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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13E-3/A
(Amendment No. 3)
Rule 13e-3 Transaction Statement
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934)
PEC ISRAEL ECONOMIC CORPORATION
(Name of the Issuer)
DISCOUNT INVESTMENT CORPORATION LTD., PEC ACQUISITION CORPORATION, PEC
ISRAEL ECONOMIC CORPORATION AND IDB DEVELOPMENT CORPORATION LTD.
(Name of Persons Filing Statement)
COMMON SHARES, $1.00 PAR VALUE 705098-10-1
(Title of Class of Securities) (Cusip Number of Class of Securities)
MR. JAMES I. EDELSON
EXECUTIVE VICE PRESIDENT, SECRETARY AND
GENERAL COUNSEL
PEC ISRAEL ECONOMIC CORPORATION
511 FIFTH AVENUE
NEW YORK, NEW YORK 10017
(212) 551-8881
(Name, address and telephone number of person authorized to receive notices
and communications on behalf of the persons filing statement.)
Copy To:
PETER G. SAMUELS, ESQ.
PROSKAUER ROSE LLP
1585 BROADWAY
NEW YORK, NEW YORK 10036-8299
(212) 969-3335
a. [x] The filing of solicitation materials or an information statement
subject to Regulation 14A [17 CFR 240.14a-1 to 240.14b-1], Regulation
14C [17 CRF 240.14c-1 to 240.14c-101] or Rule 13e-3(c) [240.13e-3 (c)]
under the Securities Exchange Act of 1934.
b. [ ] The filing of a registration statement under the Securities Act of
1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information
statement referred to in checking box (a) are preliminary copies: [x]
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CALCULATION OF FILING FEE
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TRANSACTION AMOUNT OF
VALUATION* FILING FEE**
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$102,731,880 $20,546.38
</TABLE>
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* Assumes 3,424,396 Common Shares, par value $1.00 per share, of PEC Israel
Economic Corporation (the "Common Shares") will be converted into the right
to receive $30.00 per share in cash.
** The amount of the filing fee, calculated in accordance with 240.0-11 of the
Securities Exchange Act of 1934 equals 1/50th of one percent of the
transaction value.
[x] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule, and the date of its filing.
Amount Previously Paid: $20,546.38
Form or Registration No.: Schedule 14A Information
Filing Party: PEC Israel Economic Corporation
Date Filed: January 5, 1999
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INTRODUCTION
This Schedule 13E-3 Transaction Statement is being filed by Discount
Investment Corporation Ltd., an Israeli corporation ("DIC"), PEC Acquisition
Corporation, a Maine corporation and wholly-owned subsidiary of DIC ("Merger
Sub"), PEC Israel Economic Corporation, a Maine corporation (the "Company"), and
IDB Development Corporation Ltd., an Israeli corporation ("IDB Development") and
is being filed in connection with an Agreement and Plan of Merger, dated as of
December 15, 1998 ("the Merger Agreement") among DIC, Merger Sub, and the
Company.
The following cross-reference sheet is supplied pursuant to General
Instruction F to Schedule 13E-3 and shows the location in the preliminary proxy
statement filed by the Company with the Securities and Exchange Commission
contemporaneously herewith (including all annexes and schedules thereto)
("Preliminary Proxy Statement") of the information required by Schedule 13E-3 to
be included in response to the items of this Transaction Statement. The
information in the Preliminary Proxy Statement, a copy of which is attached
hereto as Exhibit (d), is incorporated by reference, and the responses to each
item are qualified in their entirety by the information contained in the
Preliminary Proxy Statement. The cross-reference sheet indicates the caption in
the Preliminary Proxy Statement under which the responses are incorporated
herein by reference. If any such item is inapplicable or the answer thereto is
in the negative and is omitted from the Preliminary Proxy Statement, it is so
indicated in the cross-reference sheet.
CROSS-REFERENCE SHEET SHOWING
LOCATION IN PRELIMINARY PROXY STATEMENT
OF INFORMATION REQUIRED BY ITEMS IN SCHEDULE 13E-3
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SECTION 13E-3 ITEM LOCATION IN PRELIMINARY PROXY STATEMENT
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1. Issuer and Class of Security Subject to the
Transaction
Item 1(a)...................................... Cover Page and "SUMMARY--Parties to the Merger
Agreement"
Item 1(b)...................................... Cover Page and "INTRODUCTION--Voting at the Special
Meeting and Revocation of Proxies"
Item 1(c)...................................... "SUMMARY--Market Prices and Dividends"
Item 1(d)...................................... "SUMMARY--Selected Summary Financial Information
Concerning the Company" and "SELECTED FINANCIAL
INFORMATION OF THE COMPANY"
Item 1(e)...................................... Not Applicable
Item 1(f)...................................... "TRANSACTIONS BY CERTAIN PERSONS IN
SHARES"
2. Identity and Background
Items 2(a) - (d) and (g)....................... Cover Page; "INTRODUCTION--General;" "SUMMARY
-- Parties to the Merger Agreement;" "OWNERSHIP OF
SHARES;" and "MANAGEMENT OF THE COMPANY,
DIC, IDB DEVELOPMENT, IDB HOLDING, AND
MERGER SUB"
</TABLE>
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<TABLE>
<CAPTION>
SECTION 13E-3 ITEM LOCATION IN PRELIMINARY PROXY STATEMENT
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<S> <C>
Items 2(e) and (f)............................. "MANAGEMENT OF THE COMPANY, DIC, IDB
DEVELOPMENT, IDB HOLDING, AND MERGER SUB
-- Directors and Executive Officers of IDB Holding"
3. Past Contacts, Transactions or Negotiations
Item 3(a)(1)................................... "INFORMATION CONCERNING DIC AND MERGER
SUB"
Items 3(a)(2) and (b).......................... "SUMMARY--Background of the Merger;" "--Litigation
Related to the Merger;" "SPECIAL
FACTORS--Background of the Merger;" and "--Certain
Shareholder Litigation"
4. Terms of Transaction
Item 4(a)...................................... "QUESTIONS AND ANSWERS ABOUT THE
MERGER;" "SUMMARY--Purpose and Structure of the
Merger; Reasons for the Merger;" "--Effective Time for
the Merger;" "--Appraisal Rights;" "--Conditions to the
Merger;" "--Termination of the Merger Agreement;"
"--Amending or Waiving Terms of the Merger
Agreement;" "INTRODUCTION--General;" "--Voting at
the Special Meeting and Revocation of Proxies;"
"SPECIAL FACTORS--Interests of Certain Persons in the
Merger;" "--Payment for Shares;" "--The Merger
Agreement;" "--Certain U.S. Federal Income Tax
Consequences of the Merger;" and "--Rights of Dissenting
Shareholders"
Item 4(b)...................................... "SPECIAL FACTORS--Interests of Certain Persons in the
Merger"
5. Plans or Proposals of the Issuer or Affiliate
Items 5(a), (b) and (e)........................ "SUMMARY--Purpose and Structure of the Merger;
Reasons for the Merger;" "--Certain Effects of the Merger;
Plans for the Company after the Merger;" "SPECIAL
FACTORS--Purpose and Effects of the Merger; Reasons
for the Merger;" "--Plans for the Company after the
Merger;" "--Certain Effects of the Merger;" and
"FINANCING OF THE MERGER"
Item 5(c)...................................... "SPECIAL FACTORS--The Merger Agreement" and Annex A to the
Preliminary Proxy Statement
Item 5(d)...................................... "SUMMARY--Financing of the Merger;"
"FINANCING OF THE MERGER;" and Exhibit (a)(1)
Item 5(f)...................................... Not Applicable
Item 5(g)...................................... "SUMMARY--Purpose and Structure of the Merger;
Reasons for the Merger;" "--Certain Effects of the Merger;
Plans for the Company after the Merger;" "SPECIAL
FACTORS--Purpose and Effects of the Merger; Reasons
for the Merger;" and "--Certain Effects of the Merger"
6. Source and Amounts of Funds or Other
Consideration
</TABLE>
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<TABLE>
<CAPTION>
SECTION 13E-3 ITEM LOCATION IN PRELIMINARY PROXY STATEMENT
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Item 6(a)...................................... "SUMMARY--Financing of the Merger;"
"FINANCING OF THE MERGER;" and Exhibit (a)(1)
Item 6(b)...................................... "SPECIAL FACTORS--Fees and Expenses" and
"FINANCING OF THE MERGER"
Items 6(c)..................................... "SUMMARY--Financing of the Merger;"
"FINANCING OF THE MERGER;" and Exhibit (a)(1)
Item 6(d)...................................... Not applicable
7. Purpose(s), Alternatives, Reasons and Effects
Items 7(a) and (c)............................. "QUESTIONS AND ANSWERS ABOUT THE
MERGER;" "SUMMARY--Background of the Merger;"
"--Purpose and Structure of the Merger; Reasons for the
Merger;" "SPECIAL FACTORS--Background of the
Merger;" "--Fairness of the Merger;" "--Position of DIC
and IDB Development Regarding Fairness of the Merger;"
"--Plans for the Company after the Merger;" and
"--Purpose and Effects of the Merger; Reasons for the
Merger"
Item 7(b)...................................... Not Applicable
Item 7(d)...................................... "QUESTIONS AND ANSWERS ABOUT THE MERGER;"
"SUMMARY--Background of the Merger;" "--Purpose and
Structure of the Merger; Reasons for the Merger;"
"--Certain Effects of the Merger; Plans for the
Company after the Merger;" "--Accounting Treatment;"
"--Certain Federal Income Tax Consequences;" "SPECIAL
FACTORS--Background of the Merger;" "--Purpose and
Effects of the Merger; Reasons for the Merger;"
"--Plans for the Company after the Merger;" "--Certain
Effects of the Merger;" "--Accounting Treatment of the
Merger;" and "--Certain U.S. Federal Income Tax
Consequences of the Merger"
8. Fairness of the Transaction
Item 8(a)...................................... "QUESTIONS AND ANSWERS ABOUT THE
MERGER;" "SPECIAL FACTORS-- Recommendation of the
Special Committee and the Company Board;" "--Fairness
of the Merger;" and "--Position of DIC and IDB
Development Regarding Fairness of the Merger"
Item 8(b)...................................... "QUESTIONS AND ANSWERS ABOUT THE
MERGER;" "SUMMARY--Background of the Merger;"
"--Purpose and Structure of the Merger; Reasons for the
Merger;" "--The Fairness Opinion of the Financial
Advisor;" "--Special Considerations;" "SPECIAL FACTORS
--Background of the Merger;" "--Fairness of the Merger;"
"--Position of DIC and IDB Development Regarding Fairness
of the Merger;" and "--Purpose and Effects of the Merger;
Reasons for the Merger"
Item 8(c)...................................... "QUESTIONS AND ANSWERS ABOUT THE
MERGER;" "INTRODUCTION--General;" "--Voting at
the Special Meeting and Revocation of Proxies;" and
"SPECIAL FACTORS--Fairness of the Merger"
</TABLE>
5
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<TABLE>
<CAPTION>
SECTION 13E-3 ITEM LOCATION IN PRELIMINARY PROXY STATEMENT
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<S> <C>
Item 8(d)...................................... "SUMMARY--Background of the Merger;" "--The
Fairness Opinion of the Financial Advisor;" "SPECIAL
FACTORS--Background of the Merger;" and "--Opinion
of Merrill Lynch"
Item 8(e)...................................... "QUESTIONS AND ANSWERS ABOUT THE
MERGER;" "SPECIAL FACTORS--Recommendation of
the Special Committee and the Company Board;" and
"--Interests of Certain Persons in the Merger"
Item 8(f)...................................... Not Applicable
9. Reports, Opinions, Appraisals and Certain
Negotiations
Items 9(a) and (b)............................. "QUESTIONS AND ANSWERS ABOUT THE
MERGER;" "SUMMARY--Background of the Merger;"
"--The Fairness Opinion of the Financial Advisor;"
"SPECIAL FACTORS--Background of the Merger;" "--Exchange
of Company Shares between IDB Development and DIC;
Assignment of the Merger Agreement;" "--Fairness of the
Merger;" "--Opinion of Merrill Lynch;" "--BT Wolfenshom,
