SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission file number 1-8707
PEC Israel Economic Corporation
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Maine 13-1143528
- --------------------------------------- -------------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
511 Fifth Avenue, New York, N.Y. 10017
- --------------------------------------- -------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (212) 687-2400
--------------
- --------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report.
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 |_|.
As of May 14, 1998 there were outstanding 18,362,188 shares of Common
Stock with par value of $1.00 per share.
Page 1 of 50 pages
<PAGE>
PART I - FINANCIAL INFORMATION
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
----------------------------
Assets 1998 1997
----------------------------
(In thousands - except per share amounts)
<S> <C> <C>
Cash and cash equivalents $ 5,548 $ 8,948
Investments 479,452 444,398
Assets of General Engineers Limited 5,706 5,274
Other assets 1,550 2,484
--------- ---------
Total assets $ 492,256 $ 461,104
========= =========
Liabilities and Shareholders' Equity
Liabilities:
Loan payable - Bank $ 20,026 $ --
Liabilities of General Engineers Limited 2,626 1,767
Deferred income taxes 40,760 38,451
Other liabilities 5,152 4,761
--------- ---------
Total liabilities 68,564 44,979
--------- ---------
Shareholders' equity:
Common stock, $1.00 par value 31,952 31,952
Additional paid-in capital 103,111 103,282
Retained earnings 345,677 334,934
Accumulated other comprehensive income (36,681) (33,676)
--------- ---------
444,059 436,492
Treasury stock (20,367) (20,367)
--------- ---------
Total shareholders' equity 423,692 416,125
--------- ---------
Total liabilities and shareholders' equity $ 492,256 $ 461,104
========= =========
</TABLE>
See notes to consolidated financial statements.
Page 2 of 50 pages
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended:
-------------------------------
3/31/98 3/31/97
-------------------------------
Revenues: (In thousands - except share
and per share amounts)
<S> <C> <C>
Interest and dividends $ 182 $ 243
Equity in net income of Affiliated Companies 11,828 12,015
Net gain on issuance of shares by Affiliated Companies 59 --
Revenues of General Engineers Limited 2,198 2,155
Net gain on sales of investments in Affiliated Companies 696 5,075
Net gain on sales, and change in market
value, of trading securities 3,345 64
Other 844 450
------------ ------------
19,152 20,002
------------ ------------
Expenses:
General and administrative 858 934
Interest 155 --
Cost of sales and expenses of General Engineers Limited 2,570 2,135
------------ ------------
3,583 3,069
------------ ------------
Income before income taxes 15,569 16,933
Income taxes 4,826 3,960
------------ ------------
Net income 10,743 12,973
------------ ------------
Other comprehensive income:
Unrealized gains on marketable securities:
Unrealized gains arising during period 26 979
Less: reclassification adjustment for gains
included in net income -- (159)
------------ ------------
Unrealized gains on marketable securities,
net of tax provision of $14 (1998) and
$441 (1997) 26 820
Translation adjustment, net of tax benefit
of $1,632 (1998) and $2,202 (1997) (3,031) (4,091)
------------ ------------
Other comprehensive loss (3,005) (3,271)
------------ ------------
Comprehensive income $ 7,738 $ 9,702
============ ============
Earnings per common share - basic $ 0.59 $ 0.70
============ ============
Earnings per common share - diluted $ 0.57 $ 0.69
============ ============
Number of shares outstanding 18,362,188 18,508,388
============ ============
</TABLE>
See notes to consolidated financial statements.
Page 3 of 50 pages
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PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Additional Accumulated Other
Common Paid-in Retained Comprehensive Treasury
Stock Capital Earnings Income Stock Total
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 $31,952 $103,282 $334,934 ($33,676) ($20,367) $416,125
Paid in capital of
Affiliated Companies (171) (171)
Change in market value
of available-for-
sale equity securities,
net of tax --- --- --- 26 --- 26
Accumulated translation
adjustment, net of tax benefit --- --- --- (3,031) --- (3,031)
Net income --- --- 10,743 --- --- 10,743
------- -------- -------- -------- -------- --------
Balance, March 31, 1998 $31,952 $103,111 $345,677 ($36,681) ($20,367) $423,692
======= ======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
Page 4 of 50 pages
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PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended:
----------------------------
3/31/98 3/31/97
----------------------------
Cash Flows from Operating Activities: (In thousands)
<S> <C> <C>
Net income $ 10,743 $ 12,973
Adjustments to reconcile net income to net cash
provided by operating activities:
Change in market value of trading securities (494) 3,033
Purchase of trading securities (4,936) (8,762)
Proceeds from sale of trading securities 9,951 6,220
Equity in net income of Affiliated Companies (11,828) (12,015)
Gain on sales of investments in Affiliated Companies (696) (5,075)
Net gain on sales of trading securities (2,851) (3,097)
Net gain on investment in partnerships (198) --
Loss (income) of consolidated subsidiaries 162 (344)
Net gain on issuance of shares by Affiliated Companies (59) --
Dividends from Affiliated Companies 5,760 10,275
Increase in other assets (2,391) (2,276)
Provision for deferred income taxes 2,380 (1,171)
Increase in other liabilities 905 3,318
-------- --------
Net cash provided by operating activities 6,448 3,079
-------- --------
Cash Flows from Investing Activities:
Collection of bonds -- 302
Purchase of notes receivable (326) (1,339)
Proceeds from sale of equity interests 2,645 10,421
Acquisitions of equity interests (44,775) (910)
Return of capital 12,582 302
-------- --------
Net cash (used in) provided by investing activities (29,874) 8,776
-------- --------
Cash Flows from Financing Activities:
Proceeds of Bank loan, net 20,026 --
-------- --------
Net cash provided by financing activities 20,026 --
-------- --------
Net (decrease) increase in cash and cash equivalents (3,400) 11,855
Cash and cash equivalents, beginning of period 8,948 7,044
-------- --------
Cash and cash equivalents, end of period $ 5,548 $ 18,899
======== ========
Supplemental Disclosures of Cash Flow Information:
Cash paid during period for:
Income taxes $ 416 $ 2,045
Interest $ 144 $ --
</TABLE>
See notes to consolidated statements.
Page 5 of 50 pages
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. The December 31, 1997 balance sheet presented herein was derived from the
audited consolidated financial statements of PEC Israel Economic
Corporation and subsidiaries ("PEC" or the "Company") for the year ended
December 31, 1997 (the "1997 Financial Statements").
2. These financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with
the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The
financial statements should be read in conjunction with the 1997 Financial
Statements for a description of the significant accounting policies, which
have continued without change except as disclosed in note 3 below, and
other footnote information.
3. In the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income ("FAS 130"),
which established standards for reporting the display of comprehensive
income. Accumulated other comprehensive income consists of the following:
(In thousands)
Accumulated
Unrealized Other
Gains on Compre-
Translation Marketable hensive
Adjustment Securities Income
----------- ---------- ----------
Balance, January 1, 1998 ($40,946) $7,270 ($33,676)
Current-period change (3,031) 26 (3,005)
-------- ------ --------
Balance, March 31, 1998 ($43,977) $7,296 ($36,681)
======== ====== ========
4. On April 3, 1998, Mr. Ben Nemser, allegedly a shareholder of PEC,
instituted a purported class action in the Supreme Court of New York
State, County of New York, against PEC, certain directors of PEC and
certain directors of PEC's Israeli parent companies. In his complaint, Mr.
Nemser alleges that on March 25, 1998 IDB Development Corporation Ltd.,
PEC's direct Israeli parent corporation ("IDB Development"), purchased
9.5% of PEC's outstanding common shares for $25.50 per share from 15
individuals and entities and that in its filing with the Securities and
Exchange Commission on Schedule 13D reporting such purchase, IDB
Development stated that it is considering possible corporate restructuring
transactions relating to PEC
Page 6 of 50 pages
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which may involve the acquisition of the remaining outstanding common
shares of PEC held by the public. Mr. Nemser alleges, among other things,
that in view of such purchase and IDB Development's possible future
acquisition of the PEC common stock not held by it, the defendants have
failed to take those actions necessary to ensure that PEC's shareholders
receive maximum value for their shares of PEC common stock if IDB
Development seeks to acquire the shares of PEC common stock not held by
it. Mr. Nemser also alleges that PEC and its directors cannot be expected
to act in the best interest of PEC's shareholders because of clear and
material conflicts of interest, that the defendants have breached their
fiduciary and other common law duties owed to him and other PEC
shareholders and that PEC's shareholders will be prevented from obtaining
a fair and adequate price for their shares of PEC common stock. Mr. Nemser
claims that as a result of the actions of the defendants, he and other PEC
shareholders have been damaged. PEC believes that Mr. Nemser's allegations
are without merit and intends to vigorously contest the action.
5. In May 1998, PEC borrowed $20 million from a bank (the "Bank") and used
the proceeds from the loan to repay its $20 million loan under a line of
credit from another bank. The loan from the Bank is unsecured and bears
interest at the rate of LIBOR plus 0.74% payable semi-annually. The loan
is repayable in 11 consecutive semi-annual installments of $1.67 million
each commencing on November 5, 2003 and a final installment consisting of
the outstanding balance on May 5, 2009.
6. Certain reclassifications have been made to the financial statements as of
and for the three months ended March 31, 1997 to conform with the
financial statements as of and for the three months ended March 31, 1998.
7. All adjustments (recurring in nature) which are, in the opinion of
management, necessary for a fair presentation of the results of the
interim periods have been included. The results of the interim periods are
not necessarily indicative of the results for the full year.
Page 7 of 50 pages
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 Compared to Three Months Ended
March 31, 1997
Consolidated net income for the three months ended March 31, 1998 was
$10.7 million compared with $13.0 million for the three months ended March 31,
1997. The decrease in net income reflected a decline of $4.4 million in net gain
on sales of investments in Affiliated Companies and an increase of $870,000 in
the provision for income taxes. The decrease attributable to these items was
partially offset by an increase of $3.3 million in net gain on sales, and change
in market value, of trading securities.
Equity in net income of Affiliated Companies for the first quarter of 1998
was $11.8 million compared with $12.0 million for the corresponding 1997 period.
