans and current portion
of long-term loans granted 10,352 6,745
Less - provision for doubtful receivables(*) (10,764) (10,451)
------- -------
487,302 366,125
======= =======
Accounts receivable
-------------------
Consist of:
Fuel Authority - 14,611
Government Institutions 217 192
Income receivable 7,282 9,823
Employees 807 1,169
Prepaid expenses 6,024 5,054
Income tax receivable 4,610 8,330
Future tax benefits, net(**) 4,365 4,644
Current portion of capital notes - 11,169
Others 10,117 6,386
------- -------
33,422 61,378
====== ======
(*) See note 2.I.
(**) See note 17.
214
<PAGE>
NOTE 6 - INVENTORIES
Consist of:
December 31,
------------
1996 1995
---- ----
Adjusted NIS. (thousands)
-------------------------
Crude oil and raw materials 53,210 81,847
Finished products 236,997 226,239
Materials and supplies 9,063 8,620
------- -------
299,270 316,706
======= =======
NOTE 7 - SUBSIDIARIES, AFFILIATED COMPANIES AND OTHERS
December 31,
------------
1996 1995
---- ----
Adjusted NIS. (thousands)
-------------------------
Affiliated companies:
Share in equity 22,165 18,609
Goodwill and excess cost attributed, net 77,014 8,305
Less: accumulated amortization (3,903) (3,810)
Book value (1)(3) 95,276 23,104
Payments on account of shares (3) - 5,718
Long-term loans, net (3) 10,410 10,205
Capital note and capital reserve, net
of provision for loss (2) 7,379 7,434
------- ------
113,065 46,461
Affiliated companies - cost 179 179
Others - cost 18,340 18,340
------- ------
131,584 64,980
======= ======
215
<PAGE>
December 31,
------------
1996 1995
---- ----
Adjusted NIS. (thousands)
-------------------------
(1) Cost of shares including retained
earning as of December 31, 1991 6,174 6,174
Changes, beginning 1.1.92:
Cost of shares acquired 94,779 20,590
Retained earnings (*) (6,019) (4,002)
Changes in capital reserves 342 342
------ ------
Book value 95,276 23,104
====== ======
(*) Dividend received in the current year 3,004 1,880
====== ======
NOTE 7 - SUBSIDIARIES, AFFILIATED COMPANIES AND OTHERS (CONTINUED)
(2) Capital note is unsecured and non-negotiable, linked to the Index,
bears no interest and matures in the year 2001.
(3) A. The loans given by a subsidiary to the affiliated company Otzem
Promotion and Investments (1991) Ltd. ("Otzem") are mostly index
linked and partly index linked and bear interest at the rate of
5.5% p.a. The date of maturity is subject to the financial
capabilities of Otzem.
B. Due to the operating results of Otzem in 1995, the wholly-owned
subsidiary company, Granite Hacarmel Properties (1993)
Ltd.,("Granite Properties") wrote off amounts totalling NIS.
6,580 thousand, NIS. 3,318 thousand as a provision in "other
income, net" and NIS. 3,263 thousand as a writeoff of the balance
of goodwill, recorded on account of its investment in Otzem, now
included in the "Company's share in income (loss) of affiliates,
net".
C. On December 31, 1995 a closing agreement was signed with Nitzba,
Hevra Le'hitnahalut Ltd. ("Nitzba") whereby most of the assets of
Nitzba were transferred to a new company, Nitzba Holdings (1995)
Ltd. ("Nitzba Holdings"). The closing agreement also provided
that Granite Properties and Ashtrom Properties Ltd. ("Ashtrom")
will each aquire 10% of the outstanding share capital of Nitzba
Holdings for a payment of approximately NIS. 73,900 thousand
each, the most of which was paid in the current year. The cost of
the investment, including related expenses, amounted to NIS.
74,200 thousand approximately. In connection with this agreement,
it was also agreed that Granite
216
<PAGE>
Properties and Ashtrom will each acquire 15% of the rights of
Nitzba in an orchard in Nes Ziona. Granite Properties' share,
including related expenses, is approximately NIS. 2,300 thousand.
The agreement and the closing agreement provide Granite
Properties and Ashtrom the right to appoint a quarter of all the
directors of Nitzba Holdings. In addition, Granite Properties and
Ashtrom were granted veto rights on several significant matters
requiring decisions by the directorate. Until such time that the
shares of Nitzba Holdings will be issued and registered for
trading on the stock exchange, no special decision will be taken
at the general meeting of its shareholders, unless all the
shareholders reach a prior unanimous decision to vote in favor of
such decision. Simultaneously with the execution of the closing
agreement, an agreement was signed between Granite Properties and
Ashtrom defining their relationship on all matters regarding
cooperation between them as shareholders in Nitzba Holdings.
NOTE 7 - SUBSIDIARIES, AFFILIATED COMPANIES AND OTHERS (CONTINUED)
Granite Properties transferred its rights in the said agreements
to a wholly owned subsidiary, with the exception of its rights in
the orchard in Nes Ziona as mentioned above.
5. See also Note 3.A.5.
NOTE 8 - LONG--TERM LOANS
a. Consist of:
December 31,
------------
1996 1995
---- ----
Adjusted NIS. (thousands)
-------------------------
Loans to customers 58,851 29,100
Loans to employees 116 159
------ ------
58,967 29,259
Less: current portion 8,120 6,063
------ ------
50,847 23,196
====== ======
The years of maturity of the loans:
First year - current portion 8,120 6,063
Second year 9,929 7,059
Third year 6,419 3,363
Fourth year 3,582 1,247
Fifth year and thereafter and
without maturity date 30,917 11,527
------ ------
58,967 29,259
====== ======
217
<PAGE>
b. Breakdown of loans by level of borrowers' balances:
December 31, 1996 December 31, 1995
Borrowers' ----------------- -----------------
balances Number of Total Number of Total
(NIS. thousands) loans NIS.thousands loans NIS.thousands
---------------- ----- ------------- ----- -------------
Less than 100 99 4,866 128 3,525
100 - 500 35 7,909 18 4,293
500 - 1000 10 7,544 4 3,293
Above 1000 15 38,648 8 18,148
--- ------ --- ------
159 58,967 158 29,259
=== ====== === ======
NOTE 8 - LONG--TERM LOANS CONTINUED)
c. Linkage terms and interest rates:
Unlinked Linked to Linked to Total
index foreign
currency
-------- --------- --------- -----
Interest rates: 0% 10-20% 0-4% 4-10% 0% 5-9%
-- ------ ---- ----- -- ----
Adjusted NIS. (thousands)
-------------------------
December 31, 1996
-----------------
Loans to:
Customers 2,035 4,087 24,642 20,788 2,402 4,897 58,851
Employees - - 116 - - - 116
----- ----- ------ ------ ----- ----- ------
2,035 4,087 24,758 20,788 2,402 4,897 58,967
===== ===== ====== ====== ===== =====
Less: current
portion 8,120
-----
50,847
======
December 31, 1995
-----------------
Loans to:
Customers 3,086 5,463 14,187 139 1,893 4,332 29,100
Employees - - 159 - - - 159
----- ----- ------ --- ----- ----- ------
3,086 5,463 14,346 139 1,893 4,332 29,259
===== ===== ====== ==== ===== =====
Less: current
portion 6,063
-----
23,196
======
218
<PAGE>
NOTE 9 - FIXED ASSETS
a. Consist of:
Land Machinery
and and
Buildings Equipment Vehicles Others Total
--------- --------- -------- ------ -----
Adjusted NIS. (thousands)
-------------------------
Cost
----
Balance at beginning
of year 440,037 619,725 43,225 55,402 1,158,389
Additions 37,190 38,683 7,890 5,309 89,072
Disposals - (6,405) (6,046) (2) (12,453)
------- ------- ------ ------ ---------
Balance at end of year 477,227 652,003 45,069 60,709 *1,235,008
------- ------- ------ ------ ---------
Accumulated depreciation
------------------------
Balance at beginning
of year 121,542 391,774 26,700 33,307 573,323
Depreciation charged 12,043 43,864 4,868 3,976 64,751
Depreciation in
respect of disposals - (4,859) (4,500) - (9,359)
------- ------- ------ ------ ---------
Balance at end of year 133,585 430,779 27,068 37,283 628,715
------- ------- ------ ------ ---------
Depreciated balance as
of December 31, 1996 343,642 221,224 18,001 23,426 606,293
======= ======= ====== ====== =======
Depreciated balance as
of December 31, 1995 318,495 227,951 16,525 22,095 585,066
======= ======= ====== ====== =======
(*) Net of investment grants in the amount of NIS. 13,813 thousand.
b. Land and buildings include buildings on lease-hold lands, the cost of
which is NIS. 180,308 thousand, for various original periods of 49 -
98 years, ending in the years 1998 - 2072. Land and buildings at a
cost of NIS. 183,029 thousand have not yet registered in the name of
the Company or consolidated subsidiaries in the Land Registry Office.
The main reason for the lack of registration is that the land
settlement and sub-division process has not yet been arranged.
c. Land and buildings includes:
1. NIS. 21,103 thousand, for the acquisition of 50% of the rights of
Magor Holdings Ltd. (hereafter "Magor") in land and buildings in
a project in Holon. A contract was also signed for cooperation
and management of the project, pursuant to which "Magor" has
undertaken that the rental income, net of expenses from the
project, which the wholly- owned subsidiary will receive for 10
years, will be not less than NIS. 941 thousand per year, linked
to the Index.
219
<PAGE>
NOTE 9 - FIXED ASSETS (CONTINUED)
2. NIS. 45,353 thousand, on account of acquisition of 50% of the
rights of Cible Israel Investments (1992) Ltd. (hereafter
"Cible") in land and buildings in a project in the new industrial
park of Rosh Haayin. Cible has undertaken that the rental income,
net of expenses, from the project which the wholly-owned
subsidiary will receive during the first seven years, will be not
less than NIS. 1,942 thousand for the first year and NIS. 2,513
thousand for each of the following six years. The above amounts
are linked to the Index. The guaranteed income period begins one
month after the completion of each of the buildings. Two out of
the five buildings built in the industrial park were completed in
January 1995 and the remaining three buildings were completed in
June 1995.
3. NIS. 21,498 thousand on account of acquisition of 17% of the
rights in land in Tel Aviv for the construction of an office
building and commercial area in a project, known as "Rubinstein
Towers". The said project is expected to be completed at the end
of year 1997. See also note 29.
d. Commitments and contingent liabilities - See note 26.
NOTE 10 - INTANGIBLE ASSETS AND DEFERRED CHARGES, NET
Consist of:
Balance to be amortized
as of December 31,
------------------
1996 1995
---- ----
Adjusted NIS. (thousands)
-------------------------
Intangible assets:
------------------
Deferred rent 18,305 9,208
Goodwill in consolidated
subsidiaries (1) 4,306 1,666
Others 4,837 5,058
------ ------
27,448 15,932
Deferred charges:
-----------------
Expenses incurred in the issuance
of debentures by the Company (2) 5,255 7,033
Expenses incurred in the issuance
of debentures by a consolidated
subsidiary (2) 99 196
------ ------
32,802 23,161
Less: Deferred credit in a
consolidated subsidiary (1) 2,187 2,923
------ ------
30,615 20,238
====== ======
(1) For amortization see note 2.B.2
(2) For amortization see note 2.F.
NOTE 11 - CREDITS FROM BANKS AND OTHERS
Linkage terms and interest rates:
---------------------------------
December 31, 1996
-----------------
Unlinked linked Linked to Total
to foreign
Index currency
-------- ------ --------- -----
Interest rates: 14.3-20% 4.8% 6.4-7.5%
-------- ------ ---------
220
<PAGE>
Adjusted NIS. (thousands)
---------------------------------------------
Overdrafts 2,322 - - 2,322
Short-term loans 222,975 - 16,255 239,230
Current portion of
long-term loans - 562 148 710
------- --- ------ -------
Total credits from banks 225,297 562 16,403 242,262
Credits from others 10,000 - - 10,000
------- --- ------ -------
235,297 562 16,403 252,262
======= === ====== =======
December 31, 1995
---------------------------------------------
Unlinked linked Linked to Total
to foreign
Index currency
-------- ------ --------- -----
Interest rates: 14% 2.5% 5.9-8.1%
Adjusted NIS. (thousands)
---------------------------------------------
Overdrafts 1,791 - - 1,791
Short-term loans 154,721 - - 154,721
Current portion of
long-term loans - 44 457 501
-------- ----- --------- -------
Total credits from banks 156,512 44 457 157,013
======== ===== ========= =======
NOTE 12 - TRADE PAYABLES
The liabilities represent open amounts and include NIS. 2,479 thousand
(1995 - NIS. 3,193 thousand) of balances to related parties.
NOTE 13 - ACCOUNTS PAYABLE
December 31, December 31,
------------ ------------
1996 1995
---- ----
Adjusted NIS. (thousands)
-------------------------
Fuel Authority 41,724 -
Liabilities to employees and
other salary related liabilities 20,285 17,742
Institutions 37,165 32,720
Accrued expenses 9,229 7,749
221
<PAGE>
Others 16,793 11,660
------- ------
125,196 69,871
======= ======
NOTE 14 - LONG-TERM LIABILITIES
A. Long-term loans
---------------
December 31, December 31,
------------ ------------
Rate of 1996 1995
interest ---- ----
% Adjusted NIS. (thousands)
-------- -------------------------
U.S. Dollar loans from banks 6.4-7.5 263 651
Index linked loans from banks 4.8 60,562 44
Customers' deposit - linked
to the index - 3,095 3,085
Customers' deposit - linked
to foreign currency - 54 60
Loan from affiliated company
- linked to the Index - - 4,977
Other loans - linked to the Index - 223 -
-------- -------- -----
64,197 8,817
Less: current portion 710 501
-------- -----
63,487 8,316
====== =====
Yearly installments:
December 31, December 31,
------------ ------------
1996 1995
---- ----
Adjusted NIS. (thousands)
-------------------------
First year - current portion 710 501
------ -----
Second year 60,083 137
Third year 24 57
Fourth year 8 -
Fifth year - -
No due date 3,372 8,122
------ -----
63,487 8,316
------ -----
64,197 8,817
====== =====
Accrued interest is included in "Accounts payable" in Current
liabilities.
222
<PAGE>
NOTE 14 - LONG-TERM LIABILITIES (CONTINUED)
B. Debentures convertible into shares of the Company
-------------------------------------------------
December 31, December 31,
------------ ------------
1996 1995
---- ----
Adjusted NIS. (thousands)
-------------------------
Debentures (Series 1)(*) 58,356 72,607
Debentures (series 2)(**) 157,169 195,545
------- -------
215,525 268,152
Less - current portion 35,921 38,306
------- -------
179,604 229,846
======= =======
Yearly installments:
December 31, 1996 December 31, 1995
----------------- -----------------
Series 1 Series 2 Series 1 Series 2
-------- -------- -------- --------
Adjusted NIS. (thousands)
---------------------------------------
First year - current portion 9,726 26,195 10,372 27,934
------ ------- ------ -------
Second year 9,726 26,195 10,372 27,935
Third year 9,726 26,195 10,372 27,935
Fourth year 9,726 26,195 10,372 27,935
Fifth year 9,726 26,195 10,373 27,935
Subsequent years 9,726 26,194 20,746 55,871
------ ------- ------ -------
48,630 130,974 62,235 167,611
------ ------- ------ -------
58,356 157,169 72,607 195,545
====== ======= ====== =======
(*) Registered debentures (Series 1) NIS. 1.- par value each. Every
NIS. 55.- par value of debentures are convertible into 10
ordinary shares NIS. 1.- par value each. The debentures bear
interest at an annual rate of 0.1%. The principal, interest and
the price for conversion into ordinary shares are linked to the
representative rate of exchange of the U.S. dollar and are
payable in 6 equal annual installments on November 30 in each of
the years commencing in 1997 and ending in 2002. As of the
balance sheet date, there were 41,249,852 outstanding debentures.
The market value of the debentures, as their price is quoted on
the Stock Exchange, is NIS. 48,469 thousand at balance sheet
date.
(**) Registered debentures (Series 2) NIS. 1.- par value each. Every
NIS. 5 par value of debentures are convertible into an ordinary
share of NIS. 1.- par value. The debentures bear interest at an
annual rate of 2.5%. The principal, interest and the price of
conversion into ordinary shares are linked to the representative
rate of exchange of the U.S. dollar and are payable in 6 equal
annual installments on November 30 in each of the years
commencing in 1997 and ending in 2002. As of the
223
<PAGE>
balance sheet date, there were 121,006,657 outstanding
debentures. The market value of the debentures, as their price is
quoted on the Stock Exchange, is NIS.140,973 thousand at balance
sheet date.
Accrued interest is included in "Accounts Payable" in current
liabilities.
Regarding collaterals see Note 26.
NOTE 14 - LONG-TERM LIABILITIES (CONTINUED)
C. Debentures convertible into shares of a subsidiary
December 31, December 31,
------------ ------------
1996 1995
---- ----
Adjusted NIS. (thousands)
-------------------------
Debentures (Series 1) 4,088 6,110
Less - current portion 2,044 2,039
----- -----
2,044 4,071
===== =====
Yearly installments:
December 31, December 31,
------------ ------------
1996 1995
---- ----
Adjusted NIS. (thousands)
-------------------------
First year - current portion 2,044 2,039
----- -----
Second year 2,044 2,036
Third year - 2,035
----- -----
2,044 4,071
----- -----
4,088 6,110
===== =====
Pursuant to a public offering prospectus in May 1990, the subsidiary
company, Vulcan Batteries Ltd. ("Vulcan"), issued 4,516,750
convertible debentures (Series 1) at par value. The debentures are
linked to the Index for April 1990, and bear interest at an annual
rate of 0.1%. From the date of issue until December 31, 1996 755,560
debentures have been converted into shares. As of the balance sheet
date there were 1,880,595 outstanding debentures (Series 1). The
market value of the debentures, as their price is quoted on the Stock
Exchange, is NIS.3,799 thousand at balance sheet date.
The debentures are payable in two equal yearly installments (after two
payments of the first 50% installment in December 1995 and 1996) in
December
224
<PAGE>
1997 and 1998 and are convertible at any time until December 26, 1998
into Vulcan's ordinary shares of NIS. 1.- par value at a conversion
rate of 200% (1 share for every NIS. 2.- par value of debentures
converted, subject to adjustments).
The conversion of the debentures into shares may dilute Sonol's
holding in Vulcan to 79% (instead of 83.9% as on the balance sheet
date).
Regarding collaterals - see Note 26.
D. All the aforementioned debentures are listed for trading on the
Tel-Aviv Stock Exchange.
NOTE 15 - CUSTOMERS' DEPOSITS
a. Customer deposits are calculated based on the updated price approved
by the Ministry of Trade and Industry in the decree dated January 7,
1997.
b. Customers' deposits held by Supergas include NIS. 41,845 thousand
(1995 - NIS. 43,774 thousand) of linkage increments accrued on those
deposits (Note 2.L.).
NOTE 16 - LIABILITIES FOR EMPLOYEE RIGHTS UPON RETIREMENT, NET
December 31, December 31,
------------ ------------
1996 1995
---- ----
Adjusted NIS. (thousands)
-------------------------
Provision for severance pay, net (a) 5,254 5,318
Less: deposits in approved funds (*) 1,439 1,436
----- -----
3,815 3,882
Provision for early retirement pension (**)(b) 3,638 2,914
Provision for redemption of unutilized
sick leave (c) 1,774 1,641
----- -----
9,227 8,437
===== =====
(*) The deposits can be withdrawn subject to law. Accrued income on the
deposits is included in the statements of income.
(**) Excluding NIS.1,208 thousand (1995 - NIS. 1,085 thousand) current
early retirement pension which is included in "Accounts payable".
a. The liabilities of the Company and its subsidiaries in respect of
pension
225
<PAGE>
and severance indemnities are fully covered by provisions for
severance indemnities, by deposits in approved funds and in managers'
insurance policies. The deposits in approved funds and in manager's
insurance plans are not included in the financial statements as they
are not under the control of the Company.
b. The provision for pension benefits in case of early retirement of
employees is computed at the discounted present value of the future
liabilities of the Company for such retired employees. The Company's
liability for early retirement is generally up to the time when the
employee reaches retirement age and is measured as a fixed percentage
of the maximum amount due to the employee from the pension fund. The
rate of capitalization for computing the provision is 4.5% per annum.
c. In accordance with the labor agreements between subsidiaries and their
employees, retiring employees (men at age 65 and women at age 60 - 65)
are entitled to receive a partial redemption of unutilized sick leave,
subject to a ceiling of 50 days. A provision based on an actuarial
calcualtion has been made in the financial statements for covering the
aforesaid liabilities. The actuarial calculation is based, inter alia,
on a capitalization rate of 3%.
NOTE 17 - DEFERRED TAXES, NET
a. Consist of:
Regarding current Regarding non-
Balance Sheet current Balance
items Sheet items Total
----------------- --------------- --------
Adjusted NIS. (thousands)
----------------------------------------------
Balance as of January 1, 1995 (3,748) 12,028 8,280
Changes in 1995 ( 896) (6,327) (7,223)
----- ------ ------
Balance as of December 31, 1995 (4,644) 5,701 1,057
Changes in 1996 279 (3,056) (2,777)
----- ------ ------
Balance as of December 31, 1996 (4,365) 2,645 (1,720)
===== ====== ======
b. Presented in the balance sheet:
December 31, December 31,
------------ ------------
1996 1995
---- ----
226
<PAGE>
Adjusted NIS. (thousands)
Deferred Taxes in long-term liabilities 2,645 5,701
Future tax benefits in current assets (4,365) (4,644)
----- -----
(1,720) 1,057
===== =====
NOTE 18 - LINKAGE OF MONETARY BALANCES
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------- -----------------
Linked Linked to Unlinked Linked Linked to Unlinked
to foreign (*) to foreign (*)
index currency index currency
----- -------- ----- --------
Adjusted NIS. (thousands) Adjusted NIS. (thousands)
------------------------- -------------------------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalent -- 6,620 3,536 -- 12,911 7,553
Marketable securities 104 -- 4,757 148 -- 89
Compulsory Government
loan -- 158 -- -- 856 --
Trade receivables 3,173 48,525 435,604 -- 755 365,370
Accounts receivable 6,203 704 16,126 10,024 21,761 19,895
Investment in
capital notes and loans 17,789 -- -- 17,639 -- --
Long-term loans 39,673 6,402 4,772 13,444 4,479 5,273
------- ------- ------- ------- ------- -------
66,942 62,409 464,795 41,255 40,762 398,180
======= ======= ======= ======= ======= =======
Liabilities:
Credits from banks
and others -- 16,255 235,297 -- -- 156,512
Trade payables 3,922 129,907 45,381 6,810 110,391 36,114
Accounts payable 15,232 42,401 67,563 13,982 434 55,455
Long-term liabilities
(including current
portion) and debentures 67,968 215,842 -- 14,216 268,863 --
Customers' deposits(**) 60,228 -- -- 62,557 -- --
Capital notes -- -- 215 -- -- 314
------- ------- ------- ------- ------- -------
147,350 404,405 348,456 97,565 379,688 248,395
</TABLE>
227
<PAGE>
======= ======= ======= ======= ======= =======
(*) Partly bearing interest.
(**) Against the Customers' deposit amounts, Supergas holds fixed assets on loan
to its customers, which are adjusted to the Index in the financial
statements. Regarding the linkage of Customers' deposits - see Note 15.
Against the excess of foreign currency linked liabilities over assets in the
amount of NIS. 342,000 thousand, Sonol holds fuel and refined products inventory
amounting to NIS. 249,000 thousand, which is mainly Emergency inventory valued
according to the changes in the rate of exchange of the U.S. dollar as explained
in note 2.C.1.
As of December 31, 1996 the balance from free dollar aquisitions from a bank
amounted to NIS.113,785 thousand(1995 - NIS. 34,615 thousand) - see note 2.N.
NOTE 19 - CAPITAL
a. Nominal values.
---------------
Consists of:
Authorized Issued and Paid(*)
---------- ------------------
December 31, December 31,
------------ ------------
1996 1995 1996 1995
---- ---- ---- ----
NIS. (thousands) NIS. (thousands)
---------------- ----------------
225,000,000 Ordinary
shares of NIS. 1.- each 225,000 225,000 122,674 122,674
======= ======= ======= =======
(*) 122,674,476 ordinary shares.
In the year 1995 the share capital has been increased by conversion of
110 debentures into 20 shares.
b. Stock options (Series 2)
------------------------
In accordance with a public offering prospectus dated February 1992
and with a prior resolution of issuance to the Company's shareholders,
the Company issued 39,984,124 stock options (Series 2). Each stock
option entitles the holders to acquire an ordinary share of NIS. 1.-
par value each in consideration for a payment of the exercise price of
NIS. 4.80 (linked to the consumer price index. The last day for
exercising options (Series 2) is February 28, 1997.
Up to December 31, 1995 16 stock options have been exercised. The
balance of
228
<PAGE>
stock options outstanding is 39,984,108 options, which ceased to be
exercisable on February 28, 1997 and ceased to be traded on the Stock
Exchange.
c. Earnings per ordinary share
---------------------------
1. The net income used in computing earnings per NIS. 1.- par value
of shares:
Year ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
Adjusted NIS. (thousands)
-------------------------
The net income used in computing
primary earnings per share 50,625 51,122 60,383
Add (Deduct) - theoretical
income (loss) deriving from:
Exercise of options (series 2) 9,434 5,650 1,398
Conversion of debentures (series 1) (2,244) (1,435) ( 6,361)
Conversion of debentures (series 2) (3,714) ( 788) (12,615)
------ ------ ------
Net income used in computing
diluted earnings per share 54,101 54,549 42,805
====== ====== ======
NOTE 19 - CAPITAL (CONTINUED)
2. The par value of shares used in computing earning per NIS. 1.-
par value share:
Year ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
Adjusted NIS. (thousands)
-------------------------
Share capital used in computing
primary earnings per share 122,674 122,674 122,674
Add - theoretical share capital
that may derive from:
Exercise of options (series 2) 39,984 39,984 39,984
Conversion of debentures (series 1) 7,500 8,750 10,000
Conversion of debentures (series 2) 24,201 28,235 28,235
------- ------- --------
The total share used in computing
diluted earnings per share 194,359 199,643 200,893
======= ======= ========
3. For examining the probability of conversion or exercise of
convertible securities, the present value was computed using a
capitalization rate of 4.5% (12.95 - 4.5%, 12.94 - 4%) for
securities linked to the Index and 5.5% (12.95 - 6%, 12.94 - 7%)
for securities linked to the exchange
229
<PAGE>
rate of the U.S. dollar.
NOTE 20 - COST OF SALES
Consist of:
Year ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
Adjusted NIS. (thousands)
-------------------------
Materials used:
Crude oil and refined
petroleum products (1)(2) 1,262,140 1,268,406 995,357
Raw materials and
auxiliary materials 36,498 41,393 44,541
Finished luboil
products purchased 6,696 3,398 3,095
--------- --------- ---------
1,305,334 1,313,197 1,042,993
--------- --------- ---------
Labor and sub-contract work
Labor (including
related expenses) 13,154 12,806 11,737
Sub-contract work -
(refining and terminal
charges) (1) 3,145 6,608 23,403
--------- --------- ---------
16,299 19,414 35,140
--------- --------- ---------
Production costs 55,173 53,244 47,863
--------- --------- ---------
Depreciation 3,330 3,233 3,240
--------- --------- ---------
Batteries 14,823 11,136 11,029
--------- --------- ---------
Total cost of sales 1,394,959 1,400,224 1,140,265
========= ========= =========
Decrease in inventories ( 17,879) ( 51,894) ( 46,036)
========= ========= =========
(1) Sonol changed the mix of its purchases of imported crude oil and
refined products, increasing its purchases of refined products
from the Oil Refineries while decreasing purchases and refining
of imported crude oil.
(2) Financing income deriving from the erosion of dollar linked
credit used as a source of financing purchases of oil inventories
are included in Cost of Sales.
NOTE 21 - SELLING AND MARKETING EXPENSES
Consist of:
Year ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
Adjusted NIS. (thousands)
-------------------------
230
<PAGE>
Salaries 60,288 47,137 47,444
Advertising and promotion 12,811 13,094 10,735
Depreciation and amortization 58,574 53,620 51,631
Maintenance of buildings,
plants and filling stations 34,033 36,248 40,287
Rent 35,182 19,686 6,582
Other expenses 35,287 34,300 37,552
------- ------- -------
236,175 204,085 194,231
======= ======= =======
NOTE 22 - GENERAL AND ADMINISTRATIVE EXPENSES
Consist of:
Year ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
Adjusted NIS. (thousands)
-------------------------
Salaries 27,244 28,108 28,261
Depreciation and amortization 3,284 3,248 2,447
Consulting, legal and audit 5,555 4,572 5,754
Provision for doubtful accounts
and bad debts 2,192 4,074 ( 583)
Other expenses 9,971 11,787 9,109
------- ------- -------
48,246 51,789 44,988
======= ======= =======
NOTE 23 - FINANCING INCOME (EXPENSES), NET
Consist of:
Year ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
Adjusted NIS. (thousands)
-------------------------
From dollar linked debentures
convertible to shares 10,192 4,491 31,689
Long-term debt 3,200 2,547 8,849
Profit (loss) from securities, net 967 150 ( 1,482)
Financing income from
other receivables 14,287 21,475 21,493
Erosion of other monetary
assets and liabilities, net (51,713) (43,166) (71,576)
------- ------- -------
(23,067) (14,503) (11,027)
======= ======= =======
NOTE 24 - OTHER INCOME, NET
231
<PAGE>
Consist of:
Year ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
Adjusted NIS. (thousands)
-------------------------
Rent 4,024 2,334 974
Dividends received 840 1,820 1,778
Management fee 1,904 750 682
Part of a loan to an affiliated
company written off - (3,318) -
Others 647 1,089 2,878
----- ----- -----
7,415 2,675 6,312
===== ===== =====
NOTE 25 - TAXES ON INCOME
a. The Company and most of its subsidiaries are taxed under the Income
Tax Law (Inflationary Adjustments) - 1985, effective as of the tax
year 1985, which introduced the measurement of results for income tax
purposes in real terms. The various adjustments required by the above
mentioned law are made in order to align taxation to a real income
basis. Nevertheless, the adjustments of the nominal income according
to the Income Tax Law are not always identical to the inflationary
adjustments made in the financial statements in accordance with the
opinion of the Institute of Certified Public Accountants in Israel. As
a result, differences arise between the adjusted income in the
statement of income and the adjusted income for income tax purposes.
Regarding deferred taxes for these differences, see Note 2.J.
The subsidiary, Vulcan, having the status of an approved enterprise,
is entitled to a reduced income tax rate in accordance with the Law
for the Encouragement of Capital Investments - 1959. The period of
benefits relating to a part of its production facilities has ended and
for the remaining facilities, the period of benefits will end in the
year 2001. As of the date of the financial statements, Vulcan received
final letters of approval for all the investment plans which it has
carried out.
NOTE 25 - TAXES ON INCOME (CONTINUED)
b. The provision for taxes on income in the statements of income consists
of:
Year ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
232
<PAGE>
Adjusted NIS. (thousands)
-------------------------
Current taxes including
inflationary erosion of
advance tax payments 38,773 44,987 30,772
Deferred taxes, net (*) (2,777) **(7,223) (5,567)
------ ------ ------
35,996 37,764 25,205
Provisions (Overprovisions)
pertaining to prior years ( 325) ** 2,022 -
------ ------ ------
35,671 39,786 25,205
====== ====== ======
(*) Pursuant to the amendment of the Income Tax Law as of December 22,
1992 the rate of company tax decreased from 39% in 1993, by 1% per
year, to a rate of 36% in 1996.
(**) These provisions were included in deferred taxes.
c. Final tax assessments
---------------------
Supergas has received final tax assessement through the tax year 1994
and Vulcan has received final tax assessments through the tax year
1993. The Company, Aloc, Sonapco, Sprint, Chem Ami and Yad Mordechai
have received final tax assessments through tax year 1991. Sonol has
received final tax assessments through the tax year 1990.
d. Reconciliation between the theoretical tax on the reported income and
---------------------------------------------------------------------
the tax on income charged in the statements of income
-----------------------------------------------------
Year ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
Taxes at statutory rate 36% 37% 38%
==== ==== ====
Adjusted NIS. (thousands)
The theoretical tax at the
applicable tax rate 31,356 35,012 32,349
Erosion of advanced tax payments 1,459 2,106 2,594
Differences in the definition of
capital and assets for tax
purposes and others, net 3,181 2,668 (9,738)
Overprovisions in respect of prior years ( 325) - -
------ ------ ------
35,671 39,786 25,205
====== ====== ======
NOTE 26 - COLLATERALS, COMMITMENTS AND CONTINGENT LIABILITIES
233
<PAGE>
A. Floating and fixed charges
--------------------------
December 31, 1996 Collateralized by
----------------- -----------------
Adjusted NIS. (thousands)
-------------------------
Short-term bank Floating charges on
credits 2,322 current assets of the
main subsidiaries.
Short-term Loans from banks 239,230 Floating charges on
current assets of Sonol.
Accounts payable and credit Floating charges on
balances including accrued current assets of Sonol
interest on short-term
bank loans 824
Long-term bank loans 60,825 Floating charge on
current assets of Sonol
and fixed charges on all
the assets of Vulcan and
fixed charges on part of
the fixed assets of
Milchen Sonol Agency Ltd.
Investment grants - Floating charges on all
Vulcan's assets guaran-
teeing the fulfillment of
the terms related to the
receipt of such grants.
Although final approval
has been received the
charges have not yet been
cancelled.
Convertible debentures of 4,088 Senior floating charge
a subsidiary equal in standing to all
other senior floating
charges on all the assets
of Vulcan.
Convertible debentures Floating charge
(Including interest) 215,525 subordinated to other
floating charges on all
the assets of the
Company.
Guarantee of a subsidiary 3,300 Floating charge on all
234
<PAGE>
(see note 26.D.8) the assets of the
subsidiary.
B. Liabilities and contingencies
-----------------------------
1. Indemnification and Insurance of senior officers
------------------------------------------------
The Articles of Association of the Company enable the
indemnification and insurance of directors and senior officers
according to the law. The Company insures, subject to provisions
of the law, the directors' and senior officers' liability.
NOTE 26 - COLLATERALS, COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
2. Pending litigation
------------------
a. Claims (mainly legal claims) arising in the normal course of
business have been lodged against subsidiaries and
affiliated companies. Regarding part of the said claims
appropriate provisions have been made. In the opinion of the
companies' managements, based on the opinion of legal
counsel, the provisions made are sufficient to cover the
reasonable costs.
b. A claim in the amount of approximately NIS. 5.5 million has
been lodged against Sonol. The plaintiffs are requesting,
inter alia, the enforcement of an operating agreement of a
station being operated by another party, who, according to
them, transferred to them, with Sonol's consent, the
operation of the station. The district court rejected the
claim and the plaintiffs appealed to the Supreme Court. A
date for hearing has not yet been determined.
c. A claim has been submitted against Sonol by a customer
owning land leased to Sonol on which a station was built,
the substance of which is the cancellation of all agreements
between Sonol and the plaintiff and a monetary claim against
Sonol in the amount of approximately NIS. 5.5 million. In
the opinion of Sonol's legal counsel the claim's prospects
(as far as the amount of the claim is concerned) are weak.
d. As a result of arbitration proceedings between the Fuel
Authority and the Agents' organization and station owners,
in which Sonol was not a party, the arbitrator ruled that
the Fuel Authority is to reimburse the station owners for
the depreciation on their investments in stations. The
arbitrator's ruling has been confirmed by the district
court. The Fuel Authority has, in turn, demanded that the
fuel marketing companies pay for the
235
<PAGE>
depreciation (where applicable) to the station owners since
it claims that the depreciation component was previously
recognized by the Fuel Authority within the framework of the
Price Structure. In the opinion of Sonol's legal counsel,
there is no basis for the Fuel Authority's demand.
e. Two third party proceedings have been filed by the
Government against Sonol regarding claims filed against the
Government by station owners for the reimbursement of the
investment in the construction of stations, in accordance
with the arbitration ruling made in hearings conducted
between the station owners organization and the Government,
of which Sonol was not a party to. The total amounts to NIS.
4.2 million and it is the opinion of the company's legal
counsel, that there is no basis for these claims as related
to Sonol.
NOTE 26 - COLLATERALS, COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
f. Three claims were lodged against an affiliated company and
against its shareholders, which include Sonol. The total
claims of approximately NIS. 51 million pertain to the sale
of fuel products pursuant to restrictive trade practices (as
the plaintiff claims) among the fuel companies. In the
opinion of the legal counsels of Sonol and the affiliated
company, the companies have a sound defense against the
claims.
g. A station operator, who received operating rights within the
framework of the invalid arrangement between the invalids
and the rehabilitation department of the Ministry of
Defense, the Israel Lands Authority and the fuel companies,
has filed a claim in court against Sonol for a ruling
declaring the cancellation of agreements between him and
Sonol claiming then to be restrictive trade agreements in
accordance with the Law for Restrictive Trade Agreements. In
the opinion of Sonol's legal counsel, it is too early to
determine the defense's prospects at this early state of
deliberations.
h. In August 1994, Vulcan received a purchase tax assessment in
the amount of approximately NIS. 1.7 million, net of the tax
effect, representing tax differences, linkage increments,
interest and fines for the period of January 1990 through
May 1994. In September 1994, Vulcan submitted an appeal
against the aforesaid assessment, which in July 1995, was
dismissed. In September 1995, Vulcan submitted an appeal
against the dismissal to the District Court. In the
Company's opinion, based on the opinion of its legal
236
<PAGE>
counsel, there is a reasonable chance that Vulcan's position
will be accepted by the court. Should Vulcan's protest be
dismissed by the District Court, Vulcan will also be
assessed for tax differences for the period from June 1994
and thereafter. No provision has been provided in Vulcan's
financial statements for the above.
i. The subsidiary, Sonol, has notified a customer, who is also
its agent, of the cancellation of agency and transport
agreements with him. The cancellation, takes effect, in
accordance with the agreement, 18 months from the
notification date. The agent, who owes Sonol approximately
NIS. 8.3 million notified that it is deducting approximately
NIS. 6.6 million from his liability on account of damages
which he claims were caused to him by Sonol. This contention
is rejected by Sonol which is considering taking legal
action against the agent. Sonol holds various guarantees
given by the agent to secure his liabilities to Sonol. At
this time, no estimate can be made regarding the outcome of
this dispute.
j. A competing fuel company has filed a claim in the district
court requesting a ruling that all of Sonol's agreements
with filling stations are restrictive trade agreements and
therefore,invalid. The court is currently deliberating
whether to cancel the claim and, as of the balance sheet
date, no decision has been reached.
NOTE 26 - COLLATERALS, COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
C. The consolidated subsidiary companies are committed as follows:
---------------------------------------------------------------
1. Commitments: Adjusted NIS. (thousands)
-------------------------
Acquisition of fixed assets 77,684
Suppliers of fuel, luboils and parts 129,029
Rental leases and obligations in
accordance with signed agreements with agencies
for the use of their outlets for marketing
Sonol's products over various periods(*) 335,228
Lease obligation for a computer
and other equipment over
periods of up to five years 695
237
<PAGE>
(*) The rental liability for each of the years
following December 31, 1996 is as follows:
1997 24,847
1998 23,228
1999 23,025
2000 21,457
2001 17,027
2002 and thereafter 225,644
-------
335,228
=======
2. For royalties to a foreign company for technical knowledge
provided, for a period of ten years beginning in 1993.
3. Commitments for investments:
a. In 1996 the company signed a conditional agreement by way of
a consolidated company for its participation in a limited
partnership to establish a tourist attraction. The
investment by the consolidated company (including loans and
guarantees) is expected to reach an amount of up to NIS.
13,000 thousands linked to the representative rate of the
U.S. dollar, for which it will obtain a 35% share in the
limited partnership.
b. In 1996, an amount of NIS. 2,000 thousands was invested by a
consolidated company in Motorica Ltd., a company for the
production of protective helmets for bicycle riders, in
return for 51% of its share capital. Within the framework of
the agreement signed between the parties, the consolidated
company commited itself to make a loan available to Motorica
Ltd. for up to NIS. 3,250 thousands linked to the
representative rate of the U.S. dollar.
c. In 1996, a consolidated company entered into a contractual
agreement with the company, A.P.S.K. Hom Tov (1993) Ltd.
(hereafter A.P.S.K.) subject to pre-conditions not yet
fulfilled, the consolidated company intends to invest
approximately NIS. 4,700 thousands linked to the
representative rate of the U.S. dollar in return for 50.1%
of A.P.S.K.'s share capital. Non fulfillment of the
pre-existing conditions may cause the retroactive
cancellation of the agreement.
NOTE 26 - COLLATERALS, COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
D. The consolidated subsidiaries have
----------------------------------
238
<PAGE>
contingent liabilities in respect of:
-------------------------------------
Adjusted NIS. (thousands)
-------------------------
1. Acquisition of crude oil or refined products -
open letter of credits. 4,477
2. The subsidiary Supergas has given a guarantee
in favor of a bank regarding a loan given by
the bank to a partnership (in which Supergas
is a partner). 496
3. Various guarantees. 2,486
4. Granite Properties (1993) Ltd. is a guarantor
to a bank on account of payments made by the bank
to a third party. The company cannot estimate the
expected profit in the year 1997 when the guarantee
related financial transaction will terminated. 7,145
5. Sonol is a guarantor to a bank on account
of loans given by the bank to a filling station
owner who has leased the station to Sonol. 2,698
6. Sonol is a guarantor to a bank
on account of a loan given by the bank to one of
Sonol's agencies. 830
7. Sonol has given a guarantee to one of
its customers on account of a tender
for the supply of fuel products. 2,000
8. Vulcan has given a guarantee to a government
agency assuring the supply of its products. The
guarantee is collateralized by a floating charge
on all the assets of Vulcan. 3,300
9. Sonol is a guarantor to a bank on account of a
loan given by the bank to an affiliated company
for financing acquired equipments. 813
10. Sonol has guaranteed compensation to one of its
suppliers for any damages caused to the supplier
as a result of the temporary remedy given to Sonol
by the court, if it becomes evident that there was
no basis for Sonol's request from the court. 1,000
239
<PAGE>
11. Guarantees given to Customs and Excise
Department for payment of customs duty,
purchase and other taxes that may be
due to that Department by the Company,
Sonol and a related Company. Unlimited account
NOTE 27 - RULING BY THE CONTROLLER OF RESTRICTIVE TRADE PRACTICES AND PROPOSED
LAWS FOR THE FUEL SECTOR
A. An appeal filed by Sonol, together with appeals filed by the Paz and
Delek fuel marketing companies, against the June 1993 ruling by the
Controller of Restrictive Trade Practices declaring that exclusive
agreements entered into between the fuel marketing companies and
filling station operators are restrictive trade agreements, is now
pending in the Court of Restrictive Trade Practices in Jerusalem.
The Controller of Restrictive Trade Practices, on December 14, 1995
amended the above ruling following a compromise arrangement reached
between Sonol and Paz in their above mentioned appeals. Under the
terms of the compromise arrangement, Sonol will release 36 stations
not subject to an "Accepted Leasing Agreement" as defined in the
arrangement and the Controller of Restructive Trade Practices will
rescind his ruling regarding other stations in which Sonol is party to
such an "Accepted Leasing Agreement". Several apeals were filed in the
supreme court against this arrangement, which were rejected on
December 2, 1996. The court ruled that the Controller of Restrictive
Trade Practices had the authority to enter into the above arrangement
and that it is in effect. As a result, Sonol released the 36 stations
from the exclusive agreements it had with them and is in the process
of rescinding its appeal.
B. Sonol and "Delek" the Israel Fuel Corporation Ltd.(hereinafter
"Delek") jointly own the rights to the "Dalkan 2000", a computerized
system for marketing fuel products (primarely to automobile fleets).
On January 26, 1997 the Controller of Restructive Trade Practices
ruled that the joint marketing arrangement of the "Dalkan 2000" system
by Sonol and Delek is a restrictive trade agreement. As a result of
the position taken by the Controller, both Sonol and Delek agreed to
divide the "Dalkan 2000" system between themselves so that each
company will operate an independent system in a manner that will
enable customers, in accordance with their own preference, to enter
into an agreement with either of the companies. The implementation of
the seperation agreement will be carried out in stages from September
1997 to December, 1998.
C. A private legislative proposal dealing with the shortening of the
terms
240
<PAGE>
of exclusive agreements entered into between the fuel marketing
companies and filling station owners and operators has passed its
first reading in the Knesset. The Economics Committee of the current
Knesset has decided that the rule of "Continuity" will be in effect
and shall continue dealing with this proposal.
D. A draft proposal of legislation by the Ministry of Energy and
Infrastructure regarding the term of exclusive contracts between the
fuel marketing companies and station owners has been forwarded to
government ministries, the president of the Supreme Court and law
faculties for their comments.
At this time, it is too early to estimate the effects of the said
developments on the overall Israeli fuel market in general, and on Sonol in
particular.
NOTE 28 - TRANSACTIONS AND BALANCES WITH INTERESTED AND RELATED PARTIES
a. Income and expenses from interested and related parties.
--------------------------------------------------------
1. Consist of:
Year ended December 31,
---------------------------------------
1996 1995 1994
---- ---- ----
Adjusted NIS. (thousands)
-------------------------
Interested Related Interested Related Interested Related
parties parties parties parties parties parties
------- ------- ------- ------- ------- -------
Finance expenses - - 244 - 1,515 446
Finance income - 469 299 641 - 376
Income from
Management Services - 2,006 - 722 - 790
2. Transactions with interested and related parties are conducted in
the normal course of business and according to normal credit
terms and do not exceed 10 % of the company's transactions. The
Company has been granted an exemption in accordance with
paragraph 64(3)D of the Securities Regulations [Preparation of
Annual Financial Statements(correction)]-1995 from the
requirement to disclose transactions with interested parties and
affiliated companies made during the normal course of business of
the Company.
3. Sonol purchases most of the fuel products from the Oil Refineries
Ltd. which is obligated to supply its products to the fuel
marketing companies at the refineries gate price which is under
Government control.
241
<PAGE>
b. Benefits to interested parties
------------------------------
Year ended December 31,
-----------------------
Number 1996 1995 1994
of ---- ---- ----
persons Adjusted NIS. (thousands)
------- -------------------------
1. Interested party
employed in the company 1 1,220 2,101* 1,176
2. Directors 13*** 455** 729 86
* Includes former interested party who completed his term during
the year.
** Includes NIS. 188 thousand over provision from the year 1995.
*** In 1994 - 2 directors.
NOTE 28 - TRANSACTIONS AND BALANCES WITH INTERESTED AND RELATED PARTIES
(CONTINUED)
c. Balances with interested and related parties
--------------------------------------------
December 31, 1996 December 31, 1995
----------------- -----------------
Adjusted NIS. (thousands)
-------------------------
Interested Related Interested Related
parties parties parties parties
------- ------- ------- -------
Current assets:
Trade receivables 424 3,352 21,775 5,752
Accounts receivable - 227 - 919
--- ----- ------ -----
424 3,579 21,775 6,671
=== ===== ====== =====
The largest balance with
interested parties
during the year 12,426 21,775
====== ======
Current liabilities:
Credits from banks
and others 10,000 - - -
Trade payables - 2,479 - 3,193
Accounts payable 1,099 245 - 178
------ ----- ------ -----
11,099 2,724 - 3,371
====== ===== ====== =====
242
<PAGE>
The largest balance
with interested
parties during
the year 11,099 -
====== ======
Long-term liabilities - 4,977
===== =====
NOTE 29 - SUBSEQUENT EVENT
On February 20, 1997 an agreement was signed between Granite Properties
together with its partners in the project known as "Rubinstein Towers" and
Revadim (Properties) Ltd. (Hereafter "Revadim"), a subsidiary of Bank
Hapoalim Ltd., according to which Revadim acquired a material part of the
land and building in the project "Rubinstein Towers". Granite Properties
will receive approximately NIS. 36 million. Inasmuch, as the building has
not yet been completed and the final cost has not yet been determined, it
is not possible at this stage to estimate the expected gain on the
transaction. The property will be transferred to the buyer at the end of
1997.
NOTE 30 - FINANCIAL STATEMENTS TRANSLATED INTO U.S. DOLLARS
The financial records of the Company and its consolidated subsidiaries are
maintained on a current basis in historical nominal New Israel Shekels.
The translated consolidated financial statements, stated in U.S. dollars,
have been prepared for use in connection with the preparation of the
financial statements of a U.S. shareholder.
The functional currency of the Company is the U.S. Dollar. Despite the
significant reduction in Israel's rate of inflation, the Company has
continued to prepare its consolidated financial statements in U.S. dollars
in accordance with translation principles identical to those prescribed by
Statement of Financial Accounting Standards No. 52 ("F.A.S.B. 52"), based
on the historical nominal amounts.
CONSOLIDATED BALANCE SHEETS
---------------------------
(In thousands)
Translated to U.S. Dollars
December 31,
------------
1996 1995
---- ----
Current assets
--------------
Cash and cash equivalents 3,122 5,906
243
<PAGE>
Marketable securities 1,512 69
Compulsory Government loans 49 180
Trade receivables 149,908 105,603
Accounts receivable 10,461 17,824
Inventories 92,511 91,979
------- -------
257,563 221,561
------- -------
Investments, long-term loans and debit balances
-----------------------------------------------
Subsidiaries, affiliated companies and others 34,243 14,950
Long-term loans 15,640 6,689
Compulsory Government loans - 67
Future tax benefits (II) 186 -
------- -------
50,069 21,706
------- -------
Fixed assets
------------
Cost 229,688 205,978
Less: Accumulated depreciation 99,173 88,015
------- -------
130,515 117,963
------- -------
Intangible assets and deferred charges, net 8,749 5,578
------------------------------------------- ------- -------
446,896 366,808
======= =======
NOTE 30 - FINANCIAL STATEMENTS TRANSLATED INTO U.S. DOLLARS (CONTINUED)
CONSOLIDATED BALANCE SHEETS
---------------------------
(In thousands)
Translated to U.S. Dollars
--------------------------
December 31,
------------
1996 1995
---- ----
Current liabilities
-------------------
Credits from banks and others 77,595 45,287
Current portion of convertible debentures 11,387 11,278
Trade payables 55,125 44,221
Accounts payable 38,601 20,325
------- -------
182,708 121,111
------- -------
Long-term liabilities
---------------------
Long-term loans 19,527 2,401
244
<PAGE>
Debentures convertible into shares
of the company (I) 53,657 64,139
Debentures convertible into shares
of a subsidiary 629 1,174
Customers' deposits 18,526 18,044
Liabilities for employee rights upon retirement, net 2,838 2,433
Deferred taxes, net (II) - 485
Capital notes issued by a consolidated company 66 92
------- -------
95,243 88,768
------- -------
Minority interest 2,618 2,362
----------------- ------- -------
Shareholders' equity:
Capital 55,735 55,735
Capital reserves (II) 36,006 36,006
Retained earnings 74,586 62,826
------- -------
166,327 154,567
------- -------
446,896 366,808
======= =======
NOTE 30 - FINANCIAL STATEMENTS TRANSLATED INTO U.S. DOLLARS (CONTINUED)
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(In thousands)
Translated to U.S. Dollars
--------------------------
Year ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
Revenues:
Sales 871,819 769,755 615,220
Less: Government imposts 337,685 266,939 234,058
------- ------- -------
Net sales 534,134 502,816 381,162
Other income, net 2,777 * 811 * 3,502
------- ------- -------
536,911 503,627 384,664
------- ------- -------
Costs and expenses:
Cost of sales 417,201 398,125 294,435
Selling, general and
administrative expenses 68,147 57,831 49,101
Depreciation and amortization 12,756 * 10,874 * 10,400
245
<PAGE>
Financing expenses, net 7,418 4,209 328
------- ------- -------
505,522 471,039 354,264
------- ------- -------
Operating income before taxes on income 31,389 32,588 30,400
Taxes on income 10,554 11,663 6,558
------- ------- -------
Operating income after taxes on income 20,835 20,925 23,842
Company's share in income (loss)
of affiliates, net 2 (759) (58)
Minority interest in income
of consolidated subsidiaries (557) (285) (223)
------- ------- -------
Net income 20,280 19,881 23,561
======= ======= =======
* Reclassified.
NOTE 30 - FINANCIAL STATEMENTS TRANSLATED INTO U.S. DOLLARS (CONTINUED)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
-----------------------------------------------
(In thousands)
Translated to U.S. Dollars
--------------------------
Retained
Capital Reserves(II) Earnings Total
------- ------------ -------- -----
Balance as at January 1, 1994: 54,965 32,371 60,585 147,921
Changes in 1994:
Net income for the year - - 23,561 23,561
Conversion of debentures into shares 770 3,635 - 4,405
Dividend - - (20,094) (20,094)
------ ------ ------ -------
Balance as at December 31, 1994 (III) 55,735 36,006 64,052 155,793
Changes in 1995:
Net income for the year - - 19,881 19,881
246
<PAGE>
Dividend paid (III) - - (21,107) (21,107)
------ ------ ------ -------
Balance as at December 31, 1995 (III) 55,735 36,006 62,826 154,567
Changes in 1996:
Net income for the year - - 20,280 20,280
Dividend paid - - (8,520) (8,520)
------ ------ ------ -------
Balance as at December 31, 1996 55,735 36,006 74,586 166,327
====== ====== ====== =======
NOTE 30 - FINANCIAL STATEMENTS TRANSLATED INTO U.S. DOLLARS (CONTINUED)
(I) During 1992, the company completed an initial public offering of
shares, options and debentures, as well as a second public offering
of debentures and options to purchase debentures.
The proceeds of the public offerings have been allocated to the
securities issued on the basis of their fair market prices at the
beginning of trading on the stock exchange. As a result, the
debentures are carried at their discounted values as follows:
U.S. Dollars (thousands)
------------------------
December 31,
------------
1996 1995
---- ----
Debentures (Series 1 and 2) - face value 66,295 77,344
Discount (Series 1) (*) 1,880 2,515
------ ------
64,415 74,829
Less current portion 10,758 10,690
------ ------
53,657 64,139
====== ======
(*) The discount is being amortized over the remaining period
until their maturity.
See note 14.B.
(II) In the initial public offering in February 1992, the company issued
stock options to employees. The excess of the value of the options
granted over the cost to the employees in the amount $ 1,296
(thousand) was charged to the statement of income and credited to
capital reserves. On this amount the company recorded deferred tax
benefits in the amount of $ 548 (thousand) which is recognized for
tax purposes when such options are transferred to
247
<PAGE>
the employees and income tax is paid thereon. As of the balance
sheet date, the balance of deferred tax benefits is $ 120
(thousand).
(III) As mentioned in the 1994 Financial Statements, the Board of
Directors, subsequent to that balance sheet date, passed a
resolution regarding the payment of an interim dividend. The
dividend of $ 13,263 thousand which was paid in 1995, while
reflected in the 1994 Israel Shekel Financial Statements is included
together with the $ 7,844 thousand dividend paid for 1995 in the
translated dollar statements in accordance with Generally Accepted
Accounting Principles.
(IV) The Company's policy is to record long-lived assets at cost,
amortizing these costs over the expected useful life of the related
assets. In accordance with Statement of Financial Accounting
Standards No. 121 ("SFAS 121") "Accounting for the impairment of
Long-lived Assets and for Long-lived Assets to be Disposed Of",
these assets are reviewed on a quarterly and annual basis for
impairment whenever events or changes in circumstances indicate that
the carrying amounts of the assets may not be reasonable.
Furthermore, the assets are evaluated for continuing value and
proper useful lives by comparison to expected future cash flows. For
the year ended December 31, 1996 the adoption of SFAS 121 did not
have a material effect on the Company.
LIST OF THE MAIN SUBSIDIARIES AND AFFILIATES
--------------------------------------------
Holding and Control
at balance sheet date
---------------------
%
-
Consolidated Subsidiaries
- -------------------------
Sonol Israel Ltd. 100
Vulcan Batteries Ltd. 84
Sprint Motors Ltd. 100
Sprint Motors Agencies (1995) Ltd. 100
Milchen Sonol Agency Ltd. 67
Sonol J-M Ltd. 70
Sonol Dan Ltd. 100
Allied Oils and Chemicals Ltd. 100
Sonol Yad Mordechai (1972) Ltd. 59
Chem Ami Ltd. 100
Sonapco Bank Street Corporation 100
Supergas Israel Gas Distribution Company Ltd. 100
Supergas Hanegev Ltd. 65
Supergas Rehovot 89 Ltd. 90
Supergas Heating (1984) Ltd. 100
248
<PAGE>
Granite Hacarmel Holdings (1993) Ltd. 100
Granite Hacarmel Properties (1993) Ltd. 100
Granite Hacarmel O.Y. Holdings Ltd. 100
Granite Hacarmel Development Holdings Ltd. 100
Granite Hacarmel Development Ltd. 100
Granite Hacarmel Industries Holdings Ltd. 100
Granite Hacarmel Industries Ltd. 100
Granite Hacarmel Y.A. Holdings Ltd. 100
Granite Hacarmel NZV Holdings Ltd. 100
Granite Hacarmel Motoricka Holdings Ltd. 100
Motoricka Ltd. 51
Sonol Agencies Shovas (1996) Ltd. 60
Affiliated Companies
- --------------------
Aviation Services Ltd. 22.5
Tanker Services Ltd. 25
United Petroleum Export Company Ltd. 25
Otzem Promotion and Investments Ltd. 50
Yarok Az Ltd. 22.9
Lev Magor Management and Services Ltd. 50
Park Cible Management and Holdings Ltd. 50
Nitzba Holdings (1995) Ltd. 10
The above list does not include inactive and/or immaterial affiliated companies
and other companies.
249
<PAGE>
[LOGO] HAGGAI WALLENSTEIN, DOV & Co. CPA(Isr).
MORIAH HOTELS LTD.
1996 CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 1996
250
<PAGE>
MORIAH HOTELS LTD.
------------------
1996 CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------
C O N T E N T S
---------------
Page
----
AUDITORS' REPORT 252
CONSOLIDATED FINANCIAL STATEMENTS:
Balance sheets 253-254
Statements of income 255
Statements of changes in shareholders' equity 256
Statements of cash flows 257-258
Notes to the consolidated financial statements 259-274
March 6, 1997
251
<PAGE>
[LOGO] HAGGAI WALLENSTEIN, DOV & Co. CPA(Isr).
AUDITORS' REPORT
----------------
To the shareholders of
MORIAH HOTELS LTD.
------------------
We have audited the accompanying consolidated balance sheets of MORIAH HOTELS
LTD. (an Israeli corporation) (hereinafter - the company) and its subsidiaries
as at December 31, 1996 and 1995, and the related consolidated statements of
income, changes in shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1996, expressed in US dollars. These
financial statements, which differ from the statutory financial statements
issued in Israel, as set forth in note 1 to the financial statements, are the
responsibility of the board of directors and company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
company's board of directors and management, as well as evaluating the overall
financial statements presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of MORIAH HOTELS LTD.
and its subsidiaries as at December 31, 1996 and 1995, and the consolidated
results of operations, changes in shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
Also, in our opinion, the translated amounts in the accompanying consolidated
financial statements translated into US dollars have been computed on the basis
set forth in note 1a. to the consolidated financial statements.
/s/ Haggai Wallenstein, Dov & Co.
HAGGAI WALLENSTEIN, DOV & CO.
Certified Public Accountants (Isr.)
Ramat-Gan,
March 6, 1997
252
<PAGE>
MORIAH HOTELS LTD. AND ITS SUBSIDIARIES
---------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
In thousands
------------
December 31
-----------
Note 1996 1995
---- ---- ----
US $ US $
---- ----
FIXED ASSETS 3
- ------------
Cost 99,838 82,473
Less - accumulated depreciation 33,648 29,311
------ ------
66,190 53,162
------ ------
LAND 4 639 546
- ----
------ ------
INVESTMENTS AND LONG-TERM
- -------------------------
RECEIVABLES 5 2,063 1,979
----------- ------ ------
CURRENT ASSETS:
- ---------------
Inventory of food and beverage 534 495
Debtors and debit balances 6 12,496 10,745
Cash and cash equivalents 948 7,831
------ ------
13,978 19,071
------ ------
DEFERRED CHARGES, net of
- ----------------
amortization 7 82 83
------ ------
------ ------
82,952 74,841
====== ======
SHAREHOLDERS' EQUITY: 8
- ---------------------
Share capital 458 458
Capital surplus 23,343 23,343
Retained earnings 32,903 31,953
------ ------
56,704 55,754
------ ------
LONG-TERM LIABILITIES:
- ----------------------
Liability for employee rights upon
retirement, net of amount funded 9 621 495
Deferred income taxes 1,259 2,790
Loans (net of current maturities) 10 500 858
Liabilities in respect of holiday rights 16b.(5) 6,856 4,975
------ ------
9,236 9,118
------ ------
CURRENT LIABILITIES:
- --------------------
Short-term bank loans and credit 11 5,671 50
Current maturities of long-term
loans and other liabilities 12 533 626
Creditors and credit balances 13 10,808 9,293
------ ------
17,012 9,969
------ ------
------ ------
82,952 74,841
253
<PAGE>
====== ======
The accompanying notes are an integral part of the financial statements.
/s/ R. Feinstein /s/ A. Mader
- ---------------------- --------------------
R. Feinstein A. Mader
Chairman of the Board Managing Director
Date of approval of the financial statements : March 6, 1997
254
<PAGE>
MORIAH HOTELS LTD. AND ITS SUBSIDIARIES
---------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
In thousands
------------
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
US $ US $ US $
---- ---- ----
<S> <C> <C> <C>
Income from hotel services 63,866 70,189 65,920
Cost of services 52,848 54,176 49,981
------- ------- -------
Gross profit 11,018 16,013 15,939
------------ -------
Selling, administrative and general expenses 11,403 11,076 9,520
------- ------- -------
Income (loss) from ordinary operations (385) 4,937 6,419
--------------------------------------
Financial income (expenses) - net 104 236 (869)
------- ------- -------
(281) 5,173 5,550
------- ------- -------
Other income (expenses):
Owners' share in income from hotels operated
and managed by subsidiaries - net (443) (120) (782)
Capital gains (losses) on sale of fixed assets - net 26 (51) 30
------- ------- -------
(417) (171) (752)
------- ------- -------
------- ------- -------
Income (loss) before taxes on income (698) 5,002 4,798
------------------------------------
Taxes on income - income (expense) see note 14 1,648 (738) (1,006)
------- ------- -------
Net income for the year 950 4,264 3,792
----------------------- ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
255
<PAGE>
MORIAH HOTELS LTD.
------------------
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
---------------------------------------------
In thousands
------------
<TABLE>
<CAPTION>
Capital surplus
Share capital (note 8b.) Retained earnings Total
------------- ---------- ----------------- -----
US $ US $ US $ US $
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance at January 1, 1994 458 23,343 23,897 47,698
- --------------------------
Changes in 1994 -
- ---------------
net income -- -- 3,792 3,792
------ ------ ------ ------
Balance at December 31, 1994 458 23,343 27,689 51,490
- ----------------------------
Changes in 1995 -
- ---------------
net income -- -- 4,264 4,264
------ ------ ------ ------
Balance at December 31, 1995 458 23,343 31,953 55,754
- ----------------------------
Changes in 1996 -
- ---------------
net income -- -- 950 950
------ ------ ------ ------
Balance at December 31, 1996 458 23,343 32,903 56,704
- ---------------------------- ====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
256
<PAGE>
MORIAH HOTELS LTD. AND ITS SUBSIDIARIES
---------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
In thousands
------------
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
US $ US $ US $
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Net income for the year 950 4,264 3,792
Adjustments required to reflect the cash flows
from operating activities (see appendix) 4,779 6,620 4,797
------- ------- -------
Net cash provided by operating activities 5,729 10,884 8,589
----------------------------------------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Purchase of fixed assets (17,659) (5,612) (3,093)
Investment in land (93) (59) (78)
Proceeds from sale of fixed assets 84 127 105
------- ------- -------
Net cash used in investing activities (17,668) (5,544) (3,066)
------------------------------------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Payment of long-term rent payable (170) (170) (70)
Repayment of long-term loans (395) (394) (637)
Short-term bank loans and credit - net 5,621 (436) (2,929)
------- ------- -------
Net cash provided by (used) in financing activities 5,056 (1,000) (3,636)
--------------------------------------------------- ------- ------- -------
------- ------- -------
Increase (decrease) in cash and cash equivalents (6,883) 4,340 1,887
- ------------------------------------------------
Balance of cash and cash equivalents at beginning
- -------------------------------------------------
of year 7,831 3,491 1,604
------- -------- -------- --------
Balance of cash and cash equivalents at end of year 948 7,831 3,491
- --------------------------------------------------- ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
257
<PAGE>
MORIAH HOTELS LTD. AND ITS SUBSIDIARIES
---------------------------------------
APPENDIX TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------------
In thousands
------------
Adjustments required to reflect the cash flows from operating activities:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
US $ US $ US $
---- ---- ----
<S> <C> <C> <C>
Income and expenses not involving cash flows:
Depreciation and amortization 4,574 3,726 4,018
Capital gain (loss) on disposal of fixed assets - net (26) 51 (30)
Severance pay - net 126 91 118
Linkage and exchange differences on long-term loans 68 52 277
Deferred income taxes - net (1,648) 738 934
------ ------ ------
3,094 4,658 5,317
------ ------ ------
Changes in operating asset and liability items:
Increase in inventory of food and beverage (39) (6) (8)
Increase in non-current customers' debt (338) (1,001) (1,649)
Increase (decrease) in debtors and debit balance (1,380) 937 (1,905)
Increase in long-term liabilities in respect
of holiday rights 1,927 2,534 2,298
Decrease (increase) in creditors and credit balances 1,515 (502) 744
------ ------ ------
1,685 1,962 (520)
------ ------ ------
------ ------ ------
4,779 6,620 4,797
====== ====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
258
<PAGE>
MORIAH HOTELS LTD. AND ITS SUBSIDIARIES
---------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
1. G e n e r a l
-------------
a. Moriah Hotels Ltd. and all its subsidiaries are registered in Israel
and maintain books of account in both Israeli currency and US
dollars. The US dollar accounting records are based on the
translation of Israeli currency transactions at daily exchange
rates.
b. These financial statements, which have been prepared in addition to
the statutory financial statements issued in Israel (hereinafter the
Israeli statements), include adjustments required according to
American standards of financial accounting and reporting, as
follows:
(1) Financial expenses incurred in respect of fixed assets during
construction period - approximately U.S. $ 3,294,000 - which
in the Israeli statements were charged to income, have been
capitalized to cost of assets.
(2) In the Israeli statements, the amount of investment and
drawback grants is deducted from the cost of the assets in
respect of which they have been received. In these financial
statements, the amount of the grants received through
September 30, 1985, net of appropriate reserve for
equalization of taxes on income, is included in the balance
sheet among capital surplus.
(3) Expenses of a subsidiary for repair of fire damages to its
hotel - approximately U.S. $ 1,930,000 - have been presented
as investment in acquisition of fixed assets, while the excess
of receipts from insurance companies over the book value of
the parts of the hotel so damaged has been credited to income.
In the Israeli statements, the amount expended was charged as
repairs, while the receipts from insurance companies were set
off against these expenses.
c. Since the end of 1993, the subsidiary Moriah Eilat Resort Hotel
Limited operates a members' club - "Moriah Plaza Club" (hereafter -
the club) - in its hotel. According to the club programme, members
enter into an agreement with the subsidiary for the acquisition of
rights for one week holiday a year, during a 49 year period, at
prices and terms as stipulated in the agreement (see also note
16b.(5)).
d. On November 19, 1995, the hotel operated by the subsidiary Moriah
Tel-Aviv Hotel Ltd. was closed for renovations. The renovations,
which were financed by the subsidiary, took about 6 1/2 months.