Financial Advisor to IDB Development;" and
Exhibits (b)(1), (b)(2), (b)(3), (b)(4), (b)(5) and (b)(6)
to this Transaction Statement
Item 9(c)...................................... "SPECIAL FACTORS" "--Exchange of Company Shares between
IDB Development and DIC; Assignment of the Merger
Agreement;" "--Opinion of Merrill Lynch;" and "--BT
Wolfenshom, Financial Advisor to IDB Development"
10. Interest in Securities of the Issuer
Item 10(a)..................................... "INTRODUCTION--General;" "SPECIAL FACTORS
--Interests of Certain Persons in the Merger;" and
"OWNERSHIP OF SHARES"
Item 10(b)..................................... Not Applicable
11. Contracts, Arrangements or Understandings
with Respect to the Issuer's Securities........ "QUESTIONS AND ANSWERS ABOUT THE
MERGER;" "SUMMARY--Parties to the Merger
Agreement;" "--Background of the Merger;" "--Purpose
and Structure of the Merger; Reasons for the Merger;"
"--Effective Time for the Merger;" "--Appraisal Rights;"
"--The Fairness Opinion of the Financial Advisor;"
"--Conditions to the Merger;" "--Termination of the
Merger Agreement;" "--Amending or Waiving Terms of the
Merger Agreement;" "SPECIAL FACTORS--Background of the
Merger;" "--Exchange of Company Shares between
IDB Development and DIC; Assignment of the Merger
Agreement;" "--Interests of Certain Persons in the
Merger;" "--The Merger Agreement;" and Annex A to the
Preliminary Proxy Statement
12. Present Intention and Recommendation of
Certain Persons with Regard to the Transaction
</TABLE>
6
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<TABLE>
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SECTION 13E-3 ITEM LOCATION IN PRELIMINARY PROXY STATEMENT
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Item 12(a)..................................... Not Applicable
Item 12(b)..................................... "INTRODUCTION--General;" "--Voting at the Special
Meeting and Revocation of Proxies;" "SPECIAL
FACTORS--Recommendation of the Special Committee
and the Company Board;" "--Fairness of the
Merger;"--Position of DIC and IDB Development
Regarding Fairness of the Merger;" "--The Merger
Agreement;" and Annex A to the Preliminary Proxy
Statement
13. Other Provisions of the Transaction
Item 13(a)..................................... "QUESTIONS AND ANSWERS ABOUT THE
MERGER;" "SUMMARY--Appraisal Rights;" SPECIAL
FACTORS--The Merger Agreement;" "--The Rights of
Dissenting Shareholders;" and Annex B to the Preliminary
Proxy Statement
Items 13(b) and (c)............................ Not Applicable
14. Financial Information
Item 14(a)..................................... "SUMMARY--Selected Summary Financial Information
Concerning the Company;" "SELECTED FINANCIAL
INFORMATION OF THE COMPANY;"
"INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE;" and Exhibit (g) to this
Transaction Statement
Item 14(b)..................................... Not Applicable
15. Persons and Assets Employed, Retained or
Utilized
Item 15(a)..................................... "INTRODUCTION--Voting at the Special Meeting and
Revocation of Proxies;" "SPECIAL FACTORS--Plans for
the Company after the Merger;" "--The Merger
Agreement;" "FINANCING OF THE MERGER;" and Annex A to
the Preliminary Proxy Statement
Item 15(b)..................................... "SUMMARY--Background of the Merger;" "--The
Fairness Opinion of the Financial Advisor;" "SPECIAL
FACTORS--Background of the Merger;" "--Opinion of
Merrill Lynch;" and "--Fees and Expenses"
16. Additional Information......................... Preliminary Proxy Statement in its entirety
17. Material to be Filed as Exhibits............... Separately filed with this Schedule 13E-3
</TABLE>
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a) The name of the issuer of the class of equity security subject to the
Rule 13e-3 transaction is PEC Israel Economic Corporation and the address of its
principal executive offices is 511 Fifth Avenue, New York, New York 10017. The
relevant information set forth on the Cover Page of the Preliminary Proxy
Statement and under the caption "SUMMARY--Parties to the Merger Agreement" is
incorporated herein by reference.
(b) The relevant information set forth on the Cover Page of the Preliminary
Proxy Statement and under the caption "INTRODUCTION--Voting at the Special
Meeting and Revocation of Proxies" is incorporated herein by reference.
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(c) The relevant information set forth under the caption "SUMMARY--Market
Prices and Dividends" is incorporated herein by reference.
(d) The relevant information set forth under the captions
"SUMMARY--Selected Summary Financial Information Concerning the Company" and
"SELECTED FINANCIAL INFORMATION OF THE COMPANY" is incorporated herein by
reference.
(e) Not Applicable.
(f) The relevant information set forth under the caption "TRANSACTIONS BY
CERTAIN PERSONS IN SHARES" is incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a) - (d) and (g). This Transaction Statement is being filed by DIC,
Merger Sub, IDB Development, and the Company (the Company being the issuer).
The relevant information set forth on the Cover Page of the Preliminary
Proxy Statement and under the captions "INTRODUCTION--General,"
"SUMMARY--Parties to the Merger Agreement," "OWNERSHIP OF SHARES," and
"MANAGEMENT OF THE COMPANY, DIC, IDB DEVELOPMENT, IDB HOLDING, AND MERGER
SUB" is incorporated herein by reference.
(e) and (f) The relevant information set forth under the caption
"MANAGEMENT OF THE COMPANY, DIC, IDB DEVELOPMENT, IDB HOLDING, AND MERGER
SUB--Directors and Executive Officers of IDB Holding" is incorporated herein
by reference.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a)(1). The relevant information set forth under the caption "INFORMATION
CONCERNING DIC AND MERGER SUB" is incorporated herein by reference.
(a)(2) and (b). The relevant information set forth under the captions
"SUMMARY--Background of the Merger," "--Litigation Related to the Merger,"
"SPECIAL FACTORS--Background of the Merger," and "--Certain Shareholder
Litigation" is incorporated herein by reference.
ITEM 4. TERMS OF THE TRANSACTION.
(a) The relevant information set forth under the captions "QUESTIONS AND
ANSWERS ABOUT THE MERGER," "SUMMARY--Purpose and Structure of the Merger;
Reasons for the Merger," "--Effective Time for the Merger," "--Appraisal
Rights," "--Conditions to the Merger," "--Termination of the Merger Agreement,"
"--Amending or Waiving Terms of the Merger Agreement," "INTRODUCTION--General,"
"--Voting at the Special Meeting and Revocation of Proxies," "SPECIAL
FACTORS--Interests of Certain Persons in the Merger,"
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"--Payment for Shares," "--The Merger Agreement," "--Certain U.S. Federal Income
Tax Consequences of the Merger," and "--Rights of Dissenting Shareholders" is
incorporated herein by reference.
(b) The relevant information set forth under the caption "SPECIAL
FACTORS--Interests of Certain Persons in the Merger" is incorporated herein by
reference.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a), (b) and (e). The relevant information set forth under the captions
"SUMMARY--Purpose and Structure of the Merger; Reasons for the Merger,"
"--Certain Effects of the Merger; Plans for the Company after the Merger,"
"SPECIAL FACTORS--Purpose and Effects of the Merger; Reasons for the Merger,"
"--Plans for the Company after the Merger," "--Certain Effects of the Merger,"
and "FINANCING OF THE MERGER" is incorporated herein by reference.
(c) The relevant information set forth under the caption "SPECIAL
FACTORS--The Merger Agreement" and in Annex A to the Preliminary Proxy Statement
is incorporated herein by reference.
(d) The relevant information set forth under the captions
"SUMMARY--Financing of the Merger," "FINANCING OF THE MERGER," and in
Exhibit (a)(1) is incorporated herein by reference.
(f) Not Applicable.
(g) The relevant information set forth under the captions "SUMMARY--Purpose
and Structure of the Merger; Reasons for the Merger," "--Certain Effects of the
Merger; Plans for the Company after the Merger," "SPECIAL FACTORS--Purpose and
Effects of the Merger; Reasons for the Merger," and "--Certain Effects of the
Merger" is incorporated herein by reference.
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) The relevant information set forth under the captions
"SUMMARY--Financing of the Merger," "FINANCING OF THE MERGER" and in Exhibit
(a)(1) is incorporated herein by reference.
(b) The relevant information set forth under the captions "SPECIAL
FACTORS--Fees and Expenses" and "FINANCING OF THE MERGER" is incorporated
herein by reference.
(c) The relevant information set forth under the captions
"SUMMARY--Financing of the Merger," "FINANCING OF THE MERGER," and in Exhibit
(a)(1) is incorporated herein by reference.
(d) Not applicable.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a) and (c). The relevant information set forth under the captions
"QUESTIONS AND ANSWERS ABOUT THE MERGER," "SUMMARY--Background of the Merger,"
"--Purpose and Structure of the Merger; Reasons for the Merger," "SPECIAL
FACTORS--Background of the Merger," "--Fairness of the Merger," "--Position of
DIC and IDB Development Regarding Fairness of the Merger," "--Plans for the
Company after the Merger," and "--Purpose and Effects of the Merger; Reasons for
the Merger" is incorporated herein by reference.
(b) Not Applicable.
(d) The relevant information set forth under the captions "QUESTIONS AND
ANSWERS ABOUT THE MERGER," "SUMMARY--Background of the Merger," "--Purpose and
Structure of the Merger; Reasons for the
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Merger," "--Certain Effects of the Merger; Plans for the Company after the
Merger," "--Accounting Treatment," "--Certain Federal Income Tax Consequences,"
"SPECIAL FACTORS--Background of the Merger," "--Purpose and Effects of the
Merger; Reasons for the Merger," "--Plans for the Company after the Merger,"
"--Certain Effects of the Merger," "--Accounting Treatment of the Merger," and
"--Certain U.S. Federal Income Tax Consequences of the Merger" is incorporated
herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a) The relevant information set forth under the captions "QUESTIONS AND
ANSWERS ABOUT THE MERGER," "SPECIAL FACTORS--Recommendation of the Special
Committee and the Company Board," "--Fairness of the Merger," and "--Position of
DIC and IDB Development Regarding Fairness of the Merger" is incorporated herein
by reference.
(b) The relevant information set forth under the captions "QUESTIONS AND
ANSWERS ABOUT THE MERGER," "SUMMARY--Background of the Merger," "--Purpose
and Structure of the Merger; Reasons for the Merger," "--The Fairness Opinion
of the Financial Advisor," "--Special Considerations," "SPECIAL
FACTORS--Background of the Merger," "--Fairness of the Merger," "--Position
of DIC and IDB Development Regarding Fairness of the Merger," and "--Purpose
and Effects of the Merger; Reasons for the Merger" is incorporated herein by
reference.
(c) The relevant information set forth under the captions "QUESTIONS AND
ANSWERS ABOUT THE MERGER," "INTRODUCTION--General," "--Voting at the Special
Meeting and Revocation of Proxies," and "SPECIAL FACTORS--Fairness of the
Merger" is incorporated herein by reference.
(d) The relevant information set forth under the caption
"SUMMARY--Background of the Merger," "--The Fairness Opinion of the Financial
Advisor," "SPECIAL FACTORS--Background of the Merger," and "--Opinion of Merrill
Lynch" is incorporated herein by reference.
(e) The relevant information set forth under the captions "QUESTIONS AND
ANSWERS ABOUT THE MERGER," "SPECIAL FACTORS--Recommendation of the Special
Committee and the Company Board," and "--Interests of Certain Persons in the
Merger" is incorporated herein by reference.