PEC experienced net losses in respect of some of its Affiliated Companies,
particularly Scitex (PEC's share of Scitex's net loss was $2.9 million due to
the write-off of in process research and development costs in connection with
the acquisition by Scitex of Idanit Technologies Ltd., compared with a net loss
of $560,000 for the corresponding 1997 period), and reduced net income in
respect of certain other Affiliated Companies, especially Tambour (of which
PEC's share was $520,000 compared with $2.0 million for the corresponding 1997
period). This decrease was substantially offset by PEC's increased net income in
respect of other Affiliated Companies, especially Elron which recognized a gain
of approximately $36.5 million from the sale by its affiliate, Elbit Medical
Imaging Ltd., of Elbit Medical's ultrasound division to GE Medical Systems
(PEC's share of Elron's net income was $5.5 million compared with $360,000 for
the first quarter of 1997).
PEC realized a net gain on sales of investments in Affiliated Companies of
$700,000 for the first quarter of 1998, all of which was attributable to PEC's
sale of its entire 13.2% ownership interest in Lego Irrigation Ltd., compared
with $5.1 million for the first quarter of 1997. During the first quarter of
1997, PEC realized net gains of $2.9 million and $2.1 million on sales of 1.4%
of Super-Sol and 1.5% of Nice, respectively.
As discussed in Note 4 of the Notes to the Consolidated Financial
Statements for the year ended December 31, 1997, PEC does not provide deferred
income taxes with respect to
Page 8 of 50 pages
<PAGE>
undistributed earnings of, and gains on issuances of shares by, Majority-Owned
Affiliated Companies. Although income before income taxes decreased to $15.6
million for the first quarter of 1998 from $16.9 million for the first quarter
of 1997, the provision for income taxes increased to $4.8 million for the first
quarter of 1998 from $4.0 million for the corresponding 1997 period primarily
because of a decrease in the proportion of income from Majority-Owned Affiliated
Companies.
PEC's comprehensive income was $7.7 million for the three months ended
March 31, 1998 compared with $9.7 million for the corresponding 1997 period.
PEC's translation adjustment, net of tax benefit, reduced PEC's comprehensive
income by $3.0 million for the first quarter of 1998 compared with a reduction
of $4.1 million for the corresponding 1997 period. The exchange rate of the New
Israel Shekel declined approximately 1.8% and 3.3% against the U.S. dollar as of
March 31, 1998 and March 31, 1997 compared with December 31, 1997 and December
31, 1996, respectively. PEC's unrealized gain on marketable securities, net of
taxes, increased PEC's comprehensive income by $30,000 for first quarter of 1998
compared with $820,000 for the corresponding 1997 period. These increases
resulted from increases in the market value of available-for-sale securities as
of March 31, 1998 and March 31, 1997 compared with December 31, 1997 and
December 31, 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, PEC's liquid assets (consisting of cash, money
market funds and marketable securities of U.S. companies) totaled approximately
$31.7 million.
For the three months ended March 31, 1998, PEC received cash dividends and
interest totaling $5.9 million (including $5.8 million of dividends from
Affiliated Companies, which do not affect PEC's net income for financial
statement purposes), which substantially exceeded PEC's general and
administrative expenses. During the first quarter of 1998, PEC also generated
cash totaling $25.2 million, of which $12.6 million represented distributions
from a fund and a partnership, $10.0 million was realized from the sale of
marketable securities of U.S. companies, and $2.6 million was realized from the
sale of PEC's entire 13.2% ownership interest in Lego.
During the first quarter of 1998, PEC borrowed approximately $20.0 million
pursuant to a line of credit from a bank, which loan it refinanced in May 1998.
See "Subsequent Events".
Page 9 of 50 pages
<PAGE>
During the first quarter of 1998, PEC purchased equity and debt securities
of several existing and new Affiliated Companies for approximately $45.1
million. The new Affiliated Companies and PEC's purchase price for such
securities consist primarily of a 12.5% equity interest in Aviv Giladi
Productions Ltd., a corporation that represents actors and artists and produces
programs and commercials for Israeli television, that was purchased for $1.25
million and a 5.6% equity interest in Witcom Ltd., a corporation that is
developing millimeter wave radio based digital networking solutions, that was
purchased for $500,000. Discount Investment Corporation Ltd. ("Discount
Investment") also purchased the same percentage interest in Aviv Giladi
Productions as PEC on the same terms and Discount Investment and Elron each also
purchased the same percentage interest in Witcom on the same terms.
The existing Affiliated Companies in which PEC purchased securities in the
first quarter of 1998 and PEC's purchase price for such securities included
Super-Sol - $29.9 million (4.1% equity interest), Property & Building - $7.8
million (2.4% equity interest), Gemini - $1.5 million (capital contribution) and
DEP Technology Holdings Ltd. (the company through which PEC holds its equity
interest in RDC) - $688,000 (capital contribution). During the first quarter of
1998, PEC purchased marketable securities of U.S. companies for $4.9 million.
SUBSEQUENT EVENTS
In April 1998, PEC purchased a 5.7% equity interest in Global Village
Telecom Inc. ("Global Village") for $2.5 million, of which $1 million was
deferred. Global Village, an affiliate of Gilat Satellite, provides
telecommunications services, such as satellite pay phone services, to remote
areas using VSATs. PEC also purchased in April 1998 a 1.2% ownership interest in
Cell Pathways, Inc. for $1 million. Cell Pathways is a developmental stage
company that is developing drugs to prevent and treat cancer. Discount
Investment purchased the same percentage interest in Global Village and Cell
Pathways as PEC on the same terms.
In May 1998, PEC purchased a 6.5% equity interest in NewCheck Corporation
for $2.5 million. NewCheck has developed self-service automatic checkout
counters for use by customers in supermarkets. NewCheck recently began to sell
its checkout counters to a major supermarket chain in the United States.
Discount Investment purchased a 3.9% equity interest in NewCheck on the same
terms as PEC.
Page 10 of 50 pages
<PAGE>
In May 1998, PEC borrowed $20 million from a bank (the "Bank") and used
the proceeds from the loan to repay its $20 million loan under a line of credit
from another bank. The loan from the Bank is unsecured and bears interest at the
rate of LIBOR plus 0.74% payable semi-annually. The loan is repayable in 11
consecutive semi-annual installments of $1.67 million each commencing on
November 5, 2003 and a final installment consisting of the outstanding balance
on May 5, 2009.
Page 11 of 50 pages
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On April 3, 1998, Mr. Ben Nemser, allegedly a shareholder of PEC,
instituted a purported class action in the Supreme Court of New York State,
County of New York, against PEC, certain directors of PEC and certain directors
of PEC's Israeli parent companies. In his complaint, Mr. Nemser alleges that on
March 25, 1998 IDB Development Corporation Ltd., PEC's direct Israeli parent
corporation ("IDB Development"), purchased 9.5% of PEC's outstanding common
shares for $25.50 per share from 15 individuals and entities and that in its
filing with the Securities and Exchange Commission on Schedule 13D reporting
such purchase, IDB Development stated that it is considering possible corporate
restructuring transactions relating to PEC which may involve the acquisition of
the remaining outstanding common shares of PEC held by the public. Mr. Nemser
alleges, among other things, that in view of such purchase and IDB Development's
possible future acquisition of the PEC common stock not held by it, the
defendants have failed to take those actions necessary to ensure that PEC's
shareholders receive maximum value for their shares of PEC common stock if IDB
Development seeks to acquire the shares of PEC common stock not held by it. Mr.
Nemser also alleges that PEC and its directors cannot be expected to act in the
best interest of PEC's shareholders because of clear and material conflicts of
interest, that the defendants have breached their fiduciary and other common law
duties owed to him and other PEC shareholders and that PEC's shareholders will
be prevented from obtaining a fair and adequate price for their shares of PEC
common stock.
Mr. Nemser claims that as a result of the actions of the defendants, he
and other PEC shareholders have been damaged. The complaint requests that the
Court (i) declare the action to be a proper class action, (ii) enjoin any future
acquisition of PEC common stock by IDB Development until the defendants have
undertaken an appropriate evaluation of PEC's worth as an acquisition candidate,
retained independent advisors to consider any acquisition proposal from IDB
Development, adequately ensured that no conflicts of interest exist between
defendants' own interests and their fiduciary obligation to maximize shareholder
value and submitted any merger proposal for the acquisition of the shares of PEC
common stock held by the public to the holders of such shares and received the
approval of the holders of a majority of such shares to any such proposal, (iii)
require the defendants to pay to the plaintiff and the other PEC shareholders
all damages caused to them and (iv) require the defendants to
Page 12 of 50 pages
<PAGE>
pay to Mr. Nemser all of his costs and disbursements related to the action,
including attorneys' and experts' fees and expenses. PEC believes that Mr.
Nemser's allegations are without merit and intends to vigorously contest the
action.
Item 6. Exhibits and Reports on Form 8-K.
Exhibit 10(i) Loan Agreement dated May 5, 1998 between Bank
Hapoalim B.M. and PEC Israel Economic Corporation,
which begins on page 15 of this report.
Exhibit 27 Financial Data Schedule, which is page 50 of this
report.
Page 13 of 50 pages
<PAGE>
Signatures
Pursuant to the requirements 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.