Accordingly, the operating results for 1996 and 1995 reflect results
from that hotel for periods of about 7 months and 10 1/2 months,
respectively.
259
<PAGE>
MORIAH HOTELS LTD. AND ITS SUBSIDIARIES
---------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
2. Significant accounting policies
-------------------------------
a. Principles of consolidation:
(1) The consolidated financial statements include the accounts of
Moriah Hotels Ltd. (the company), all subsidiary companies in
which the company holds controlling interest and Moriah
Gardens Hotel operated and managed by a subsidiary (note
16b.(2)).
(2) Intercompany balances and transactions have been eliminated in
consolidation.
b. Fixed assets:
(1) Fixed assets are stated at cost, including capitalized
expenses; operating equipment is carried by the base stock
method.
(2) Financial expenses in respect of loans and credit applied to
finance the construction or acquisition of fixed assets -
incurred until the fixed assets are put into operation - are
charged to cost of such assets.
(3) Depreciation is computed by the straight-line method, on basis
of the estimated useful life of the assets, at the following
annual rates:
%
---
Buildings (excluding land, hotel renovation expenses,
air conditioning units and elevators) 0.6-2.5
Hotel renovation expenses approximately 9.5 *
Air conditioning units and elevators 6.5-10
Equipment, furniture and fixtures 6.5-20
Vehicles 15-20
Installations in leasehold premises 10
* Based on the term of the lease of a hotel by the
subsidiary Moriah Tel-Aviv Hotel Ltd., which is shorter
than the estimated useful life of the renovations.
260
<PAGE>
MORIAH HOTELS LTD. AND ITS SUBSIDIARIES
---------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
2. Significant accounting policies (continued)
-------------------------------
c. Land -
The land is stated at cost with the addition of planning expenses
and taxes.
d. Unquoted shares -
These shares are stated at cost.
e. Inventory of food and beverage -
The inventory of food and beverage is valued at cost, which is lower
than market value. Cost is determined on "first in - first out"
basis.
f. Provision for doubtful accounts -
The provision has been made as a fix percentage of trade
receivables.
g. Cash equivalents -
Cash equivalents are considered by the group to be highly liquid
investments, which include short-term (up to 3 months) bank
deposits.
h. Deferred charges:
(1) Capital increase costs - These costs are stated at cost and
are not amortized.
(2) Initial marketing and promotion expenses - These expenses were
amortized in 3 equal annual installments.
(3) Pre-operation expenses - These expenses were amortized in 3
equal annual installments which commenced upon the beginning
of operation of the subsidiaries' hotels.
261
<PAGE>
MORIAH HOTELS LTD. AND ITS SUBSIDIARIES
---------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
2. Significant accounting policies (continued)
-------------------------------
i. Deferred taxes :
(1) Deferred taxes are computed in respect of differences between
the amounts presented in these statements and those taken into
account for tax purposes.
The main factors in respect of which deferred taxes are
computed are :
Differences between the depreciated balance of fixed
assets in these financial statements and for tax
purposes;
Differences in recognition of other income and expenses
(mainly provisions for employee rights) in these
financial statements and for tax purposes;
Balances of carryforward tax losses and deductions.
Deferred tax balances are computed at the tax rate expected to
be in effect at time of release to income from the deferred
tax accounts. The amount of deferred taxes presented in the
income statement reflects changes in the above balances during
the year.
(2) Taxes which would apply in the event of disposal of
investments in subsidiaries have not been taken into account
in computing the deferred taxes, as it is the company's policy
to hold these investments, not to realize them.
j. Long-lived assets -
The company's policy is to record long-lived assets at cost,
amortizing these costs over the expected useful life of the related
assets. In accordance with Statement of Financial Accounting
Standards No. 121 ("SFAS 121") "Accounting for the impairment of
Long-lived Assets and for Long-lived Assets to be Disposed Of.",
these assets are reviewed on a quarterly and annual basis for
impairment whenever events of changes in circumstances indicate that
the carrying amounts of the assets may not be reasonable.
Furthermore, the assets are evaluated for continuing value and
proper useful lives by comparison to expected future cash flows. For
the year ended December 31, 1996 the adoption of SFAS 121 did not
have a material effect on the company.
k. Recognition of income -
Income from hotel services and from sales of food and beverages is
recognized when the services or sales are performed.
262
<PAGE>
MORIAH HOTELS LTD. AND ITS SUBSIDIARIES
---------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
3. Fixed assets
------------
a. Composition of assets, grouped by major classifications, and changes
therein during 1996, are as follows:
Balance at Changes during the year
beginning -------------------------- Balance at
of year Additions Retirements end of year
------- --------- ----------- -----------
US $ US $ US $ US $
------ ------ ------ ------
In thousands
---------------------------
Cost (1) :
Buildings, including on
leasehold land (2) 51,370 13,011 -- 64,381
Equipment, furniture
and fixtures 27,891 5,945 179 33,657
Vehicles 718 52 115 655
------ ------ ------ ------
79,979 19,008 294 98,693
====== ======
Operating equipment -
base stock 419 553
Advances on account of
fixed assets 2,075 592
------ ------
82,473 99,838
====== ======
Accumulated depreciation:
Buildings 13,191 2,273 -- 15,464
Equipment, furniture
and fixtures 15,867 2,206 142 17,931
Vehicles 253 94 94 253
------ ------ ------ ------
29,311 4,573 236 33,648
====== ====== ====== ======
Depreciated balance :
Buildings, including on
leasehold land 38,179 48,917
Equipment, furniture
and fixtures 12,024 15,726
Vehicles 465 402
------ ------
50,668 65,045
Operating equipment -
base stock 419 553
Advances on account of
fixed assets 2,075 592
------ ------
53,162 66,190
====== ======
(1) Cost of fixed assets is net of investment grants in an amount of $
8,197,000 received from the State of Israel in respect of the "approved
enterprise" status (see note 14a. below).
(2) Expenses capitalized in 1996 in cost of buildings are:
US $
------------
In thousands
------------
Cost of services 129
Financial expenses 673
---
802
---
263
<PAGE>
---
Total financial expenses capitalized in cost of buildings incurred during
the periods of construction amount US $ 3,423,000.
264
<PAGE>
MORIAH HOTELS LTD. AND ITS SUBSIDIARIES
---------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
3. Fixed assets (continued)
------------
b. Certain hotel buildings are located on land leased through the years
2004-2020, with an option to renew the lease (for periods of up to
49 years).
c. As to pledges on the assets - see note 15.
4. Land
----
The land in the "Lamed" zone in Tel-Aviv (lots 44, 45 in block 6609 with
an area of approximately 20 dunams) is mortgaged (see notes 15 and 16).
5. Investments and long-term receivables
-------------------------------------
Composed as follows:
December 31
-----------
1996 1995
---- ----
US $ US $
----- -----
In thousands
-------------------
Unquoted shares 1 1
Galilee Peace Loan 1 1
----- -----
2 2
Non current customers' debts *
(net of current maturities) 2,061 1,977
----- -----
2,063 1,979
===== =====
* These debts, in respect of acquisition of holiday rights (see note
1c.) on long-term credit, are linked to the Israeli CPI, bear
interst of approximately 4.75% per annum and mature in the following
years:
December 31
-----------
1996 1995
----- -----
US $ US $
----- -----
In thousands
-------------------
First year - current maturities 1,029 775
----- -----
Second year 515 494
Third year 515 494
Fourth year 515 494
Fifth year 516 495
----- -----
- long-term portion 2,061 1,977
----- -----
3,090 2,752
===== =====
265
<PAGE>
MORIAH HOTELS LTD. AND ITS SUBSIDIARIES
---------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
6. Debtors and debit balances
--------------------------
a. Composed as follows:
December 31
-----------
1996 1995
---- ----
US $ US $
----- -----
In thousands
-------------------
Trade (b. bellow) 8,977 7,938
------ ------
Other :
Government departments 794 741
Employees 123 147
Prepaid expenses 887 443
Advances to suppliers 142 139
Amounts due from hotel owners * 576 592
Deferred income taxes 715 598
Sundry (including income receivable) 282 147
------ ------
3,519 2,807
------ ------
------ ------
12,496 10,745
====== ======
* See note 16b(2) and (4)
b. T r a d e :
Including current maturities
of long-term receivables 1,029 775
----- -----
----- -----
Net of provision for doubtful accounts 233 198
----- -----
----- -----
7. Deferred charges, net of amortization
-------------------------------------
Composed as follows:
Amortized balance
December 31
Accumulated -----------
Cost amortization 1996 1995
---- ------------- ---- ----
US $ US $ US $ US $
---- ---- ---- ----
Share issue costs 82 -- 82 82
Initial marketing and
promotion expenses 450 450 -- --
Pre-operation expenses 28 28 -- 1
--- --- --- ---
560 478 82 83
=== === === ===
266
<PAGE>
MORIAH HOTELS LTD. AND ITS SUBSIDIARIES
---------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
8. Shareholders' equity
--------------------
a. The authorized, issued and paid share capital at December 31, 1996
and 1995 is composed of 503,865 ordinary shares of NIS 1.00 par
value.
b. Capital surplus represents mainly share premium.
9. Employee rights upon retirement
-------------------------------
a. The companies' pension and severance pay liability to their
employees is covered mainly by regular deposits with recognized
pension and severance pay funds and by purchase of insurance
policies. The amounts funded as above are not reflected in the
balance sheet since they are not under the control and management of
the companies.
b. The balance sheet accrual for severance pay and retirement grants
reflects that part of the liability not covered by the funds and
insurance policies mentioned in a. above.
c. The balances accrued and funded at balance sheet date are as
follows:
December 31
-----------
1996 1995
---- ----
US $ US $
----- -----
In thousands
-------------------
Accrued severance pay and retirement grant 719 584
Less - portion funded 98 89
--- ---
621 495
=== ===
10. Long-term loans
---------------
a. Composed as follows:
December 31
-----------
1996 1995
---- ----
US $ US $
----- -----
In thousands
-------------------
Loans from the Tourist Industry
Development Corporation Ltd. 884 1,211
Less - current maturities 384 353
----- -----
500 858
===== =====
267
<PAGE>
MORIAH HOTELS LTD. AND ITS SUBSIDIARIES
---------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
10. Long-term loans (continued)
---------------
b. The long-term loans from the Tourist Development Corporation Ltd.
are linked to the Israeli CPI and bear annual interest of about 4%.
The loans are secured by a guarantee provided by Bank Hapoalim B.M.
(charges in an unlimited amount have been registered on the assets
of the company and the subsidiaries in favor of Bank Hapoalim B.M.
as security for this guarantee, see also note 15a.).
c. The loans are repayable in the following years subsequent to the
balance sheet date:
December 31
-----------
1996 1995
---- ----
US $ US $
----- -----
In thousands
-------------------
First year - current maturities 384 353
----- -----
Second year 375 340
Third year 125 327
Fourth year -- 191
----- -----
- long-term portion 500 858
----- -----
----- -----
884 1,211
===== =====
d. All long-term loans are secured (see note 15 below).
11. Short-term bank loans and credit
--------------------------------
a. Composed as follows:
December 31
-----------
1996 1995
---- ----
US $ US $
----- -----
In thousands
-------------------
Overdraft accounts 25 50
L o a n s 5,646 --
----- -----
5,671 50
===== =====
b. The short-term bank loans are unlinked and bear annual interest of
approximately 16%.
c. The short-term bank credit is secured.
268
<PAGE>
MORIAH HOTELS LTD. AND ITS SUBSIDIARIES
---------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
12. Current maturities of long-term loans and other long-term liabilities
---------------------------------------------------------------------
Composed as follows:
--------------------
December 31
-----------
1996 1995
---- ----
US $ US $
----- -----
In thousands
-------------------
Long-term loans 384 353
Hotel rental payable -- 170
Liability in respect of holiday rights 149 103
--- ---
533 626
=== ===
13. Creditors and credit balances
-----------------------------
Composed as follows:
--------------------
December 31
-----------
1996 1995
---- ----
US $ US $
----- -----
In thousands
-------------------
Suppliers 3,954 3,538
Advances from customers 728 551
Government institutions 174 --
Payroll and related expenses payable 3,964 3,465
Sundry creditors and accrued expenses 1,988 1,739
------ ------
10,808 9,293
====== ======
14. Taxes on income
---------------
a. "Approved enterprises" -
The expansion plans of the hotels owned by the company and by the
subsidiary Moriah Eilat Resort Hotel Limited have been accorded
"approved enterprise" status under the Law for the Encouragement of
Capital Investments, 1959. The period of tax benefits (except for
the entitlement to claim accelerated depreciation) has not yet
commenced as the companies have not yet earned taxable income.
The entitlement to the above benefits is conditional upon the
companies fulfilling the conditions stipulated by the law,
regulations published thereunder and the instruments of approval for
the specific investments in approved enterprises. In the event of
failure to comply with these conditions, the benefits may be
canceled and the companies may be required to refund the amount of
the benefits, in whole or in part, with the addition of linkage
differences and interest. To date of issue of these financial
statements, the companies have fulfilled these conditions.
269
<PAGE>
MORIAH HOTELS LTD. AND ITS SUBSIDIARIES
---------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
14. Taxes on income (continued)
---------------
b. "Industrial companies" -
As owners of hotels, the company and its subsidiaries are
"industrial companies" under the Law for the Encouragement of
Industry (Taxation), 1969. In accordance with section 23 of the
abovementioned law, the company submits consolidated tax returns
with its subsidiaries that are also "industrial companies".
c. Taxation under inflationary conditions - Under the Income Tax
(Adjustments for Inflation) Law, 1985, the results for tax purposes
are measured in real terms, in accordance with the changes in the
consumer price index.
d. Losses and deductions carried forward to future years :
(1) The carryforward losses and deduction for inflation aggregate
US $ 18,150,000 at December 31, 1996; December 31, 1995 - US $
11,770,000. The balance of carryforward losses in respect of
which deferred taxes have not been computed is approximately
US $ 3,080,000 at December 1996; December 31, 1995 -
approximately US $ 1,860,000.
(2) Carryforward capital losses are approximately US $ 500,000 at
December 31, 1996 and 1995.
e. Taxes on income included in the income statements:
For the years ended December 31,
1996 1995 1994
---- ---- ----
US $ US $ US $
---- ---- ----
In thousands
------------
For the reported year - deferred
taxes - income (expense) 1,648 (738) (934)
For previous years - expense -- -- (72)
------ ------ ------
1,648 (738) (1,006)
====== ====== ======
15. Pledges
-------
a. As collateral for loans and credit received and for third party
guarantees, the company and its subsidiaries have mortgaged their
real estate (including leasehold rights) and have registered fixed
charges (specific security interest) on equipment, furniture and
vehicles (including insurance rights) and floating charges (security
interest in the assets as they exist from time to time) on all their
assets, including goodwill.
b. The company and the subsidiaries have registered floating charges on
all their assets in favor of the State of Israel as security for
compliance with the terms attaching to investment grants received by
them.
270
<PAGE>
MORIAH HOTELS LTD. AND ITS SUBSIDIARIES
---------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
16. Contingent liabilities and commitments
--------------------------------------
a. Contingent liabilities:
(1) In respect of indirect taxes on imported goods released under
"conditional exemption" - contingent upon the compliance with
the terms of the instruments of approval for the approved
enterprises (see also note 14a.). The amount of this liability
cannot be determined.
(2) In respect of a bank guarantee equivalent in Israeli currency
to $500,000 and a charge in an amount equivalent to $1,000,000
on land in the "Lamed" zone, which serve as a collateral for
the fulfillment of the obligations under the agreement for the
renting of the Tel-Aviv Plaza Hotel by the subsidiary Moriah
Tel-Aviv Hotel Ltd. (see b.(1) below).
(3) As a collateral for the fulfillment of liabilities of the
company and of the subsidiary Moriah Eilat Resort Hotel
Limited, these companies have provided bank guarantees as
follow:
Amount
--------------
$ in thousands
--------------
In favour of
------------
The Tourist Industry Development Corporation Ltd. 615
Customers of the "Moriah Plaza Club" 130
Amot Investments Ltd. 40
Shekem Ltd. 730
The Practical Engineer and Technician House 100
(4) In 1996, two legal claims were lodged against the subsidiary
Moriah Tel-Aviv Hotel Ltd., alleging breach of agreements in
respect of the renovation and refurbishment of its hotel
building. One claim was for $ 1,850,000 and the other for
$460,000.
The parties, with the court's consent, have agreed to submit
the claim for $ 1,850,000 to an arbitrator appointed by both
parties, after an increase of the amount claimed to
$2,310,000; the claimants are allowed to increase the amount
claimed still further after the subsidiary files its statement
of defense.
With regard to the other claim, the subsidiary has filed a
counterclaim for over $ 2,770,000; it intends to file a
counterclaim with respect to the claim of $ 2,310,000 as well.
The subsidiary's legal counsel is of the opinion that the
subsidiary's chances to prevail are fair; however, since the
matter is in a preliminary stage, the legal counsel cannot
predict the outcome of these claims.
In view of the legal counsel's opinion, no provision has been
made for these claims.
271
<PAGE>
MORIAH HOTELS LTD. AND ITS SUBSIDIARIES
---------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
16. Contingent liabilities and commitments
--------------------------------------
b. Commitments:
(1) The subsidiary Moriah Tel-Aviv Hotel Ltd. is a party to an
agreement for renting the Tel-Aviv Plaza Hotel for a period
ending December 29, 2006. The projected rental payments for
the next five years are as follows (the rent is linked to the
exchange rate of the US dollar):
US dollars in thousands
-----------------------
1997 1,000
1998 2,400
1999 2,500
2000 2,500
2001 2,700
As security for the fulfillment of the terms of that
agreement, the company has given collateral's in an amount
equivalent to US $ 1,500,000.
(2) On July 9, 1995, the subsidiary Moriah Eilat Resort Hotel
Limited signed an agreement for the operation and management
of the Moriah Gardens Hotel (hereafter - the hotel) in the
Dead Sea area on behalf of Mivtachim Gardens Ltd. The
agreement entered into effect retroactively as of March 31,
1995.
The agreement stipulates, inter alia:
(a) The agreement is in force for 10 years less one day and
expires on December 29, 2005. In the event that the
subsidiary acquires shares of Mivtachim Gardens Ltd.
(the owner), it will be entitled to extend the agreement
for two additional 5 year periods.
(b) In consideration for managing the hotel the subsidiary
is entitled to annual management fees of 25% of the
operating profit of the hotel (as defined by the
agreement), but not less than 2% of the annual revenues
(even in the event the hotel incurs an operating loss).
The subsidiary is further entitled to additional
management fees of 3% of any amount of operating profit
in excess of US $ 1,600,000 in any year.
272
<PAGE>
MORIAH HOTELS LTD. AND ITS SUBSIDIARIES
---------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
16. Contingent liabilities and commitments (continued)
--------------------------------------
b. Commitments (continued) :
(3) An agreement between the subsidiary Moriah Tiberias Hotel Ltd.
and Sea of Galilee Hotels Ltd. for the leasing of the Tiberias
Plaza Hotel for a ten year period (less one day) ending
February 27, 2001. Under certain circumstances, enumerated in
the lease agreement, the lease can be terminated by either
party at 6 months' notice (to date of issue of these financial
statements, no such notice was given). Annual rental is the
Israeli currency equivalent of US $ 600,000. The payment of
the said rental and the fulfillment of all the subsidiary's
obligations under the agreement are secured by an
unconditional bank guarantee of $ 300,000 and by guarantee
provided by the company.
(4) The subsidiary Moriah-Hotel Management Ltd. operates several
hotels under agreements with owners. These agreements
stipulate, inter alia, as follows:
(a) The agreements are for 10 years less one day and expire
on December 30, 2005. In the event the subsidiary
acquires shares in agreements, or any one of the
agreements, for two additional five year periods.
(b) Annual management fees for each hotel are 25% of the
operating profit of the hotel (as defined by the
agreements), but not less than 2.5% of the annual
revenues of each hotel or US $ 75,000, whichever is the
higher. The subsidiary is further entitled to additional
management fees of 3% of any amount of operating profit
in excess of US $ 1,000,000 in any year.
273
<PAGE>
MORIAH HOTELS LTD. AND ITS SUBSIDIARIES
---------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
16. Contingent liabilities and commitments (continued)
--------------------------------------
b. Commitments (continued) :
(5) The subsidiary Moriah Eilat Resort Hotel operates a holiday
club - Moriah Plaza Club - and enters into agreements for the
sale of holiday rights to members of the club. Each agreement
is in force for 49 years and entitles the buyer to one week's
holidays a year in the hotel owned by the subsidiary. The
holiday rights do not confer on holder possession or any
proprietary rights and do not place any restrictions on the
operations of the subsidiary's hotel.
The holiday rights are marketed exclusively by a marketing
company, for a commission computed as a fixed percentage of
proceeds from its sales of such rights.
The liability in respect of holiday rights - US $7,005,000
(net of marketing commission); December 31, 1995 - US
$5,078,000 is presented in the balance sheets under long-term
liabilities as a separate item..
(6) In November 1995, the company and the Radisson Sas Hotels
Worldwide chain (hereafter - Radisson) entered into an
agreement whereunder the company and its subsidiaries have
been granted the exclusive right to use the Radisson trade
name and trademark in the region, in consideration for
payments as determined by the agreement (the amounts due to
Radisson are determined based on total revenues and on the
amount of reservations obtained through Radisson). The
agreement expires on December 31, 2014, with an option of
renewal for another 10 years (under certain circumstances, as
detailed in the agreement, the company can terminate the
agreement before expiration date, but in any event not before
January 1, 1999).
274
<PAGE>
OPHIR HOLDINGS LTD.
(An Israeli corporation)
1996 ANNUAL REPORT
275
<PAGE>
OPHIR HOLDINGS LTD.
(An Israeli Corporation)
1996 ANNUAL REPORT
TABLE OF CONTENTS
Page
----
AUDITORS' REPORT 277-278
- ----------------
FINANCIAL STATEMENTS - OF THE COMPANY AND
- -----------------------------------------
CONSOLIDATED - IN ADJUSTED NEW ISRAELI SHEKELS (NIS):
-----------------------------------------------------
Balance sheets 279-280
Statements of income 281
Statements of changes in shareholders' equity 283
Statements of cash flows 285-288
Notes to financial statements 289-328
---------------
-------------------------
---------------
276
<PAGE>
Kesselman Coopers
& Kesselman & Lybrand
REPORT OF INDEPENDENT AUDITORS
To the shareholders of
OPHIR HOLDINGS LTD.
We have audited the financial statements of Ophir Holdings Ltd. (hereafter - the
Company) and the consolidated financial statements of the Company and its
subsidiaries: balance sheets at December 31, 1996 and 1995 and statements of
income, changes in shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's Board of Directors and management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We did not audit the financial statements of consolidated subsidiaries, whose
assets at December 31, 1996 and 1995 constitute approximately 25% and 31%,
respectively, of total consolidated assets, and whose revenues for the years
ended December 31, 1996, 1995 and 1994 constitute approximately 13%, 25% and
50%, respectively, of total consolidated revenues and gains. The financial
statements of those subsidiaries were audited by other auditors, whose reports
have been furnished to us, and our opinion, insofar as it relates to amounts
included for the foregoing subsidiaries, is based solely on the reports of the
other auditors. We did not audit the financial statements of certain associated
companies, the Company's interest in which as reflected in the balance sheets at
December 31, 1996 and 1995 is adjusted NIS 99,979,000 and adjusted NIS
67,285,000, respectively, and the Company's share in excess of profits over
losses of which is a net amount of adjusted NIS 9,685,000 in 1996, adjusted NIS
2,163,000 in 1995 and adjusted NIS 3,235,000 in 1994, the data at December 31,
1995 and for the year then ended have been restated, as explained in note 1m.
The financial statements of those companies were audited by other auditors whose
reports have been furnished to us, and our opinion, insofar as it relates to
amounts included for those companies, is based solely on the reports of the
other auditors.
Our audits were performed in accordance with generally accepted auditing
standards, including those prescribed by the Israeli Auditors (Mode of
Performance) Regulations, 1973. Those standards require that we plan and perform
the audits to obtain reasonable assurance that the financial statements are free
of material misstatement, whether caused by an error in the financial statements
or by misleading information included therein. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by the Company's Board of Directors and management,
as well as evaluating the overall financial statement presentation. We believe
that our audits provide a fair basis for our opinion.
277
<PAGE>
Coopers
& Lybrand
The aforementioned financial statements have been prepared on the basis of
historical cost adjusted to reflect the changes in the general purchasing power
of Israeli currency, in accordance with Opinions of the Institute of Certified
Public Accountants in Israel. Condensed nominal Israeli currency data of the
Company, on the basis of which its adjusted financial statements were prepared,
are presented in note 13.
In our opinion, based upon our audits and the reports of the other auditors
referred to above, the aforementioned financial statements present fairly, in
all material respects, the financial position-of the Company and consolidated -
at December 31, 1996 and 1995 and the results of operations, changes in
shareholders' equity and cash flows - of the Company and consolidated - for each
of the three years in the period ended December 31, 1996, in conformity with
accounting principles generally accepted in Israel. Also, in our opinion, the
abovementioned financial statements have been prepared in accordance with the
Israeli Securities (Preparation of Annual Financial Statements) Regulations,
1993.
Accounting principles generally accepted in Israel differ in certain respects
from accounting principles generally accepted in the United States. The
application of the latter would have affected the determination of nominal
historical net income or loss and shareholders' equity to the extent summarized
in note 14.
The special condensed consolidated financial statements which are presented in
note 14 have been translated into U.S. dollars for the convenience of one of the
Company's shareholders, in accordance with the principles set forth in Statement
No. 52 of the Financial Accounting Standards Board of the United States. In our
opinion, the translation has been properly made.
/s/ Kesselman & Kesselman
Tel-Aviv, Israel Kesselman & Kesselman
March 13, 1997 Certified Public Accountants (Isr.)
278
<PAGE>
OPHIR HOLDINGS LTD.
(An Israeli Corporation)
BALANCE SHEETS
IN ADJUSTED NEW ISRAELI SHEKELS
<TABLE>
<CAPTION>
Consolidated The Company
-------------------------------- -------------------------------
December 31, December 31
-------------------------------- -------------------------------
Note 1996 1995 1996 1995
------ -------------- ----------------- ---------------- --------------
In thousands In thousands
-------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
Assets 7c
------
CURRENT ASSETS: 11
- ---------------
Cash and cash equivalents 1,970 929 1,960 905
Short-term loans receivable from
associated companies (the
Company - and from subsidiaries) 10b 8,988 8,312 50,683 53,918
Short-term investments 12a 5,222 7,708 5,222 7,708
Accounts receivable 12b 3,179 721 1,021 538
Building under construction, net of
advances from purchaser 5b(3) 14,825
Capital notes from shareholders 10b 8,000 8,000
Deferred income taxes 1h;9b 4,600
------- ------- ------- -------
Total current assets 46,784 17,670 66,886 63,069
----- ------- ------- ------- -------
LAND - BUSINESS INVENTORY 1e;2b 11,004
- ---- ------------------ -------
INVESTMENTS: 11
- ------------
Subsidiaries 2 32,903 31,894
Associated companies 3 236,398 *219,908 189,233 *172,504
Other companies 4 11,347 10,838 11,347 10,838
Capital notes from shareholders 10b 8,847 8,847
------- ------- ------- -------
247,745 239,593 233,483 224,083
------- ------- ------- -------
FIXED ASSETS, net of accumulated
- ------------
depreciation 5 104,865 103,012 63,339 39,236
======= ======= ======= =======
410,398 360,275 363,708 326,388
======= ======= ======= =======
</TABLE>
/s/ U. Levit )Chairman of the
- --------------------------------
U. Levit ) Board of Directors
/s/ Y. Kaplan )
- --------------------------------
Y. Kaplan )Managing Director
Date of approval of the financial statements: March 13, 1997
279
<PAGE>
<TABLE>
<CAPTION>
Consolidated The Company
---------------------------- ---------------------------
December 31, December 31
---------------------------- ---------------------------
Note 1996 1995 1996 1995
------- ---------- ----------------- --------------- -----------
In thousands In thousands
---------------------------- ---------------------------
<S> <C> <C> <C> <C> <C>
Liabilities and shareholders' equity 7c
CURRENT LIABILITIES: 11
- --------------------
Bank credit 12c 42,166 33,110 40,161 28,123
Short-term loans from shareholders 10b 34,894 28,749 34,894 28,749
Accounts payable and accruals 11,498 2,568 3,836 968
Payables in respect of acquisition of
land - business inventory 2b 11,004
Deferred income taxes 1h;9b 884 1,106 884 1,106
------- ------- ------- -------
Total current liabilities 100,446 65,533 79,775 58,946
----- ------- ------- ------- -------
LONG-TERM LIABILITIES:
- ----------------------
Bank loans (net of current maturities) 6;11 124,265 132,905 99,545 106,658
Deferred income taxes 1h;9b 1,299 1,053
------- ------- ------- -------
Total long-term liabilities 125,564 133,958 99,545 106,658
----- ------- ------- ------- -------
COMMITMENTS AND CONTINGENT
- --------------------------
LIABILITIES 7
----------- ------- ------- ------- -------
Total liabilities 226,010 199,491 179,320 165,604
-----
SHAREHOLDERS' EQUITY 8 184,388 *160,784 184,388 *160,784
- -------------------- ------- ------- ------- -------
410,398 360,275 363,708 326,388
======= ======= ======= =======
</TABLE>
* Restated, see note 1m.
The accompanying notes are an integral part of the financial statements.
280
<PAGE>
OPHIR HOLDINGS LTD.
(An Israeli Corporation)
STATEMENTS OF INCOME
IN ADJUSTED NEW ISRAELI SHEKELS
<TABLE>
<CAPTION>
Consolidated
-----------------------------------------
Note 1996 1995 1994
------ --------- --------------- ---------------
In thousands
-----------------------------------------
REVENUES AND GAINS:
- -------------------
<S> <C> <C> <C> <C>
From lease of buildings 10a 5,109 5,172 5,351
Profits of subsidiaries - net 2
Share in profits of associated companies - net 3 10,477 *3,254 4,002
Gain on dilution of holding in associated companies resulting
from sale and issuance of shares to a third party - net 18,797 1,359 51
Gain resulting from sale of investments in associated companies 13,009
Gain from increase in value of quoted shares, which were state
at cost in the past 4,777
Gain from sale and increase in value of quoted shares - net 7,443 15
Dividend received from another company 104 278
Management fees from associated companies (the Company -
and from a subsidiary) 10a 1,116 951 693
------ ----- -----
48,612 18,457 14,889
------ ----- -----
EXPENSES AND LOSSES:
- --------------------
Depreciation of buildings 896 940 907
Losses of subsidiaries - net 2
Write-down of investment in other companies 4 2,500 1,138
General and administrative expenses 10a 2,035 1,704 1,959
Loss from sale of fixed assets 389
Loss from decrease in value of quoted shares 2,486
Financial expenses - net 10a;12f 7,561 6,183 5,768
------ ----- -----
15,867 9,965 8,634
------ ----- -----
INCOME BEFORE TAXES ON INCOME 32,745 8,492 6,255
- -----------------------------
TAXES ON INCOME 9 5,742 3,236 2,481
- --------------- ------ ----- -----
NET INCOME FOR THE YEAR 27,003 5,256 3,774
- ----------------------- ====== ===== =====
<CAPTION>
The Company
--------------------------------------------
Note 1996 1995 1994
------ -------------- -------------- --------------
In thousands
--------------------------------------------
REVENUES AND GAINS:
- -------------------
From lease of buildings 10a
Profits of subsidiaries - net 2 1,331 1,598
Share in profits of associated companies - net 3 9,204 *2,448 3,328
Gain on dilution of holding in associated companies resulting
from sale and issuance of shares to a third party - net 18,797 1,359 51
Gain resulting from sale of investments in associated companies 12,982
Gain from increase in value of quoted shares, which were state
at cost in the past 4,777
Gain from sale and increase in value of quoted shares - net 7,443 15
Dividend received from another company 104 278
Management fees from associated companies (the Company -
and from a subsidiary) 10a 1,031 1,034 688
------ ----- -----
281
<PAGE>
43,449 14,160 8,859
------ ----- -----
EXPENSES AND LOSSES:
- --------------------
Depreciation of buildings
Losses of subsidiaries - net 2 1,737
Write-down of investment in other companies 4 2,500 1,138
General and administrative expenses 10a 447 366 512
Loss from sale of fixed assets
Loss from decrease in value of quoted shares 2,486
Financial expenses - net 10a;12f 6,140 4,843 1,009
------ ----- -----
11,573 6,347 3,258
------ ----- -----
INCOME BEFORE TAXES ON INCOME 31,876 7,813 5,601
- -----------------------------
TAXES ON INCOME 9 4,873 2,557 1,827
- --------------- ------ ----- -----
NET INCOME FOR THE YEAR 27,003 5,256 3,774
- ----------------------- ====== ===== =====
</TABLE>
* Restated, see note 1m.
The accompanying notes are an integral part of the financial statements.
282
<PAGE>
OPHIR HOLDINGS LTD.
(An Israeli Corporation)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
IN ADJUSTED NEW ISRAELI SHEKELS
<TABLE>
<CAPTION>
Share Capital Retained
capital surplus earnings
------------ ----------------- -----------------
In thousands
-------------------------------------------------
<S> <C> <C> <C>
BALANCE AT JANUARY 1, 1994 2,269 48,543 108,113
- --------------------------
CHANGES DURING 1994:
- --------------------
Net income 3,774
Erosion of capital notes issued to the Company by shareholders (1,382)
Company's share in erosion of capital note issued by an
associated company to a subsidiary (198)
Differences from translation of foreign currency financial
statements of a subsidiary and associated companies
----- ------ -------
BALANCE AT DECEMBER 31, 1994 2,269 48,543 110,307
- ----------------------------
CHANGES DURING 1995:
- --------------------
Net income *5,256
Erosion of capital notes issued to the Company by shareholders (718)
Company's share in erosion of capital note issued by an
associated company to a subsidiary (129)
Differences from translation of foreign currency financial
statements of a subsidiary and associated companies
----- ------ -------
BALANCE AT DECEMBER 31, 1995 2,269 48,543 114,716
- ----------------------------
CHANGES DURING 1996:
- --------------------
Net income 27,003
Erosion of capital notes issued to the Company by shareholders (847)
Company's share in erosion of capital note issued by an
associated company to a subsidiary (177)
Differences from translation of foreign currency financial
statements of a subsidiary and associated companies
----- ------ -------
BALANCE AT DECEMBER 31, 1996 2,269 48,543 140,695
- ---------------------------- ===== ====== =======
<CAPTION>
Differences from
translation of foreign
currency financial Total
statements of a subsidiary
and associated companies
(note 1b(4))
---------------------------- ----------------
In thousands
---------------------------------------------
<S> <C> <C>
BALANCE AT JANUARY 1, 1994 1,294 160,219
- --------------------------
CHANGES DURING 1994:
- --------------------
Net income 3,774
Erosion of capital notes issued to the Company by shareholders (1,382)
Company's share in erosion of capital note issued by an
associated company to a subsidiary (198)
Differences from translation of foreign currency financial
statements of a subsidiary and associated companies (4,723) (4,723)
------ -------
283
<PAGE>
BALANCE AT DECEMBER 31, 1994 (3,429) 157,690
- ----------------------------
CHANGES DURING 1995:
- --------------------
Net income *5,256
Erosion of capital notes issued to the Company by shareholders (718)
Company's share in erosion of capital note issued by an
associated company to a subsidiary (129)
Differences from translation of foreign currency financial
statements of a subsidiary and associated companies (1,315) (1,315)
------ -------
BALANCE AT DECEMBER 31, 1995 (4,744) 160,784
- ----------------------------
CHANGES DURING 1996:
- --------------------
Net income 27,003
Erosion of capital notes issued to the Company by shareholders (847)
Company's share in erosion of capital note issued by an
associated company to a subsidiary (177)
Differences from translation of foreign currency financial
statements of a subsidiary and associated companies (2,375) (2,375)
------ -------
BALANCE AT DECEMBER 31, 1996 (7,119) 184,388
- ---------------------------- ====== =======
</TABLE>
* Restated, see note 1m.
The accompanying notes are an integral part of the financial statements.
284
<PAGE>
OPHIR HOLDINGS LTD.
STATEMENTS OF CASH FLOWS
IN ADJUSTED NEW ISRAELI SHEKELS
<TABLE>
<CAPTION>
Consolidated
-------------------------------------------
1996 1995 1994
--------------- -------------- ------------
In thousands
-------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Net income for the year 27,003 **5,256 3,774
Adjustments required to reflect the cash flows from operating activities* (29,459) (5,468) 1,057
------- ------ ------
Net cash provided by (used in) operating activities (2,456) (212) 4,831
------- ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Proceeds from sale of shares in associated companies 17,559 1,564
Proceeds from sale of fixed assets 713
Acquisition of fixed assets (28,185) (38,114) (17,086)
Advance from purchaser of building under construction 9,459
Proceeds from realization of short-term investments 18,144
Investment in associated companies (including capital notes and loans) (4,989) (969)
Investments in other companies (3,009) (2,019) (10,462)
Decrease (increase) in short-term loans granted to associated
companies (the Company - and subsidiaries) (676) (1,139) (7,591)
Collection of capital notes from an associated company 1,075 1,451 32,067
Proceeds from redemption of Government Compulsory Loan 24
Investment in quoted shares of an interested party (118)
------- ------ ------
Net cash used in investing activities (3,064) (25,102) (4,135)
------- ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Long-term bank loans received 43,403
Discharge of long-term bank loans (5,983) (9,555) (10,236)
Increase (decrease) in short-term loans from shareholders - net 6,145 (518) (20)
Increase (decrease) in short-term bank credit - net 6,399 18,353 (42,034)
------- ------ ------
Net cash provided by (used in) financing activities 6,561 8,280 (8,887)
------- ------ ------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,041 (17,034) (8,191)
- ------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 929 17,963 26,154
- ---------------------------------------------- ------- ------ ------
CASH AND CASH EQUIVALENTS AT END OF YEAR 1,970 929 17,963
- ---------------------------------------- ======= ====== ======
<CAPTION>
The Company
----------------------------------------
1996 1995 1994
----------------------------------------
In thousands
----------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Net income for the year 27,003 **5,256 3,774
Adjustments required to reflect the cash flows from operating activities* (31,725) (6,547) (1,495)
------- ------ ------
Net cash provided by (used in) operating activities (4,722) (1,291) 2,279
------- ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Proceeds from sale of shares in associated companies 17,559 1,564
Proceeds from sale of fixed assets
Acquisition of fixed assets (24,153) (28,066) (11,181)
Advance from purchaser of building under construction
Proceeds from realization of short-term investments 18,144
285
<PAGE>
Investment in associated companies (including capital notes and loans) (76,598)
Investments in other companies (3,009) (2,019) (10,462)
Decrease (increase) in short-term loans granted to associated
companies (the Company - and subsidiaries) 3,235 54,466 (25,928)
Collection of capital notes from an associated company 1,075 1,451 12,006
Proceeds from redemption of Government Compulsory Loan
Investment in quoted shares of an interested party (118)
------- ------ ------
Net cash used in investing activities (5,293) (31,058) (35,683)
------- ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Long-term bank loans received 29,987
Discharge of long-term bank loans (1,122) (3,132) (4,941)
Increase (decrease) in short-term loans from shareholders - net 6,145 (518) (20)
Increase (decrease) in short-term bank credit - net 6,047 18,942 186
------- ------ ------
Net cash provided by (used in) financing activities 11,070 15,292 25,212
------- ------ ------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,055 (17,057) (8,192)
- ------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 905 17,962 26,154
- ---------------------------------------------- ------- ------ ------
CASH AND CASH EQUIVALENTS AT END OF YEAR 1,960 905 17,962
- ---------------------------------------- ======= ====== ======
</TABLE>
286
<PAGE>
OPHIR HOLDINGS LTD.
STATEMENTS OF CASH FLOWS
IN ADJUSTED NEW ISRAELI SHEKELS
<TABLE>
<CAPTION>
Consolidated
-------------------------------------------
1996 1995 1994
--------------- -------------- ------------
In thousands
-------------------------------------------
<S> <C> <C> <C>
* Adjustments required to reflect the cash flows from operating activities:
-------------------------------------------------------------------------
Losses (profits) of subsidiaries - net
Share in profits of associated companies - net (10,477) **(3,254) (4,002)
L e s s - dividend received from associated companies 4,750 5,586 5,958
-------
Depreciation 946 948 910
Deferred income taxes - net (4,576) (561) 1,870
Accrued interest on capital notes of associated company - net (170) (246) (531)
Gain on dilution of holding in associated companies resulting from sale and
issuance of shares to a third party (31,779) (1,359) (51)
Gain from increase in value of quoted shares which were stated at cost
in the past (4,777)
Loss from sale of fixed assets 389
Loss (gain) from sale and decrease (increase) in value of quoted
shares - net 2,486 (7,443) (15)
Writed-down of investment in other companies 2,500 1,138
Linkage differences on principal of loan to associated company 419
Linkage differences on (erosion of) principal of long-term bank loans - net (2,358) 347
------- ------ -----
(35,931) (7,549) 128
------- ------ -----
Changes in operating asset and liability items:
- -----------------------------------------------
Decrease (increase) in accounts receivable (2,458) 1,555 902
Increase (decrease) in accounts payable and accruals 8,930 526 27
------- ------ -----
6,472 2,081 929
------- ------ -----
------- ------ -----
(29,459) (5,468) 1,057
======= ====== =====
<CAPTION>
The Company
----------------------------------------
1996 1995 1994
----------------------------------------
In thousands
----------------------------------------
<S> <C> <C> <C>
* Adjustments required to reflect the cash flows from operating activities:
-------------------------------------------------------------------------
Losses (profits) of subsidiaries - net (1,331) (1,598) 1,737
Share in profits of associated companies - net (9,204) **(2,448) (3,328)
L e s s - dividend received from associated companies 3,560 4,375 4,469
-------
Depreciation 50 8 3
Deferred income taxes - net (222) (687) 1,793
Accrued interest on capital notes of associated company - net (170) (246) (531)
Gain on dilution of holding in associated companies resulting from sale and
issuance of shares to a third party (31,779) (1,359) (51)
Gain from increase in value of quoted shares which were stated at cost
in the past (4,777)
Loss from sale of fixed assets
Loss (gain) from sale and decrease (increase) in value of quoted
shares - net 2,486 (7,443) (15)
Writed-down of investment in other companies 2,500 1,138
Linkage differences on principal of loan to associated company 419
Linkage differences on (erosion of) principal of long-term bank loans - net (364) 142
------- ------ ------
(34,110) (8,624) (139)
------- ------ ------
287
<PAGE>
Changes in operating asset and liability items:
- -----------------------------------------------
Decrease (increase) in accounts receivable (483) 1,677 (1,387)
Increase (decrease) in accounts payable and accruals 2,868 400 31
------- ------ ------
2,385 2,077 (1,356)
------- ------ ------
------- ------ ------
(31,725) (6,547) (1,495)
======= ====== ======
</TABLE>
** Restated, see note 1m.
As to purchase of land - business inventory - by a subsidiary using credit
granted by the seller, which is not reflected in these statements; see note 2b.
The accompanying notes are an integral part of the financial statements.
288
<PAGE>
OPHIR HOLDINGS LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
- ------ -------------------------------
The significant accounting policies applied on a consistent basis, are as
follows, see also m. below:
a. General:
--------
1) Ophir Holdings Ltd. (hereafter - the Company) is a holding
company which also owns commercial buildings under
construction designated for rent and sale.
The subsidiary, Ophir Financing Ltd., is engaged in granting
loans (mainly to interested parties and related parties) and
receiving loans (mainly from interested parties and related
parties), see note 10a.
The subsidiary, Merkazim Investments Ltd., is a holding and
investment company engaged in the renting of commercial
buildings. It also owns a commercial building udner
construction, which is designated for sale, in respect of
which a sale agreement has already been signed, see note
5b(3).
The Company and its subsidiaries receive management services
from shareholders in consideration of management fees.
As to the subsidiary New Horizons (1993) Ltd., see note 2b.
As to the activities of the associated companies, see note 3b.
2) Definitions:
------------
Subsidiary - a company controlled or owned to the extent of
over 50%.
Associated company - a company or limited partnership
controlled or owned, directly or indirectly, to the extent of
over 25%, which is not a subsidiary, or to the extent of 25%
or under but meets the criteria set by Opinion 22 of the
Institute of Certified Public Accountants in Israel (hereafter
- the Israeli Institute) and the investment therein is
accounted for by the equity method.
The group - the Company and its subsidiaries and associated
companies.
Interested parties - as defined in the Israeli Securities
(Preparation of Annual Financial Statements) Regulations,
1993.
Related parties - as defined in Opinion 29 of the Israeli
Institute.
b. Adjusted financial statements:
------------------------------
1) The financial statements have been prepared on the basis
of historical cost adjusted to reflect the changes in
the general purchasing power of Israeli currency, in
accordance with Opinions of the Israeli Institute. All
figures in the financial statements are presented in
adjusted new Israeli shekels (NIS) which have a uniform
purchasing power (December 1996 adjusted NIS) - based
upon the changes in the Israeli consumer price index;
hereafter - the Israeli CPI (see also note 11b).
289
<PAGE>
The adjustment of the financial statements is based on
the accounts of the Company and its Israeli
subsidiaries, maintained in nominal NIS. Condensed
nominal Israeli currency data of the Company, on the
basis of which its adjusted financial statements were
prepared, are presented in note 13.
The components of the income statement were, for the
most part, adjusted as follows: the components relating
to transactions carried out in the reported year were
adjusted on the basis of the index for the month in
which the transaction was carried out, while those
relating to non-monetary balance sheet items (mainly -
depreciation) were adjusted on the same basis as the
related balance sheet item. The financing component
represents financial income and expenses in real terms
and the erosion of balances of monetary items during the
year.
2) As mentioned in (1) above, these financial statements
have been drawn up in accordance with the principles of
adjustment prescribed by Opinions of the Israeli
Institute, on the basis of the changes in the Israeli
CPI. As to subsidiary and associated companies whose
financial statements are drawn up in foreign currency,
see (4) below.
3) The adjusted amounts of non-monetary assets do not
necessarily represent realization value or current
economic value, but only the original historical values,
adjusted to reflect the changes in the general
purchasing power of Israeli currency. In these financial
statements, the term "cost" signifies cost in adjusted
Israeli currency.
4) A subsidiary and associated companies whose financial
-----------------------------------------------------
statements are drawn up in foreign currency
-------------------------------------------
For purposes of consolidation or inclusion on the equity
basis, the amounts (in foreign currency terms) included
in the statements of the above companies were treated as
follows:
Balance sheet items at the end of the year and the
results of operations for the year were translated at
the exchange rate of the U.S. dollar (hereafter - the
dollar) as compared to Israeli currency at the end of
the year. Balance sheet items at the beginning of the
year and changes in shareholders' equity items during
the year were translated at the relevant exchange rate
at the beginning of the year or at the date of each
change and then adjusted on the basis of the changes in
the Israeli CPI through the end of the year.
Differences resulting from the above treatment are
carried as a separate item under adjusted shareholders'
equity ("differences from translation of foreign
currency financial statements of a subsidiary and
associated companies").
c. Principles of consolidation:
----------------------------
1) The consolidated financial statements include the accounts of
the Company and its subsidiaries. The companies included in
consolidation are listed in note 2a.
2) Intercompany balances and transactions have been eliminated.
290
<PAGE>
d. Marketable securities
---------------------
These securities (except for investment in shares constituting
"permanent investment", see f(3), are stated at market value.
The changes in value of the above securities are carried to income.
e. Land - business inventory
-------------------------
The land is presented at cost which - in managements' estimation -
is lower than market value.
f. Investments:
------------
1) Subsidiaries
------------
In the Company's accounts, the investments in these companies
are accounted for by the equity method.
2) Associated companies:
---------------------
a) The investments in these companies are accounted for by
the equity method.
b) The excess of cost of the investment in associated
companies over the Company's shares in their equity in
net assets at date of acquisition ("excess of cost of
investment") represents an amount not attributed to
specific assets (goodwill). The amount attributed to
goodwill is amortized in equal annual instalments over a
period of 10 years, commencing in the year of
acquisition.
3) Other companies
---------------
The investments in the shares of these companies, including
investments in quoted shares, which the Company intends to
hold for a long period ("permanent investment"), are stated at
cost, net of write-down for decrease in value which is not of
a temporary nature.
g. Fixed assets:
-------------
1) These assets are stated at cost. The balance of the
depreciated cost of a building torn down in order to build a
new building was carried to cost of the new building.
2) The assets are depreciated by the straight-line method, on
basis of their estimated useful life.
Annual rates of depreciation are as follows:
%
-
Buildings leased out 2-4
Office furniture and equipment and
machinery and equipment (including
computer and peripheral equipment) 6-7;15;20
291
<PAGE>
h. Deferred income taxes:
----------------------
1) Deferred taxes are computed in respect of differences between
the amounts present in these statements and those taken into
account for tax purposes. As to the factors in respect of
which deferred taxes have been idncluded - see note 9b.
Deferred tax balances are computed at the tax rate expected to
be in effect at time of release to income from the deferred
tax accounts. The amount of deferred taxes presented in the
income statement reflects changes in the above balances during
the year.
2) Taxes which would apply in the event of disposal of
investments in subsidiaries and associated companies have not
been taken into account in computing the deferred taxes, as it
is the Company's policy to hold these investments, not to
realize them.
3) The Company will incur an additional tax liability at the rate
of 15% in the event of distribution of dividend from income
derived from "approved enterprises" of certain associated
companies. This additional tax liability was not taken into
account, since it is the Company's policy not to cause such
additional tax liability upon distribution of dividends. If
the Company resolves to distribute dividends to its
shareholders, it will distribute them from dividends it
receives from the abovementioned associated companies, the
income of which is derived from "approved enterprises", so
that the Company will not incur any additional tax liability
in respect of receipt of the dividend.
i. Capital notes issued to or by interested parties and related parties
--------------------------------------------------------------------
The erosion of such capital notes, which are not linked and most of
which do not bear interest, is carried to retained earnings in the
statements of changes in shareholders' equity.
j. Cash equivalents
----------------
The group considers all highly liquid investments, which include
short-term (up to 3 months) bank deposits, to be cash equivalents.
k. Net income per NIS 1 of par value of ordinary shares
----------------------------------------------------
The financial statements do not include data regarding net income
per NIS 1 of par value of shares, since that data would not provide
significant additional information to that otherwise provided by the
financial statements.
l. Format of income statements
---------------------------
In view of the nature of the Company's activities - holding of
companies which operate in different fields - the Company is of the
opinion that concentrated presentation of all revenue and gain items
as a group, and of all expense and loss items in a separate group is
more suitable to reflect its activities.
292
<PAGE>
m. Restatement
-----------
The financial statements for the year ended December 31, 1995 were
restated in order to reflect, with retroactive effect, the changes
in the method of recognition of revenue, by an associated company.
The effect of this restatement on the financial statements is as
follows:
1) Balance sheet at December 31, 1995 :
<TABLE>
<CAPTION>
As Effect As reported
previously of in these
reported restatement financial
statements
--------------- ------------------------------
Adjusted NIS in thousands
----------------------------------------------
<S> <C> <C> <C>
a) Consolidated:
-------------
Investments in associated companies 222,611 (2,703) 219,908
Shareholders' equity - retained
earnings (163,487) 2,703 (160,784)
-------- ----- --------
59,124 -,- 59,124
======== ======== ========
b) The company:
------------
Investment in associated companies 175,207 (2,703) 172,504
Shareholders' equity - retained
earnings (163,487) 2,703 (160,784)
-------- ----- ---------
11,720 -,- 11,720
======== ======== =========
</TABLE>
2) Net income for 1995:
Consolidated and
the Company
-------------------------
Adjusted NIS in thousands
-------------------------
Net income, as previously reported 7,959
Effect of restatement - share in
profits of associated companies (2,703)
------
Net income, as reported in
these financial statements 5,256
======
293
<PAGE>
NOTE 2 - SUBSIDIARIES:
- ------ -------------
a. Subsidiaries consolidated are as follows:
Wholly-owned:
Maoz Financial Investments Ltd. - inactive (hereafter - Maoz)
Merkazim Investments Ltd. (a wholly-owned subsidiary of Maoz;
hereafter - Merkazim)
Merkazim New York, Inc. (a wholly-owned subsidiary of
Merkazim;hereafter - Merkazim New York)
Ophir Financing Ltd.
80% owned:
New Horizon (1993) Ltd. (hereafter - New Horizon), see b.
below.
b. Subsidiary consolidated for the first time
------------------------------------------
New Horizon, which commenced activities in 1996, was consolidated
for the first time in that year. In December 1996, New Horizon
purchased several properties for sale from a related party.
The data of New Horizon as included in the December 31, 1996
consolidated balance sheet are as follows:
Adjusted NIS in
thousands
------------------
Land - business inventory 11,004
Payables in respect of acquisition of land-
business inventory (11,004)
=======
-,-
=======
c. The investments are composed as follows:
The Company
-----------------
December 31
-----------------
1996 1995
-----------------
Adjusted NIS
in thousands
-----------------
Cost of shares 186 186
Accumulated undistributed profits* 32,616 31,618
Differences from translation of foreign
currency financial statement 101 90
------ ------
32,903 31,894
====== ======
* Net of erosion of intercompany capital notes 9,091 7,916
====== ======
294
<PAGE>
NOTE 3 - INVESTMENTS IN ASSOCIATED COMPANIES:
- ------ ------------------------------------
a. The investments are composed as follows:
<TABLE>
<CAPTION>
Consolidated The Company
-----------------------------------------------
December 31 December 31
-----------------------------------------------
1996 1995 1996 1995
------------ ----------- ------------- --------
Adjusted NIS in thousands
-----------------------------------------------
<S> <C> <C> <C> <C>
Equity in net assets:
Cost of shares 7,911 *11,078 6,942 10,109
L e s s - amortization excess of cost
-------
of investment (1) (844) *(314) (844) *(314)
Share in accumulated undistributed
profits (including accumulated
erosion of capital notes)(2) 64,902 **41,216 65,530 **41,643
Differences from translation of foreign
currency financial statements of
associated companies (7,119) (4,744) (7,220) *(4,834)
------- ------- ------- -------
64,850 47,236 64,408 46,604
Capital notes of Mivnat Holdings Ltd.
(including accrued interest) (3) 171,090 *172,165 124,825 *125,900
Capital note of Teledata
Communications Ltd. (4) 458 507
------- ------- ------- -------
236,398 219,908 189,233 172,504
======= ======= ======= =======
</TABLE>
* Reclassified.
** Reclassified and restated, see note 1m.
(1) The exess cost of investment represents goodwill. The original
amount of the goodwill was adjusted NIS 6,553,000 and its
unamortized balance at December 31, 1996 and 1995 was adjusted
NIS 3,909,000 and adjusted NIS 6,642,000, respectively.
(2) Including gain on dilution of holding in an associated
companies resulting from sale and issuance of shares to a
third party.
(3) One capital note - in the amount of adjusted NIS 6,281,000
(par value - NIS 3,163,000) - is unlinked, bears annual
interst at the rate of 4% and is redeemable upon demand but
not later than March 23, 2013. The other capital notes
(including accrued interest), with a total par value of NIS
113,000 - consolidated and NIS 81,634,000 - the Company, are
unlinked, do not bear interest, and are redeemable upon
demand, but - not later than March 23, 2015 and part - not
later than March 23, 2018.
(4) This capital note is unlinked, bears interest of NIS 1 per
annum and is redeemable on call, but not before July 1, 2008.
295
<PAGE>
b. Following are details relating to the associated companies:
1) Teledata Communications Ltd.(hereafter - Teledata):
----------------------------
a) Teledata, which is a subsidiary of Investment Company of
Bank Hapoalim Ltd. (a major shareholder of the Company)
- is engaged in design, development, production,
marketing and servicing of telecommunication equipment.
The percentages of holdings in Teledata are as follows:
Consolidated and
the Company
--------------------------------
December 31
--------------------------------
1996 1995
--------------------------------
% %
----- -----
The Company 16.17 19.00
===== =====
Investment Company of Bank
Hapoalim Ltd. - directly 29.19 31.00
===== =====
b) In 1996, the Company sold 250,000 ordinary shares of
Teledata and derived a profit of adjusted NIS 9,037,000.
In 1995, the Company sold 51,000 ordinary shares of
Teledata and derived a profit of adjusted NIS 726,000.
c) Teledata has adopted a plan to grant share options to
key employees and directors. During 1996 and 1995, some
of the options were exercised and the Company had a
profit of adjusted NIS 556,000 and adjusted NIS 27,000,
respectively.
d) Teledata's shares are traded in the United States on the
Nasdaq National Market. The market value of the Teledata
shares held by the Company at December 31, 1996 and 1995
is adjusted NIS 130,449,000 and adjusted NIS 43,214,000,
respectively.
296
<PAGE>
e) Following are condensed data from the consolidated financial
statements of Teledata - presented in dollars:
<TABLE>
<CAPTION>
December 31
-------------------------
1996 1995
----------- -------------
U.S. dollars in thousands
-------------------------
<S> <C> <C>
Balance sheets:
---------------
Assets:
-------
Current assets 62,514 48,881
Investments and long-term
receivables 7,389 5,358
Fixed assets - net 6,112 5,086
Other assets - net 195 267
------ ------
76,210 59,592
====== ======
Liabilities and shareholders' equity:
-------------------------------------
Current liabilities 15,485 8,977
Long-term liabilities - net 974 1,267
Minority interest 599 167
Shareholders' equity 59,152 49,181
------ ------
76,210 59,592
====== ======
<CAPTION>
1996 1995 1994
------ ------ ------
U.S. dollars in thousands
-------------------------------
<S> <C> <C> <C>
Statements of income:
---------------------
Revenues 57,089 32,127 28,252
-------- ======= ======= =======
Net income (loss) for the year 6,991 (1,188) 619
------------------------------ ======= ======= =======
</TABLE>
2) Memco Software Ltd. (hereafter - Memco):
-------------------
a) In September 1994, the Company purchased shares conferring
upon it 10% holding in Memco, which is engaged in development,
production and marketing of computer software to secure Unix
computer systems.
b) In July 1995, the Company exercised its option to purchase
additional shares in Memco, conferring upon it an additional
10% of the holding therein in consideration of $ 1,250,000. As
a result of the increase in holding, the Company commenced
accounting for its investment in Memco by the equity method.
c) In July 1995, Memco issued share capital to others. As a
result, the Company's holding in Memco was reduced to 18% and
the Company derived a gain of approximately adjusted NIS
754,000.
297
<PAGE>
d) Memco has initiated a key employee stock option plan. As a
result of exercise of some of the options issued under that
plan, the Company's holding in Memco was further diluted. In
1996, the Company had a gain of approximately adjusted NIS
184,000 as a result of exercise of the options; such exercise
in 1995 caused the Company a loss of approximately adjusted
NIS 156,000.
e) In October 1996, Memco offered 3,000,000 shares to the public
in the United States, together with 365,000 shares offered by
its shareholders (including the Company), at $ 15 per share.
The underwriters of this offering exercised their option to
purchase 450,000 shares from Memco and 54,750 shares from its
shareholders. The net proceeds in this offering were
approximately $ 46 million. Following this offering, the
Company's holdings in Memco decreased from about 17.7% to
about 13.1%; the capital gain resulting from the public
offering of Memco shares and from the sale of the Company's
shares therein, approximately adjusted NIS 22,002,000, is
included in 1996 income. Future sale of Memco shares by the
Company is restricted by U.S. law and by the underwriting
agreement. To the date of the U.S. offering, the Company had
the power to appoint two out of the seven directors of Memco.
Close to the date of the offering, the Company and other
shareholders of Memco reached an agreement for cooperation at
shareholders' meetings. Moreover, a voting agreement has been
signed with most Memco shareholders, whereunder the Company is
entitled to recommend a director on its behalf. In view of the
above, the investment in Memco is still presented by the
equity method.
f) Memco's shares are traded in the United States on the Nasdaq
National Market. The market value of Memco's shares held by
the Company at December 31, 1996 is adjusted NIS 112,800,000.
g) Following are condensed data from the consolidated financial
statements of Memco - presented in dollars:
December 31
--------------------
1996 *1995
--------------------
U.S. $ in thousands
Balance sheets:
---------------
Assets:
-------
Current assets 62,770 10,518
Fixed assets - net 1,222 585
Other assets - net 523 239
------ ------
64,515 11,342
====== ======
Liabilities and shareholders'
-----------------------------
equity:
-------
Current liabilities 7,652 2,221
Long-term liabilities - net 3,923 5,619
Shareholders' equity 52,940 3,502
------ ------
64,515 11,342
====== ======
Statements of income (loss):
----------------------------
1996 *1995 1994
------ ------- ------
Adjusted NIS in thousands
-----------------------------
Revenues 15,312 1,549 440
-------- ====== ====== ======
Net income (loss)
-----------------
for the year 3,384 (2,463) (483)
------------ ====== ====== ======
298
<PAGE>
* Restated.
299
<PAGE>
3) Mivnat Holdings Ltd (hereafter - Mivnat):
-------------------
a) Mivnat was established in March 1993, by the Company, the
subsidiary Merkazim and others, some of which are interested
parties, for the purpose of acquiring the Israeli Government's
shares in Industrial Buildings Company Ltd.; hereafter -
Industrial Buildings (to the extent of 51.26% of the fully
diluted issued and paid share capital of Industrial
Buildings). Mivnat purchased the said shares in March 1993 for
approximately adjusted NIS 829 million.
At December 31, 1996 and 1995, Mivnat holds approximately
52.2% of the issued and paid shares of Industrial Buildings.
Industrial Buildings is engaged in initiation, and
construction, of buildings for industry, designated for rental
and sale, and in the management of land development and
infrastructure preparation for residence and industry.
b) The shares of Industrial Buildings are traded on the Tel-Aviv
Stock Exchange. The market value of the holdings of the
Company and Merkazim in the shares of Industrial Buildings
(which are held through Mivnat and which are Mivnat's only
asset) at December 31, 1996 and 1995 is approximately adjusted
NIS 124.7 million and adjusted NIS 159.7 million,
respectively.
c) The percentages of holding in Mivnat at December 31, 1996 and
1995 are as follows:
%
-
Consolidated - the Company and Merkazim 25.00
=====
The Company 18.75
=====
d) Claims have been filed in 1989-1996 against Industrial
Buildings by insurance companies, a banking institution,
contracting companies and others for a total amount of
approximately NIS 30 million (effective as of the date of
filing of the claims). In the opinion of the management of
Industrial Buildings, based - in most cases - on the opinions
of its legal counsel, Industrial Buildings has good defense
against the claims. Therefore, provisions were made only in
respect of a part of those claims in the financial statements
of Industrial Buildings.
In 1996, Industrial Buildings instituted legal proceedings for
the collection of debts in arrears in the approximate amount
of adjusted NIS 13.5 million. No provision for doubtful
accounts has been made in respect of these debts.
e) Mivnat has guaranteed repayment of long-term loans received by
the Company and Merkazim.
300
<PAGE>
f) Mivnat has registered liens on all its assets and rights in
favor of those who granted long-term loans to all its
shareholders.
g) As to the pledge in respect of the investment of the Company
and Merkazim in Mivnat, see note 7c(3).
h) Following are condensed data from the consolidated financial
statements of Mivnat:
<TABLE>
<CAPTION>
December 31
----------------------
1996 1995
-------- --------
Adjusted NIS in thousands
-------------------------
<S> <C> <C>
Balance sheets:
---------------
Assets:
-------
Current assets 218,131 117,495
Investments and long-term
receivables 223,707 239,184
Fixed assets - net 2,037,803 1,898,580
Other assets - net 1,483 1,972
--------- ---------
2,481,124 2,257,231
========= =========
Liabilities and shareholders' equity:
-------------------------------------
Current liabilities 406,651 271,802
Long-term liabilities - net 1,395,406 1,360,066
Minority interest 438,998 436,225
Shareholders' equity 240,069 189,138
--------- ---------
2,481,124 2,257,231
========= =========
</TABLE>
1996 1995 1994
-------- -------- ---------
Adjusted NIS in thousands
---------------------------------
Statements of income:
---------------------
Revenues 178,630 161,383 134,401
-------- ======= ======= =======
Net income for the year 20,733 19,568 15,208
----------------------- ======= ======= =======
4) Shmey-Bar Real Estate 1993 Ltd., Shmey-Bar (T.H.) 1993 Ltd. and
---------------------------------------------------------------
Shmey-Bar (I.A.) 1993 Ltd. (hereafter - Shmey-Bar companies)
--------------------------
The Company, along with a group of companies, one of which is an
interested party, established the Shmey-Bar companies on December 9,
1993. These companies were established for the purpose of dealing in
real estate. They purchased real estate in Tel-Aviv, Haifa,
Beer-Sheva, Kiryat Shemona, Eilat, etc., all from Hamashbir
Hamerkazi Israel Cooperative Wholesale Society Ltd.
Shmey-Bar companies commenced operations in 1994.
The Company holds 1/6 of the ownership and control in each of the
Shmey-Bar companies.
301
<PAGE>
5) Derdan (Financing) Ltd. (hereafter - Derdan)
-----------------------
Derdan was established in June 1993 by the Company along with a
group of companies, one of which is an interested party, for the
purpose of financing the purchase of rights in real estate which
Hamashbir Hamerkazi Israel Cooperative Wholesale Society Ltd. has
granted the associated company Shmey-Bar (I.A.) 1993 Ltd. (see (4)
above).
Derdan commenced operations in 1994. The Company's share in Derdan
is 25%.
6) Clark/67 Associates L.P. - limited partnership
------------------------
In August 1994, the subsidiary Merkazim New York and others
established a limited partnership in the United States (hereafter -
the partnership). The U.S. subsidiary's share in the partnership is
50%. The partnership acquired a commercial building in New Jersey,
U.S.A. for a total cost of approximately $ 2.3 million. The
partnership invested approximately $ 1 million in renovating the
building. To finance the acquisition and renovation as above, the
subsidiary took a bank loan of $ 3.6 million.
7) Memadim Investments Ltd. (hereafter - Memadim)
------------------------
Memadim was established in the last quarter of 1995 by the Company,
along with a group of companies one of which is an associated
company, for the purpose of trading in real estate. The Company
directly holds 10% of the ownership and control of Memadim and an
associated company holds 40% of the ownership and control of
Memadim.
NOTE 4 - INVESTMENTS IN OTHER COMPANIES:
- ------ -------------------------------
Consolidated and
the Company
------------------
December 31
------------------
1996 1995
------ ------
Adjusted NIS
in thousands
------------------
Dovrat, Shrem - Keren Shakim 92 Ltd. -
"Keren Shakim" (a) 2,041 2,041
Mahalachim Investment in Technology
Ltd. - "Mahalachim" (b) 2,995 2,995
C.B. Carmel Biosensor Ltd. - "C.B."(c) 757 1,795
Industrial Buildings - quoted shares (d) 4,007 4,007
Mainsoft Corporation - "Mainsoft" (e) 1,547
------ ------
11,347 10,838
====== ======
302
<PAGE>
(a) The Company holds 500,000 of the 20,000,000 shares offered by
Keren Shakim. The main activity of Keren Shakim is investment
in business and securities. Its investments consist mainly of
long and medium term investments, primarily in Israel.
(b) Mahalachim is a venture capital fund. The Company holds shares
conferring upon it a 5% holding in this company.
(c) The Company holds preferred shares convertible into ordinary
shares, conferring upon it a 21.26% holding in this company.
C.B. is engaged in development of products for measurement of
the concentration of glucose in the blood without using the
present mechanical methods.
In 1995, the Company invested adjusted NIS 1,873,000 in C.B.
and in 1996 - adjusted NIS 462,000.