(f) Not Applicable.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a) and (b). The relevant information set forth under the captions
"QUESTIONS AND ANSWERS ABOUT THE MERGER," "SUMMARY--Background of the
Merger," "--The Fairness Opinion of the Financial Advisor," "SPECIAL
FACTORS--Background of the Merger," "--Exchange of Company Shares between IDB
Development and DIC; Assignment of the Merger Agreement;" "--Fairness of the
Merger," "--Opinion of Merrill Lynch," "--BT Wolfensohn, Financial Advisor to
IDB Development," and in Exhibits (b)(1), (b)(2), (b)(3), (b)(4), (b)(5) and
(b)(6) to this Transaction Statement is incorporated herein by reference.
(c) The relevant information set forth under the caption "SPECIAL
FACTORS--Exchange of Company Shares between IDB Development and DIC;
Assignment of the Merger Agreement;" "--Opinion of Merrill Lynch," and "--BT
Wolfensohn, Financial Advisor to IDB Development" is incorporated herein by
reference.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a) The relevant information set forth under the captions
"INTRODUCTION--General," "SPECIAL FACTORS--Interests of Certain Persons in the
Merger," and "OWNERSHIP OF SHARES" is incorporated herein by reference.
(b) Not Applicable.
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ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE
ISSUER'S SECURITIES.
The relevant information set forth under the captions "QUESTIONS AND
ANSWERS ABOUT THE MERGER," "SUMMARY--Parties to the Merger Agreement,"
"--Background of the Merger," "--Purpose and Structure of the Merger; Reasons
for the Merger," "--Effective Time for the Merger," "--Appraisal Rights,"
"--The Fairness Opinion of the Financial Advisor," "--Conditions to the
Merger," "--Termination of the Merger Agreement," "--Amending or Waiving
Terms of the Merger Agreement," "SPECIAL FACTORS--Background of the Merger,"
""--Exchange of Company Shares between IDB Development and DIC; Assignment of
the Merger Agreement," "--Interests of Certain Persons in the Merger," "--The
Merger Agreement," and in Annex A to the Preliminary Proxy Statement is
incorporated herein by reference.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH
REGARD TO THE TRANSACTION.
(a) Not Applicable.
(b) The relevant information set forth under the captions
"INTRODUCTION--General," "--Voting at the Special Meeting and Revocation of
Proxies," "SPECIAL FACTORS--Recommendation of the Special Committee and the
Company Board," "--Fairness of the Merger," "--Position of DIC and IDB
Development Regarding Fairness of the Merger," "--The Merger Agreement," and
in Annex A to the Preliminary Proxy Statement is incorporated herein by
reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) The relevant information set forth under the captions "QUESTIONS AND
ANSWERS ABOUT THE MERGER," "SUMMARY--Appraisal Rights," "SPECIAL FACTORS--The
Merger Agreement," "--The Rights of Dissenting Shareholders," and in Annex B to
the Preliminary Proxy Statement is incorporated herein by reference.
(b) and (c). Not Applicable.
ITEM 14. FINANCIAL INFORMATION.
(a) The relevant information set forth under the captions
"SUMMARY--Selected Summary Financial Information Concerning the Company,"
"SELECTED FINANCIAL INFORMATION OF THE COMPANY," "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE," and in Exhibit (g) to this Transaction Statement is
incorporated herein by reference. Pursuant to Instruction D and Instruction F
to Schedule 13E-3, the "Consolidated Financial Statements" from the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1998
(copies of which are filed as Exhibit (g) to this Transaction Statement) are
incorporated by reference.
(b) Not Applicable.
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ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a) The relevant information set forth under the captions
"INTRODUCTION--Voting at the Special Meeting and Revocation of Proxies,"
"SPECIAL FACTORS--Plans for the Company after the Merger," "--The Merger
Agreement," "FINANCING OF THE MERGER," and in Annex A to the Preliminary Proxy
Statement is incorporated herein by reference.
(b) The relevant information set forth under the captions
"SUMMARY--Background of the Merger," "--The Fairness Opinion of the Financial
Advisor," "SPECIAL FACTORS--Background of the Merger," "--Opinion of Merrill
Lynch," and "--Fees and Expenses" is incorporated herein by reference.
ITEM 16. ADDITIONAL INFORMATION.
The information set forth in the Preliminary Proxy Statement is
incorporated herein by reference in its entirety.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
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<S> <C>
(a)(1) --Form of Loan Agreement dated March __, 1999 between Bank
Hapoalim B.M. and PEC Acquisition Corporation.
(b)(1) --Fairness Opinion of Merill Lynch International
(incorporated by reference to Annex C to the Preliminary
Proxy Statement).
(b)(2) --Presentation materials regarding Project Alpha provided to
the Special Committee of the Board of Directors of the
Company by Merrill Lynch International dated December
11, 1998.
(b)(3) --Fairness Opinion of A.O. Adav Financial Consultants Ltd.
dated December 15, 1998.
(b)(4) --Presentation materials regarding Project Alpha provided to
the Board of Directors by BT Wolfensohn dated December 15,
1998.
(b)(5) --Valuation of the Number of Shares of Discount Investment
Corporation which will be issued to IDB Development
Corporation Ltd. in consideration for 14,937,792 Shares of
$1 par value of PEC - Israel Economic Corporation by Itzhak
Swary Ltd. dated October 15, 1998.
(b)(6) --Fairness Opinions of GIZA Economic Consulting and Financial
Management (1988) Ltd. dated October 15, 1998 and December 15,
1998.
(c) --Agreement and Plan of Merger dated as of December 15,
1998 among Discount Investment Corporation Ltd., PEC
Acquisition Corporation, and PEC Israel Economic
Corporation (incorporated by reference to Annex A to the
Preliminary Proxy Statement).
(d) --The Preliminary Proxy Statement (incorporated by reference
to the Preliminary Proxy Statement).
(e) --Dissenters' Rights (incorporated by reference to Annex B to
the Preliminary Proxy Statement).
(f) --Not applicable
(g) --Consolidated Financial Statements (incorporated by
reference to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998).
</TABLE>
12
<PAGE>
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this Transaction Statement is true, complete
and correct.
DISCOUNT INVESTMENT CORPORATION LTD.
By: /s/ Dov Tadmor
--------------------------------
Title: Managing Director
By: /s/ Yoram Turbowicz
--------------------------------
Title: Deputy Managing Director
Date: April 6, 1999
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this Transaction Statement is true, complete
and correct.
PEC ACQUISITION CORPORATION
By: /s/ Dov Tadmor
--------------------------------
Title: Chairman of the Board
Date: April 6, 1999
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this Transaction Statement is true, complete
and correct.
PEC ISRAEL ECONOMIC CORPORATION
By: /s/ Frank Klein
--------------------------------
Title: President
Date: April 6, 1999
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this Transaction Statement is true, complete
and correct.
IDB DEVELOPMENT CORPORATION LTD.
By: /s/ Eliau Cohen
--------------------------------
Title: Co-Chief Executive
Officer
By: /s/ Arthur Caplan
--------------------------------
Title: Corporate Secretary
Date: April 6, 1999
13
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<S> <C>
(a)(1) --Form of Loan Agreement dated March __, 1999 between Bank
Hapoalim B.M. and PEC Acquisition Corporation.
(b)(1) --Fairness Opinion of Merill Lynch International
(incorporated by reference to Annex C to the Preliminary
Proxy Statement).
(b)(2) --Presentation materials regarding Project Alpha provided to
the Special Committee of the Board of Directors of the
Company by Merrill Lynch International dated December
11, 1998.
(b)(3) --Fairness Opinion of A.O. Adav Financial Consultants Ltd.
dated December 15, 1998.
(b)(4) --Presentation materials regarding Project Alpha provided to
the Board of Directors by BT Wolfensohn dated December 15,
1998.
(b)(5) --Valuation of the Number of Shares of Discount Investment
Corporation which will be issued to IDB Development
Corporation Ltd. in consideration for 14,937,792 Shares of
$1 par value of PEC - Israel Economic Corporation by Itzhak
Swary Ltd. dated October 15, 1998.
(b)(6) --Fairness Opinions of GIZA Economic Consulting and Financial
Management (1988) Ltd. dated October 15, 1998 and December 15,
1998.
(c) --Agreement and Plan of Merger dated as of December 15,
1998 among DIC Investment Corporation Ltd., PEC
Acquisition Corporation, and PEC Israel Economic
Corporation (incorporated by reference to Annex A to the
Preliminary Proxy Statement).
(d) --The Preliminary Proxy Statement (incorporated by reference
to the Preliminary Proxy Statement).
(e) --Dissenters' Rights (incorporated by reference
to Annex B to the Preliminary Proxy Statement).
(f) --Not applicable
(g) --Consolidated Financial Statements (incorporated by
reference from the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998).
</TABLE>
14
<PAGE>
Exhibit (a)(1)
Draft 2/22/99
FORM OF
LOAN AGREEMENT
dated March , 1999
between
BANK HAPOALIM B.M. (the "Bank")
and
PEC ACQUISITION 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. EVENTS OF DEFAULT
13. CHANGES IN CIRCUMSTANCES
14. SET-OFF AND APPLICATION OF PAYMENTS
15. THE BORROWER'S DUTY TO NOTIFY
16. COMPENSATION FOR BROKEN FUNDING
17. REMEDIES AND WAIVERS
18. DISCLOSURE OF INFORMATION
19. ASSIGNMENT
20. ADDITIONAL PROVISIONS
21. AUTHORIZED SIGNATORIES
22. NOTICES
23. GOVERNING LAW AND JURISDICTION
24. CURRENCY INDEMNITY
25. SEVERABILITY
26. AMENDMENTS AND WAIVERS
(i)
<PAGE>
EXHIBITS
EXHIBIT 1 FORM OF GUARANTEE
EXHIBIT 2 FORM OF NOTE
EXHIBIT 3 OPINION OF COUNSEL
EXHIBIT 4 PENDING LITIGATION
EXHIBIT 5 MERGER AGREEMENT BETWEEN THE BORROWER AND PEC
ISRAEL ECONOMIC CORPORATION DATED AS OF DECEMBER 15, 1998
EXHIBIT 6 FORM OF AUDITOR'S CERTIFICATE
(ii)
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT is dated the day of March, 1999
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 ACQUISITION CORPORATION, a corporation organized and existing under the laws
of the State of Maine, U.S.A. and having its principal office at One Portland
Square, Portland, Maine 04112 (hereinafter the "BORROWER").
WHEREAS:
(1) The Borrower has requested the Bank to grant it a loan in the sum of U.S.
$103,000,000 (One Hundred Three Million United States Dollars).
(2) The Borrower has entered into a merger agreement dated as of December 15,
1998 whereunder the Borrower will be merged into PEC Israel Economic
Corporation ("P.E.C.").
(3) The purpose for which the Loan has been requested is to provide funds to
enable the Borrower to acquire common stock of P.E.C. from the public
through the merger pursuant to the merger agreement.
(4) 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.
<PAGE>
-2-
"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.
"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 have the meaning set forth in Clause 3 hereof.
"CONTROL" shall mean the possession, direct or indirect, of the power
to direct or cause the direction of the management and policies of a
person, whether through the ownership of voting securities, by contract
or otherwise.
"EVENT OF DEFAULT" shall mean any of the events or circumstances
described in Clause 13 hereof.
"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.
"GUARANTEE" shall mean the guarantee of Discount Investment
Corporation Ltd. (the "Guarantor") in the form set out in Exhibit 1
hereto.
"INTEREST PAYMENT DATE" shall mean a date upon which interest is
payable under the terms hereof.
"INTEREST PERIOD" shall mean a period of one, two or three months
selected by the Borrower, or such other term as may be acceptable to
the Bank in its discretion. The initial interest period shall commence
on the Closing Date and each subsequent interest period shall commence
at the end of the preceding Interest Period; provided that,
<PAGE>
-3-
(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; 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. $103,000,000 to be disbursed to
the Borrower under the provisions of this Agreement.
"MARGIN" shall mean zero point thirty percent (0.30%) per annum.
"MERGER AGREEMENT" shall mean the Agreement and Plan of Merger dated as
of December 15, 1998 among IDB Development Corporation Ltd., the
Borrower and P.E.C.