PEC ISRAEL ECONOMIC CORPORATION
-------------------------------
(Registrant)
/s/ FRANK J. KLEIN
--------------------------
Frank J. Klein
President
/s/ WILLIAM GOLD
--------------------------
William Gold
Treasurer, Principal Financial
Officer and Principal Accounting
Officer
Date: May 15, 1998
Page 14 of 50 pages
LOAN AGREEMENT
dated May 5, 1998
between
BANK HAPOALIM B.M. (the "Bank")
and
PEC ISRAEL ECONOMIC CORPORATION (the "Borrower")
<PAGE>
TABLE OF CONTENTS
Clause Title
------ -----
1. DEFINITIONS
2. INTERPRETATION
3. AVAILABILITY AND DISBURSEMENT OF THE LOAN
4. INTEREST
5. REPAYMENT OF THE LOAN
6. PREPAYMENT
7. DEFAULT INTEREST
8. TIME, PLACE AND MANNER OF PAYMENT
9. CONDITIONS PRECEDENT
10. REPRESENTATIONS AND WARRANTIES
11. UNDERTAKINGS
12. FINANCIAL UNDERTAKINGS
13. EVENTS OF DEFAULT
14. CHANGES IN CIRCUMSTANCES
15. SET-OFF AND APPLICATION OF PAYMENTS
16. THE BORROWER'S DUTY TO NOTIFY
17. COMPENSATION FOR BROKEN FUNDING
18. REMEDIES AND WAIVERS
19. DISCLOSURE OF INFORMATION
20. ASSIGNMENT
21. ADDITIONAL PROVISIONS
22. AUTHORIZED SIGNATORIES
23. NOTICES
24. GOVERNING LAW AND JURISDICTION
25. CURRENCY INDEMNITY
26. SEVERABILITY
27. AMENDMENTS AND WAIVERS
(i)
<PAGE>
EXHIBITS
EXHIBIT 1 FORM OF NOTE
EXHIBIT 2 OPINION OF COUNSEL
EXHIBIT 3 PENDING LITIGATION
EXHIBIT 4 FORM OF AUDITOR'S CERTIFICATE
(ii)
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT is dated the 5th day of May, 1998
and made by and between:
BANK HAPOALIM B.M., a banking corporation organized and existing under the laws
of the State of Israel, acting through its New York branch at 1177 Avenue of the
Americas, New York, NY 10036 (hereinafter the "Bank").
and
PEC ISRAEL ECONOMIC CORPORATION, a corporation organized and existing under the
laws of the State of Maine, U.S.A. and having its principal office at 511 Fifth
Avenue, New York, NY 10017 (hereinafter the "Borrower").
WHEREAS:
(1) The Borrower has requested the Bank to grant it a loan in the sum of U.S.
$20,000,000 (Twenty Million United States Dollars).
(2) The purpose for which the Loan has been requested is to provide funds for
working capital.
(3) The Bank has agreed to make a loan available to the Borrower upon the
terms and subject to the conditions hereinafter appearing;
NOW IT IS HEREBY AGREED as follows:
1. DEFINITIONS
In this Agreement, the following words and expressions shall bear the
following meanings unless the context otherwise requires:
"Alternative Rate" shall mean an annual rate of interest equal to the
Prime Rate plus the Margin.
"Bank" shall mean Bank Hapoalim B.M. and any of its branches or offices
existing on the date hereof and/or to be subsequently opened, as well as
its successors, assignee, or attorneys in fact.
"Bank's Books" shall be construed so as to include any book, record,
statement of account and copy of any statement of account, loan agreement,
deed of undertaking, customers' bill, card index, page, film, means of
storage and retrieval of data via computer, and any other means of storage
and retrieval of data.
<PAGE>
-2-
"Banking Day" shall mean any day on which both (a) banks are regularly
open for business in New York City and (b) the Branch is open for ordinary
business, provided that, (1) in the Bank's discretion, the Branch may be
closed on any Saturday, Sunday, legal holiday or other day on which it is
lawfully permitted to close; and (2) with respect to any day upon which a
payment or transfer of funds is to be made under this Agreement, the term
"Banking Day" shall mean a day on which commercial banks and foreign
exchange markets are open for business in London and New York.
"Branch" shall mean the New York Branch of the Bank.
"Closing Date" shall mean May 5, 1998.
"Consolidated Net Worth" means the Borrower's stockholder's equity which
would appear as such on a consolidated balance sheet of the Borrower
prepared in accordance with GAAP, except that if the Borrower shall no
longer be subject to the reporting requirements of the Securities Exchange
Act of 1934 or any successor legislation, Consolidated Net Worth shall
mean the Borrower's shareholders' equity as set forth on the financial
statements delivered by the Borrower to the Bank pursuant to Clauses
11.1(g) and 11.1(h).
"Consolidated Tangible Net Worth" means (a) Consolidated Net Worth less
(b) all intangible items reflected therein, including all goodwill, all
intangible plant expansion costs, all unamortized debt discount and
expense, unamortized research and development expense, unamortized
deferred charges, patents, trademarks, service marks, trade names,
copyrights, unamortized excess cost of investment in subsidiaries over
equity at dates of acquisition, and all similar items which should
properly be treated as intangibles in accordance with GAAP.
"Control" (including the terms "Controlling", "Controlled by" and "Under
common Control with") means the possession, direct or indirect, of the
power to direct or cause the direction of management and policies of a
person, whether through the ownership of voting securities, by contract or
otherwise.
"Debt" means, with respect to a Person and at the time of determination
thereof, all of the following (without duplication): (a) obligations of
such Person in respect of money borrowed; (b) obligations of such Person
(other than trade debt incurred in the ordinary course of business), (i)
represented by notes payable, or drafts accepted, in each case
representing extensions of credit, (ii) evidenced by bonds, debentures,
notes or similar instruments, or (iii) constituting purchase money
indebtedness, conditional sales contracts, title retention debt
instruments or other similar instruments, upon which interest charges are
customarily paid or that are issued or assumed as full or partial payment
for property, it being understood that deferred or contingent payment
obligations for capital contributions or equity securities in an amount of
up to $50,000,000 (Fifty
<PAGE>
-3-
Million Dollars) shall not constitute Debt; (c) obligations of such Person
in respect of mandatorily redeemable securities issued by such Person; (d)
capitalized lease obligations of such Person; (e) all reimbursement
obligations of such Person under any letters of credit or acceptances
(whether or not the same have been presented for payment); and (f) all
Debt of other Persons which (i) such Person has guaranteed or (ii) are
secured by a lien on any property of such Person (whether or not such
Person has assumed liability with respect to such Debt).
"Encumbrance" shall mean any mortgage, pledge, lien, charge, assignment,
hypothecation, security interest, deposit arrangement, encumbrance,
charge, priority or other security agreement or preferential right or
trust arrangement or other agreement or arrangement of any kind or nature
whatsoever (including, without limitation, any conditional sale or title
retention agreement and any financing lease having substantially the same
economic effect of any of the foregoing) the effect of any of which is the
creation of a security interest or lien.
"Event of Default" shall mean any of the events or circumstances described
in Clause 13.
"GAAP" means accounting principles as promulgated from time to time in
statements, opinions and pronouncements by the American Institute of
Certified Public Accountants and the Financial Accounting Standards Board
and in such statements, opinions and pronouncements of such other entities
with respect to financial accounting of for-profit entities as shall be
accepted by a substantial segment of the accounting profession in the
United States.
"Indebtedness" shall mean any obligation (whether present or future,
actual or contingent secured or unsecured and whether as principal,
surety, or otherwise) for the payment or repayment of money.
"Interest Period" shall mean:
(i) a period commencing on the Closing Date and ending 180 days
thereafter;
(ii) thereafter, each period commencing on the last day of the
preceding Interest Period and ending 180 days thereafter;
provided that,
(1) if any Interest Period would otherwise end on a day that
is not a Banking Day, such Interest Period shall be
extended to the next succeeding Banking Day unless the
result of such extension would be to carry such Interest
Period into another calendar month in
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which event such Interest Period shall end on the
immediately preceding Banking Day; and
(2) any Interest Period that would otherwise extend beyond
the Maturity Date shall end on the Maturity Date.
"Libor" in relation to any Interest Period shall mean:
the rate or rates established by the Branch two Working Days prior to the
first day of that Interest Period, by applying the following: (i) the
British Bankers Association ("BBA") Interest Settlement Rates for U.S.
Dollars, as defined in the BBA official definitions and reflected on the
Telerate BBA pages, for an amount equal to the principal amount of the
Loan outstanding from time to time and for the relevant Interest Period,
which rates reflect the offered rates at which deposits are being quoted
to prime banks in the London Interbank Market at 11:00 a.m. London Time
calculated as set forth in said BBA official definition; or (ii) such
other recognized source of London Eurodollar deposit rates as the Bank may
determine from time to time. In the event the applicable BBA page or pages
shall be replaced by another Telerate page or other Telerate pages for
quoting London Eurocurrency rates, then rates quoted on said replacement
page or pages shall be applied. If the Bank determines that London
Eurocurrency rates are no longer being quoted (temporarily or permanently)
on any Telerate pages or that Telerate is no longer functioning
(temporarily or permanently) in substantially the same manner as on the
date hereof, then the Bank shall notify the Borrower of a comparable
substitute, publicly available reference for the determination of LIBOR.
"Loan" shall mean the amount of U.S. $20,000,000 to be disbursed to the
Borrower under the provisions of this Agreement.
"Margin" shall mean zero point seventy four percent (0.74%) per annum.
"Note" shall mean the promissory note of the Borrower evidencing the Loan
in the form set out in Exhibit 1 hereto.
"Prime Rate" shall mean the Bank's New York Branches stated Prime Rate as
reflected in its books and records as such Prime Rate may change from time
to time. The Bank's determination of its Prime Rate shall be conclusive
and final. The Prime Rate is a reference rate and not necessarily the
lowest interest rate charged by the Bank.
"US $" or "United States Dollars" or "U.S. Dollars" or "Dollars" shall
mean the lawful currency of the United States of America, and in respect
of all payments to be made under this Agreement, shall mean funds which
are for same day settlement in the New York Federal Reserve Payment System
(or such other Dollar funds as may, from time to time, be customary for
the settlement of international banking transactions denominated in United
States Dollars).
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"Working Day" shall mean a Banking Day on which banks are regularly open
for business in New York.