At December 31, 1996 and 1995, the investment is presented net
of write down of adjusted NIS 2,638,000 and adjusted NIS
1,138,000, respectively, in respect of decline in its value.
(d) In March 1994, the Company purchased shares conferring upon it
0.2% in Industrial Buildings. The Company does not account for
these shares by the equity method because of immateriality
(see also note 3b(3)).
(e) In June 1996, the Company purchased shares conferring upon it
4.3% in Mainsoft. Mainsoft is engaged in the development,
production and marketing of software and development tools for
developers of software.
In December 1996, the Company decided to write down the
investment in Mainsoft by approximately adjusted NIS
1,000,000.
303
<PAGE>
NOTE 5 - FIXED ASSETS:
- ------ ------------
a. Composition of assets, grouped by major classifications, and changes
therein during 1996, are as follows:
<TABLE>
<CAPTION>
Cost Accumulated depreciation
-------------------------------------------------------------------------------------------
Balance at Additions In respect of
beginning during retirements Balance Balance at Additions
of year the year during the at end begining during
year of year of year the year
--------------- -------------- -------------- ------------- --------------- ---------------
Adjusted NIS in thousands
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Consolidated:
- -------------
Building - leased out
(including land) 79,753 4,032 1,736 82,049 15,977 896
Land and buildings under
construction 39,198 23,716 62,914
Machinery and equipment 405 405 39
Office furniture and
equipment (including
computer) 49 32 81 11 11
------- ------- ------- ------- ------- -------
119,000 28,185 1,736 145,449 15,988 946
======= ======= ======= ======= =======
Less - building under
----
construction designated
for sale 24,284
-------
121,165
=======
The Company:
- ------------
Land and building under
construction 39,198 23,716 62,914
Machinery and equipment 405 405 39
Office furniture and
equipment (including
computer) 49 32 81 11 11
------- ------- ------- ------- -------
39,247 24,153 63,400 11 50
======= ======= ======= ======= =======
<CAPTION>
Accumulated depreciation
------------------------------ Depreciated
In respect of balance
retirements Balance December 31
during the at end ---------------------
year of year 1996 1995
--------------- --------------- ------------- ---------
Adjusted NIS in thousands
--------------------------------------------------------
<S> <C> <C> <C> <C>
Consolidated:
- -------------
Building - leased out
(including land) 634 16,239 65,810 63,776
Land and buildings under
construction 62,914 39,198
Machinery and equipment 39 366
Office furniture and
equipment (including
computer) 22 59 38
------- ------- ------- -------
634 16,300 129,149 103,012
======= ======= =======
Less - building under
----
304
<PAGE>
construction designated
for sale 24,284
-------
104,865
=======
The Company:
- ------------
Land and building under
construction 62,914 39,198
Machinery and equipment 39 366
Office furniture and
equipment (including
computer) 22 59 38
------- ------- -------
61 63,339 39,236
======= ======= =======
</TABLE>
305
<PAGE>
b. The companies' rights in real estate are as follows:
<TABLE>
<CAPTION>
Accumulated
Cost depreciation
--------------------- --------------------
December 31 December 31
--------------------- --------------------
1996 1995 1996 1995
--------------------- --------------------
Adjusted NIS Adjusted NIS
in thousands in thousands
--------------------- --------------------
<S> <C> <C> <C> <C>
The Company:
------------
Land jointly leased with another
company for 44 years ending
October 31, 2037 - the Company's
share - 70%(1) 19,108 8,450
Building under construction,
jointly owned with an
interested party and another
company - the Company's share -
33%(1)(2) 43,806 30,748
------- -------
T o t a l - the Company 62,914 39,198
--------- ------- -------
Merkazim:
---------
Buildings (including under
construction) on freehold land (3)33,836 29,820 2,832 2,670
Buildings jointly owned with
an interested party - Merkazim's
share - 50% 9,489 9,489 2,113 1,953
Buildings on land leased for
49 years ending March 24, 2022 -
80% of lease fees are capitalized 24,238 24,238 6,146 5,776
Buildings on land leased for
49 years ending March 31, 2022 -
80% of lease fees are capitalized 1,720 621
Buildings on land leased for
49 years ending March 31, 2025 -
80% of lease fees are capitalized 4,879 4,879 1,282 1,215
Buildings on land leased for
49 years ending March 31, 2021 9,607 9,607 3,866 3,742
------- ------- ------- -------
Total - Merkazim 82,049 79,753 16,239 15,977
----- ------- ------- ------- -------
Total - consolidated 144,963 118,951 16,239 15,977
----- ======= ======= ======= =======
</TABLE>
(1) As to commitments relating to continuation of construction, see note
7a(1) and (2).
(2) In February 1997, the Company entered into an agreement with an
interested party regarding sale of the Company's share in a building
under construction for approximately NIS 70 million. Since the
construction has not yet been completed and the eventual costs of
completion are not known, it is not possible to estimate the
anticipated capital gain the Company will derive from this
transaction.
306
<PAGE>
(3) Including a building under construction the cost of which is
adjusted NIS 24,284,000, an agreement for the sale of which adjusted
NIS 38 million was signed in December 1996. Since, at December 31,
1996, the conditions for the sale had not all been fulfilled, the
subsidiary has not yet recognized the gain on the sale -
approximately adjusted NIS 7 million. The building is presented as a
current asset in the balance sheet at December 31, 1996, net of the
advance received from the purchaser - adjusted NIS 9,459,000.
The registration of the Company's land in its name in the Land Registry has
not yet been completed.
The buildings of Merkazim are leased out for long periods (up to 8 years);
the lessees of some of these buildings have been granted a purchase option
realizable during, or at termination of, the lease period.
NOTE 6 - LONG TERM BANK LOANS:
- ------ ---------------------
a. The loans are linked to the Israeli CPI and bear interest at the
annual rate of 3.25%-4.4%.
b. The loans mature in the following years after the balance sheet
dates:
<TABLE>
<CAPTION>
Consolidated The Company
---------------------- --------------------
December 31 December 31
---------------------- --------------------
1996 1995 1996 1995
---------- ----------- ----------- --------
Adjusted NIS Adjusted NIS
in thousands in thousands
---------------------- --------------------
<S> <C> <C> <C> <C>
First year - current maturities 16,635 13,977 14,984 8,993
------- ------- ------- -------
Second year 18,207 19,858 16,820 14,875
Third year 19,889 14,302 18,501 9,320
Fourth year 6,332 23,426 4,944 18,443
Fifth year 6,332 9,907 4,944 4,924
Sixth year and thereafter
(through 2013) 73,505 65,412 54,336 59,096
------- ------- ------- -------
124,265 132,905 99,545 106,658
======= ======= ======= =======
140,900 146,882 114,529 115,651
======= ======= ======= =======
</TABLE>
c. As to pledges to secure the loans and limitations relating to them,
see note 7c.
307
<PAGE>
NOTE 7 - COMMITMENTS, CONTINGENT LIABILITIES, PLEDGES AND LIMITATIONS IN RESPECT
- ------ -----------------------------------------------------------------------
OF LIABILITIES:
---------------
a. Commitment:
-----------
1) In August 1994, the Company and a third party established a
joint venture for the erection of an industrial and commercial
building on jointly purchased land. The Company's share in the
joint venture is 70%. The estimated cost of the erection of
the building is approximately $ 10 million, see note 5b.
2) In 1994, the Company and an interested party acquired 50% of a
lot for the purpose of construction of an office building. The
Company's share in this land is 33%. The construction was
carried out as a joint venture between the parties. The
building was sold after December 31, 1996, see note 5b(2).
3) The Company is committed to invest approximately adjusted NIS
4,976,000 in a joint venture (see also note 3b(7)) with
interested parties and others (the Company's share is 10%).
The joint venture will acquire land for construction of
buildings for lease. The Company's share in the cost of the
buildings is approximately $ 30 million.
4) As to commitment to a related party with respect to land owned
by the subsidiary, New Horizon, see note 2b.
b. Contingent liabilities:
-----------------------
1) The Company and Merkazim have each provided guarantees to
secure the long-term bank loans of the other.
2) The Company has provided a guarantee to a bank to secure a
long-term loan received by Merkazim.
3) In June 1994, the Company received a land appreciation tax
assessment in the amount of approximately adjusted NIS 1.9
million in respect of Validor Hotel in Herzlia, held on lease
and sub-let to a bank which is an interested party (see also
note 10a). In management's opinion, based on the opinion of
its legal counsel and on negotiations with the land
appreciation tax authroties, the Company will not be subject
to the above land appreciation tax; consequently, no provision
has been made in respect of this matter.
4) In March 1995, a lawsuit for commission of approximately
adjusted NIS 598,000 in respect of acquisition of real estate
was brought against the Company. In management's opinion, this
suit is without merit, so that the Company will not incur any
expenses in respect thereof.
5) In view of the negotiations with the income tax authorities
regarding deductibility of interest expenses of a subsidiary,
a provision in the amount management, based on the opinion of
its legal and professional advisors, considers it is likely to
pay is included in the accounts. So far, the subsidiary has
not received tax assessments.
6) The Company has provided guarantees for 10% of the debts of an
associated Company to banks. The guarantee is limited to
adjusted NIS 97,530,000 ($ 30,000,000), see a(3) above.
308
<PAGE>
c. Pledge and limitations in respect of liabilities:
-------------------------------------------------
1) To secure repayment of long-term and short-term loans from a
bank in a total amount at Decmber 31, 1996 of adjusted NIS
105,479,000 - consolidated and adjusted NIS 79,107,000 - the
Company, the Company and Merkazim have undertaken the
following obligations towards the bank:
a) Any amount due the Company or Merkazim from their
investment in the associated company Mivnat will be
first used to repay the loans.
b) The Company's shareholders' equity will not fall below
adjusted NIS 60.9 million, the total consolidated
liabilities will not go over 3.25 times the
shareholders' equity and the annual net income will not
fall below an average of adjusted NIS 5.9 million for
the three preceding years.
2) Limitations similar to those mentioned in (1) (b) above, but
with different amounts, were also imposed on other
shareholders of Mivnat in respect of the loans they received.
If they do not uphold the limitations, the lenders will
consider it a breach of the terms of the loans by the Company
as well.
3) To further secure repayment of the loans, the Company and
Merkazim have mortgaged all their assets and rights in Mivnat.
4) As security for repayment of short-term bank loans received as
part of the bank's financial backing of construction of a
building, the Company has pledged its rights in the said
building, which is owned jointly with a company which is an
interested party and with another company. The balance of the
loans at December 31, 1996 is adjusted NIS 350,000.
5) As security for repayment of short-term bank loans received as
part of the bank's financial backing of construction of a
building, the Company has pledged its rights in the said
building. The balance of the loans at December 31, 1996 is
adjusted NIS 6,111,000.
NOTE 8 - SHARE CAPITAL
- ------ -------------
Composed at December 31, 1996 and 1995 as follows:
<TABLE>
<CAPTION>
Number of shares Amount in NIS
------------------- -----------------------
Issued Issued
and and
Authorized paid Authorized paid
---------- ------- ---------- --------
<S> <C> <C> <C> <C>
Ordinary shares of NIS 0.001
par value 160,000 100,000 160.0000 100.0000
======= ======= ======== ========
Deferred shares of NIS 0.0001
par value* 3 3 0.0003 0.0003
======= ======= ======== ========
</TABLE>
* The deferred shares confer upon their holders the right to
receive their par value upon liquidation of the Company.
309
<PAGE>
NOTE 9 - TAXES ON INCOME:
- ------ ----------------
a. Measurement of results for tax purposes under the Income Tax
------------------------------------------------------------
(Inflationary Adjustments) Law, 1985 (hereafter - the inflationary
------------------------------------------------------------------
adjustments law)
----------------
Under the inflationary adjustments law - results for tax purposes
are measured in real terms, in accordance with the changes in the
Israeli CPI. The Company and its Israeli subsidiaries are taxed
under this law.
b. Deferred income taxes:
----------------------
1) The Company creates deferred taxes in respect of the increase
in value of marketable securities. The amount of deferred
taxes presented among current liabilities at December 31, 1996
and 1995 is adjusted NIS 884,000 and adjusted NIS 1,106,000,
respectively.
2) Merkazim recognized deferred taxes in its accounts as a
non-current liability, in respect of fixed assets, as follows:
Consolidated
----------------
1996 1995
----- ------
Adjusted NIS
in thousands
----------------
Balance at beginning of year 1,053 927
Changes during the year -
recognized in statement of income 246 126
----- -----
Balance at end of year 1,299 1,053
===== =====
The provisions of Opinion 40 of the Israeli Institute, see c.
below, are taken into account in the above computation.
3) At December 31, 1996, Merkazim created deferred taxes in
respect of land appreciation tax paid in 1996 in relation to a
building under construction the gain on sale of which will be
recognized in 1997, (which are included under current assets),
see note 5b(3).
4) The deferred taxes are computed at the rate of 36%.
310
<PAGE>
c. Undepreciated balance of cost of fixed assets - the portion in
--------------------------------------------------------------
respect of which deferred taxes have not been provided
------------------------------------------------------
The balance of undepreciated cost of certain depreciable fixed
assets includes the amounts detailed below which will not be allowed
for tax purposes by way of depreciation or as cost upon realization
of the assets. These amounts are regarded as permanent differences
(in respect of which no deferred taxes are to be provided) in
accordance with Opinion 40 of the Israeli Institute:
Consolidated
----------------
1996 1995
----- ------
Adjusted NIS
in thousands
----------------
Balance at beginning of year 21,967 22,465
Decrease in the above balance due
to depreciation charge for the year (472) (498)
------- -------
Balance at end of year 21,495 21,967
======= =======
d. Taxes on income included in the income statements:
--------------------------------------------------
1) As follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
Adjusted NIS in thousands
--------------------------------
<S> <C> <C> <C>
Consolidated:
-------------
Current 10,318 3,797 611
Deferred, see also b. above (4,576) (561) 1,870
------- ------- -------
5,742 3,236 2,481
======= ======= =======
The Company:
------------
Current 5,095 3,244 34
Deferred, see also b. above (222) (687) 1,793
------- ------- -------
4,873 2,557 1,827
======= ======= =======
</TABLE>
Current taxes are computed at the tax rates applicable to companies:
1996 - 36%; 1995 - 37%; 1994 - 38%.
311
<PAGE>
2) Following is a reconciliation of the theoretical tax expense,
assuming all income is taxed at the regular tax rates
applicable to companies in Israel (see (1) above), and the
actual tax expense:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
Adjusted NIS in thousands
--------------------------------
<S> <C> <C> <C>
Consolidated:
- -------------
Income before taxes on income as reported in the
income statements 32,745 8,492 6,255
Less - share in profits of associated companies 10,477 3,254 4,002
---- ------- ------- -------
Balance - income 22,268 5,238 2,253
------- ======= ======= =======
Theoretical tax expense 8,016 1,938 856
Increase (decrease) in taxes resulting from permanent
differences - the tax effect:
Disallowable deductions 1,911 588 369
Taxes on dividends received from associated company 1,652 837 933
Tax exempt income - decrease in shareholding in associated
companies following issuance of their shares to a third party (6,767) (230) (19)
Sundry - net* 930 (63) 870
Increase in taxes in respect of inflationary deduction
and tax losses incurred in the reported year for which
deferred taxes were not provided 166
Decrease in taxes resulting from utilization, in
the reported year, of carryforward inflationary
deduction and tax losses for which deferred taxes
were not provided in previous years (528)
------- ------- -------
Taxes on income for the reported year 5,742 3,236 2,481
======= ======= =======
The Company:
- ------------
Income before taxes on income, as reported in the
income statements 31,876 7,813 5,601
Less - profits of subsidiaries and share in profits of associated
----
companies (1994 - net of losses of subsidiaries) 10,535 4,046 1,591
------- ------- -------
Balance - income 21,341 3,767 4,010
------- ======= ======= =======
Theoretical tax expense 7,683 1,394 1,524
Increase (decrease) in taxes resulting from permanent
differences - the tax effect:
Disallowable deductions 2,372 422
Taxes on dividends received from associated company 1,223 656 559
Tax exempt income - decrease in shareholding in associated
companies following issuance of their shares to a third party (6,767) (230) (19)
Sundry - net* 362 59 291
Increase in taxes in respect of inflationary deduction
and tax losses incurred in the reported year for which
deferred taxes were not provided 256
Decrease in taxes resulting from utilization, in the
reported year, of carryforward inflationary deduction
and tax losses for which deferred taxes were not
provided in previous years (528)
------- ------- -------
Taxes on income for the reported year 4,873 2,557 1,827
======= ======= =======
</TABLE>
* Resulting mainly from the difference in computation of linkage to the
Israeli CPI for financial statement and tax purposes.
312
<PAGE>
e. Tax liability relating to long-term lease of buildings
------------------------------------------------------
In March 1993, Merkazim notified the tax authorities that it has
leased buildings for a ten year period and that options to extend
the leases for a further ten year period or to purchase the property
at the end of the original lease period were granted to companies
related to the original lessees at the time of signing the leases.
The Company received a legal opinion stating that the above leases
are subject to income tax and not land appreciation tax. Merkazim
reported to the tax authorities on this basis.
Based on the abovementioned legal opinion, management of Merkazim is
of the opinion that no additional tax liability will arise in
respect of this matter.
f. Tax assessments
---------------
The Company has received final tax assessments through tax year
1984.
Maoz has received final tax assessments through tax year 1990. Ophir
Financing Ltd. has received final tax assessments through tax year
1987. Merkazim has received final tax assessments through tax year
1992. New Horizon has not been assessed for tax purposes since
incorporation.
NOTE 10 - TRANSACTIONS AND BALANCES WITH INTERESTED PARTIES AND RELATED PARTIES:
- ------- ----------------------------------------------------------------------
a. Transactions with interested parties and related parties:
---------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
Adjusted NIS in thousands
-------------------------------
<S> <C> <C> <C>
Income (expenses):
- ------------------
Consolidated:
-------------
Lease fees for buildings - from interested
parties (1) 3,032 2,967 2,938
====== ====== ======
Interest accrued on a capital note of an
associated company 170 255 530
====== ====== ======
Management fees from an associated company 1,116 951 693
====== ====== ======
General and administrative expenses:
Management fees to shareholders
(2 companies) (3) (4) (917) (921) (916)
====== ====== ======
Lease fees in respect of Validor
Hotel in Herzlia (1) (2) (154) (729) (995)
Less - income from sublease of the
----
above hotel to a bank - interested
party (1) (2) 154 729 995
------ ------ ------
-,- -,- -,-
====== ====== ======
Financial expenses - to a bank -
interested party - net (311) (131) (1)
====== ====== ======
</TABLE>
313
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
Adjusted NIS in thousands
---------------------------
<S> <C> <C> <C>
The Company:
- ------------
Interest accrued on a capital note of an
associated company 170 255 530
===== ===== ====
Management fees from a subsidiary and an
associated company 1,031 1,034 688
===== ===== ====
General and administrative expenses:
Lease fees in respect of Validor
Hotel in Herzlia (1) (2) (154) (729) (955)
Less - income from sublease of the above
----
hotel to a bank - interested party (1) (2) 154 729 955
----- ----- ----
-,- -,- -,-
===== ===== ====
Financial expenses - to a bank -
interested party - net (311) (131) (17)
===== ===== ====
</TABLE>
(1) In management's opinion, the lease fees are similar to those
generally prevailing for similar leases.
(2) See also note 7b(3).
(3) See note 1a(1).
(4) The management fees are paid at the end of each quarter in a fixed
amount linked to the Israeli CPI in accordance with a shareholders'
agreement.
b. Balances:
---------
1) Current receivables:
--------------------
a) Cash and cash equivalents in a bank which is an
interested party amount to adjusted NIS 28,000 and
adjusted NIS 874,000 at December 31, 1996 and
1995, respectively - consolidated and the Company.
b) Loans receivable from associated companies (the
-----------------------------------------------
Company - and from subsidiaries):
---------------------------------
At December 31, 1996 and 1995, the loans are
linked to the Israeli CPI and bear interest at the
annual rates of 0%-4%, and are composed as
follows:
<TABLE>
<CAPTION>
Consolidated The Company
--------------- ---------------
December 31 December 31
--------------- ---------------
1996 1995 1996 1995
---- ---- ---- ----
Adjusted NIS in thousands
-------------------------------------
<S> <C> <C> <C> <C>
Associated companies 8,989 8,312 8,989 8,312
Subsidiaries 41,694 45,606
----- ----- ------ ------
314
<PAGE>
8,989 8,312 50,683 53,918
===== ===== ====== ======
</TABLE>
315
<PAGE>
2) Capital notes from shareholders
-------------------------------
The capital notes are unlinked and bear annual interest of NIS 1.
The capital notes were repaid on January 1, 1997, therefore, they
are presented among current assets in the balance sheet at December
31, 1996.
3) Current liabilities:
--------------------
a) Short-term loans from shareholders
----------------------------------
The loans at December 31, 1996 and 1995 are linked to the
Israeli CPI and bear interest at the annual rate of 2.9% or
4%.
b) As to the land designated for building - jointly owned with an
interested party, see note 5.
c) As to investments in associated companies, some of which are
interested parties, see note 3.
d) As to investments in quoted shares of an interested party, see
note 12a.
316
<PAGE>
NOTE 11 - LINKAGE OF MONETARY BALANCES:
- ------- -----------------------------
a. As follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------------------------- ------------------------------------
In, or Linked to the In, or Linked to the
linked Israeli Unlinked linked Israeli Unlinked
to, the CPI to, the CPI
U.S. dollar U.S. dollar
----------- ------------- -------- ----------- ------------- ---------
Adjusted NIS in thousands Adjusted NIS in thousands
----------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Consolidated:
- -------------
Assets:
-------
Current assets:
Cash and cash equivalents 1,587 383 929
Short-term loans receivable from associated
companies 8,988 8,312
Short-term investments 5,222 7,708
Accounts receivable 417 2,762 294 427
Capital notes from shareholders (including
amount presented among current assets) 8,000 8,847
------- ------- ------- ------- -------
1,587 9,405 16,367 8,606 17,911
======= ======= ======= ======= =======
Liabilities:
------------
Current liabilities:
Short-term bank credit 25,531 19,133
Short-term loans from shareholders 34,894 28,749
Accounts payable and accruals 3 7,725 3,770 39 2,529
Payables in respect of acquisition of land -
business inventory 11,004
Long-term bank loans (including current
maturities) 140,900 146,882
------- ------- ------- ------- ------- -------
3 194,523 29,301 39 175,631 21,662
======= ======= ======= ======= ======= =======
</TABLE>
317
<PAGE>
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------------------------- ------------------------------------
In, or Linked to the In, or Linked to the
linked Israeli Unlinked linked Israeli Unlinked
to, the CPI to, the CPI
U.S. dollar U.S. dollar
----------- ------------- -------- ----------- ------------- ---------
Adjusted NIS in thousands Adjusted NIS in thousands
----------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
The Company:
- ------------
Assets:
-------
Current assets:
Cash and cash equivalents 1,587 373 905
Short-term loans receivable from associated
companies and from subsidiaries 50,683 53,918
Short-term investments 5,222 7,708
Accounts receivable 1,021 294 244
Capital notes from shareholders (including amount
presented among current assets) 8,000 8,847
------- ------- ------- ------- -------
1,587 50,683 14,616 54,212 17,704
======= ======= ======= ======= =======
Liabilities:
------------
Current liabilities:
Short-term bank credit 25,177 19,130
Short-term loans from shareholders 34,894 28,749
Accounts payable and accruals 3 63 3,770 28 940
Long-term bank loans (including current maturities) 114,529 115,651
------- ------- ------- ------- ------- -------
3 149,486 28,947 28 144,400 20,070
======= ======= ======= ======= ======= =======
</TABLE>
318
<PAGE>
b. Data regarding the exchange rate and the Israeli CPI:
-----------------------------------------------------
Exchange rate Israeli
of one U.S. CPI*
dollar
------------- -------------
At end of year:
---------------
1996 NIS 3.251 346.5 points
1995 NIS 3.135 313.3 points
1994 NIS 3.018 289.8 points
1993 NIS 2.986 253.2 points
Increase during the year:
-------------------------
1996 3.7% 10.6%
1995 3.9% 8.1%
1994 1.1% 14.5%
* Based on the index for the month ending on each balance sheet
date, on the basis of 1987 average = 100.
NOTE 12 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION:
- ------- ----------------------------------------------
Balance sheets:
---------------
<TABLE>
<CAPTION>
Consolidated The Company
--------------------------------------
December 31 December 31
--------------------------------------
1996 1995 1996 1995
---- ---- ---- ----
Adjusted NIS Adjusted NIS
in thousands in thousands
--------------------------------------
<S> <C> <C> <C> <C>
a. Short-term investments:
-----------------------
DSP Group, Inc. - quoted shares 5,126 7,566 5,126 7,566
Quoted shares of an interested
party 96 142 96 142
------ ------ ------ ------
5,222 7,708 5,222 7,708
====== ====== ====== ======
b. Accounts receivable:
--------------------
Associated companies 627 294 627 294
Other 2,552 427 394 244
------ ------ ------ ------
3,179 721 1,021 538
====== ====== ====== ======
c. Bank credit:
------------
Short-term credit* 25,531 19,133 25,177 19,130
Current maturities of long-term
loans, see note 6 16,635 13,977 14,984 8,993
------ ------ ------ ------
42,166 33,110 40,161 28,123
====== ====== ====== ======
</TABLE>
* The interest rate as at December 31, 1996 is 15.2%.
319
<PAGE>
d. Concentrations of credit risks
------------------------------
At December 31, 1996 and 1995, the group held cash and cash
equivalents in the total amount of adjusted NIS 1,970,000 and
adjusted NIS 929,000 respectively, all of which were deposited with
Israeli banks. Therefore the Company does not anticipate losses in
respect of these items.
e. Fair value of financial instruments
-----------------------------------
The financial instruments of the group consist of non-derivative
assets: cash and cash equivalents, short-term loans granted to
associated companies, short-term investments accounts receivable,
capital notes from shareholders and non-derivative liabilities:
short-term bank credit, short-term loans from shareholders, accounts
payable and accruals, payables in respect of acquisition of land -
business inventory and long-term bank loans. In view of their
nature, the fair value of financial instruments included in the
working capital of the group is usually identical or close to their
carrying value. The fair value of long-term bank loans also
approximates the carrying value, since they bear interest at rates
close to prevailing market rates.
Income statements
-----------------
f. Financial expenses - include financial expenses in respect of
------------------
long-term loans, as follows:
December 31
------------------------
1996 1995 1994
---- ---- ----
Adjusted NIS in thousands
-------------------------
Consolidated 6,008 5,888 6,062
===== ===== =====
The Company 4,852 4,635 4,003
===== ===== =====
320
<PAGE>
NOTE 13 - NOMINAL DATA OF THE COMPANY:
- ------- ----------------------------
a. Balance sheet data:
-------------------
Nominal NIS
in thousands
----------------
December 31
----------------
1996 1995
---- ----
Assets
------
Current assets:
---------------
Cash and cash equivalents 1,960 818
Short-term loans receivable from associated
companies and subsidiaries 50,683 48,756
Short-term investments 5,222 6,970
Accounts receivable 1,021 487
Capital notes from shareholders 8,000
------- -------
66,886 57,031
------- -------
Investments:
------------
Associated companies 139,557 *121,989
Other companies 8,213 7,793
Capital notes from shareholders 8,000
------- -------
147,770 137,782
------- -------
Fixed assets, net of accumulated depreciation 59,140 33,508
------------ ======= =======
273,796 228,321
======= =======
Liabilities and shareholders' equity
------------------------------------
Current liabilities:
--------------------
Bank credit 40,161 25,431
Short-term loans from shareholders 34,894 25,997
Accounts payable and accruals 3,971 875
Deferred income taxes 884 1,000
------- -------
79,910 53,303
------- -------
Long-term liabilities:
----------------------
Bank loans (net of current maturities) 99,545 96,447
Excess of Company share in losses of subsidiaries
over the investment therein 26,304 22,210
------- -------
125,849 118,657
======= =======
T o t a l liabilities 205,759 171,960
--------- ------- -------
Shareholders' equity, see c. below 68,037 *56,361
--------------------- ------ -------
------- -------
273,796 228,321
======= =======
* Restated, see note 1m.
321
<PAGE>
b. Operating results data:
-----------------------
<TABLE>
<CAPTION>
Nominal NIS in thousands
-------------------------------
1996 1995 1994
------ ----- ------
<S> <C> <C> <C>
Revenues and gains:
-------------------
Share in profits of associated companies - net 7,723 **2,177 684
Gain on dilution of holding in associated companies
resulting from sale and issuance of shares to a
third party - net 18,356 1,160
Gain from increase in value of quoted shares, which
were stated at cost in the past 5,443
Gain from sale and increase in value of investments
in associated companies 12,883
Gain from sale and increase in value of quoted
shares - net 8,078 13
Dividend received from another company 104 241
Management fees from associated companies and
from a subsidiary 994 896 555
------- ------- -------
40,060 12,552 6,695
------- ------- -------
Expenses and losses:
--------------------
Losses of subsidiaries - net 4,082 2,353 15,749
Loss on dilution of holding in an associated
company resulting from issuance of shares
to a third party - net 30
Write-down of investment in other companies 2,500 1,000
General and administrative expenses 432 316 405
Loss from decrease in value of quoted shares 1,748
Financial expenses - net 14,622 10,315 3,007
------- ------- -------
23,384 13,984 19,191
======= ======= =======
Income (loss) before taxes on income 16,676 (1,432) (12,496)
------------------------------------
Taxes on income 5,000 2,500 1,500
--------------- ------- ------- -------
Net income (loss) for the year - nominal 11,676 (3,932) (13,996)
------------------------------ ======= ======= =======
</TABLE>
c. Changes in shareholders' equity:
--------------------------------
<TABLE>
<CAPTION>
Nominal NIS in thousands
-----------------------------------------------
Share Capital Retained
capital surplus earnings Total
----------- ----------- ------------ --------
<S> <C> <C> <C> <C>
Balance at January 1, 1994 * 31,084 43,205 74,289
--------------------------
Changes during 1994 - loss (13,996) (13,996)
-------------------------- --------- ------- ------- -------
Balance at December 31, 1994 * 31,084 29,209 60,293
----------------------------
Changes during 1995 - loss **(3,932) **(3,932)
-------------------------- --------- ------- ------- -------
Balance at December 31, 1995 * 31,084 25,277 56,361
----------------------------
Changes during 1996- net income 11,676 11,676
------------------------------- --------- ------- ------- -------
Balance at December 31, 1996 * 31,084 36,953 68,037
---------------------------- ========= ======= ======= =======
</TABLE>
322
<PAGE>
* Represents an amount less than nominal NIS 1,000.
** Restated, see note 1m.
323
<PAGE>
NOTE 14 - SPECIAL CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
- ------- ----------------------------------------------------
a. General:
--------
1) As stated in note 1b, the primary financial statements
of the Company are drawn up in Israeli currency adjusted
for the changes in the Israeli CPI.
For incorporation in the financial statements of the
Company's U.S. shareholder, Ampal-American Israel
Corporation ("Ampal"), the Company also prepared these
special condensed consolidated financial statements
(hereafter - the special statements), see below.
2) Through December 31, 1992, Ampal translated the nominal
Israeli currency data of the Company on the basis of
which the primary financial statements were prepared
into dollars for the purpose of inclusion in its
financial statements. The translation was made in
accordance with the principles of remeasurement set
forth in Statement No. 52 of the Financial Accounting
Standards Board of the United States ("FASB") for
entities operating in a highly inflationary economy.
The rate of inflation in Israel has decreased
considerably in recent years. In view of the above, in
1993, Ampal decided that translation into dollars should
be made in accordance with the principles applicable to
economies no longer considered highly inflationary.
3) These special statements have been prepared for the
purpose of translation into dollars and inclusion in the
Ampal consolidated financial statements in accordance
with instructions of Ampal, as follows:
(a) The special statements are drawn up in Israeli
currency (NIS) terms.
(b) For determining the applicable Israeli currency
balances as of January 1, 1993, non-monetary
assets and shareholders' equity items at December
31, 1992 were remeasured into dollars and
translated into Israeli currency at the dollar
exchange rate as of that date ($1 = NIS 2.764).
(c) Transactions that took place after January 1, 1993
are reflected in the special statements in their
original nominal NIS values.
(d) The financial data of associated companies, the
financial statements of which are drawn up in
dollars, were translated into Israeli currency at
the exchange rate at December 31 of each year.
4) For the convenience of Ampal, these special statements
have been translated into dollars in accordance with the
principles set forth in Statement No. 52 of the FASB.
324
<PAGE>
b. Following are the special statements:
1) Consolidated balance sheets at December 31, 1996 and 1995:
----------------------------------------------------------
<TABLE>
<CAPTION>
Translated into
U.S. dollars,
New Israeli shekels see a(4) above
------------------- -----------------
December 31 December 31
------------------- -----------------
1996 1995 1996 1995
-------- -------- -------- --------
In thousands In thousands
-------------------- ------- ------------
<S> <C> <C> <C> <C>
Assets
------
Current assets:
- ---------------
Cash and cash equivalents 1,970 840 606 268
Short-term loans receivable from
associated companies 8,988 7,516 2,765 2,398
Short-term investments 5,222 6,970 1,606 2,223
Accounts receivable 3,179 652 978 208
Building under construction, net of
advances from purchaser 10,465 3,219
Capital notes from shareholder 8,000 2,461
Deferred income taxes 4,600 1,415
------- ------- ------- -------
42,424 15,978 13,050 5,097
------- ------- ------- -------
Investments:
- ------------
Associated companies 171,594 *154,291 52,782 *49,216
Other companies 8,213 7,793 2,526 2,486
Capital notes from shareholders 8,000 2,552
------- ------- ------- -------
179,807 170,084 55,308 54,254
------- ------- ------- -------
Fixed assets, net of accumulated depreciation 82,259 61,192 25,303 19,519
- ------------ ======= ======= ======= =======
304,490 247,254 93,661 78,870
======= ======= ======= =======
Liabilities and shareholders' equity
------------------------------------
Current liabilities:
- --------------------
Bank credit 42,166 29,940 12,970 9,551
Short-term loans from shareholders 34,894 25,997 10,733 8,293
Accounts payable and accruals 11,644 2,322 3,580 741
Payables in respect of acquisition of
land - business inventory 11,004 3,385
Deferred income taxes 884 1,000 272 319
------- ------- ------- -------
100,592 59,259 30,940 18,904
------- ------- ------- -------
Long-term liabilities:
- ----------------------
Bank loans (net of current maturities) 124,265 120,181 38,223 38,335
Deferred income taxes 7,947 1,799 2,447 574
------- ------- ------- -------
132,212 121,980 40,670 38,909
======= ======= ======= =======
Total liabilities 232,804 181,239 71,610 57,813
-----------------
Shareholders' equity 71,686 *66,015 22,051 *21,057
- -------------------- ------- ------- ------- -------
304,490 247,254 93,661 78,870
======= ======= ======= =======
</TABLE>
* Restated, see note 1m.
325
<PAGE>
2) Consolidated income statements for 1996, 1995 and 1994:
-------------------------------------------------------
<TABLE>
<CAPTION>
Translation into U.S. dollars
New Israeli shekels see a(4) above
------------------------------- --------------------------------
1996 1995 1994 1996 1995 1994
------ ------ ------ ------ ------ ------
In thousands In thousands
-------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues and gains:
- -------------------
From lease of buildings 5,072 4,453 4,196 1,591 1,438 1,397
Share in profits of associated
companies - net 9,773 *2,774 1,601 2,264 *169 919
Gain on dilution of holding in
an associated companies resulting
from sale and issuance of shares
to a third party - net 30,395 1,160 9,536 385
Gain from increase in value of
quoted shares, which were
stated at cost in the past 5,443 1,808
Gain from sale and increase in
value of quoted shares - net 8,078 13 2,682 4
Dividend received from another
company 104 241 33 80
Management fees from
associated companies 1,074 100 559 337 33 186
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
46,418 16,806 11,812 13,761 4,787 4,314
------- ------- ------- ------- ------- -------
Expenses and losses:
- --------------------
Depreciation of buildings 15 349 5 116
Loss from decrease in value of
quoted shares 1,748 549
Loss on dilution of holding in
an associated company resulting
from issuance of shares to
a third party - net 30 10
Write-down of investment in
other companies 2,500 1,000 784 331
General and administrative expenses 2,100 1,477 1,561 659 490 518
Financial expenses - net 22,762 16,008 21,709 7,141 5,327 7,210
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
29,110 18,500 23,649 9,133 6,153 7,854
======= ======= ======= ======= ======= =======
Income (loss) before taxes on income 17,308 (1,694) (11,837) 4,628 (1,366) (3,540)
- ------------------------------------
Taxes on income (11,637) (3,000) (1,946) (3,651) (953) (646)
- --------------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Loss for the year 5,671 (4,694) (13,783) 977 (2,319) (4,186)
- ----------------- ======= ======= ======= ======= ======= =======
</TABLE>
* Restated, see note 1m.
326
<PAGE>
3) Statements of changes in shareholders' equity for the years ended
-----------------------------------------------------------------
December 31, 1996, 1995 and 1994:
---------------------------------
<TABLE>
<CAPTION>
New Israeli shekels
-------------------------------------------------------
Share Share Retained
capital premium earnings Total
--------- --------- ---------- -------
In thousands
-------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1994 434 31,220 52,838 84,492
--------------------------
Changes during 1994 - loss (13,783) (13,783)
------------------- ------- ------- ------- -------
Balance at December 31, 1994 434 31,220 39,055 70,709
----------------------------
Changes during 1995 - loss *(4,694) *(4,694)
-------------------------- ------- ------- ------- -------
Balance at December 31, 1995 434 31,220 34,361 66,015
----------------------------
Changes during 1996 - net income 5,671 5,671
-------------------------------- ------- ------- ------- -------
Balance at December 31, 1996 434 31,220 40,032 71,686
---------------------------- ======= ======= ======= =======
</TABLE>
* Restated, see note 1m.
<TABLE>
<CAPTION>
Translated into U.S. dollars, see a(4) above
---------------------------------------------------------------------
Share Share Retained Translated Total
capital premium earnings differences
----------- ------------- ---------------------------- --------------
In thousands
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 157 10,477 17,537 (532) 27,639
--------------------------
Changes during 1994:
--------------------
Loss (4,186) (4,186)
Translation differences (24) (24)
------- ------- ------- ------- -------
Balance at December 31, 1994 157 10,477 13,351 (556) 23,429
----------------------------
Changes during 1995:
--------------------
Loss *(2,319) *(2,319)
Translation differences (53) (53)
------- ------- ------- ------- -------
Balance at December 31, 1995 157 10,477 11,032 (609) 21,057
----------------------------
Changes during 1996:
--------------------
Net income 977 977
Translation differences 17 17
------- ------- ------- ------- -------
Balance at December 31, 1996 157 10,477 12,009 (592) 22,051
---------------------------- ======= ======= ======= ======= =======
</TABLE>
* Restated, see note 1m.
327
<PAGE>
4) Reconciliation of nominal/historical net income and
---------------------------------------------------
shareholders' equity under Israeli generally accepted
-----------------------------------------------------
accounting principles (GAAP) to U.S. GAAP:
------------------------------------------
<TABLE>
<CAPTION>
New Israeli shekels
----------------------------------
1996 1995 1994
-------- -------- --------
In thousands
----------------------------------
<S> <C> <C> <C>
(a) Net income (loss) for the year:
-------------------------------
Net income (loss) - historical/nominal
amount (see note 13) 11,676 *(3,932) (13,996)
------- -------- -------
Reconciliation to U.S. GAAP - effect of
application of principles applicable
to economies no longer considered
highly inflationary:
Depreciation (405) (384) (339)
Share in profits of associated companies 1,193 (378) 552
Deferred income taxes (6,793)
------- -------- -------
(6,005) (762) 213
======= ======== =======
Net income (loss) for the year, as per (2) above 5,671 *(4,694) (13,783)
======= ======== =======
(b) Shareholders' equity at December 31, 1996,
------------------------------------------
1995 and 1994:
--------------
Shareholders' equity - historical/ nominal
amount (see note 13) 68,037 *56,361 60,293
Reconciliation to U.S. GAAP:
Effect, at beginning of year, of application
of principles applicable to economies no
longer considered highly inflationary 9,654 10,416 10,203
Effect of reconciliation of net income for the
year to U.S. GAAP (see(a) above) (6,005) (762) 213
------- -------- -------
Shareholders' equity, as per (3) above 71,686 66,015 70,709
======= ======== =======
</TABLE>
* Restated, see note 1m.
---------------
-------------------------
---------------
328
<PAGE>
ORLITE INDUSTRIES (1959) LTD
FINANCIAL STATEMENTS
at 31 December 1996
329
<PAGE>
ORLITE INDUSTRIES (1959) LTD
FINANCIAL STATEMENTS
at 31 December 1996
In New Israeli Shekels adjusted to December 1996
CONTENTS
Page
----
Auditors' Report 331
Balance Sheets 332
at 31 December 1996 and 1995
Statements of Income
for the years 1996, 1995 and 1994 333
Statement of Changes in Shareholders' Equity
for the three years ended 31 December 1996 334
Statements of Cash Flows
for the years 1996, 1995 and 1994 335
Notes to the Financial Statements 337-349
Statements in Nominal Amounts 350-352
330
<PAGE>
Certified Public Accountants
27-29 Hamered St. P.O. Box 50180 Tel: 972-3-5140808
68125 Tel-Aviv 61500 Tel-Aviv 972-3-5192555
Israel Israel Fax: 972-3-5101918
972-3-5175280
AUDITORS' REPORT TO THE SHAREHOLDERS OF
ORLITE INDUSTRIES (1959) LTD
We have audited the balance sheets of Orlite Industries (1959) Ltd (hereinafter
- - the Company) at 31 December 1996 and 1995 and the related statements of
income, shareholders' equity and cash flows for each of the three years ended 31
December 1996, 1995 and 1994, expressed in New Israeli Shekels (hereinafter
NIS). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed under the Auditors Regulations (Auditor's
Mode of Performance), 1973, and, accordingly we have performed such auditing
procedures as we considered necessary in the circumstances. For purposes of
these financial statements there is no material difference between generally
accepted Israeli auditing standards and auditing standards generally accepted in
the US These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The above statements have been prepared on the basis of historical cost as
adjusted for the changes in the general purchasing power of the Israeli currency
in accordance with opinions issued by the Institute of Certified Public
Accountants in Israel.
In our opinion, based on our audit, the above mentioned financial statements
present fairly the financial position of the Company at 31 December 1996 and
1995 and the results of its operations, the changes in shareholders' equity and
cash flows for each of the three years ended 31 December 1996, 1995 and 1994, in
conformity with accounting principles generally accepted in Israel, consistently
applied.
Also, in our opinion, based on our audit, the financial statements of the
company, on the basis of historical cost convention, present fairly the
financial position of the Company at 31 December 1996 and 1995 and the results
of its operations, the changes in shareholders' equity for each of the three
years ended 31 December 1996, 1995 and 1994, in conformity with accounting
principles generally accepted in Israel, consistently applied.
Accounting principles generally accepted in Israel differ in certain respects
from accounting principles generally accepted in the United States. The
application of the latter would have affected the determination of historical
net income and shareholders' equity to the extent summarized in Note 19 to the
financial statements.
These financial statements have been prepared in accordance with the Securities
Regulations (Preparation of Financial Statements), 1993.
/s/Braude Bavly
BRAUDE BAVLY CPA
24 February 1997
331
<PAGE>
ORLITE INDUSTRIES (1959) LTD
BALANCE SHEETS
AT 31 DECEMBER 1996 and 1995
In NIS adjusted to December 1996
<TABLE>
<CAPTION>
31 December
Note 1996 1995
<S> <C> <C> <C>
Current assets
Cash and cash equivalents 3 1,527,850 11,723,988
Short-term deposits 4 14,942,577 --
Trading securities 6,214,942 296,185
Accounts receivable - customers 5 10,966,965 15,374,566
Inventories and work in process, net of
customers' process payments 6 5,985,261 7,505,858
Debtors and debit balances 7 401,173 811,266
---------- ----------
40,038,768 35,711,863
---------- ----------
Severance pay fund, net of severance pay provision 8 44,200 455,068
---------- ----------
Investments and long-term receivables 9 1,827,177 1,509,731
---------- ----------
Long-term deposits -- 14,800,837
---------- ----------
Property, plant and equipment 10 30,824,667 25,129,916
---------- ----------
---------- ----------
72,734,812 77,607,415
========== ==========
Current liabilities
Current maturities of long-term loans 770,106 780,196
Suppliers, employees and others 11 7,983,136 13,467,722
Advances from customers 6 1,383,146 4,292,613
---------- ----------
10,136,388 18,540,531
---------- ----------
Long-term loans 12 310,213 1,115,750
---------- ----------
Deferred income taxes, net 18B 2,250,000 2,543,509
---------- ----------
Shareholders' equity
Share capital 13 28,219,732 28,219,732
Share premium 16,475,998 16,475,998
Capital fund 532,667 532,667
Retained earnings 14,809,814 10,179,228
---------- ----------
60,038,211 55,407,625
---------- ----------
---------- ----------
72,734,812 77,607,415
========== ==========
</TABLE>
/s/Uri Levitt /s/Shimon Shaham
------------------------- --------------------------
Uri Levitt Shimon Shaham
Chairman of the Board General Manager
Date of approval of the financial statements - 24 February 1997
The accompanying notes are an integral part of the financial statements
332
<PAGE>
ORLITE INDUSTRIES (1959) LTD
STATEMENTS OF INCOME
For the years 1996, 1995 and 1994
In NIS adjusted to December 1996
<TABLE>
<CAPTION>
Note 1996 1995 1994
<S> <C> <C> <C> <C>
Sales
Local 63.731,692 78,781,043 72,911,606
Export 1,825,345 1,349,952 677,847
----------- ----------- -----------
65,557,037 80,130,995 73,589,453
Cost of sales 14 52,964,715 61,376,098 55,176,500
----------- ----------- -----------
Gross profit 12,592,322 18,754,897 18,412,953
----------- ----------- -----------
Selling and marketing expenses 15 2,244,910 2,355,028 2,739,064
General and administrative expenses 16 4,432,633 4,494,258 4,971,735
----------- ----------- -----------
6,677,543 6,849,286 7,710,799
----------- ----------- -----------
----------- ----------- -----------
Income from ordinary operations 5,914,779 11,905,611 10,702,154
----------- ----------- -----------
Financing income (expenses), net 879,400 136,826 36,791
Gain (loss) from trading securities 426,848 2,973 (2,957,579)
----------- ----------- -----------
1,306,248 139,799 (2.920,788)
----------- ----------- -----------
----------- ----------- -----------
Income from operations after financing income 7,221,027 12,045,410 7,781,366
Gain (loss) from other income 17 (30,127) 79,557 4,413
----------- ----------- -----------
Income from operations before taxes on income 7,190,900 12,124,967 7,785,779
Taxes on income 18 2,616,654 5,094,250 4,214,060
----------- ----------- -----------
Net income after taxes on income 4,574,246 7,030,717 3,571,719
----------- ----------- -----------
Company's share in net income
(losses) of an affiliated company 261,830 (91,389) (597,744)
Amortization of the debit differential of an
affiliated company (205,490) -- --
----------- ----------- -----------
56,340 (91,389) 597,744
=========== =========== ===========
Net income for the year 4,630,586 6,939,328 2,973,975
=========== =========== ===========
Income for NIS I par value of share capital
Net income for the year 0.37 0.57 0.25
=========== =========== ===========
Number of shares for calculation
of income per share 13 12,085,000 12,085,000 12,085,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
333
<PAGE>
ORLITE INDUSTRIES (1959) LTD
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE YEARS ENDED 31 DECEMBER, 1996
In NIS adjusted to December 1996
<TABLE>
<CAPTION>
Share Share Capital Retained
capital premium fund earnings Total
<S> <C> <C> <C> <C> <C>
Balance at 1 January 1994 23,327,038 6,552,757 -- 7,195,408 37,075,203
Conversion of options
into share capital 4,892,694 9,923,241 -- -- 14,815,935
Bonus shares to employees 532,667 -- 532,667
Net income for the year - 1994 -- -- 2,973,975 2,973,975
Dividend paid -- -- -- (3,611,871) (3,611,871)
---------- ---------- ------- ---------- ----------
Balance at 1 January 1995 28,219,732 16,475,998 532,667 6,557,512 51,785,909
Net income for the year - 1995 -- -- -- 6,939,328 6,939,328
Dividend paid -- -- -- (3,317,612) (3,317,612)
---------- ---------- ------- ---------- ----------
Balance at 1 January 1996 28,219,732 16,475,998 532,667 10,179,228 55,407,625
Net income for the year - 1996 -- -- -- 4,630,586 4,630,586
---------- ---------- ------- ---------- ----------
Balance at 31 December 1996 28,219,732 16,475,998 532,667 14,809,814 60,038,211
========== ========== ======= ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements
334
<PAGE>
ORLITE INDUSTRIES (1959) LTD
STATEMENTS OF CASH FLOWS
FOR THE YEARS 1996, 1995 AND 1994
In NIS adjusted to December 1996
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities
Net income 4,630,586 6,939,328 2,973,975
Adjustments required to reflect the cash flows
from operating activities (schedule) * 891,004 (1,626,768) 8,204,265
------------ ---------- ------------
Net cash provided by operating activities 5,521,590 5,312,560 11,178,240
------------ ---------- ------------
Cash flows from investment activities
Short-term deposits - 7,613,049 (4,705,274)
Trading securities, net (5,692,633) 8,404,887 1,397,691
Long-term deposits - - (14,409,498)
An affiliated company - 709,193 (2,929,896)
Limited partnership (243,825) - -
Acquisition of property, plant
and equipment (9,142,263) (6,255,156) (2,515,690)
Realization of property, plant
and equipment 191,384 150,755 46,481
------------ ---------- ------------
Net cash provided by (used in) investment
activities (14,887,337) 10,622,728 (23,116,186)
------------ ---------- ------------
Cash flows from financing activities
Dividend paid - (6,929,483) -
Proceeds from exercise of option notes - - 14,815,935
Repayment of long-term loans (830,391) (868,192) (765,911)
------------ ---------- ------------
Net cash provided by (used in) financing
activities (830,391) (7,797,675) 14,050,024
------------ ---------- ------------
Increase (decrease) in cash
and cash equivalents (10,196,138) 8,137,613 2,112,078
Balance of cash and cash equivalents
at the beginning of the year 11,723,988 3,586,375 1,474,297
------------ ---------- ------------
Balance of cash and cash equivalents
at the end of the year 1,527,850 11,723,988 3,586,375
=========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
335
<PAGE>
ORLITE INDUSTRIES (1959) LTD
STATEMENTS OF CASH FLOWS
For the years 1995, 1994 and 1993
In NIS adjusted to December 1995
Schedule - Adjustments required to reflect the cash flow from operating
activities
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Income and expenditures not involving cash flow:
Depreciation 3,259,708 3,187,605 2,708,024
Liabilities for employee rights upon retirement 410,868 (31,035) 203,618
Loss (gain) from trading securities (226,124) 9,101 3,132,205
Capital gain from realization of fixed assets (3,580) (79,557) (4,413)
Increase (decrease) in deferred taxes (293,509) (66,064) 317,775
Company's share in net income (losses) of an
affiliated company 261,830) 91,389 597,744
Amortization of the debit differential of an
affiliated company 205,490 -- --
Erosion of investment in an affiliated company -- 132,701 243,633
Interest on loan to an affiliated company (17,281) -- --
Revaluation of long-term deposits (141,740) (33,825) (357,513)
Devaluation (erosion) of long-term loans 14,764 49,232 (121,553)
Bonus shares, to employers - capital fund -- -- 532,667
Changes in operating assets and liability items:
Decrease (increase) in customers 4,407,601 (1,837,812) (3,229,369)
Decrease (increase) in debtors and debit balances 410,093 (231,931) (458,286)
Increase in work in process 2,124,538 20,190 18,550
Decrease (increase) in inventory of raw
materials and parts (816,867) 136,893 (875,185)
Increase (decrease) in customers advances (2,696,541) (5,087,509) 4,687,017
Increase (decrease) in suppliers (2,688,132) 680,926 455,065
Increase (decrease) in other creditors (2,796,454) 1,432,928 354,286
---------- ---------- ----------
891,004 (1,626,768) 8,204,265
========== ========== ==========
</TABLE>
336
<PAGE>
ORLITE INDUSTRIES (1959) LTD
NOTES TO THE FINANCIAL STATEMENTS
In NIS
NOTE 1 Adjusted Financial Statements
a. General
The financial statements have been prepared on the basis of
historical cost adjusted to reflect the changes in the general
purchasing power of Israeli currency, in accordance with Opinions
of the Institute of Certified Public Accountants in Israel.
All figures in the financial statements (including comparative
figures) are presented in adjusted New Israeli Shekels (NIS)
which have a uniform purchasing power (December 1996 adjusted
NIS), based upon the changes in the consumer price index
(hereinafter - CPI or index).
The adjustment of the financial statements is based on the
accounts of the company, maintained in nominal NIS.
The adjusted amounts of non-monetary assets do not necessarily
represent realization value or current economic value but only
the original historical values, adjusted to reflect the changes
in the general purchasing power of Israeli currency. In these
financial statements, the term "cost" signifies cost in adjusted
Israeli currency.
b. Rules of adjustments
The components of the income statement were, for the most part,
adjusted as follows:
o Components relating to transactions carried out during the
year--sales, purchases, labour costs, etc, were adjusted on
the basis of the index for the month in which the
transaction was carried out.
o Components relating to non-monetary balance sheet items
(mainly changes in inventories, work in process and
depreciation) were adjusted on the same basis as the related
balance sheet item.
o The financing component represents financing income and
expenses in real terms and the erosion of balances of
monetary items during the year.
c. Exchange rates and adjustments to the CPI
The amounts in adjusted NIS reflect the changes in the general
purchasing power of Israeli currency during December 1996 and are
adjusted to the index published on 15 January 1997.
337
<PAGE>
ORLITE INDUSTRIES (1959) LTD
NOTES TO THE FINANCIAL STATEMENTS
In NIS
NOTE 1 Adjusted Financial Statements (Continued)
c. Exchange rates and adjustments to the CPI (Continued)
Below are the data of the exchange rates of the US dollar, the
German mark at the end of the month and the index for the month
and changes during the year:
Exchange rates
US German
Dollar Mark Index
NIS NIS Points
December
1996 3.251 2.097 143.1
1995 3.135 2.188 129.4
1994 3.018 1.949 119.7
1993 2.986 1.737 104.6
Changes during the year % % %
1996 3.7 (4.2) 10.6
1995 3.9 12.3 8.1
1994 1.1 12.2 14.4
NOTE 2 Significant Accounting Policies
a. Cash and cash equivalents
Cash and cash equivalents include short-term deposits which do
not exceed three months from the time of the deposit.
b. Short-term investments - trading securities
These securities are stated at market value.
c. Inventories
Inventories are valued at cost not exceeding market value. Cost
is determined on the moving average basis.
d. Work in process
Work in process includes the adjusted cost of materials and of
other operation expenditure (wages, fringe and social benefits,
manufacturing cost, depreciation, etc) relating to work not yet
sold or supplied. In work, adjusted cost of which (including the
expected cost), exceeds its realization value, the excess cost is
currently charged to the related item in the statement of income.
The realization value is calculated on the basis of the order
price, taking into consideration the rate of performance process
of each work, separately.
e. Property, plant and equipment
1) These assets are stated at cost, net of accumulated
depreciation. The assets are depreciated by the
straight-line method, on the basis of their estimated useful
life.
338
<PAGE>
ORLITE INDUSTRIES (1959) LTD
NOTES TO THE FINANCIAL STATEMENTS
In NIS
NOTE 2 Significant Accounting Policies (Continued)
e. Property, plant and equipment (Continued)
2) The company's policy is to record long-lived assets at cost,
amortizing these costs over the expected useful life of the
related assets. In accordance with Statement of Financial
Accounting Standards No 121 ("SFAS 121") "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets
to be Disposed Of", these assets are reviewed on a quarterly
and annual basis for impairment whenever events or changes
in circumstances indicate that the carrying amounts of the
assets may not be reasonable. Furthermore, the assets are
evaluated for continuing value and proper useful lives by
comparison to expected future cash flows. For the year ended
31 December 1996, the adoption of SFAS 121 did not have a
material effect on the company.
f. Affiliated company
Investment in an affiliated company is presented on the basis of
the equity method.
g. Revenue recognition
Sales of work are recorded when completed and delivered and as
costs sales are recorded as costs of related work. The company
also records as sales, partial deliveries of long-term work. The
cost of partial deliveries of this kind of work, is determined
according to the engineering and cost accounting computations of
the company; their sales value is determined by the rate of the
delivered goods to the total goods ordered.
h. Deferred taxes
Deferred taxes are computed in respect of differences between the
amounts presented in these statements and those taken into
account for tax purposes.
Deferred tax balances are computed at the tax rate expected to be
in effect at the time of release to income from the deferred tax
accounts. The amount of deferred taxes presented in the income
statement reflects changes in the above balances during the year.
i. Net income per NIS 1 of par value of shares
Net income per NIS 1 is computed in accordance with Opinions of
the Institute of Certified Public Accountants in Israel.
NOTE 3 Cash and Cash Equivalents
Comprise:
Interest Rate December 31
% 1996 1995
Bank - current account 15,443 105,827
Short-term deposits, unlinked 13 1,512,407 11,618,161
---------- ----------
1,527,850 11,723,988
========== ==========
339
<PAGE>
ORLITE INDUSTRIES (1959) LTD
NOTES TO THE FINANCIAL STATEMENTS
In NIS
NOTE 4 Short-Term Deposits
Deposits with banks, linked to the index, bearing interest of 3% -
3.24% p.a. and for redemption in 1997.
NOTE 5 Accounts Receivable - Customers
a. Comprise:
31 December
1996 1995
Customers -In NIS 10,045,653 14,252,337
-In Foreign Currency 215,200 422,911
Checks receivable 706,112 699,318
---------- ----------
10,966,965 15,374,566
========== ==========
b. Major customers:
Customer A 3,034,953 7,794,832
Customer B 4,781,582 3,903,869
c. The company normally extends credit to customers from one to
three months.
NOTE 6 Inventories and Advances from Customers
Comprise:
31 December
1996 1995
Total inventories 7,285,261 8,592,932
========== ==========
Total advances from customers (2,683,146) (5,379,687)
========== ==========
<TABLE>
<CAPTION>
Current Assets Current Liabilities
31 December
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Inventory parts and material 5,554,378 4,8961,028
Work-in-process 1,474,591 3,349,935
Advance to suppliers for inventory 256,292 381,969
---------- ----------
7,285,261 8,592,932
Less - advances from customers (1,300,000) (1,087,074)
---------- ----------
5,985,261 7,505,858
========== ==========
Advances from customers received against
goods ordered and costs have not yet been
invested
(1,383,146) (4,292,613)
========== ==========
</TABLE>
340
<PAGE>
ORLITE INDUSTRIES (1959) LTD
NOTES TO THE FINANCIAL STATEMENTS
In NIS
NOTE 7 Debtors and Debit Balances
Comprise:
31 December
1996 1995
Prepaid expenses 165,106 190,952
Manufacturing and marketing pallets
of wood and carton 56,520 497,952
Employees 52,360 14,750
Deposits for loans to employees 51,587 83,783
Others 75,600 23,829
------- -------
401,173 811,266
======= =======
NOTE 8 Severance Pay Fund Net of Severance Pay Provision
a. Comprises:
31 December
1996 1995
Severance pay fund 2,863,566 2,792,974
Less - severance pay provision 2,819,366 2,337,906
--------- ---------
44,200 455,068
========= =========
The company may only make withdrawals from the severance pay
funds for the purpose of paying severance pay.
b. The company makes deposits for securing pension rights in
"Mivtachim" Workers' Social Insurance Fund, Ltd. and in insurance
policies for its employees.
These amounts are not reflected in the balance sheet since they
are not under the control and management of the company.
c. The company deposited sums with another severance pay fund in
order to cover its liability for severance pay for the period
before joining the pension plan in June 1979 and to cover
supplementary pay, when it is required from time to time to make
additional payments.
341
<PAGE>
ORLITE INDUSTRIES (1959) LTD
NOTES TO THE FINANCIAL STATEMENTS
In NIS
NOTE 9 Investments and Long-Term Receivables
Comprises:
31 December
1996 1995
Investment in an affiliated company
Investment in 50% of share capital 838,008 838,008
Debit differential(1) 821,960 821,960
---------- ----------
1,659,968 1,659,968
Company's share in accumulated losses (242,902) (504,732)
Amortization of debit differential (205,490) --
---------- ----------
1,211,576 1,155,236
---------- ----------
Loan to an affiliated company(2) 371,776 354,495
---------- ----------
Limited partnership for manufacturing and
marketing pallets of wood and carton(3) 243,825
---------- ----------
1,827,177 1,509,731
========== ==========
----------
1 Debit differential - amortized over a period of four years,
beginning in 1996.
2 Loan to an affiliated company - linked to the index and bearing
interest at 4.5% per annum. Redemption date has not yet been set.
3 Limited partnership - in September 1996 the company reached
agreement to set up a limited partnership for manufacturing and
marketing pallets of wood and carton. Its share in the
partnership is 50%. The partnership pledged to purchase the
company's previous investment in that activity, for US$150
thousand.
NOTE 10 Property, Plant and Equipment
a.1 Comprised at 31 December 1996:
<TABLE>
<CAPTION>
Buildings and Machinery Computer and
service equipment and office
installations tools equipment Vehicles Total
<S> <C> <C> <C> <C> <C>
Cost
Balance at beginning of year 16,880,150 36,541,933 3,484,148 1,299,507 58,205,738
Acquisitions 8,848,692 1,238,661 731,375 230,779 11,049,507
Disposals -- (382,938) -- (354,214) (737,152)
----------- ----------- ----------- ----------- -----------
Total cost 25,728,842 37,397,656 4,215,523 1,176,072 68,518,093
----------- ----------- ----------- ----------- -----------
Accumulated depreciation
Balance at beginning of year 7,604,886 24,732,999 2,672,424 529,418 35,539,727
Depreciation 665,631 2,147,326 269,788 176,963 3,259,708
Disposals -- (271,552) -- (277,796) (549,348)
----------- ----------- ----------- ----------- -----------
Total accumulated depreciation 8,270,517 26,608,773 2,942,212 428,585 38,250,087
----------- ----------- ----------- ----------- -----------
Depreciated balance at
31 December 1996 17,458,325 10,788,883 1,273,311 747,487 30,268,006
=========== =========== =========== ===========
Payments on account of fixed assets
being erected 556,661
-----------
Total fixed assets 30,824,667
===========
</TABLE>
342
<PAGE>
ORLITE INDUSTRIES (1959) LTD
NOTES TO THE FINANCIAL STATEMENTS
In NIS
NOTE 10 Property, Plant and Equipment (Continued)
a.2 Balance at 31 December 1995:
<TABLE>
<CAPTION>
Buildings and Machinery Computer and
service equipment and office
installations tools equipment Vehicles Total
<S> <C> <C> <C> <C> <C>
Depreciated balance at 31 December 1995 9,275,264 11,808,934 811,724 770,089 22,666,011
========== ========== ========== ==========
Payments on account of fixed assets
being erected 2,463,905
----------
Total fixed assets 25,129,916
==========
Rates of depreciation 4% 10%-20% 6%-25% 15%
</TABLE>
b. The buildings are erected on land leased from the Israel Land
Authority (hereinafter -ILA) up to the years 2008-2032, with an
extension right for additional 49 years. Capitalized lease costs
of NIS 1,603,148 are included in the item "Buildings and service
installations."
In December 1995, the company purchased buildings on land leased
for a total cost of NIS 8,203,979. The land, 5.7 dunams, on which
buildings totaling 2,170 square meters, is to be leased until
2011-2145 with an extension right for an additional 49 years.
c. Additional commitments for acquisition of fixed assets are NIS
650 thousands.
NOTE 11 Suppliers, Employees and Others
Comprise:
31 December
1996 1995
Suppliers and service providers* 3,960,265 6,648,397
Employees and institutions for salaries, etc. 2,558,586 2,681,104
Provision for employees' vacation 1,023,439 1,071,956
Tax authorities 183,440 2,314,277
Accrued expenses 237,700 499,191
Creditors and credit balances 19,706 252,797
---------- ----------
7,983,136 13,467,722
========== ==========
* Include:
-Supplier balances in foreign currency
German marks 943,866 1,012,967
U.S. dollars 51,873 188,383
Pounds sterling 13,069 42,801
---------- ----------
1,008,808 1,244,151
========== ==========
- -Significant suppliers:
Supplier A 211,787 518,654
Supplier B 177,975 361,620
343
<PAGE>
ORLITE INDUSTRIES (1959) LTD
NOTES TO THE FINANCIAL STATEMENTS
In NIS
NOTE 12 Long-Term Loans
a. Comprise:
31 December
1996 1995
Loans from banks 1,080,319 1,895,946
Less - current maturities 770,106 780,196
---------- ----------
310,213 1,115,750
========== ==========
b. Repayment by year:
First year - current maturities 770,106
Second year 310,213
----------
1,080,319
==========
c. Loan terms:
Interest rate 31 December
% 1996 1995
Linked to the dollar 4.9; 6.5 687,714 1,204,075
Linked to the CPI 3.5 392,605 691,871
---------- ----------
1,080,319 1,895,946
========== ==========
d. Pledges:
Loans from banks are guaranteed by charges on fixed assets (see
Note 21).
344
<PAGE>
ORLITE INDUSTRIES (1959) LTD
NOTES TO THE FINANCIAL STATEMENTS
In NIS
NOTE 13 Share Capital
a. Nominal
Registered Issued and Fully Paid
31 December
1996 1995
Ordinary shares of NIS 1 par value 12,085,000 12,085,000 12,085,000
========== ========== ==========
b. On 1 September 1996, the Board of Directors of the Company
decided to allot 146,000 share options to five of its employees,
in accordance with the Income Tax Ordinance as confirmed by the
Income Tax Commissioner. Each option warrant will be realizable
as one regular share of NIS 1. The basis of realization will be
NIS 2.40 per option, the stock exchange closing rate on 1
September 1996.
The option warrants will be realizable as follows:
At the end of the second year: 31 August 1998 1/3
At the end of the third year: 31 August 1999 1/3
At the end of the fourth year: 31 August 2000 1/3
The bearer of the option will only be eligible to exercise his
option if he is employed by the Company on the above dates.
As the Company only allotted the options on 30 December 1996,
there is no effect on the computation of income for NIS 1 par
value of share capital in these financial statements.