"NOTE" shall mean the promissory note of the Borrower evidencing the
Loan in the form set out in EXHIBIT 2 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.
<PAGE>
-4-
"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).
"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
<PAGE>
-5-
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.
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").
3. AVAILABILITY AND DISBURSEMENT OF THE LOAN; FEE
3.1 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 in one lump sum in immediately
available funds through the Branch on at least three Business
Days' written, telecopy or telephone (immediately confirmed in
writing) notice of borrowing (the "Closing Date"). The notice of
borrowing shall be irrevocable and binding on the Borrower.
3.2 Upon execution of this Agreement, the Borrower shall pay the sum
of $64,375 to the Bank.
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
<PAGE>
-6-
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 one lump sum three hundred and sixty (360) days after the closing,
provided that if that day shall not be a Business Day, then payment shall
be made on the next succeeding Business Day.
6. PREPAYMENT
6.1 Provided that no Event of Default and/or any event which with 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. $5,000,000, (Five 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.
<PAGE>
-7-
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.
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.
<PAGE>
-8-
(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. 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 for the then current Interest Period.
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.
8.6 As used in this Clause 8, the term "Taxes" shall exclude Taxes imposed
on the Bank's income, franchise branch profits and similar Taxes
imposed on the Bank.
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
<PAGE>
-9-
the giving of notice or the lapse of time or both would constitute an Event
of Default has occurred and 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 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 3 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 Incorporation 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 Incorporation of the Borrower and
each amendment, if any, thereto, on file in his office and
stating that such documents are the only constitutive
documents of the Borrower on file in his office and that the
Borrower is
<PAGE>
-10-
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) The Guarantee, duly executed by the Guarantor;
(g) Opinion of Israeli legal counsel to the Guarantor, addressed
to the Bank, in form reasonably acceptable to the Bank,
dated as of the date of this Agreement;
(h) Such additional agreements, opinions, certifications,
instruments, documents, orders, consents, financing
statements, reports and other information regarding the
Borrower and the Guarantor in form and substance reasonably
satisfactory to the Bank as the Bank may reasonably request.
<PAGE>
-11-
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 corporate power, authority and legal right
to own its assets and conduct its business as is now being
conducted;
(b) the Borrower has the full corporate 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;
(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
<PAGE>
-12-
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 4;
(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) 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;
(k) 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);
<PAGE>
-13-
(l) 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;
(m) 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);
(n) 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 or another provision 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;
(o) The Merger Agreement, a copy of which is appended hereto as
Exhibit 5 provides for the full assumption by P.E.C. of all
indebtedness of the Borrower upon the effective date of the
merger transaction provided for therein, including the
indebtedness and undertakings of the Borrower provided for in
this Agreement;
(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 One Portland
Square, Portland, Maine 04112 and, after the merger contemplated
by the Merger Agreement, may be located at such location or at
511 Fifth
<PAGE>
-14-
Avenue, New York, NY 10017 or at 14 Beth Hashoeva Lane, Tel Aviv,
Israel, as shall be advised to the Bank as provided in Clause
22.2.
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.
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;
(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
<PAGE>
-15-
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) 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 6 by
independent certified public accountants of nationally recognized
standing (it being acknowledged by the Bank that the firm of Haft
& Gluckman LLP is a firm of independent certified 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;
(f) 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(e) and certified by the Chief Financial
Officer of Borrower as being fairly stated in all material
respects (subject to normal year-end adjustments) and deliver
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>
-16-
(g) 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(e) 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(e) and 11(f), as
applicable;
(h) provide the Bank with financial statements of the Guarantor in
the same form, at the same times and audited and certified in the
same manner as provided with respect to the Borrower in Clauses
11(e), 11(f) and 11(g), except that said financial statements of
the Guarantor may be prepared in accordance with generally
accepted accounting principles and practices in Israel and
certified by accountants of nationally recognized standing in
Israel.
(i) provide the Bank with such financial and other information
concerning the Borrower and the Guarantor and their affairs, as
the Bank may from time to time reasonably require.
(j) simultaneously with the delivery of each set of financial
statements pursuant to Clauses 11(e), 11(f) and 11(h) above,
provide to the Bank a certificate of Borrower's or the
Guarantor's (as the case may be) 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.
<PAGE>
-17-
12. EVENTS OF DEFAULT
12.1 There shall be an Event of Default if:
(a) the Borrower or the Guarantor fails to pay any sum due to be paid
by it under this Agreement or the Guarantee 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 the
Guarantor, as the case may be; or
(b) the Borrower or the Guarantor commits any breach of or fails to
observe any of the obligations, undertakings or other provisions
contained in this Agreement or the Guarantee 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 or the
Guarantor and/or the ability of the Borrower or the Guarantor to
fulfill its obligations hereunder or under the Guarantee or on
the rights of the Bank pursuant hereto or under the Guarantee; or
(c) any representation or warranty made or deemed to be made or
repeated by or in respect of the Borrower or the Guarantor
pursuant to this Agreement or the Guarantee, or any other
document submitted to the Bank is, or proves to have been
incorrect or untrue when made or repeated and is not remedied,
when capable of being remedied, to the Bank's satisfaction within
a period of _____ 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 or the Guarantor and/or the ability of the Borrower or
the Guarantor to fulfill its obligations hereunder and/or on the
rights of the Bank pursuant to this Agreement or the Guarantee;
(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
<PAGE>
-18-
Borrower or the Guarantor to authorize, or required by the
Borrower or the Guarantor in connection with the execution,
delivery, validity, enforceability or admissibility in evidence
(upon payment of stamp duty, if required) of this Agreement or
the Guarantee or the performance by the Borrower of its
obligations under this Agreement or the Guarantee 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 or the Guarantor and/or
the ability of the Borrower or the Guarantor to fulfill its
obligations under this Agreement or the Guarantee; or
(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 or the Guarantor and
such attachment or other similar order shall remain undischarged
or unstayed for a period in excess of 30 days; or
(f) the Borrower or the Guarantor 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 (other than the merger of the Borrower pursuant to the
Merger Agreement) or the Guarantor; (3) the appointment of a
liquidator, whether provisional or otherwise, administrator,
trustee, receiver or similar offices in respect of the Borrower
or the Guarantor and/or in respect of the whole or any part of
its undertakings, assets, rights or revenues; or (4) the Borrower
or the Guarantor enter into any general arrangement or
composition for the benefit of its creditors or any class of
them; or
<PAGE>
-19-
(g) any legal proceedings are started or other steps are taken by any
third party before any court of law for: (i) the Borrower or the
Guarantor to be adjudicated or found bankrupt or insolvent; (ii)
the winding-up or dissolution of the Borrower (other than the
merger of the Borrower pursuant to the Merger Agreement) or the
Guarantor in the event that the Borrower or the Guarantor, as the
case may be, have not been released from all obligations under
this Agreement and the Guarantee 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 or the Guarantor's
undertakings, assets, rights or revenues; or (iv) the Borrower or
the Guarantor 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 or the Guarantor shall contest
any such proceedings or other steps in good faith within 10 days,
and further provided that legal counsel to the Borrower or the
Guarantor (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 or the Guarantor 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 12.1(f) or (g)
and subject to grace periods set forth in those Clauses, as
applicable; or
(i) all or a material part of the undertakings, assets, rights or
revenues of the Borrower or the Guarantor 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 or the Guarantor
to perform all or any of its obligations under this Agreement and
the Bank shall reasonably
<PAGE>
-20-
determine that such event may have a material adverse effect on
the financial condition of the Borrower or the Guarantor 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 Guarantor repudiates the Guarantee or does or causes or
permits to be done any act or thing evidencing an intention to
repudiate the Guarantee;
(m) the Borrower or the Guarantor 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 or the Guarantor and/or the ability of
the Borrower or the Guarantor to fulfill its obligations
hereunder or under the Guarantee and/or on the rights of the Bank
pursuant hereto or the Guarantee; or
(n) 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 or the Guarantor 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 or the Guarantor; or
(o) so long as any amount remains outstanding and payable to the Bank
by PEC under and pursuant to a Loan Agreement dated May 5, 1998
(the "PEC Loan Agreement"), if an event of default provided for
in Clause 13.1(b) of the PEC Loan Agreement shall occur; or
(p) if no amount remains outstanding and payable to the Bank by PEC
under and pursuant to the PEC Loan Agreement, if the Bank shall
reasonably deem itself insecure.
12.2 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:
<PAGE>
-21-
(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
from the date of the Event of Default, 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.
12.3 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.
<PAGE>
-22-
13. CHANGES IN CIRCUMSTANCES
13.1. 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;
<PAGE>
-23-
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 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 on the next Interest Payment
Date 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.
13.2. 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
<PAGE>
-24-
impediment continues to subsist, within 60 (sixty) days or any shorter
period of time required by any such change.
13.3. 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 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; provided that the Bank shall notify
the Borrower of such determination and the Borrower, upon giving the
Bank no less than five (5) Banking Days written notice thereof (which
shall be irrevocable) notify the Bank at anytime that it will prepay
to the Bank on the next Interest Payment Date the whole (but not part
only) of the outstanding balance of the Loan together with accrued
interest thereon.
14. SET-OFF AND APPLICATION OF PAYMENTS
14.1. 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
<PAGE>
-25-
(iii) thirdly, on account of the unpaid principal of the Loan.
15. THE BORROWER'S DUTY TO NOTIFY
15.1 The Borrower hereby undertakes to notify the Bank immediately of any
of the events enumerated in Clause 12.1.
16. COMPENSATION FOR BROKEN FUNDING
16.1. 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 make any payment under this Clause 16.1 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.
17. REMEDIES AND WAIVERS
17.1 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.
17.2. 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.
18. 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
<PAGE>
-26-
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.
19. ASSIGNMENT
19.1 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.
19.2 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).
20. ADDITIONAL PROVISIONS
20.1 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.
20.2. 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.
21. AUTHORIZED SIGNATORIES
21.1 The Borrower hereby agrees that until the Bank receives a certified
copy of any subsequent resolution of the Board of Directors of the
Borrower providing
<PAGE>
-27-
otherwise, any two of the Chairman of the Board, President, the
Executive Vice President, the Vice President, the Secretary, 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.
22. NOTICES
22.1 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.
22.2 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:
[i] if to the Borrower at:
PEC Acquisition Corporation
c/o Verrill & Dana
One Portland Square
Portland, Maine 04112
Attention: Peter Webster, Clerk
with a copy to:
Discount Investment Corporation Ltd.
14 Beth Hashoeva Lane
Tel Aviv, Israel
Fax No. 011-972-3-560-2327
Attn: Managing Director
[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
22.3 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
<PAGE>
-28-
communication made by letter the next Banking Day after being
physically left at the address as referred to above.
23. 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.
(c) The submission by the parties hereto to the jurisdiction to such
courts as are referred to in Clause 24(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.
24. 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 in a currency other than the currency
in which such amount is payable hereunder 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
<PAGE>
-29-
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.
<PAGE>
-30-
25. 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.
26. 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:
------------------------------------
Name: Shlomo Braun
Title: Senior Vice President and Branch Manager
By:
------------------------------------
Name: Eli Eisdorfer
Title: First Vice President
PEC ACQUISITION CORPORATION
By:
------------------------------------
Name: Dov Tadmor
Title: Chairman of the Board
By:
------------------------------------
Name: Yoram Turbowicz
Title: President
<PAGE>
EXHIBIT 1
LIMITED GUARANTY
FOREIGN GUARANTOR
In consideration of financial accommodations given or to be given or
continued to PEC Acquisition Corporation, herein called "Borrower", by BANK
HAPOALIM B.M., having branch offices outside the United States, herein called
"Bank", the undersigned irrevocably and unconditionally guarantees to the Bank,
payment when due, whether by acceleration or otherwise, of any and all
liabilities of the Borrower to the Bank, together with all interest thereon and
all attorney's fees, costs and expenses of collection incurred by the Bank in
enforcing any of such liabilities and/or the terms hereof, to any principal
amount, not exceeding One Hundred and Three Million ($103,000,000.00) in the
aggregate at any one time outstanding. With respect to each obligation, if any,
hereby guaranteed which is payable in United States currency, the undersigned
shall be obligated to pay to the Bank the unpaid amount of such guaranteed
obligation in United States currency at the same place at which such guaranteed
obligation is payable by its terms.