2. INTERPRETATION
2.1 In this Agreement, unless the context otherwise requires:
(a) references to Clauses and Exhibits are to clauses of, and
exhibits to this Agreement;
(b) references to this Agreement include its Exhibits, and shall
be construed as references to this Agreement as the same may
be amended, novated or supplemented from time to time;
(c) the words "hereof", "hereunder" and similar words shall be
construed as references to this Agreement as a whole and not
limited to the particular Clause or provision in which the
relevant reference appears;
(d) the word "person" shall be construed so as to include any
person, firm, company, corporation, unincorporated body of
persons or any state or government or any agency thereof;
(e) a "subsidiary" of a person is a reference to an entity of
which that person has Control or owns more than fifty per cent
(50%) of the share capital or similar right of ownership;
(f) "Taxes" shall be construed so as to include all present and
future income and other taxes, levies, imposts, duties,
charges, fees, deductions and withholdings whatsoever together
with interest thereon and penalties with respect thereto, if
any, and any payment of principal, interest charges, fees or
other amounts made on or in respect thereof, and "Tax" and
"Taxation" and similar words shall be construed accordingly;
(g) references to any statute or statutory provision shall be
construed as a reference thereto as the same may have been, or
may from time to time be, amended or re-enacted;
(h) references to times of the day are to New York time unless
otherwise specifically indicated to the contrary; and
(i) references to the singular shall include the plural and vice
versa.
2.2 The headings in this Agreement and the Table of Contents are
inserted for convenience only and shall be ignored in the
interpretation or construction of this Agreement.
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2.3 The preamble to this Agreement shall form an integral part thereof.
2.4 This Agreement forms an integral part of the Borrower's application
to open an account at the Branch and of the general conditions for
operating such accounts which have been signed by the Borrower
(hereinafter the "Application").
2.5 The Borrower's obligations contained in this Agreement are in
addition to those contained in the Application and nothing in this
Agreement shall derogate from any of the Bank's rights provided for
in the Application.
3. AVAILABILITY AND DISBURSEMENT OF THE LOAN
Subject to the terms of this Agreement, and in particular to the
provisions contained in Clause 9, the Bank shall make the Loan available
to the Borrower through the Branch on the Closing Date.
4. INTEREST
4.1 the Borrower shall pay interest on the outstanding balance of the
principal amount of the Loan at a rate determined by the Bank to be
the aggregate of LIBOR and the Margin for each Interest Period, with
the initial Interest Period commencing on the Closing Date.
4.2 Interest (other than Default Interest) shall be paid by the Borrower
to the Bank on the last day of each Interest Period and at maturity
(whether by acceleration or otherwise).
4.3 All interest payable under this Agreement shall accrue from day to
day and shall be calculated on the basis of the actual number of
days elapsed, and a year of 360 days.
4.4 Notwithstanding anything to the contrary contained herein, in no
event shall the Borrower be obligated to pay interest or Default
Interest in excess of the maximum amount which is chargeable under
applicable law.
5. REPAYMENT OF THE LOAN
The Borrower shall repay the unpaid principal amount of the Loan to the
Bank in 11 consecutive semi-annual installments of $1,666,666.66 (One
Million Six Hundred Sixty-Six Thousand Six Hundred and Sixty-Six Dollars
and Sixty-Six Cents) and a final installment which shall consist of the
remaining unpaid balance of the Loan. The first such installment shall be
due on November 5, 2003. Each subsequent installment shall be due on the
next Interest Payment Date until maturity on May 5, 2009.
<PAGE>
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6. PREPAYMENT
6.1 Provided that no Event of Default and/or any event which the lapse
of time or giving of notice or both would constitute an Event of
Default, has occurred and is continuing, the Borrower may, on any
Interest Payment Date, upon giving in each case at least 5 (five)
Banking Days prior written notice to the Bank (which shall be
irrevocable and shall constitute the Borrower's undertaking to
prepay accordingly), prepay the principal amount of the Loan
outstanding from time to time in whole or in part, being in each
instance not less than the least of (i) U.S. $1,000,000, (One
Million Dollars) or (ii) the outstanding principal amount of the
Loan at such time, together with accrued interest to such date on
the principal amount of the Loan prepaid.
6.2 If the Borrower notifies the Bank of its intention to prepay any
amount under the provisions of this Agreement but does not so prepay
in accordance with such notification, the Borrower shall indemnify
the Bank and hold the Bank harmless against any loss or expense
which the Bank shall certify as actually sustained or incurred by it
as a consequence of not having been prepaid in accordance with such
notification, and shall pay to the Bank the full amount so certified
on demand.
6.3 The Borrower may not prepay the Loan or any part thereof save as
expressly provided in this Agreement.
7. DEFAULT INTEREST
7.1. In the event that the Borrower shall not pay any amount payable by
the Borrower hereunder on its due date, the Bank in its sole
discretion may determine that such overdue amount shall bear default
interest from the date due until the date of actual payment at the
rate determined by the Bank to be 2% (two percent) per annum above
the Prime Rate ("Default Interest").
7.2 The Borrower shall pay Default Interest on sums payable by the
Borrower under this Agreement, such Default Interest being payable
from the date of the Event of Default or from the date of a demand
for payment (in respect of sums payable on demand) until the date of
actual payment.
7.3 Default Interest shall be due and payable on demand, and shall be
compounded monthly and calculated on the basis of the actual number
of days elapsed and a year of 360 days.
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8. TIME, PLACE AND MANNER OF PAYMENT
8.1 All payments to be paid by the Borrower hereunder shall be made to
the Bank with the same day value free of any Taxes and without
set-off or counterclaim, in lawful and freely transferable U.S.
Dollars and in funds available to the Bank at the Branch or at any
other place nominated by the Bank in the United States of America.
8.2 (a) Any and all payments by the Borrower to the Bank under this
Agreement and the Note shall be made free and clear of, and
without deduction for, any Taxes, provided that, if the
Borrower shall be required by law to deduct any Taxes from any
such payments, (i) the sum payable shall be increased as
necessary so that after making all required deductions
(including deductions applicable to additional sums payable
under this Clause) the Bank receives an amount equal to the
sum it would have received had no such deductions been made,
(ii) the Borrower shall make such deductions, (iii) the
Borrower shall pay the full amount deducted to the relevant
taxation authority or other authority in accordance with
applicable law, and (iv) the Borrower shall furnish to the
Bank the original or a certified copy of a receipt evidencing
payment thereof.
(b) The Borrower agrees to indemnify the Bank for the full amount
of Taxes not currently applicable (including, without
limitation, any Taxes imposed or asserted by any jurisdiction
on amounts payable under this Clause) paid by the Bank with
respect to the Loan and any liability (including penalties,
interest and expenses) arising therefrom or with respect
thereto; provided, however, that the Borrower shall not be
required to indemnify the Bank under this Clause for any Taxes
imposed on the Bank's income, franchise, branch profits or
similar Taxes imposed on it. This indemnification shall be
paid within 30 days after the Bank makes written demand
therefor (which demand shall identify the nature and the
amount of Taxes for which indemnification is being sought).
(c) If the Borrower becomes liable to pay any amounts to the Bank
pursuant to this Clause 8.2, it shall have the right to prepay
the Loan pursuant to Clause 6, but at any time upon notice as
provided therein.
8.3 All payments to be paid by the Borrower to the Bank hereunder shall
be made on a Banking Day. If any payment is due on a day which is
not a Banking Day, such payment shall be made on the next succeeding
Banking Day, in which case the Borrower shall pay interest to the
Bank on such deferred payment from the date due until the date of
actual payment at the rate specified in Clause 4.
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8.4 All amounts to be paid hereunder shall be paid no later than 2:00
p.m. on the relevant Banking Day. If any sum is paid after 2:00 p.m.
it shall be deemed to have been paid at 9:30 a.m. on the next
succeeding Banking Day.
8.5 If any sum to be paid hereunder shall be paid by the Borrower on a
day other than a Banking Day it shall be deemed to have been paid on
the next succeeding Banking Day.
9. CONDITIONS PRECEDENT
The obligation of the Bank to make the Loan available to the Borrower
shall be subject to the conditions that (a) no Event of Default and/or any
event which with the giving of notice or the lapse of time or both would
constitute an Event of Default has occurred or is continuing and (b) that
on or before the Closing Date, the Borrower shall have fulfilled all the
conditions and carried out all the acts hereinafter set out to the full
satisfaction of the Bank and (c) the Borrower shall have delivered to the
bank the documents hereinafter set out in form and substance satisfactory
to the Bank:
(a) Certified true copies of the resolutions of the Executive
Committee of the Board of Directors of the Borrower
authorizing the borrowing under this Agreement, authorizing
the opening of the Borrower's New York Account and providing
for the persons authorized to sign this Agreement and any
document or instrument hereunder and thereunder in the name
and on behalf of the Borrower;
(b) Opinion of the legal counsel of the Borrower acceptable to the
Bank, dated as of the date of this Agreement substantially in
the form of Exhibit 2 hereto and forming an integral part
hereof;
(c) the Note duly executed by the Borrower;
(d) State Certificates as to the Borrower:
(1) A copy of the Articles of Organization of the Borrower
and each amendment, if any, thereto, certified by the
Secretary of State of the State of Maine (as of a date
reasonably near the Closing Date) as being true and
correct copies of such documents on file in his office.
(2) The signed Certificate of the Secretary of State of the
State of Maine (dated reasonably near the Closing Date),
listing the Articles of Organization of the Borrower and
each amendment, if any, thereto, on file in his office
and stating that such documents
<PAGE>
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are the only constitutive documents of the Borrower on
file in his office and that the Borrower is duly
organized and in good standing in the State of Maine.
(e) Signed Certificate of Secretary of the Borrower dated the
Closing Date certifying the incumbency and specimen signatures
of the persons authorized to execute the Agreement and the
Note;
(f) Such additional agreements, opinions, certifications,
instruments, documents, orders, consents, financing
statements, reports, audits and other information in form and
substance reasonably satisfactory to the Bank as the Bank may
reasonably request.