NOTE 14 Cost of Sales
Comprise:
1996 1995 1994
Consumption of raw materials 24,648,002 32,462,012 29,065,189
Wages and social benefits 18,646,591 20,068,976 17,775,355
Maintenance of property, plant and
equipment 1,637,723 2,010,329 1,916,115
Electricity 759,615 801,075 705,671
Municipal taxes 481,006 616,429 534,899
Outside work - subcontractors 462,560 715,441 791,553
Rent for buildings 446,386 520,536 486,340
Insurance 376,398 515,156 613,776
Laboratory services 354,825 146,868 297,673
Office and data processing 291,013 358,018 371,622
Depreciation 2,648,873 2,844,242 2,416,216
Other manufacturing expenses 87,185 296,826 183,541
---------- ---------- ----------
50,840,177 61,355,908 55,157,950
Decrease in work in process 2,124,538 20,190 18,550
---------- ---------- ----------
52,964,715 61,376,098 55,176,500
========== ========== ==========
345
<PAGE>
ORLITE INDUSTRIES (1959) LTD
NOTES TO THE FINANCIAL STATEMENTS
In NIS
NOTE 15 Selling and Marketing Expenses
Comprise:
1996 1995 1994
Wages and social benefits 1,411,700 1,327,087 1,592,591
Transportation 237,883 302,328 273,153
Advertising and sales promotion 210,812 216,785 137,288
Overseas travel 209,975 132,036 117,506
Marketing advice 121,206 307,724 554,762
Office and data processing 53,334 69,068 63,764
---------- ---------- ----------
2,244,910 2,355,028 2,739,064
========== ========== ==========
NOTE 16 General and Administrative Expenses
Comprise
1996 1995 1994
Wages and social benefits 3,025,398 3,164,357 3,284,707
Remuneration of directors 373,033 298,146 223,016
Professional fees 331,297 394,275 637,438
Office and data processing 224,583 252,435 503,795
Communications 208,534 226,748 212,599
Depreciation of office equipment
and computer 269,788 157,897 110,180
---------- ---------- ----------
4,432,633 4,495,258 4,971,735
========== ========== ==========
NOTE 17 Gain (loss) from Other Income
Comprises:
1996 1995 1994
Rent of buildings (after
depreciation of NIS 164,084) (33,707) -- --
Gain from realization of fixed
assets 3,580 79,557 4,413
---------- ---------- ----------
(30,127) 79,557 4,413
========== ========== ==========
346
<PAGE>
ORLITE INDUSTRIES (1959) LTD
NOTES TO THE FINANCIAL STATEMENTS
In NIS
NOTE 18 Taxes on Income
a. Taxes on income included in the income statement
1996 1995 1994
Current taxes 2,910,163 5,160,314 3,896,285
Deferred taxes, net (293,509) (66,064) 317,775
---------- ---------- ----------
2,616,654 5,094,250 4,214,060
========== ========== ==========
Under the Income Tax (Inflationary Adjustments) Law 1985, results
for tax purposes are measured in real terms, in accordance with
the changes in the CPI.
b. Deferred taxes comprise:
31 December
1996 1995
Depreciable fixed assets 2,481,229 2,716,026
Provisions for employee benefits (352,527) (281,998)
Other - from monetary assets 121,298 109,481
---------- ----------
2,250,000 2,543,509
========== ==========
c. Following is a reconciliation of the theoretical tax expense,
assuming all income is taxed at the regular tax rates:
31 December
1996 1995 1994
Tax rates 36% 37% 38%
========== ========== ==========
Theoretical tax expense at tax rates 2,588,724 4,486,238 2,958,596
Increase (decrease) in taxes
resulting from:
Differences from definition of
depreciable assets 66,967 311,132 665,345
Erosion of tax advances 115,445 151,707 154,822
Tax exempt income (190,800) (272,812) --
Non-deductible expenses 123,840 169,483 719,923
Taxes in respect of previous years (152,282) 32,176 --
Other 64,760 216,326 (284,626)
---------- ---------- ----------
2,616,654 5,094,250 4,214,060
========== ========== ==========
d. The company received final tax assessments up to and including
tax year 1994.
347
<PAGE>
ORLITE INDUSTRIES (1959) LTD
NOTES TO THE FINANCIAL STATEMENTS
In NIS
NOTE 19 Interested Parties
a. Balances with interested parties (as defined by the Israeli
Securities Authority):
31 December
1996 1995
Assets
Cash and cash equivalents 1,489,146 6,275,016
Short-term deposits 12,069,483 --
Affiliated company 1,583,352 1,509,731
Long-term deposits -- 12,022,100
Liabilities
Current maturities of long-term loans 770,106 780,196
Long-term loans 310,213 1,115,750
Guarantees
To cover advances received from the Ministry of
Defense and from others 10,687,850 8,430,036
b. The company performs transactions with various entities in the
Bank Hapoalim Ltd group, in the ordinary course of business,
under terms which do not differ from those with others, who are
not related parties.
c. Salaries and social benefits:
1996 1995
To -
Managing director 473,885 514,231
8 directors who are not public representatives 294,577 221,175
2 directors who are public representatives 63,577 77,411
NOTE 20 Contingent Liabilities and Commitments
The company has commitments and contingent liabilities, as follows:
a. Long-term rental contracts to 1998
with option for 5 additional
years NIS 310 thousands a year
b. In respect of acquisition of fixed
assets See Note 10 c.
c. In respect of guarantees:
o To cover advances from customers NIS 4,920,223
o To cover guarantees on quality
of work NIS 5,757,627
d. Contingent liabilities
The company is obliged to pay to the Chief Scientist at the
Ministry of Industry and Trade royalties of 3% from the sales of
the products developed up to the amounts of the grants received
(on a dollar linked basis). The balance of liabilities therefrom
is $75,500.
348
<PAGE>
ORLITE INDUSTRIES (1959) LTD
NOTES TO THE FINANCIAL STATEMENTS
In NIS
NOTE 21 Liens
Liens have been placed on company assets, as follows:
<TABLE>
<CAPTION>
Date of Lien Beneficiary Details Amount
<S> <C> <C> <C>
29.6.89 Bank Hapoalim Ltd. Mortgage on block 3580, parcel 50, including all Up to loan and guarantee
building and insurance rights amount
11.7.89 Bank Hapoalim Ltd. Lien on contractual rights of company in block Up to loan and guarantee
3850 parcel 49, lot 21/2 amount
17.11.95 Bank Otsar Hahayal Ltd Short-term deposits Up to guarantee amounts
</TABLE>
NOTE 22 Post Balance Sheet Events
a. On 17 February 1997, the company received notice that on 13
February 1997 the Ness-Ziona Workers' Council had decided to
authorize a work dispute between the employees and manage of the
Company. The Council allowed a week for negotiations between
them; if there would be no progress in these negotiations, the
dispute would take effect on 23 February 1997.
As of the date of these financial statements, no progress has
been made.
b. The company has insurance coverage for damages caused by employee
strikes.
c. The demands of the employees do not include any claims for
previous periods.
d. In the opinion of management, based on legal opinion received,
the above decision of the Ness-Ziona Workers' Council is not yet
legally a work dispute. In any case it will have no material
effect on future financial results of the Company.
349
<PAGE>
ORLITE INDUSTRIES (1959) LTD
NOTES TO THE FINANCIAL STATEMENTS
In NIS
NOTE 23 Statements In Nominal Amounts
a. Balance sheets of 31 December 1996 and 1995
31 December
1996 1995
Current assets
Cash and cash equivalents 1,527,850 10,601,565
Short-term deposits 14,942,577 --
Trading securities 6,214,942 267,829
Accounts receivable - customers 10,966,965 13,902,647
Inventories and work in process, net of
customers' progress payments 5,677,746 6,334,134
Debtors and debit balances 401,173 733,597
---------- ----------
39,731,253 31,839,772
---------- ----------
Severance pay fund net of severance pay provision 44,200 411,501
---------- ----------
Investments and long-term receivables 1,686,717 1,365,194
Long-term deposits -- 13,383,845
---------- ----------
Property, plant and equipment 21,192,522 14,679,096
---------- ----------
62,654,692 61,679,408
========== ==========
Current liabilities
Current maturities of long-term loans 770,106 705,502
Suppliers, employees and others 7,983,136 12,178,359
Advances from customers 1,383,146 3,881,650
---------- ----------
10,136,388 16,765,511
---------- ----------
Long-term loans 310,213 1,008,931
---------- ----------
Deferred income taxes, net 1,145,000 1,275,000
---------- ----------
Shareholders' equity
Share capital 12,085,000 12,085,000
Share premium 11,761,763 11,761,763
Capital fund 418,776 418,776
Retained earnings 26,797,552 18,364,427
---------- ----------
51,063,091 42,629,966
---------- ----------
62,654,692 61,679,408
========== ==========
350
<PAGE>
ORLITE INDUSTRIES (1959) LTD
NOTES TO THE FINANCIAL STATEMENTS
In NIS
NOTE 23 Statements In Nominal Amounts (Continued)
b. Statements of income for the years ended 31 December 1996, 1995
and 1994
1996 1995 1994
Sales
Local 60,965,362 67,747,413 56,165,707
Export 1,727,132 1,164,521 518,767
----------- ----------- -----------
62,692,494 68,911,934 56,684,474
Cost of sales (Schedule A) 48,791,720 51,443,278 41,844,204
----------- ----------- -----------
Gross profit 13,900,774 17,468,656 14,840,270
----------- ----------- -----------
Expenses
Selling and marketing expenses
(Schedule B) 2,140,709 2,033,228 2,119,499
General and administrative
expenses (Schedule C) 4,197,909 3,835,879 3,830,410
----------- ----------- -----------
6,338,618 5,869,107 5,949,909
----------- ----------- -----------
Income from ordinary operations 7,562,156 11,599,549 8,890,361
Financing income(expenses), net 3,460,514 2,566,534 1,053,748
----------- ----------- -----------
Income from operations after
financing income 11,022,670 14,166,082 9,944,109
Gain from other income 48,694 92,958 32,105
----------- ----------- -----------
Income from operations before
taxes on income 11,071,364 14,259,040 9,976,214
Taxes on income 2,664,718 4,504,096 3,415,000
----------- ----------- -----------
Net income after taxes on income 8,406,646 9,754,944 6,561,214
Company's share in net income
(losses)
of an affiliated company 212,296 (93,323) (500,000)
Amortization of the debit
differential
of an affiliated company (185,817) -- --
----------- ----------- -----------
Net income for the year 8,433,125 9,661,621 6,061,214
=========== =========== ===========
Income for NIS 1 par value of
share capital:
Net income for the year 0.70 0.80 0.50
=========== =========== ===========
Number of shares for calculation
of income per share 12,085,000 12,085,000 12,085,000
=========== =========== ===========
351
<PAGE>
ORLITE INDUSTRIES (1959) LTD
NOTES TO THE FINANCIAL STATEMENTS
In NIS
NOTE 23 Statements In Nominal Amounts (Continued)
c. Schedules to the statements of income
Schedule A - Cost of sales:
1996 1995 1994
Consumption of raw materials 23,127,180 27,870,745 22,271,746
Work 17,869,712 17,314,328 14,238,123
Outside work 439,318 618,561 608,794
Maintenance of property, plant
and equipment 1,565,190 1,736,728 1,511,607
Electricity 728,841 691,270 551,142
Municipal taxes 463,104 536,497 421,351
Rent for buildings 431,642 451,494 382,804
Insurance 362,389 448,356 483,485
Office and data processing 279,306 309,284 291,946
Laboratory services 343,106 127,387 234,302
Other manufacturing expenses 84,304 257,456 144,466
Depreciation 1,438,704 1,232,097 1,091,843
----------- ----------- -----------
47,132,796 51,594,203 42,231,609
Decrease (increase) in work in
process 1,658,924 (150,925) (387,405)
----------- ----------- -----------
48,791,720 51,443,278 41,844,204
=========== =========== ===========
Schedule B - Selling and marketing expenses:
1996 1995 1994
Wages and social benefits 1,336,180 1,136,221 1,220,869
Transportation 227,656 263,272 216,917
Advertising and sales promotion 204,702 173,925 106,642
Overseas travel 203,254 115,485 93,508
Marketing advice 117,693 284,728 431,427
Office and data processing 51,224 59,597 50,136
----------- ----------- -----------
2,140,709 2,033,228 2,119,499
=========== =========== ===========
Schedule C - General and administrative expenses:
1996 1995 1994
Wages and social benefits 2,895,334 2,716,124 2,542,917
Professional fees 321,224 341,397 490,205
Remuneration of directors 358,154 257,333 176,297
Office and data processing 214,891 217,346 392,098
Communications 201,725 196,995 167,217
Depreciation of office
equipment and computer 206,581 106,684 61,676
----------- ----------- -----------
4,197,909 3,835,879 3,830,410
=========== =========== ===========
352
<PAGE>
ORLITE INDUSTRIES (1959) LTD
NOTES TO THE FINANCIAL STATEMENTS
In NIS
c. Statement of changes in shareholders' equity for the years ended
31 December 1995
<TABLE>
<CAPTION>
Share Share Capital Retained
capital premium fund earnings Total
<S> <C> <C> <C> <C>
Balance at 1 January 1994 8,337,949 4,161,459 -- 8,662,836 21,162,244
Conversion of options into share
capital 3,747,051 7,600,304 11,347,355
Bonus shares to employees 418,776 -- 418,776
Net income for the year 1994 -- -- -- 6,061,214 6,061,214
Dividend paid -- -- -- (3,021,250) (3,021,250)
----------- ----------- ----------- ----------- -----------
Balance at 1 January 1995 12,085,000 11,761,763 418,776 11,702,800 35,968,339
Net income for the year 1995 -- -- -- 9,661,621 9,661,621
Dividend paid -- -- -- (2,999,994) (2,999,894)
----------- ----------- ----------- ----------- -----------
Balance at 1 January 1996 12,085,000 11,761,763 418,716 18,364,427 42,629,966
Net income for the year 1996 -- -- -- 8,433,125 8,433,125
----------- ----------- ----------- ----------- -----------
Balance at
31 December 1996 12,085,000 11,761,763 418,716 26,797,552 51,063,091
=========== =========== =========== =========== ===========
</TABLE>
353
<PAGE>
ORLITE INDUSTRIES (1959) LTD
Note to the Financial Statements
in US Dollars
Summary of Accounting Policy
The financial report figures of the previous years have been neither audited nor
reviewed. The current year figures have been audited by the company auditors.
a. Translation of the financial statements into US Dollars
The primarily financial statements of the company, which were originally
prepared in adjusted New Israeli Shekels were translated into US dollars
based on the following principles in accordance with guidelines received
from a shareholder corporation (Ampal-American Israel Corp), at whose
request the financial statements were translated into US dollars.
1. Until and including as of September 1992
a) Non-monetary items were translated at the representative rate in
effect on the date of the transaction-except for the receipts in
foreign currency for share capital which were translated and
presented at the amount of foreign currency actually received.
b) All other assets and liabilities were translated at the
representative rate of exchange in effect on the balance sheet
date.
c) Amounts included in the statement of profit and loss were
translated as follows:
(1) income and expenditure at the representative rate in effect
of the date of the transaction.
(2) Differences arising from translation to foreign currency
were included in financing income of expenses.
d) Translation of adjustments arose from the effect of the change in
the exchange rate of the US dollar during the year were recorded
to a separate item in the equity section of the balance sheet.
2. As of 1 October 1992
Based on the guidelines of statement of financial Accounting Standards
No 52 "Foreign Currency Translation," the Company determined that the
economy in Israel should no longer be considered hyper-inflationary.
Therefore, the financial statements translation system has been
changed accordingly:
a) Opening balances as of 30 September 1992 were taken from the data
translated to US dollars as described above, and translated into
NIS at the exchange rate effective on 30 September 1992.
b) As of 1 October 1992, the nominal NIS data of assets and
liabilities were translated at the rate of exchange at the end of
the reporting year (31 December 1993).
354
<PAGE>
ORLITE INDUSTRIES (1959) LTD
Note to the Financial Statements
in US Dollars
c) The nominal NIS data of revenues and expenses were translated at
average rates during the reporting year.
This translation should not, except where otherwise indicated in the
financial statements, be construed as a representation that the
Israeli currency amounts actually represent, or could be converted
into US dollars.
b. Long-lived assets
The company's policy is to record long-lived assets at cost, amortizing
these costs over the expected useful life of the related assets. In
accordance with Statement of Financial Accounting Standards No 121 ("SFAS
121") "Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed Of", these assets are reviewed on a
quarterly and annual basis for impairment whenever events or changes in
circumstances indicate that the carrying amounts of the assets may not be
reasonable. Furthermore, the assets are evaluated for continuing value and
proper useful lives by comparison to expected future cash flows. For the
year ended 31 December 1996, the adoption of SFAS 121 did not have a
material effect on the company.
355
<PAGE>
ORLITE INDUSTRIES (1959) LTD.
-----------------------------
BALANCE SHEET AS AT DECEMBER 31, 1996
-------------------------------------
IN U.S. DOLLARS
---------------
31/12/1996 31/12/1995
---------- ----------
CURRENT ASSETS
- --------------
Raw materials and parts 1,706,609 1,348,851
Work in progress 439,729 985,163
----------- -----------
2,146,338 2,334,014
Less - customers' progress payments 399,877 313,557
----------- -----------
1,746,461 2,020,457
Cash and cash equivalents 469,963 3,381,679
Short term deposits 4,596,302 --
Marketable securities 1,911,702 85,432
Severance pay fund net of
severance pay provision 13,596 131,260
Customers 3,373,413 4,434,656
Debtors and debit balances 123,400 234,003
----------- -----------
12,234,837 10,287,487
----------- -----------
AFFILIATE COMPANY 457,292 450,250
----------------- ----------- -----------
LONG TERM DEPOSITS -- 4,269,169
------------------ ----------- -----------
PROPERTY, PLANT AND EOUIPMENT 7,037,070 5,390,718
----------------------------- =========== ===========
19,729,199 20,397,624
=========== ===========
CURRENT LIABILITIES
- -------------------
Current maturities of long - term loans 236,883 225,040
Suppliers, employees and others 2,455,594 3,889,644
Customers advances 425,452 1,238,166
----------- -----------
3,117,929 5,352,850
----------- -----------
LONG TERM LIABILITIES 95,421 321,828
- --------------------- ----------- -----------
PROVISION FOR EQUALIZATION OF TAXES
- -----------------------------------
ON INCOME 352,199 406,698
--------- ----------- -----------
SHAREHOLDER'S EOUITY
- -------------------
Share capital paid-in 6,142,267 6,142,267
Share premium 4,207,885 4,207,885
Capital reserve 137,623 137,623
Retained earnings 7,337,658 4,705,235
Less - translation loss (1,661,783) (876,762)
----------- -----------
16,163,650 14,316,248
=========== ===========
19,729,199 20,397,624
=========== ===========
/s/ SHIMON SHACHAM /s/ MOSHE MOR /s/ URI LEVITT
- --------------------------- --------------------- ------------------------
SHIMON SHACHAM MOSHE MOR URI LEVITT
GENERAL MENAGER & DIRECTOR DIRECTOR CHAIRMAN OF DIRECTORATE
356
<PAGE>
ORLITE INDUSTRIES (1959) LTD.
-----------------------------
STATEMENT OF INCOME
-------------------
IN U.S. DOLLARS
---------------
1996 1995 1994
----------- ----------- -----------
SALES - Local 19,128,189 22,464,625 18,664,901
- Export 541,896 387,166 170,337
----------- ----------- -----------
19,670,085 22,751,791 18,835,238
COST OF SALES - SCHEDULE A 15,308,647 17,142,329 13,991,775
----------- ----------- -----------
Gross profit 4,361,438 5,609,462 4,843,463
----------- ----------- -----------
SELLING EXPENSES AND MARKETING
- - SCHEDULE B 671,658 678,789 705,609
GENERAL AND ADMINISTRATIVE EXPENSES 1,317,115 1,275,765 1,274,907
- - SCHEDULE C ----------- ----------- -----------
1,988,773 1,889,554 1,980,516
----------- ----------- -----------
Income from operations before
financing expenses 2,372,665 3,654,908 2,862,947
FINANCING-INCOME (EXPENSES)-SCHEDULE D 1,085,614 480,662 292,306
----------- ----------- -----------
Income from operations after
financing expenses 3,458,279 4,135,570 3,155,253
GAIN FROM OTHER INCOMES 15,278 26,804 9,269
----------- ----------- -----------
Income before taxes on income 3,473,557 4,162,374 3,164,522
TAXES ON INCOME (NOTE 14) 836,069 1,496,421 1,134,369
----------- ----------- -----------
NET INCOME FROM ORDINARY ACTIVITIES 2,637,488 2,665,953 2,030,153
Decreased investment
in an affiliated company (5,065) (27,110) (166,890)
----------- ----------- -----------
NET INCOME FOR THE YEAR 2,632,423 2,638,843 1,863,263
=========== =========== ===========
357
<PAGE>
ORLITE INDUSTRIES (1959) LTD.
-----------------------------
STATEMENT OF INCOME
-------------------
IN U.S. DOLLARS
---------------
SCHEDULE A
- ----------
COST OF SALES
- -------------
1996 1995 1994
---------- ----------- -----------
Consumption of raw materials 7,256,269 9,251,412 7,393,544
Work 5,606,712 5,725,302 4,725,272
Outside work - subcontractors 137,838 204,994 202,039
Maintenance of property,
Plant and equipment 491,086 578,059 501,286
Electricity 228,678 229,191 169,951
Municipal - taxes and insurance 259,003 325,130 300,298
Other manufacturing expenses 269,530 278,253 266,403
Office and data processing 87,634 102,588 96,780
Depreciation 451,401 459,215 445,930
---------- ----------- -----------
14,788,151 17,154,144 14,101,503
Add (less): decrease (increase)
in work in progress 520,496 (11,815) (122,728)
---------- ----------- -----------
15,308,647 17,142,329 13,991,775
========== ========== ==========
358
<PAGE>
ORLITE INDUSTRIES (1959) LTD.
-----------------------------
STATEMENT OF INCOME
-------------------
IN U.S. DOLLARS
---------------
1996 1995 1994
---------- ---------- ----------
SCHEDULE B
- ----------
SELLING EXPENSES
- ----------------
Wages and social benefits 419,233 379,114 407,313
Advertising and sales promotion 101,153 154,766 178,842
Transportation and export deliveries 71,428 86,862 72,023
Overseas travel 63,772 38,265 30,808
Office and data processing 16,072 19,782 16,623
---------- ---------- ----------
671,658 678,789 705,609
========== ========== ==========
SCHEDULE C
- ----------
GENERAL AND ADMINISTRATIVE EXPENSES
- -------------------------- --------
Wages and social benefits 908,426 905,508 845,372
Office and data processing 67,422 71,900 130,087
Professional fees 100,786 113,710 162,791
Communications 63,292 64,874 55,449
Depreciation of computer, office
equipment and vehicles 64,816 35,663 22,798
Remuneration of directors 112,373 84,110 58,410
---------- ---------- ----------
1,317,115 1,275,765 1,274,907
========== ========== ==========
SCHEDULE D
- ----------
FINANCING-INCOME (EXPENSES)
- ---------------------------
Interest, linkage differences,
and other financing expenses (80,609) (140,519) (653,738)
Financial income 1,166,223 621,181 946,044
---------- ---------- ----------
1,085,614 480,662 292,306
========== ========== ==========
359
<PAGE>
ORLITE INDUSTRIES (1959) LTD.
-----------------------------
STATEMENT OF CHANGES IN SHAREHOLDERS' EOUITY
--------------------------------------------
FOR THE PERIOD FROM JANUARY 1, 1994 TO DECEMBER 31, 1996
--------------------------------------------------------
<TABLE>
<CAPTION>
Translation Capital Share Share Retained
loss rezerve capital premium earnings Total
----------- ------- ------- ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance at
January 1,1994 (917,058) -- 4,893,246 1,681,399 2,205,283 7,862,870
Conversion of options
into share capital - -- 1,249,021 2,526,486 -- 3,775,507
Capital found 137,623 -- -- -- 137,623
Difference - result
of translation (24,489) -- -- -- (24,489)
Net income for the
Year 1994 -- -- -- -- 1,863,263 1,863,263
Proposed dividend -- -- -- -- (1,001,077) (1,001,077)
---------- ------- --------- --------- --------- ----------
Balance at (941,547) 137,623 6,142,267 4,207,885 3,067,469 12,613,697
January 1,1995
Difference- result 64,785 -- -- -- -- 64,785
of translation
Dividend paid -- -- -- -- (1,001,077) (1,001,077)
Net income for the
Year 1995 -- -- -- -- 2,638,843 2,638,843
---------- ------- --------- --------- --------- ----------
Balance at
January 1,1996 (876,762) 137,623 6,142,267 4,207,885 4,705,235 14,316,248
Difference-result
of translation (785,021) -- -- -- -- (785,021)
Net income for
the year 1996 -- -- -- -- 2,632,423 2,632,423
---------- ------- --------- --------- --------- ----------
Balance at
December 31,1996 (1,661,783) 137,623 6,142,267 4,207,885 7,337,658 16,163,650
========== ======= ========= ========= ========= ==========
</TABLE>
360
<PAGE>
TRINET VENTURE CAPITAL LTD.
---------------------------
FINANCIAL STATEMENTS
--------------------
AS OF DECEMBER 31, 1996
-----------------------
361
<PAGE>
TRINET VENTURE CAPITAL LTD.
---------------------------
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996
--------------------------------------------
CONTENTS
--------
AUDITORS' REPORT 363-364
BALANCE SHEETS 365
STATEMENTS OF OPERATIONS 366
STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIENCY 367
STATEMENTS OF CASH FLOWS 368-369
NOTES TO FINANCIAL STATEMENTS 370-382
362
<PAGE>
Deloitte Touche
Tohmatsu
- ---------------------- --------------------------------------------------
Ital Brightoman [logo] 3 Daniel Frisch Street Telephone 972(3) 692-4111
& Co. Tel Aviv 64731, ISRAEL Facsimile 972(3) 696-0130
P.O.B. 16593, Tel-Aviv 61164
AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
TRINET VENTURE CAPITAL LTD.
---------------------------
We have audited the accompanying balance sheets of Trinet Venture Capital Ltd.
("the Company") as of December 31, 1996 and 1995, and the related statements of
operations, changes in shareholders' deficiency and cash flows for each of the
two years in the period ended December 31, 1996 and for the period from
commencement of operations (February 1, 1994) through December 31, 1994,
expressed in Israeli currency. These financial statements are the responsibility
of the Company's Board of Directors and management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed under the Auditors' Regulations (Auditor's
Mode of Performance) - 1973, which, for purposes of these financial statements,
are substantially identical to generally accepted auditing standards in the
United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by the Board of Directors and management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
We did not audit the financial statements of certain subsidiaries and
affiliates, the investments in which are recorded using the equity method of
accounting. These financial statements were examined by other auditors whose
reports have been furnished to us and our opinion, insofar as it relates to the
amounts included for the foregoing subsidiaries and affiliates, is based solely
upon the reports of the other auditors.
The aforementioned financial statements have been prepared on the basis of
historical cost, adjusted for changes in the general purchasing power of the
Israeli currency in accordance with opinions issued by the Institute of
Certified Public Accountants in Israel. Condensed financial information in
nominal historical values, which serves as the basis for the adjusted financial
statements, appears in Note 12 to the financial statements.
The Company has not prepared consolidated financial statements. Consolidated
financial statements are required in accordance with Opinion No. 57 of the
Institute of Certified Public Accountants in Israel.
363
<PAGE>
In our opinion, based on our audits and the reports of other auditors, except
for omission of consolidated financial statements as mentioned in the preceding
paragraph, the aforementioned financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1996
and 1995, and the results of operations, changes in shareholders' deficiency and
cash flows for each of the two years in the period ended December 31, 1996 and
for the period from commencement of operations (February 1, 1994) through
December 31, 1994, in conformity with accounting principles generally accepted
in Israel.
Pursuant to Section 211 of the Companies Ordinance (New Version) - 1983, we
hereby state that we received all of the information and explanations which we
required and that our opinion on the financial statements is given based on the
best of the information and explanations which we received and as reflected in
the books of the Company.
The financial information in U.S. dollars and in accordance with generally
accepted accounting principles in the United States is based on nominal
historical amounts in Israeli currency and is presented in Note 13. Such
financial information includes investments valued at $12,858,000 and $4,068,000
as of December 31, 1996 and 1995, respectively (92% and 97% of total assets,
`espectively), whose values have been estimated by the Board of Directors and
management in the absence of readily ascertainable market values. We have
reviewed the procedures used by the Board of Directors and management in
arriving at their estimates of value of such investments and have inspected
underlying documentation, and, in the circumstances, we believe the procedures
are reasonable and the documentation appropriate. However, because of the
inherent uncertainty of valuation, those estimated values may differ
significantly from the values that would have been used had a ready market for
the investments existed, and the differences could be material.
/s/Igal Brightman & Co.
Igal Brightman & Co.
Certified Public Accountants
Tel Aviv, February 20, 1997
364
<PAGE>
TRINET VENTURE CAPITAL LTD.
BALANCE SHEETS
Adjusted to NIS of December 1996
(in thousands of NIS)
As of December 31,
------------------
Note 1996 1995
---- ---- ----
ASSETS
CURRENT ASSETS
Cash and cash equivalents 11 96
Related company 3 596 405
Other current assets 25 8
-------- --------
632 509
-------- --------
INVESTMENTS
Subsidiaries and affiliates 4 8,367 5,545
Other companies 5 8,632 6,881
-------- --------
16,999 12,426
-------- --------
-------- --------
17,631 12,935
======== ========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Short-term bank credit -- 7
Shareholder and related party 6 -- 18,238
Other current liabilities 7 589 32
-------- --------
589 18,277
-------- --------
CAPITAL NOTES 8 21,465 --
-------- --------
SHAREHOLDERS' DEFICIENCY
Share capital 9 1 1
Capital reserves 1,866 --
Deficit (6,290) (5,343)
-------- --------
(4,423) (5,342)
-------- --------
-------- --------
17,631 12,935
======== ========
February 20, 1997 /s/Moshe Mor /s/Moshe Bar-Niv
- ----------------- --------------------- -----------------------
Date approved Moshe Mor Moshe Bar-Niv
Chairman of the Board Chief Executive Officer
of Directors and Director
The accompanying notes are an integral part of the financial statements.
365
<PAGE>
TRINET VENTURE CAPITAL LTD.
STATEMENTS OF OPERATIONS
Adjusted to NIS of December 1996
(in thousands of NIS)
From
commencement
operations
For the year ended through
December 31, December 31,
------------ ------------
Note 1996 1995 1994(*)
---- ---- ---- -------
INCOME
Gains on changes in ownership
interests in subsidiaries 4 7,781 -- --
Financing, net 36 -- --
------ ------ ------
7,817 -- --
------ ------ ------
EXPENSES
General and administrative 10 943 1,581 330
Financing, net -- 108 209
------ ------ ------
943 1,689 539
====== ====== ======
Income (loss) before income taxes 6,874 (1,689) (539)
Income taxes 2E 550 -- --
------ ------ ------
Income (loss) after income taxes 6,324 (1,689) (539)
Equity in operating results of
subsidiaries and affiliates (7,271) (2,583) (532)
------ ------ ------
Net loss (947) (4,272) (1,071)
====== ====== ======
(*) See Note 1A.
The accompanying notes are an integral part of the financial statements.
366
<PAGE>
TRINET VENTURE CAPITAL LTD.
STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIENCY
Adjusted to NIS of December 1996
(in thousands of NIS)
Share Capital
capital reserves Deficit Total
------- -------- ------- -----
Issuance of shares 1 -- -- 1
Net loss for the period from
commencement of operations
through December 31, 1994 (*) -- -- (1,071) (1,071)
------ ------ ------ ------
Balance - December 31, 1994 1 -- (1,071) (1,070)
Net loss -- -- (4,272) (4,272)
------ ------ ------ ------
Balance - December 31, 1995 1 -- (5,343) (5,342)
Translation adjustments and other -- (131) -- (131)
Effect of changes in the CPI
on unlinked capital notes -- 1,997 -- 1,997
Net loss -- -- (947) (947)
------ ------ ------ ------
Balance - December 31, 1996 1 1,866 (6,290) (4,423)
====== ====== ====== ======
(*) See Note 1A.
The accompanying notes are an integral part of the financial statements.
367
<PAGE>
TRINET VENTURE CAPITAL LTD.
STATEMENTS OF CASH FLOWS
Adjusted to NIS of December 1996
(in thousands of NIS)
From
commencement
operations
For the year ended through
December 31, December 31,
-------------- ------------
1996 1995 1994(*)
---- ---- -------
CASH FLOWS - OPERATING ACTIVITIES
Net loss (947) (4,272) (1,071)
Adjustments necessary to present net cash
used for operating activities
(Appendix A) (160) 3,732 817
------ ------ ------
Net cash used for operating activities (1,107) (540) (254)
------ ------ ------
CASH FLOWS - INVESTMENT ACTIVITIES
Investments in subsidiaries, affiliates and
other companies (4,195) (6,806) (8,735)
------ ------ ------
Net cash used for investment activities (4,195) (6,806) (8,735)
------ ------ ------
CASH FLOWS - FINANCING ACTIVITIES
Issuance of shares -- -- 1
Capital notes from shareholder and
related party 5,224 -- --
Credit from shareholder and related party -- 7,317 9,108
Short-term bank credit, net (7) 5 --
------ ------ ------
Net cash provided by financing
activities 5,217 7,322 9,109
------ ------ ------
------ ------ ------
Decrease in cash and cash equivalents (85) (24) 120
Cash and cash equivalents at beginning of
period 96 120 --
------ ------ ------
Cash and cash equivalents at end of period 11 96 120
====== ====== ======
(*) See Note 1A.
The accompanying notes are an integral part of the financial statements.
368
<PAGE>
TRINET VENTURE CAPITAL LTD.
STATEMENTS OF CASH FLOWS
Adjusted to NIS of December 1996
(in thousands of NIS)
From
commencement
operations
For the year ended through
December 31, December 31,
-------------- ------------
1996 1995 1994(*)
---- ---- -------
APPENDIX A - ADJUSTMENTS NECESSARY TO PRESENT
CASH FLOWS USED FOR OPERATING
ACTIVITIES
Items not involving cash flows:
Gains on changes in ownership interests in
subsidiaries (7,781) -- --
Equity in operating results of subsidiaries
and affiliates 7,271 2,583 532
------ ------ ------
(510) 2,583 532
------ ------ ------
Changes in assets and liabilities:
Decrease (increase) in receivable from
related company (191) 1,187 220
Increase in other current assets (17) (7) --
Increase (decrease) in other current
liabilities 558 (31) 65
------ ------ ------
350 1,149 285
------ ------ ------
------ ------ ------
(160) 3,732 817
====== ====== ======
APPENDIX B - NON-CASH TRANSACTIONS
In 1995, a liability to shareholder and related party in the amount of NIS 1,591
was offset against the receivable from related company.
Effective January 1, 1996, the current liabilities to a shareholder and a
related party were converted to unlinked, non-interest bearing capital notes
(see Note 8).
(*) See Note 1A.
The accompanying notes are an integral part of the financial statements.
369
<PAGE>
TRINET VENTURE CAPITAL LTD.
NOTES TO THE FINANCIAL STATEMENTSHh
AS OF DECEMBER 31, 1996Mc
(in thousands of NIS)
NOTE 1 - GENERAL
A. The Company was incorporated and registered on February 1, 1994 and
commenced operations shortly thereafter. The Company was established
for the purpose of investing in high-tech companies and projects that
are at the stages of manufacturing development or of production and
marketing of developed products, and to generate profits from its
activities and holdings in those companies.
B. Definitions
(1) The Company - Trinet Venture Capital Ltd.
(2) Subsidiary - A company controlled by the Company in
terms of holding a majority of its
voting rights.
(3) Affiliate - A company not controlled by the Company,
the investment in which is presented
according to the equity method of
accounting ("equity basis").
(4) Other company - A company, the investment in which is
presented at cost.
(5) Shareholders - Hapoalim Technologies Ltd., owner of 50%
of the Company's shares.
- Ampal Industries (Israel) Ltd., owner of
50% of the Company`s shares.
(6) Related party - Investment Company of Bank Hapoalim
Ltd., which owns 100% of the shares of
Hapoalim Technologies Ltd., as well as
"related parties" as defined in Opinion
No. 29 of the Institute of Certified
Public Accountants in Israel.
(7) Related company - Trinet Investments in High-Tech Ltd.
(8) NIS - New Israeli shekel
(9) Dollar - U.S. dollar.
370
<PAGE>
TRINET VENTURE CAPITAL LTD.
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996
(in thousands of NIS)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Financial statements in adjusted values
(1) General
In accordance with certain opinions of the Institute of Certified
Public Accountants in Israel, the Company has prepared its
financial statements on the basis of cost, adjusted for changes
in the purchasing power of the NIS. Condensed financial data in
nominal NIS, on the basis of which the adjusted financial
statements were prepared, is presented in Note 12.
(2) Principles of adjustment
(a) Balance sheet
Non-monetary items (i.e. investments and shareholders'
equity) have been adjusted for changes in the Israeli
Consumer Price Index ("CPI") from the month of the
transaction to the last month of the reporting period.
Investments in subsidiaries and affiliates reported on the
equity basis have been presented based upon the adjusted
financial statements of such companies.
The adjusted values of non-monetary assets do not
necessarily represent the values of such assets, in the
marketplace or to the business, but rather the cost thereof
adjusted for changes in the purchasing power of the NIS.
Monetary items (items whose amounts reflect current or
realizable values) have been presented in the adjusted
balance sheet at their nominal amounts as of the balance
sheet date.
(b) Statement of operations
Items in the statement of operations (other than financing)
representing transactions during the reporting period have
been adjusted on the basis of changes in the CPI from the
month of the transaction to the CPI for the last month of
the reporting period.
Amounts related to non-monetary items and to various balance
sheet accruals have been adjusted based on the related
balance sheet amounts.
The Company's equity in the results of subsidiaries and
affiliates has been determined based on the adjusted
financial statements of those companies.
371
<PAGE>
TRINET VENTURE CAPITAL LTD.
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996
(in thousands of NIS)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
A. Financial statements in adjusted values (cont.)
(2) Principles of adjustment (cont.)
(b) Statement of operations (cont.)
Financing income or expenses is derived from the other items
in the financial statements. This includes, inter alia,
amounts required to reconcile other components in the
statement of operations for the element of inflation that is
included therein.
(c) The comparative figures in the financial statements have
been adjusted to NIS of December 1996.
B. Cash and cash equivalents Cash and cash equivalents include bank
deposits for immediate withdrawal or for a stated period not exceeding
three months from the date of investment.
C. Investments in subsidiaries and affiliates The Company's investments
in subsidiaries and affiliates are presented on the equity basis. In
this regard, investments are presented at original cost plus the
equity in the operating results of the subsidiaries and affiliates or
other changes in shareholders' equity which have occurred since
acquisition. The excess cost of the investments over their net book
value at acquisition ("excess investment cost") which has not been
allocated to specific assets, is amortized on the straight-line method
over five years.
Differences arising between the Company's investments in subsidiaries
and affiliates (which have been adjusted based on changes in the CPI)
and the Company's equity in the net assets of subsidiaries and
affiliates (based on financial statements in dollars) are charged to a
separate component of shareholders' equity.
D. Investments in other companies Investments in quoted securities are
presented in accordance with opinion No. 44 of the Institute of
Certified Public Accountants in Israel. Investments in other companies
are presented at cost.
E. Deferred income taxes Deferred income taxes are computed for timing
differences between the amounts of assets and liabilities as reported
in the financial statements and their amounts for income tax purposes.
The deferred taxes are computed at tax rates that are expected to
apply when the deferred taxes are realized.
The Company has provided deferred taxes for the future realization of
an investment in an affiliated company, as it is management's
intention to realize such investment. The Company has not provided
deferred taxes for the future realization of investments in other
affiliates and other companies, as it is the intention of management
to retain such investments.
372
<PAGE>
TRINET VENTURE CAPITAL LTD.
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996
(in thousands of NIS)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
F. Linkage basis
(1) Balances which are linked to the CPI are presented on the basis
of the relevant CPI (according to the terms of the transaction).
(2) Data in respect of the CPI
Percentage "Known" Percentage
At end CPI "in respect increase CPI at increase
of year of" December during period year-end during period
------- ------------ ------------- -------- -------------
1996 143.1 10.6% 142.0 11.0%
1995 129.4 8.1% 127.9 7.7%
1994 (*) 119.7 13.0% 118.7 12.7%
(*) See Note 1A.
NOTE 3 - RELATED COMPANY
The balance is unlinked and bears annual interest at Prime + 2%. As of
December 31, 1996, the interest rate was 18.2%.
NOTE 4 - INVESTMENTS IN SUBSIDIARIES AND AFFILIATES
As of December 31,
------------------
1996 1995
------ ------
A. Composition:
Net book value at acquisition date 5,775 4,692
Payment on account of investment 425 --
Excess investment cost 3,458 3,968
------ ------
Total cost of shares 9,658 8,660
Accumulated losses (133) (2,544)
Accumulated amortization of excess
investment cost (1,027) (571)
Translation adjustments and other (131) --
------ ------
8,367 5,545
====== ======
373
<PAGE>
TRINET VENTURE CAPITAL LTD.
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996
(in thousands of NIS)
NOTE 4 - INVESTMENTS IN SUBSIDIARIES AND AFFILIATES (cont.)
B. (1) In 1994, the Company signed an agreement to acquire 51% of
the issued and outstanding shares of Imagenet Ltd. ("Imagenet")
in consideration for $700,000. Imagenet began operations on June
1, 1995 and is engaged in research and development activities
related to computer systems, software and hardware. During 1995,
the Company invested an additional $800,000 in Imagenet in
exchange for 15% of Imagenet's shares. As a result of these
purchases, the Company's holdings in the shares of Imagenet
reached 66% at the end of 1995.
In April 1996, Imagenet issued 7% of its shares to a trustee.
Approximately 3% of these shares were to be currently issued to
Imagenet's employees and approximately 4% are to be issued in the
future to Imagenet's employees.
During 1996, shares that represent approximately 26.7% of its
issued and outstanding shares were issued by Imagenet to outside
investors in consideration for $2.5 million (net of issuance
expenses).
As the result of the abovementioned share issuances in 1996, the
Company's holdings in Imagenet were reduced to 49.17% and the
Company reported a gain of NIS 3,644 from changes in its
ownership interest in Imagenet.
(2) Pursuant to an agreement to acquire shares in Smart-Link Ltd.
("Smart"), which is engaged in development of unique products in
the field of multimedia and computers, the Company invested
$900,000 in 1995 in exchange for 51% of Smart's issued and
outstanding shares. During 1996, the Company increased its
holdings in Smart to 60.1% by investing an additional $600,000 in
Smart's shares.
In November 1996, Smart issued 27.3% of its shares to various
investors in consideration for $3 million. As a result, the
Company's holdings in Smart were reduced to 43.7% and the Company
reported a gain of NIS 4,137 from changes in its ownership
interest in Smart.
In December 1996, Smart reached an agreement with a U.S.
investor, pursuant to which the investor would invest $1 million
in Smart's share capital. $100 thousand of the total investment
was received in 1996, another $600 thousand was received in
January 1997, and the balance is to be received in April 1997. In
light of the above, the Company's holdings in Smart will decrease
to approximately 40.6%.
(3) During 1996, Imagenet and Smart, after making a determination
that their functional currency is the dollar, began to prepare
their financial statements in dollars. In prior periods, the two
companies had prepared their financial statements in Israeli
shekels adjusted for changes in the CPI. The effect of the above
change on the Company's financial statements for prior periods is
not material and, therefore, the Company has not restated the
comparative figures in these financial statements.
374
<PAGE>
TRINET VENTURE CAPITAL LTD.
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996
(in thousands of NIS)
NOTE 4 - INVESTMENTS IN SUBSIDIARIES AND AFFILIATES (cont.)
(4) In December 1996, the Company invested $130,000 as a payment
on account of a total investment of $1 million in
consideration for an aggregate of 62.22% of the shares of
Nulan Technologies Ltd. ("Nulan"). Nulan is engaged in
development, production and marketing of communications and
multimedia products. The balance of the investment for
Nulan's shares was made in January 1997.
NOTE 5 - INVESTMENTS IN OTHER COMPANIES
As of December 31,
------------------
1996 1995
------ ------
A. Composition:
Peptor Ltd. 2,533 1,321
Comfy Interactive Films Ltd. 3,864 3,325
Logal Software and Educational Systems Ltd. 2,235 2,235
----- -----
8,632 6,881
===== =====
B. Additional details
Peptor Ltd. ("Peptor")
The investment as of the balance sheet date amounted to $679,750 for
2.02% of the investee's shares. Peptor develops innovative medicines
within the framework of a medical research program.
Comfy Interactive Films Ltd. ("Comfy")
The investment as of the balance sheet date amounted to $1,053,040 for
7.24% of the investee's shares. Comfy is engaged in the development,
manufacturing and marketing of products which give children access and
integration to computerized systems through animated films.
Logal Software and Educational Systems Ltd. ("Logal")
The investment as of the balance sheet date amounted to $600,661 for
5.73% of the investee's shares. Logal develops and markets
computer-integrated educational systems for scientific instruction in
educational institutions.
In February 1996, Logal completed an initial public offering of
1,900,000 shares on the NASDAQ Market in the United States at a price
of $8 per share. As a result, the Company's holdings in Logal were
diluted to 5.73%.
375
<PAGE>
TRINET VENTURE CAPITAL LTD.
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996
(in thousands of NIS)
NOTE 6 - SHAREHOLDER AND RELATED PARTY
As of December 31,
------------------
1996 1995
------ ------
A. Composition:
Ampal Industries (Israel) Ltd. - shareholder -- 9,119
Investment Company of Bank Hapoalim Ltd. -
related party -- 9,119
------- ------
-- 18,238
======= ======
B. Effective January 1, 1996, the above balances were converted to
unlinked, non-interest bearing capital notes (see Note 8).
NOTE 7 - OTHER CURRENT LIABILITIES
Composition: As of December 31,
------------------
1996 1995
------ ------
Deferred income taxes 550 --
Accrued expenses 39 32
------ ------
589 32
====== ======
NOTE 8 - CAPITAL NOTES
Effective on January 1, 1996, balances in the amount of NIS 18,238 due to a
shareholder and a related party (see Note 6) were converted to unlinked,
non-interest bearing capital notes. During 1996, additional nominal amounts
of NIS 3,227 were received in consideration for capital notes with
identical terms.
The effect of changes in the CPI on the unlinked capital notes are
presented in capital reserves.
376
<PAGE>
TRINET VENTURE CAPITAL LTD.
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996
(in thousands of NIS)
NOTE 9 - SHARE CAPITAL
As of December 31,
-----------------------
1996 and 1995
-----------------------
Issued and
Authorized paid up
---------- -------
Number of shares:
Ordinary shares of NIS 1 par value each 25,000 1,000
====== ======
NOTE 10 - GENERAL AND ADMINISTRATIVE EXPENSES
From
commencement
For the of operations
year ended through
December 31, December 31,
------------ ------------
A. Composition: 1996 1995 1994(*)
---- ---- -------
Professional services 255 189 330
Management fees to
related company (see B below) 609 1,388 --
Other 79 4 --
------ ------ ------
943 1,581 330
====== ====== ======
(*) See Note 1A.
B. In May 1995, the Company and the related company reached agreement
regarding fees for management services provided by the related company
to the Company, including management fees of NIS 776 for such services
for the period ended December 31, 1994. The management fees are linked
to the CPI. In addition, under conditions defined in an agreement
between the parties, the related company is entitled to additional
management fees derived, inter alia, from pre-tax gains on realization
of investments by the Company after covering all shareholder
investments in the Company.
377
<PAGE>
TRINET VENTURE CAPITAL LTD.
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996
(in thousands of NIS)
NOTE 11 - INCOME TAXES
A. The Company is subject to the provisions of the Income Tax Law
(Inflationary Adjustments) - 1985.
B. As of December 31, 1996, the Company had tax loss carryforwards of
approximately NIS 3,000.
C. The Company has not received any final income tax assessments since
incorporation.
NOTE 12 - CONDENSED FINANCIAL INFORMATION OF THE COMPANY
IN NOMINAL HISTORICAL NIS
A. Condensed balance sheets:
As of December 31,
------------------
1996 1995
---- ----
Current assets 632 460
------- -------
Investments
Subsidiaries and affiliates 7,871 4,761
Other companies 7,530 5,468
------- -------
15,401 10,229
------- -------
------- -------
16,033 10,689
======= =======
Current liabilities 589 16,526
------- -------
Capital notes 21,465 --
------- -------
Shareholders' deficiency (6,021) (5,837)
------- -------
16,033 10,689
======= =======
378
<PAGE>
TRINET VENTURE CAPITAL LTD.
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996
(in thousands of NIS)
NOTE 12 - CONDENSED FINANCIAL INFORMATION OF THE COMPANY
IN NOMINAL - HISTORICAL NIS
From
commencement
For the of operations
year ended through
December 31, December 31,
------------ ------------
: 1996 1995 1994(*)
---- ---- -------
B. Condensed statements of operations:
Revenues
Gains on changes in ownership
interests in subsidiaries 8,264 -- --
------ ------ ------
8,264 -- --
------ ------ ------
Expenses
General and administrative 908 1,343 269
Financing, Net (73) 1,066 637
------ ------ ------
835 2,409 906
------ ------ ------
------ ------ ------
Income (loss) before income taxes 7,429 (2,409) (906)
Income taxes 550 -- --
------ ------ ------
Income (loss) after income taxes 6,879 (2,409) (906)
Equity in operating results of
subsidiaries and affiliates (7,063) (2,142) (381)
------ ------ ------
Net loss (184) (4,551) (1,287)
====== ====== ======
(*) See Note 1A.
C. Statement of changes in shareholders' deficiency:
Total
Share shareholders'
capital Deficit deficiency
------- ------- ----------
Issuance of shares 1 -- 1
Loss for the period from
commencement of operations
through December 31, 1994(*) -- (1,287) (1,287)
------ ------ ------
Balance - December 31, 1994 1 (1,287) (1,286)
Net loss -- (4,551) (4,551)
------ ------ ------
Balance - December 31, 1995 1 (5,838) (5,837)
Net loss -- (184) (184)
------ ------ ------
Balance - December 31, 1996 1 (6,022) (6,021)
====== ====== ======
(*) See Note 1A.
379
<PAGE>
TRINET VENTURE CAPITAL LTD.
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996
(in thousands of NIS)
NOTE 13 - CONDENSED FINANCIAL INFORMATION OF THE COMPANY IN U.S. DOLLARS AND IN
ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)
A. Basis of presentation:
(1) The Company's functional currency is the NIS. Pursuant to the
request of a shareholder, the financial information of the
Company in nominal historical NIS, as presented in Note 12, has
been remeasured into U.S. dollars in accordance with the
principles of Statement No. 52 of the Financial Accounting
Standards Board of the United States, "Foreign Currency
Translation".
(2) The Company's investments in subsidiaries and affiliates in the
abovementioned nominal historical financial information have been
presented at the equity basis.
The Company's objective is to achieve long-term capital
appreciation from its portfolio of venture capital investments in
new and developing companies and other special investment
situations. In accordance with accounting principles generally
accepted in the United States ("U.S. GAAP"), such portfolio
investments should be reflected at value, defined as the quoted
market price for securities for which market quotations are
readily available, or as an estimate of fair value as determined
in good faith by the Board of Directors and management.
In accordance with the above policy, the following condensed
financial information reflects investments in quoted securities
at market value and investments in privately held portfolio
securities at cost until significant developments affecting the
portfolio company provide a basis for a change in valuation. In
this regard, the fair value of private securities is adjusted to
reflect meaningful third-party transactions in the private market
or to reflect significant progress or deterioration in the
development of the company's business, such that cost is no
longer reflective of fair value. Unrealized appreciation or
depreciation in the value of investments is reflected in
earnings.
(3) Deferred income taxes in the condensed financial information
below have been recorded on the unrealized appreciation of
investments, net of deferred tax benefits in respect of loss
carryforwards for tax purposes.
380
<PAGE>
TRINET VENTURE CAPITAL LTD.
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996
(in thousands of NIS)
NOTE 13 - CONDENSED FINANCIAL INFORMATION OF THE COMPANY IN U.S. DOLLARS AND IN
ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)
(cont.)
B. Condensed balance sheets (in thousands of dollars):
As of December 31,
------------------
1996 1995
------ ------
Current assets 194 147
------ ------
Investments 13,715 4,068
------ ------
------ ------
13,909 4,215
====== ======
Current liabilities
Deferred income taxes 1,832 --
Other current liabilities 12 5,272
1,844 5,272
------ ------
Capital notes 6,603 --
------ ------
Shareholders' equity (deficiency) 5,462 (1,057)
------ ------
------ ------
13,909 4,215
====== ======
C. Condensed statements of operations (in thousands of dollars):
From
commencement
For the of operations
year ended through
December 31, December 31,
------------ ------------
: 1996 1995 1994(*)
---- ---- -------
Revenues
Unrealized appreciation on
portfolio investments 8,571 -- --
Financing, net 24 -- --
------ ------ ------
8,595 -- --
------ ------ ------
Expenses
General and administrative 285 446 89
Financing, net -- 354 210
------ ------ ------
285 800 299
------ ------ ------
------ ------ ------
Income (loss) before income taxes 8,310 (800) (299)
Income taxes (1,832) -- --
------ ------ ------
Net income (loss) 6,478 (800) (299)
====== ====== ======
(*) See Note 1A.
381
<PAGE>
TRINET VENTURE CAPITAL LTD.
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996
NOTE 13 - CONDENSED FINANCIAL INFORMATION OF THE COMPANY IN U.S. DOLLARS AND IN
ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)
(cont.)
D. Statement of changes in shareholders' equity (deficiency) (in
thousands of dollars):
Total
Retained shareholders'
Share earnings Capital equity
capital (deficit) reserves (deficiency)
------- --------- -------- ------------
Issuance of shares 1 -- -- 1
Net loss for the period from
commencement of operations
through December 31, 1994(*) -- (299) -- (299)
Translation adjustments -- -- (1) (1)
------ ------ ------ ------
Balance - December 31, 1994 1 (299) (1) (299)
Net loss -- (800) -- (800)
Translation adjustments -- -- 42 42
------ ------ ------ ------
Balance - December 31, 1995 1 (1,099) 41 (1,057)
Net income -- 6,478 -- 6,478
Translation adjustments -- -- 41 41
------ ------ ------ ------
Balance - December 31, 1996 1 5,379 82 5,462
====== ====== ====== ======
(*) See Note 1A.
382
<PAGE>
[Letterhead of Deloitte Touche Tohmatsu-Igal Brightman & Co.]
AUDITORS' REPORT TO THE SHAREHOLDERS
------------------------------------
OF AM-HAL LTD.
--------------
We have audited the accompanying balance sheets of AM-HAL Ltd. ("the Company")
as of December 31, 1996 and 1995, and the related statements of operations,
changes in shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Company's Board of Directors and management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed under the Auditors' Regulations (Auditor's
Mode of Performance) - 1973. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by the Board of Directors and management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
The statutory financial statements of the Company (not presented separately
herein) were prepared in accordance with generally accepted accounting
principles ("GAAP") in Israel and in terms of new Israeli shekels ("NIS") with a
constant purchasing power as explained in Note 2B. The accompanying financial
statements have been prepared at the request of a shareholder in terms of NIS
with a constant purchasing power and in accordance with United States GAAP. See
Note 2F(2) for a discussion of the differences between Israeli and U.S. GAAP as
applicable to the Company's financial statements.
In our opinion, the accompanying financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1996
and 1995 and the results of its operations, changes in shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1996, in
accordance with generally accepted accounting principles in the United States.
Pursuant to Section 211 of the Companies Ordinance (New Version) - 1983, we
hereby state that we received all of the information and explanations which we
requested and that our opinion on the financial statements is given based on the
best of the information and explanations which we received and as reflected in
the books of the Company.
/s/ Igal Brightman & Co.
Igal Brightman & Co.
Certified Public Accountants
Tel Aviv, February 20, 1997
383
<PAGE>
[LETTERHEAD of Shlomo Ziv & Co.]
AUIDITORS' REPORT TO THE SHAREHOLDERS OF
AMPAL ENGINEERING (1994) LTD.
---------------------------------------
We have audited the balance sheets of Ampal Engineering (1994) Ltd. as at
December 31, 1996 and 1995, the related statements of income, statements of
changes in shareholders' equity and the statements of cash-flows for each of the
three years, the latest ended December 31, 1996, expressed in New Israeli
Shekels. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed under the Israeli Auditors Regulations
(Auditor's Mode of Performance), 1973 and accordingly, we have performed such
auditing procedures as we considered necessary in the circumstances. For
purposes of these financial statements, there is no material difference between
generally accepted Israeli auditing standards and auditing standards generally
accepted in the U.S. These standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement, either originating within the financial statements
themselves, or due to any misleading statement included therein. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentations. We believe that our
audits provide a reasonable basis for our opinion.
The above statements have been prepared on the basis of historical cost as
adjusted for the changes in the general purchasing power of the Israel currency,
in accordance with opinions issued by the Institute of Certified Public
Accountants in Israel. Condensed statements in historical values which formed
the basis of the adjusted statements appear in Note 7 to the financial
statements.
384
<PAGE>
In our opinion, the above mentioned financial statements present fairly, in
conformity with generally accepted accounting principles, in all material
respects, the financial position of the Company as at December 31, 1996 and
1995, the results of its operations, the changes in its shareholders' equity and
cash-flows for each of the three years, the latest ended December 31, 1996 in
conformity with accounting principles generally accepted in the United States
and in Israel (as applicable to the financial statements of the Company, such
accounting principles are practically identical).
Pursuant to Section 211 of of the Companies Ordinance (New Versions) 1983, we
state that we have obtained all the information and explanations we have
required and that our opinion on the above statements is given according to the
best of our information and the explanations received by us and as shown by the
Company's books.
/s/ SHLOMO ZIV & Co.
Tel-Aviv, March 18, 1997 SHLOMO ZIV & Co.
Certified Public Accountants (Isr.)
385
<PAGE>
[Letterhead of Cohen, Eyal, Yehoshua & Co.]
AMPAL ENTERPRISES LTD.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
SPECIAL PURPOSE STATEMENT
-------------------------
We have audited the balance sheets of Ampal Enterprises Ltd. as at December 31,
1996 and 1995, the related statements of profit and loss, the statement of
changes in shareholders' equity and the statement of cash flows for each of the
three years in the period ended December 31, 1996, expressed in New Israeli
Shekels. These financial statements are the responsibility of the Company's
Board of Directors and management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed under the Auditors Regulations (Auditor's
Mode of Performance), 1973. For purposes of these financial statements, there is
no material difference between generally accepted Israeli auditing standards and
auditing standards generally accepted in the U.S. These standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement, whether originating in
an error in the financial statements or misstatement contained therein. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the Board of
Directors and management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
The aforementioned financial statements have been prepared on the basis of
historical cost adjusted to reflect changes in the general purchasing power of
the Israel currency in accordance with pronouncements issued by the Institute of
Certified Public Accountants in Israel. Condensed nominal Israeli currency data
on the basis of which the adjusted financial statements were prepared, are
presented in Note 5.
In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1996 and
1995, the results of its operations, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1996, in
accordance with generally accepted accounting principles. Also, in our opinion,
the financial statements based on nominal data (Note 5) present fairly, in
nominal terms, the financial position of the Company as at December 31, 1996 and
1995, the results of its operations, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996, on the
basis of the historical cost convention.
Pursuant to Section 211 of the Companies Ordinance (New Version) - 1983, we
hereby state that we received all of the information and explanations which we
requested and that our opinion on the financial statements is given based on the
best of the information and explanations which we received and as reflected in
the books of the Company.
/s/ Cohen, Eyal, Yehoshua & Co.
Cohen, Eyal, Yehoshua & Co.
Certified Public Accountants (Isr.)
386
<PAGE>
[Letterhead of Fahn, Kanne & Co.]
Number: 52
Tel-Aviv, March 10, 1997
AUDITORS' REPORT TO THE SHAREHOLDERS OF
AMPAL FINANCIAL SERVICES LTD.
---------------------------------------
We have audited the balance sheets of AMPAL FINANCIAL SERVICES LTD. as of
December 31, 1996 and 1995 and the related statements of income and
shareholders' equity and cash flows for the three years in the period ended
December 31, 1996, expressed in New Israeli Shekels. These financial statements
are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits in accordance with generally accepted
auditing standards, including those prescribed under the Auditors Regulations
(Auditor's Mode of Performance), 1973 and, accordingly, we have performed such
auditing procedures as we considered necessary in the circumstances. For
purposes of these financial statements, there is no material difference between
generally accepted Israeli auditing standards and auditing standards generally
accepted in the U.S. These standards require that we plan and perform the audit
to obtain reasonable assurance that the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentations. We believe that our audits provide a reasonable basis for our
opinion.
The above statements have been prepared on the basis of historical cost as
adjusted for changes in the general purchasing power of the Israeli currency, in
accordance with opinions issued by the Institute of Certified Public Accountants
in Israel.
Condensed statements in historical values which formed the basis of the adjusted
statements appear in Note l3 to the financial statements.
In our opinion, the abovementioned financial statements present fairly the
financial position of the Company as of December 31, 1996 and 1995 and the
results of its operations, the changes in its shareholders' equity and its cash
flows for each of the three years in the period ended December 1996, in
conformity with accounting principles generally accepted in Israel, consistently
applied. Also, in our opinion, the financial statements based on nominal data
(Note 13) present fairly, in conformity with generally accepted accounting
principles, the financial position of the Company as of December 31, 1996 and
1995, the results of its operations, the changes in shareholders' equity, and
its cash flows for each of the three years in the period ended December 31,
1996, on the basis of the historical cost convention.
Accounting principles generally accepted in Israel differ in certain respects
from accounting principles generally accepted in the United States. The data
regarding this difference is summarized in Note 13 to the financial statements.
/s/ Fahn, Kanne & Co.
Fahn, Kanne & Co.
Certified Public Accountants (Isr.)
387
<PAGE>
[LETTERHEAD of Shlomo Ziv & Co.]
AUIDITORS' REPORT TO THE SHAREHOLDERS OF
AMPAL HOLDINGS (1991) LTD.
----------------------------------------
We have audited the balance sheets of Ampal Holdings (1991) Ltd. as at December
31, 1996 and 1995, the related statements of income, statements of changes in
shareholders' equity and the statements of cash-flows for each of the three
years, the latest ended December 31, 1996, expressed in New Israeli Shekels.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed under the Israeli Auditors Regulations
(Auditor's Mode of Performance), 1973 and accordingly, we have performed such
auditing procedures as we considered necessary in the circumstances. For
purposes of these financial statements, there is no material difference between
generally accepted Israeli auditing standards and auditing standards generally
accepted in the U.S. These standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement, either originating within the financial statements
themselves, or due to any misleading statement included therein. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentations. We believe that our
audits provide a reasonable basis for our opinion.
The above statements have been prepared on the basis of historical cost as
adjusted for the changes in the general purchasing power of the Israel currency,
in accordance with opinions issued by the Institute of Certified Public
Accountants in Israel. Condensed statements in historical values which formed
the basis of the adjusted statements appear in Note 8 to the financial
statements.
388
<PAGE>
In our opinion, the above mentioned financial statements present fairly, in
conformity with generally accepted accounting principles, in all material
respects, the financial position of the Company as at December 31, 1996 and
1995, the results of its operations, the changes in its shareholders' equity and
cash-flows for each of the three years, the latest ended December 31, 1996 in
conformity with accounting principles generally accepted in the United States
and in Israel (as applicable to the financial statements of the Company, such
accounting principles are practically identical).
Pursuant to Section 211 of of the Companies Ordinance (New Versions) 1983, we
state that we have obtained all the information and explanations we have
required and that our opinion on the above statements is given according to the
best of our information and the explanations received by us and as shown by the
Company's books.
Tel-Aviv, March 6, 1997 SHLOMO ZIV & Co.
/s/ SHLOMO ZIV & Co.
Certified Public Accountants (Isr.)
389
<PAGE>
[Letterhead of Fahn, Kanne & Co]
Number: 480
Tel-Aviv, March 10, 1997
AUDITORS' REPORT TO THE SHAREHOLDERS OF
AMPAL INDUSTRIES (ISRAEL) LTD.
---------------------------------------
We have audited the balance sheets of AMPAL INDUSTRIES (ISRAEL) LTD. as of
December 31, 1996 and 1995 and the related statements of income and
shareholders' equity and cash flows for the three years in the period ended
December 31, 1996, expressed in New Israeli Shekels. These financial statements
are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits in accordance with generally accepted
auditing standards, including those prescribed under the Auditors Regulations
(Auditor's Mode of Performance), 1973 and, accordingly, we have performed such
auditing procedures as we considered necessary in the circumstances. For
purposes of these financial statements, there is no material difference between
generally accepted Israeli auditing standards and auditing standards generally
accepted in the U.S. These standards require that we plan and perform the audit
to obtain reasonable assurance that the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentations. We believe that our audits provide a reasonable basis for our
opinion.
The data included in the Company's financial statements relating to the equity
in an investee company and relating to the Company's share in the results of its
operations are based on financial statements which were audited by other
auditors.
The above statements have been prepared on the basis of historical cost as
adjusted for changes in the general purchasing power of the Israeli currency, in
accordance with opinions issued by the Institute of Certified Public Accountants
in Israel.
Condensed statements in historical values which formed the basis of the adjusted
statements appear in Note 18 to the financial statements.
In our opinion, based on our audit and the reports of other auditors, the
abovementioned financial statements present fairly the financial position of the
Company as of December 31, 1996 and 1995 and the results of its operations, the
changes in its shareholders' equity and its cash flows for each of the three
years in the period ended December 1996, in conformity with accounting
principles generally accepted in Israel, consistently applied. Also, in our
opinion, the financial statements based on nominal data (Note 18) present
fairly, in conformity with generally accepted accounting principles, the
financial position of the Company as of December 31, 1996 and 1995, the results
of its operations, the changes in shareholders' equity, and its cash flows for
each of the three years in the period ended December 31, 1996, on the basis of
the historical cost convention.
Accounting principles generally accepted in Israel differ in certain respects
from accounting principles generally accepted in the United States. The data
regarding this difference is summarized in Note 19 to the financial statements.
/s/ Fahn, Kanne & Co.
Fahn, Kanne & Co.
Certified Public Accountants (Isr.)
390
<PAGE>
[LETTERHEAD OF HAFT & HAFT & CO INCL. STRAUSS, LAZER & CO.]
AMPAL (ISRAEL) LTD.
-------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
SPECIAL PURPOSE STATEMENT
-------------------------
We have audited the accompanying consolidated balance sheets of Ampal (Israel)
Ltd. as of December 31, 1996 and 1995, and the related statements of profit and
loss, changes in shareholders' equity and cash flows for each of the two years
ended on those dates, expressed in New Israeli Shekels. These financial
statements are the responsibility of the Company's Board of Directors and
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed under the Auditors' Regulations (Auditor's
Mode of Performance) - 1973. For purposes of these financial statements, there
is no material difference between generally accepted Israeli auditing standards
and auditing standards generally accepted in the U.S. These standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether originating
in an error in the financial statements or in a misrepresentation included
therein. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
Board of Directors and the Company's management as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
The aforementioned financial statements have been prepared on the basis of
historical cost, adjusted to reflect changes in the general purchasing power of
the Israeli currency in accordance with pronouncements of the Institute of
Certified Public Accountants in Israel. Condensed nominal Israeli currency data,
on the basis of which the adjusted financial statements of the Company were
prepared, is presented in Note 25.
We did not audit the financial statements of certain subsidiaries, whose assets
constitute approximately 31% and 32% of consolidated total assets as of December
31, 1996 and 1995, respectively, and whose revenues constitute approximately 48%
and 34% of consolidated total revenues for the years ended on those dates
respectively. Those statements were audited by other auditors whose reports have
been furnished to us and our opinion, insofar as it relates to the amounts
included in respect of the aforementioned subsidiaries, is based solely on the
reports of the other auditors. Also, the financial statements of included
companies which were presented at their book equity, were examined by other
auditors.
391
<PAGE>
In our opinion, based on our audits and the reports ofthe other auditors, the
financial statments present fairly, in all material respects, the financial
position of the Company on a consolidated basis as of December 31, 1996 and
1995, and the results of operations, changes in shareholders' equity and cash
flows of the Company on a consolidated basis for each of the two years ended on
December 31, 1996 and 1995, in accordance with generally accepted accounting
principles in Israel.
Also, in our opinion, the unconsolidated financial statements based on nominal
data (Note 25) present fairly, in nominal terms, the unconsolidated financial
position of the Company as at December31, 1996 and 1995, and the results of its
operations, the changes in shareholders' equity , and its cash flows for each of
the three years in the period ended December 31, 1996, on the basis of the
historical cost convention.