The term "liabilities of the Borrower" shall mean a loan in the
amount of U.S.$103,000,000, advanced by the Bank to the Borrower pursuant to a
Loan Agreement dated March ____, 1999 between the Borrower and the Bank (the
"Loan Agreement") and all interest and other sums payable thereunder.
The undersigned waives notice of acceptance of this guaranty and notice
of any liability to which it may apply, and waives presentment, demand of
payment, protest, notice of dishonor or nonpayment of any such liabilities, suit
or taking other action by the Bank against, and any other notice to, any party
liable thereon (including the undersigned).
The Bank may at any time from time to time (whether or not after
revocation or termination of this guaranty) without the consent of, or notice
(except as shall be required by applicable statute and cannot be waived) to, the
undersigned, without incurring responsibility to the undersigned, without
impairing or releasing the obligations of the undersigned hereunder, upon or
without any terms or conditions and in whole or in part:
(1) change the manner, place or terms of payment, and/or change or extend
the time of payment of, renew or alter, any liability of the Borrower, any
security therefor, or any liability incurred directly or indirectly in respect
thereof, and the guaranty herein made shall apply to the liabilities of the
Borrower as so changed, extended, renewed or altered;
(2) sell, exchange, release, surrender, realize upon or otherwise deal with
in any manner and in any order any property by whomsoever at any time pledged or
mortgaged to secure, or howsoever securing, the liabilities hereby guaranteed to
or any liabilities (including any of those hereunder) incurred directly or
indirectly in respect thereof or hereof, and/or any offset thereagainst;
(3) exercise or refrain from exercising any rights against the Borrower or
others (including the undersigned) or otherwise act or refrain from acting;
(4) settle or compromise any liability hereby guaranteed, any security
therefor or any liability (including any of those hereunder) incurred directly
or indirectly in respect thereof or hereof, and may subordinate the payment of
all or any part thereof to the payment of any liability (whether due or not) of
the Borrower to creditors of the Borrower other than the Bank and the
undersigned; and
(5) apply any sums by whomsoever paid or howsoever realized from a person
or persons other than the undersigned to any liability or liabilities of the
Borrower to the Bank regardless of what liability or liabilities of the Borrower
remain unpaid.
<PAGE>
No invalidity, irregularity or unenforceability of all or any part of
the liabilities hereby guaranteed or of any security therefor shall affect,
impair or be a defense to this guaranty, and this guaranty is a primary
obligation of the undersigned.
This guaranty is a continuing one and all liabilities to which it
applies or may apply under the terms hereof shall be conclusively presumed to
have been created in reliance thereon. This guaranty shall continue until
written notice of revocation signed by the undersigned shall have been actually
received by the Bank, notwithstanding a complete or partial release for any
cause of the Borrower or of anyone liable in any manner for the liabilities
hereby guaranteed or for the liabilities (including those hereunder) incurred
directly or indirectly in respect thereof or hereof. No revocation or
termination hereof shall affect in any manner rights arising under this guaranty
with respect to (a) liabilities which shall have been created, contracted,
assumed or incurred prior to receipt by the Bank of written notice of such
revocation or termination or (b) liabilities which shall have been created,
contracted, assumed or incurred after receipt of such written notice pursuant to
any contract entered into by the Bank prior to receipt of such notice; and the
sole effect of revocation or termination hereof shall be to exclude from this
guaranty liabilities thereafter arising which are unconnected with liabilities
theretofore arising or transactions theretofore entered into.
All notices provided to be given to the Bank herein shall be sent by
registered or certified mail, return receipt requested.
Any and all rights and claims of the undersigned against the Borrower
or any of its property, arising by reason of any payment by the undersigned to
the Bank pursuant to the provisions of this guaranty, shall be subordinate and
subject in right of payment to the prior payment in full of all liabilities of
the Borrower.
All property of the undersigned shall be held by the Bank subject to a
lien and a security interest in favor of the Bank, as security for any and all
liabilities of the undersigned to the Bank. The term "property of the
undersigned" shall include all property of every description, now or hereafter
in the possession or custody of or in transit to the Bank for any purpose,
including safekeeping, collection or pledge, for account of the undersigned, or
as to which the undersigned may have any right or power. The balance of every
account of the undersigned with, and each claim of the undersigned against, the
Bank existing from time to time, shall be subject to a lien and subject to be
sent off against any and all liabilities of the undersigned to the Bank, and the
Bank may at any time or from time to time at its option and without notice
appropriate and apply toward the payment of any of such liabilities the balance
of each such account of the undersigned with, and each such claim of the
undersigned against, the Bank. The Bank may at any time and from time to time,
without notice, transfer into its own name or that of its nominee any of the
property of the undersigned.
Upon the happening of an Event of Default provided for in the Loan
Agreement and as long as any Event of Default is continuing, the Bank may,
upon notice to the Borrower, if any, as provided therein, make the
liabilities of the Borrower to the Bank, whether or not then due, immediately
due and payable hereunder as to the undersigned and the Bank shall be
entitled to enforce the obligations of the undersigned hereunder.
Upon nonpayment when due of any of the liabilities of the Borrower or
the undersigned to the Bank, the Bank shall have the right from time to time,
without advertisement or demand upon or notice to the Borrower or the
undersigned or right of redemption except as shall be required by applicable
statute and cannot be waived, to sell, re-sell, assign, transfer and deliver all
or part of said property of the undersigned, at any brokers' board or exchange
or at public or private sale, for cash or on credit or for future delivery, and
in connection therewith may grant options and may impose reasonable conditions
such as requiring any purchaser of any stock so sold to represent that such
stock is purchased for investment purposes only. Upon each such sale the Bank,
unless prohibited by provision of any applicable statute which cannot be waived,
may purchase all or any part of said property being sold, free from and
discharged of all trusts, claims, right of redemption and equities of the
undersigned.
2
<PAGE>
In the case of each such sale, or of any proceedings to collect any
liabilities of the undersigned to the Bank, the undersigned shall pay all costs
and expenses of every kind for collection, sale or delivery, including
reasonable attorneys' fees, and after deducting such costs and expenses from the
proceeds of sale or collection, the Bank may apply any residue to pay any of
such liabilities of the undersigned, which shall continue liable for any
deficiency, with interest.
If claim is ever made upon the Bank for repayment or recovery of any
amount or amounts received by the Bank in payment or on account of any of the
liabilities of the Borrower guaranteed hereunder and the Bank repays all or part
of said amount by reason of (a) any judgment, decree or order of any court or
administrative body having jurisdiction over the Bank or any of its property, or
(b) any settlement or compromise of any such claim effected by the Bank with any
such claimant (including the Borrower), then and in such event the undersigned
agrees that any such judgment, decree, order, settlement or compromise shall be
binding upon the undersigned, notwithstanding any revocation hereof or the
cancellation of any note or other instrument evidencing any liability of the
Borrower, and the undersigned shall be and remain liable to the Bank hereunder
for the amount so repaid or recovered to the same extent as if such amount had
never originally been received by the Bank.
Any acknowledgment or new promise, whether by payment of principal or
interest or otherwise and whether by the Borrower or others (including the
undersigned), with respect to any of the liabilities of the Borrower shall, if
the statute of limitations in favor of the undersigned against the Bank shall
have commenced to run, toll the running of such statute of limitations and, if
the period of such statute of limitations shall have expired, prevent the
operation of such statute of limitations.
The Bank shall have no responsibility for ascertaining, nor for
informing the undersigned with respect to, not be required to take any action
concerning, any maturities, calls, conversions, exchanges, offers, tenders or
similar matters relating to any of the property of the undersigned (whether or
not the Bank has, or is deemed to have, knowledge of any of the aforesaid),
provided that the Bank shall endeavor to take such action as may be requested or
authorized by the undersigned if the Bank determines, in its sole discretion,
that such action will not adversely affect the value as collateral of the
property of the undersigned in question and the relative request or
authorization is made in writing and is received by the Bank in due time.
The Bank shall not be bound to take any steps necessary to preserve any
rights in any of the property of the undersigned against prior parties who may
be liable in connection therewith, and the undersigned hereby agrees to take
such steps. The Bank may nevertheless at any time (a) take any action it may
deem appropriate for the care or preservation of such property or of any rights
of the undersigned or the Bank therein, (b) demand, sue for, collect or receive
any money or property at any time due, payable or receivable on account of or in
exchange for any property of the undersigned, (c) compromise and settle with any
person liable on such property, or (d) extend the time of payment or otherwise
change the terms thereof as to any party liable thereon, all without notice to,
without incurring responsibility to, and without affecting any of the
liabilities hereunder of, the undersigned. The undersigned shall pay to the Bank
all costs and expenses, including filing fees and attorneys' fees, incurred by
the Bank in connection with the custody, care, preservation or collection of any
of the property of the undersigned or in seeking to enforce any of the
liabilities or obligations of the undersigned hereunder.
The Bank shall have the right, at any time and from time to time,
without notice, to (i) transfer into its own name or that of its nominee any of
the property of the undersigned; (ii) notify any obligor on any of such property
to make payment to the Bank of any amounts due thereon; and/or (iii) take
control of any proceeds of any such property.
No delay on the part of the Bank in exercising any of its options,
powers or rights, or partial or single exercise thereof, shall constitute a
waiver thereof. No waiver of any of its rights hereunder, and no modification or
amendment of this guaranty, shall be deemed to be made by the Bank unless the
same shall be in writing, duly signed on behalf of the Bank, and each such
waiver, if any, shall apply only with respect to the specific instance involved,
and shall in no way impair the rights of the Bank or the obligations of the
undersigned to the Bank in any other respect at any other time.
3
<PAGE>
The undersigned waives the right of trial by jury in the event of any
litigation between the parties hereto in respect of any matter arising under
this guaranty and agree that, should the Bank bring any judicial proceedings in
relation to any such matter, the undersigned will not interpose any counterclaim
or setoff of any nature.
This guaranty and the rights and obligations of the Bank and of the
undersigned hereunder shall be governed and construed in accordance with the law
of the State of New York; and this guaranty is binding upon the undersigned its
successors or assigns, and shall inure to the benefit of the Bank, its
successors or assigns. In the event that the Bank brings any action or suit in
any court of record of New York State or the Federal Government to enforce any
or all liabilities of the undersigned hereunder, service of process may be made
upon the undersigned by mailing a copy of the summons to the undersigned at the
address below set forth.
The undersigned, if more than one, shall be jointly and severally
liable hereunder and the term "undersigned" wherever used herein shall mean the
undersigned or any one more of them. Anyone signing this guaranty shall be bound
hereby, whether or not anyone else signs this guaranty at any time. The term
"Bank" includes any agent of the Bank acting for it.
Dated: March ___, 1999
DISCOUNT INVESTMENT CORPORATION LTD.