10. REPRESENTATIONS AND WARRANTIES
10.1 The Borrower represents and warrants to the Bank that:
(a) the Borrower is a corporation, duly organized and validly
existing and in good standing under the laws of the State of
Maine and has the full power, authority and legal right to own
its assets and conduct its business as is now being conducted;
(b) the Borrower has the full power, authority and legal right to
enter into, exercise its rights and perform its obligations
under this Agreement;
(c) all necessary consents and authorities for the Borrower to
enter into and perform its obligations under this Agreement
and the Note have been obtained and no further consents or
authorities are necessary;
(d) the obligations of the Borrower under this Agreement will,
when executed by the Borrower, be legal, valid, binding and
enforceable against the Borrower in accordance with their
terms, subject to (i) applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and (ii) general
principles of equity;
(e) the execution, delivery and performance by the Borrower of its
obligations under this Agreement and the Note will not (i)
contravene any existing law, regulation or authorization to
which the Borrower is subject, (ii) result in any breach of or
default under any agreement or other instrument to which the
Borrower is a party or is subject or (iii) contravene any
provision of the Borrower's constitutional documents;
<PAGE>
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(f) the Borrower is not in breach of or in default under any other
document or agreement to which it is a party, or by which it
is bound, or any permit granted to it which may materially
impair its ability to fulfill its obligations hereunder;
(g) no action, litigation, arbitration or administrative
proceeding is current, pending or threatened against the
Borrower except as set forth in Exhibit 3;
(h) there is not in existence nor to the Borrower's knowledge is
there likely to occur any dispute with any governmental or
other authority or any other dispute of any kind which in any
such case, may materially adversely affect it or its business
or assets;
(i) no event has occurred, and is continuing that constitutes, or
that with the giving of notice or the lapse of time or both,
would constitute, an Event of Default;
(j) no Encumbrance exists over all or any part of the assets of
the Borrower except for purchase money mortgages or purchase
money liens or security interests as described in Clause
12.2(a) in the amount of $1,100,000 (One Million One Hundred
Thousand United States Dollars);
(k) all written information which has been given by or on behalf
of the Borrower to the Bank, or to its representatives in
connection with, or in the course of the negotiations leading
to this Agreement was when given and is now (except to the
extent revised by subsequent written notice to the Bank prior
to the Closing Date) true, accurate and complete in all
material respects and there are no facts relating thereto, the
omission of which would render misleading in any material
respect any such information supplied to the Bank;
(l) the audited financial statements to be delivered to the Bank
from time to time will have been prepared in accordance with
generally accepted accounting principles and practices in the
United States of America, will be prepared on a consistent
basis, and the audited and unaudited financial statements will
fairly present the financial position of the Borrower for the
period in respect of which they were prepared, subject, with
respect to the unaudited financial statements, to normal
year-end adjustments and subject to the provisions of Clauses
11.1(g) and 11.1(h);
(m) the choice by the Borrower of New York law to govern this
Agreement and the submission by the Borrower in this Agreement
to the jurisdiction of the competent state and federal courts
sitting in the State of New York are valid and binding;
<PAGE>
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(n) neither the Borrower nor any of its assets is entitled to
immunity on the grounds of sovereignty or otherwise from any
legal action or proceeding (which shall include, without
limitation, suit, attachment before or after judgment,
execution or other enforcement);
(o) the Borrower is not an "investment company" within the meaning
of the Investment Company Act of 1940, as amended, by reason
of the provisions of Section 3(b)(2) of such Act. The Borrower
is not subject to regulation under any federal or state
statute or regulations that limits its ability to incur
indebtedness;
(p) the making of the Loan pursuant to this Agreement does not
contravene Regulation U of the Board of Governors of the
Federal Reserve System as in effect on the date hereof;
(q) the Borrower is not engaged principally in the business of
extending credit for the purpose of purchasing or carrying any
"Margin Stock" as defined in Regulation U of the Federal
Reserve Board;
(r) the Borrower's principal office is located at 511 Fifth
Avenue, New York, NY 10017.
10.2 The representations and warranties of the Borrower contained in
Clause 10.1 in this Agreement shall be deemed to be repeated by the
Borrower on each day from the date of this Agreement until all
monies due or owing under this Agreement and the Note have been
repaid and paid in full as if made with reference to the facts and
circumstances existing on each such day except that Borrower may
incur purchase money mortgages or other purchase money liens or
security interests as permitted by Clause 12.2(a).
11. UNDERTAKINGS
11.1 The Borrower undertakes with the Bank that so long as any monies are
owing under this Agreement or the Note it will:
(a) obtain or cause to be obtained and maintain in full force and
effect and comply or cause to be complied in all material
respects with the conditions and restrictions (if any) imposed
in, or in connection with, every consent, authorization,
license or approval of governmental or public bodies or
authorities or courts and do, or cause to be done, all other
acts and things, which may from time to time be necessary or
desirable under applicable law for the continued due
performance of all its obligations under this Agreement and
the Note;
<PAGE>
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(b) upon becoming aware that the same may be threatened in an amount
exceeding Ten Million Dollars or pending in any amount and in any
case immediately after the commencement thereof give to the Bank
notice in writing of all litigation or administrative or arbitration
proceedings before or of any court, tribunal, arbitrator or other
relevant authority affecting it or its assets of the type described
in Clause 10.1(g) and of all disputes of the type described in
Clause 10.1(h);
(c) upon any Vice President or more senior officer of the Borrower
becoming aware of the same promptly, and in any event not
later than ten (10) days thereafter, give written notice to
the Bank of the occurrence of any Event of Default or any
event which with the giving of notice or the lapse of time or
both may constitute an Event of Default and at the same time
inform the Bank of any action taken or proposed to be taken in
connection therewith;
(d) pay when due all Taxes for which it is liable other than any
Taxes which are contested by the Borrower in good faith for
which adequate reserves have been set aside on the books of
the Borrower;
(e) so long as borrower remains subject to reporting requirements
under the Securities Exchange Act of 1934 or any successor
legislation thereto, prepare a consolidated balance sheet of
the Borrower and its subsidiaries and the related consolidated
statements of income, cash flows and changes in stockholder's
equity for the period in accordance with generally accepted
accounting principles and practices in the United States
consistently applied annually in respect of each fiscal year
and cause such annual statements to be certified without
qualification or exception by independent certified public
accountants of nationally recognized standing (it being
acknowledged by the Bank that each of the firms Price
Waterhouse LLP and Haft & Gluckman LLP are independent
certified public accountants of nationally recognized
standing) and deliver a copy of the same to the Bank, as soon
as practicable, but in each case not later than 90 (ninety)
days after the end of the period to which they relate;
(f) so long as borrower remains subject to reporting requirements
under the Securities Exchange Act of 1934 or any successor
legislation thereto, prepare an unaudited consolidated balance
sheet of the Borrower and its subsidiaries and the related
consolidated statements of income for each quarterly period
(other than the last quarterly period in any fiscal year) in
accordance with generally accepted accounting principles and
practices in the United States consistently applied for such
quarter in respect of each fiscal quarter and certified by the
Chief Financial Officer of the Borrower as being fairly stated
in all material respects (subject to normal year-end
adjustments) and deliver a copy of the same to the Bank, as
soon as practicable, but in each case not later than sixty
(60) days after the end of the period to which they relate;
<PAGE>
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(g) in the event Borrower shall no longer be subject to reporting
requirements pursuant to the Securities Exchange Act of 1934
or any successor legislation, prepare a consolidated balance
sheet of Borrower and its subsidiaries and the related
statements of income, cash flows and changes in stockholders
equity for the period in accordance with generally accepted
accounting principles and practices in the United States,
except that investments in securities shall be carried at
their market value if they are publicly traded and at their
fair value as reasonably determined in good faith by
management of the Borrower if they are not publicly traded,
rather than based upon Borrower's equity in the ownership of
investee companies, consistently applied annually in respect
of each fiscal year and cause such annual statements to be
certified according to the form of report set forth as Exhibit
4 by independent certified public accountants of nationally
recognized standing and deliver a copy of same to the Bank, as
soon as practicable, but in each case not later than 90
(Ninety) days after the end of the period to which they
relate;
(h) under the circumstances described in Clause 11(g) prepare an
unaudited consolidated balance sheet of the Borrower and its
subsidiaries and the related consolidated statements of income
for each quarterly period (other than the last quarterly
period in any fiscal year) following the same methodology as
set forth in Clause 11(g) and certified by the Chief Financial
Officer of Borrower in the manner set forth in Clause 11(f)
and deliver same to the Bank as provided in Clause 11(f);
(i) under the circumstances described in Clauses 11(g) and 11(h),
prepare a certificate setting forth a valuation of investments
of the Borrower, utilizing market value with respect to
marketable securities that are publicly traded and fair value
as reasonably determined in good faith by the management of
Borrower with respect to investments that are not publicly
traded, with respect to each fiscal year (as to which the
accountants described in Clause 11(g) shall certify that, in
their opinion the valuations are fairly stated) and with
respect to each fiscal quarter except the last quarterly
fiscal period in each year (as to which the Chief Financial
Officer of Borrower shall certify that the valuations are
fairly stated) and deliver copies of same to the Bank at the
times set forth in Clauses 11(g) and 11(h), as applicable;
(j) provide the Bank with such financial and other information
concerning the Borrower and its affairs, as the Bank may from
time to time reasonably require.
<PAGE>
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(k) simultaneously with the delivery of each set of financial
statements pursuant to Clauses 11(e), 11(f), 11(g) and 11(h)
above, provide to the Bank a certificate of Borrower's Chief
Financial Officer to the effect that nothing has come to his
attention to cause him to believe that an Event of Default
existed on the date of each of such statements.
12. FINANCIAL UNDERTAKINGS
12.1 The Borrower undertakes with the Bank that the Borrower will
maintain an excess of consolidated total assets over consolidated
total liabilities (exclusive of liabilities subordinated in terms of
payment to the Loan) in an amount of not less than $300,000,000
(Three Hundred Million Dollars.)
12.2 The Borrower undertakes with the Bank that from the date of this
Agreement and so long as any monies are owing under this Agreement
and the Note, without the prior written consent of the Bank (in the
case of paragraphs (b) and (c) below, such consent not to be
unreasonably withheld or delayed):
(a) it will not create, effect or permit to subsist any
Encumbrance over all or any part of its assets (or right to
recourse thereto); except for purchase money mortgages or
other purchase money liens or security interests (including,
without limitation, finance leases) upon any fixed or capital
assets hereafter acquired, or mortgages, liens, or security
interests (including, without imitation, finance leases) on
any such assets hereafter acquired existing at the time of
acquisition thereof, whether or not assumed, provided that (i)
no such mortgage, lien, or security interest shall extend to
or cover any other property of Borrower or its subsidiaries,
and (ii) the principal amount of the indebtedness secured by
any such mortgage, lien, or security interest, together with
all other indebtedness (other than to the Bank) secured by
mortgages, liens, or security interests on such property,
shall not exceed $50,000,000 (Fifty Million Dollars);
(b) it will not merge or consolidate with any other entity (unless
the Consolidated Net Worth of the combined entities is not
less than the Consolidated Net Worth of the Borrower prior to
the merger or consolidation); and
(c) it will not use any portion of the Loan, directly or
indirectly, in a manner that would violate or result in the
violation of Regulation U of the Federal Reserve Board.