Accounting principles generally accepted in Israel differ in certain respects
from accounting principles generally accepted in the United States. The data
regarding the method of translation to U.S. dollars and the abovementioned
differences are summarized in Note 25F to the financial statements.
Pursuant to Section 211 of the Companies Ordinance (New Version) - 1983, we
hereby state that we received all of the information and explanations which we
requested and that our opinion on the financial statements is given based on the
best of the information and explanations which we received and as reflected in
the books of the Company.
/s/ H.H.S.L. Haft & Haft & Co.
H.H.S.L. Haft & Haft & Co.
Certified Public Accountants (Isr.)
March 10, 1997
392
<PAGE>
AMPAL PROPERTIES LTD.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
SPECIAL PURPOSE STATEMENT
-------------------------
We have audited the balance sheets of Ampal Properties Ltd. as at December 31,
1996 and 1995, the related statements of profit and loss, the statement of
changes in shareholders' equity and the statement of cash flows for each of the
two years in the period ended December 31, 1996, expressed in New Israeli
Shekels. These financial statements are the responsibility of the Company's
Board of Directors and management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed under the Auditors Regulations (Auditor's
Mode of Performance), 1973. For purposes of these financial statements, there is
no material difference between generally accepted Israeli auditing standards and
auditing standards generally accepted in the U.S. These standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement, whether originating in
an error in the financial statements or misstatement contained therein. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the Board of
Directors and management as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
The aforementioned financial statements have been prepared on the basis of
historical cost adjusted to reflect changes in the general purchasing power of
the Israel currency in accordance with pronouncements issued by the Institute of
Certified Public Accountants in Israel. Condensed nominal Israeli currency data
on the basis of which the adjusted financial statements of the Company were
prepared, is presented in Note 8.
The data in the financial statement relating to investment in an unconsolidated
subsidiary and to the Company's share in the losses of included companies,
amounting to N.I.S. 8,194 thousand are based on financial statements audited by
other auditors.
In our opinion, based on our audits and the report of the other auditors, the
financial statements present fairly, in all material respects, the financial
position of the Company at December31, 1996 and 1995, and the results of its
operations, changes in shareholders' equity and cash flows for each of the two
years in the period ended December 31, 1996, in accordance with generally
accepted accounting principles. Also, in our opinion, the financial statements
based on nominal data (Note 8) present fairly, in nominal terms, the financial
position of the Company as at December 31, 1996 and 1995, the results of its
operations, changes in shareholders' equity, and its cash flows for each of the
three years in the period ended December 31, 1996, on the basis of the
historical cost convention.
393
<PAGE>
Without qualifying our opinion, we call attention to the Company's accumulated
losses, which substantially exceed its capital.
Accounting principles generally accepted in Israel differ in certain respects
from accounting principles generally accepted in the United States. The data
regarding the method of translation to U.S. dollars and the abovementioned
differences are summarized in Note 8E to the financial statements.
Pursuant to Section 211 of the Companies Ordinance (New Version) - l983, we
hereby state that we received all of the information and explanations which we
requested and that our opinion on the financial statements is given based on the
best of the information and explanations which we received and as reflected in
the books of the Company.
/s/ Cohen, Eyal, Yehoshua & Co.
Cohen, Eyal, Yehoshua & Co.
Certified Public Accountants (Isr.)
March 10, 1997
394
<PAGE>
[LETTERHEAD OF MORRIS BRANKIN & Co.]
Independent Auditors' Report
----------------------------
To the Shareholders of
BANK HAPOALIM (CAYMAN) LTD.
We have audited the accompanying balance sheets of Bank Hapoalim (Cayman) Ltd.
(a subsidiary of Bank Hapoalim B.M.) as at December 31, 1994 and 1993, and the
related statements of income, changes in shareholders' equity and cash flows,
for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of Hapoalim (Latin
America) Casa Bancaria S.A., a 50% owned investee (1993: wholly owned
subsidiary) whose net investment and net loss constitute $1,605,408
(1993:$3,142,765) and loss of $(90,338) (1993:$(320,922); 1992:$(111,070)) of
the respective total assets and revenues. These statements were audited by other
auditors whose reports thereon have been furnished to us, and our opinion
expressed herein, insofar as it relates to the amounts included for the
investee, is based solely upon the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of the other auditors provide a
reasonable basis for our opinion.
395
<PAGE>
In our opinion, based upon our audits and the reports of other auditors, the
financial statements referred to above present fairly in all material respects,
the financial position of Bank Hapoalim (Cayman) Ltd. as at December 31, 1994
and 1993, and its results of operations, changes in shareholders' equity and its
cash flows for the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
January 25, 1995
(Except for note 9b /s/ Morris Brankin & Co.
for which the date is
March 7, 1995)
396
<PAGE>
[LETTERHEAD OF PORAT & Co.]
Report of Independent Public Accountants
----------------------------------------
of
--
COUNTRY CLUB KFAR-SABA LIMITED
------------------------------
We have audited the financial statements of Country Club Kfar-Saba Limited
(hereinafter - the Company), and the consolidated financial statements of the
Company and it's joint venture investee as follows:
- - Balance sheets of the Company as at December 31, 1996, December 31, 1995.
- - Statements of income, shareholders equity and cash flow for the company for
the two years ended December 31, 1996 and for the consolidated entity for
the year 1995.
These statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits in accordance with generally accepted
auditing standards, including those prescribed under the Auditors Regulations
(Auditor's Mode of Performance), 1973 and, accordingly we have performed such
auditing procedures as we considered necessary in the circumstances. For
purposes of these financial statements there is no material difference between
generally accepted Israeli auditing standards and auditing standards generally
accepted in the U.S. These standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
The above statements have been prepared on the basis of historical cost as
adjusted for the changes in the general purchasing power of the Israel currency
in accordance with opinions issued by the Institute of Certified Public
Accountants in Israel.
Condensed statements in historical values which formed the basis of the adjusted
statements appear in Note 22 to the financial statements. These amounts have
been translated into U.S. dollars using the method described in Note 2H.
397
<PAGE>
[LETTERHEAD OF PORAT & Co.]
Report of Independent Public Accountants
----------------------------------------
of
--
COUNTRY CLUB KFAR-SABA LIMITED
------------------------------
In our opinion, based on our audit, the above mentioned financial statements
present fairly the financial position of the Company as at December 31, 1996 and
1995, the results of its operations, the changes in shareholders' equity and
cash flows for each of the years in the period ended December 31, 1996, in
conformity with accounting principles generally accepted in Israel, consistently
applied. Also, in our opinion, the financial statements based on nominal data
(Note 22) present fairly, in conformity with generally accepted accounting
principles, the financial position of the Company as at December 31, 1996 and
1995, and the results of its operations, the changes in shareholders' equity,
and its cash flows for each of the three years in the period ended December
31, 1996, on the basis of the historical cost convention.
Pursuant to section 211 of the companies ordinance (new version) 1983, we state
that we have obtained all the information and explanations we have required and
that our opinion on the aforementioned financial statements is given to the best
of our information and the explanations received by us and as shown by the books
of the company.
Accounting principles generally accepted in Israel differ in certain respects
from accounting principles generally accepted in the United States. The
application of the latter would have affected the determination of
nominal/historical net income (loss) and shareholders' equity to the extent
summarized in Note 23 to the financial statements.
Porat & Co
/s/ Porat & Co
Certified Public Accountants (Isr.)
Ramat Gan, March 2, 1997
398
<PAGE>
[LETTERHEAD OF FRIEDMAN, SHAPIRA, GOLDSTEIN, SITERMAN & CO.]
Report of Independent Public Accountants
----------------------------------------
To the Shareholders of Epsilon Investment House Ltd.
We have audited the Consolidated Balance Sheets of Epsilon Investment House
Ltd., (an Israeli corporation) (hereinafter - "the Company") and its subsidiary
as of December 31, 1996 and 1995, and the related Consolidated Statements of
Income and the Changes in Shareholders' Equity for each of the two years in the
period ended December 31, 1996 and 1995, translated into U.S. Dollars. These
Financial Statements are the responsibility of the Company's Management. Our
responsibility is to express an opinion on these Financial Statements, based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance whether the Financial Statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the Financial Statements. An audit also includes
assessing the accounting principles used and significant estimates made by
Management, as well as evaluating the overall Financial Statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The Statement of Cash Flows for the period has not been included in the
Financial Statements.
In our opinion, the above mentioned excepted, the Financial Statements referred
to above present fairly, in all material respects, the financial position of the
Company and its subsidiary, as of December 31, 1996 and 1995 and the results of
their operations and the changes in their shareholders' equity, for each of the
two years in the period ended December 31, 1996 and 1995, in conformity with
generally accepted accounting principles.
Also, in our opinion, the translated amounts in the accompanying Consolidated
Financial Statements translated into U.S. Dollars have been computed on the
basis set forth in Note 2.2 to the Consolidated Financial Statements.
/s/ FRIEDMAN, SHAPIRA, GOLDSTEIN, SITERMAN & CO.
FRIEDMAN, SHAPIRA, GOLDSTEIN, SITERMAN & CO.
Certified Public Accountants
399
<PAGE>
[LETTERHEAD OF CR.R. VILLARMARZO Y ASOC.]
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
The Board of Directors and Stockholders
Hapoalim (Latin America) Casa Bancaria S.A.
We have audited the accompanying balance sheets of Hapoalim (Latin America) Casa
Bancaria S.A. at December 31, 1994, 1993 and 1992; the related statements of
income, cash flows and changes in equity for each of the three years in the
period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As mentioned in Note 1.5, the historical cost of land, buildings and equipment,
expressed in Uruguayan peso, has been revalued as established by the Uruguayan
Central Bank.
In our opinion, except for the situation discussed in the preceding paragraph,
the financial statements referred to above present fairly, in all material
respects, the financial position of Hapoalim
400
<PAGE>
(Latin America) Casa Bancaria S.A. at December 31, 1994, 1993 and 1992, the
results of operations, the cash flows and changes in equity for the years then
ended in conformity with generally accepted accounting principles in the United
States.
We have also reviewed the accompanying statements expressed in U.S. dollars. In
our opinion, they have been properly translated on the basis described in Note
1.8.
CR. R. VILLARMARZO Y ASOC.
Ernst & Young International
January 25, 1995
/s/ Luis F. Montone
----------------------------- -------------------------------
TIMBRES PROFESIONALES
INCLUIDOS EN EL ORlGINAL
-----------------------------
401
<PAGE>
[LETTERHEAD OF PORAT & Co.]
Report of Independent Public Accountants
----------------------------------------
of
--
Hod Hasharon Sport Center (1992) Limited Partnership
----------------------------------------------------
We have audited the balance sheet of Hod Hasharon Sport Center (1992) Limited
Partnership as at December 31, 1996 and 1995, the related statements of income,
partners' capital and cash flows for each of the two years in the period then
ended, expressed in New Israel Shekels. These financial statements are the
responsibility of the partnership management.
Our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audits in accordance with generally accepted
auditing standards, including those prescribed under the Auditors Regulations
(Auditor's Mode of Performance), 1973 and, accordingly we have performed such
auditing procedures as we considered necessary in the circumstances. For
purposes of these financial statements there is no material difference between
generally accepted Israeli auditing standards and auditing standards generally
accepted in the U.S. These standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
The above statements have been prepared on the basis of historical cost as
adjusted for the changes in the general purchasing power of the Israel currency
in accordance with opinions issued by the Institute of Certified Public
Accountants in Israel.
Condensed statements in historical values which formed the basis of the adjusted
statements appear in Note 19 to the financial statements. These amounts have
been translated into U.S. dollars using the method described in Note 2D.
402
<PAGE>
[LETTERHEAD OF PORAT & Co.]
Report of Independent Public Accountants
----------------------------------------
of
--
Hod Hasharon Sport Center (1992) Limited Partnership
----------------------------------------------------
In our opinion, based on our audit the above mentioned financial statements
present fairly the financial position of the partnership as at December 31, 1996
and 1995, the results of its operations, the changes in partners' capital and
cash flows for each of the two years in the period ended December 31, 1996, in
conformity with accounting principles generally accepted in Israel, consistently
applied. Also, in our opinion, the financial statements based on nominal data
(Note 19) present fairly, in conformity with generally accepted accounting
principles, the financial position of the partnership as at December 31, 1996
and 1995, and the results of its operations, the changes in partners' capital
and its cash flows for each of the three years in the period ended December 31,
1996, on the basis of the historical cost convention.
Pursuant to section 211 of the companies ordinance (new version) 1983, we state
that we have obtained all the information and explanations we have required and
that our opinion on the aforementioned financial statements is given to the best
of our information and the explanations received by us and as shown by the books
of the company.
Porat and Co.
/s/ Porat and Co.
Certified Public Accountants (Isr.)
Ramat Gan, February 27, 1997
403
<PAGE>
[LETTERHEAD OF KOST LEVARY & FORER]
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
MIVNAT HOLDING LTD.
We have audited the balance sheets of Mivnat Holding Ltd. ("the Company")
and the consolidated balance sheets of the Company and its subsidiary (the
"Consolidated") as of December 31, 1995 and 1996 and the related statements of
income, changes in shareholders' equity and cash flows - the Company and the
Consolidated - for each of the three years in the period ended December 31,
1996.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed by the Israeli auditors Regulations (Mode
of Performance), 1973. For purposes of these financial statements, there is no
material difference between generally accepted Israeli auditing standards and
auditing standards generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement, either
originating within the financial statements themselves or due to any misleading
statement included therein. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentations. We believe that our audits provide a reasonable basis
for our opinion.
The financial statements have been prepared on the basis of the historical
cost adjusted to reflect the changes in the general purchasing power of the
Israeli currency, in accordance with Opinion No. 36 of the Institute of
Certified Public Accountants in Israel. A summary of the Company's nominal
financial statements which served as a basis for the adjusted financial
statements is presented in Note 27.
In our opinion, the financial statements referred to above, present fairly,
in all material respects, the financial position of - the Company and the
Consolidated - as of December 31, 1995 and 1996, and the related results of
operations, changes in shareholders' equity and cash flows - the Company and the
Consolidated - for each of three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles in Israel. Also, in our
opinion, the Consolidated financial statements based on nominal data (Note 25)
present fairly, in conformity with generally accepted accounting principles, the
Consolidated financial position as of December 31, 1996 and 1995, and the
related Consolidated results of its operations, changes in shareholders' equity,
and its cash flows for each of the three years in the period ended December 31,
1996, on the basis of the historical cost convention.
Accounting principles generally accepted in Israel differ in certain
respects from accounting principles generally accepted in the United States.
Financial statements based on the application of the latter and their
translation into U.S. dollars based on the principles set forth in SFAS 52, are
presented in Note 25 to the financial statements.
Pursuant to Section 211 of the Companies Ordinance (New Version), 1983, we
state that we have obtained all the information and explanations we have
required and that our opinion on the above statements is given according to the
best of our information and the explanations received by us and as shown by the
books of the Company.
/s/ KOST, LEVAR and FORER
Tel-Aviv, Israel KOST, LEVAR and FORER
March 10, 1997 Certified Public Accountants (Israel)
404
<PAGE>
[LETTERHEAD HAFT & HAFT & Co.]
[LETTERHEAD NEXIA INTER-NATIONAL]
NIR LTD.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
SPECIAL PURPOSE STATEMENT
-------------------------
We have audited the accompanying balance sheets of Nir Ltd. as at December 31,
1996 and 1995, the related statements of profit and loss, the statement of
changes in shareholders' equity and the statement of cash flows for each of the
three years in the period ended December 31, 1996, expressed in New Israeli
Shekels. These financial statements are the responsibility of the Company's
Board of Directors and management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed under the Auditors Regulations (Auditor's
Mode of Performance), 1973. For purposes of these financial statements, there is
no material difference between generally accepted Israeli auditing standards and
auditing standards generally accepted in the U.S. These standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement, whether originating in
an error in the financial statements or misstatement contained therein. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the Board of
Directors and management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
The aforementioned financial statements have been prepared on the basis of
historical cost adjusted to reflect changes in the general purchasing power of
the Israel currency in accordance with pronouncements issued by the Institute of
Certified Public Accountants in Israel. Condensed nominal Israeli currency data,
on the basis of which the adjusted financial statements were prepared, is
presented in Note 17.
In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1996 and
1995, the results of its operations, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1996, in
accordance with generally accepted accounting principles.
Also in our opinion, the financial statements based on nominal data (Note 17)
present fairly, in nominal terms, the financial position of the Company as at
December 31, 1996 and 1995, and the results of it operations, the changes in
shareholders' equity, and its cash flows for each of the three years in the
period ended December 31, 1996, on the basis of the historical cost convention.
405
<PAGE>
Accounting principles generally accepted in Israel differ in certain respects
from accounting principles generally accepted in the United States. The data
regarding the method of translation to U.S. dollars and the abovementioned
differences are summarized in Note 17E to the financial statements.
Pursuant to Section 211 of the Companies Ordinance (New Version) - 1983, we
hereby state that we received all of the information and explanations which we
requested and that our opinion on the financial statements is given based on the
best of the information and explanations which we received and as reflected in
the books of the Company.
/s/ H.H.S.L. Haft & Haft & Co.
----------------------------------
H.H.S.L. Haft & Haft & Co.
Certified Public Accountants (Isr.)
March 10, 1997
406
<PAGE>
[Letterhead Shlomo Ziv & Co.]
AUDITORS' REPORT TO THE SHAREHOLDERS OF
PARADISE INDUSTRIES LTD.
---------------------------------------
We have audited the balance sheets of Paradise Industries Ltd. as at December
31, 1996 and 1995, the related statements of income, statements of changes in
shareholders' equity and the statements of cash-flows for each of the three
years, the latest ended December 31, 1996, expressed in New Israeli Shekels.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed under the Israeli Auditors Regulations
(Auditor's Mode of Performance), 1973 and accordingly, we have performed such
auditing procedures as we considered necessary in the circumstances. For
purposes of these financial statements, there is no material difference between
generally accepted Israeli auditing standards and auditing standards generally
accepted in the U.S. These standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement, either originating within the financial statements
themselves, or due to any misleading statement included therein. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentations. We believe that our
audits provide a reasonable basis for our opinion.
The above statements have been prepared on the basis of historical cost as
adjusted for the changes in the general purchasing power of the Israel currency,
in accordance with opinions issued by the Institute of Certified Public
Accountants in Israel. Condensed statements in historical values which formed
the basis of the adjusted statements appear in Note 25 to the financial
statements. These amounts have been translated into U.S. Dollars, using the
method described in Note 2.D., for the convenience of one of the Company's
shareholders, in accordance with the principles set forth in statement No. 52 of
the Financial Accounting Standards Board of the United States.
407
<PAGE>
In our opinion, the above mentioned financial statements present fairly, in
conformity with generally accepted accounting principles, in all material
respects, the financial position of the Company as at December 31, 1996 and
1995, the results of its operations, the changes in its shareholders' equity and
cash-flows for each of the three years, the latest ended December 31, 1996 in
conformity with accounting principles generally accepted in the United States
and in Israel (as applicable to the financial statements of the Company, such
accounting principles are practically identical).
Pursuant to Section 211 of of the Companies Ordinance (New Versions) 1983, we
state that we have obtained all the information and explanations we have
required and that our opinion on the above statements is given according to the
best of our information and the explanations received by us and as shown by the
Company's books.
Without qualifying our aforementioned opinion, we draw your attention to Note
23, regarding a claim filed against the Company related to advertising done by
the Company.
Tel-Aviv, March 10, 1997 SHLOMO ZIV & CO.
/s/ Shlomo Ziv & Co.
Certified Public Accountants (Isr.)
408
<PAGE>
[LETTERHEAD OF REUVENI, HARTUV, TEPPER & CO.]
AUDITOR'S REPORT TO THE SHAREHOLDERS OF
---------------------------------------
PRI HA'EMEK (CANNED AND FROZEN FOOD) 88 LTD.
--------------------------------------------
We have audited the accompanying balance sheets of Pri Ha'emek (Canned and
Frozen Food) 88 Limited (hereinafter the Company) as at December 31, 1995 and
1994, the consolidated balance sheets as at December 31, 1995 and 1994, and the
statements of profit and loss, changes in shareholders' equity and cash flows of
the Company and consolidated for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility of the
Company's Board of Directors and of its Management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with Generally Accepted Auditing Standards,
including those prescribed under the Auditors' Regulations (Auditor's Mode of
Performance), 1973. Those standards require us to plan and perform the audit
with the aim of obtaining a reasonable degree of assurance that the financial
statements are free of material misstatement, whether caused by an error in the
financial statements or caused by misleading information included therein. An
audit includes examining, on a test basis, evidence supporting the amounts and
information in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the Company's Board
of Directors and Management, as well as evaluating the fairness of the overall
presentation of the financial statements. We are satisfied that our audit
provides a fair basis for our opinion. For purposes of these financial
statements, there is no material difference between generally accepted Israeli
auditing standards and auditing standards generally accepted in the U.S.
The above mentioned financial statements have been prepared in New Israeli
Shekels and remeasured into U.S. Dollars in accordance with the principles of
remeasurement set forth in Statement No. 52 of the Financial Accounting
Standards Board of the U.S.A. (See Note 1).
In our opinion, based on our audit, the above mentioned financial statements
present fairly, in conformity with Generally Accepted Accounting Principles in
all material respects the financial position of the Company and consolidated as
at December 31, 1995 and 1994, and the results of the operations, the changes in
shareholders' equity and the cash flows of the Company and consolidated for each
of the three years in the period ended December 31, 1995.
Accounting principles generally accepted in Israel differ in certain respects
from accounting principles generally accepted in the United States. The
application of the latter would have affected the determination of
nominal/historical net income (loss) and shareholders' equity to the extent
summarized in Note 20 to the financial statements.
409
<PAGE>
AUDITOR'S REPORT TO THE SHAREHOLDERS OF
PRI HA-EMEK (CANNED AND FROZED FOOD) 88 LTD.
(CONTINUED)
Pursuant to Section 211 of the Companies Ordinance (New Edition) 1983, we state
that we have obtained all the information and explanations we have required and
that our opinion on the above financial statements is given according to the
best of our information and the explanations received by us and as shown by the
books of the Company.
Without qualifying our above opinion, we draw attention to note 1(2) to the
financial statements, concerning the potential importance of matters reflected
in this note on the continuance of the Company's activities as a going concern
and its ability to pay its debts as they fall due.
/s/ Reuveni, Hartuv, Tepper & Co.
Certified Public Accountants (Isr).
Tel-Aviv, March 24, 1996.
410
<PAGE>
[LETTERHEAD of DOV KAHANA & CO.]
Auditors' Report to the Shareholders
------------------------------------
of
--
Red Sea Marineland Holding (1973) Ltd.
--------------------------------------
We have examined the Balance Sheets of Red Sea Marineland Holding (1973) Ltd. as
at December 31, 1995 and 1994. Our examination was made in accordance with
generally accepted auditing standards, including those prescribed under the
Auditors Regulations (Auditor's Mode of Performance) 1973, and accordingly we
have applied such auditing procedures as we considered necessary in the
circumstances.
Information as to the effect of the changes in the general purchasing power of
the Israeli currency on the financial statements in accordance with opinions of
the Institute of Certified Public Accountants in Israel, has not been included
in the above statements.
In our opinion, except for the omission of the information referred to in the
preceding paragraph, the above Balance Sheets present fairly, in conformity with
generally accepted accounting principles, the financial position of the company
as at December 31, 1995 and 1994, on the basis of the historical cost
convention.
Pursuant to Section 211 of the Companies Ordinance (New Version) - 1983, we
state that we have obtained all the information and explanations we have
required and that our opinion on the above Balance Sheets is given according to
the best of our information and the explanations received by us and as shown by
the books of the company.
Ramat-Gan, Israel, March 11, 1996
/s/ Dov Kahana & Co.
Dov Kahana & Co.
Certified Public Accountants (Isr.)
411
<PAGE>
[LETTERHEAD OF FAHN, KANNE & Co.]
Number: 990
AUDITORS' REPORT TO THE SHAREHOLDERS OF
RED SEA MARINELAND HOLDING (1973) LTD.
---------------------------------------
We have audited the balance sheet of Red Sea Marineland Holding (1973) Ltd. as
of December 31, 1996. These financial statements are the responsibility of the
Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits in accordance with generally accepted
auditing standards, including those prescribed under the Auditors Regulations
(Auditor's Mode of Performance), 1973 and, accordingly, we have performed such
auditing procedures as we considered necessary in the circumstances. For
purposes of these financial statements, there is no material difference between
generally accepted Israeli auditing standards and auditing standards generally
accepted in the U.S. These standards require that we plan and perform the audit
to obtain reasonable assurance that the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentations. We believe that our audits provide a reasonable basis for our
opinion.
Information as to the effect of the changes in the general purchasing power of
the Israeli currency on the financial statements in accordance with opinions of
the Institute of Certified Public Accountants in Israel, has not been included
in the above statements.
In our opinion, except for the omission of the information referred to in the
preceding paragraph, the above Balance Sheet present fairly, in conformity with
generally accepted accounting principles, the financial position of the Company
as at December 31, 1996, on the basis of the historical cost convention.
Pursuant to Section 211 of the Companies Ordinance (New Version) - 1983, we
state that we have obtained all the information and explanations we have
required and that our opinion on the above Balance Sheet is given according to
the best of our information and the explanations received by us and as shown by
the books of the Company.
/s/ Fahn, Kanne & Co
Fahn, Kanne & Co
Certified Public Accountants (Isr.)
Tel Aviv, Israel, March 17, 1997
412
<PAGE>
[LETTERHEAD OF FAHN, KANNE & Co.]
Number: 991
AUDITORS' REPORT TO THE SHAREHOLDERS OF
RED SEA UNDERWATER OBSERVATORY LTD.
---------------------------------------
We have audited the balance sheet of Red Sea Underwater Observatory Ltd.
(hereinafter: "the Company") and the consolidated balance sheet of the Company
and its subsidiaries as of December 31, 1996, and the related consolidated and
company statements of income, changes in shareholders' equity and cash flows for
the year then ended, expressed in New Israeli Shekels. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits in accordance with generally accepted
auditing standards, including those prescribed under the Auditors Regulations
(Auditor's Mode of Performance), 1973. For purposes of these financial
statements, there is no material difference between generally accepted Israeli
auditing standards and auditing standards generally accepted in the U.S. These
standards require that we plan and perform the audit to obtain reasonable
assurance that the financial statements are free of material misstatement,
whether accidental or intentional. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
The above statements were prepared on the basis of historical cost as adjusted
for changes in the general purchasing power of the Israeli shekel, in accordance
with opinions issued by the Institute of Certified Public Accountants in Israel.
Condensed statements of the Company in historical values, which formed the basis
of the adjusted statements, appear in Note 14 to the financial statements. These
amounts were translated into U.S. dollars using the method described in Note 15.
The financial statements of subsidiaries operating abroad, whose assets
constitute approximately 62% of the total assets contained in the consolidated
balance sheet and whose sales constitute approximately 37% of the total revenues
contained in the consolidated statement of income for the year ended December
31, 1996, were audited by other auditors.
In our opinion, based on our audit and the reports of other auditors, as
mentioned above, the financial statements present fairly the financial position
of the Company and Consolidated as of December 31, 1996, and the results of
operations, changes in shareholders' equity and cash flows for the Company and
Consolidated for the year then ended, in conformity with accounting principles
generally accepted in Israel, consistently applied. Also, in our opinion, the
financial statements based on nominal data (Note 14) present fairly, in
conformity with generally accepted accounting principles, the financial position
of the Company as of December 31, 1996 and the results of its operations for the
year ended December 31, 1996, on the basis of the historical cost convention.
In addition, in our opinion, the condensed financial statements translated into
U.S. Dollars (Note 15) are presented fairly in conformity with S.F.A.S. 52.
/s/ Fahn, Kanne & Co.
Fahn, Kanne & Co.
Certified Public Accountants (Isr.)
Tel Aviv, Israel, March 17, 1997
413
<PAGE>
[LETTERHEAD OF DOV KAHANA & CO.]
AUDITORS' REPORT
----------------
TO THE SHAREHOLDERS OF
----------------------
RED SEA UNDER WATER OBSERVATORY LTD.
------------------------------------
We have audited the Balance Sheets of Red Sea Under Water Observatory Ltd.
(hereinafter "the Company") and the Consolidated Balance Sheet of the Company
and its subsidiaries as at December 31, 1995 and 1994, the related statements
of income and shareholders' equity and cash flows of the Company for each of the
three years, Consolidated for each of the two years, in the period ended
December 31, 1995, expressed In New Israeli Shekels. These financial statements
are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits in accordance with generally accepted
auditing standards, including those prescribed under the Auditors Regulations
(Auditor's Mode of Performance), 1973 and, accordingly, we have performed such
auditing procedures as we considered necessary in the circumstances. For
purposes of these financial statements, there is no material difference between
generally accepted Israeli auditing standards and auditing standards generally
accepted in the U.S. These standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentations. We believe that our audits provide a reasonable basis for our
opinion.
The above statements have been prepared on the basis of historical cost as
adjusted for the changes in the general purchasing power of the Israel currency
in accordance with opinions issued by the Institute of Certified Public
Accountants in Israel.
Condensed statements of the Company in historical values which formed the basis
of the adjusted statements appear in Note 14 to the financial statements. These
amounts have been translated into U.S. dollars using the method described in
Note 15.
The Financial Statements of subsidiaries operating abroad, whose assets
constitute app. 41% of the total assets contained In the Consolidated Balance
Sheet (31.12.94: app. 42%) and whose sales constitute app. 38% of the total
sales contained in the Consolidated Statement of Income for the year ended
December 31, 1995 (1994: app. 43%), have been audited by other auditors.
In our opinion, based on our audit and the reports of other auditors, as above
mentioned, the financial statements present fairly the financial position of the
Company and Consolidated as at December 31, 1995 and 1994, the results of
operations, the changes in shareholders' equity and cash flows of the Company
for each of the three years, Consolidated for each of the two years, in the
period ended December 31, 1995, in conformity with accounting principles
generally accepted in Israel, consistently applied. Also, in our opinion, the
condensed financial statements based on nominal data (Note 14) present fairly,
in conformity with generally accepted accounting principles in Israel and in the
US., the financial position of the Company as at December 31, 1995 and 1994, and
the results of its operations for each of the three years in the period ended
December 31, 1995, on the basis of the historical cost convention. As applicable
to these condensed financial statements, such accounting principles are
substantially identical in all material respects.
Also in our opinion the Condensed Translated Statements into U.S. Dollars (Note
15) are presented fairly in conformity with S.F.A.S. 52.
/s/ D. Kahana & Co.
Ramat Gan, Israel, March 21, 1996 Dov Kahana & Co.
Certified Public Accountants (Isr.)
414
<PAGE>
[LETTERHEAD OF FRIEDMAN, SHAPIRA, GOLDSTEIN, SITERMAN & CO.]
Report of Independent Public Accountants
----------------------------------------
To the Shareholders of Renaissance Investment Co. Ltd.
We have audited the Consolidated Balance Sheets of Renaissance Investment Co.
Ltd., (an Israeli corporation) (hereinafter - "the Company") and its subsidiary
as of December 31, 1995 and 1996, and the related Consolidated Statements of
Income and the Changes in Shareholders' Equity for each of the two years in the
period ended December 31, 1995 and 1996, translated into U.S. Dollars. These
Financial Statements are the responsibility of the Company's Management. Our
responsibility is to express an opinion on these Financial Statements, based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance whether the Financial Statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the Financial Statements. An audit also includes
assessing the accounting principles used and significant estimates made by
Management, as well as evaluating the overall Financial Statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The Statement of Cash Flows for the period has not been included in the
Financial Statements.
In our opinion, the above mentioned excepted, the Financial Statements referred
to above present fairly, in all material respects, the financial position of the
Company and its subsidiary, as of December 31, 1996 and 1995 and the results of
their operations and the changes in their shareholders' equity, for each of the
two years in the period ended December 31, 1996 and 1995, in conformity with
generally accepted accounting principles.
Also, in our opinion, the translated amounts in the accompanying Consolidated
Financial Statements translated into U.S. Dollars have been computed on the
basis set forth in Note 2.2 to the Consolidated Financial Statements.
/s/ FRIEDMAN, SHAPIRA, GOLDSTEIN, SITERMAN & CO.
FRIEDMAN, SHAPIRA, GOLDSTEIN, SITERMAN & CO.
Certified Public Accountants
Tel Aviv March 20, 1997
415
<PAGE>
[LETTERHEAD OF KOST LEVARY & FORER]
Messrs. Ampal Ltd.
- ------------------
Re: Financial statements of Shmay-Bar Real Estate 1993 Ltd.
("the Company") translated into U.S. dollars
-------------------------------------------------------
As you know, the Company publishes in Israel financial statements in NIS
adjusted to the changes in the Consumer Price Index, in accordance with
Statements of the Institute of Certified Public Accountants in Israel. These
primary annual financial statements of the Company for the years 1996 and 1995,
which were audited by us, and on which we expressed our opinion on February 18,
1997, have been provided to you.
We have audited the accompanying translated U.S. dollar balance sheets of
the Company as of December 31, 1996 and 1995, and the related translated U.S.
dollar statements of income for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed by the Israeli Auditors Regulations (Mode
of Performance) (Israel), 1973, which do not differ in any significant respect
from United States generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement, either
originating within the financial statements themselves, or due to any misleading
statement included therein. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
The aforementioned translated U.S. dollar financial statements have been
prepared on the basis of nominal NIS historical cost. Disclosure of the effect
of the changes in the general purchasing power of the Israeli currency in the
financial statements as stated in the Opinions of the Institute of Certified
Public Accountants in Israel, has not been included in the above mentioned
statements.
Full financial statement disclosures and statements of cash flows that are
as required by generally accepted accounting principles have not been presented
and as such, the translated U.S. dollar financial statements mentioned above are
to be read in conjunction with the primary annual audited financial statements
of the Company, as of December 31, 1996 and their accompanying Notes.
416
<PAGE>
[LETTERHEAD OF KOST LEVARY & FORER]
In our opinion, except for the effects of the matters discussed in the
preceding paragraphs, the translated U.S. dollar financial statements referred
to above present fairly, in all material respects, the translated U.S. dollar
financial position of the Company as of December 31, 1996 and 1995, and the
related translated U.S. dollar results of its operations for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles in Israel. As applicable to the Company's
financial statements, accounting principles generally excepted in the United
States and in Israel are substantially identical in all material respects.
Also, in our opinion, the translation of the aforementioned nominal figures
into U.S. dollars was made in accordance with the principles set forth in SFAS
52, see Note 3.
The aforementioned financial statements are designated solely for you as
shareholders of the Company, are not to be published or delivered to others.
Sincerely,
/s/ KOST, LEVARY and FORER
Tel-Aviv, Israel KOST, LEVARY and FORER
March 10, 1997 Certified Public Accountants (Israel)
417
<PAGE>
[LETTERHEAD OF KOST LEVARY & FORER]
Messrs. Ampal Ltd.
- ------------------
Re: Financial statements of Shmay-Bar (T.H) 1993 Ltd.
("the Company") translated into U.S. dollars
-------------------------------------------------
As you know, the Company publishes in Israel financial statements in NIS
adjusted to the changes in the Consumer Price Index, in accordance with
Statements of the Institute of Certified Public Accountants in Israel. These
primary annual financial statements of the Company for the years 1996 and 1995,
which were audited by us, and on which we expressed our opinion on February 18,
1997, have been provided to you.
We have audited the accompanying translated U.S. dollar balance sheets of
the Company as of December 31, 1996 and 1995, and the related translated U.S.
dollar statements of income for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed by the Israeli Auditors Regulations (Mode
of Performance) (Israel), 1973, which do not differ in any significant respect
from United States generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement, either
originating within the financial statements themselves, or due to any misleading
statement included therein. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
The aforementioned translated U.S. dollar financial statements have been
prepared on the basis of nominal NIS historical cost. Disclosure of the effect
of the changes in the general purchasing power of the Israeli currency in the
financial statements as stated in the Opinions of the Institute of Certified
Public Accountants in Israel, has not been included in the above mentioned
statements.
Full financial statement disclosures and statements of cash flows that are
as required by generally accepted accounting principles have not been presented
and as such, the translated U.S. dollar financial statements mentioned above are
to be read in conjunction with the primary annual audited financial statements
of the Company, as of December 31, 1996 and their accompanying Notes.
418
<PAGE>
[LETTERHEAD OF KOST LEVARY & FORER]
In our opinion, except for the effects of the matters discussed in the
preceding paragraphs, the translated U.S. dollar financial statements referred
to above present fairly, in all material respects, the translated U.S. dollar
financial position of the Company as of December 31, 1996 and 1995, and the
related translated U.S. dollar results of its operations for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles in Israel. As applicable to the Company's
financial statements, accounting principles generally excepted in the United
Sates and in Israel are substantially identical in all material respects.
Also, in our opinion, the translation of the aforementioned nominal figures
into U.S. dollars was made in accordance with the principles set forth in SFAS
52, see Note 3.
The aforementioned financial statements are designated solely for you as
shareholders of the Company, are not to be published or delivered to others.
Sincerely
Tel-Aviv, Israel /s/ KOST, LEVARY and FORER
March 10, 1997 KOST, LEVARY and FORER
Certified Public Accountants (Israel)
419
<PAGE>
[LETTERHEAD OF ALMAGOR & Co. CPA (ISR)]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Teledata Communications Ltd.
We have audited the accompanying consolidated balance sheets of Teledata
Communications Ltd. (the "Company") at December 31, 1996 and 1995 and the
related statements of operations, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We did not audit the financial statements of a consolidated subsidiary, whose
assets constitute approximately 5% and 2% of the total consolidated assets at
December 31, 1996 and 1995, respectively, and whose total revenues constitute
approximately 11%, 13% and 22% of the consolidated total revenues for the years
ended December 31, 1996, 1995 and 1994, respectively. Those statements were
audited by other accountants whose reports have been furnished to us, and our
opinion expressed herein, insofar as it relates to the amounts included for the
abovementioned subsidiary, is based solely on the reports of such other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed by the Auditors' (Mode of Performance)
Regulations (Israel), 1973. Such auditing standards are substantially identical
to generally accepted auditing standards in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the management, as
well as evaluating the overall financial statements presentation. We believe
that our audits and the reports of the other auditors provide a reasonable basis
for our opinion.
In our opinion, based on our audit and the reports of other independent auditors
as stated above, the aforementioned consolidated financial statements present
fairly, in all material respects, the consolidated financial position of the
Company and its subsidiaries at December 31, 1996 and 1995 and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with accounting principles
generally accepted in the United States.
/s/ BDO Almagor & Co.
BDO Almagor & Co.
Certified Public Accountants
Ramat-Gan, Israel,
February 16, 1997
420
<PAGE>
[LETTERHEAD OF Deloitte Touche Tohmatsu-Igal Brightman & Co.]
AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
TRINET INVESTMENTS IN HIGH-TECH LTD.
---------------------------------------------
We have audited the accompanying balance sheets of Trinet Investments in
High-Tech Ltd. as of December 31, 1996 and 1995, and the related statements of
operations, changes in shareholders' deficiency and cash flows for each of the
three years in the period ended December 31, 1996, expressed in Israeli
currency. These financial statements are the responsibility of the Company's
Board of Directors and management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in Israel, including those prescribed under the Auditors' Regulations (Auditor's
Mode of Performance) - 1973, which, for purposes of these financial statements,
are substantially identical to generally accepted auditing standards in the U.S.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
Board of Directors and management as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
The aforementioned financial statements have been prepared on the basis of
historical cost, adjusted for changes in the general purchasing power of the
Israeli currency in accordance with opinions issued by the Institute of
Certified Public Accountants in Israel. Condensed financial information in
nominal historical values, which serves as the basis for the adjusted financial
statements, appears in Note 10 to the financial statements.
In our opinion, the aforementioned financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1996
and 1995, and the results of its operations, changes in shareholders' deficiency
and cash flows for each of the three years in the period ended December 31,
1996, in conformity with accounting principles generally accepted in Israel.
Pursuant to Section 211 of the Companies Ordinance (New Version) - 1983, we
hereby state that we received all of the information and explanations which we
required and that our opinion on the financial statements is given based on the
best of the information and explanations which we received and as reflected in
the books of the Company.
The financial information presented in U.S. dollars and in accordance with
generally accepted accounting principles in the United States is based on
nominal historical amounts in Israeli currency and is presented in Note 11 to
the financial statements.
/s/ Igal Brightman & Co.
Igal Brightman & Co.
Certified Public Accountants
Tel Aviv, February 20, 1997
421
<PAGE>
[LETTERHEAD OF Kesselman & Kesselman]
AUDITORS' REPORT
To the shareholders of
U.D.S. ULTIMATE DISTRIBUTION SYSTEMS LTD.
We have audited the financial statements of U.D.S. Ultimate Distribution Systems
Ltd. (hereafter - the Company) and the consolidated financial statements of the
Company and its subsidiary: balance sheets at December 31, 1996 and 1995 and
statements of loss, change in shareholders' equity and cash flows for each of
the years ended on those dates. These financial statements are the
responsibility of the Company's Board of Directors and management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
Our audits were performed in accordance with generally accepted auditing
standards, including those prescribed by the Israeli Auditors (Mode of
Performance) Regulations, 1973. Those standards require that we plan and perform
the audit to obtain reasonable assurance that the financial statements are free
of material misstatement, whether caused by an error in the financial statements
or by misleading information included therein. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by the Company's Board of Directors and management,
as well as evaluating the overall financial statement presentation. We believe
that our audits provide a fair basis for our opinion.
The aforementioned financial statements have been prepared on the basis of
historical cost adjusted to reflect the changes in the general purchasing power
of Israeli currency, in accordance with Opinions of the Institute of Certified
Public Accountants in Israel. Condensed nominal Israeli currency data, on the
basis of which the adjusted financial statements were prepared, are presented in
note 11.
In our opinion, the aforementioned financial statements present fairly, in all
material respects, the financial position - of the Company and consolidated - at
December 31, 1996 and 1995 and the results of operations, changes in
shareholders' equity and cash flows - of the Company and consolidated - for each
of the years ended on those dates, in conformity with generally accepted
accounting principles in Israel.
422
<PAGE>
[LETTERHEAD OF Coopers & Lybrand]
Accounting principles generally accepted in Israel differ in certain respects
from accounting principles generally accepted in the United States. The
application of the latter would have no effect on the determination of
nominal/historical net income and shareholders' equity, see note 12.
The nominal Israeli currency consolidated data which are presented in note 12
have been translated into U.S. dollars for the convenience of one of the
Company's shareholders, in accordance with the principles set forth in Statement
No. 52 of the Financial Accounting Standards Board of the United States. The
translation has been properly made.
Tel-Aviv, Israel
March 5,1997
/s/ Kesselman & Kesselman
423
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 31st day of March,
1997.
AMPAL-AMERICAN ISRAEL CORPORATION
By /s/ Lawrence Lefkowitz
---------------------------------------------
Lawrence Lefkowitz, President
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons (who included a majority
of the Board of Directors) on behalf of the Registrant and in the capacities
indicated on March 31, 1997.
Signatures Title Date
- ---------- ----- ----
Arie Abend Director
Michael Arnon Director
Stanley I. Batkin Director
Yaacov Elinav Director
Harry B. Henshel Director
Irwin Hochberg Director
Herbert Kronish Director
Lawrence Lefkowitz Director
Hillel Peled Director
Shimon Ravid Director
Evelyn Sommer Director
Michael W. Sonnenfeldt Director
Raz Steinmetz Director
By /s/ Lawrence Lefkowitz March 31, 1997
- ---------------------------------------------------------
Lawrence Lefkowitz, individually, as President
(Principal Executive Officer) and as
attorney-in-fact for the Foregoing Persons
By /s/ Alan L. Schaffer March 31, 1997
- ---------------------------------------------------------
Alan L. Schaffer, Vice President-Finance and Treasurer
(Principal Financial Officer)
By /s/ Alla Kanter March 31, 1997
- --------------------------------------------------------
Alla Kanter, Vice President-Accounting and Controller
(Principal Accounting Officer)
424
<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
EXHIBITS
TO
FORM 10-K
FOR ANNUAL AND TRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
----------------------
AMPAL-AMERICAN ISRAEL CORPORATION
(Exact name of Registrant as specified in its Charter)
================================================================================
E-1
================================================================================
AGREEMENT OF SALE
between
AMPAL REALTY CORPORATION
and
THE GOVERNMENT OF ISRAEL
DATED AS OF DECEMBER 12, 1996
================================================================================
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<PAGE>
TABLE OF CONTENTS
Page
----
1. PROPERTY TO BE CONVEYED..........................................2
2. PURCHASE PRICE...................................................2
3. NO RECORDING.....................................................3
4. INABILITY TO FULFILL THE CONTRACT................................3
5. TAX APPEALS......................................................6
6. NOTICES..........................................................6
7. REAL ESTATE BROKERS AND CONSULTANTS..............................8
8. FEES AND DISBURSEMENTS OF COUNSEL, ETC...........................8
9. CLOSING OF TITLE.................................................8
10. APPORTIONMENTS...................................................8
11. CONDITION OF PROPERTY; SELLER'S COVENANTS.......................10
12. TERMINATION OF GOVERNMENT LEASE.................................13
13. FIRE, CASUALTY AND CONDEMNATION.................................13
14. TITLE...........................................................14
15. NONASSIGNABLE CONTRACT..........................................15
16. REPRESENTATIONS AND WARRANTIES..................................15
17. DISCHARGE OF SELLER'S OBLIGATIONS HEREUNDER.....................18
18. SUBMISSION TO JURISDICTION; AGENT FOR SERVICE OF PROCESS........18
19. Intentionally Omitted...........................................20
20. PUBLICITY.......................................................20
21. LIMITATION ON LIABILITY.........................................20
22. MISCELLANEOUS...................................................20
A. Counterparts; Captions and Headings...................20
B. No Oral Change........................................20
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C. Prior Understanding...................................21
D. Waivers; Extension....................................21
E. Governing Law.........................................21
F. Pronouns..............................................21
G. Calculation of Time Periods...........................21
H. Binding Effect........................................21
Exhibit A Condominium Declaration and By-Laws..................A-1
Exhibit B Documents to be Delivered............................B-1
Exhibit C Service Contracts....................................C-1
Exhibit D Insurance Policies...................................D-1
Exhibits E and E-1 General Releases............................E-1
Exhibit F Permitted Exceptions.................................F-1
Exhibit G Violations...........................................G-1
Exhibit H Certifications of Seller and Purchaser...............H-1
Exhibit I FIRPTA Affidavit.....................................I-1
Exhibit J List of Seller's Repair Obligation..................J-1
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<PAGE>
AGREEMENT OF SALE
THIS AGREEMENT, entered into as of this 12th day of December, 1996, by
and between:
AMPAL REALTY CORPORATION, a New York corporation, having its principal
place of business at 1177 Avenue of the Americas, New York, New York 10036
(hereinafter referred to as "Seller" or "Declarant"), and THE GOVERNMENT OF
ISRAEL, having an office at 800 Second Avenue, New York, New York 10017
(hereinafter referred to as "Purchaser"). (Seller/Declarant and Purchaser are
hereinafter sometimes respectively referred to individually as "Party" and
collectively as "Parties").
W I T N E S S E T H:
--------------------
WHEREAS, Seller is the owner of certain property in the City of New
York, County of New York and State of New York, known as and by street address
number 800 Second Avenue, and designated or shown as Section 5, Block 1335, Lot
1 on the Tax Map of the City of New York, New York County, New York, together
with all easements, licenses and other rights appurtenant thereto (the
"Property"); and
WHEREAS, Seller, as Declarant pursuant to a Condominium Declaration and
By-Laws (the "Declaration"), a copy of which is annexed hereto and made a part
hereof as Exhibit A, and Article 9-B of the Real Property Law of the State of
New York, intends to submit the Property to the condominium form of ownership to
create a condominium (the "Condominium") consisting of three units more
particularly described in the Declaration (hereinafter, collectively the "Units"
or the "Condominium"; individually, Unit 1, Unit 2 and Unit 3; and
WHEREAS, Seller is desirous of selling to Purchaser and Purchaser is
desirous of buying from Seller, Unit 3 (which term, as used herein, shall
include a 43.9% undivided interest in the Common Elements (as defined in the
Declaration)); and
WHEREAS, Seller and Purchaser desire to set forth their mutual
understandings and agreements with respect to the sale and purchase of Unit 3;
NOW, THEREFORE, in consideration of these premises and the mutual
promises and covenants contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Parties do hereby agree as follows:
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<PAGE>
1. PROPERTY TO BE CONVEYED
Upon and subject to the following terms, agreements, covenants and
conditions, Seller agrees to sell and convey to Purchaser and Purchaser agrees
to purchase from Seller that certain Unit in the Condominium designated as Unit
3.
2. PURCHASE PRICE
The "Purchase Price" payable by Purchaser to Seller for Unit 3 shall be
Thirty-One Million Thirty Thousand Dollars and No Cents ($31,030,000) payable as
follows:
A. Five Million Thirty Thousand Dollars and No Cents ($5,030,000) at
the Closing by wire transfer of immediately available Federal Funds to an
account specified by Seller not less than ten (10) business days prior to
Closing; and
B. Ten Million Dollars and No Cents ($10,000,000) on January 31, 1997
by wire transfer of immediately available Federal Funds to an account specified
by Seller at Closing; and
C. Sixteen Million Dollars and No Cents ($16,000,000) on January 30,
1998 by wire transfer of immediately available Federal Funds to an account
specified by Seller at Closing.
Each of the installments of the Purchase Price due under paragraphs B
and C of this Section 2 (the "Installment Payments") shall bear interest at an
annual rate equal to thirty basis points over the "LIBOR 90-day Rate"
(hereinafter defined) computed from the Closing to the date of payment and
payable when payment of the Installment Payment is made. "LIBOR 90-day Rate"
shall mean the arithmetic mean (rounded upwards if necessary to the nearest
whole multiple of one-sixteenth of one percent (1/16%)) of the offered
quotations for Dollar deposits for each 90-day period, commencing on the
Closing, which appear on the display designated as page "LIBO" on the Reuter
Monitor System (or such other page as may replace the "LIBO" page on such system
for the purpose of displaying London interbank offered rates of leading
reference banks) at or about 11:00 A.M. (London time) two business days prior to
the commencement of each 90-day period.
If the Closing takes place on or after January 31, 1997, the Purchase
Price shall be payable as follows:
(i) Fifteen Million Thirty Thousand Dollars and No Cents ($15,030,000)
at the Closing by wire transfer of immediately available Federal Funds to the
account specified by Seller; and
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<PAGE>
(ii) Sixteen Million Dollars and No Cents ($16,000,000) on January 30,
1998 by wire transfer of immediately available Federal Funds to the account
specified by Seller.
Purchaser shall have the right to prepay the Installment Payment of
$16,000,000 on March 28, 1997, June 30, 1997, September 29, 1997, and December
29, 1997 without prepayment charge on not less than five business days' notice.
3. NO RECORDING
Purchaser and Seller each agrees that it will not record this Agreement
nor any memorandum or notice thereof without the prior written consent of the
other Party having been attached to each instrument prepared for recording. Any
recording in violation of this provision shall be void ab initio; be a material
breach hereof and hereunder; and the Party who records this Agreement shall be
liable for all fees and costs incurred in order to clear said recorded
instrument from the records, including, without limitation, attorneys' fees and
disbursements.
4. INABILITY TO FULFILL THE CONTRACT
A. Purchaser agrees promptly after execution of this Agreement to order
a report of title or title commitment (the "Commitment) from Chicago Title
Insurance Company ("CTIC") and to provide Seller with a copy thereof not more
than ten (10) days after the date hereof together with written notice from
Purchaser's attorney of any exceptions, defects or objections which Purchaser
claims are in addition to those permitted under Article 14 of this Agreement.
Failure of Purchaser to so notify Seller within the time period specified above
shall constitute a waiver of any such exception, defect or objection disclosed
in the Commitment. If Purchaser's continuation of title to the Closing Date
discloses exceptions, defects or objections not disclosed in the Commitment or
previously objected to by Purchaser, then, subject to the provisions of Section
B of this Article 4, Seller's removal of the same shall be a condition to
Purchaser's obligation to close. Purchaser shall give Seller prompt notice of
any such exceptions, defects or objections.
B. If, at the Closing, Seller is unable to convey to Purchaser title to
Unit 3 subject to and in accordance with the provisions of this Agreement, or
otherwise fulfill its obligations hereunder, or if any representation of Seller
set forth in this Agreement shall be untrue in a material respect, or if Seller
is otherwise in default hereunder (in each case other than a wilful default),
Seller shall be entitled, upon written notice delivered to Purchaser at or prior
to the Closing, to a reasonable adjournment of the Closing Date, for a period up
to 90
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<PAGE>
days, to enable Seller to convey such title, fulfill such conditions, correct
such representation or cure any such default. If Seller does not so elect to
adjourn the Closing, or if at the adjourned date Seller is still unable to
convey title subject to and in accordance with the provisions of this Agreement,
fulfill such conditions, correct such representation or cure such default (in
each case other than a willful default), Purchaser's sole right and remedy shall
be to terminate this Agreement by notice as provided in Article 6 hereof, in
which event Seller shall reimburse Purchaser for the net cost of title
examination. Upon Purchaser's exercise of such option to terminate and upon such
reimbursement being made by Seller to Purchaser, this Agreement shall
automatically become void and of no further force or effect, and neither Party
shall have any obligations of any nature to the other hereunder or by reason
hereof, except that the provisions of Articles 3, 7, and 8 hereof shall survive
such termination. If Seller elects to adjourn the Closing as provided above,
this Agreement shall remain in effect for the period of adjournment, in
accordance with its terms. Notwithstanding anything herein contained to the
contrary, if there shall be any liens affecting Unit 3 which are not permitted
exceptions listed in Exhibit B annexed hereto and made part hereof (hereinafter
referred to as the "Permitted Exceptions") and which can be removed or satisfied
by the payment of a liquidated sum of money up to an aggregate of $1,000,000,
the existence of such liens shall not be deemed objections to title and Seller
shall either (i) cause such liens to be discharged of record by payments, bond
or otherwise, (ii) deposit with CTIC sufficient monies acceptable to and
required by CTIC to insure obtaining and recording discharges thereof and the
issuance of a policy of title insurance to Purchaser free of such liens or (iii)
furnish to CTIC an indemnity agreement in form and substance sufficient to
enable it to issue a policy of title insurance to Purchaser free of such liens.
Except as otherwise provided in this Section B, nothing contained herein shall
be deemed to require Seller to bring any action or proceeding or to take any
other steps to remove any defect in, or exception or objection to, title or to
fulfill any condition or expend any moneys therefor, nor shall Purchaser have
any right of action against Seller, at law or in equity, or, subject to the
provisions of Section C of this Article 4, for damages or specific performance.
C. In the event that at Closing or prior thereto Seller shall wilfully
default under this Agreement, Purchaser shall be entitled, as Purchaser's sole
right and remedy, to elect either to (i) enforce this Agreement (without any
reduction or abatement of the Purchase Price and without any credit or allowance
against the same) by an action for specific performance or (ii) terminate this
Agreement, in which event (a) Seller's sole liability and obligation shall be to
pay to Purchaser, as and for liquidated damages, the sum of $100,000 and the net
cost
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<PAGE>
to Purchaser of title examination, and (b) Purchaser's obligations under this
Agreement shall terminate. A wilful default shall mean the occurrence of any of
the following: (a) if during the term of this Agreement Seller, without first
obtaining the written consent of Purchaser, voluntarily encumbers Unit 3 or
enters into any agreement to modify a Permitted Exception, (b) on the Closing
Date (as the same may be adjourned as provided in this Agreement or as may be
agreed to by the Parties) Seller fails or refuses to execute and deliver to
Purchaser a deed to Unit 3, (c) Seller fails or refuses to pay when due any
monetary obligation required to be paid by Seller under this Agreement, (d)
Seller fails or refuses to execute and deliver any of the documents Seller is
required to execute and deliver under this Agreement, or (e) Seller fails or
refuses to perform its obligations under Section 4F or 4G. In all cases other
than Seller's default under the immediately preceding sentence of this Section
C, Seller's failure to convey title to Unit 3 in accordance with the terms of
this Agreement shall not be deemed to constitute Seller's wilful default
hereunder. The Parties agree that in the event Seller shall willfully default
under this Agreement, Purchaser's actual damages would be mathematically
difficult to calculate, and in regard thereto, Seller agrees that a good faith
estimate of the damages which would reasonably compensate Purchaser is the sum
of $100,000.
D. Without limiting Seller's obligations hereunder, Purchaser may (but
shall not be obligated to) at the Closing accept such title as Seller can
convey, without reduction in, or abatement of, the Purchase Price and without
receipt of any credit or allowance on account thereof, and without any claim
against Seller.
E. The Parties agree that in the event Purchaser shall default in the
performance of Purchaser's obligations under this Agreement, Seller's actual
damages would be mathematically difficult to calculate, and in regard thereto,
Purchaser agrees that a good faith estimate of the damages which would
reasonably compensate Seller is the sum of $100,000. Accordingly, Seller shall
have the right to payment of the sum of $100,000 from Purchaser, as its sole and
exclusive remedy and as liquidated damages, to recompense Seller for time spent
and the loss of its bargain. Seller shall not seek or obtain injunctive relief,
including, without limitation, specific performance.
F. Seller has obtained from the New York State Department of Law a
so-called "no-action letter" with respect to the sale hereunder (a copy of which
has been furnished to Purchaser), which "no-action letter" shall be in full
force and effect on the Closing Date as a condition thereto. In the event that
by Closing, Seller has not obtained the requisite approvals necessary to convert
the Property to a Condominium (viz., the
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<PAGE>
securing of separate tax lot designations for the Units), then either party may
terminate this Agreement in accordance with Section B of this Article 4. Seller
shall use reasonable commercial efforts to obtain such separate tax lot
designations for the Units. Either Party shall have the right to adjourn the
Closing to enable Seller to obtain such separate tax lot designations and Seller
shall continue diligently and in good faith to exercise such efforts to obtain
such separate tax lot designations.
G. All violations of law or municipal ordinances, orders, requirements
or regulations noted in or issued by the Departments of Buildings, Fire, Labor,
Health or other Federal, State, County, municipal and other governmental
departments, agencies and authorities having jurisdiction against or affecting
Unit 3 of which Seller has received notice on the date of this Agreement and any
outstanding work orders and requirements of any company insuring the Property
against casualty loss, shall be remedied by Seller, at its sole cost and
expense, except that the cost of remedying violations relating to the fire
safety system of the Property shall be borne by Purchaser and by Seller as a
General Common Expense. The existence on the Closing Date of any such
violations, work orders or requirements which are Seller's obligation to remedy
shall not be deemed an objection to title nor a condition to Purchaser's payment
of the Purchase Price on the Closing Date, but Seller's obligation to remedy any
such violations, work orders or requirements shall survive the Closing. Seller
shall furnish Purchaser with an authorization to make the necessary violation
searches. Seller shall use reasonable efforts to remedy and obtain the dismissal
of the violations, work orders or requirements which are Seller's obligation to
remedy within six months of the Closing. The provisions of this Section G shall
survive the Closing.
5. TAX APPEALS
Seller represents that there is a pending proceeding for the correction
of the assessed valuation of the Property for the tax fiscal year 1996/97.
Seller shall have the right, at its expense, to continue the proceeding and
shall be entitled to retain any tax refund resulting therefrom, subject to
Purchaser's rights under Section 51H of that certain lease between AEW #6
Corporation, as landlord, and Purchaser, as tenant, dated December 31, 1991, as
amended (the "Government Lease").
6. NOTICES
All notices, demands, requests, consents, approvals and other
communications (all of the foregoing, for the purposes of this Article, being
herein collectively referred to as "Notices") required or permitted to be given
under the terms of this
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<PAGE>
Agreement, shall be in writing, and shall be sent by hand delivery, by
telecopier, by registered or certified mail, return receipt requested, postage
prepaid, or by a nationally recognized overnight delivery service, fully
prepaid, and addressed to the Parties as follows:
To Seller:
Ampal Realty Corporation
c/o Ampal-American Israel Corporation
1177 Avenue of the Americas
New York, New York 10036
Attention: Lawrence Lefkowitz, President
and concurrently in the same manner to:
Kronish, Lieb, Weiner & Hellman LLP
1114 Avenue of the Americas
New York, New York 10036-7798
Attention: William J. Lippman, Esq.
To Purchaser:
The Government of Israel
800 Second Avenue
New York, New York 10017
Attention: Eli Zitouk, Chief Fiscal Officer
With copies thereof sent concurrently in the same manner to:
Arnold & Porter
399 Park Avenue
New York, New York 10022-4690
Attention: Keith Pattiz, Esq.
All Notices shall be effective, as applicable, upon the date when
delivered by hand or upon being deposited in the United States mail or with said
overnight delivery service. However, the time period in which a response to any
such Notice must be given shall commence to run from the date of receipt noted
on the return receipt of the Notice by the addressee thereof. Rejection or other
refusal to accept shall be deemed to be receipt of the Notice sent as of the
date of such rejection or refusal. Either Party may, from time to time, by
notice in writing served upon the other Party, in the same manner as prescribed
in this Article, designate a different mailing address or a different or
additional person to which all such Notices are thereafter to be addressed.
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<PAGE>
7. REAL ESTATE BROKERS AND CONSULTANTS
Each of Seller and Purchaser represents to the other that it has not
dealt with any party in connection with this transaction who might be entitled
to a commission or compensation from the representing party on account of
introducing the Parties, the preparation or submission of this Agreement or the
closing of the transactions contemplated hereby. Each of Seller and Purchaser
hereby agrees to indemnify and hold harmless the other, and the other's
successors and assigns, from and against any and all losses, claims,
liabilities, expense, costs and/or damages including, without limitation,
attorneys' fees and disbursements, arising out of, or in connection with, any
claim by any party claiming to have dealt with the indemnitor for a commission
or other compensation by reason of, or arising out of, the transaction
contemplated hereby or herein.
The provisions of this Article 7 shall survive, as applicable, the
Closing and delivery of the Deed or the earlier termination of this Agreement.
8. FEES AND DISBURSEMENTS OF COUNSEL, ETC.
Each of the Parties shall bear and pay the fees and disbursements of
its own counsel, accountants, consultants, engineers, architects and other
advisors in connection with the negotiation and preparation of this Agreement,
the transaction contemplated hereby and the Closing and delivery of the Deed.
Seller shall bear and pay all expenses in connection with the formation of the
Condominium. The provisions of this Article 8 shall survive, as applicable, the
Closing and delivery of the Deed or the earlier termination of this Agreement.
9. CLOSING OF TITLE
Closing of title (herein referred to as the "Closing") shall take place
at the office of Kronish, Lieb, Weiner & Hellman LLP, 1114 Avenue of the
Americas, New York, New York 10036 on January 16, 1997 (herein referred to as
the "Closing Date") at 10:00 a.m. or on such later date to which the Closing may
be adjourned pursuant to this Agreement or by mutual agreement of the Parties.
At the Closing, Seller and Purchaser will deliver to each other the items set
forth in Exhibit B annexed hereto and made a part hereof.
10. APPORTIONMENTS
A. The following are to be apportioned as of 11:59 P.M. on January 15,
1997, unless the Closing Date occurs after January 16, 1997, in which case the
following shall be
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apportioned as of 11:59 P.M. of the day next preceding the actual Closing Date
(the "Apportionment Date"):
(1) Rent, additional rent and all other charges payable by
Purchaser under the Government Lease shall be apportioned between Seller and
Purchaser for the month in which the Closing occurs. If Purchaser is in arrears
in the payment of rent, additional rent or other charges on the Closing Date,
the entire amount of such arrears shall be payable on the Closing Date.
(2) Sewer rents, street vault charges, special assessments, if
any, and the assessment of the 42nd Street Business Improvement District ("BID")
on the basis of the fiscal year or period for which assessed, shall be
apportioned between Seller and the Condominium except that if the Apportionment
Date shall occur before the sewer rent, street vault charges, special assessment
or BID assessment is fixed, then the apportionment of sewer rents, street vault
charges, special assessments or BID assessment shall be upon the basis of the
sewer rent, street vault charge, special assessment or BID assessment for the
next preceding year and shall be re-apportioned, if necessary, after the amount
thereof becomes fixed.
(3) If there are water meters in Unit 3, Purchaser, to the extent
that the same is obtainable, shall furnish a reading to a date prior, and as
close as possible to, the Apportionment Date, and the unfixed meter charges, if
any, based thereon for the intervening period shall be apportioned between
Seller and the Condominium on the basis of such last reading, subject however to
readjustment, as hereinafter provided. The reading taken subsequent to, and as
soon as possible following, the Apportionment Date will then be apportioned on a
per diem basis from the date of such reading immediately prior thereto and
Seller shall either pay the undercharge to the Condominium, or be reimbursed the
overcharge by the Condominium based upon a comparison of the readings taken
prior and subsequent to the Apportionment Date. Unpaid water meter charges,
sewer rents and other utility charges for direct service to a tenant other than
Purchaser and for which such tenant is responsible for payment under the terms
of its lease, or otherwise, shall not be objections to title if Seller is using
reasonable commercial efforts to cause such tenant to pay such water meter
charges, sewer rents or other utility charges.
(4) Seller, Purchaser and the Condominium shall make their own
arrangements for the closing and opening of separate accounts for utility
charges and such charges shall not be prorated.
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(5) The payments and charges relating to the Service Contracts
(hereinafter defined) set forth on Exhibit C annexed hereto and made a part
hereof shall be apportioned between Seller and the Condominium as of the
Apportionment Date.
(6) The payments and charges relating to all licenses and permits
affecting the entire Property shall be apportioned between Seller and the
Condominium as of the Apportionment Date.
(7) The value of building inventory and supplies for the common
areas, including, without limitation, refrigerant for the Building's air
conditioning system, soap, light bulbs and paper supplies, in unopened
containers, in accordance with an inventory prepared by Seller, shall be
apportioned between Seller and the Condominium as of the Apportionment Date.
(8) The wages and fringe benefits of employees of the Property
shall be apportioned between Seller and the Condominium as of the Apportionment
Date.
The Unit Owners will cause the Condominium to allocate the amounts set
forth in paragraphs 2, 3, 5, 6, 7, and 8, payable by the Condominium between the
Unit Owners in accordance with their respective percentage interests in the
common elements of the Condominium as set forth in Exhibit A to this Agreement.
Seller shall make all real estate tax payments for the tax year 1996/97
and there shall be no apportionment thereof between Seller and Purchaser.
B. Seller and Purchaser agree that any errors or omissions in computing
apportionments at Closing shall be corrected after the Closing.
C. At Closing, Seller and Purchaser shall pay to the managing agent of
the Property, their respective shares of the common expenses of the Condominium
for the period from the Closing Date through the last day of the calendar month
in which the Closing Date occurs. The payments to be made by Seller and
Purchaser under this paragraph C shall be based upon the budgets attached to the
Declaration as Schedules II and III.
D. The provisions of this Article 10 shall survive the Closing and
delivery of the Deed.
11. CONDITION OF PROPERTY; SELLER'S COVENANTS
A. Purchaser acknowledges and agrees that (i) Seller has made no
representations or warranties with respect to the
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<PAGE>
Property or Unit 3, including, without limitation, the value, quality, character
or physical condition of the Property or Unit 3 or with respect to compliance
with the provisions of the Americans with Disabilities Act and (ii) it has
received and reviewed the 800 Second Avenue Condition Report prepared by Stanley
H. Goldstein, P.C., dated May 18, 1995, as amended by Addendum No. 1 dated
September 30, 1996. Purchaser acknowledges that, except as expressly set forth
in this Agreement, neither Seller nor any officer, employee, consultant or other
person representing or purportedly representing Seller has made, and Seller is
not liable for or bound in any manner by, any express or implied warranties,
guaranties, promises, statements, inducements, or representations pertaining to
the physical condition or state of repair of the Property or Unit 3, or any part
thereof, the state of title thereof, the income, the expenses and operation
thereof, the uses which can be made of the same or any other matter or thing
with respect thereto. Without limiting the foregoing, Purchaser acknowledges and
agrees that, except as expressly set forth in this Agreement, Seller is not
liable or bound by (and Purchaser has not relied upon) any verbal or written
statements, representations or any other information concerning the Property or
Unit 3 furnished by Seller or any past or present officer, employee, consultant
or other person representing or purportedly representing Seller. Purchaser
further agrees that Seller shall not be responsible for any statements or
representations of any kind furnished to Purchaser by any real estate broker or
any other person or entity, except as specifically set forth herein.