By:
---------------------------------
Address: 14 Beth Hashoeva Lane
Tel Aviv, Israel
Attn: Managing Director
4
<PAGE>
EXHIBIT 2
FORM OF NOTE
$103,000,000 New York, New York
________________, 1999
FOR VALUE RECEIVED, the undersigned, PEC Acquisition Corporation, a corporation
organized and existing under the laws of the State of Maine (the "Borrower),
hereby promises to pay the principal sum of One Hundred Three Million United
States Dollars (US$103,000,000) 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 on __________________, 2000 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 on the dates determined
pursuant to the Loan Agreement dated March , 1999 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, and is subject to the provisions of, 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 ACQUISITION CORPORATION
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
<PAGE>
EXHIBIT 99.(b)(2)
================================================================================
Presentation to the Special Committee
Regarding Project Alpha
December 11, 1998
[LOGO] Merrill Lynch
<PAGE>
Table of Contents
================================================================================
1. Offer by IDB Development Corporation
2. Valuation
o Summary
o Premiums and Discounts
o Public Market Overview
3. Draft of Fairness Opinion Letter
Exhibits
- --------------------------------------------------------------------------------
2 [LOGO] Merrill Lynch
<PAGE>
================================================================================
Offer by
IDB Development Corporation
================================================================================
<PAGE>
Offer by IDB Development Corporation
================================================================================
IDB Group Structure
-----------------------
IDB Holding Corporation
-----------------------
|
-------------------------------
| |
--------------- ---------------
IDB Development Israel Discount
Corporation Bank
--------------- ---------------
|
-------------------------------------
| | |
| 81.4% | 48.6% | 54.3%
| | |
----------- -------- -----------
PEC Israel Discount
Economic Clal Investment
Corporation (Israel) Corporation
----------- -------- -----------
o IDB Development Corporation ("IDB") is a controlling shareholder of PEC
Israel Economic Corporation ("PEC")
o PEC and Discount Investment Corporation ("DIC"), its sister company, hold
a diversified portfolio of equity investments in Israeli companies
o PEC and DIC have numerous cross shareholdings in Israeli public and
private companies as a result of their co-investment strategy
o IDB intends to rationalise its holdings by taking PEC private and merging
it into a 100% subsidiary of IDB Development Corporation
- --------------------------------------------------------------------------------
4 [LOGO] Merrill Lynch
<PAGE>
Offer by IDB Development Corporation
================================================================================
o The cash offer for all outstanding shares of PEC not already owned by IDB
or its affiliates is announced by IDB on September 8, 1998
o Board of Directors of DIC approves an exchange of 81.35% of PEC shares
currently owned by IDB for newly issued shares of DIC on October 15, 1998
o Acquisition of at least 8.65% of total outstanding shares will allow IDB
to effect a Short-Form merger
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Summary of Financial Terms
- --------------------------------------------------------------------------------
<S> <C>
Cash Offer (per share) $30.00
% Increase from original offer ($25.50) 18%
Premium /(Discount) to market price:
> One day before the offer (09/04/98) 32%
> One week before the offer (09/01/98) 28%
> One month before the offer (08/07/98) 20%
> 52-week high of $26.50 (09/18/98) 13%
> 52-week low of $19.94 (01/22/98) 50%
> Premium to 3-month average of $21.02 prior to (03/25/98)(1) 43%
Implied Company Value (@$30.00) $551m
Implied Offer Value (assumes 100% acceptance) $103m
</TABLE>
- --------------------------------------------------------------------------------
Source: Bloomberg
(1) On 3/25/98, IDB Holdings announced an acquisition of 9.5% of PEC in the
public market at a price of $25.50. Simultaneously, IDB indicated its
intention to acquire the remaining shares of PEC.
- --------------------------------------------------------------------------------
5 [LOGO] Merrill Lynch
<PAGE>
================================================================================
Valuation
================================================================================
<PAGE>
================================================================================
Summary
================================================================================
<PAGE>
Summary
================================================================================
Methodology
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PEC Economic Corporation
Net Asset Value Analysis(1) Investment Portfolio
- --------------------------------------------------------------------------------------------- ------------------------------------
6 Public 3 Private Other
Valuation Methodology Key Analyses Companies Companies Holdings(3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Analysis of research coverage o Opinions of analysts (PEC overall & key holdings) X X
o Valuation/target values
Analysis of public market prices o Current prices
o 52 week high/low X X(2)
Analysis of publicly o Current trading valuations for relevant peer group
traded comparables o Review of trading values as a multiple of projected X X
results
Analysis of acquisition o Analysis of pricing of relevant transactions
transactions for o Review of multiples paid X X
comparable companies
Analysis of equity o Valuation achieved in recent transactions X X X
transactions in respective
companies
[DCF analysis](4) o Projections of financial performance
o Present values of projected cash flows
> Explicit projections
> Terminal value
Historical cost/carrying value o Determination of cost/carrying values of investments
o Unrealised capital gains X X X
o Liquidation value analysis
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Market Discounts for comparable o US and Emerging Markets closed end fund discounts to NAV
companies
o Discounts to NAV of Israel Holding companies
Market Premiums paid in comparable o Analysis of minority "buyouts" in "going private"
acquisition transactions transactions
o Consider control premiums as appropriate
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) In addition to performing NAV analysis of PEC's holdings, Merrill Lynch
analysed major assets and liabilities on the holding company level.
(2) For public companies.
(3) Includes public and private holdings.
(4) Merrill Lynch has been informed by PEC that it did not possess and could
not provide access to financial forecasts for any of the companies in
PEC's investment portfolio. Therefore, we have not been able to conduct
the DCF analyses.
- --------------------------------------------------------------------------------
8 [LOGO] Merrill Lynch
<PAGE>
Summary
================================================================================
Most Significant Direct Holdings
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PEC Israel Economic Discount Investment IDB(1)
Corporation Corporation Holdings
------------------- ------------------- -----------
% of Equity % of Equity % of Equity
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Private Companies
o Cellcom Israel 12.5% 12.5% 25.0%
o Tevel Israel International Communication 23.7% 24.8% 48.5%
o El-Yam Ships and Holdings 10.1% 14.3% 24.4%
Public Companies(2)
o Property and Building Corporation 41.0% 14.9% 55.9%
o Super-Sol 17.7% 20.2% 37.9%
o Elron Electronics Industries 13.6% 26.6% 40.2%
o Gilat Satellite Networks 5.6% 6.2% 11.8%
o Tambour(3) 43.2% 42.4% 85.8%
o Scitex Corporation 6.6% 6.6% 13.2%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Source: PEC Israel Economic Corporation.
(1) Includes total holdings of PEC Israel Economic Corporation, Discount
Investment Corporation, IDB Holdings and their affiliates.
(2) Diluted ownership. Assumes treasury method when calculating diluted number
of shares outstanding.
(3) Includes the proportionate interest of 0.4% of IDB Group in Tambour.
- --------------------------------------------------------------------------------
9 [LOGO] Merrill Lynch
<PAGE>
Summary
================================================================================
Assumptions
o All public market share prices as of Wednesday, December 9, 1998
o Share ownership in different companies as provided by PEC management and
SEC filings
o 1998 projections based on discussions and correspondence with management
and Merrill Lynch estimates or obtained from equity research reports
o Net debt estimates as of last publicly available financial statements
o Effective tax rate on estimated gains assumed at 25.0% for all companies
o Exchange rate used: US$1.00 = NIS 4.184 as of December 9, 1998
o Outstanding shares of PEC: 18,362,188
- --------------------------------------------------------------------------------
10 [LOGO] Merrill Lynch
<PAGE>
Summary
================================================================================
<TABLE>
<CAPTION>
-------------------- -------------------- -------------------------
Value of Value of PEC Estimated Contribution
PEC's Interest Share(1) per share as a % of Total
-------------------- -------------------- -------------------------
High Low High Low High Low
-------------------- -------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Large Public Holdings $468 $341 $25.47 $18.59 44.0% 39.8%
Large Private Holdings $431 $351 $23.47 $19.14 40.6% 41.0%
Total Other Public Holdings(2) $83 $4.52 7.8% 9.7%
Total Other Private Holdings $51 $2.78 4.8% 6.0%
Other Net Assets(3) $30 $1.62 2.8% 3.5%
-------------------- -------------------- -------------------------
Total Pre-Tax Value of PEC
Holdings $1,062 $857 $57.86 $46.65 100.0% 100.0%
====== ======
Less: Taxes(4) $205 $153 $11.14 $8.34
------ ------ ------ ------
Sub-Total $858 $704 $46.72 $38.31
Less: Closed End Fund
Discount 30.00%
Estimated Value $601 $492 $32.70 $26.82
------ ------ ------ ------
</TABLE>
(1) Assumes 18,362,188 PEC shares outstanding.
(2) Includes proceeds from the sale of Caniel share holdings.
(3) Net cash (net debt) plus outstanding loan to Cellcom.
(4) Assumes 25.0% effective tax rate on estimated gains for all companies.
- --------------------------------------------------------------------------------
11 [LOGO] Merrill Lynch
<PAGE>
Summary
================================================================================
Sensitivity Analysis
o 5.0% increase in effective tax rate on estimated gains results in
approximately $1.55 (at the top end of the range) and $1.17 (at the bottom
end of the range) reduction in valuation per share of PEC
o 5.0% increase in closed-end fund market discount to NAV results in
approximately $2.33 (at the top end of the range) and $1.92 (at the bottom
end of the range) reduction in valuation per share of PEC
o $500 million increase in valuation of Cellcom results in approximately
$1.79 increase in valuation per share of PEC
- --------------------------------------------------------------------------------
12 [LOGO] Merrill Lynch
<PAGE>
Summary
================================================================================
PEC'S "Top 10" Minority Shareholders
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Institutional Investors 06/30/98 03/31/98 12/31/97 09/30/97
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BEA Associates Inc 3.4% 3.0% 3.0% 2.1%
Vanguard Group Inc 0.9% 0.9% 0.9% 0.8%
Mellon Bank Corporation 0.5% 0.6% 0.6% 0.5%
Bankers Trust NY Corp 0.4% 0.4% 0.4% 0.4%
Zweig/Glaser Advisers 0.3% 0.3% 0.3% 0.0%
Neuberger & Berman 0.2% 0.2% 0.2% 0.2%
College Retire Equities 0.2% 0.1% 0.0% 0.0%
Lehman Brothers Hldgs 0.2% 0.2% 0.2% 0.2%
Northern Trust Corp 0.2% 0.2% 0.1% 0.1%
Tweedy Browne Co 0.1% 0.0% 0.0% 0.0%
- --------------------------------------------------------------------------------
</TABLE>
Source: SDC and recent SEC filings.
- --------------------------------------------------------------------------------
13 [LOGO] Merrill Lynch
<PAGE>
================================================================================
Premiums and Discounts
================================================================================
<PAGE>
Premiums and Discounts
================================================================================
Analysis of Premiums in "Going Private" Transactions
o Reviewed completed "going private" transactions in the range of $100-$500
million from 1995 to the present
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
Offer Price as a Premium/(Discount) to Target Share Price at
Indicated Period Prior to Announcement
-------------------------------------------------------------
1 Day 1 Week 1 Month
----------- ------------ -------------
<S> <C> <C> <C>
Maximum 63.9% 78.9% 88.2%
Mean 25.4% 29.2% 34.7%
Median 22.6% 25.2% 29.2%
Minimum (6.1%) 0.5% 3.6%
</TABLE>
--------------------------------------------------------------------------
o Reviewed completed "going private" transactions in which less than 25.0%
minority shareholdings were acquired(1)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
Offer Price as a Premium/(Discount) to Target Share Price at
Indicated Period Prior to Announcement
-------------------------------------------------------------
1 Day 1 Week 1 Month
----------- ------------ -------------
<S> <C> <C> <C>
Maximum 52.0% 50.0% 77.8%
Mean 19.5% 23.6% 30.8%
Median 19.7% 24.8% 28.6%
Minimum (6.1%) 1.7% 3.6%
</TABLE>
--------------------------------------------------------------------------
Source: SDC database, November 1998.
(1) Using the 1 month mean of 30.8% and applying it to the share price of PEC
one month prior to March 25, 1998 and on September 8, 1998, would result
in per share value of $26.98 and $32.78, respectively.
- --------------------------------------------------------------------------------
15 [LOGO] Merrill Lynch
<PAGE>
Premiums and Discounts
================================================================================
Holding Company/Closed-End Fund Discounts
- --------------------------------------------------------------------------------
Appropriate holding company discount is approximately 30.0% or
possibly higher in the case of Israeli holding companies
- --------------------------------------------------------------------------------
o Morgan Stanley Emerging Markets Fund is currently trading at a (20.56%)
discount to its NAV(1)
o Foreign and Colonial Emerging Middle East Fund is currently trading at a
(22.94%) discount to its NAV(1)
o First Israel Fund is trading at a (19.84%) discount to its NAV(1)
o Koor Industries is trading at a (29.0%) discount to its NAV(2)
o Ampal-American Israel Corporation is trading at a (47.8%) discount to its
NAV(3)
(1) Merrill Lynch Mutual Fund database as of October 23, 1998.