12.3 The Borrower undertakes with the Bank that the Borrower will
maintain a Debt to Consolidated Tangible Net Worth ratio below or
equal to 0.75 to 1.00.
<PAGE>
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13. EVENTS OF DEFAULT
13.1 There shall be an Event of Default if:
(a) the Borrower fails to pay any sum due to be paid by it under
this Agreement and such payment is not made within a period of
5 Banking Days after notice thereof shall have been given by
the Bank to the Borrower; or
(b) the Borrower commits any breach of or fails to observe any of
the obligations, undertakings or other provisions contained in
this Agreement and, where such breach or failure is capable of
being remedied, it is not remedied to the Bank's satisfaction
within a period of 20 days after notice thereof shall have
been given by the Bank to the Borrower, provided however that
where such breach or failure is not capable of being remedied,
the Bank shall reasonably determine that such breach or
failure may have a material adverse effect on the financial
condition of the Borrower and/or the ability of the Borrower
to fulfill its obligations hereunder or on the rights of the
Bank pursuant hereto; or
(c) any representation or warranty made or deemed to be made or
repeated by or in respect of the Borrower pursuant to or in
connection with this Agreement, or any other document
submitted to the Bank is, or proves to have been incorrect or
untrue when made or repeated; provided, however that where
such position is not capable of being remedied, the Bank shall
reasonably determine that such breach or failure may have a
material adverse effect on the financial condition of the
Borrower and/or the ability of the Borrower to fulfill its
obligations hereunder and/or on the rights of the Bank
pursuant hereto;
(d) any consent, authorization, license or approval of, or
registration with or declaration to governmental or public
bodies or authorities or courts required by the Borrower to
authorize, or required by the Borrower in connection with the
execution, delivery, validity, enforceability or admissibility
in evidence (upon payment of stamp duty, if required) of this
Agreement or the performance by the Borrower of its
obligations under this Agreement is modified or is not granted
or is revoked or terminated or expires and is not renewed, or
otherwise ceases to be in full force and effect and the
position is not remedied, when capable of being remedied, to
the Bank's reasonable satisfaction within a period of 30 days
after notice thereof shall have been given by the Bank to the
Borrower, provided, however that where such position is not
capable of being remedied, the Bank shall reasonably determine
that such breach or failure may have a material adverse effect
on the financial condition of the Borrower and/or the ability
of the Borrower to fulfill its obligations hereunder; or
<PAGE>
-17-
(e) a creditor attaches or takes possession of, or a distress,
execution, sequestration or other process is levied, or
enforced upon or against a material part of the property,
undertakings, assets, rights or revenues of the Borrower and
such attachment or other similar order shall remain
undischarged or unstayed for a period in excess of 30 days; or
(f) the Borrower takes any action, or any decision, order or writ
is made or given by any court or competent authority for (1)
the Borrower to be adjudicated or found bankrupt or insolvent;
(2) the winding-up or dissolution of the Borrower, unless upon
such winding-up or dissolution the assets are to be
transferred to, and the liabilities are to be assumed by, an
entity whose Consolidated Net Worth after such transfer and
assumption is not less than the Consolidated Net Worth of the
Borrower prior to the transfer and assumption; (3) the
appointment of a liquidator, whether provisional or otherwise,
administrator, trustee, receiver or similar offices in respect
of the Borrower and/or in respect of the whole or any part of
its undertakings, assets, rights or revenues; or (4) the
Borrower to enter into any general arrangement or composition
for the benefit of its creditors or any class of them; or
(g) any legal proceedings are started or other steps are taken by
any third party before any court of law for: (i) the Borrower
to be adjudicated or found bankrupt or insolvent; (ii) the
winding-up or dissolution of the Borrower in the event that it
has not been released from all obligations under by the Bank;
(iii) the appointment of a liquidator, whether provisional or
otherwise, administrator, trustee, receiver or similar officer
in respect of the whole or any part of the Borrower's
undertakings, assets, rights or revenues; or (iv) the Borrower
to enter into any general arrangement or composition for the
benefit of its creditors or any class of them; provided
however that the same shall not constitute an Event of
Default, if the Borrower shall contest any such proceedings or
other steps in good faith within 10 days, and further provided
that legal counsel to the Borrower (who shall be acceptable to
the Bank) shall render within such 10 days his opinion in
writing, that there is a reasonable chance that such
proceeding or other steps will be rejected or dismissed by the
court before which they were instituted; or
(h) any event occurs or proceeding is taken with respect to the
Borrower in any jurisdiction to which it is subject which is
analogous to, or has an effect equivalent or similar to any of
the events mentioned in Clauses 13.1(f) or (g) and subject to
grace periods set forth in those Clauses, as applicable; or
<PAGE>
-18-
(i) all or a material part of the undertakings, assets, rights or
revenues of the Borrower are seized, nationalized,
expropriated or compulsorily acquired by, or under the
authority of, any government or local or other authority and
any such action is not resolved within 30 days; or
(j) it becomes unlawful at any time for the Borrower to perform
all or any of its obligations under this Agreement and the
Bank shall reasonably determine that such event may have a
material adverse effect on the financial condition of the
Borrower and/or on the rights of the Bank pursuant hereto; or
(k) the Borrower repudiates this Agreement or does or causes or
permits to be done any act or thing evidencing an intention to
repudiate this Agreement; or
(l) the Borrower has and/or shall have committed a breach of any
of its undertakings and/or obligations under any other
documents or agreements to which it is a party or by which it
is bound and the Bank shall reasonably determine that such
breach may have a material adverse effect on the financial
condition of the Borrower and/or the ability of the Borrower
to fulfill its obligations hereunder and/or on the rights of
the Bank pursuant hereto; or
(m) an event deemed to be an event of default and/or an event
which gives the Bank the right to demand early repayment of
any amount owed to the Bank by the Borrower exists or occurs
or is threatened under any other agreement or document for the
extension of credit or any other banking facilities by the
Bank to the Borrower.
13.2 The Bank may, without prejudice to any of its other rights, by
notice in writing to the Borrower at any time upon or after the
occurrence of an Event of Default, so long as the same is
continuing:
(a) declare the Loan and all interest accrued and all other
sums payable under this Agreement to have become due and
payable, whereupon the same shall, immediately or at any
time thereafter in accordance with such notice, become
due and payable;
(b) declare that the Loan and all other sums payable under
this Agreement shall bear interest at the rate of
Default Interest, as if such sums had not been paid on
their due date, whereupon such interest shall,
immediately or at any time thereafter in accordance with
the terms of such notice, become due and payable.
<PAGE>
-19-
13.3 The Borrower shall pay to the Bank all losses, costs and expenses,
including, without limitation, reasonable attorney fees and
expenses, suffered or incurred by the Bank as a result of any Event
of Default and in connection with the enforcement of any of the
Bank's rights hereunder.
14. CHANGES IN CIRCUMSTANCES
14.1. Increased Costs
If by reason and as a result of a) any change in or the introduction
of any law, regulation, treaty or official directive or any change
in the interpretation or application thereof including without
limitation by the central banking authorities of the U.S.A or Israel
or b) compliance by the Bank or the Branch with any future
directive, demand, order, request or requirement (whether or not
having the force of law) of the central banking authorities of the
U.S.A. or Israel or any other central bank or any governmental,
fiscal, monetary or other authority (including without limitation a
directive, demand, order, request or requirement which affects the
manner in which the Bank or the Branch allocates capital in support
of its assets or liabilities or contingent liabilities or deposits
with it or for its account or advances or commitments made by it):
(i) the Bank incurs a cost or costs as a result of performing its
obligations under this Agreement or the Note or maintaining
its commitment to disburse the Loan or maintaining the
outstanding balance of the Loan; or
(ii) the cost to the Bank of making, funding or maintaining the
Loan or any of the outstanding balance thereof is directly or
indirectly increased; or
(iii) the Bank becomes liable to make any payment not currently
applicable on account of tax or otherwise (not being a tax
imposed on the net income of its lending office in the
jurisdiction in which it is incorporated or in which its
lending office is situated or contemplated pursuant to Clause
8.2 of this Agreement) on or calculated by reference to the
outstanding balance of the Loan or by reference to any sum
received or receivable by it hereunder, or if any such sum
received or receivable by the Bank hereunder or the effective
return to the Bank hereunder is reduced;
then and in each such case:
a) the Bank shall notify the Borrower in writing of the
occurrence of such event upon the Bank becoming aware of
the same;
b) the Borrower shall from time to time pay to the Bank on
demand such amount or amounts as the Bank may specify to
be necessary
<PAGE>
-20-
to compensate the Bank for such cost, increased costs,
payment, reduction in payment, loss of return or other
liability;
c) the Bank shall as soon as reasonably practicable deliver
to the Borrower a certificate as to any of the matters
referred to in this Clause, specifying the amount of
such compensation, and setting out in reasonable detail
its calculation of the relevant amount. The said
certificate shall be conclusive save for manifest error;
d) subject to the provisions of Clause 6 hereof, the
Borrower may, after receipt of the Bank's notification
as aforesaid, so long as the circumstances giving rise
to such compensation continue and subject to its giving
the Bank no less than five (5) Banking Days written
notice thereof (which shall be irrevocable) notify the
Bank at any time that it will prepay to the Bank the
whole (but not part only) of the outstanding balance of
the Loan together with accrued interest thereon and all
other amounts owing to the Bank provided that such
notice on the part of the Borrower is given within 30
(thirty) days of the Bank's notification as aforesaid.