B. Purchaser represents that it has been afforded the opportunity to
inspect, examine and make an independent investigation of the physical and
environmental condition, value, layout and square footage of the Property and
Unit 3, and agrees that Purchaser is purchasing, and is willing to accept, the
same "AS IS" and "WHERE IS" (i.e., in the condition existing on the date of this
Agreement), subject to natural deterioration and normal wear and tear and to the
provisions of Article 13 of this Agreement.
C. Except as provided on Exhibit J attached hereto, nothing in this
Agreement shall require Seller to incur any expense of any kind whatsoever to
repair, restore, or otherwise cure any condition or state of facts with respect
to Unit 3 or the Property or to comply with any provisions of the Americans with
Disabilities Act.
D. Between the date of this Agreement and the Closing Date, Seller
shall, at its sole cost and expense:
(1) Maintain and operate the Property in substantially the same
condition and manner as the Property is
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<PAGE>
now maintained and operated by Seller, ordinary wear and tear, natural
deterioration and damage by casualty excepted;
(2) Permit Purchaser and its designated agents to inspect the
Property and all books and records pertaining to the operation and maintenance
thereof, at reasonable hours on business days upon reasonable notice;
(3) Maintain all of the insurance policies referred to in Exhibit
D annexed hereto and made a part hereof in full force and effect and not reduce
the coverage provided therein;
(4) Promptly deliver notice to Purchaser of any actual or
threatened condemnation of the Property or any portion thereof;
(5) Maintain all Permits (as hereinafter defined) in full force
and effect;
(6) Obtain all necessary governmental approvals in connection
with the conveyance of Unit 3;
(7) Promptly deliver to Purchaser copies of any work orders or
requirements of any company insuring the Property against casualty loss actually
received by Seller; and
(8) Promptly deliver to Purchaser copies of any notes or notices
of violation of law or ordinances, orders, requirements or regulations of any
Federal, State, County, municipal or other governmental or quasi-governmental
department, agency or authority relating to the Property actually received by
Seller.
E. From the date of this Agreement to the Closing Date, Seller shall
not:
(1) Modify, amend, renew, extend, terminate or otherwise alter
any employment contracts affecting Unit 3, or increase any wages or fringe
benefits payable to building and service employees, except any increase payable
under existing Service Contracts;
(2) Modify, amend, renew, extend, terminate or otherwise alter
any of the Service Contracts, nor enter into any new maintenance or service
contracts or any other agreements affecting Unit 3, without the prior written
consent of Purchaser in each instance;
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The provisions of this Article 11 shall survive the Closing and
delivery of the Deed or the earlier termination of this Agreement.
12. TERMINATION OF GOVERNMENT LEASE
On the Closing Date (a) the Government Lease shall terminate and all
payments due thereunder from Purchaser as tenant shall be apportioned as of the
Apportionment Date pursuant to Section 10 hereof and (b) Seller and Purchaser
shall execute and deliver to each other general releases in the forms of
Exhibits E and E-1 attached hereto.
13. FIRE, CASUALTY AND CONDEMNATION
A. In lieu of Section 5-1311 of the New York General Obligations Law,
the following provisions shall apply to this Agreement: (i) If at any time prior
to Closing, any portion of Unit 3 (a) is destroyed or damaged as a result of
fire or any other casualty (hereinafter collectively referred to as "Casualty"),
or (b) is taken under the power of eminent domain (hereinafter referred to as
"Taking"), Seller shall promptly give written notice (hereinafter referred to as
"Damage Notice") thereof to Purchaser. Any damage to or destruction of Unit 3 as
a result of a Casualty or Taking shall be deemed to be immaterial if 10% or less
of the rentable floor area of Unit 3 is damaged or unusable. If there shall be
immaterial damage, neither Party shall have the right to terminate this
Agreement and there shall be no abatement in the Purchase Price, and in lieu of
any such abatement, Seller shall execute, acknowledge and deliver to Purchaser
at the Closing, in counterparts, an assignment, expressly made without
representation or warranty by Seller and without recourse to Seller, of Seller's
interest in any net insurance or condemnation proceeds (that is, after expense
of collection) which may be payable to Seller with respect to Unit 3 as a result
of the Casualty or Taking, subject, however to Seller's right to receive
reimbursement therefrom of any amounts paid or incurred by Seller for or on
account of repairs and/or restoration prior to the Closing.
B. If prior to the Closing there shall be material (i.e., more than 10%
of the rentable floor area of Unit 3 is damaged or unusable) damage to, or
destruction of, Unit 3 as a result of a Casualty or a Taking of Unit 3 or if
there is damage to, or destruction of, the Common Elements as a result of a
Casualty or a Taking which renders Unit 3 inaccessible and cannot be repaired
and restored prior to Closing, Purchaser and Seller shall each have the right to
terminate this Agreement by providing written notice to the other Party within
ten (10) days after Purchaser's receipt of said Damage Notice. Upon such
termination, all claims and obligations of the Parties, except as
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otherwise expressly provided herein, shall be immediately released and
discharged. Notwithstanding any of the foregoing, in the event of such
termination, the provisions of Articles 3, 7 and 8 hereof shall survive such
termination. If neither Purchaser nor Seller elects to terminate this Agreement
in accordance with the foregoing terms of this Paragraph B, there shall be no
abatement in the Purchase Price and the net insurance or condemnation proceeds
(that is, after expense of collection) shall be (i) delivered or assigned to
Purchaser at the Closing with respect to damage to or a Taking of Unit 3, and/or
(ii) held in escrow by Seller and delivered to the Condominium Board of Managers
at Closing to be applied in accordance with the provisions of the Declaration
with respect to damage to or a Taking of the Common Elements, subject, however,
to Seller's right to receive reimbursement therefrom of any amounts paid or
incurred by Seller for or on account of repairs and/or restoration prior to the
Closing.
C. If there shall be damage to, or destruction of, the Common Elements
as a result of a Casualty or Taking which does not prevent access to Unit 3,
neither Party shall have the right to terminate this Agreement, and there shall
be no abatement in the Purchase Price and the net insurance or condemnation
proceeds (that is, after expense of collection) shall be held in escrow by
Seller and delivered to the Condominium Board of Managers at Closing to be
applied in accordance with the provisions of the Declaration, subject, however,
to Seller's right to receive reimbursement therefrom of any amounts paid or
incurred by Seller for or on account of repairs and/or restoration prior to the
Closing.
14. TITLE
A. Seller agrees to transfer to Purchaser at Closing, good, marketable
and insurable title (as the latter term is hereinafter defined) to Unit 3,
subject to no liens, claims, encumbrances, rights-of-way, easements,
restriction, reservations, covenants, conditions, claims, liabilities, charges,
reversions or other agreements or any other matter affecting title, except for
the permitted exceptions listed on Exhibit F attached hereto and made part
hereof (the "Permitted Exceptions"). The words "insurable title" and "insurable"
as used in this Agreement are hereby defined to mean title which is insurable
(at standard rates without special premium) by Chicago Title Insurance Company
or First American Title Insurance Company of New York without exception other
than the Permitted Exceptions.
B. Subject to Article 4 hereof, from and after the date hereof and
until Closing or the earlier termination of this Agreement, Seller agrees that
it will not create or permit to
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exist any lien, encumbrance or charge on Unit 3, or any part thereof (other than
the Permitted Exceptions) without discharging or causing the same to be
discharged at, or prior to, the Closing, except with the express written consent
of Purchaser.
15. NONASSIGNABLE CONTRACT
Purchaser shall not have the right, without Seller's prior written
consent, which consent may be withheld in Seller's sole discretion, to assign or
transfer any of its rights, obligations and interest under this Agreement prior
to the Closing.
Any assignment or transfer of this Agreement made without Seller's
prior written consent shall be void and a material breach of this Agreement and
such assignee or transferee shall acquire no rights hereunder. The provisions of
this Article 15 shall survive, as applicable, the Closing and delivery of the
Deed or the earlier termination of this Agreement.
16. REPRESENTATIONS AND WARRANTIES
A. Purchaser represents and warrants to Seller as follows:
(1) The person or persons executing and delivering this Agreement
on behalf of Purchaser have all requisite and necessary power and authority to
execute and deliver this Agreement and to perform its obligations hereunder or
contemplated hereby and have been duly authorized to do so.
(2) This Agreement is the legal and binding obligation of
Purchaser, enforceable against Purchaser in accordance with its terms.
B. Purchaser represents that it has received from Seller the following
information:
(a) a statement of the estimated common charges for calendar year
1997;
(b) a copy of the most recent income and expense statement for
the Property;
(c) a copy of the 800 Second Avenue Condition Report prepared by
Stanley H. Goldstein, P.C. dated May 18, 1995, as supplemented by Addendum No. 1
dated September 30, 1996.
(d) a copy of the certificate of occupancy for the Property; and
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(e) a copy of Seller's application for the "no- action letter"
referred to in Section 4F and a copy of such"no- action letter."
C. Seller represents and warrants to Purchaser as follows:
(1) (a) Seller is a corporation duly organized, validly existing
and in good standing under the laws of the State of New York; (b) Seller has the
power and authority to sell and convey Unit 3 and to execute the documents
referred to herein to be executed by Seller; (c) prior to the execution of this
Agreement, Seller has taken all corporate actions required for the consummation
of the transactions contemplated by this Agreement; and (d) this Agreement is
the legal and binding obligation of Seller, enforceable against Seller in
accordance with its terms.
(2) There are no special or other assessments for public
improvements or otherwise now affecting the Property, nor does Seller have
actual knowledge of (a) any pending or threatened special assessments affecting
the Property or (b) any contemplated improvements affecting the Property that
may result in special assessments affecting the Property;
(3) To the actual knowledge of Seller, all certificates of
occupancy, licenses, certificates and permits (the "Permits") required to be
issued by any governmental or quasi-governmental agency or authority or any
board of fire underwriters or similar organization or institution for or used in
connection with the operation of the Property (except Permits or certificates
relating to the fire safety system) have been issued or have been applied and
paid for and are in full force and effect; the current use and occupancy of the
Property does not violate any of the Permits;
(4) To the actual knowledge of Seller, there is no action or
proceeding (zoning, environmental or otherwise) or governmental investigation
pending, or threatened against, or relating to, Seller (insofar as it relates to
the Property), the Property, or the transactions contemplated by this Agreement,
except for the violations listed on Exhibit G attached hereto and made part
hereof;
(5) Seller has no actual knowledge of any pending or threatened
condemnation or eminent domain proceedings relating to or affecting the
Property;
(6) There are no service or maintenance contracts or management
agreements (written or oral) relating to or affecting the Property other than as
set forth in Exhibit C (such
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<PAGE>
contracts and agreements being hereinafter collectively referred to as the
"Service Contracts") and true and complete copies of all of the Service
Contracts, including all agreements, amendments, guarantees, and other documents
relating thereto have been delivered to Purchaser and are described on Exhibit C
and there are no other such agreements or documents, written or oral;
(7) Each of the Service Contracts is in full force and effect,
and to Seller's actual knowledge, none of the parties thereto is in default of
any of its obligations thereunder, and no event has occurred that, with the
giving of notice or passage of time, or both, would constitute a default
thereunder;
(8) All insurance policies held by Seller relating to or
affecting the Property are described in Exhibit D and all of such policies are
in full force and effect;
(9) To Seller's actual knowledge, there are no outstanding
requirements or recommendations by any insurance company that issued a policy
with respect to the Property or by any board of fire underwriters or other body
exercising similar functions requiring or recommending any repairs or work to be
done at the Property;
(10) All vault charges, if any, due and payable on the Closing
Date with respect to the Property will have been paid.
D. All of the representations and warranties of each of Purchaser and
Seller set forth in this Agreement and any Exhibit annexed hereto, or in any
letter or certificate furnished pursuant to the terms hereof, each of which is
incorporated herein by reference and made a part hereof, shall be true upon the
execution of this Agreement, shall be deemed to be repeated at and as of the
Closing Date, and all of the representations, warranties and agreements of
Purchaser and of Seller set forth in this Agreement shall survive the Closing
for a period of six months, except that Purchaser's representations under
Section A of this Article 16 and Sellers' representations under paragraph (1) of
Section C of this Article 16 shall survive the Closing without limitation of
time.
E. Without limiting any of the rights of Seller and Purchaser provided
for elsewhere in this Agreement, it is agreed that the obligations of Seller and
Purchaser to close title under this Agreement are conditioned upon the accuracy
of their respective warranties and representations and the due compliance by
each with all of its agreements set forth in this Agreement. If, on or before
the Closing Date, either Party determines that any of the other Party's
representations or warranties is untrue,
E-21
<PAGE>
of if either Party has not complied with any of its agreements, covenants or
obligations in this Agreement, then, in addition to any other remedies available
under this Agreement, the Party in compliance with its agreements, covenants and
representations may elect to terminate this Agreement by notice given to the
other, in which event the termination provisions of Section B of Article 4
hereof shall apply; provided, however, that the Party whose representation or
warranty is untrue or who has not complied with any of its agreements, covenants
or obligations shall have the right, exercisable by written notice to the other
Party within ten (10) days of receipt of the election to terminate this
Agreement, to adjourn the Closing one or more times up to the Outside Date so as
to make such representation or warranty true or to comply with such agreement,
covenant or obligation on the Closing Date; in which event the other Party's
election to terminate this Agreement shall be null and void.
F. The provisions of this Article shall survive the Closing and
delivery of the Deed, subject to the provisions of Section D of this Article 16.
At the Closing, Purchaser shall deliver to Seller a certificate certifying that
as of the date of Closing, the foregoing representations in Section A of this
Article 16 are true and correct, and Seller shall deliver to Purchaser a
certificate certifying that as of the date of Closing the foregoing
representations in Section C of this Article 16 are true and correct.
17. DISCHARGE OF SELLER'S OBLIGATIONS HEREUNDER
The delivery of the Deed by Seller, and the acceptance thereof by
Purchaser, shall be deemed the full performance and discharge of every
obligation on the part of Seller to be performed hereunder, except for any
obligations specifically stated to survive the Closing or delivery of the Deed.
18. SUBMISSION TO JURISDICTION; AGENT FOR SERVICE OF PROCESS
Purchaser hereby agrees that only the Federal courts of the United
States sitting in the Southern District of New York, the courts of the State of
New York sitting in the City of New York and the courts of Israel shall have
jurisdiction in respect of any legal action or proceeding brought against
Purchaser and arising out of or relating to this Agreement ("Proceedings"). In
respect of any such Proceeding which may be brought hereunder, Purchaser
irrevocably submits to the jurisdiction of the Federal courts of the United
States in the Southern District of New York, the courts of the State of New York
sitting in the City of New York and the courts of Israel and waives any right of
objection to the laying of venue in any such court, including, without
limitation, any objection on the basis of inconvenient forum.
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<PAGE>
Purchaser irrevocably agrees to be bound by any final judgment rendered thereby
in connection with this Agreement from which no appeal has been taken or is
available.
Purchaser hereby appoints the Chief Fiscal Officer for the Western
Hemisphere of the Ministry of Finance of the Government of Israel, whose office
address is presently at 800 Second Avenue, 17th Floor, New York, N.Y. 10017, as
its authorized agent ("Authorized Agent") to receive on its behalf service of
process in any Proceeding which may be brought under the immediately preceding
paragraph of this Article 18 in a Federal court of the United States in the
Southern District of New York or in a New York State court in the City of New
York. Such appointment shall be irrevocable until all amounts, if any, due or to
become due under this Agreement have been paid by Purchaser to Seller, or unless
and until a successor shall have been appointed as Purchaser's Authorized Agent
and such successor shall have accepted such appointment. Purchaser agrees that
it will at all times maintain an Authorized Agent to receive such service, as
above provided. The failure of the Authorized Agent to give Purchaser notice of
the service of any process shall not affect the validity of any Proceeding based
on that process or any judgment obtained pursuant to it. Purchaser will take any
and all action, including the filing of any and all documents and instruments,
that may be necessary to continue such appointment or appointments in full force
and effect as aforesaid. Service of process upon the Authorized Agent at the
address indicated in this Article 18, or at such other address in the Borough of
Manhattan in the City of New York, as may be the office of the Authorized Agent
at the time of such service, and written notice of such service to Purchaser
(mailed or delivered to Purchaser at the address set forth above) hereof shall
be deemed, in every respect, effective service of process upon Purchaser. Upon
receipt of such service of process the Authorized Agent shall advise the
Ambassador of Israel to the United States and the Ministry of Finance of Israel
promptly by telex of its receipt thereof, but the failure to so advise shall
have no effect on the validity or timeliness of any such service. Purchaser
irrevocably and expressly waives the diplomatic immunity of Chief Fiscal
Officer-Western Hemisphere of the Ministry of Finance of the State of Israel
with respect to the acceptance of the service of process referred to herein
pursuant to Article 32 of the Vienna Convention on Diplomatic Relations.
In respect of any Proceedings which may be brought as provided in this
Article, Purchaser irrevocably agrees not to assert the defense of immunity, on
the grounds of sovereignty or otherwise, from jurisdiction, execution or
attachment in aid of execution, personally and in respect of any of its
property, including, without limitation, Unit 3.
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With respect to any Proceedings, neither the appointment of the
Authorized Agent nor the waivers agreed to in this Article shall be interpreted
to include actions brought under the United States Federal securities laws or
any State securities laws.
19. Intentionally Omitted
20. PUBLICITY
Seller and Purchaser agree that a press release announcing the
transaction contemplated by this Agreement may be given, and any filings with
governmental agencies required by law or regulation with respect to the
transaction contemplated by this Agreement may be made, by Seller on the date of
execution of this Agreement or at any time thereafter. Purchaser shall have the
right to review any press release issued by Seller within the first 30 days
after the Closing provided, however, that Purchaser's comments, if any, must be
received by Seller on the same day on which the press release is submitted to
Purchaser for review.
21. LIMITATION ON LIABILITY
Notwithstanding any other provision hereof, it is hereby specifically
understood and agreed that there shall be absolutely no personal liability on
the part of Seller or Purchaser or their respective successors or assigns, with
respect to any of the terms, covenants and conditions of this Agreement, and
each of the Parties shall look solely to the equity of the other, or such
successors or assigns, in the Property prior to Closing and thereafter in Unit
1, Unit 2 or Unit 3, as the case may be, for the satisfaction of each and every
remedy of Purchaser in the event of any breach by either Party of any of its
terms, covenants and conditions of this Agreement, such exculpation of personal
liability to be absolute and without any exception whatsoever.
22. MISCELLANEOUS
A. Counterparts; Captions and Headings: This Agreement may be executed
in counterparts, each of which shall be deemed an original. Captions and
headings used herein are for reference only and shall in no way be deemed to
define, limit, explain, or amplify any provision hereof.
B. No Oral Change: This Agreement may not be changed or canceled orally
but only by a written agreement executed by both of the Parties.
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<PAGE>
C. Prior Understanding: This Agreement and the Exhibits attached hereto
constitute the entire agreement between the Parties with respect to the subject
matter hereof, and all understandings and agreements heretofore or
simultaneously had between the Parties are merged in and are contained in this
Agreement.
D. Waivers; Extension: No waiver of any breach of any agreement or
provision herein contained shall be deemed a waiver of any preceding or
succeeding breach thereof or of any other agreement or provision herein
contained. No extension of time for performance of any obligations or acts shall
be deemed an extension of the time for performance of any other obligations or
acts.
E. Governing Law: This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements of
this type made and to be performed in the State without giving effect to its
principles of conflicts of law.
F. Pronouns: All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the parties may require.
G. Calculation of Time Periods: With respect to any time periods set
forth herein which commenced from the date of this Agreement, it is understood
and agreed that such time period commences from the date of final execution of
this Agreement by the Parties, including execution of any riders or amendments
hereto, if any, and the initialing of changes, if required, and the date of this
Agreement shall be the date the last signatory executes, initials, and dates
this Agreement and any such riders or amendments.
H. Binding Effect: This Agreement shall be binding upon and inure to
the benefit of the Parties, and their respective legal representatives, heirs,
executors,
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<PAGE>
administrators, and their permitted successors and assigns.
IN WITNESS WHEREOF, the Parties have executed or caused this Agreement
to be executed by their respective duly authorized representative(s) as of the
day and year first above written.
SELLER:
AMPAL REALTY CORPORATION
By: /s/ Lawrence Lefkowitz
----------------------
Lawrence Lefkowitz
President
PURCHASER:
THE GOVERNMENT OF ISRAEL
By: /s/ Eli Zitouk
----------------------
Name: Eli Zitouk
Title: Chief Fiscal Officer
By: /s/ Eldad Fresher
----------------------
Name: Eldad Fresher
Title: Deputy Chief Fiscal Officer
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================================================================================
Exhibit A
DECLARATION
Establishing a Plan for Condominium
Ownership of Premises
800 Second Avenue, New York, New York
Pursuant to Article 9-B of the Real Property
Law of the State of New York
Name -
800 Second Avenue Condominium
Declarant -
Ampal Realty Corporation
1177 Avenue of the Americas
New York, New York 10036
Date of Declaration - December 12, 1996
The land affected by the within instrument lies in Block 1335, Section 5 on the
Tax Map of the Borough of Manhattan, City of New York
BLOCK 1335
F/K/A LOT 1
N/K/A LOTS 1001/1003 Commercial
KRONISH, LIEB, WEINER & HELLMAN LLP
Attorneys for Declarant
1114 Avenue of the Americas
New York, New York 10036
================================================================================
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<PAGE>
INDEX TO DECLARATION
Section Subject Page
- ------- ------- ----
1. Submission of Property.................................................1
2. Building...............................................................1
3. Name of Condominium....................................................1
4. Units..................................................................1
5. Dimensions of Units....................................................2
6. Use of Building and Units..............................................3
7. Common Elements........................................................4
8. Sales and Leases of Units..............................................7
9. Determination of Percentages in Common Elements........................9
10. Encroachments..........................................................9
11. Easements.............................................................10
12. Person to Receive Service of Process..................................11
13. Units Subject to Declaration, By-Laws and Rules and Regulations.......11
14. Amendment of Declaration..............................................12
15. Changes in the Units..................................................12
16. Signs.................................................................14
17. Maintenance and Use of General Common Elements........................14
18. Maintenance and Repair of the Units...................................16
19. Board of Managers.....................................................19
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20. Expenses and Profits..................................................20
21. Mortgages on Units; Suits.............................................24
22. Insurance.............................................................25
23. Repair or Reconstruction After Fire or Other Casualty.................28
24. Eminent Domain........................................................31
25. Unit 1 Leases.........................................................33
26. Compliance and Default................................................33
27. Restrictions..........................................................34
28. Termination...........................................................34
29. Covenants Running With the Land.......................................35
30. Security..............................................................35
31. Invalidity............................................................35
32. Waiver................................................................35
33. Captions..............................................................35
34. Gender................................................................35
35. Estoppels.............................................................35
36. Consents..............................................................36
37. Further Assurances....................................................36
38. Exculpation...........................................................36
39. Consent No Longer Required............................................36
40. Notices...............................................................36
41. Submission to Jurisdiction; Agent for Service of Process..............37
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Exhibit A. Description of Land
Exhibit B. Description of Building
Exhibit C. List of Units
Schedule I. Permitted Exceptions
Schedule II. Operating Budget
Schedule III. Capital Improvement Budget
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<PAGE>
Declaration Establishing 800 Second Avenue Condominium for Premises 800 Second
Avenue, New York, New York, Pursuant to Article 9-B of the Real Property Law of
the State of New York.
Ampal Realty Corporation, a New York corporation, whose principal office
is situated at 1177 Avenue of the Americas, New York, New York 10036,
hereinafter referred to as the "Declarant," does hereby declare:
1. Submission of Property. The Declarant hereby submits the land
described on Exhibit A attached hereto and made part hereof (hereinafter called
the "Land"), together with the building and improvements thereon erected
(hereinafter called the "Building"), owned by the Declarant in fee simple
absolute and all other easements, rights and appurtenances belonging thereto,
and all other property, personal or mixed, intended for use in connection
therewith (the Land, the Building and said easements, rights, appurtenances and
other property hereinafter collectively called the "Property"), to the
provisions of Article 9-B of the Real Property Law of the State of New York (the
"New York Condominium Act"), subject to the exceptions to title set forth on
Schedule I attached hereto and made part hereof.
2. Building. A description of the Building, including the number of
stories, basements and units and the principal materials of which it is
constructed, is set forth in Exhibit B attached hereto and made a part hereof.
3. Name of Condominium. This condominium shall be known as "800 Second
Avenue Condominium" (hereinafter called the "Condominium").
4. Units. Annexed hereto and made part hereof as Exhibit C is a list of
the units in the Condominium, their designations and tax lot numbers, locations,
approximate square foot areas, Common Elements (as defined in Section 7 hereof)
to which each has immediate access (all as shown on the floor plans of the
Building, certified by Hurley & Farinella, Architects, (the "Floor Plans")
annexed hereto and intended to be filed in the Office of the New York City
Register, New York County simultaneously with the recording of this
Declaration), and the common interest of each unit in the Common Elements. The
unit shown on the Floor Plans as Unit 1 is herein sometimes called "Unit 1." The
unit shown on the Floor Plans as Unit 2 is herein sometimes called "Unit 2." The
unit shown on the Floor Plans as Unit 3 is herein sometimes called "Unit 3."
Unit 1, Unit 2 and Unit 3, and any units resulting from the subdivision or
recombination of any of them, are herein sometimes called collectively the
"Units" and individually a "Unit." The owner of a Unit is hereafter sometimes
called a "Unit Owner."
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5. Dimensions of Units. (a) As shown on the Floor Plans, each Unit
consists of the area on each floor comprising the Unit measured (i) horizontally
from the Unit side of the glass or block work or concrete work constituting the
exterior walls to the Unit side of the opposite glass or block or concrete
exterior walls or the center line of the partitions separating a Unit from other
Units and from Common Elements and (ii) vertically from the top of the concrete
floor slab on each floor comprising the Unit to the underside of the floor slab
above, except that (1) any Common Elements located within any Unit shall not be
considered part of that Unit and (2) in any instance where a floor of a Unit is
above or below a floor of the same Unit, the concrete floor slab between such
floors shall be a part of such Unit.
(b) Each Unit includes all security systems, plumbing, air conditioning
and heating fixtures and equipment, including, without limitation, perimeter
heating enclosures, ventilating equipment, domestic hot water heating equipment,
air conditioning units, and other fixtures and appliances as may be affixed,
attached or appurtenant to such Unit but shall not include any of the foregoing
that are described in this Declaration or on the Floor Plans as Common Elements
or Limited Common Elements. Plumbing, air conditioning and heating fixtures and
equipment as used in the preceding sentence shall include, without limitation,
exposed water pipes attached to fixtures, appliances and equipment and the
fixtures, appliances and equipment to which they are attached, and any special
pipes or equipment which a Unit Owner may install within a wall or ceiling, or
under any floor, but shall not include water or other pipes, conduits, wiring or
ductwork within the walls, ceilings or floors or mechanical systems that are
described as General Common Elements. Each Unit shall also include the windows,
window glass and window frames, all lighting and electrical fixtures and
appliances within the Unit and any special equipment, fixtures or facilities
affixed, attached or appurtenant to the Unit to the extent located within a Unit
and serving or benefiting only that Unit.
(c) Subject to the provisions of Section 8(c) hereof, each Unit Owner
shall have the right, without the consent of the Board of Managers or any other
Unit Owner, to i) subdivide its Unit into separate Units and recombine Units
resulting from the subdivision; ii) alter any boundary walls between one or more
of its subdivided Units; and iii) apportion among subdivided or combined Units
their appurtenant interests in the Common Elements in accordance with the
provisions of the New York Condominium Act, provided, however, that in each
instance the Unit Owner shall comply with all applicable laws, ordinances and
regulations of all governmental authorities having or asserting jurisdiction and
shall agree to hold the Board of Managers and all other Unit Owners harmless
from any liability, damage, cost, obligation or expense arising from the failure
to
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comply with such applicable laws, ordinances and regulations. The provisions of
this paragraph (c) may not be amended, added to or deleted without the unanimous
consent of all of the Unit Owners. In no case may the subdivision or recombining
of the Unit result in a greater or lesser percentage of common interest in the
Common Elements for the total of the new Units created by such subdivision or
recombination than existed for the Unit before such subdivision or
recombination. The Unit Owner shall promptly execute and record in the New York
City Register's Office appropriate amendments to this Declaration reflecting a
subdivision or recombination and at the request of such Unit Owner, at such Unit
Owner's expense, the Board of Managers shall also execute such amendments to
this Declaration and any application or other document required to be filed with
any governmental authority having or asserting jurisdiction, including, without
limitation, applications for an amended certificate of occupancy for the
Building, to effect subdivision of the Unit and recombining of Units resulting
from subdivision.
6. Use of Building and Units. (a) Subject to the provisions of this
Declaration and the By-Laws (collectively, the "Condominium Documents"), each
Unit may be used for any lawful purpose.
(b) No Unit Owner shall, or permit any tenant, subtenant,
concessionaire, franchisee, licensee or other occupant to, conduct any sales in,
at or from the Unit using the auction method (except in connection with
charitable purposes), fire sales or going out of business sales.
(c) So long as The Government of Israel ("The Government") is then the
Unit Owner of Unit 3 or any part thereof, The Government shall have the right to
operate in Unit 3 (or the part thereof then owned by The Government) one or more
"duty-free" shops for sale to employees of The Government only.
(d) No Unit Owner shall do, or suffer or permit to be done, anything in
a Unit which would impair the soundness or safety of the Property, or which
would result in the cancellation of insurance applicable thereto, or which would
be in violation of any laws, ordinances or regulations of any governmental
authority having or asserting jurisdiction, or the requirements of insurance
bodies or the Condominium Documents.
(e) No Unit Owner shall, without the approval of the Board of Managers
(which shall not be unreasonably withheld or delayed) replace any window frames
or window glass above the ground floor (except that in an "emergency," as
defined in paragraph (e) of Section 18 hereof no such approvals shall be
required) or place or suffer to be placed or maintained (i) on any door, wall or
window of any Unit
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above the ground floor which is visible from outside such Unit, or upon any
door, wall or window of the Common Elements, any sign, awning or canopy,
decoration, lettering or advertising matter or other thing of any kind or (ii)
anything in any Unit above the ground floor which shall be visible from the
exterior thereof other than ordinary furniture, furnishings, fixtures or
equipment.
(f) If any governmental license or permit shall be required for the
proper and lawful conduct of business in a Unit, and if failure to secure such
license or permit would in any way affect the Building, any other Unit Owner or
the Board of Managers, the Unit Owner shall duly procure, or cause the tenant or
other occupant of the Unit to procure, and thereafter maintain, and at all times
comply with the terms and conditions of such license or permit and submit a copy
thereof to the Board of Managers.
(g) The Building shall be used solely for the purposes for which the
Units may be used.
7. Common Elements. The common elements of the Condominium are divided
into Limited Common Elements and General Common Elements (collectively, the
"Common Elements").
(a) Limited Common Elements
(i) The set-back at floor numbered 12, as shown on the Floor Plans,
shall be a Limited Common Element for the exclusive use of the Unit Owner of
Unit 3, which shall have the right, at its sole cost and expense, to install
thereon (x) a "dry cooler" and/or condenser for its supplemental air
conditioning system and (y) so long as The Government is the Unit Owner of Unit
3 or any part thereof, a State of Israel flag.
(ii) The passenger elevators (and their machinery, pits and slab
openings) serving floors numbered 2 through 9, as shown on the Floor Plans,
shall be a Limited Common Element for the exclusive use of the Unit Owner of
Unit 2 and the Unit Owners of any Units resulting from the subdivision of Unit
2. The passenger elevators (and their machinery, pits and slab openings) serving
floors numbered 10 through 18, as shown on the Floor Plans, shall be a Limited
Common Element for the exclusive use of the Unit Owner of Unit 3 and the Unit
Owners of any Units resulting from the subdivision of Unit 3.
(iii) If a Unit is subdivided, a dividing wall or walls or a concrete
floor slab or slabs between subdivided Units shall be deemed Limited Common
Elements for the exclusive use of the Unit Owners whose Units are separated by
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such walls or floor slabs. In addition, all lavatories and all drains, vents,
flues, condensate and refrigerant lines, air conditioning and other mechanical
equipment, including, without limitation, air handlers (except equipment
installed by the Unit Owner or tenants of the Unit) used by only one Unit or
used in common by two or more subdivided Units shall be deemed Limited Common
Elements for the exclusive use of such Unit or subdivided Unit, and any areas so
designated as Limited Common Elements on the Floor Plans shall be deemed Limited
Common Elements for the exclusive use of the Unit Owners as indicated on the
Floor Plans.
(iv) The responsibility for the cost of maintaining, repairing and
replacing Limited Common Elements and any additions, alterations or improvements
thereto shall be borne entirely by the Unit Owner or Unit Owners having the
exclusive use thereof.
(b) General Common Elements
The General Common Elements consist of all Common Elements (as shown on
the Floor Plans) other than Limited Common Elements, including, without
limitation, the following:
i) the Land;
ii) all exterior and main walls, foundations and footings of, and
sidewalks adjacent to, the Building;
iii) all passages and corridors, floor and ceiling slabs, mechanical
and other rooms, areas and spaces (including fire stairs)
located in the Building serving the Units which are not Limited
Common Elements or part of a Unit;
iv) all columns, girders, beams, supports, pillars and interior
load-bearing walls of the Building;
v) the roofs of the Building;
vi) central and appurtenant installations for services such as
power, light, gas, hot and cold water, heating, air
conditioning, ventilating and incinerating;
vii) storage spaces and premises for the use of cleaning and security
personnel and other persons employed for the operation of the
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Property, but only to the extent shown as General Common
Elements on the Floor Plans;
viii) machinery, electrical and telephone equipment rooms and vaults,
but only to the extent shown as General Common elements on the
Floor Plans;
ix) the truck loading dock and loading areas;
x) the portion of the lobby of the Building to the extent shown as
General Common Elements on the Floor Plans and the air
conditioning unit serving such portion of the lobby;
xi) Elevator No. 3, as shown on the Floor Plans, and the elevator
adjacent to the truck loading dock;
xii) the development rights appurtenant to the Property; and
xiii) all other parts of the Building and the apparatus,
installations, systems, equipment and facilities in the Building
or on the roofs thereof (including shafts, pipes, wires, ducts,
cables, conduits, lines, risers, switch-gear equipment, cooling
towers, pumps, chiller units, generators, exhaust and fire
safety and other emergency systems and window cleaning
equipment) which serve or benefit or are necessary or convenient
for the existence, maintenance or safety of the Units.
Each Unit Owner shall have the right at its sole expense to install and
permit a tenant or subtenant to install utility systems in its Unit or in the
General Common Elements or the Limited Common Elements for the exclusive use of
its Unit or Units, including, without limitation, heating, ventilating, air
conditioning, plumbing, electrical, security, domestic hot water and elevator
systems, serving only that Unit or Units, provided, however, that such
installation shall not materially and adversely affect the use by the other Unit
Owners of their Units and shall comply with all laws, rules and regulations of
the governmental authorities having or asserting jurisdiction. In the event any
Unit Owner elects to install, or permits a tenant or subtenant to install
heating, ventilating, air conditioning and/or domestic hot water systems for the
exclusive use of its Unit, then from and after the date of completion of such
installation, the Board of Managers shall reapportion the cost of the heating,
ventilating, air conditioning and/or domestic hot water systems serving the
remainder of the Building (including, without limitation, the cost of fuel for
and operation, repair, maintenance and replacement
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of such system and the wages, benefits and other compensation of employees
and/or contractors retained to operate, repair, maintain and/or replace such
system) to the Unit Owners in such proportion as shall be fair and equitable.
Elevator No. 3, as shown on the Floor Plans, shall be available for use
as a freight elevator during the hours of 6:00 p.m. to 8:00 a.m. on business
days and, upon at least 24 hours prior notice to the managing agent of the
Condominium, as needed, during the hours of 10:00 a.m. to 4:00 p.m. on business
days and at any time on Saturdays and Sundays. The cost of any elevator
attendant required to operate Elevator No. 3 between the hours of 6:00 p.m. and
8:00 a.m. on business days and on Saturday and/or Sunday shall be paid by the
Unit Owner requesting the use thereof.
8. Sales and Leases of Units. (a) Subject to the provisions of Sections
8(c) and 8(d) hereof, each Unit Owner shall be free and without restriction to
sell to any third party its Unit (or any subdivision thereof) together with (i)
the interest in the Common Elements appurtenant thereto and (ii) the interest of
the Unit Owner in any other assets of the Condominium, provided such third party
agrees to be bound by the provisions of this Declaration and the By-laws.
(b) Each Unit Owner may, at any time and from time to time, lease its
Unit or any portion or portions thereof, provided that any such lease shall be
subject and subordinate to the Condominium Documents. The Board of Managers
shall have the right to terminate such lease and/or evict (by summary
proceedings or otherwise at the election of the Board of Managers) the tenant
thereunder in the event of (i) a violation by the tenant of the Condominium
Documents (other than a violation by a tenant that is an Affiliate (as
hereinafter defined) of a Unit Owner) or (ii) foreclosure of the lien granted by
Section 339-z of the Condominium Act. If a Unit Owner notifies the Board of
Managers of the name and address of a tenant or subtenant of any portion of its
Unit, the Board of Managers shall, as requested by the Unit Owner, give such
tenant or subtenant notice of any default by the Unit Owner and/or by such
tenant or subtenant under the Condominium Documents and a period of not less
than 30 days after such notice to cure the default, provided, however, that if
the default is of such nature that it cannot be cured within 30 days and if the
tenant or subtenant commences within said 30-day period to cure the default and
diligently prosecutes the same to completion, the tenant or subtenant shall have
such additional period of time as may be necessary to cure the default. As used
in this Declaration, the term "Affiliate" means, as to any designated Person,
any other Person which Controls, is Controlled by, or is under common Control
with such designated Person, including, without limitation, a natural person and
his or her spouse, children, parents and other family members; the term
"Control" means (i) the ownership,
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direct or indirect, of more than 50% of the voting stock of a corporation or
(ii) in the case of a Person which is not a corporation, the possession, direct
or indirect, of the power to direct or cause the direction of the management and
policies of such Person; and the term "Person" means a natural person,
corporation, partnership, association, limited liability company, trustee or
other legal entity.
(c) Declarant shall not transfer its fee simple interest in any Unit
unless and until there shall have been filed with the New York State Department
of Law prior to such transfer an offering statement or prospectus pursuant to
Section 352-e of the General Business Law of the State of New York or unless
such transfer is exempted under such Section by rule or action of the New York
State Attorney General or a no-action letter is issued by the New York State
Department of Law under such Section; provided, however, that the requirements
of this Section 8(c) shall not apply (i) in the event the Declarant transfers
its interest in Unit 3 to any Affiliate of Declarant, or (ii) in the event the
Declarant or an Affiliate of Declarant transfers its interest in all of the
Units owned or leased by Declarant or an Affiliate of Declarant at the time of
such transfer to a single transferee, provided that by the terms of the
instrument of transfer such transferee is bound by the restrictions on transfer
imposed upon Declarant pursuant to this Section 8(c) or (iii)(x) to the purchase
of any Unit at foreclosure sale by the mortgagee, its designee or nominee, or
any other purchaser at such sale; (y) to the acceptance by such mortgagee, its
designee or nominee or any other purchaser at the foreclosure sale, of a deed to
any Unit in lieu of foreclosure; or (z) to the transfer of all such Units by
such mortgagee, its designee or nominee or any other purchaser at the
foreclosure sale to a single transferee, provided that by the terms of the
instrument of transfer such transferee is bound by the restrictions on transfer
imposed on Declarant pursuant to this Section 8(c). A no-action letter has been
issued by the New York State Department of Law with respect to the sale of Unit
3 by Declarant to The Government.
(d) If Declarant or an Affiliate of Declarant (the "Offeree") obtains a
bona fide offer which the Offeree desires to accept (the "Offer") for the
purchase of Unit 2 or any portion of Unit 2 containing the ninth floor of the
Building, together with the undivided interest in the Common Elements
appurtenant thereto (the "Offer Property"), and The Government is then the Unit
Owner of Unit 3 or any part thereof, the Offeree shall give notice to The
Government of the Offer, the name and address of the proposed purchaser and the
terms of the proposed transaction, and shall offer to sell the Offer Property to
The Government at the same price and on the same terms and conditions as
contained in the Offer. Within 30 days after receipt of such notice, The
Government may elect, by notice to the Offeree accompanied by a check in an
amount equal to 10% of the purchase price, to purchase the Offer Property on the
same terms and conditions as
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contained in the Offer, and the balance of the purchase price shall be payable
by wire transfer of immediately available Federal Funds at Closing (as hereafter
defined). The closing ("Closing") shall be held at a mutually acceptable place
and time on a date not more than 60 days after The Government shall have given
notice of its election to purchase. Title to the Offer Property being purchased
shall be conveyed in its then "as is" condition and free of all liens and
encumbrances except those subject to which the Declarant acquired the Offer
Property on the date of this Declaration, by bargain and sale deed without
covenant against grantor's acts in the form required by the New York Condominium
Act. General Common Charges and real estate taxes shall be apportioned as of the
Closing. The Offeree shall pay all transfer taxes on the conveyance. If The
Government exercises its right to purchase under this Section 8(d), the Offer
Property shall become part of Unit 3, the appurtenant interest in the Common
Elements of Unit 3 shall be increased based upon the rentable floor area of the
Offer Property, and the percentage of interest in the Common Elements
appurtenant to any remaining portion of Unit 2 shall be decreased accordingly.
If The Government does not exercise its right to purchase, the Offeree
shall be free to sell the Offer Property to the proposed purchaser on the terms
contained in the Offer.
Notwithstanding anything to the contrary contained in this Section 8(d),
The Government shall have the right granted herein to purchase the Offer
Property only if at the time it gives notice of its election to purchase, The
Government certifies in writing to Offeree that in The Government's reasonable
judgment, occupancy by the proposed purchaser will adversely affect its
security.
9. Determination of Percentages in Common Elements. The proportionate
undivided interest, in fee simple absolute, expressed as a percentage or a
decimal, in the Common Elements appurtenant to each Unit is based upon the
approximate proportion that the rentable floor area of the Unit bears to the
aggregate rentable floor area of all the Units. The aggregate common interest
for all Units is 100%. The common interest appurtenant to each Unit may not be
changed without the prior written consent of the affected Unit Owners, except as
otherwise provided in this Declaration.
10. Encroachments. If any portion of the Common Elements now encroaches
upon any Unit, or if any Unit now encroaches upon any other Unit or upon any
portion of the Common Elements, as a result of the construction of the Building,
or if any such encroachment shall occur hereafter as a result of settling or
shifting of the Building, or by reason of the repair and/or restoration by the
Board of Managers of the Building, any Unit or the Common Elements, a valid
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easement for the encroachment and for the maintenance thereof so long as the
Building stands, shall exist. In the event the Building, a Unit, any adjoining
Unit or any adjoining Common Element shall be partially or totally destroyed as
a result of fire or other casualty or as a result of condemnation or eminent
domain proceedings, and then rebuilt, encroachments of parts of the Common
Elements upon any Unit or of any Unit upon any other Unit or upon any portion of
the Common Elements, because of such rebuilding, shall be permitted, and valid
easements for such encroachments and the maintenance thereof shall exist so long
as the Building shall stand.
11. Easements.
(a) Each Unit Owner shall have an easement in common with the owners of
the other Units to use all pipes, flues, wires, ducts, cables, conduits, vents,
ventilating shafts, utility lines, equipment rooms and other General Common
Elements located in other Units and serving its Unit. Each Unit shall be subject
to an easement in favor of the owners of the other Units to use all pipes,
flues, ducts, cables, wires, conduits, vents, ventilating shafts, utility lines,
equipment rooms and other General Common Elements serving such other Units and
located in such Unit.
(b) The Board of Managers shall have the right to establish, grant and
create easements for any additional underground electric, transformer, steam,
amplifier, gas, cable television, telephone, water, storm drainage, sewer or
other utility lines and appurtenances on, under and through the Property and to
relocate any existing utility, sewer and drainage easements in any portion of
the Property if the Board of Managers shall deem it necessary or desirable for
the proper operation and maintenance of the Property or any portion thereof, or
for the general health or welfare of any Unit Owner or its tenants, provided
that such additional utilities or the relocation of existing utilities will not
(i) prevent or unreasonably interfere with the use of the Units or access
thereto, (ii) adversely affect the value of a Unit, (iii) result in a mechanic's
lien against any portion of the Property, or (iv) so long as The Government is
the Unit Owner of Unit 3 or any portion thereof, interfere with the security of
Unit 3 or said portion of Unit 3, as determined in the reasonable judgment of
The Government. Any utility company or public benefit corporation furnishing
services to the Property, and the employees and agents of any such company or
corporation, shall have the right of access to each Unit and to the Common
Elements in furtherance of such easements, provided such right of access is
exercised in such a manner as not unreasonably to interfere with the use of the
Units.
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(c) Each Unit shall be subject to an easement in favor of the other
Units for the installation, maintenance, repair and replacement of gas,
electricity, heating, air conditioning, ventilating and water lines and meters
and fixtures and equipment serving the other Units, provided that no such
easement shall materially reduce the rentable square foot area of the Unit
subject to the easement or unreasonably interfere with the use of the Unit
subject to the easement and further provided that the owner of the Unit subject
to the easement shall have the right to designate the location of the aforesaid
lines, meters, fixtures and equipment to the extent reasonably practicable. The
owner of the Unit having the benefit of the easement shall (i) give the other
Unit Owner reasonable notice, except in an "emergency" (as defined in paragraph
(e) of Section 18 hereof), prior to commencing any installation, maintenance,
repair or replacement, (ii) deliver plans and specifications to the other Unit
Owner at least 30 days prior to commencing any such installation for such other
Unit Owner's reasonable approval, (iii) construct such installation in
accordance with such plans and specifications and perform any such installation,
maintenance, repair or replacement in accordance with all applicable laws and
regulations, (iv) diligently prosecute any such installation, maintenance,
repair or replacement to completion, (v) restore such other Unit to
substantially its condition prior to the commencement of such installation,
maintenance, repair or replacement and (vi) otherwise perform all work in
connection therewith in such manner as to minimize interference with the
occupants of the other Unit.
(d) The user of any easement granted by paragraphs (b) and (c) of this
Section 11 shall have the responsibility of repairing any damage resulting
therefrom and such user hereby indemnifies and holds harmless the owner of the
Unit subject to such easement from and against any expenses, damages, losses,
costs and other liabilities arising out of such user's failure to repair such
damage as provided for herein.
12. Person to Receive Service of Process. The person holding the office
of President of the Board of Managers of the Condominium from time to time (or
in the absence of the President, any other member of the Board of Managers) is
hereby designated to receive service of process in any action which may be
brought against the Condominium. In the event of service of process, the
President shall promptly notify, and send copies of any documents received to,
the other members of the Board of Managers.
13. Units Subject to Declaration, By-Laws and Rules and Regulations. All
present and future Unit Owners, tenants and occupants of Units shall be subject
to and shall comply with the provisions of this Declaration and the By-Laws and
with the Rules and Regulations adopted by the Board of Managers, as
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they may be amended from time to time. The acceptance of a deed or conveyance or
the entering into of a lease or the entering into occupancy of a Unit shall
constitute an agreement that the provisions of this Declaration, the By-Laws and
the Rules and Regulations, as they may be amended from time to time, are
accepted and ratified by such Unit Owner, tenant or occupant, and all of such
provisions shall be deemed and taken to be covenants running with the land and
shall bind any person having at any time any interest or estate in such Unit, as
though such provisions were recited and stipulated at length in each and every
deed or conveyance or lease thereof.
14. Amendment of Declaration. (a) Any Unit Owner or a member of the
Board of Managers may propose an amendment to this Declaration except as
otherwise provided in this Declaration. A copy of the text of the proposed
amendment shall be given in writing to the other Unit Owners and the Board of
Managers. The Board of Managers shall by written notice to the Unit Owners fix a
date, not sooner than fifteen (15) days and not later than sixty (60) days from
the date a copy of the proposed amendment is received, for a meeting of the Unit
Owners for the purpose of considering and voting upon the amendment.
(b) No amendment, modification, addition or deletion to this Declaration
shall be effective until (i) approved by the vote of at least 51% in common
interest of all Unit Owners, cast in person or by proxy at a meeting duly held
in accordance with the provisions of the By-Laws and (ii) recorded with the New
York City Register. Any such amendment, modification, addition or deletion shall
be executed by the Board of Managers. Prior to recording with the New York City
Register, a copy of each amendment to this Declaration shall be certified by the
Board of Managers as having been duly adopted. A copy of each amendment so
certified and bearing the date of recording shall be promptly sent to each Unit
Owner by the Board of Managers. Notwithstanding anything to the contrary
contained in this Section 14, (x) an amendment reflecting the combination or
subdivision of any Unit in accordance with Section 5(c) of this Declaration
shall not require the approval of Unit Owners or the Board of Managers, (y) so
long as The Government is then the Unit Owner of Unit 3 or any part thereof, the
provisions of Section 6(c), Section 8(d), Section 15, Section 18(f), Section
18(j), Section 20(d) and Section 41 shall not be amended, modified or deleted
without the prior written approval of The Government, and (z) the provisions of
this Section 14(b) shall not be amended, modified or deleted without the prior
written approval of all Unit Owners.
15. Changes in the Units. Except to the extent prohibited by law, each
Unit Owner shall have the right, without prior notice and without the vote or
consent of any party, to: (a) make alterations, additions or improvements
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(collectively, the "Alterations"), whether structural or non-structural,
ordinary or extraordinary, in, to and upon its Unit and the Limited Common
Elements appurtenant thereto and (b) change the layout of its Unit from time to
time; provided, however, that the percentage of interest in the Common Elements
of the other Units shall not be changed by reason thereof unless the Unit Owners
of such Units shall consent thereto and provided further that with respect to
both (a) and (b) above i) in each case where plans would be required to be filed
with municipal authorities under applicable law and regulations, plans and
specifications detailing the proposed Alteration are delivered to the Board of
Managers prior to the commencement of construction and "as-built" plans and
specifications are delivered to the Board of Managers upon completion of
construction, ii) each Alteration shall be completed in a good and workmanlike
manner, iii) no Alteration shall impair the structural soundness, safety or
integrity of the Building or impose additional load requirements on any Building
utility system in excess of the capacity originally provided for the Unit Owner,
iv) prior to commencement of any Alteration, builder's risk insurance, liability
insurance and workers' compensation coverage shall be provided in such
reasonable amounts as may be determined by the Board of Managers and such
liability insurance shall name the Board of Managers, the other Unit Owners and
any managing agent of the Condominium as additional insureds, provided, however,
that The Government shall have the right to self-insure with respect to any
insurance other than commercial general liability insurance, v) all contractors
shall be approved in advance by the Board of Managers, which shall maintain a
list of not less than 10 approved contractors for each trade and shall not
unreasonably withhold or delay consent to approval of other contractors;
provided, however, that for so long as The Government owns at least 51% of the
rentable floor area of Unit 3, The Government shall not be required to comply
with this Subsection (v), vi) no Alteration shall affect the Building facade or
any other General Common Elements (unless, with respect to General Common
Elements other than the facade, the relocation or replacement thereof does not
materially and adversely affect the other Units and is performed at the sole
cost and expense of such Unit Owner), vii) such Unit Owner shall comply with all
laws, ordinances and regulations of all governmental authorities having or
asserting jurisdiction and shall agree to hold the other Unit Owners, the Board
of Managers and any managing agent of the Condominium harmless from any cost or
liability arising from the making of any Alteration, (viii) no Alteration shall
materially and adversely affect the use or rights of any other Unit Owner or any
tenant of any other Unit Owner without the prior consent of such Unit Owner and
(ix) any Alteration shall become a part of the Unit. For the purposes of this
Section 15, a "material and adverse effect" shall not include temporary
interruptions of Building services which do not unreasonably interfere with the
operations of other Units.
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16. Signs. No Unit Owner shall have the right without the consent of the
Board of Managers to (i) place signs on or in the windows above the ground floor
or on doors within or appurtenant to its Unit (and visible from outside the
Building), (ii) install signs and decorative lights on the exterior facade of
the Building above the ground floor, or (iii) install awnings and canopies
legally extending from the facade of its Unit. No advertising materials shall be
distributed or displayed in the lobby without the prior consent of the Board of
Managers, provided, however, that Declarant or an Affiliate of Declarant shall
have the right, without the consent of the Board of Managers, to place one or
more signs in the lobby and on the exterior facade of the Building advertising
Unit 1 and Unit 2 and any portions thereof for sale or lease.
17. Maintenance and Use of General Common Elements. (a) Subject to the
provisions of Section 18(f), Section 18(j), Section 20(d) and any other
applicable provisions of the Condominium Documents, the maintenance, repair,
replacement, management, operation and regulation of the use of the General
Common Elements (and of the public sidewalks adjacent to the Building, to the
extent such obligation is imposed by law on the owner or owners of the Property)
shall be the responsibility of the Board of Managers, which shall collect from
each Unit Owner its proportionate share, based upon its proportionate undivided
interest in the Common Elements, of the expenses incurred or to be incurred in
connection therewith. Such expenses are herein called "General Common Expenses"
and the payments therefor are herein called "General Common Charges." Charges
for utilities provided to the General Common Elements or to Unit Owners in
common through a common utility system, if any, for consumption within each Unit
shall be General Common Expenses allocated, in the case of each common utility
system, on the basis of actual consumption by each Unit Owner and, where such
allocation is not practicable, equitably by the Board of Managers.
(b) Subject to the provisions of Section 18(f), Section 18(j) and
Section 20(d), the Board of Managers shall have the right, without the consent
of the Unit Owners, to make or cause to be made such alterations and
improvements to the General Common Elements as, in its opinion, may be
beneficial and necessary, provided that the undertaking of such alterations and
improvements does not unreasonably interfere with the rights of a Unit Owner or
any tenant or subtenant of a Unit Owner to the use and enjoyment of a Unit,
other than such temporary interference as is reasonably necessary in connection
therewith. The Board of Managers shall use reasonable efforts to minimize
interruption of the business of a Unit Owner, its tenants and subtenants.
(c) Subject to the provisions of Section 15 and Section 18(j) of this
Declaration, no Unit Owner shall repair, alter, replace or move any of the
General
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Common Elements except in connection with "emergency" repairs to its Unit,
without in each such case obtaining the prior written consent of the Board of
Managers. Subject to paragraph (c) of this Section 17, in the event any Unit
Owner is required to perform "emergency" repairs to the General Common Elements,
such Unit Owner shall be reimbursed the cost thereof by the Board of Managers,
which reimbursement shall be a General Common Expense of the Unit Owners.
(d) No liens of any nature shall arise or be created against the General
Common Elements, except such liens as may arise or be created against the
several Units and their respective common interests under Section 339-l of the
Condominium Act or as otherwise provided in the Condominium Documents.
(e) All General Common Charges received or to be received by the Board
of Managers and the right to receive such amounts shall constitute a trust fund
for the purpose of paying the cost of labor and materials performed or furnished
at the request of or with the consent of the Board of Managers and such funds
shall be applied first for such purpose. The Board of Managers shall keep such
funds in a separate bank account and shall maintain records of all such charges
or sums received and of all expenditures or disbursements made therefrom and
such records shall be available to all Unit Owners for inspection at reasonable
times and on reasonable notice.
(f) The Common Elements may only be used for the purposes for which they
are reasonably suited and capable.
(g) The Board of Managers shall maintain and operate the Building in
accordance with the standards on the date hereof of comparable office buildings
in Manhattan such as the Graybar Building (420 Lexington Avenue), 11 West 42nd
Street and 25 West 43rd Street ("Comparable Buildings").
(h) From time to time, but in no event more frequently than once in any
three year period, any Unit Owner having an interest in the Common Elements of
25% or greater shall have the right to request that the Board of Managers
commission a utility survey to determine the actual consumption by each Unit
Owner of heat, gas and other utilities. Upon such request, the Board of
Managers, on behalf of the Unit Owners, shall retain a third-party consultant to
conduct a utility survey. The fees and disbursements of such third-party
consultant shall be paid by the Board of Managers and shall constitute a General
Common Expense. The results of said survey shall be binding on the Board of
Managers and all Unit Owners and the Board of Managers shall reallocate utility
expenses in accordance therewith.
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18. Maintenance and Repair of the Units. (a) Each Unit Owner shall
maintain or cause its tenants and subtenants to maintain, at its or their own
expense, its Unit in good order and repair.
(b) No Unit Owner shall do any work on its Unit which, in the opinion of
the Board of Managers, would (i) jeopardize the soundness, safety or structural
integrity of the Building, (ii) result in the cancellation of insurance
applicable thereto, (iii) be in violation of laws and requirements of
governmental authorities or the requirements of insurance bodies, this
Declaration or the By-Laws or (iv) be inconsistent with standards prevailing in
Comparable Buildings.
(c) The performance of any labor on, or the furnishing of any material
to, a Unit shall not be the basis for the filing of a lien pursuant to Article
Two of the New York Lien Law against the Unit of any Unit Owner not expressly
consenting to or requesting the same.
(d) i) Nothing contained in the Condominium Documents shall be construed
to impose personal liability upon any of the members of the Board of Managers
for the maintenance, repair or replacement of any Unit or Common Element, or
give rise to a cause of action against the Board of Managers or any member
individually except for bad faith or willful misconduct.
ii) Neither the Board of Managers nor any member thereof shall be
liable for either (1) any failure or interruption of any utility or other
services to be obtained by, or on behalf of, such Board or to be paid for as a
General Common Expense except when any such failure or interruption is caused by
acts of bad faith or willful misconduct by the Board of Managers or any member
thereof or (2) any injury, loss or damage whatsoever to any individual or
property, occurring in or upon a Unit or any Common Element, including, without
limitation, injury, loss or damage caused by the elements, by a Unit Owner or by
any other individual or resulting from electricity, water, snow or ice that may
leak or flow from a Unit not controlled by the Board of Managers or arising out
of theft or otherwise, except when caused by acts of bad faith or willful
misconduct of the Board of Managers or any member thereof.
(e) Subject to the provisions of paragraph (f) of this Section 18, the
Board of Managers or its designee shall have access to each Unit to the extent
necessary, from time to time, after reasonable notice and during reasonable
hours, (except that in the case of an emergency no notice shall be required and
the Board of Managers or its designee shall have the right of immediate access
at any time) for the following purposes:
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(i) to inspect the Unit and make repairs, replacements or
improvements to those Common Elements which are accessible only
from within the Unit, where the responsibility therefor is upon
the Board of Managers; and
(ii) to prevent damage to the Common Elements or another Unit or to
abate any violation of law, orders, rules or regulation of any
governmental authority having jurisdiction or requirements of
insurance bodies.
Except in the case of any "emergency" (i.e., a situation involving
continuing or imminent loss or threat of loss of life or material loss of life
or personal injury or material loss of property), a Unit Owner shall have the
right to have its representative accompany the Board of Managers or its designee
in any such entry of the Unit, provided that such representative shall not
interfere with the Board of Managers or such designee in taking any action
permitted under the Condominium Documents. The right of access provided
hereunder shall be exercised in such manner as to minimize interference with the
use of the Unit.
(f) Notwithstanding anything to the contrary contained herein, if The
Government is the Unit Owner of Unit 3 or any part thereof, the Board of
Managers shall, prior to gaining access to the portion thereof then owned by The
Government for any purpose, including an "emergency," make in-person or
telephonic contact with The Government's "Access Representative" (hereinafter
defined) and the entry into Unit 3 and activities therein shall be in the
presence of the Access Representative. The Government shall, at all times during
its ownership of Unit 3 or any part thereof, keep at least one individual
present at Unit 3 on a 24 hour basis, seven days a week, whose name and
telephone number at Unit 3 shall be furnished to the Board of Managers on a
current basis ("Access Representative").
(g) Upon notice to the Board of Managers, a Unit Owner shall have the
right to designate areas within its Unit to which access shall be absolutely
prohibited except in case of emergency or as may be required by law.
(h) Each Unit Owner shall give prompt notice to the Board of Managers of
any written notice it receives of the violation of any laws and requirements of
public authorities affecting any Unit or the Building and, subject to paragraph
(h) immediately below, shall comply, and cause all tenants and subtenants of its
Unit to comply, with all applicable laws and requirements of governmental
authorities.
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(i) Each Unit Owner may (and, if necessary, in the name of, but without
expense to, the Board of Managers) contest, by appropriate proceedings
prosecuted diligently and in good faith, the validity, or applicability to its
Unit, of any laws and requirements of governmental authorities and the Board of
Managers shall cooperate with such Unit Owner in such proceedings, provided
that:
A) such Unit Owner shall defend, indemnify and hold harmless the
Board of Managers and each other Unit Owner against all liability, loss or
damage which the Board of Managers or such other Unit Owner shall suffer by
reason of such contest (and any noncompliance in connection therewith),
including reasonable attorneys' fees and other expenses reasonably incurred by
the Board of Managers and such other Unit Owner; and
B) such Unit Owner shall keep the Board of Managers advised as to
the status of such proceedings.
A Unit Owner need not comply with any laws and requirements of
public authorities so long as such Unit Owner shall be contesting the validity
thereof, or the applicability thereof to its Unit, in accordance with this
Section provided that (x) noncompliance shall not impair any insurance coverage,
create any lien or other encumbrance on any part of the Property or constitute a
crime or an offense punishable by fine or imprisonment, (y) no part of the
Building shall be subject to being condemned or vacated by reason of
noncompliance or otherwise by reason of such contest and (z) noncompliance shall
not subject any Unit Owner to criminal liability.
(j) Notwithstanding anything to the contrary contained in Section 17 or
this Section 18, if any portion of the General Common Elements or Limited Common
Elements located within any part of Unit 3 which is owned or occupied by The
Government shall require repair, the Board of Managers shall give telephonic
notice thereof to The Government's Access Representative. The Government shall
have the right, but not the obligation, to promptly make such repair, using
contractors reasonably approved in advance by the Board of Managers. If The
Government does not promptly make such repair, the Board of Managers shall make
such repair in accordance with the provisions of Section 17 and this Section 18,
including, without limitation, Section 18(f). If The Government makes any such
repair to any portion of the General Common Elements, the Board of Managers
shall reimburse The Government for the other Unit Owners' proportionate shares
of the reasonable out-of-pocket costs incurred by The Government in connection
therewith and shall charge the other Unit Owners for their respective
proportionate shares as a General Common Expense.
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19. Board of Managers. (a) The affairs of the Unit Owners collectively
with respect to the Property shall be governed and controlled by the Board of
Managers, which shall be elected and serve as provided in the By-Laws.
(b) Subject to the provisions of Section 20(d), the Board of Managers
shall have the powers and duties necessary or desirable for the administration
of the affairs of the Condominium (which powers and duties may be delegated to a
property manager or managing agent), including, without limitation, the
following:
i) operation, care, upkeep, repair and maintenance of the General
Common Elements, which shall be performed in accordance with the
standards prevailing in Comparable Buildings;
ii) determination of the General Common Charges and any other
amounts that are required by the Condominium Documents to be
paid by a Unit Owner to the Board of Managers ("Unit Expenses");
iii) collection of the General Common Charges and Unit Expenses from
the Unit Owners;
iv) employment and dismissal of personnel necessary for the
maintenance and operation of the General Common Elements and
establishing the compensation of such employees;
v) maintaining bank accounts on behalf of the Condominium and
designating the signatories required therefor;
vi) adopting rules and regulations covering the details of the
operation and use of the General Common Elements;
vii) obtaining insurance for the Property pursuant to the provisions
of Section 22 hereof;
viii) repairing and restoring the Property as permitted by Sections 23
and 24 hereof after damage or destruction by fire or other
casualty or as a result of condemnation or other proceedings;
ix) imposing interest and/or late charges on payments of General
Common Charges and Unit Expenses which are past due;
x) employment and dismissal of a building manager or managing agent
for the Property, provided, however, that so long as The
Government
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is the Unit Owner of Unit 3 or any part thereof, the approval of
The Government shall be required therefor; and
xi) entering into a contract for maintaining, repairing and
servicing all elevators in the Building.
(c) True copies of the Condominium Documents and the rules, regulations,
resolutions and decisions enacted in accordance therewith and the Floor Plans
shall be kept on file in the office of the Board of Managers or its designee in
the City of New York and shall be available for inspection at reasonable times
by persons having an interest therein. The initial rules and regulations are
attached to the ByLaws of the Condominium.
(d) In accordance with Section 339-v of the Condominium Act, the Board
of Managers may be incorporated and function as a corporate body, provided that
such incorporation shall not diminish the obligations, rights and powers of the
Board of Managers under the Condominium Documents.
20. Expenses and Profits. (a) No Unit Owner shall be exempt from
liability for payment of its General Common Charges by virtue of waiver of the
use or enjoyment of any of the General Common Elements or non-use thereof or by
abandonment of its Unit. Any person or entity which conveys its Unit in
compliance with the terms and conditions specified in the Condominium Documents
shall be exempt from General Common Charges and any other liabilities thereafter
accruing with respect to the Unit so conveyed and its transferee shall be liable
for General Common Charges thereafter accruing.
(b) The General Common Expenses shall be charged by the Board of
Managers as General Common Charges to the Unit Owners as provided for in the
Condominium Documents. The common profits (i.e., the excess of General Common
Charges and other rents and revenues over General Common Expenses), if any,
shall be distributed among the Unit Owners in accordance with their respective
percentage interests in the Common Elements after making reasonable
contributions to a reserve to cover future General Common Expenses.
(c) At least forty-five days prior to the commencement of each calendar
or other fiscal year of the Condominium, the Board of Managers shall, subject to
the provisions of Section 20(d), adopt (i) an operating budget for such year,
which shall include, to the extent and in such amounts deemed necessary or
advisable by the Board of Managers, capital replacement reserves, working
capital and a general operating reserve, and (ii) a budget for capital
improvements. The General Common Charges based on such budgets shall be due and
payable by each Unit
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Owner in installments as determined by the Board of Managers. The Board of
Managers may review and reconsider the annual budgets at any time during a
fiscal year and may increase or decrease such General Common Charges based
thereon prospectively or retrospectively as required for the proper management
and operation of the Condominium. The Unit Owners shall, within fifteen (15)
days following notice of such increase or decrease, pay any such increase or, at
the option of the Board of Managers, receive such decrease in cash or as a
credit against future General Common Charges.
(d) Notwithstanding anything to the contrary contained herein, so long
as The Government is the Unit Owner of Unit 3 or any part thereof, the approval
of The Government shall be required for (i) the adoption of any annual operating
budget, including capital replacement reserves, in excess of the amount of the
operating budget for the calendar year 1997 (a copy of which is attached hereto
as Schedule II) increased by the "Consumer Price Index Fraction" (as such term
is hereinafter defined) and (ii) any expenditure for capital improvements in
excess of the amount of the capital improvement budget for the calendar year
1997 (a copy of which is attached hereto as Schedule III), except for such
expenditures (x) required by law or the rules or regulations of any governmental
authority having or asserting jurisdiction over the Property or (y) necessary to
preserve the structural integrity of the Building or the proper operation of the
Building's mechanical systems or (z) required by reason of an "emergency" (as
such term is defined in Section 18). "Consumer Price Index Fraction" means, on
any date for the determination thereof, a fraction whose numerator is the
"Consumer Price Index, All Items, New York, N.Y. - Northeastern N.J. for Urban
Wage Earners and Clerical Workers, 1982-1984 = 100" for the calendar month
ending immediately preceding such date, as published by the Bureau of Labor
Statistics of the Department of Labor of the United States Government, and whose
denominator is such Consumer Price Index for January, 1997; provided, however,
that if such Consumer Price Index or any index substituted therefor shall cease
to be published, there shall be substituted such other comparable index as the
Board of Managers shall reasonably determine.