(2) Merrill Lynch equity research as of December 2, 1998.
(3) Lehman Brothers equity research as of September 4, 1998.
- --------------------------------------------------------------------------------
16 [LOGO] Merrill Lynch
<PAGE>
Premiums and Discounts
================================================================================
PEC Historical Discounts(1)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Investment Equity Analyst
Bank Report Date Estimated Pre-Tax NAV per Share Share Price Discount to NAV
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Lehman Brothers 11/19/98 $45.10(2) $24.250 (46.2%)
Lehman Brothers 05/26/98 51.94 22.688 (56.3)
Lehman Brothers 03/27/98 51.10 23.063 (54.9)
Lehman Brothers 12/05/97 35.29 Conservative 22.188 (37.1)
38.16 Aggressive 22.188 (41.9)
Lehman Brothers 11/19/97 35.29 Conservative 19.063 (46.0)
38.16 Aggressive 19.063 (50.0)
Smith Barney 11/18/97 34.47 19.375 (43.8)
Lehman Brothers 09/12/97 36.41 Conservative 20.625 (43.4)
39.28 Aggressive 20.625 (47.5)
Smith Barney 09/03/97 34.15 20.625 (39.6)
Lehman Brothers 06/24/97 36.68 Conservative 23.625 (35.6)
38.59 Aggressive 23.625 (38.8)
Smith Barney 04/09/97 28.03 19.000 (32.2)
Lehman Brothers 09/04/96 23.03 Conservative 18.375 (20.2)
24.56 Aggressive 18.375 (25.2)
- ---------------------------------------------------------------------------------------------------
</TABLE>
Source: Publicly disclosed research reports
(1) Research analysts valued the PEC's NAV under both aggressive and
conservative scenarios.
(2) On an after-tax basis, the NAV per share was estimated at $39.71, implying
a discount to after-tax NAV of 38.9%.
- --------------------------------------------------------------------------------
17 [LOGO] Merrill Lynch
<PAGE>
================================================================================
Public Market Overview
================================================================================
<PAGE>
Public Market Overview
================================================================================
December 1996 to Present(1)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Daily Stock Price Trading Performance
- --------------------------------------------------------------------------------
- --------------------------------------------- --------------------------
PEC Israel Economic Corporation March 25, 1998
- --------------------------------------------- --------------------------
<S> <C> <C> <C> <C>
12/09/98 $24.56 1 Month Avg. $24.38 IDB Holdings acquired 9.5%
52 Week High $26.50 3 Month Avg. $24.99 of PEC's outstanding shares
52 Week Low $19.94 1 Year Avg. $23.26 --------------------------
- ---------------------------------------------
</TABLE>
[THE FOLLOWING TABLE WAS DEPICTED AS A LINE CHART IN THE PRINTED MATERIAL]
[PLOT POINTS TO COME]
[THE FOLLOWING TABLE WAS DEPICTED AS A BAR CHART IN THE PRINTED MATERIAL]
[PLOT POINTS TO COME]
Source: Datastream
(1) As of December 9, 1998.
- --------------------------------------------------------------------------------
19 [LOGO] Merrill Lynch
<PAGE>
Public Market Overview
================================================================================
Share Price Performance since the IDB Offer Announcement on September 8, 1998
[THE FOLLOWING TABLE WAS DEPICTED AS A LINE CHART IN THE PRINTED MATERIAL]
[PLOT POINTS TO COME]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Companies Sept. 8(2) Dec. 9(2) % Change
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
PEC Israel Economic
Corporation $25.00 $24.56 (1.8%)
Property and Building
Corporation $89.33 $78.63 (12.0%)
Super-Sol $2.87 $2.37 (17.7%)
Elron Electronic
Industries $14.88 $15.34 3.1%
Gilat Satellite $37.13 $56.25 51.5%
Networks
Tambour $1.30 $1.30 0.3%
Scitex Corporation $11.00 $10.19 (7.4%)
- --------------------------------------------------------------------------------
</TABLE>
(1) Share prices in local currency; PEC Israel Economic Corporation, Scitex
Corporation and Gilat Satellite Networks quoted in U.S. dollars.
(2) Assumes exchange rate of NIS/US$ of 3.85 and 4.18 on September 8, 1998 and
December 9, 1998, respectively.
- --------------------------------------------------------------------------------
20 [LOGO] Merrill Lynch
<PAGE>
================================================================================
Draft of Fairness Opinion Letter
================================================================================
<PAGE>
Merrill Lynch International
Ropemaker Place
25 Ropemaker Street
London EC2Y 9LY
Telephone: 0171-628 1000
Direct: 0171-867
Telex: 8811047 MERLYN G
[LOGO] MERRILL LYNCH
Special Committee of the Board of Directors of
PEC Israel Economic Corporation
511 Fifth Avenue
New York, NY 10017
December [ ], 1998
Gentlemen:
PEC Israel Economic Corporation (the "Company"), IDB Development
Corporation Ltd. (the "Acquiror") and PEC Acquisition Corporation, a newly
formed, wholly owned subsidiary of the Acquiror (the "Acquisition Sub") propose
to enter into an agreement and plan of merger (the "Merger Agreement") pursuant
to which the Acquisition Sub will be merged with and into the Company in a
transaction (the "Merger") in which each outstanding share of the Company's
common stock, par value US$1 per share (the "Shares"), not already owned by the
Acquiror or any of its direct or indirect subsidiaries, will be converted into
the right to receive US$30 in cash. We understand that the Acquiror's rights and
obligations under the Merger Agreement may be assigned to Discount Investment
Corporation Ltd. ("DIC"). A Special Committee (the "Committee") of the Board of
Directors of the Company has been established to consider the terms of the
proposed Merger insofar as they affect the holders of the Shares, other than the
Acquiror and its affiliates. The Merger is expected to be considered by the
shareholders of the Company at a special shareholders' meeting to be held in the
first quarter of 1999 and consummated on or shortly after the date of such
meeting.
You have asked us whether, in our opinion, the proposed cash consideration
to be received by the holders of the Shares, other than the Acquiror and its
affiliates, pursuant to the proposed Merger is fair to such shareholders from a
financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial
information which we deemed to be relevant relating to the Company,
certain public and private companies interests in which comprise the
larger investments in the Company's investment portfolio (the
"Portfolio Companies") and certain other companies interests in
which are contained in the Company's investment portfolio;
(2) Reviewed certain publicly available business and financial
information relating to the Acquiror and DIC which we deemed to be
relevant;
(3) Reviewed certain information relating to the business, earnings,
cash flow, assets, liabilities and prospects of the Company
furnished to us by the Company;
(4) Conducted discussions with members of senior management of the
Company and the Acquiror concerning their respective businesses and
prospects;
Registered in England (No. 2312079)
Registered Office: 25 Ropemaker Street, London EC2Y 9LY
A Subsidiary of Merrill Lynch & Co., Inc., Delaware, U.S.A.
Regulated by The Securities and Futures Authority Limited
Member of the London Stock Exchange
<PAGE>
2
(5) Conducted discussions with members of senior management of certain
of the private Portfolio Companies concerning their respective
businesses and prospects;
(6) Reviewed the historical market prices of the shares of certain of
the publicly traded Portfolio Companies and the results of
operations and certain other data relating to such Portfolio
Companies and compared them with those of certain publicly traded
companies which we deemed to be reasonably similar to such Portfolio
Companies;
(7) Reviewed the results of operations of certain of the private
Portfolio Companies and compared them with those of certain publicly
traded companies which we deemed to be reasonably similar to such
Portfolio Companies;
(8) In connection with our review of certain of the Portfolio Companies,
reviewed the financial terms of transactions which we deemed to be
relevant;
(9) Reviewed the historical market prices and implied discounts to net
asset value for the Shares and compared them with those of certain
publicly traded companies which we deemed to be reasonably similar
to the Company;
(10) Compared the proposed financial terms of the Merger with the
financial terms of certain other transactions which we deemed to be
relevant;
(11) Participated in certain discussions and negotiations among
representatives of the Company and the Acquiror and their legal and
financial advisors;
(12) Reviewed a draft dated December 1998 of the Merger Agreement; and
(13) Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters
as we deemed necessary.
In preparing our opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us by the Company,
and we have not independently verified such information or undertaken an
independent appraisal of the assets of the Company. In preparing our opinion, we
were informed by the Company that it does not make financial forecasts and that
it did not possess (and could not provide access to) financial forecasts for the
Portfolio Companies and, accordingly, we have not been able to conduct certain
analyses that we would otherwise have conducted. In addition, we have not been
afforded the opportunity to meet with the management of Cellcom Israel Ltd., the
Company's largest single holding, and thus have not been able to discuss with
such management the business prospects of Cellcom Israel Ltd. We have assumed
that the final form of the Merger Agreement will be substantially similar to the
last draft reviewed by us.
Our opinion is necessarily based upon market, economic and other
conditions as they exist on, and can be evaluated as of, the date hereof.
In connection with the preparation of this opinion, we have not been
authorized by the Committee, the Company or the Board of Directors to solicit,
nor have we solicited, third-party indications of interest for the acquisition
of all or any part of the Company.
We have been retained by the Committee to act as financial advisor to the
Committee in connection with the proposed Merger and will receive fees for our
services, a significant portion of which is contingent on the consummation of
the Merger. In addition, the Company has agreed to indemnify us for certain
liabilities arising out of our engagement. We may have in the past provided and
may be currently engaged to provide financial advisory, investment banking
and/or other services to the
<PAGE>
3
Company, the Portfolio Companies or the Acquiror and their respective affiliates
and may have received or may receive in the future fees for rendering such
services. In the ordinary course of our securities business, we also may
actively trade debt and/or equity securities of the Company, its Portfolio
Companies and the Acquiror and their respective affiliates for our own account
and the accounts of our customers, and we therefore may from time to time hold a
long or short position in such securities.
This opinion is for the information of the Committee only and may not be
used for any other purpose without our prior written consent; except that this
opinion may be included in its entirety in any filing made by the Company with
the Securities and Exchange Commission in connection with the Merger. Our
opinion does not address the merits of the underlying decision by the Company to
engage in the Merger nor the decision by the Committee to recommend that the
holders of the Shares accept the proposed terms of the Merger and does not
constitute a recommendation to any shareholder as to how such shareholder should
vote on the proposed Merger.
On the basis of, and subject to the foregoing, we are of the opinion that
the proposed cash consideration to be received by the holders of the Shares,
other than the Acquiror and its affiliates, pursuant to the proposed Merger is
fair to such shareholders from a financial point of view.
Very truly yours,
MERRILL LYNCH INTERNATIONAL
<PAGE>
================================================================================
Exhibits
================================================================================
<PAGE>
================================================================================
Private Holdings
================================================================================
<PAGE>
Private Holdings
================================================================================
Cellcom Israel(1)
<TABLE>
<CAPTION>
-------------------- -------------------- --------------------
Total Company PEC's % Interests PEC's Value
Valuation Range Valuation Range(5) Per Share(6)
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Comparable Company Analysis
Enterprise Value/1998E EBITDA(2) $3,073 - $2,453 $384 - $307 $20.92 - $16.70
Enterprise Value per Subscriber(3) $2,855 - $2,455 $357 - $307 $19.44 - $16.71
Enterprise Value/1998E EBITDA Growth(4) $2,453 - $2,039 $307 - $255 $16.70 - $13.88
-------------------- -------------------- --------------------
Valuation Range $2,500 - $2,039 $313 - $255 $17.02 - $13.88
-------------------- -------------------- --------------------
</TABLE>
(1) Assumes exchange rate of (NIS/US$) 4.18.