14.2. Unlawfulness
This Agreement has been made in accordance with legal, regulatory,
fiscal and monetary measures currently in force and in accordance
with current market conditions. If the making or the continuation of
the Loan by the Bank becomes impossible or unlawful, or the Bank is
required to reduce the volume of its loans due to any change, after
the date of this Agreement, in any applicable law or governmental
regulation or order or in any requirement of any monetary authority,
or in the interpretation of the same, then and in any such event the
Bank may give written notice to the Borrower and the Borrower agrees
to prepay the full amount of the Loan then outstanding as well as
interest accrued thereon, or such lesser amount as the Bank shall
determine is required to be prepaid so that no impediment continues
to subsist, within 60 (sixty) days or any shorter period of time
required by any such change.
14.3. Substitute Basis
If the Bank determines (i) that at anytime (a) by reason of
circumstances affecting the London Interbank Market generally,
adequate and fair means do not exist for ascertaining an applicable
LIBOR rate or it is impractical for the Bank to fund or continue to
fund the then outstanding balance of the principal amount of the
Loan at the LIBOR rate during the applicable Interest Period, or (b)
quotes for funds in United States Dollars in sufficient amounts
comparable to the said outstanding
<PAGE>
-21-
balance and for the duration of the applicable Interest Period would
not be available to the Bank in the London Interbank Market, or (c)
quotes for funds in United States Dollars in the London Interbank
Market would not accurately reflect the cost to the Bank of funding
the said outstanding balance on the London Interbank Market during
the applicable Interest Period, or (ii) that at any time the making
or funding of loans, or charging of interest at rates, based on
LIBOR shall be unlawful or unenforceable for any reason, then as
long as such circumstances(s) shall continue, interest on the
outstanding balance of the principal amount of the Loan shall accrue
at the Alternative Rate.
15. SET-OFF AND APPLICATION OF PAYMENTS
15.1. All monies held or received by the Bank for or on account of the
Borrower, regardless whether such monies may have been intended by
the Borrower or any third party to be appropriated for or on account
of any other amount, may be applied by the Bank in or towards
satisfaction of any amount then due and owing by the Borrower under
this Agreement or the Note, and if so applied, shall be applied in
the following order of priority:
(i) first, all costs, charges or expenses, including, inter alia,
those incurred by the Bank in enforcing its rights hereunder
(ii) secondly, accrued and unpaid interest and/or Default Interest
owing in respect of the Loan; and
(iii) thirdly, on account of the unpaid principal of the Loan.
16. THE BORROWER'S DUTY TO NOTIFY
16.1 The Borrower hereby undertakes to notify the Bank immediately of any
of the events enumerated in Clause 13.1.
17. COMPENSATION FOR BROKEN FUNDING
17.1. If the Loan or any part thereof or any interest thereon is for any
reason whatsoever repaid, paid or recovered by the Bank (whether
from the Borrower or any third Party) under any security or
otherwise, on any day other than the last day of any Interest Period
or the Maturity Date, as the case may be, the Borrower shall upon
demand pay to the Bank such amount or amounts as may be necessary to
compensate the Bank for any actual loss incurred by it (after
redeployment of funds) on account of funds borrowed in order to
make, fund or maintain the Loan with respect to which repayment,
payment or recovery is made and/or for interest differential caused
thereby, provided that the Borrower shall not be required to
<PAGE>
-22-
make any payment under this Clause 17.1 or otherwise to pay any
penalty or breakage fee in the event of a repayment of all or any
part of the Loan on the last day of any Interest Period pursuant to
Clause 6.1 above and liability for compensation pursuant to a
prepayment under Clause 8.2(c) shall be shared equally between the
Bank and the Borrower.
18. REMEDIES AND WAIVERS
18.1. No delay or omission on the part of the Bank in exercising any
right, power, privilege or remedy pursuant to this Agreement shall
impair such right, power, privilege or remedy or be construed as a
waiver thereof, nor shall any single or partial exercise of any such
right, power, privilege or remedy preclude any other or further
exercise thereof, or the exercise of any other power, right or
remedy.
18.2. The rights and remedies of the Bank provided in this Agreement are
cumulative, and are not exclusive of any rights or remedies provided
by law.
19. DISCLOSURE OF INFORMATION
Any branch of the Bank administering the Loan may disclose to the Head
Office of the Bank, to any financial institution within the Bank Hapoalim
group which is an assignee or potential assignee of all or part of the
Loan or to the Bank of Israel, the Examiner of the Banks, the Controller
of Foreign Exchange or any person acting under their authority or to any
other regulatory authority having jurisdiction over the Bank or over the
Head Office of the Bank, or to the Head Office of the Bank for delivery by
the latter to any such regulatory authorities, such information about the
Borrower, or the Loan as may be required by such regulatory authorities or
as the branch or the Head Office of the Bank may deem appropriate.
20. ASSIGNMENT
20.1. The Bank may at any time at its own discretion and without the
Borrower's consent being required, assign or transfer its rights in
relation to the Loan and/or arising from this Agreement, in whole or
in part, to any bank within the Bank Hapoalim group, and any such
assignee may also reassign or transfer the said rights to any such
bank without any consent being required from the Borrower (or to any
other financial institution, with the prior consent of the Borrower,
which consent shall not be unreasonably withheld), provided in each
case that such assignment does not result in any increased cost or
liability to the Borrower (including, without limitation, any tax).
Such assignment may be effected in any manner in which the Bank or
any subsequent assignor may deem fit.
<PAGE>
-23-
20.2. Except as otherwise permitted by this Agreement, the Borrower shall
not assign or transfer any of its rights or obligations under this
Agreement without the prior written consent of the Bank (which
consent shall not be unreasonably withheld).
21. ADDITIONAL PROVISIONS
21.1 The Bank agrees that no judgment or recourse shall be sought or
enforced for the payment of any of the Borrower's obligations
hereunder or under the Note or under any document delivered by the
Borrower in connection herewith against any officer, director,
shareholder, manager, member or other affiliate of the Borrower or
any of their respective assets or property.
21.2. The Borrower hereby confirms that the Bank's books, accounts and
entries shall be binding on the Borrower, shall be deemed to be
correct, absent manifest error and shall be prima facie evidence
against the Borrower in all their particulars.
22. AUTHORIZED SIGNATORIES
22.1. The Borrower hereby agrees that until the Bank receives a certified
copy of any subsequent resolution of the Executive Committee of the
Board of Directors of the Borrower providing otherwise, any two of
the President, the Executive Vice President, or the Treasurer,
signing jointly shall be deemed authorized to act on behalf of the
Borrower in connection with all matters relating to the execution,
delivery and performance of this Agreement to which the Borrower is
a party and the terms and conditions thereof.
23. NOTICES
23.1. All notices, requests, demands or other communications to be made
under this Agreement shall be made in writing, and unless otherwise
stated, may also be made by facsimile transmission. All notices,
requests, demands or other communications sent by mail shall be by
certified mail.
23.2. All such notices, etc. to be made or delivered by one party to this
Agreement to the other party to this Agreement (unless that other
party has by fifteen (15) days' written notice specified another
address) be made or delivered to such other party, addressed as
follows:
<PAGE>
-24-
[i] if to the Borrower at:
PEC Israel Economic Corporation
511 Fifth Avenue
New York, New York 10017
Attention: Frank Klein, President
Fax No: (212) 599-6281
with a copy to:
IDB Development Corporation Ltd.
"The Tower"
3 Daniel Frisch Street
Tel Aviv 64731, Israel
Fax No: 011-972-3-695-2069
[ii] if to the Bank at:
Bank Hapoalim B.M.
1177 Avenue of the Americas
New York, New York 10036
Attention: Eli Eisdorfer
Fax No: (212) 782-2170
23.3. All such notices etc., shall be deemed to have been made or
delivered the next Banking Day after dispatch (in the case of any
communication made by any form of facsimile transmission) or in the
case of any communication made by letter the next Banking Day after
being physically left at the address as referred to above.
24. GOVERNING LAW AND JURISDICTION
(a) This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without regard to the choice of
law provisions thereof
(b) The Borrower hereby submits to the nonexclusive jurisdiction of the
United States District Court for the Southern District of New York
and of any New York State court sitting in New York City for
purposes of all legal proceedings arising out of or relating to this
Agreement, the Note or transactions contemplated hereby. The Bank
hereby submits to the exclusive jurisdiction of the United Stated
District Court for the Southern District of New York and any New
York State court sitting in New York City, for purposes of all legal
proceedings arising out of or relating to this Agreement, the Note
or the transaction contemplated hereby.
<PAGE>
-25-
(c) The submission by the parties hereto to the jurisdiction to such
courts as are referred to in Clause 26(b) hereof shall not (and
shall not be construed so as to) limit the right of the Bank to take
proceedings against the Borrower in any other court of competent
jurisdiction, whether in Israel or in any other country, including
without prejudice to the generality of the foregoing, any country
where the Borrower has offices, interests or assets, nor shall the
taking of proceedings in any one or more jurisdictions preclude the
taking of proceedings in any other jurisdiction, whether
concurrently or not.
(d) Each of the parties hereto irrevocably waives any objections which
it may have now or hereafter to such courts as are referred to in
this Clause, and irrevocably waives any claim that any such court is
not a convenient or appropriate forum.
(e) THE BORROWER HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
25. CURRENCY INDEMNITY
The Borrower agrees to indemnify the Bank against any loss incurred by it
as a result of any judgment or order being given or made for the payment
of any amount due under this Agreement and of such judgment or order being
expressed in a currency other than the currency in which such amount is
payable and as a result of any variation having occurred in the rates of
exchange between the date on which any such amount becomes due under this
Agreement and the date of actual payment thereof. The foregoing indemnity
shall constitute a separate and independent obligation of the Borrower and
shall apply irrespective of any indulgence granted to the Borrower from
time to time and shall continue in full force and effect notwithstanding
any such judgment or order.
26. SEVERABILITY
If at any time any provision of this Agreement or the Note is or becomes
invalid, illegal or unenforceable in any respect under the laws of the
State of New York neither the legality, validity or the enforceability of
the remaining provisions hereof shall in any way be affected or impaired
thereby.