(e) Taxes and other charges levied by any governmental authority against
the Property as a whole, without separate assessments for each Unit as provided
by Section 339-y of the Condominium Act, shall be paid by the Board of Managers
and shall be included in the budget as a General Common Expense payable by each
Unit Owner in accordance with its percentage interest in the Common Elements.
Notwithstanding the foregoing, in the event that such taxes and other charges
are subject to abatement because of the tax-exempt status of any Unit Owner, the
Board of Managers shall make prompt application for such abatement and the cost
of such application shall be payable by the tax-exempt Unit
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Owner. If an abatement is obtained as a result of such application, the amount
of such reduction in taxes or other charges shall be credited against the amount
due from such tax-exempt Unit Owner hereunder.
(f) The costs of insurance maintained by the Board of Managers pursuant
to Section 22 shall be included in the operating budget as a General Common
Expense.
(g) Subject to the provisions of Section 20(d), all expenses, fees,
assessments and other charges (including, without limitation, costs related to
sidewalk maintenance) with respect to the General Common Elements, but not
specifically provided for herein, shall be paid by the Board of Managers in
accordance with the provisions of the Condominium Documents and be charged as a
General Common Expense.
(h) Fees and expenses incurred in connection with any contract for
maintaining, repairing and servicing all elevators in the Building shall be paid
by the Board of Managers and shall be charged to the Unit Owners as follows:
1. 28.57% of such fees and expenses shall be charged to the Unit
Owner of Unit 2 as a Unit Expense;
2. 42.86% of such fees and expenses shall be charged to the Unit
Owner of Unit 3 as a Unit Expense; and
3. 28.57% of such fees and expenses shall be allocated among all
Unit Owners based upon their respective proportionate undivided
interests in the Common Elements and shall be charged as a
General Common Expense.
(i) Capital costs incurred in connection with the modernization of
Elevator No. 6\3 ("Modernization Costs") shall be paid by the Board of Managers
and shall be charged 70% to the owner(s) of Unit 1 and Unit 2 and 30% to the
owner of Unit 3; provided, however, on the first anniversary of the completion
of such modernization, the Board of Managers shall review the usage of Elevator
No. 3 by the Unit Owners (based on the records of the managing agent of the
Condominium) and shall reallocate the Modernization Costs among the Unit Owners
in proportion to their respective usage of Elevator No. 3. If, as a result of
such reallocation, the owner(s) of Unit 1 and Unit 2 shall be responsible for
more than 70% of the Modernization Costs, then the owner(s) of Unit 1 and Unit 2
shall reimburse the owner of Unit 3 for the amount in excess of such 70%. If, as
a result of such reallocation, the owner of Unit 3 shall be responsible for more
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than 30% of the Modernization Costs, then the owner of Unit 3 shall reimburse
the owner(s) of Unit 1 and Unit 2 for the amount in excess of such 30%. Any
dispute with respect to such reallocation shall be submitted to arbitration in
accordance with the provisions of Section 9 of Article V of the By-laws.
(j) Declarant shall have the right, at Declarant's expense, to install a
concierge desk in the lobby of the Building for security purposes. The
compensation, including fringe benefits, of the employees stationed at such
concierge desk shall be included in the operating budget as a General Common
Expense.
(k) The General Common Charges against the Unit Owners shall be set
forth upon a roll of the Units, which roll shall be available in the office of
the Board of Managers or its designee in the City of New York for inspection at
all reasonable times by Unit Owners or their duly authorized representatives.
Such roll shall indicate for each Unit the name and address of the record owner,
the General Common Charges and the amount of the General Common Charges then due
and unpaid.
(l) If any General Common Charges shall remain due and unpaid for more
than thirty (30) days after notice, the Board of Managers may file or record a
lien therefor and, at any time thereafter prior to satisfaction of such lien,
may foreclose the same pursuant to Section 339-aa of the Condominium Act,
provided, however, that no foreclosure proceeding may be commenced by the Board
of Managers until the expiration of any period during which the holder of a
Permitted Mortgage (as hereinafter defined) pursuant to Section 20(j) hereof or
a tenant or subtenant pursuant to Section 8(b) hereof, has the right to cure the
default in payment of the General Common Charges. The lien for unpaid General
Common Charges shall be superior to the lien of any Permitted Mortgage. Unpaid
General Common Charges shall bear interest from the date when due at a rate
equal to one (1%) percentage point above the "prime" rate announced publicly
from time to time by Chase Manhattan Bank or, if Chase Manhattan Bank shall no
longer be in existence, by the then largest United States domestic commercial
bank having a New York office.
(m) The Board of Managers, if requested in writing to do so by the
holder of any Permitted Mortgage, shall promptly notify such mortgagee, and if
requested to do so by any Unit Owner, shall promptly notify a tenant or
subtenant of such Unit Owner, of any General Common Charges which remain due and
unpaid for twenty (20) days or any other default under the Condominium
Documents. Such mortgagee or tenant or subtenant shall have the right to cure
any monetary default within thirty (30) days after notice from the Board of
Managers and with respect
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to any other defaults, shall have such reasonable additional period of time to
cure the default as may be necessary, provided such mortgagee, tenant or
subtenant commences to cure such default within thirty (30) days after notice
and diligently prosecutes such cure to completion.
21. Mortgages on Units; Suits. (a) Each Unit Owner shall have the right
to mortgage (which term shall include, where applicable, any lease which is
entered into in connection with a sale-leaseback, lease-subleaseback or similar
financing arrangement) its Unit without restriction, subject, however, to the
provisions of this Declaration and provided further that the mortgagee (or the
lessor in a sale-leaseback or sublessor in a lease-subleaseback transaction) is
a commercial bank, trust company, insurance company, savings bank, or savings
and loan association, having total assets of at least $500,000,000, or a
religious, educational or eleemosynary institution or pension or retirement
fund, having total assets of at least $500,000,000 or the seller of a Unit (a
"Permitted Mortgagee"). A mortgage (or leaseback or subleaseback) complying with
the provisions of this paragraph (a) is herein called a "Permitted Mortgage."
(b) A Unit Owner which mortgages its Unit or the holder of a Permitted
Mortgage shall notify the Board of Managers of the name and address of the
mortgagee and shall file a conformed copy of the note and mortgage with the
Board of Managers and such Unit Owner shall, prior to giving such mortgage,
satisfy all unpaid liens against its Unit other than Permitted Mortgages. A Unit
Owner who satisfies a mortgage covering its Unit shall so notify the Board of
Managers and shall file a conformed copy of the satisfaction of mortgage (or
similar document in recordable form) with such Board. Such Board shall maintain
such information in a book entitled "Mortgages of Units."
(c) The Board of Managers shall accept payment of any sum or
performance, in accordance with paragraph (j) of Section 20 and paragraph (b) of
Section 8, as the case may be, of any act by a Permitted Mortgagee or tenant or
subtenant of a Unit Owner required to be paid or performed by a Unit Owner
pursuant to the provisions of the Condominium Documents, with the same force and
effect as though paid or performed by such Unit Owner.
(d) Each Unit Owner and Permitted Mortgagee shall be permitted to
examine the books of account of the Condominium at reasonable times on business
days, upon reasonable notice to the Board of Managers.
(e) No Unit Owner shall suffer or permit any lien on its Unit except as
permitted in this Section. If the Unit Owner fails to satisfy any such lien or
otherwise cause its discharge by bonding or otherwise within sixty (60) days
after
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the date of receipt of notice of such lien, the Board of Managers shall have the
right to take all necessary and appropriate steps to discharge the lien and
charge such Unit Owner for all expenses incurred and such charges shall be due
and payable within ten (10) days of written demand.
(f) A Unit Owner shall forthwith give notice to the Board of Managers of
any suit or other proceeding the outcome of which may directly affect title to
its Unit.
22. Insurance. The Board of Managers shall be required to obtain and
maintain, to the extent obtainable and to the extent determined by the Board of
Managers to be appropriate or relevant, the following insurance: (i) fire
insurance on a Special Form, including theft, vandalism and malicious mischief,
flood and earthquake endorsements (including Ordinance and Law, Increased Cost
of Construction and Demolition), insuring the Building (including the Common
Elements and the Units, the fixtures and equipment installed therein and the
partitions, floors and ceilings within the Units (the "Installations"), but not
including any wall, ceiling or floor decorations or coverings or other
furniture, furnishings, fixtures or equipment or other personal property
supplied or installed by Unit Owners or tenants of Unit Owners), together with
all service machinery contained therein, and covering the interests of the
Condominium, the Board of Managers and the Unit Owners and holders of Permitted
Mortgages, as their interests may appear, in an amount equal to an agreed amount
replacement cost of the Building (exclusive of the cost of excavation and
foundations), without deduction for depreciation; each of said policies shall
contain a New York standard mortgagee clause in favor of each Permitted
Mortgagee of a Unit which shall provide that the loss, if any, thereunder shall
be payable to such Permitted Mortgagee as its interest may appear, subject,
however, to the loss payment provisions in favor of the Board of Managers
hereinafter set forth; (ii) water damage legal liability insurance; (iii) loss
of Common Charge fees insurance covering the General Common Charges payable by
the Unit Owners; (iv) boiler and machinery insurance; (v) workers' compensation
insurance for the Building employees; (vi) builder's risk insurance and (vii)
such other insurance as the Board of Managers may determine. All such policies
shall provide that adjustment of loss shall be made by the Board of Managers.
All policies insuring against physical damage shall provide that the proceeds
thereunder shall be payable to (A) the Board of Managers, as trustee for the
Unit Owners, if the amount of such proceeds in the case of any one insured event
is less than $50,000, or (B) to the Depositary (as hereinafter defined) if the
amount of such proceeds in the case of any one insured event is equal to or
greater than $50,000. For the purposes of this Declaration, the term
"Depositary" shall mean Chase Manhattan Bank or, if Chase Manhattan Bank shall
no longer be in existence, a savings bank, savings and loan
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association or commercial bank having an office in the Borough of Manhattan
regularly engaged in the business of construction lending or administering
construction funds, with net assets of not less than $500,000,000, having a
long-term credit rating from Standard & Poor's Rating Group (or any successor
rating agency) of not less than "A", selected by the Board of Managers.
To the extent obtainable, all policies of physical damage insurance
shall contain waivers of subrogation and waivers of any defense based on
co-insurance or of pro-rata reduction of liability or of invalidity arising from
any acts of the insured, and shall provide that such policies may not be
canceled or substantially modified without at least twenty (20) days' prior
written notice to all of the insureds, including all Permitted Mortgagees.
Duplicate originals of all policies of insurance and of all renewals thereof,
together with proof of payment of premiums, shall be delivered to all Permitted
Mortgagees at least ten (10) days prior to expiration of the then current
policies. Prior to obtaining any policy of fire insurance or any renewal
thereof, or at such other times as may be determined by the Board of Managers,
the Board of Managers shall obtain an appraisal from a fire insurance company or
otherwise of the full replacement value of the Building (exclusive of the cost
of excavations and foundations), including all of the Units, and all of the
Common Elements therein, without deduction for depreciation, for the purpose of
determining the amount of fire insurance to be effected pursuant to this
Section.
The Board of Managers shall also be required to obtain and maintain, to
the extent obtainable: i) fidelity insurance covering the managing agent and all
employees and members of the Board of Managers who handle Condominium funds, ii)
Directors and Officers insurance covering the Board of Managers and officers of
the Condominium and any managing agent and its employees, iii) commercial
general liability insurance in such limits as the Board of Managers may from
time to time determine, but in no event less than $25,000,000, covering each
member of the Board of Managers, the managing agent and each Unit Owner and
covering all claims for bodily injury or property damage arising out of any
occurrence in the General Common Elements and iv) elevator collision insurance.
Such public liability coverage shall also cover cross liability claims of one
insured against another. The Board of Managers shall review the limits of such
insurance once each year.
Each Unit Owner shall maintain, at its sole expense, (i) casualty or
physical damage insurance in an amount equal to the full replacement value of
the insurable improvements and betterments installed by the Unit Owner within
the Unit or the Limited Common Elements appurtenant to the Unit, such coverage
to afford protection against loss or damage by fire or other hazards covered by
the
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Special Form Policy (including theft) and such other risks as from time to time
customarily shall be covered with respect to similar improvements and
betterments, including, without limitation and to the extent appropriate,
vandalism, malicious mischief, water damage, windstorm, boiler or machinery
explosion damage and plate glass damage; (ii) commercial general liability
insurance with such limits as the Board of Managers shall reasonably determine,
naming all Unit Owners, the Board of Managers and the managing agent of the
Building, if any, as additional insureds with respect to occurrences within the
Unit, such insurance to cover cross liability of the insured against another and
to be without rights of contribution against the other Unit Owners, the Board of
Managers or any insurer, and (iii) workers' compensation insurance covering all
workers employed by the Unit Owner in the Unit in at least the minimum amount
prescribed by law. Each policy of insurance required to be maintained by a Unit
Owner shall contain a provision requiring the insurer to notify the Board of
Managers in the event any required payment of premium is not made when due and
to give the Board of Managers not less than 20 days' prior written notice of
cancellation or reduction or change of coverage. In the event a Unit Owner shall
fail to obtain or maintain the insurance coverage required hereunder, the Board
of Managers may obtain and maintain such coverage and charge the cost thereof to
the Unit Owner. Unit Owners may carry other insurance for their own benefit at
their own expense provided that all such policies shall contain to the extent
obtainable, waivers of subrogation and further provided that the liability of
the carriers issuing insurance obtained by the Board of Managers shall not be
affected or diminished by reason of any such additional insurance carried by any
Unit Owner. Notwithstanding anything to the contrary contained herein, The
Government shall have the right to self-insure with respect to any insurance
other than commercial general liability insurance.
The Board of Managers shall have the right to require a Unit Owner to
carry, at such Unit Owner's expense, such additional insurance covering each
member of the Board of Managers, the managing agent and each Unit Owner as may
be reasonably required with due regard being given to the manner of use and
occupancy of the Unit from time to time.
All insurance obtained pursuant to this Section 22 shall be from
insurance companies authorized to business in the State of New York and having a
Best's rating of at least A-Class XII (or if the Best rating is no longer
available, a similar rating from a similar or successor organization).
The Board of Managers may, in its reasonable discretion, also insure
against such other risks as the Board of Managers deems necessary or desirable,
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including, without limitation, war risks (to the extent obtainable from an
agency of the United States Government).
The Board of Managers, upon request, shall furnish to each Unit Owner
and to each holder of a Permitted Mortgage covering a Unit or a portion thereof
a memorandum of the insurance carried by the Board of Managers.
No Unit Owner or occupant of a Unit shall commit or permit any violation
of the insurance policies purchased by the Board of Managers pursuant to this
Section 22, or do or permit anything to be done, or keep or permit anything to
be kept, in any Unit, which in case of any of the foregoing (i) could result in
the termination of any such policies, (ii) could adversely affect the right of
recovery under any of such policies or (iii) could result in reputable and
independent insurance companies refusing to insure the property covered thereby
in the amounts required by this Section 22. If the rate of premiums payable with
respect to the insurance policies carried by the Board of Managers pursuant to
this Section 22 shall be increased by reason of the use to which any Unit or a
portion thereof is put or anything that is done or kept in any Unit or a portion
thereof or as a result of the failure of any occupant to comply with the
requirements of insurance bodies with respect to the Unit occupied by such
occupant or as a result of the failure of any Unit Owner or any occupant to
comply with this Declaration, there shall be charged against the Unit Owner of
such Unit as a Unit Expense the additional premiums which shall be so payable by
the Board of Managers.
Each Unit Owner shall be deemed to have delegated to the Board of
Managers the right to adjust with the insurance companies all losses in respect
of the Common Elements under insurance policies purchased by the Board of
Managers. Each Unit Owner may adjust losses under policies such Unit Owner is
permitted or obligated to maintain under this Declaration, including, without
limitation, policies affecting the Unit Owner's installations.
If the Board of Managers should be found liable on a cause of action not
covered by insurance, or if the damages suffered or liability incurred shall be
for a sum greater than the insurance award, such amounts or excesses shall be
General Common Expenses.
Any type of insurance or any increases in the limits of liability
described in this Section 22 that a Unit Owner obtains for its own protection or
otherwise required by statute shall be at the Unit Owner's sole cost and
expense.
23. Repair or Reconstruction After Fire or Other Casualty. (a) Except as
otherwise provided in Section 23(f), in the event of damage to or destruction
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of the Common Elements, the damage or destruction shall be promptly repaired and
reconstructed by the Board of Managers with reasonable diligence, using for that
purpose the proceeds of insurance, net of reasonable costs of collection and/or
adjustment of loss. If the cost of such repair or reconstruction shall exceed
the net insurance proceeds received by the Board of Managers or the Depositary
with respect thereto (such excess, a "Common Elements Shortfall"), then (i) such
Common Elements Shortfall shall be deemed to be a General Common Expense (unless
the damage or destruction is attributable to the fault or neglect of a Unit
Owner or an occupant or any of their respective employees, invitees, agents or
contractors, in which case the Common Elements Shortfall shall be charged to the
Unit Owner involved as a Unit Expense), (ii) the Board of Managers shall
promptly assess such General Common Expense, and (iii) the Board of Managers
shall repair and reconstruct the damage or destruction in the most expeditious
manner reasonably possible under the circumstances.
(b) Except as otherwise provided in Section 23(f), in the event of
damage to or destruction of one or more Units which is covered by the insurance
to be maintained by the Board of Managers hereunder, each Unit Owner shall
repair and reconstruct its Unit with reasonable diligence in order to restore
its Unit to a complete, independent and self-contained architectural whole which
is safe and has no adverse effect on any other Unit or any Common Element, using
for that purpose the proceeds of insurance, net of reasonable costs of
collection and/or adjustment of loss. Such repair or reconstruction shall be
done in a manner so as to minimize the adverse effect on any other Unit or any
Common Element. If the Board of Managers is not required to deposit the
insurance proceeds with the Depositary, then the Board of Managers shall
disburse the insurance proceeds allocable to each damaged or destroyed Unit to
the Unit Owner thereof in accordance with customary practices of construction
lenders for similar projects. If the cost of repair or reconstruction of any
Unit shall exceed the net insurance proceeds received by the Board of Managers
or the Depositary with respect thereto (such excess, a "Unit Shortfall"; the
Common Elements Shortfall and any Unit Shortfall(s) are sometimes hereinafter
collectively referred to as a "Restoration Shortfall"), the Unit Shortfall shall
be charged to the Unit Owner involved as a Unit Expense.
(c) Damage to or destruction of a Unit which is not covered by the
insurance to be maintained by the Board of Managers hereunder shall be repaired
by the Unit Owner thereof, at such Unit Owner's expense, with reasonable
diligence in order to restore its Unit to a complete, independent and
self-contained architectural whole which is safe and has no adverse effect on
any other Unit or any Common Element. Such repair or reconstruction shall be
done in a manner so as to minimize the adverse effect on any other Unit or any
Common Element.
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(d) If a Unit Owner shall fail to undertake the repair and restoration
of its Unit within a reasonable time after the damage or destruction of thereof,
the Board of Managers may, subject to Section 18(f), cause such repair to be
made on behalf of such Unit Owner using the proceeds of any insurance available
for that purpose. Deficiencies arising out of the repair by the Board of
Managers of a damaged or destroyed Unit shall be charged to that Unit Owner as a
Unit Expense.
(e) In the event of any casualty pursuant to which insurance proceeds
shall be payable to the Depositary, the Board of Managers shall pay or cause to
be paid to the Depositary any and all funds required in connection with such
restoration, including, without limitation, net insurance proceeds received by
the Board of Managers and any General Common Charges or Unit Expenses required
to be paid by the Unit Owners in respect of any Restoration Shortfall, to be
held in trust pursuant to a depositary agreement (the "Depositary Agreement") to
be entered into by and between the Board of Managers and the Depositary. The
Depositary Agreement shall provide, without limitation, that the Depositary
shall hold and disburse the restoration funds in accordance with customary
practices of construction lenders for similar projects and that the Depositary
shall be liable to the Board of Managers, to each Unit Owner and to each
Permitted Mortgagee for any misapplication of the funds held by such Depositary.
Each Unit Owner shall be obligated to pay to the Depositary promptly after
demand therefor that portion, if any, of any insurance proceeds payable to
Depositary hereunder and received by such Unit Owner, such Unit Owner's
allocable share of any Common Element Shortfall and such Unit Owner's Unit
Shortfall, which collectively represent the anticipated cost of restoring damage
to the Building with respect to which such proceeds were paid or such award was
made and which the Board of Managers and/or the Unit Owners are required to
repair or restore hereunder.
(f) If 75% or more of the Building is destroyed or substantially damaged
and 75% or more of the Unit Owners do not duly and promptly agree to proceed
with repair, then the Property or so much thereof as shall remain shall be
subject to an action for partition at the suit of any Unit Owner as if owned in
common, and the net proceeds of sale, together with the net proceeds of any
insurance policies, shall be considered one fund and, subject to the rights
granted by such Unit Owner to the holder of any Permitted Mortgage on the Unit,
shall be divided among the Unit Owners with the portion thereof attributable to
Installations made by Unit Owners being divided in accordance with the
replacement costs of their respective Installations and the remainder being
divided in accordance with their respective common interests. No payment shall
be made to any Unit Owner until there has first been paid out of its share of
such fund all General Common Charges, liens and Unit Expenses applicable to its
Unit.
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(g) Any repair made pursuant to this Section shall be substantially in
accordance with plans and specifications reasonably approved by the Board of
Managers and, to the extent undertaken by any Unit Owner, shall be subject to
Section 18 of this Declaration.
(h) The Board of Managers shall promptly obtain reasonably detailed
estimates of the cost to repair the damaged or destroyed improvements in all
instances when the Board of Managers has the responsibility of repair. Such
costs may include professional fees, premiums for bonds and such other charges
as the Board of Managers may reasonably incur.
(i) The proceeds of insurance collected on account of casualty and the
sums received by the Board of Managers or the Depositary, as the case may be,
from collections of assessments against the Unit Owners on account of such
casualty shall constitute a construction fund which shall be disbursed in
payment of the costs of repair as provided herein. If there is any surplus of
monies in the construction fund after the repair has been fully completed and
all costs paid, such sums shall be distributed to the Unit Owners in accordance
with their common interests, subject to the rights of the holder of any
Permitted Mortgage on a Unit.
24. Eminent Domain. (a) If all or any part of the Property shall be
taken or condemned by any competent authority for any public or quasi-public use
or purpose, except as otherwise provided herein, all compensation therefor shall
be paid to the Board of Managers which shall hold such funds in trust as
provided herein.
(b) If substantially all of the Property shall be so taken or condemned,
the condemnation award shall be distributed by the Board of Managers in the
manner designated by the condemning authority, or if no such designation is
made, subject to the rights granted by each Unit Owner to the holder of any
Permitted Mortgage on such Unit Owner's Unit, to the Unit Owners in accordance
with their respective common interests (to the extent that such award relates to
the Building) and the replacement costs of their respective installations (to
the extent that such award relates to the Unit Owner's installations).
(c) In the event of a partial taking and reasonable determination by the
Board of Managers that the Unit affected thereby can be repaired in a suitable
manner so that it can continue to be used for the purposes intended, the Unit
Owner thereof shall repair the remainder of its Unit with reasonable diligence
to a complete, independent and self-contained architectural whole which is safe
and has no adverse effect on any other Unit or any Common Element, using the
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condemnation award for that purpose. Such repair shall be subject to Section 18
of this Declaration.
In the event of a partial taking and reasonable determination by the
Board of Managers that the Unit affected thereby cannot be repaired in a
suitable manner so that it can continue to be used for the purposes intended,
then the Board of Managers shall pay to such Unit Owner, subject to the rights
granted by such Unit Owner to the holder of any Permitted Mortgage on such Unit
Owner's Unit, the condemnation award made to and received by the Board of
Managers for the taking of such Unit. The Board of Managers shall pay to the
remaining Unit Owners, subject to the rights granted by each Unit Owner to the
holder of any Permitted Mortgage on such Unit Owner's Unit, the award, if any,
for consequential damages. Upon payment by the Board of Managers to the Unit
Owner whose Unit cannot be repaired, title to such Unit shall vest in the Board
of Managers and such Unit Owner shall cease to have any rights, privileges or
powers as a Unit Owner under this Declaration.
If all the property taken is a portion of the General Common Elements,
and the General Common Elements can, in the reasonable opinion of the Board of
Managers, be reconstructed or replaced, the Board of Managers shall undertake
such reconstruction in accordance with this Declaration. If the reconstruction
exceeds the condemnation award, the deficiency shall be a General Common
Expense. If the award is in excess of the costs of reconstruction, the excess
shall be distributed to the Unit Owners in accordance with their respective
common interests, subject to the rights granted by each Unit Owner to the holder
of any Permitted Mortgage on such Unit Owner's Unit.
If a Unit or a portion of the General Common Elements is repaired in
accordance with this Section, the common interest of each Unit Owner shall be
adjusted by the Board of Managers to reflect any change in the proportion that
the rentable floor area of each Unit as of the date of this Declaration bears to
the aggregate rental floor areas of all Units as of such date.
In the event of a temporary taking of all or a portion of the Property,
the Board of Managers shall distribute the award in respect of such taking among
the affected Unit Owners in accordance with their respective common interests or
in such other manner as shall be equitable, subject to the rights granted by
each Unit Owner to the holder of any Permitted Mortgage on such Unit Owner's
Unit.
No payment shall be made to any Unit Owner pursuant to this Section 24
until there has first been paid out of its share of such funds all General
Common Charges, liens and Unit Expenses applicable to its Unit.
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25. Unit 1 Leases. Each lease entered into between the Unit Owner of
Unit 1 and any tenant of space in Unit 1 shall provide that such tenant shall,
at the tenant's expense, maintain the sidewalk in front of such tenant's demised
premises and keep such sidewalk clean and free from ice and snow. The provisions
of this Section shall not apply to any lease existing prior to the date hereof
or any amendment, modification, extension or renewal thereof.
26. Compliance and Default. (a) Each Unit Owner and its tenants and
subtenants shall comply with the terms of the Condominium Documents. Failure to
comply shall be grounds for (i) an action to recover sums due for damages or for
injunctive relief maintainable by the other Unit Owners, each on its own behalf,
or by the Board of Managers on behalf of the non-defaulting Unit Owners or (ii)
in the case of unpaid General Common Charges or Unit expenses, an action by the
Board of Managers to foreclose its lien pursuant to Section 339-z of the
Condominium Act.
(b) Each Unit Owner and the tenants and subtenants of each Unit Owner
shall be liable to the Board of Managers and/or the other Unit Owners for the
expense of any maintenance, repair or replacement rendered necessary to the
other Units or the General Common Elements by their negligence or intentional
wrongful act to the extent that such expense is not met by the proceeds of
insurance carried by the Board of Managers or the Unit Owner of the Unit so
affected. Such liability shall include any increase in fire or other insurance
rates, occasioned by use, misuse, occupancy or abandonment of a Unit. Nothing
contained herein shall be construed to override any waiver by any insurance
company of its rights of subrogation.
(c) In any proceeding arising out of an alleged default by a Unit Owner,
the prevailing party shall be entitled to recover the costs of the proceeding
and such reasonable attorney's fees and disbursements as may be determined by
the court.
(d) The failure of the Board of Managers or a Unit Owner to enforce any
right, provision or covenant contained in the Condominium Documents shall not
constitute a waiver of the right of the Board of Managers or the Unit Owner to
enforce such right, provision or covenant in the future.
(e) All rights, remedies and privileges of the Board of Managers or a
Unit Owner pursuant to the Condominium Documents shall be cumulative, and the
exercise of any one or more shall not constitute an election of remedies nor
shall it preclude the party exercising the same from exercising other and
additional
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rights, remedies or privileges as may be granted to such party by the
Condominium Documents or pursuant to law or equity.
27. Restrictions. A Unit Owner (i) shall not use, permit or allow its
Unit to be used other than as provided in the Condominium Documents and (ii)
shall not use, permit or allow its Unit or any part thereof to be used for an
unlawful purpose or permit any nuisance within its Unit.
28. Termination. (a) The Condominium may be terminated by the unanimous
agreement of the Unit Owners and all Permitted Mortgagees. If the Unit Owners so
terminate the Condominium, unless the Unit Owners determine that the Property
shall be sold as a whole, the same shall be subject to an action for partition
and sale by any Unit Owner as if owned in common. In the event a partition
action is brought and the court orders the sale of the Property as a whole, the
net proceeds of sale shall be divided among the Unit Owners in accordance with
their respective common interests, after first paying out of the share of each
Unit Owner the amount of all unpaid liens on its Unit in the order of their
priority. No payment shall be made to a Unit Owner until there has first been
paid out of its share of such net proceeds all liens and expenses chargeable by
the Board of Managers to its Unit.
(b) In addition to the other grounds for termination set forth herein,
the Condominium shall be terminated if it is determined in the manner provided
in Section 23 of this Declaration that the Building shall not be reconstructed
after a casualty or if all the Property is taken by eminent domain. The
determination not to reconstruct after a casualty shall be evidenced by a
certificate of the Board of Managers signed by the President or any Vice
President and the Secretary or Treasurer. The termination shall be effective
upon the filing of the certificate with the appropriate recording officer and
must include the joinder of all Permitted Mortgagees.
(c) After termination of the Condominium, the Unit Owners shall own the
Property as tenants-in-common in undivided shares, in accordance with their
previous common interests, and the holders of Permitted Mortgages and liens
against the Unit or Units formerly owned by such Unit Owners shall have
Permitted Mortgages and liens upon the respective undivided shares of the Unit
Owners. All funds held by the Board of Managers shall be and continue to be held
for the Unit Owners in proportion to their undivided shares. The costs incurred
by the Board of Managers in connection with a termination shall be a General
Common Expense.
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(d) The members of the Board of Managers acting collectively as agent
for the Unit Owners shall continue to have such powers as in this Declaration
are granted with respect to the winding up of the affairs of the Condominium,
notwithstanding the Board of Managers or the Condominium may be dissolved upon
termination.
29. Covenants Running With the Land. All provisions of the Condominium
Documents shall be construed to be covenants running with the land and with
every part thereof and interest therein, and every Unit Owner and claimant of
the Property or the Building or any part thereof or interest therein and its
heirs, executors, administrators, legal representatives, successors and assigns
shall be bound by all of the provisions of the Condominium Documents.
30. Security. Each Unit Owner shall have the right to install such
security systems in its Unit as it deems proper, provided installation and
operation of any such system is in compliance with all applicable law and
regulations and does not adversely affect any other Unit Owner in the use of its
Unit.
31. Invalidity. The invalidity of any provision of this Declaration
shall not be deemed to impair or affect in any manner the validity,
enforceability or effect of the remainder of this Declaration and, in such
event, all of the other provisions of this Declaration shall continue in full
force and effect as if such invalid provision had never been included herein.
32. Waiver. No provision contained in this Declaration shall be deemed
to have been abrogated or waived by reason of any failure to enforce the same,
irrespective of the number of violations or breaches which may occur.
33. Captions. The captions herein are inserted only as a matter of
convenience and for reference, and in no way define, limit or describe the scope
of this Declaration or the intent of any provision hereof.
34. Gender. The use of the masculine gender in this Declaration shall be
deemed to refer to the feminine gender and the use of the singular shall be
deemed to refer to the plural, and vice versa, whenever the context so requires.
35. Estoppels. The Board of Managers, at any time, and from time to
time, upon at least thirty (30) days' prior notice by a Unit Owner, shall
execute, acknowledge and deliver to the Unit Owner, and/or to any other Person
specified by the Unit Owner, a statement certifying the dates to which the
General Common Charges have been paid, and stating whether or not there exist
any known defaults
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by the Unit Owner under any of the Condominium Documents and, if so, specifying
each such known default.
36. Consents. (a) With respect to any provision in the Condominium
Documents requiring the consent of a Unit Owner, such Unit Owner shall have the
right, in its sole discretion, to withhold its consent for any reason or no
reason at all, subject to the provisions of paragraph (b) of this Section 36.
(b) The approval or consent of The Government, when required under the
provisions of Section 19(b)(x) or Section 20(c), may not be unreasonably
withheld or delayed except that with respect to an expenditure for a capital
improvement (but not a repair) to be made solely for aesthetic purposes, the
standard of reasonableness shall not apply. Any dispute as to whether The
Government acted reasonably shall be submitted to arbitration to the then
President of The Real Estate Board of New York, Inc. (or any organization which
is the successor thereto) or his or her designee, or if neither The Real Estate
Board of New York, Inc. nor any successor thereto is then in existence, to a
person appointed by a Justice of the New York State Supreme Court, New York
County.
37. Further Assurances. Each Unit Owner shall, at the request of the
Board of Managers, execute, acknowledge and deliver such instruments and take
such action as may be necessary to effectuate the provisions of the Condominium
Documents or to confirm or perfect any right to be created or transferred
hereunder.
38. Exculpation. No holder of any Permitted Mortgage, nor any of such
holder's officers, members, shareholders, employees, agents or directors, shall
have any personal liability hereunder in any capacity. No party shall have
recourse to any holder of a Permitted Mortgage other than to its interest in any
Unit.
39. Consent No Longer Required. Wherever the consent, approval or
permission of The Government or the holder of a Permitted Mortgage is required
under the Condominium Documents, including, without limitation, Section 20(d) of
this Declaration, such consent, approval or permission shall not be required
when The Government owns less than 51% of the rentable floor area of Unit 3 or
any part thereof or the holder of the Permitted Mortgage no longer holds the
pertinent mortgage, as the case may be.
40. Notices. All notices, approvals, requests, demands, consents and
other communications required or permitted hereunder shall be in writing and
shall be deemed to have been given when deposited in the United States mail and
sent by postage prepaid, registered or certified mail, or by reputable overnight
courier,
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addressed to a Unit Owner (other than Declarant) at the address of the Building,
and addressed to Declarant at 1177 Avenue of the Americas, New York, New York
10036, Attention: Lawrence Lefkowitz, President, or such other address as
Declarant may designate by notice to the Board of Managers, and addressed to the
Board of Managers at the address of the Building, Attention: President, or such
other address as the Board of Managers may designate by notice to all Unit
Owners.
41. Submission to Jurisdiction; Agent for Service of Process. The
Government hereby agrees that only the Federal courts of the United States
sitting in the Southern District of New York, the courts of the State of New
York sitting in the City of New York and the courts of Israel shall have
jurisdiction in respect of any legal action or proceeding brought against The
Government to enforce any obligation or liability of The Government arising
directly or indirectly from the Condominium Documents ("Proceedings"). In
respect of any such Proceeding which may be brought hereunder, The Government
irrevocably submits to the jurisdiction of the Federal courts of the United
States in the Southern District of New York, the courts of the State of New York
sitting in the City of New York and the courts of Israel and waives any right of
objection to the laying of venue in any such court, including, without
limitation, any objection on the basis of inconvenient forum. The Government
irrevocably agrees to be bound by any final judgment rendered thereby in
connection with any dispute arising directly or indirectly from the Condominium
Documents and any action to enforce The Government's obligations or liabilities
under the Condominium Documents from which no appeal has been taken or is
available.
The Government hereby appoints the Chief Fiscal Officer for the Western
Hemisphere of the Ministry of Finance of the Government of Israel, whose office
address is presently at 800 Second Avenue, 17th Floor, New York, N.Y. 10017, as
its authorized agent ("Authorized Agent") to receive on its behalf service of
process in any Proceeding which may be brought under the immediately preceding
paragraph of this Section 41 in a Federal court of the United States in the
Southern District of New York or in a New York State court in the City of New
York. Such appointment shall be irrevocable until the first anniversary of the
date on which The Government ceases to be a Unit Owner or unless and until a
successor shall have been appointed as The Government's Authorized Agent and
such successor shall have accepted such appointment. The Government agrees that
it will at all times maintain an Authorized Agent to receive such service, as
above provided. The failure of the Authorized Agent to give The Government
notice of the service of any process shall not affect the validity of any
Proceeding based on that process or any judgment obtained pursuant to it. The
Government will take any and all action, including the filing of any and all
documents and instruments,
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that may be necessary to continue such appointment or appointments in full force
and effect as aforesaid. Service of process upon the Authorized Agent at the
address indicated in this Section 41, or at such other address in the Borough of
Manhattan in the City of New York, as may be the office of the Authorized Agent
at the time of such service, and written notice of such service to The
Government (mailed or delivered to The Government at the address set forth
above) hereof shall be deemed, in every respect, effective service of process
upon The Government. Upon receipt of such service of process the Authorized
Agent shall advise the Ambassador of Israel to the United States and the
Ministry of Finance of Israel promptly by telex of its receipt thereof, but the
failure to so advise shall have no effect on the validity or timeliness of any
such service. The Government irrevocably and expressly waives the diplomatic
immunity of Chief Fiscal Officer-Western Hemisphere of the Ministry of Finance
of the State of Israel with respect to the acceptance of the service of process
referred to herein pursuant to Article 32 of the Vienna Convention on Diplomatic
Relations.
In respect of any Proceedings which may be brought as provided in this
Section, The Government irrevocably agrees not to assert the defense of
immunity, on the grounds of sovereignty or otherwise, from jurisdiction,
execution or attachment in aid of execution, personally and in respect of any of
its property, including, without limitation, Unit 3.
With respect to any Proceedings, neither the appointment of the
Authorized Agent nor the waivers agreed to in this Section shall be interpreted
to include actions brought under the United States Federal securities laws or
any State securities laws.
IN WITNESS WHEREOF, the undersigned has caused this Declaration to be
executed this day of December, 1996.
AMPAL REALTY CORPORATION
By: /s/ Lawrence Lefkowitz
-----------------------------------
Lawrence Lefkowitz
President
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State of New York )
: ss:
County of New York )
On this 12th day of December, 1996 before me personally came Lawrence
Lefkowitz, to me known, who being by me duly sworn, did depose and say that he
resides at 447 Ridge Rd Hartsdale, NY 10530, that he is the President of Ampal
Realty Corporation, the corporation described in and which executed the
foregoing instrument and that he signed his name thereto by order of the Board
of Directors of said corporation.
/s/ Linda J. Smith
-------------------------
Notary Public
LINDA J. SMITH
Notary Public, State of New York
No. 24-4917855
Qualified in Kings County
Certified Filed in New York County
Commission Expires February 28, 1998
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EXHIBIT A
DESCRIPTION OF LAND
ALL that certain plot, piece or parcel of land, situate, lying and being in the
Borough of Manhattan, City, County and State of New York, bounded and described
as follows:
BEGINNING at the corner formed by the intersection of the northerly aide of East
42nd Street with the easterly side of Second Avenue;
RUNNING THENCE Northerly along the easterly aide of Second Avenue, 200 feet 10
inches to the corner formed by the intersection of the southerly side of East
43rd Street with the easterly side of Second Avenue;
THENCE Easterly along the southerly side of East 43rd Street, 81 feet;
THENCE Southerly parallel with the easterly side of Second Avenue, 100 feet 5
inches to the center line of the block between East 42nd Street and East 43rd
Street;
THENCE Westerly along said center line of the block, 6 inches;
THENCE Southerly again parallel with the easterly side of Second Avenue, 100
feet 5 inches to the northerly side of East 42nd Street;
and THENCE Westerly along said northerly side of East 42nd Street, 80 feet 6
inches to the point or place of BEGINNING.
TOGETHER with an easement for light and air over a portion of the premises next
abutting on the east which easement is contained in Liber 4937 Page 333, as
corrected in Liber 4945 Page 582, which such abutting premises are bounded and
described as follows:
BEGINNING at a point on the northerly side of East 42nd Street, distant 80 feet
6 inches easterly from the corner formed by the intersection of the northerly
side of East 42nd Street and the easterly side of Second Avenue;
RUNNING THENCE Northerly parallel with the easterly side of Second Avenue, 100
feet 5 inches to the center line of the block between East 42nd Street and East
43rd Street;
THENCE Easterly along the said center line, 6 inches;
THENCE Northerly again parallel with the easterly side of Second Avenue, 100
feet 5 inches to the southerly side of East 43rd Street;
THENCE Easterly along the southerly side of 43rd Street, 20 feet;
THENCE Southerly parallel with the easterly side of Second Avenue, 100 feet 5
inches to said center line of the block;
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EXHIBIT A (CONT'D)
THENCE Westerly along said center line of the block, 6 inches;
THENCE Southerly again parallel with the easterly side of Second Avenue, 100
feet 5 inches to the northerly side of East 42nd Street;
THENCE Westerly along said northerly side of East 42nd Street, 20 feet to the
point or place of BEGINNING.
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EXHIBIT B
DESCRIPTION OF BUILDING
The Building contains a cellar, 18 stories plus one story of mechanical
penthouse. The height of the Building is approximately 198 feet. Interior
construction is fireproof with reinforced concrete frame. The exterior of the
Building is masonry. Roof composition is concrete deck with waterproofing
membrane. The Building will be serviced by 5 passenger elevators and 2 freight
elevators.
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EXHIBIT C
LIST OF UNITS
<TABLE>
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<S> <C> <C> <C> <C> <C>
Unit Tax Lot Location in Building and Limited Common Elements to Which Unit Percentage
Designation Approximate Unit Area Common has Access Interest in
Elements Common
Elements
- ------------------------------------------------------------------------------------------------------------------------------------
Unit 1 1001 Portions of the cellar and first Truck loading dock and loading areas; 6.3%
(Retail) floors of the building consisting Elevator No. 3 and freight elevator
of 14,587 square located as adjacent to truck loading dock; lobby;
follows; cellar - 3,126 sq.ft.; all passages and corridors which are
first floor - 11,461 sq.ft. not limited common elements or part
of another unit; fire stairs; building
security, maintenance, telephone and
mechanical equipment rooms; Roof
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Unit 2 1002 All of the second through ninth 6,746 total Truck loading dock and loading areas; 49.8%
floors of the building consisting square feet Elevator No. 3 and freight elevator
of 115,069 square feet located adjacent to truck loading dock; lobby;
as follows; 2nd floor - 13,708 passenger elevators and toilets serving
sq.ft.; 3rd floor - 14,466 sq.ft.; floors 2 through 9; all passages and
4th floor - 14,513 sq.ft.; 5th corridors which are not limited
floor - 14,452 sq.ft.; 6th floor - common elements or part of another
14,513 sq.ft.; 7th floor - 14,452 unit; fire stairs; building security,
sq.ft.; 8th floor - 14,513 sq.ft.; maintenance, telephone and
9th floor - 14,452 sq.ft. mechanical equipment rooms; Roof
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</TABLE>
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<TABLE>
<CAPTION>
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<S> <C> <C> <C> <C> <C>
Unit Tax Lot Location in Building and Limited Common Elements to Which Unit Percentage
Designation Approximate Unit Area Common has Access Interest in
Elements Common
Elements
- ------------------------------------------------------------------------------------------------------------------------------------
Unit 3 1003 Portions of the cellar, first and 7,897 total Truck loading dock and loading areas; 43.9%
all of the tenth through sq. ft. Elevator No. 3 and freight elevator
eighteenth floors of the building 2,511 sq. adjacent to truck loading dock; lobby;
consisting of 101,278 square ft. (roof at passenger elevators and toilets serving
feet located as follows: cellar 12th floor); floors 10 through 18; roof set back at
3,826 sq. ft; first floor - 1,066 211 sq. ft. 12th floor; all passages and corridors
sq. ft; 10th floor - 14,513 sq. ft; (elevator at which are not limited common
11th floor - 14,646 sq. ft; 12th roof) elements or part of another unit; fire
floor - 12,040 sq. ft; 13th floor stairs; building security; maintenance,
- 11,977 sq. ft; 14th floor - telephone and mechanical equipment
11,335 sq. ft; 15th floor - 8,967 rooms; Roof
sq. ft; 16th floor - 9,200 sq. ft;
17th floor - 6,854 sq. ft; 18th
floor - 6,854 sq. ft.
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</TABLE>
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SCHEDULE I
PERMITTED EXCEPTIONS
1. Zoning laws and regulations which are not violated by the existing
structures.
2. Consents by Seller or any former owner of the Property for the
erection of any structure or structures on, under or above any street or streets
on which the Property may abut.
3. Rights of utility companies to lay, maintain, install and repair
pipes, lines, poles, conduits, cable boxes and related equipment on, over and
under the Property, provided that none of such rights interferes with the
current use of the Property.
4. Encroachments of stoops, areas, cellar steps, trim, cornices, lintels,
window sills, awnings, canopies, ledges, fences, hedges, coping and retaining
walls projecting from the Property over any street or highway or over any
adjoining property and similar encroachments projecting from adjoining property
on the Property.
5. Revocability or lack of right to maintain vaults, coal chutes,
excavations or sub-surface equipment beyond the line of the Property.
6. Variations between fences, lines of hedges, retaining walls and the
record lines.
7. Any lien, charge or encumbrance which a tenant of the Property, by the
terms of its lease or by law or otherwise, is required to discharge, remove or
otherwise comply with; provided, however, that Seller shall agree in writing to
cause any such lien, charge or encumbrance to be discharged after the Closing.
8. The standard printed exceptions contained in the standard form of
owner's title insurance policy issued by CTIC.
9. Declaration of Condominium and By-Laws of 800 Second Avenue
Condominium.
10. State of facts shown on survey of the Property made by Chas. J.
Dearing dated June 10, 1957 and last brought to date by visual examination on
June 19, 1995 by Harwood Surveying, P.C., and any additional state of facts
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which a subsequent accurate, current survey would disclose provided such
additional state of facts does not render title unmarketable.
11. Terms, covenants and restrictions recorded in Liber 1087, Cp 586 and
Liber 1097, Cp 584.
12. Easement of Light and Air recorded in Liber 4937, Cp 333.
13. Distinctive Sidewalk Improvement and Maintenance Agreement dated July
10, 1992 and recorded in Reel 1915, page 1385, as modified by Modification of
Distinctive Sidewalk Improvement and Maintenance Agreement recorded in Reel
2091, page 511.
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SCHEDULE II
800 SECOND AVENUE
PROPOSED 1997 CONDOMINIUM BUDGET SUMMARY COMPARISON
----------------------------------------------------
[Illegible]
----------------------------------------------------
1.0 Payroll Fringe & Benefits 311,000
2.0 Janitorial 23,700
3.0 Security 198,680
4.0 Utilities 823,933
5.0 Repairs & Maintenance 79,300
6.0 HVAC Repairs 39,640
7.0 Elevator Contract/Repairs 39,000
8.0 Miscellaneous Operating 30,194
9.0 Management Fees 70,000
10.0 Insurance 56,000
11.0 Professional Fees 32,200
12.0 Administrative 8,800
----------------------------------------------------
TOTALS $1,712,447
==========
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SCHEDULE III
CAPITAL IMPROVEMENT BUDGET
800 SECOND AVENUE CONDOMINIUM
12/10/96 1997 CAPITAL EXPENDITURES BUDGET
ELEVATOR PROJECT $215,000***
AIR CONDITIONING 850,000
GRAND CENTRAL PARTNERSHIP 60,000
---------------------------------
TOTAL $1,125,000
*** - includes hydraulic freight
elevator-$80,000, alloc. 43.9% to
Israel, 56.1% to Ampal service elevator
$135,000, alloc. 30% to Israel, 70% to
Ampal
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================================================================================
BY-LAWS
of
800 Second Avenue Condominium
New York, New York 10017
(Part 2 of the Declaration)
Kronish, Lieb, Wiener & Hellman LLP
Attorneys for Declarant
1114 Avenue of the Americas
New York, New York 10036
================================================================================
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TABLE OF CONTENTS
Title Page
- ----- ----
I. Plan of Unit Ownership ................................................1
Section 1. Unit Ownership............................................1
Section 2. Applicability of By-Laws..................................1
Section 3. Application...............................................1
Section 4. Office....................................................1
II. Board of Managers......................................................1
Section 1. Number and Qualification..................................1
Section 2. Powers and Duties.........................................2
Section 3. Removal of Members of the Board of Managers...............2
Section 4. Organizational Meeting....................................2
Section 5. Regular Meetings..........................................2
Section 6. Special Meetings..........................................2
Section 7. Waiver of Notice..........................................2
Section 8. Quorum of Board of Managers...............................3
Section 9. Compensation..............................................3
Section 10. Liability of the Board of Managers........................3
Section 11. Good Faith Efforts........................................4
III. Unit Owners............................................................4
Section 1. Annual Meetings...........................................4
Section 2. Place of Meetings.........................................4
Section 3. Special Meetings..........................................4
Section 4. Notice of Meetings........................................4
Section 5. Adjournment of Meetings...................................4
Section 6. Title to Units............................................5
Section 7. Voting....................................................5
Section 8. Quorum....................................................6
Section 9. Action Without Meeting....................................6
IV. Officers...............................................................6
Section 1. Designation...............................................6
Section 2. Election of Officers......................................6
Section 3. Removal of Officers.......................................6
Section 4. Vacancies.................................................6
Section 5. President.................................................6
Section 6. Vice President............................................7
Section 7. Secretary.................................................7
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Section 8. Treasurer.................................................7
Section 9. Agreements, Contracts, Deeds, Check, etc..................7
Section 10. Compensation of Officers..................................7
V. Operation of the Property..............................................7
Section 1. Determination of General Common Expenses and Fixing of
General Common Charges..................................7
Section 2. Payment of General Common Charges and Unit Expenses.......8
Section 3. Collection of General Common Charges and Unit Expenses....8
Section 4. Foreclosure of Liens for Unpaid General Common Charges or
Unit Expenses............................................8
Section 5. Statement of General Common Charges and Unit Expenses.....9
Section 6. Water and Electricity.....................................9
Section 7. Taxes and Assessments....................................10
Section 8. Service Contracts........................................10
Section 9. Arbitration..............................................10
VI. Fiscal Year...........................................................11
VII. Execution of Instruments..............................................11
VIII. Rules and Regulations.................................................11
IX. Mortgages.............................................................12
Section 1. Performance by Permitted Mortgagees......................12
Section 2. Examination of Books.....................................12
Section 3. Consent of Permitted Mortgagees..........................12
Section 4. Provisions Relating to Permitted Mortgagees..............12
X. Records...............................................................13
XI. Miscellaneous.........................................................13
Section 1. Notices..................................................13
Section 2. Invalidity...............................................14
Section 3. Captions.................................................14
Section 4. Gender...................................................14
Section 5. Waiver...................................................14
Section 6. Consent No Longer Required...............................14
XII. Amendments to By-Laws.................................................14
XIII. Conflicts.............................................................15
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BY-LAWS
OF
800 SECOND AVENUE CONDOMINIUM
ARTICLE I.
Plan of Unit Ownership
Section 1. Unit Ownership. The land situated in the Borough of Manhattan,
City, County and State of New York more particularly described in Exhibit A of
the Declaration executed by Ampal Realty Corporation and recorded in the Office
of the Register of the City of New York, New York County simultaneously herewith
(hereinafter called the "Declaration"), and the Building constructed on said
land have been submitted to the provisions of the Condominium Act by the
Declaration and are known as 800 Second Avenue Condominium (hereinafter called
the "Condominium"). All capitalized terms not otherwise defined herein shall
have the meanings ascribed to them in the Declaration.
Section 2. Applicability of By-Laws. The provisions of these By-Laws are
applicable to the Property and to the use and occupancy thereof.
Section 3. Application. All present and future owners, mortgagees, tenants
and occupants of Units and their employees, and any other persons who may use
the facilities of the Property in any manner, are subject to these By-Laws, the
Declaration and the Rules and Regulations adopted by the Board of Managers, each
as amended from time to time.
The acceptance of a deed or conveyance or the entering into of a lease or
the act of occupancy of a Unit shall constitute an agreement that these By-Laws,
the provisions of the Declaration and the Rules and Regulations, as they may be
amended from time to time, are accepted, ratified and will be complied with.
Section 4. Office. The office of the Condominium and the Board of Managers
shall be located at the Property or at such other place as may be designated by
the Board of Managers from time to time.
ARTICLE II.
Board of Managers
Section 1. Number and Qualification. The affairs of the Condominium shall
be governed by a Board of Managers consisting of seven members. No member of the
Board of
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Managers need be a Unit Owner. Subject to these By-Laws, each member shall hold
office until the next annual meeting of Unit Owners and thereafter until his
successor is duly designated or elected and qualified. Each member of the Board
of Managers shall have one vote.
Section 2. Powers and Duties. The Board of Managers shall have the powers
and duties granted to it by the Declaration and the Condominium Act.
Section 3. Removal of Members of the Board of Managers. The members of the
Board of Managers may be removed at any time, with or without cause, at the
pleasure of the Board of Managers. If any member shall be so removed, a new
member shall be elected by the Unit Owners at a special meeting called for such
purpose.
Section 4. Organizational Meeting. The first meeting of the members of the
Board of Managers following the annual meeting of the Unit Owners shall be held
within ten (10) days thereafter, at such time and place as shall be fixed by a
majority of the members of the Board of Managers elected by the Unit Owners and
no notice shall be necessary to the newly elected members of the Board of
Managers in order legally to constitute such meeting, providing a majority of
the whole Board of Managers elected by the Unit Owners shall be present thereat.
Section 5. Regular Meetings. Regular meetings of the Board of Managers may
be held at such time and place as shall be determined from time to time by a
majority of the members of the Board of Managers. Notice of regular meetings of
the Board of Managers shall be given by the Secretary to each member of the
Board of Managers, by mail or facsimile transmission, at least 10 business days
prior to the day named for such meeting, and shall specify the purposes of such
meeting and state whether the items on the agenda at such meeting will be voted
upon at such meeting.
Section 6. Special Meetings. Special meetings of the Board of Managers may
be called by any member of the Board of Managers on 5 business days' notice to
each member of the Board of Managers, given by mail or facsimile transmission,
which notice shall state the time, place and purpose of the meeting and state
whether the items on the agenda at such meeting will be voted upon at such
meeting.
Section 7. Waiver of Notice. Any member of the Board of Managers may at any
time waive notice of any meeting of the Board of Managers in writing, and such
waiver shall be deemed equivalent to the giving of such notice. Attendance by a
member of the Board of Managers at any meeting of the Board shall constitute a
waiver of notice by him of the time and place thereof. Any one or more members
of the Board of Managers or any committee thereof may participate in a meeting
of the Board or committee by means of a conference telephone or similar
communications equipment allowing all persons present at the meeting to hear
each other at the same time. Participation by such means shall constitute
presence in
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person at a meeting. If all the members of the Board of Managers are present at
any meeting of the Board, no notice shall be required and any business may be
transacted at such meeting.
Section 8. Quorum of Board of Managers. At all meetings of the Board of
Managers, a majority of the members thereof shall constitute a quorum for the
transaction of business; provided, however, so long as a Unit Owner has the
right to designate one or more members of the Board of Managers pursuant to
Section 7 of Article III, at least one designated member representing such Unit
Owner must be present in order to constitute a quorum. If at any meeting of the
Board of Managers there shall be less than a quorum present, the members present
at such meeting shall adjourn the meeting and shall give at least five business
days' notice to all members of any rescheduled meeting. In the event that there
shall be less than a quorum present at any meeting of the Board of Managers
because a member representing a Unit Owner having the right to designate one or
more members of the Board of Managers was not present thereat and, as a result,
such meeting was adjourned, then a majority of the members of the Board of
Managers shall constitute a quorum for the transaction of business at such
rescheduled meeting, whether or not a member representing such Unit Owner is
present, provided that at least five business days' notice of such rescheduled
meeting was given to all members. At any such adjourned meeting at which a
quorum is present, any business which might have been transacted at the meeting
originally called may be transacted without further notice. Decisions of the
Board of Managers shall be made by the vote of a majority of the members of the
Board of Managers. Any action required or permitted to be taken by the Board of
Managers or any committee thereof may be taken without a meeting if all members
of the Board of Managers or the committee consent in writing to the adoption of
a resolution authorizing such action, and the writing or writings are filed with
the minutes of the proceedings of the Board or the committee.
Section 9. Compensation. No member of the Board of Managers shall receive
any compensation from the Condominium for acting as such.
Section 10. Liability of the Board of Managers. The members of the Board of
Managers shall not be liable to the Unit Owners for any mistake of judgment,
negligence or otherwise, except for their own individual willful misconduct or
bad faith. To the fullest extent permitted by law, the Unit Owners shall
indemnify and hold harmless each of the members of the Board of Managers against
all liability to others arising from their acts as, or by reason of the fact
that such person was, a member of the Board of Managers except in the case of
the willful misconduct or bad faith of such member. It is intended that the
members of the Board of Managers shall have no personal liability with respect
to any contract made by them on behalf of the Condominium within the scope of
their authority. It is also intended that the liability of any Unit Owner
arising out of any contract made by the Board of Managers or out of the
aforesaid indemnity in favor of the members of the Board of Managers shall be
limited to such proportion of the total liability thereunder as its interest in
the Common Elements bears to the interests of all the Unit Owners in the Common
Elements. Every agreement made by the Board of Managers or by the managing agent
on behalf of the Condominium shall provide that the members of the Board of
Managers or the managing
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agent, as the case may be, are acting only as agents for the Unit Owners who
elected them and shall have no personal liability thereunder (except as Unit
Owners) and that any liability thereunder of a Unit Owner shall be limited to
such proportion of the total liability thereunder as its interest in the Common
Elements bears to the interest of all the Unit Owners in the Common Elements.
Section 11. Good Faith Efforts. Each Unit Owner shall use good faith
efforts to effectuate the purpose of the Declaration and these By-Laws.
ARTICLE III.
Unit Owners
Section 1. Annual Meetings. The first annual meeting of the Unit Owners
shall be held within 10 days following the date of filing of the Declaration.
Annual meetings of Unit Owners shall be held on the second Monday in January
annually thereafter commencing in the second January next following such annual
meeting.
Section 2. Place of Meetings. Meetings of the Unit Owners shall be held at
the principal office of the Condominium or at any other such suitable place
convenient to the Unit Owners as may be designated by the Board of Managers.
Section 3. Special Meetings. It shall be the duty of the President to call
a special meeting of the Unit Owners upon proper notice if so directed by
resolution of the Board of Managers or upon the request of a Unit Owner signed
and presented to the Secretary. The notice of any special meeting shall state
the time and place of such meeting and the purpose thereof. No business shall be
transacted at a special meeting except as stated in the notice.
Section 4. Notice of Meetings. It shall be the duty of the Secretary to
mail a notice of each annual or special meeting of the Unit Owners, at least
five but not more than forty days prior to such meeting, stating the purpose
thereof as well as the time and place where it is to be held, to each Unit Owner
of record, at the Building or at such other address as such Unit Owner shall
have designated by notice in writing to the Secretary. If the purpose of any
meeting shall be to act upon a proposed amendment to the Declaration or to these
By-Laws, the notice of meeting shall be mailed at least 10 days prior to such
meeting and shall be accompanied by a copy of the text of the proposed
amendment. The mailing of a notice of meeting in the manner provided in this
Section shall be considered service of notice. Notice of any meeting need not be
given to a Unit Owner who submits a signed waiver of notice, in person or by
proxy, whether before or after the meeting, or who attends a meeting, in person
or by proxy.
Section 5. Adjournment of Meetings. If any meeting of Unit Owners cannot be
held because a quorum has not attended, any Unit Owner who is present at such
meeting, either in
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person or by proxy, may adjourn the meeting to a time not less than forty-eight
(48) hours from the time the original meeting was called unless the subject of
such meeting is an "emergency."
Section 6. Title to Units. Title to Units may be taken in the name of an
individual or in the names of two or more persons, as tenants in common or as
joint tenants or in the name of a corporation, limited liability company, or
partnership, or in the name of a fiduciary or any other entity capable of taking
title to a Unit (except that title may be taken in the name of a foreign
government only if it executes and delivers to the Board of Managers a written
agreement not to assert the defense of sovereign immunity, in form and substance
acceptable to the Board of Managers and counsel to the Condominium).
Section 7. Voting.
(a) The total number of votes of the Unit Owners shall be one hundred and
subject to the provisions of paragraph (c) of this Section 7 each Unit Owner
shall have one vote for each one percent (rounded to the nearest whole number)
of interest in the Common Elements appurtenant to its Unit.
(b) Each Unit Owner may empower any person to vote as the Proxy of such
Unit Owner at any meeting of Unit Owners by written proxy or authorization filed
with the Secretary. Such written proxy or authorization, unless specially
limited by its terms, shall remain effective until there shall be filed with the
Secretary a written revocation of the same or a written proxy or authorization
of later date.
(c) So long as Declarant or an Affiliate of Declarant continues to own the
following percentages of interests in the Common Elements, Declarant shall have
the right to designate the following number of members of the Board of Managers:
More than 50% 4 members
25% up to and including 50% 3 members
15% up to but not including 25% 2 members
10% up to but not including 15% 1 member
(d) So long as The Government of Israel ("The Government") continues to own
the following percentages of interests in the Common Elements, The Government
shall have the right to designate the following number of members of the Board
of Managers:
25% or more 3 members
15% up to but not including 25% 2 members
10% up to but not including 15% 1 member
(e) If the number of members of the Board of Managers designated pursuant
to subsections (c) and (d) is less than seven, the remaining members of the
Board of Managers
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shall be elected by the Unit Owners. Each Unit Owner (including any Unit Owner
who has the right to designate members of the Board of Managers) shall have the
right to vote for any member(s) of the Board of Managers to be elected. A Unit
Owner may cast all of its votes for one candidate or may split its vote among
several candidates.
Section 8. Quorum. Except as otherwise provided in these By-Laws or the
Declaration, the presence in person or by proxy of 51% of all Unit Owners
entitled to vote shall constitute a quorum at all meetings of the Unit Owners.
Section 9. Action Without Meeting. Any action required or permitted to be
taken by the Unit Owners may be taken without a meeting if the Unit Owners
consent in writing to the adoption of a resolution authorizing such action and
the writing or writings are filed with the records of the Condominium.
ARTICLE IV.
Officers
Section 1. Designation. The principal officers of the Condominium shall be
the President, the Vice President, the Secretary, and the Treasurer, all of whom
shall be elected by the Board of Managers. The Board of Managers may appoint an
assistant treasurer, an assistant secretary, and such other persons as in its
judgment may be necessary. Any two or more offices may be held by the same
Person, except that no Person may hold the offices of both President and
Secretary.
Section 2. Election of Officers. The officers of the Condominium shall be
elected annually by the Board of Managers at the organization meeting of each
new Board of Managers and shall hold office at the pleasure of the Board of
Managers. No officer, except the President, need be a member of the Board of
Managers. No officer need be a Unit Owner.
Section 3. Removal of Officers. Upon the affirmative vote of a majority of
the members of the Board of Managers, any officer may be removed, either with or
without cause, and his successor may be elected at any regular meeting of the
Board of Managers, or at any special meeting of the Board of Managers called for
such purpose.
Section 4. Vacancies. Any vacancy occurring in any office may be filled by
the Board of Managers.
Section 5. President. The President shall be the chief executive officer of
the Condominium and shall be a member of the Board of Managers. He shall preside
at all meetings of the Unit Owners and the Board of Managers. He shall have all
of the general
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powers and duties which are incident to the office of president of a stock
corporation organized under the Business Corporation Law of the State of New
York.
Section 6. Vice President. The Vice President shall take the place of the
President and perform his duties whenever the President shall be absent or
unable to act. If neither the President nor the Vice President is able to act,
the Board of Managers shall appoint some other member of the Board of Managers
to act in the place of the President, on an interim basis. The Vice President
shall also perform such other duties as shall from time to time be imposed upon
him by the Board of Managers or by the President.
Section 7. Secretary. The Secretary shall keep the minutes of all meetings
of the Unit Owners and of the Board of Managers; he shall have charge of such
books and papers as the Board of Managers may direct; and he shall, in general,
perform all the duties incident to the office of secretary of a stock
corporation organized under the Business Corporation law of the State of New
York.
Section 8. Treasurer. The Treasurer shall have the responsibility for
Condominium funds and securities and shall be responsible for keeping full and
accurate financial records and books of account showing all receipts and
disbursements, and for the preparation of all required financial data. He shall
be responsible for the deposit of all moneys and other valuable effects in the
name of the Board of Managers, or the managing agent, in such depositories as
may from time to time be designated by the Board of Managers, and he shall, in
general, perform all the duties incident to the office of treasurer of a stock
corporation organized under the Business Corporation Law of the State of New
York.
Section 9. Agreements, Contracts, Deeds, Check, etc. All agreements,
contracts, deeds, leases, checks and other instruments of the Condominium shall
be executed by such officers of the Condominium or by such other person or
persons as may be designated by the Board of Managers.
Section 10. Compensation of Officers. No officer shall receive any
compensation from the Condominium for acting as such.
ARTICLE V.
Operation of the Property
Section 1. Determination of General Common Expenses and Fixing of General
Common Charges. Subject to Section 20(d) of the Declaration, The Board of
Managers shall annually prepare an operating budget in accordance with the
provisions of the Declaration, determine the amount of the General Common
Charges payable by the Unit Owners to meet the General Common Expenses and
assess the General Common Expenses among the Unit Owners in proportion to their
respective common interests; provided, however, that
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(notwithstanding anything to the contrary contained in the Declaration) if in
any case apportionment in such proportion would be inequitable, the General
Common Expense in question shall be apportioned to each Unit Owner in such other
proportion as shall be fair and equitable. If any Unit Owner shall dispute any
apportionment made by the Board of Managers, such Unit Owner and the Board of
Managers shall use good faith efforts to agree on such apportionment at the
earliest practicable time, but if they shall fail to agree the matter shall at
the request of such Unit Owner be determined by arbitration in the manner
specified in Section 9 of this Article 5. The Board of Managers shall advise the
Unit Owners promptly, in writing, of the amount of General Common Charges
payable by each of them, respectively, as determined by the Board of Managers,
as aforesaid, and shall furnish copies of each budget on which the General
Common Charges and General Common Expenses are based, to the Unit Owners (and
the holders of Permitted Mortgages, if required). That portion of the General
Common Charges which is allocated by the Board of Managers to principal payments
on indebtedness or for capital improvements shall be treated on the books of the
Condominium as capital contributions.
Section 2. Payment of General Common Charges and Unit Expenses. Unit Owners
shall be obligated to pay the General Common Charges and Unit Expenses assessed
by the Board of Managers at such time or times as the Board of Managers shall
determine. A grantee of a Unit shall be jointly and severally liable with the
grantor of such Unit for the payment of General Common Charges assessed against
such Unit prior to the grantee's acquisition of such Unit without prejudice to
the grantee's right to recover from the grantor the amounts paid by the grantor
thereof. However, any such grantor or grantee shall be entitled to a statement
from the Board of Managers setting forth the amount of the unpaid General Common
Charges and Unit Expenses of the grantor, and neither such grantor nor such
grantee shall be liable for, nor shall the Unit conveyed be subject to a lien
for, any unpaid General Common Charges or Unit Expenses of the grantor in excess
of the amount therein set forth.
Section 3. Collection of General Common Charges and Unit Expenses. The
Board of Managers shall assess General Common Charges against the Unit Owners on
a monthly basis and shall take prompt action to collect any General Common
Charges or Unit Expenses due from any Unit Owner which remain unpaid for more
than 30 days from the due date for payment thereof.