<PAGE>
-26-
27. AMENDMENTS AND WAIVERS
Any provision of this Agreement or the Note may be amended or waived if,
but only if, such amendment or waiver is in writing and is duly signed by
the Borrower and the Bank.
In Witness whereof the Borrower and the Bank have caused this Agreement to be
duly executed and delivered in New York, New York on the date first above
written.
BANK HAPOALIM B.M.
By: /s/ Shlomo Braun
-----------------------------
Name: Shlomo Braun
Title: Senior Vice President and Branch Manager
By: /s/ Eli Eisdorfer
-----------------------------
Name: Eli Eisdorfer
Title: First Vice President
PEC ISRAEL ECONOMIC CORPORATION
By: /s/ Frank J. Klein
-----------------------------
Name: Frank J. Klein
Title: President
By: /s/ James Edelson
-----------------------------
Name: James Edelson
Title: Executive Vice President
<PAGE>
-27-
EXHIBIT I
Form of Note
$20,000,000 New York, New York
May 5, 1998
FOR VALUE RECEIVED, the undersigned, PEC Israel Economic Corporation, a
corporation organized and existing under the laws of the State of Maine (the
"Borrower), hereby promises to pay the principal sum of Twenty Million United
States Dollars (US$20,000,000) to the order of Bank Hapoalim B.M. (the "Bank"),
at its New York office, at 1177 Avenue of the Americas, New York, New York,
10036 in 11 consecutive installments of $1,666,666.66 (One Million Six Hundred
Sixty-Six Thousand Six Hundred and Sixty-Six Dollars and Sixty-Six Cents) on
November 5, 2003 and semi-annually thereafter, with the final payment of the
balance of the principal amount to be paid at maturity on May 5, 2009, in lawful
money of the United States of America in immediately available funds, and to pay
interest from the date hereof on such principal amount hereof from time to time
outstanding, in like funds, at said office, at a rate or rates per annum and
payable semi-annually on the dates determined pursuant to the Loan Agreement
dated May 5, 1998 between the Borrower and the Bank (the "Agreement".)
The Borrower promises to pay interest, payable on demand, on any overdue
principal and, to the extent permitted by law, overdue interest from their due
dates at a rate or rates determined as set forth in the Agreement.
The Borrower hereby waives diligence, presentment, demand, protest and notice of
any kind whatsoever except as provided in the Agreement. The non-exercise by the
holder of any of its rights hereunder in any particular instance shall not
constitute a waiver thereof in that or any subsequent instance.
The Loan evidenced by this Note and all payments and prepayments of the
principal hereof and interest hereon on the respective dates thereof shall be
inscribed or otherwise entered on the books and records of the Bank, provided,
however, that the failure of the Bank to make such inscriptions of entries or
any error therein shall not in any manner affect the obligation of the Borrower
to repay the Loan in accordance with the terms hereof.
This Note is the Note referred to in the Agreement which, among other things,
contains provisions for the acceleration of the maturity hereof upon the
happening of certain events, for optional prepayment of the principal hereof
prior to the maturity thereof and for the amendment and waiver of certain
provisions of the Agreement, all upon the terms and conditions therein
specified. This Note shall be construed in accordance with and governed by the
laws of the State of New York and any applicable laws of the United States of
America.
PEC ISRAEL ECONOMIC CORPORATION
By:
------------------------------
Name: Frank J. Klein
Title: President
By:
------------------------------
Name: James Edelson
Title: Executive Vice President
<PAGE>
EXHIBIT 2
May __, 1998
Bank Hapoalim B.M.
1177 Avenue of the Americas
New York, New York 10036
Attention: Lawrence Lefkowitz
Ladies and Gentlemen:
I am the Executive Vice President and General Counsel of PEC Israel
Economic Corporation (the "Borrower"), a party to the Loan Agreement dated May
5, 1998 between Bank Hapoalim B.M. (the "Bank") and the Borrower (the "Loan
Agreement") and to the Promissory Note dated May 5, 1998 made by the Borrower
payable to the order of the Bank in the principal amount of $20,000,000 (the
"Note"), and have acted as counsel to the Borrower with respect to the loan made
available by the Bank to the Borrower pursuant to the Loan Agreement and
evidenced by the Note. This opinion is delivered pursuant to Clause 9(b) of the
Loan Agreement. The Loan Agreement and the Note are collectively referred to as
the "Documents".
In making my examination of executed documents, I have assumed the legal
capacity of all natural persons, the genuineness of all signatures other than of
the Borrower, the authenticity of all documents submitted to me as originals,
the conformity to original documents submitted to me as photostatic copies and
the authenticity of the originals of such latter documents. In my examination, I
have assumed that the parties thereto other than the Borrower had the power,
corporate or other, to enter into and perform all obligations thereunder. I have
also assumed the due authorization by all requisite action, corporate or other,
execution and delivery by such parties other than the Borrower of such documents
and the validity and binding effect of such documents on such parties other than
the Borrower. As to any fact material to my opinion, I have relied upon the
representations made in the Loan Agreement, upon oral or written statements and
representations of officers and other representatives of the Borrower and upon
certificates of public officials. I have also examined such corporate documents
and
<PAGE>
records and other certificates, and have made such investigations, as I have
deemed necessary in order to render the opinion hereinafter set forth.
Based upon and subject to the foregoing, my opinion is as follows:
1. The Borrower has been duly organized, validly existing and in good
standing as a corporation under the laws of the State of Maine. The Borrower is
duly qualified to do business and is in good standing as a foreign corporation
in all states wherein the nature of the business transacted by it makes it
necessary to qualify to do business as a foreign corporation.
2. The Borrower has all corporate power, authority and legal right to, and
all necessary licenses and permits to, execute, deliver and consummate the
transactions contemplated to be performed by the Borrower under, and to perform
its obligations under, each of the Documents.
3. The execution, delivery and performance by the Borrower of each of the
Documents and the consummation by Borrower of the transactions contemplated by
the Documents have been duly authorized by all necessary corporate action on the
part of the Borrower.
4. Each of the Documents has been duly and validly executed and delivered
by the Borrower and constitutes a legal, valid and binding obligation of the
Borrower, enforceable against the Borrower in accordance with its terms, subject
to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws affecting creditors' rights and remedies
generally and to general principles of equity (regardless of whether enforcement
is sought in a proceeding at law or in equity).
5. The execution and delivery of the Documents by the Borrower, and the
consummation by the Borrower of the transactions contemplated by the Documents,
does not and will not (a) conflict with or result in a breach of any law,
decree, rule or regulation of any court or any governmental agency or body
having jurisdiction over the Borrower, (b) result in the creation or imposition
of any lien, charge or encumbrance upon the property of the Borrower pursuant to
any agreement or instrument known to me, or (c) conflict with the Articles of
Incorporation and by-laws of the Borrower or any material agreement, indenture
or other instrument known to me to which the Borrower is a party.
<PAGE>
6. The Borrower is not in default under any agreement, indenture or
instrument known to me to which it is a party or by which it or any of its
property is bound, or with respect to any order, writ, injunction, decree or
demand known to me of any court or other governmental or regulatory authority
rendered in a matter to which the Borrower was subject and in which it was named
a party, which default could have a material adverse effect on the business,
operations, financial condition or properties of the Borrower to perform its
obligations under the Documents.
7. No consent, approval or authorization of or registration,
qualification, designation, declaration or filing of or with any governmental
authority or person not previously obtained is required to be obtained by the
Borrower in connection with the execution, delivery and performance by the
Borrower of its obligations under the Documents or the consummation by the
Borrower of the transactions contemplated by the Documents.
8. To the best of my knowledge, there is no action, suit, proceeding or
arbitration pending or threatened against the Borrower before any court,
administrative or governmental body, or arbitration panel, which if determined
against the Borrower would affect the Borrower's ability to execute the
Documents or materially adversely affect the Borrower's ability to fulfill its
obligations under the Documents.
The opinion set forth herein is limited to the laws of the State of New
York and the federal laws of the United States. This opinion is rendered to you
and is solely for your benefit in connection with the transactions contemplated
by the Documents. This opinion may not be relied upon by you for any other
purpose or furnished to, quoted or relied upon by any other person, firm or
corporation for any purpose without my prior written consent.
Very truly yours,
<PAGE>
Exhibit 3
The Borrower is a defendant in a class action titled Nemser v. PEC Israel
Economic Corporation, et. al filed on April 3, 1998 in the Supreme Court of the
State of New York, County of New York. A copy of the class action complaint has
been delivered by the Borrower to the Bank.
<PAGE>
Exhibit 4
Independent Auditor's Report
Addressee:
We have audited the accompanying special-purpose statement of assets and
liabilities of PEC Israel Economic Corporation (the "Company") as of December
31, ________, and the related special-purpose statements of revenues and
expenses and of cash flows for the year then ended. 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 audit.
We conducted our audit 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 our audit provides a reasonable basis for our opinion.
The accompanying special-purpose statements were prepared for the purpose of
complying with Clause 11.1(g) of a loan agreement dated May 5, 1998 between Bank
Hapoalim B.M. and the Company as described in Clause 11.1(g), and are not
intended to be a presentation in conformity with generally accepted accounting
principles.
In our opinion, the special-purpose financial statements referred to above
present fairly, in all material respects, the assets and liabilities of the
Company as of December 31, _____, and the revenues, expenses and cash flows for
the year then ended, on the basis of accounting described in Clause 11.1(g).
This report is intended solely for the information and use of the boards of
directors and managements of the Company and Bank Hapoalim B.M. and should not
be used for any other purpose.
[Signature]
[Date]
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet as of March 31, 1998 and the consolidated statement
of income for the three months ended March 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,548
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 492,256
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 31,952
<OTHER-SE> 391,740
<TOTAL-LIABILITY-AND-EQUITY> 492,256
<SALES> 0
<TOTAL-REVENUES> 19,152
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,428
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 155
<INCOME-PRETAX> 15,569
<INCOME-TAX> 4,826
<INCOME-CONTINUING> 10,743
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,743
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0.57
</TABLE>