Section 4. Foreclosure of Liens for Unpaid General Common Charges or Unit
Expenses. In any action brought by the Board of Managers to foreclose a lien on
a Unit because of unpaid General Common Charges or Unit Expenses, the Unit Owner
shall be required to pay a reasonable rental for the use of his Unit and the
plaintiff in such foreclosure action shall be entitled to the appointment of a
receiver to collect the same. A suit to recover a money judgment for unpaid
General Common Charges or Unit Expenses shall be maintainable without
foreclosing or waiving the lien securing the same.
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Section 5. Statement of General Common Charges and Unit Expenses. The Board
of Managers (or a managing agent on its behalf) shall promptly provide any Unit
Owner so requesting the same in writing, with a written statement of all unpaid
General Common Charges and Unit Expenses due from such Unit Owner.
Section 6. Water and Electricity.
(a) Electricity will be supplied to the Building by the public utility
company serving the area. The Board of Managers shall pay the cost of such
electricity and shall charge the cost (which may include direct costs to the
utility company providing such service to the Building, surcharges thereon, all
taxes thereon, actual costs incurred by the Board of Managers to read submeters
and taxes imposed with respect to the service rendered to read submeters and to
collect the charge for electricity) as follows:
1. The cost of electricity consumed or used within a Unit, as
recorded on one or more submeters measuring consumption of
electricity within such Unit, shall be charged to the Unit Owner
of such Unit as a Unit Expense.
2. The cost of electricity supplied to a Limited Common Element will
be charged to the owner of the Unit having the right of use
thereof as a Unit Expense.
3. The cost of electricity for the General Common Elements will be
charged as a General Common Expense.
Any Unit Owner may elect to contract directly with the public utility
company furnishing electric service to the Building for electric service to its
Unit by giving written notice of such election to the Board of Managers. If a
Unit Owner so elects, such Unit Owner shall contract directly with the public
utility company furnishing electric service to the Building for electric service
to its Unit and install, at such Unit Owner's expense, a separate meter or
meters to measure such Unit Owner's consumption of electricity.
The Board of Managers shall not be liable in any way to any Unit Owner for
any failure of, defect in, interruption of, or change in the supply, character
and/or quantity of electric service furnished to the Building.
(b) Water for ordinary lavatory purposes will be supplied to all the Units,
and unless Unit Owners are billed directly by the City Collector or the
consumption of water is separately metered, the Board of Managers shall pay, as
a General Common Expense, all charges therefor, together with all related sewer
rents arising therefrom, promptly after the bills therefor have been rendered.
In the event of a sale of a Unit, the Board of Managers (or the managing agent
on its behalf) on request of the selling Unit Owner shall execute and deliver to
the purchaser of the Unit or to the purchaser's title insurance company a letter
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agreeing to pay all charges for water for ordinary lavatory purposes and related
sewer rents affecting the Unit as of the date of closing of title to such Unit,
and payable by the Board of Managers, promptly after such charges shall have
been billed by the City Collector.
Section 7. Taxes and Assessments. Each Unit Owner shall be obligated to
cause the real property taxes for its Unit and the common interest appertaining
thereto to be assessed separately by the proper governmental authority and to
pay all such real property taxes so determined directly to the proper
governmental authority. The foregoing sentence shall apply to all types of taxes
which now are or may hereafter be assessed separately by law on each Unit and
the common interest appertaining thereto or the personal property or any other
interest of the Unit Owner, including without limitation any assessment imposed
by the 42nd Street Business Improvement District or any successor thereto. Each
Unit Owner shall execute such documents and take such action as may be
reasonably specified by the Board of Managers to facilitate dealing with the
proper governmental authority regarding such taxes, other taxes and assessments.
Each Unit Owner shall be obligated to pay, as General Common Charges, a
proportionate share (determined in accordance with its common interest) of any
assessment by the Board of Managers for any portion of taxes or assessments,
including, without limitation, any assessment imposed by the 42nd Street
Business Improvement District or any successor thereto, assessed against the
entire Property or any part of the Common Elements as a whole and not
separately, such payment to be made as directed by the Board of Managers. If, in
the opinion of the Board of Managers, any taxes or assessments may be a lien on
the entire Property or any part of the Common Elements, the Board of Managers
may pay such taxes or assessments and shall assess the same to the Unit Owners
in accordance with their respective common interests.
Section 8. Service Contracts. Each Unit Owner shall have the right at its
sole expense to enter into contracts for security and maintenance of fixtures
and equipment in its Unit and for cleaning and the removal of refuse therefrom,
provided, however, that in each instance the contractor shall first be approved
by the Board of Managers, which approval shall not be unreasonably withheld or
delayed.
Section 9. Arbitration.
(a) Any dispute under Section 1 of Article V shall be submitted to
arbitration to the then President of The Real Estate Board of New York, Inc. (or
any organization which is the successor thereto) or his or her designee, or if
neither The Real Estate Board of New York, Inc. or any successor thereto is then
in existence, to a person appointed by a Justice of the New York State Supreme
Court, County of New York.
(b) The provisions of this Section 9 constitute a written agreement
regarding the determination of disputes concerning the proper apportionment of
General Common Expenses.
(c) The arbitration decision, determined as provided in this Section 9,
shall be conclusive and binding on all Unit Owners and the Board of Managers,
shall constitute an
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"award" by the Arbitrator within the meaning of applicable law, and judgment may
be entered thereon in any court of competent jurisdiction.
(d) The non-prevailing party in any arbitration shall pay all fees and
expenses relating to the arbitration including, without limitation, the fees and
expense of the Arbitrator and the appropriate amount (as determined by the
Arbitrator) of the fees and expenses of the prevailing party's counsel and of
experts and witnesses retained or called by the prevailing party.
ARTICLE VI.
Fiscal Year
The fiscal year shall be the calendar year unless the Board of Managers
shall adopt a different period.
ARTICLE VII.
Execution of Instruments
After the effective date of the Declaration, all instruments of the
Condominium shall be signed and executed by such officer or officers as the
Board of Managers shall designate.
ARTICLE VIII.
Rules and Regulations
The initial Rules and Regulations governing the operation and maintenance
of the Property are attached to these By-Laws. The Board of Managers shall have
the right at any time and from time to time to amend or repeal any or all of the
Rules and Regulations and to adopt additional Rules and Regulations. Any such
amendment, repeal or adoption of Rules and Regulations shall require the
affirmative vote of five members of the Board of Managers. In promulgating Rules
and Regulations with respect to matters of access to the Building, hours of
operation, security and like matters, due consideration shall be given to the
fact that a portion of a Unit Owner's activities are expected to occur in the
evenings or on weekends. No Rule or Regulation shall unreasonably or
discriminatorily in any material respect whatsoever restrict or impair (directly
or indirectly or through discriminatory special assessments or charges) the
rights of any Unit Owner. No amendment to the initial Rules and Regulations and
no additional Rules and Regulations shall become effective until a copy thereof
has been furnished to each Unit Owner.
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ARTICLE IX.
Mortgages
Section 1. Performance by Permitted Mortgagees. The Board of Managers shall
accept payment of any sum or performance or any act by the holder of a Permitted
Mortgage affecting a Unit which is required to be paid or performed by the Unit
Owner of such Unit pursuant to the Declaration or these By-Laws or any rules and
regulations adopted by the Board of Managers, with the same force and effect as
though paid or performed by such Unit Owner.
Section 2. Examination of Books. Each holder of a Permitted Mortgage shall
be permitted to examine the books of account of the Condominium at reasonable
times, on business days, but not more often than once a month.
Section 3. Consent of Permitted Mortgagees. Except as otherwise expressly
provided for herein or in the Declaration, no consent or approval by any
Permitted Mortgagee shall be required with respect to any determination or act
of the Board of Managers or any Unit Owner; provided, however, that nothing
contained herein shall be deemed to limit or affect the rights of any Permitted
Mortgagee against its mortgagor.
Section 4. Provisions Relating to Permitted Mortgagees. Notwithstanding
anything to the contrary contained in the Declaration, these By-Laws or the
Condominium Act:
(a) The Board of Managers shall promptly send to the holder of each
Permitted Mortgage a copy of each notice with respect to the Condominium sent to
or received from a Unit Owner by the Board of Managers, which affects the
property, Unit or Units encumbered by such mortgage.
(b) Without, in each case, the prior consent of the holder of each
Permitted Mortgage, the Property shall not be withdrawn from the Condominium Act
or be subject to an action for partition.
(c) If the holder of any Permitted Mortgage acquires the Property or any
portion thereof (including, without limitation, one or more Units) by
foreclosure or by deed in lieu of foreclosure, neither such holder nor any
successor or assignee of such holder, as owner of the Property or any portion
thereof, shall be liable to the Board of Managers or to any Unit Owner for any
claims arising prior to foreclosure or delivery of the deed in lieu of
foreclosure that the Board of Managers or any Unit Owner may have against the
former owner or owners of the Property, and further provided that the liability
of such holder and its successors or assigns for General Common Charges and Unit
Expenses accruing after foreclosure or delivery of the deed in lieu of
foreclosure shall be limited to its (their) interest in the Units.
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(d) The holder of each Permitted Mortgage is intended to be, and is hereby
expressly made, a third party beneficiary of the provisions of this Article IX
and each such holder may rely thereon to the same extent as if such provisions
were contained in a direct agreement with such holder.
ARTICLE X.
Records
The Board of Managers shall keep detailed records of the actions of the
Board of Managers, minutes of the meetings of the Board of Managers, minutes of
the meetings of the Unit Owners, and financial records and books of account of
the Condominium, including a chronological listing of receipts and expenditures,
as well as a separate account for each Unit which, among other things, shall
contain the amount of each assessment of General Common Charges against such
Unit, the date when due, the amounts paid thereon, and the balance remaining
unpaid. Each Unit Owner and each holder of a Permitted Mortgage shall have the
right to examine the records and books of the Condominium at reasonable
intervals during regular business hours.
An annual report of the receipts and expenditures of the Condominium,
audited by an independent certified public accountant, shall be rendered by the
Board of Managers to the Unit Owners and to all holders of Permitted Mortgages
who have requested the same, promptly after the end of each fiscal year. The
cost of such report shall be paid by the Board of Managers as a General Common
Expense. So long as Declarant or an Affiliate of Declarant is the owner of 25%
or more of the rentable floor area of the Building, Declarant shall have the
sole right to designate the accountants for the Condominium.
ARTICLE XI.
Miscellaneous
Section 1. Notices. All notices hereunder shall be sent by registered or
certified mail to the Board of Managers at the office of the Board of Managers
or to such other address as the Board of Managers may hereafter designate from
time to time and to any Unit Owner by registered or certified mail to the
Building or to such other address or addresses as may have been designated by it
from time to time, in writing, to the Board of Managers. All notices to holders
of Permitted Mortgages and to tenants and subtenants of Units shall be sent by
registered or certified mail to their respective addresses, as designated by
them from time to time, in writing, to the Board of Managers. All notices shall
be deemed to have been given two business days after being mailed, except
notices of change of address which shall be deemed to have been given when
received.
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Section 2. Invalidity. The invalidity of any provision of these By-Laws
shall not be deemed to impair or affect in any manner the validity,
enforceability or effect of the remainder of these By-Laws and, in such event,
all of the other provisions of these By-Laws shall continue in full force and
effect as if such invalid provision had never been included herein.
Section 3. Captions. The captions herein are inserted only as a matter of
convenience and for reference, and in no way define, limit, or describe the
scope of these By- Laws, or the intent of any provision thereof.
Section 4. Gender. The use of the masculine gender in these By-Laws shall
be deemed to refer to the feminine gender and the use of the singular shall be
deemed to refer to the plural, and vice versa, whenever the context so requires.
Section 5. Waiver. No provision contained in these By-Laws shall be deemed
to have been abrogated or waived by reason of any failure to enforce the same,
irrespective of the number of violations or breaches thereof which may occur.
Section 6. Consent No Longer Required. Wherever the consent, approval or
permission of The Government or the holder of a Permitted Mortgage is required
under the Condominium Documents, such consent, approval or permission shall not
be required when The Government owns less than 51% of the rentable floor area of
Unit 3 or any part thereof or the holder of the Permitted Mortgage no longer
holds the pertinent mortgage, as the case may be.
ARTICLE XII.
Amendments to By-Laws
These By-Laws may be modified or amended only by an amendment to the
Declaration (i) approved by the vote of at least 51% in common interest of all
Unit Owners, cast in person or by proxy at a meeting duly held in accordance
with the provisions of these By-Laws and (ii) duly recorded in the Register's
Office of the City of New York, County of New York, provided, however, that (w)
an amendment reflecting the subdivision or recombination of a Unit in accordance
with Section 5(c) of the Declaration may be made by the affected Unit Owner or
Unit Owners without the consent of the unaffected Unit Owners or the Board of
Managers, (x) paragraph (c) of Section 7 of Article III may not be modified,
amended or deleted without the written consent of Declarant, (y) paragraph (d)
of Section 7 of Article III may not be modified, amended or deleted without the
written consent of The Government, and (z) Section 8 of Article II, paragraph
(e) of Section 7 of Article III, Article VIII, Section 6 of Article XI and this
Article XII may not be modified, amended or deleted without the written consent
of Declarant and The Government.
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ARTICLE XIII.
Conflicts
These By-Laws are set forth to comply with the requirements of the
Condominium Act. In case any of these By-Laws conflict with the provisions of
said statute or of the Declaration, the provisions of said statute, or the
Declaration, as the case may be, shall control.
The Floor Plans referred to in the foregoing Declaration were filed in the
Office of the City Register, County of New York, on ________________, 1996 as
Condominium Plan No. __________.
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RULES AND REGULATIONS
(1) The sidewalks, entrances, passages, courts, elevators, vestibules,
stairways, corridors, or halls shall not be obstructed or encumbered or used for
any purpose other than ingress and egress to and from the Premises and for
delivery of merchandise and equipment in prompt and efficient manner, using
elevators and passageways designated for such delivery by the Board of Managers.
(2) No awnings, fans or other projections shall be attached to the outside
walls of the Building above the ground floor. No curtains, blinds, shades, or
screens, other than those which conform to Building standards as established by
the Board of Managers, from time to time, shall be attached to or hung in, or
used in connection with, any window or door of the Building above the ground
floor, without the prior written consent of the Board of Managers, which shall
not be unreasonably withheld or delayed. Such awnings, projections, curtains,
blinds, shades, screens or other fixtures must be of a quality, type, design and
color, and attached in the manner reasonably approved by the Board of Managers.
(3) The exterior windows and doors that reflect or admit light and air into
the Building or the halls, passage ways or other public places in the Building,
shall not be covered or obstructed.
(4) No showcases or other articles shall be put in front of or affixed to
any part of the exterior of the Building, nor placed in the halls, corridors or
vestibules, nor shall any article obstruct any air-conditioning supply or
exhaust without the prior written consent of the Board of Managers.
(5) The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were constructed, and no
sweepings, rubbish, rags, acids or other substances shall be deposited therein.
(6) Subject to the provisions of Section 15 of the Declaration, no Unit
Owner shall mark, paint, drill into, or in any way deface any part of the
Building. No boring, cutting or stringing of wires shall be permitted, except
with the prior written consent of the Board of Managers, which consent shall not
be unreasonably withheld or delayed, and as Landlord may direct.
(7) No space in the Building shall be used for manufacturing.
(8) No Unit Owner shall make, or permit to be made, any unseemly or
disturbing noises or disturb or interfere with occupants of the Building or
neighboring buildings or premises or those having business with them whether by
the use of any musical instrument,
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radio, television set, talking machine, unmusical noise, whistling, singing, or
in any other way.
(9) No Unit Owner, nor any of its employees, tenants, subtenants, agents,
visitors or licensees, shall at any time bring or keep in the Building any
flammable, combustible or explosive fluid, chemical or substance except such as
are incidental to usual office occupancy, provided, however, such items are
stored in approved containers in compliance with all applicable laws and
regulations of governmental authorities.
(10) No bicycles, vehicles (other than those devices required for disabled
or handicapped persons, such as wheelchairs or similar devices) or animals of
any kind except for seeing eye dogs and fish kept in fish tanks shall be brought
into or kept by any Unit Owner in or about the Building.
(11) All removals, or the carrying in or out of any safes, freight,
furniture or bulky matter of any description must take place in the manner and
during the hours which the Board of Managers or its agent reasonably may
determine from time to time. The Board of Managers reserves the right to inspect
all safes, freight or other bulky articles to be brought into the Building and
to exclude from the Building all safes, freight or other bulky articles which
violate any of these Rules and Regulations.
(12) No Unit Owner shall occupy or permit any portion of the Building to be
occupied for the possession, storage, manufacture or sale of narcotics.
(13) No Unit Owner shall purchase spring water, ice, towels or other like
service, or accept barbering or bootblacking services in the Building, from any
company or persons not approved by the Board of Manager, which approval shall
not be withheld or delayed unreasonably, and at hours and under regulations
other than as reasonably fixed by the Board of Managers.
(14) The Board of Managers reserves the right to exclude from the Building
all persons who do not present a pass (if required) to the Building signed or
approved by the Board of Managers. Each Unit Owner shall be responsible for all
persons for whom a pass shall be issued at the request of such Unit Owner and
shall be liable to the Board of Managers and all other Unit Owners.
(15) The requirements of a Unit Owner will be attended to only upon written
application at the office of the Building. Building employees shall not perform
any work or do anything outside of their regular duties, unless under special
instructions from the Board of Managers or its agent, and provided the Unit
Owner pays the then Building standard rates fixed by the Board of Managers.
(16) Canvassing, soliciting and peddling in the Building is prohibited and
Unit Owners shall cooperate to prevent the same, including, but not limited to,
providing the Board
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of Managers or its agent with notice of any such acts when a Unit Owner becomes
aware of same.
(17) There shall not be used in any space, or in the public halls of the
Building, either by a Unit Owner or by jobbers or others, in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and side guards.
(18) The Unit Owners of Unit 2 and Unit 3 shall not do any cooking, conduct
any restaurant, luncheonette or cafeteria for the sale or service of food or
beverages except (a) by the Unit Owner solely to its employees or (b) by any
Unit Owner or occupant of a Unit (or portion thereof) which is a private club
solely to the members of such club. The Unit Owners of Unit 2 and Unit 3 shall
not cause or permit any odors of cooking or other processes or any unusual or
objectionable odors to emanate from the Premises.
If any of the Rules and Regulations (including those applicable to
Alterations) conflict with any of the provisions of the Declaration or the
By-Laws, the provisions of the Declaration or the By-Laws, as the case may be,
shall govern.
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City Register
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EXHIBIT B
to
AGREEMENT OF SALE
DATED DECEMBER ___, 1996
between
AMPAL REALTY CORPORATION, AS SELLER
and
THE GOVERNMENT OF ISRAEL, AS PURCHASER
DOCUMENTS TO BE DELIVERED; OBLIGATIONS OF PURCHASER AND SELLER
1. At the Closing, upon receipt by Seller of the payments and documents
to be delivered to Seller as provided herein, in the form required hereby, and
upon Purchaser complying with all of its other obligations hereunder, Seller
shall deliver to Purchaser a duly executed and acknowledged Deed which shall be
the usual Bargain and Sale Deed without Covenants Against Grantor's Acts, in the
form required by the New York Condominium Act (hereinafter referred to as the
"Deed") in recordable form, which Deed shall be executed by Purchaser to
evidence its agreement to be bound by the provisions of the Declaration. The
Deed shall be sufficient to convey to Purchaser good, marketable and insurable
fee simple title to Unit 3, subject only to the Permitted Exceptions.
2. Seller shall assign to the Condominium Board of Managers at or prior
to the Closing all of Seller's right, title and interest in and to the Service
Contracts shown on Exhibit C hereto.
3. At the Closing, Purchaser shall pay the portion of the Purchase
Price to be paid in accordance with Section 2(B) of the Agreement.
4. At the Closing, Seller shall deliver to the Condominium Board of
Managers to the extent they are then in Seller's possession and not posted or
available at the Property, copies of all Permits, authorizations and approvals
issued for or with respect to the Property as a whole by governmental and
quasi-governmental authorities having jurisdiction thereover.
5. At the Closing, Seller and Purchaser shall deliver duly executed
Certifications, in the form shown on Exhibit H and H-1 to the Agreement.
6. At the Closing, Seller shall deliver to Purchaser such instruments
as are necessary or reasonably required by Purchaser or Purchaser's title
insurance company to evidence the authority of the officer of Seller to execute
the documents to be executed by Seller in connection with the transactions
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contemplated herein, and evidence that the execution and delivery of such
documents is the official act and deed of Seller.
7. At the Closing, Seller shall deliver to Purchaser a certificate of
good standing from the Secretary of State of the State of New York.
8. Purchaser and Seller shall also execute and deliver to each other
and/or CTIC, such other and further documents as may be appropriate and/or CTIC,
in its reasonable discretion, may request or require.
9. At the Closing, if the Commitment discloses judgments, bankruptcies
or other returns against other persons having names the same as or similar to
that of Seller, Seller, on request, shall deliver to Purchaser and Purchaser's
title company affidavits showing that such judgments, bankruptcies or other
returns are not against Seller and such other documents as may be reasonably
required by Purchaser's title company to eliminate all exceptions other than the
Permitted Exceptions appearing in the Commitment.
10. At the Closing, Seller shall deliver to the Condominium Board of
Managers all maintenance records and operating manuals pertaining to the
Property, if available.
11. At the Closing, Seller shall deliver to Purchaser a sworn statement
from an authorized officer of Seller, certifying that the officer or officers
signing documents in connection with the transactions contemplated hereby are
authorized to do so or a certificate of the Secretary or an Assistant Secretary
of Seller certifying that the Board of Directors of Seller has duly adopted
resolutions authorizing the transactions contemplated hereby and the execution
and delivery of all of the Closing documents executed and delivered by Seller
pursuant to this Agreement.
12. At the Closing, Seller shall deliver to Purchaser assignments of
any contractors' or subcontractors' guarantees or warranties relating to Unit 3.
13. At the Closing, Seller and Purchaser shall execute and deliver to
the representative of CTIC a New York City Real Property Transfer Tax Return and
New York State Form TP-584 and Seller shall deliver to the representative of
CTIC a check or checks in payment of all applicable City and State transfer
taxes.
14. At the Closing, Seller shall deliver to Purchaser an affidavit in
the form attached hereto as Exhibit I stating that Seller is not a foreign
person as that term is defined in
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Section 1445 of the United States Internal Revenue Code of 1986, as amended.
15. At the Closing Seller shall specify in writing to Purchaser the
bank account to which Federal Funds for the Installment Payments are to be
wired.
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EXHIBIT C
NAME SERVICE
- ---- -------
Madison Building Services Group Pest Control
Window Cleaning
Janitorial Service
Honzak & Honzak, Inc. Energy Cost Consulting for the purpose of
determining electric rent inclusion factor
Multiplex Electrical Service, Inc. Maintenance of the fire alarm system
Holmes Protection of New York, Inc. Installation and maintenance of fire alarm
Gemini Elevator Corp. Maintenance and repair of elevators
Vibro Carting, Inc. Collection and disposal of solid waste
Gotham Refining Chemicak Corp. Water treatment service for condenser
water and chilled/hot water systems
W.H. Christian & Sons, Inc. Uniform rentals
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EXHIBIT D
<TABLE>
<CAPTION>
INSURANCE TYPE OF
COMPANY INSURANCE LIMITS EXPIRATION
------- --------- ------ ----------
<S> <C> <C> <C>
National Surety Commercial general $2,000,000 general 6/28/97
Insurance Company liability aggregate
$1,000,000 personal
injury
$1,000,000 each
occurrence
National Surety Auto liability $1,000,000 combined 6/28/97
Insurance Company single limit
Aetna Insurance Umbrella liability $50,000,000 each 6/28/97
Company occurrence
$50,000,000 aggregate
National Surety Building all risk $40,000,000 ($2,500 6/28/97
Insurance Company replacement cost deductible);
Boiler and machinery $10,000,000 ($2,500
deductible);
Ordinance and Law $1,000,000 ($2,500
deductible);
Flood and earthquake $5,000,000 ($25,000
deductible);
Business income $6,400,000;
Backup of sewer and $1,000,000 ($2,500
drains/underground deductible)
water
</TABLE>
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<PAGE>
EXHIBIT E
To all to whom these Presents shall come or may Concern,
Know That AMPAL REALTY CORPORATION,
a New York corporation, as RELEASOR, in consideration of the sum of Ten Dollars
($10.00) and other good and valuable consideration, received from THE GOVERNMENT
OF ISRAEL, as RELEASEE, receipt whereof is hereby acknowledged, releases and
discharges the RELEASEE, RELEASEE'S heirs, executors, administrators, successors
and assigns from all actions, causes of action, suits, debts, dues, sums of
money, accounts, reckonings, bonds, bills, specialties, covenants, contracts,
controversies, agreements, promises, variances, trespasses, damages, judgments,
extents, executions, claims, and demands whatsoever, in law, admiralty or
equity, which against the RELEASEE, the RELEASOR, RELEASOR'S successors and
assigns ever had, now have or hereafter can, shall or may have, for, upon, or by
reason of that certain lease between AEW #6 Corporation, as landlord, and
RELEASEE, as tenant, dated December 31, 1991, as amended to the date hereof.
The words "RELEASOR" and "RELEASEE" include all releasors and all
releasees under this RELEASE.
This RELEASE may not be changed orally.
IN WITNESS WHEREOF, the RELEASOR has caused this RELEASE to be executed by
its duly authorized officers affixed on 1996.
In presence of: AMPAL REALTY CORPORATION
By:_______________________________________________
STATE OF NEW YORK, COUNTY OF NEW YORK
ss.:
On ________________, 1996, before me personally came _______________, to
me known, who, by me duly sworn, did depose and say that deponent resides at
______________ _____________________; that deponent is the __________________ of
AMPAL REALTY CORPORATION, the corporation described in, and which executed the
foregoing RELEASE; and that deponent signed deponent's name by order of the
board of directors of the corporation.
__________________________________________________
E-106
<PAGE>
EXHIBIT E-1
To all to whom these Presents shall come or may Concern,
Know That THE GOVERNMENT OF ISRAEL,
as RELEASOR, in consideration of the sum of Ten Dollars ($10.00) and other good
and valuable consideration, received from AMPAL REALTY CORPORATION, as RELEASEE,
receipt whereof is hereby acknowledged, releases and discharges the RELEASEE,
RELEASEE'S heirs, executors, administrators, successors and assigns from all
actions, causes of action, suits, debts, dues, sums of money, accounts,
reckonings, bonds, bills, specialties, covenants, contracts, controversies,
agreements, promises, variances, trespasses, damages, judgments, extents,
executions, claims, and demands whatsoever, in law, admiralty or equity, which
against the RELEASEE, the RELEASOR, RELEASOR'S successors and assigns ever had,
now have or hereafter can, shall or may have, for, upon, or by reason of that
certain lease between AEW #6 Corporation, as landlord, and RELEASOR, as tenant,
dated December 31, 1991, as amended to the date hereof.
The words "RELEASOR" and "RELEASEE" include all releasors and all
releasees under this RELEASE.
This RELEASE may not be changed orally.
IN WITNESS WHEREOF, the RELEASOR has caused this RELEASE to be executed by
its duly authorized officers affixed on 1996.
In presence of: THE GOVERNMENT OF ISRAEL
By:_______________________________________________
STATE OF NEW YORK, COUNTY OF NEW YORK
ss.:
On ________________, 1996, before me personally came _______________, to
me known, who, by me duly sworn, did depose and say that deponent resides at
______________ _____________________; that deponent is the __________________ of
THE GOVERNMENT OF ISRAEL, which executed the foregoing RELEASE; and that
deponent signed deponent's name by order of thereof.
__________________________________________________
E-107
<PAGE>
EXHIBIT F
to
AGREEMENT OF SALE DATED DECEMBER ___, 1996
Between
AMPAL REALTY CORPORATION, SELLER
And
THE GOVERNMENT OF ISRAEL, PURCHASER
Permitted Exceptions
1. Zoning laws and regulations which are not violated by the existing
structures.
2. Consents by Seller or any former owner of the Property for the
erection of any structure or structures on, under or above any street or streets
on which the Property may abut.
3. Rights of utility companies to lay, maintain, install and repair
pipes, lines, poles, conduits, cable boxes and related equipment on, over and
under the Property, provided that none of such rights interferes with the
current use of the Property.
4. Encroachments of stoops, areas, cellar steps, trim, cornices,
lintels, window sills, awnings, canopies, ledges, fences, hedges, coping and
retaining walls projecting from the Property over any street or highway or over
any adjoining property and similar encroachments projecting from adjoining
property on the Property.
5. Revocability or lack of right to maintain vaults, coal chutes,
excavations or sub-surface equipment beyond the line of the Property.
6. Variations between fences, lines of hedges, retaining walls and the
record lines.
7. Any lien, charge or encumbrance which a tenant of the Property, by
the terms of its lease or by law or otherwise, is required to discharge, remove
or otherwise comply with; provided, however, that Seller shall agree in writing
to cause
E-108
<PAGE>
any such lien, charge or encumbrance to be discharged after the Closing.
8. The standard printed exceptions contained in the standard form of
owner's title insurance policy issued by CTIC.
9. Declaration of Condominium and By-Laws of 800 Second Avenue
Condominium in the form annexed as Exhibit A.
10. State of facts shown on survey of the Property made by Chas. J.
Dearing dated June 10, 1957 and last brought to date by visual examination on
June 19, 1995 by Harwood Surveying, P.C., and any additional state of facts
which a subsequent accurate, current survey would disclose provided such
additional state of facts does not render title unmarketable.
11. Terms, covenants and restrictions recorded in Liber 1087, Cp 586
and Liber 1097, Cp 584.
12. Easement of Light and Air recorded in Liber 4937, Cp 333.
13. Distinctive Sidewalk Improvement and Maintenance Agreement dated
July 10, 1992 and recorded in Reel 1915, page 1385, as modified by Modification
of Distinctive Sidewalk Improvement and Maintenance Agreement recorded in Reel
2091, page 511.
E-109
<PAGE>
Exhibit H
CERTIFICATE
The undersigned, Lawrence Lefkowitz, does hereby certify to The
Government of Israel ("The Government") that:
1. I am President of Ampal Realty Corporation, a New York
corporation ("Ampal").
2. I am fully familiar with the facts set forth herein.
3. All of the representations made by Ampal in Section C of Article
16 of the Agreement of Sale dated as of December 12, 1996 between Ampal and The
Government are true and correct as of the date hereof.
IN WITNESS WHEREOF, the undersigned has executed the foregoing
Certificate this 31st day of January, 1997.
AMPAL REALTY CORPORATION
By:____________________________
Lawrence Lefkowitz
President
E-110
<PAGE>
Exhibit H-1
CERTIFICATE
The undersigned, Eliehu Zitouk and Eldad Fresher, do hereby certify
to Ampal Realty Corporation ("Ampal") that:
1. We are the Chief Fiscal Officer and Deputy Chief Fiscal Officer,
respectively, of The Government of Israel ("The Government").
2. We are fully familiar with the facts set forth herein.
3. All of the representations made by The Government in Sections A
and B of Article 16 of the Agreement of Sale dated as of December 12, 1996
between Ampal and The Government are true and correct as of the date hereof.
IN WITNESS WHEREOF, the undersigned have executed the foregoing
Certificate this 31st day of January, 1997.
THE GOVERNMENT OF ISRAEL
By:____________________________
Eliehu Zitouk
Chief Fiscal Officer
By:____________________________
Eldad Fresher
Deputy Chief Fiscal Officer
E-111
<PAGE>
EXHIBIT I
Certification of Non-Foreign Status
[If there are more than one transferor give the information requested for all
transferors that will sign this certificate. This certificate shall be read as
if each signing transferor signed a separate certificate.]
Section 1445 of the Internal Revenue Code provides that a transferee (buyer)
of a U.S. real property interest must withhold tax if the transferor (seller) is
a foreign person. To inform the transferee (buyer) that withholding of tax is
not required upon my disposition of a U.S. real property interest,
I, the undersigned transferor, hereby certify the following:
1. I am not a nonresident alien for purposes of U.S. income taxation;
2. My U.S. taxpayer identifying number (Social Security number) is
_____________________________________________, and
if more than one transferor, list all below
NAME S.S NO. OR TAX I.D. NO.
________________________ ___________________________
if ________________________ ___________________________
more ________________________ ___________________________
than ________________________ ___________________________
one ________________________ ___________________________
3. My home address is_______________________________________________
if more than one transferor, list all below
NAME S.S NO. OR TAX I.D. NO.
________________________ ___________________________
if ________________________ ___________________________
more ________________________ ___________________________
than ________________________ ___________________________
one ________________________ ___________________________
I understand that this certification may be disclosed to the Internal Revenue
Service by the transferee and that any false statement I have made here could be
punished by fine, imprisonment, or both.
Under penalties of perjury I declare that I have examined this certification
and to the best of my knowledge and belief it is true, correct and complete.
PRINT OR TYPE NAME OF TRANSFEROR SIGNATURE DATE
____________________________________ ___________________ ___________
____________________________________ ___________________ ___________
____________________________________ ___________________ ___________
____________________________________ ___________________ ___________
____________________________________ ___________________ ___________
The transferee must retain this certificate until the end of the fifth
taxable year following the taxable year in which the transfer takes place and
make it available to the Internal Revenue Service when requested.
E-112
<PAGE>
EXHIBIT J
Repair leaks in walls in the offices of the Legal Advisor and the Economic
Minister
E-113
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
Exhibit 11
SCHEDULE SETTING FORTH THE COMPUTATION OF EARNINGS PER SHARE
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
12/31/96 12/31/95 12/31/94
---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Weighted average number of shares outstanding:
4% Preferred...................................... 196 204 211
6-1/2% Preferred.................................. 1,028 1,094 1,144
Class A........................................... 20,780 20,678 20,039
Common............................................ 2,769 3,000 3,000
======= ======= =======
Weighted average number of shares
outstanding assuming conversion of
preferred stock into Class A shares:
Class A........................................... 24,844 89.97% 24,980 89.28% 24,526 89.10%
Common............................................ 2,769 10.03 3,000 10.72 3,000 10.90
------- ------ ------- ------ ------- ------
27,613 100.00% 27,980 100.00% 27,526 100.00%
======= ====== ======= ====== ======= ======
(Loss) income from continuing operations $ (7,360) $ 6,481 $ 6,365
(Loss) income from discontinued
operations........................................ (2,892) (4,315) 969
--------- -------- --------
Net (loss)income.................................. $ (10,252) $ 2,166 $ 7,334
========= ======== ========
Allocation of net (loss)income on the
basis of the respective dividend rights of
the above classes of stock, pro-rata:
Class A........................................... $ (9,224) 89.97% $ 1,934 89.28% $ 6,535 89.10%
Common............................................ (1,028) 10.03 232 10.72 799 10.90
-------- ------ ------- ------ -------- ------
$(10,252) 100.00% $ 2,166 100.00% $ 7,334 100.00%
======== ====== ======= ====== ======== ======
(Loss) earnings per Class A share:
(Loss) earnings from continuing
operations $(.27) $.23 $.23
(Loss) earnings from discontinued
operations (.10) (.15) .04
--------- -------- --------
(Loss) earnings per Class A share................... $(.37) $.08 $.27
========= ======== ========
</TABLE>
E-114
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
Exhibit 12
SCHEDULE SETTING FORTH THE COMPUTATION OF RATIOS
OF CONSOLIDATED EARNINGS TO FIXED CHARGES
(Amounts in thousands, except ratios)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Earnings:
(Loss) income from continuing operations
(including dividends from
less-than-50%-owned affiliates) before
income taxes, equity in earnings of affiliates
and others, cumulative effect on
prior years of change in
accounting principle, and minority
interests .................................... $(10,539) $ 9,524 $ 9,659 $ 4,784 $ 23,332
Fixed charges ............................... 14,286 13,169 17,149 21,387 18,863
-------- -------- -------- -------- --------
Earnings .................................. $ 3,747 $ 22,693 $ 26,808 $ 26,171 $ 42,195
======== ======== ======== ======== ========
Fixed Charges:
Interest .................................... $ 14,081 $ 12,921 $ 16,234 $ 20,176 $ 16,906
Amortization of debenture
expenses ................................... 205 248 915 1,211 1,957
-------- -------- -------- -------- --------
Fixed charges ............................... $ 14,286 $ 13,169 $ 17,149 $ 21,387 $ 18,863
======== ======== ======== ======== ========
Ratio of earnings to fixed charges ........... .26:1 1.72:1 1.56:1 1.22:1 2.24:1
======== ======== ======== ======== ========
</TABLE>
E-115
EXHIBIT 21 Subsidiaries of the Registrant
The following table sets forth information with respect to the subsidiaries of
Ampal, their respective states of organization and the percentage of voting
securities owned as of December 31, 1996:
<TABLE>
<CAPTION>
Percentage
Voting Securities
Name of Relationship State of Owned by
Company to Ampal Organization Immediate Parent
------- ------------ ------------ -----------------
<S> <C> <C> <C>
Ampal Development Subsidiary of Israel 90(1)
(Israel) Ltd. Ampal (Israel) Ltd.
Ampal Engineering Subsidiary of Israel 99.9(2)
(1994) Ltd. Ampal Industries, Inc.
Ampal Enterprises Ltd. Subsidiary of Ampal Israel 99.9(3)
Development(Israel) Ltd.
Ampal Financial Subsidiary of Israel 51(4)
Services Ltd. Ampal (Israel) Ltd.
Ampal Holdings (1991), Subsidiary of Israel 99.9(5)
Ltd. Ampal Industries, Inc.
Ampal Industries, Inc. Subsidiary Delaware 100
Ampal Industries Subsidiary of Ampal Israel 100
(Israel) Ltd. Industries, Inc.
Ampal (Israel) Ltd. Subsidiary Israel 100
Ampal Properties Ltd. Subsidiary of Ampal Israel 99(6)
Industries (Israel) Ltd.
Ampal Protected Subsidiary of Ampal Israel 99.9(6)
Housing (1995) Ltd. Industries, Inc.
Ampal Realty Corporation Subsidiary of New York 94
Ampal (Israel) Ltd.
Ampal Sciences, Inc. Subsidiary of Delaware 100
Ampal Industries, Inc.
Country Club Subsidiary of Ampal Israel 51
Kfar Saba Ltd. Industries, Inc.
Nir Ltd. Subsidiary of Ampal Israel 99.96
Development (Israel) Ltd.
Paradise Industries Ltd. Subsidiary of Ampal Israel 85.1
Properties Ltd.
</TABLE>
- ----------
(1) The remaining 10% of the voting securities is owned by Ampal.
(2) The remaining .1% is owned by Ampal (Israel) Ltd.
(3) The remaining .1% is owned by Nir Ltd.
(4) The remaining 49% is owned by Ampal.
(5) The remaining .1% is owned by Ampal.
(6) The remaining .1% is owned by Ampal (Israel) Ltd.
E-116
[IGAL BRIGHTMAN & CO. LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants of AM-HAL LTD., we hereby consent to the
incorporation of our report dated February 20, 1997, included in this Form 10-K
(relating to the financial statements of AM-HAL LTD., not included herein), into
the Company's previously filed Registration Statements No. 33-51023 and No. 33-
55137.
/s/ IGAL BRIGHTMAN & CO.
IGAL BRIGHTMAN & CO.
Certified Public Accountants
March 26, 1997
E-117
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants of Ampal-American Israel Corporation, we
hereby consent to the incorporation of our report included in this Form 10-K,
into the Company's previously filed Registration Statements File Nos. 33-51023
and 33-55137.
New York, New York
March 26, 1997
/s/ ARTHUR ANDERSEN LLP
E-118
<PAGE>
March 26, 1997
Arthur Andersen & Co.
1345 Avenue of the Americas
New York, N.Y. 10105
U.S.A
- -----
Gentlemen,
Re: Ampal Engineering (1994) Ltd.
Consent of independent public accountants
-----------------------------------------
As independent public accountants of Ampal Engineering (1994) Ltd., we hereby
consent to the incorporation of our report included in this Form 10-K, into the
Company's previously filed Registration Statement File No. 33-51023, and
No. 55137.
Sincerely,
/s/ Shlomo Ziv & Co.
Shlomo Ziv & Co.
Certified Public Accountants (Isr.)
E-119
<PAGE>
[COHEN, EYAL, YEHOSHUA & CO. LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants of Ampal Enterprises Ltd., we hereby
consent to the incorporation of our report included in this Form 10K, into the
Company's previously filed Registration Statement File No. 33-51023, and
No. 55137.
/s/ Cohen, Eyal, Yehoshua & Co.
-------------------------------
Cohen, Eyal, Yehoshua & Co.
Certified Public Accountants (Isr.)
March 26, 1997
***
E-120
<PAGE>
[FAHN, KANNE & CO. LETTERHEAD]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
As independent certified public accountants of Ampal Financial Service Ltd., we
hereby consent to the incorporation of our report included in FORM 10-K, into
the Company's previously filed Registration Statement File No. 33-51023 and No.
55137.
/s/ Fahn, Kanne & Co.
Fahn, Kanne & Co.
Certified Public Accountants (Isr.)
Tel-Aviv, Israel
March 26, 1997
E-121
<PAGE>
[SHLOMO ZIV & CO. LETTERHEAD]
March 26, 1997
Arthur Andersen & Co.
1345 Avenue of the Americas
New York, N.Y. 10105
U.S.A
- -----
Gentlemen,
Re: Ampal Holdings (1991) Ltd.
Consent of independent public accountants
-----------------------------------------
As independent public accountants of Ampal Holdings (1991) Ltd., we hereby
consent to the incorporation of our report included in this Form 10-K, into the
Company's previously filed Registration Statement File No. 33-51023, and
No. 55137.
Sincerely,
/s/ Shlomo Ziv & Co.
Shlomo Ziv & Co.
Certified Public Accountants (Isr.)
E-122
<PAGE>
[FAHN, KANNE & CO. LETTERHEAD]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
As independent certified public accountants of Ampal Industries (Israel)
Ltd., we hereby consent to the incorporation of our report included in
FORM 10-K, into the Company's previously filed Registration Statement
File No. 33-51023 and No. 55137.
/s/ Fahn, Kanne & Co.
Fahn, Kanne & Co.
Certified Public Accountants (Isr.)
Tel-Aviv, Israel
March 26, 1997
E-123
<PAGE>
[Haft & Haft Letterhead]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants of Ampal (Israel) Ltd., we hereby
consent to the incorporation of our report included in this Form 10-K, into the
Company's previously filed Registration Statement File No. 33-51023, and No.
55137.
/s/H.H.S.L. Haft & Haft & Co.
H.H.S.L. Haft & Haft & Co.
Certified Public Accountants (Isr.)
March 26, 1997
E-124
<PAGE>
[COHEN, EYAL, YEHOSHUA & CO. LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants of Ampal Properties Ltd., we hereby
consent to the incorporation of our report included in this Form 10K, into the
Company's previously filed Registration Statement File No. 33-51023 and No.
55137.
/s/ Cohen, Eyal, Yehoshua & Co.
Cohen, Eyal, Yehoshua & Co.
Certified Public Accountants (Isr.)
March 26, 1997
E-125
<PAGE>
Morris Brankin & Co.
Chartered Accountants
Ampal-American Israel Corporation
1177 Avenue of the Americas
New York, N.Y. 10036-2091
Re: CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
This is to inform you that we consent, as independent public accountants of
Bank Hapoalim (Cayman) Ltd., to the incorporation of our report included in Form
10-K, into the Ampal-American Israel Corporation's previously filed Registration
Statement File No. 33-51023, and No. 33-55137.
/s/ Morris Brankin & Co.
March 26, 1997
E-126
<PAGE>
[RONEL STETTNER & CO. LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants of Bay Heart Ltd., we hereby consent
to the incorporation of our report included in this Form 10K, into the
Company's previously filed Registration Statement File No. 33-51023
and No. 55137.
Truly yours,
/S/ RONEL STETTNER & CO.
RONEL STETTNER & CO.
Certified Public Accountants
(Israel)
March 26, 1997
E-127
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants of Carmel Container Systems Ltd., we hereby
consent to the incorporation of our report included in this Form 10K,
into the Company's previously filed Registration Statement File No.
33-51023, and No. 55137.
/s/ KOST, LEVARY and FORER
Tel-Aviv, Israel KOST, LEVARY and FORER
March 26, 1997 Certified Public Accountants (Israel)
E-128
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants of Coral World International, Ltd., we
hereby consent to the incorporation of our report included in this Form 10-K,
into the Company's previously filed Registration Statements File Nos. 33-51023
and 33-55137.
New York, New York
March 26, 1997
/s/ ARTHUR ANDERSEN LLP
E-129
<PAGE>
[Porat & Co. Letterhead]
March 26, 1997
Arthur Andersen & Co.
1345 Avenue of the Americas
New York, N.Y. 10105
Gentlemen,
Re: Consent of Independent Public Accountants
of Country Club Kfar-Saba Ltd.
------------------------------
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statement File No. 33-51023 and No. 55137.
/s/ Porat & Co.
Porat & Co.
Certified Public Accountants (Isr.)
E-130
<PAGE>
[FRIEDMAN, SHAPIRA, GOLDSTEIN, SITERMAN & CO. LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants of Epsilon Investment House Ltd., we
hereby consent to the incorporation of our report included in Form 10K,
into the Company's previously filed Registration Statement File No. 33-51023,
and No. 55137.
/s/ FRIEDMAN, SHAPIRA, GOLDSTEIN, SITERMAN & CO.
FRIEDMAN, SHAPIRA, GOLDSTEIN, SITERMAN & CO.
Certified Public Accountants
March 26th, 1997
E-131
<PAGE>
[SOMEKH CHAIKIN LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants of Granite Hacarmel Investments Limited, we
hereby consent to the incorporation of our report dated March 10, 1997, included
in Form 10-K of Ampal American Israel Corporation, previously filed in
Registration Statement File No. 33-51023, and No. 33-55137.
/s/ Somekh Chaikin
Certified Public Accountants (ISRAEL)
Tirat HaCarmel, March 26, 1997
E-132
<PAGE>
HAPOALIM CASA BASA
[CR. R. VILLARMARZO Y ASOC. LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants of Hapoalim Mayo Casa (Uruguay) S.A., we
hereby consent to the incorporation of our report included in this Form 10K
dated January 25, 1995, into the Company's previously filed Registration
Statement File No. 33-51023 and No. 55137.
We inform you that we also audited the financial statements for the year ended
December 31, 1995, and issued a report dated March 7, 1997 being available for
the same purposes.
March 26, 1997
/s/ CR. R. VILLARMARZO
CR. R. VILLARMARZO Y ASOC.
Ernst & Young International
E-133
<PAGE>
[PORAT & CO. LETTERHEAD]
March 26, 1997
Arthur Andersen & Co.
1345 Avenue of the American
New York, N.Y. 10105
Gentlemen,
Re: Consent of Independent Public Accountants
of Hod Hasharon Sport Center (1992) Limited Partnership
-------------------------------------------------------
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statement File No. 33-51023, and No. 55137.
/s/ Porat & Co.
Porat & Co.
Certified Public Accountants (ISR.)
E-134
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants of Mivnat Holding Ltd., we hereby
consent to the incorporation of our report included in this Form 10K,
into the Company's previously filed Registration Statement File No.
33-51023, and No. 55137.
/s/ Kost, LeVary and Forer
Tel-Aviv, Israel KOST, LEVARY and FORER
March 26, 1997 Certified Public Accountants (Israel)
E-135
<PAGE>
HAGGAI WALLENSTEIN, DOV & Co., C.P.A. (Isr.)
[ LETTERHEAD ]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants of Moriah Hotels Ltd., we hereby
consent to the incorporation of our report included in this Form 10-K,
into the Company's previously filed Registration Statement File No.
33-51023, and No. 33-55137.
/s/ Haggai Wallenstein, Dov & Co.
---------------------------------
HAGGAI WALLENSTEIN, DOV & Co.
Certified Public Accountants (Isr.)
Ramat-Gan, Israel
March 26, 1997
E-136
<PAGE>
HAFT & HAFT & CO.
[ LETTERHEAD ]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants of Nir Ltd., we hereby consent to the
incorporation of our report of our report included in this Form 10K, into the
Company's previously filed Registration Statement File No. 33-51023, and No.
55137.
/s/ H.H.S.L. Haft & Haft & Co.
------------------------------
March 26, 1997 H.H.S.L. Haft & Haft & Co.
Certified Public Accountants (Isr.)
E-137
<PAGE>
Kesselman Coopers
& Kesselman & Lybrand
[ LETTERHEAD ]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants of Ophir Holdings Ltd., we hereby
consent to the incorporation of our report dated March 13, 1997 on the
financial statements of Ophir Holdings Ltd. included in this form 10K,
into Ampal-American Israel Corporation's previously filed Registration
Statement File No. 33-51023 and No. 55137.
Tel-Aviv, Israel /s/ Kesselman & Kesselman
March 26, 1997
E-138
<PAGE>
[KPMG Braude Bavly LetterHead]
Certified Public Accountants
March 26, 1997 Ref 4021
J:\L96\03\CONS
Arthur Andersen LLP
1345 Avenue of the Americas
New York, New York 10105
U.S.A.
Re: Consent of Independent Public Accountants
As independent public accountants of Orlite Industries (1959) Ltd. we hereby
consent to the incorporation of our report, on the financial statements for the
year ended December 31, 1996, dated February 25, 1997, included in this Form
10K, into the Ampal American-Israel Corporation's previously filed Registration
Statement File No. 33-51023, and No. 55137.
/s/ Braude Bavly
Braude Bavly
Certified Public Accountants
E-139
<PAGE>
[SHLOMO ZIV & CO. LETTERHEAD]
March 26, 1997
Arthur Andersen & Co.
1345 Avenue of the Americas
New York, N.Y. 10105
U.S.A.
- ------
Gentlemen,
Re: Paradise Industries Ltd.
Consent of independent public accountants
-----------------------------------------
As independent public accountants of Paradise Industries Ltd., we hereby consent
to the incorporation of our report included in this Form 10-K, into the
Company's previously filed Registration Statement File No. 33-51023, and No.
55137.
Sincerely,
/s/ Shlomo Ziv & Co.
Shlomo Ziv & Co.
Certified Public Accountants (Isr.)
E-140
<PAGE>
[LETTERHEAD OF REUVENI, HARTUV, TEPPER & CO.]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants of Pri Ha'emek (Canned and Frozen Food) 88
LTD, we hereby consent to the incorporation of our reports, for the financial
years ended 31 December 1993, 31 December 1994 and 31 December 1995 included in
the respective Form 10K's, into the Company's previously filed Registration
Statement File No. 33-51023 and No. 55137.
/s/ Reuveni, Hartuv, Tepper & Co.
Reuveni, Hartuv, Tepper & Co.
Certified Public Accountants (Isr.)
March 26, 1997
E-141
<PAGE>
Fahn, Kanne & Co. Certified Public Accountants (Isr.) Letterhead
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
As independent certified public accountants of Red Sea Marineland Holding
(1973), we hereby consent to the incorporation of our report included in Form
10-K, into the Company's previously filed Registration Statement File No.
33-51023, and No. 55137.
/s/ Fahn, Kanne & Co.
-----------------------------------
FAHN, KANNE & CO.
Certified Public Accountants (Isr.)
Tel-Aviv, Israel, March 26, 1997
E-142
<PAGE>
(DOV KAHANA & CO. LETTERHEAD)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation of our
report on the financial statements of Red Sea Marineland Holding (1973) Ltd.
dated March 11, 1996 included in this Form 10-K, into the Company's previously
filed Registration Statement File No. 33-51023, and No. 33-55137.
/s/ Dov Kahana & Co.
DOV KAHANA & CO.
Certified Public Accountants (Isr.)
Ramat-Gan, March 26, 1997
E-143
<PAGE>
Fahn, Kanne & Co. Certified Public Accountants (Isr.) Letterhead
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
As independent certified public accountants of Red Sea Underwater Observatory
Ltd., we hereby consent to the incorporation of our report included in Form
10-K, into the Company's previously filed Registration Statement File No.
33-51023, and No. 55137.
/s/ Fahn, Kanne & Co.
-------------------------------------
FAHN, KANNE & CO.
Certified Public Accountants (Isr.)
Tel-Aviv, Israel March 26, 1997
E-144
<PAGE>
(DOV KAHANA & CO. LETTERHEAD)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation of our
report on the financial statements of Red Sea Underwater Observatory Ltd.
dated March 21, 1996 included in this Form 10-K, into the Company's previously
filed Registration Statement File No. 33-51023, and No. 33-55137.
/s/ Dov Kahana & Co.
DOV KAHANA & CO.
Certified Public Accountants (Isr.)
Ramat-Gan, March 26, 1997
E-145
<PAGE>
(FRIEDMAN, SHAPIRA, GOLDSTEIN, SITERMAN & CO. LETTERHEAD)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants Of Renaissance Investment Co. Ltd., we
hereby consent to the incorporation of our report included in this Form 10K,
into the Company's previously filed Registration Statement File No. 33-
51023, and No. 55137.
/s/Friedman, Shapira, Goldstein,
Siterman & Co.
FRIEDMAN, SHAPIRA, GOLDSTEIN,
SITERMAN, & CO.
Certified Public Accountants
March 26, 1997
E-146
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants of Shmay Bar Real Estate (1993) Ltd., we
hereby consent to the incorporation of our report included in this Form 10K,
into the Company's previously filed Registration Statement File No. 33-51023,
and No. 55137.
/s/Kost, Levary and Forer
KOST, LEVARY, AND FORER
Certified Public Accountant(Israel)
Tel-Aviv, Israel
March 26, 1997
E-147
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants of Shmay Bar (T.H.) 1993 Ltd., we
hereby consent to the incorporation of our report included in this Form 10K,
into the Company's previously filed Registration Statement File No. 33-51023,
and No. 55137.
/s/Kost, Levary and Forer
KOST, LEVARY, AND FORER
Certified Public Accountant(Israel)
Tel-Aviv, Israel
March 26, 1997
E-148
<PAGE>
(ALMAGOR & Co. C.P.A.(Isr.) LETTERHEAD)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants of Teledata Communications Ltd., we hereby
consent to the incorporation of our report included in this Form 10-K, into the
Company's previously filed Registration Statement File No. 33-51023 and No.
55137,
/s/Almagor & Co.
BDO ALMAGOR & CO.
Certified Public Accountants
Ramat-Gan Israel March 26, 1997
E-149
<PAGE>
(IGAL BRIGHTMAN & CO. LETTERHEAD)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants of TRINET INVESTMENTS IN HIGH-TECH LTD.,
we hereby consent to the incorporation of our report dated February 20,
1997, included in this Form 10-K (relating to the financial statements of
TRINET INVESTMENTS IN HIGH-TECH LTD., not included herein), into the
Company's previously filed Registration Statements No. 33-51023 and
No.33-55137.
/s/Igal Brightman & Co.
IGAL BRIGHTMAN & CO.
Certified Public Accountants
March 26, 1997
E-150
<PAGE>
(IGAL BRIGHTMAN & CO. LETTERHEAD)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants of TRINET VENTURE CAPITAL LTD., we hereby
consent to the incorporation of our report dated February 20, 1997, included in
this Form 10-K (relating to the financial statements of TRINET VENTURE CAPITAL
LTD., not included herein), into the Company's previously filed Registration
Statements No. 33-51023 and No.33-55137.
/s/Igal Brightman & Co.
IGAL BRIGHTMAN & CO.
Certified Public Accountants
March 26, 1997
E-151
<PAGE>
(KESSELMAN & KESSELMAN (Isr.) LETTERHEAD)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants of U.D.S. - Ultimate Distribution Systems
Ltd., we hereby consent to the incorporation of our report dated March 15,
1997 on the financial statements of U.D.S. - Ultimate Distribution Systems
Ltd. included in this Form 10-K, into Ampal-American Israel Corporation's
previously filed Registration Statement File No. 33-51023 and No. 55137.
/s/ Kesselman & Kesselman
Tel-Aviv, Israel
March 26, 1997
E-152
Exhibit 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby
constitute and appoint RAZ STEINMETZ, LAWRENCE LEFKOWITZ, and ALAN L. SCHAFFER,
or any one and or more of them, my true and lawful attorney or attorneys for me,
and in my name, place and stead, as a director and/or officer of AMPAL-AMERICAN
ISRAEL CORPORATION to sign the Annual Report on Form 10-K of AMPAL-AMERICAN
ISRAEL CORPORATION to the Securities and Exchange Commission for the year ended
December 31, 1996, and any and all amendments thereto, granting unto said
attorneys-in-fact, 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
above premises, as fully to all intents and purposes as he or she might or could
do in person, hereby ratifying and confirming all said attorneys-in-fact or
either of them may lawfully do or cause to be done by virtue hereof.
February 19, 1997 /s/Arie Abend
- ------------------------- -----------------------
Date Signature
E-153
<PAGE>
Exhibit 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby
constitute and appoint RAZ STEINMETZ, LAWRENCE LEFKOWITZ, and ALAN L. SCHAFFER,
or any one and or more of them, my true and lawful attorney or attorneys for me,
and in my name, place and stead, as a director and/or officer of AMPAL-AMERICAN
ISRAEL CORPORATION to sign the Annual Report on Form 10-K of AMPAL-AMERICAN
ISRAEL CORPORATION to the Securities and Exchange Commission for the year ended
December 31, 1996, and any and all amendments thereto, granting unto said
attorneys-in-fact, 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
above premises, as fully to all intents and purposes as he or she might or could
do in person, hereby ratifying and confirming all said attorneys-in-fact or
either of them may lawfully do or cause to be done by virtue hereof.
February 22, 1997 /s/Michael Arnon
- ------------------------- -----------------------
Date Signature
E-154
<PAGE>
Exhibit 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby
constitute and appoint RAZ STEINMETZ, LAWRENCE LEFKOWITZ, and ALAN L. SCHAFFER,
or any one and or more of them, my true and lawful attorney or attorneys for me,
and in my name, place and stead, as a director and/or officer of AMPAL-AMERICAN
ISRAEL CORPORATION to sign the Annual Report on Form 10-K of AMPAL-AMERICAN
ISRAEL CORPORATION to the Securities and Exchange Commission for the year ended
December 31, 1996, and any and all amendments thereto, granting unto said
attorneys-in-fact, 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
above premises, as fully to all intents and purposes as he or she might or could
do in person, hereby ratifying and confirming all said attorneys-in-fact or
either of them may lawfully do or cause to be done by virtue hereof.
February 17, 1997 /s/Stanley I. Batkin
- ------------------------- -----------------------
Date Signature
E-155
<PAGE>
Exhibit 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby
constitute and appoint RAZ STEINMETZ, LAWRENCE LEFKOWITZ, and ALAN L. SCHAFFER,
or any one and or more of them, my true and lawful attorney or attorneys for me,
and in my name, place and stead, as a director and/or officer of AMPAL-AMERICAN
ISRAEL CORPORATION to sign the Annual Report on Form 10-K of AMPAL-AMERICAN
ISRAEL CORPORATION to the Securities and Exchange Commission for the year ended
December 31, 1996, and any and all amendments thereto, granting unto said
attorneys-in-fact, 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
above premises, as fully to all intents and purposes as he or she might or could
do in person, hereby ratifying and confirming all said attorneys-in-fact or
either of them may lawfully do or cause to be done by virtue hereof.
February 23, 1997 /s/Yaacov Elinav
- ------------------------- -----------------------
Date Signature
E-156
<PAGE>
Exhibit 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby
constitute and appoint RAZ STEINMETZ, LAWRENCE LEFKOWITZ, and ALAN L. SCHAFFER,
or any one and or more of them, my true and lawful attorney or attorneys for me,
and in my name, place and stead, as a director and/or officer of AMPAL-AMERICAN
ISRAEL CORPORATION to sign the Annual Report on Form 10-K of AMPAL-AMERICAN
ISRAEL CORPORATION to the Securities and Exchange Commission for the year ended
December 31, 1996, and any and all amendments thereto, granting unto said
attorneys-in-fact, 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
above premises, as fully to all intents and purposes as he or she might or could
do in person, hereby ratifying and confirming all said attorneys-in-fact or
either of them may lawfully do or cause to be done by virtue hereof.
February 15, 1997 /s/Harry B. Henshel
- ------------------------- -----------------------
Date Signature
E-157
<PAGE>
Exhibit 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby
constitute and appoint RAZ STEINMETZ, LAWRENCE LEFKOWITZ, and ALAN L. SCHAFFER,
or any one and or more of them, my true and lawful attorney or attorneys for me,
and in my name, place and stead, as a director and/or officer of AMPAL-AMERICAN
ISRAEL CORPORATION to sign the Annual Report on Form 10-K of AMPAL-AMERICAN
ISRAEL CORPORATION to the Securities and Exchange Commission for the year ended
December 31, 1996, and any and all amendments thereto, granting unto said
attorneys-in-fact, 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
above premises, as fully to all intents and purposes as he or she might or could
do in person, hereby ratifying and confirming all said attorneys-in-fact or
either of them may lawfully do or cause to be done by virtue hereof.
March 11, 1997 /s/Irwin Hochberg
- ------------------------- -----------------------
Date Signature
E-158
<PAGE>
Exhibit 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby
constitute and appoint RAZ STEINMETZ, LAWRENCE LEFKOWITZ, and ALAN L. SCHAFFER,
or any one and or more of them, my true and lawful attorney or attorneys for me,
and in my name, place and stead, as a director and/or officer of AMPAL-AMERICAN
ISRAEL CORPORATION to sign the Annual Report on Form 10-K of AMPAL-AMERICAN
ISRAEL CORPORATION to the Securities and Exchange Commission for the year ended
December 31, 1996, and any and all amendments thereto, granting unto said
attorneys-in-fact, 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
above premises, as fully to all intents and purposes as he or she might or could
do in person, hereby ratifying and confirming all said attorneys-in-fact or
either of them may lawfully do or cause to be done by virtue hereof.
March 3, 1997 /s/Herbert Kronish
- ------------------------- -----------------------
Date Signature
E-159
<PAGE>
Exhibit 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby
constitute and appoint RAZ STEINMETZ, LAWRENCE LEFKOWITZ, and ALAN L. SCHAFFER,
or any one and or more of them, my true and lawful attorney or attorneys for me,
and in my name, place and stead, as a director and/or officer of AMPAL-AMERICAN
ISRAEL CORPORATION to sign the Annual Report on Form 10-K of AMPAL-AMERICAN
ISRAEL CORPORATION to the Securities and Exchange Commission for the year ended
December 31, 1996, and any and all amendments thereto, granting unto said
attorneys-in-fact, 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
above premises, as fully to all intents and purposes as he or she might or could
do in person, hereby ratifying and confirming all said attorneys-in-fact or
either of them may lawfully do or cause to be done by virtue hereof.
February 14, 1997 /s/Lawrence Lefkowitz
- ------------------------- -----------------------
Date Signature
E-160
<PAGE>
Exhibit 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby
constitute and appoint RAZ STEINMETZ, LAWRENCE LEFKOWITZ, and ALAN L. SCHAFFER,
or any one and or more of them, my true and lawful attorney or attorneys for me,
and in my name, place and stead, as a director and/or officer of AMPAL-AMERICAN
ISRAEL CORPORATION to sign the Annual Report on Form 10-K of AMPAL-AMERICAN
ISRAEL CORPORATION to the Securities and Exchange Commission for the year ended
December 31, 1996, and any and all amendments thereto, granting unto said
attorneys-in-fact, 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
above premises, as fully to all intents and purposes as he or she might or could
do in person, hereby ratifying and confirming all said attorneys-in-fact or
either of them may lawfully do or cause to be done by virtue hereof.
February 18, 1997 /s/ Hillel Peled
- ------------------------- -----------------------
Date Signature
E-161
<PAGE>
Exhibit 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby
constitute and appoint RAZ STEINMETZ, LAWRENCE LEFKOWITZ, and ALAN L. SCHAFFER,
or any one and or more of them, my true and lawful attorney or attorneys for me,
and in my name, place and stead, as a director and/or officer of AMPAL-AMERICAN
ISRAEL CORPORATION to sign the Annual Report on Form 10-K of AMPAL-AMERICAN
ISRAEL CORPORATION to the Securities and Exchange Commission for the year ended
December 31, 1996, and any and all amendments thereto, granting unto said
attorneys-in-fact, 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
above premises, as fully to all intents and purposes as he or she might or could
do in person, hereby ratifying and confirming all said attorneys-in-fact or
either of them may lawfully do or cause to be done by virtue hereof.
March 2, 1997 /s/ Shimon Ravid
- ------------------------- -----------------------
Date Signature
E-162
<PAGE>
Exhibit 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby
constitute and appoint RAZ STEINMETZ, LAWRENCE LEFKOWITZ, and ALAN L. SCHAFFER,
or any one and or more of them, my true and lawful attorney or attorneys for me,
and in my name, place and stead, as a director and/or officer of AMPAL-AMERICAN
ISRAEL CORPORATION to sign the Annual Report on Form 10-K of AMPAL-AMERICAN
ISRAEL CORPORATION to the Securities and Exchange Commission for the year ended
December 31, 1996, and any and all amendments thereto, granting unto said
attorneys-in-fact, 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
above premises, as fully to all intents and purposes as he or she might or could
do in person, hereby ratifying and confirming all said attorneys-in-fact or
either of them may lawfully do or cause to be done by virtue hereof.
March 8, 1997 /s/ Evelyn Sommer
- ------------------------- -----------------------
Date Signature
E-163
<PAGE>
Exhibit 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby
constitute and appoint RAZ STEINMETZ, LAWRENCE LEFKOWITZ, and ALAN L. SCHAFFER,
or any one and or more of them, my true and lawful attorney or attorneys for me,
and in my name, place and stead, as a director and/or officer of AMPAL-AMERICAN
ISRAEL CORPORATION to sign the Annual Report on Form 10-K of AMPAL-AMERICAN
ISRAEL CORPORATION to the Securities and Exchange Commission for the year ended
December 31, 1996, and any and all amendments thereto, granting unto said
attorneys-in-fact, 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
above premises, as fully to all intents and purposes as he or she might or could
do in person, hereby ratifying and confirming all said attorneys-in-fact or
either of them may lawfully do or cause to be done by virtue hereof.
March 20, 1997 /s/ Michael W. Sonnefeldt
- ------------------------- -------------------------
Date Signature
E-164
<PAGE>
Exhibit 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby
constitute and appoint RAZ STEINMETZ, LAWRENCE LEFKOWITZ, and ALAN L. SCHAFFER,
or any one and or more of them, my true and lawful attorney or attorneys for me,
and in my name, place and stead, as a director and/or officer of AMPAL-AMERICAN
ISRAEL CORPORATION to sign the Annual Report on Form 10-K of AMPAL-AMERICAN
ISRAEL CORPORATION to the Securities and Exchange Commission for the year ended
December 31, 1996, and any and all amendments thereto, granting unto said
attorneys-in-fact, 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
above premises, as fully to all intents and purposes as he or she might or could
do in person, hereby ratifying and confirming all said attorneys-in-fact or
either of them may lawfully do or cause to be done by virtue hereof.
March 26, 1997 /s/ Raz Steinmetz
- ------------------------- -------------------------
Date Signature
E-165
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 9,685
<SECURITIES> 134,032
<RECEIVABLES> 57,041
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 19,023
<PP&E> 74,026
<DEPRECIATION> 10,256
<TOTAL-ASSETS> 283,551
<CURRENT-LIABILITIES> 29,017
<BONDS> 102,414
0
5,967
<COMMON> 24,257
<OTHER-SE> 121,896
<TOTAL-LIABILITY-AND-EQUITY> 283,551
<SALES> 10,891
<TOTAL-REVENUES> 44,360
<CGS> 0
<TOTAL-COSTS> 12,027
<OTHER-EXPENSES> 23,713
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,081
<INCOME-PRETAX> (5,461)
<INCOME-TAX> 1,899
<INCOME-CONTINUING> (7,360)
<DISCONTINUED> (2,892)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,252)
<EPS-PRIMARY> (.37)
<EPS-DILUTED> (.37)
</TABLE>