(2) Based on Enterprise Value/1998E EBITDA multiple range of 14.0x - 17.0x.
Assumes 1998 third quarter EBITDA is annualised to reflect a full year
figure.
(3) Based on Enterprise Value of $2,900.0 - $3,300.0 per subscriber.
(4) Based on Enterprise Value/1998E EBITDA/growth rate multiple of 1.2 - 1.4.
Assumes a 3 year EBITDA growth rate of 10.0% for Cellcom Israel.
(5) Assumes PEC Israel Economic Corporation owns 12.5% of Cellcom Israel.
(6) Assumes 18,362,188 shares outstanding.
- --------------------------------------------------------------------------------
23 [LOGO] Merrill Lynch
<PAGE>
Private Holdings
================================================================================
Tevel Israel International Communication(1)
<TABLE>
<CAPTION>
-------------------- -------------------- --------------------
Total Company PEC's % Interests PEC's Value
Valuation Range Valuation Range(8) Per Share(9)
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Comparable Company Analysis
Adjusted Enterprise Value per Subscriber(2) $941 - $546 $223 - $129 $12.15 - $7.04
Adjusted Enterprise Value/1998E EBITDA(3) $677 - $464 $160 - $110 $8.74 - $5.99
Matav Comparable Company Analysis
Adjusted Enterprise Value per Subscriber(4) $231 $55 $2.99
Adjusted Enterprise Value/1998E EBITDA(5) $173 $41 $2.24
Comparable Acquisition Analysis
Transaction Value per Subscriber in Gvanim $368 $87 $4.75
Acquisition(6)
Transaction Value in TCI's Acquisition(7) $285 $68 $3.68
-------------------- -------------------- --------------------
Valuation Range $368 - $285 $87 - $68 $4.75 - $3.68
-------------------- -------------------- --------------------
</TABLE>
(1) Assumes exchange rate of (NIS/US$) 4.18.
(2) Based on Adjusted Enterprise Value per Subscriber of $2,000.0 - $3,000.0.
(3) Based on Adjusted Enterprise Value/1998E EBITDA multiples of 10.0x - 13.0x.
Assumes 1998 third quarter EBITDA is annualised to reflect a full year
figure.
(4) Based on Matav's Enterprise Value per Subscriber of $1,205.6.
(5) Based on Matav's Enterprise Value/1998E EBITDA multiple of 5.9x.
(6) Based on $223 million acquisition of Gvanim (144,000 subscribers).
(7) Based on the acquisition of 23% of Tevel by TCI for a consideration of
$65.0 million.
(8) Assumes PEC Israel Economic Corporation owns 23.7% of Tevel International
Communication.
(9) Assumes 18,362,188 shares outstanding.
- --------------------------------------------------------------------------------
24 [LOGO] Merrill Lynch
<PAGE>
Private Holdings
================================================================================
El-Yam Ships and Holdings(1)
<TABLE>
<CAPTION>
-------------------- -------------------- --------------------
Total Company PEC's % Interests PEC's Value
Valuation Range(6) Valuation Range(6) Per Share(7)
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Market Value of IDB Holdings by El-Yam Ships and
Holdings
Todays Value (12/09/98)(2) $287 $29 $1.58
90 Day Average(2) $275 $28 $1.52
Market Value of Shipping Business(3)
Est. value of ships/resale basis
Approx. value of outstanding business $0 $0 $0.00
Recent Block Trades of IDB Holdings
9.5% transaction with Goldman Sachs(4) $306 $31 $1.69
3.5% sale by DIC(5) $309 $31 $1.70
-------------------- -------------------- --------------------
Valuation Range $309 - $287 $31 - $29 $1.70 - $1.58
-------------------- -------------------- --------------------
</TABLE>
(1) Assumes exchange rate of (NIS/US$) 4.18.
(2) Information from Bloomberg. Assumes 37.67 million shares outstanding.
(3) Assumes value of shipping business is fully offset by liabilities (as
represented by management).
(4) In February of 1998, Goldman Sachs and related entities bought 9.5% of IDB
Holding's outstanding shares.
(5) In April of 1998, DIC sold 3.5% of IDB Holding's outstanding shares.
(6) Assumes PEC Israel Economic Corporation owns 10.1% of El-Yam Ships and
Holdings. El-Yam Ships owns substantially all of the equity in El-Yam
Holdings, which in turns owns 37.1% in IDB Holdings.
(7) Assumes 18,362,188 shares outstanding.
- --------------------------------------------------------------------------------
25 [LOGO] Merrill Lynch
<PAGE>
Private Holdings
================================================================================
El-Yam Ships and Holdings
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Daily Stock Price Trading Performance
- --------------------------------------------------------------------------------
------------------------------
IDB Holding Corporation(1)
------------------------------
<S> <C>
12/09/98 $20.51
30 Day Avg. $19.76
90 Day Avg. $19.71
1 Year Avg. $20.14
------------------------------
</TABLE>
[THE FOLLOWING TABLE WAS DEPICTED AS A LINE CHART IN THE PRINTED MATERIAL]
[PLOT POINTS TO COME]
Source: Datastream
(1) Assumes exchange rate of (NIS/US$) 4.18.
- --------------------------------------------------------------------------------
26 [LOGO] Merrill Lynch
<PAGE>
Private Holdings
================================================================================
Other Private Holdings (Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
PEC's PEC's Carrying Estimated
Ownership Cost Va1ue Holding's
Other Private Holdings (%) (1) (2) Value*
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Advent Israel Limited Partnership 5.0% 501 629 629
Gemini Israel Fund L.P. 11.0% 3,000 4,346 4,346
Gemini Israel II Limited Partnership 4.0% 304 282 304
Kiriyat Weizmann Ltd. 17.0% 179 179 179
DEP 16.7% 7,013 3,407 7,013
New Check 5.0% 2,500 2,500 2,500
Global Village 5.7% 1,438 1,438 1,438
HTC Ltd 4.9% 1,264 1,264 1,264
Aviv Giladi 12.5% 1,261 1,261 1,261
Combact 2.2% 1,050 1,050 1,050
El Rad 1.0% 1,000 1,000 1,000
Given Imaging 1.7% 225 225 225
Camdev n/a 240 240 240
Gemini Cap. Management n/a 134 134 134
United Vocal n/a 160 160 160
Witcom 6.7% 500 -76 500
Tradanet 30.0% 906 -299 906
Aerogen 2.5% 879 -400 879
Adir n/a 1,314 -787 1,314
Libit Signal Processing 5.0% 2,222 2,222 2,222
PAMOT Fund 3.3% 129 117 129
RDC-Rafael Development Corporation 17.0% 6,288 3,178 6,288
Soreq Development Corporation 25.0% 1,355 0 1,355
Soundesigns Multimedia Communications Systems 13.0% 831 0 831
Tradanet Electronic Commerce Services 30.0% 906 906 906
Tel-Ad Jerusalem Studios 12.0% 810 1,810 1,810
Lego Irrigation 13.0% 2,349 1,812 2,349
Maxima Air Seperation Centre 12.0% 1,716 2,258 2,258
General Engineers Limited 100.0% 1,381 0 1,381
Mondex 25.0% 859 0 859
PEC Israel Finance Corporation 100.0% 161 0 161
Renaissance Fund 4.0% 4,520 5,217 5,217
--------------------------------------------------------------
Total 47,395 34,073 51,108
Total Per Share $2.58 $1.86 $2.78
--------------------------------------------------------------------------------------------------------
</TABLE>
* Higher of PEC's cost and carrying value.
- --------------------------------------------------------------------------------
27 [LOGO] Merrill Lynch
<PAGE>
================================================================================
Public Holdings
================================================================================
<PAGE>
Public Holdings
================================================================================
Property and Building Corporation (Dollars in millions, except per share data
(1))
<TABLE>
<CAPTION>
--------------- ----------------- -------------
Total Company PEC's % Interests PEC's Value
Valuation Range Valuation Range(2) Per Share(3)
--------------- ----------------- -------------
<S> <C> <C> <C>
Current Trading Price (12/09/98) $325 $134 $7.28
Historical Trading Analysis
52-Week High/Low $350 - $248 $143 - $102 $7.81 - $5.53
Net Asset Valuation(4) $425 $174 $9.48
--------------- ----------------- -------------
Preliminary Valuation Range $425 - $325 $174 - 134 $9.48 - $7.28
--------------- ----------------- -------------
</TABLE>
(1) Assumes exchange rate of (NIS/US$) 4.18.
(2) Assumes PEC Israel Economic Corporation owns 41.0% of the diluted stock.
(3) Assumes 18,362,188 shares outstanding.
(4) Based on Professor Swary's independent report.
- --------------------------------------------------------------------------------
29 [LOGO] Merrill Lynch
<PAGE>
Public Holdings
================================================================================
Super-Sol (Dollars in millions, except per share data(1))
<TABLE>
<CAPTION>
--------------- ----------------- -------------
Total Company PEC's % Interests PEC's Value
Valuation Range Valuation Range(2) Per Share(3)
--------------- ----------------- -------------
<S> <C> <C> <C>
Current Trading Price (12/09/98) $496 $88 $4.79
Historical Trading Analysis
52-Week High/Low $766 - $433 $136 - $77 $7.39 - $4.18
Comparable Company Analysis
LTM Sales(4) 0.80x - 0.50x $858 - $521 $152 - $92 $8.29 - $5.03
LTM EBITDA(4) 11.0x - 8.0x $654 - $465 $116 - $82 $6.32 - $4.49
Comparable Acquisition Analysis
LTM Sales(5) 0.80x - 0.45x $858 - $465 $152 - $82 $8.28 - $4.49
LTM EBITDA(5) 12.5x - 7.5x $749 - $434 $133 - $77 $7.23 - $4.19
--------------- ----------------- -------------
Valuation Range $654 - $433 $116 - $77 $6.32 - $4.18
--------------- ----------------- -------------
</TABLE>
(1) Assumes exchange rate of (NIS/US$) 4.18.
(2) Assumes PEC Israel Economic Corporation owns 17.7% of Super-Sol's diluted
stock.
(3) Assumes 18,362,188 shares outstanding.
(4) Based on "second tier" U.S. supermarkets chains like Food Lion; Fred
Meyer; Hannaford; and the Israeli Supermarket chain Blue Square.
(5) Based on the following transactions: Safeway/Carr-Guttstein; Ahold/Giant
Food; Richfood/Shoppers; Fred Meyer/Quality Food Centers; Giant
Eagle/Riser Foods; Fred Meyer/Smith's; Shamrock/Grand Union; and
Ahold/Stop & Shop.
- --------------------------------------------------------------------------------
30 [LOGO] Merrill Lynch
<PAGE>
Public Holdings
================================================================================
Elron Electronic Industries (Dollars in millions, except per share data(1))
<TABLE>
<CAPTION>
--------------- ----------------- -------------
Total Company PEC's % Interests PEC's Value
Valuation Range Valuation Range(2) Per Share(3)
--------------- ----------------- -------------
<S> <C> <C> <C>
Current Trading Price (12/09/98) $324 $44 $2.40
Historical Trading Analysis
52-Week High/Low $405 - $211 $55 - $29 $3.01 - $1.56
Net Asset Valuation Analysis(4)(5)
15% - 40% Discount to Pre-Tax NAV $438 - $309 $60 - $42 $3.25 - $2.29
--------------- ----------------- -------------
Valuation Range $405 - $309 $55 - $42 $3.01 - $2.29
--------------- ----------------- -------------
</TABLE>
(1) Assumes exchange rate of (NIS/US$) 4.18.
(2) Assumes PEC Israel Economic Corporation owns 13.6% of Elron Electronic
Industries common stock.
(3) Assumes 18,362,188 shares outstanding.
(4) Public and private holdings based on BancBoston Stephens research dated
September 15, 1998 and management report dated November 3, 1998.
(5) Total Pre-Tax Net Asset Value of $514.9 million.
- --------------------------------------------------------------------------------
31 [LOGO] Merrill Lynch
<PAGE>
Public Holdings
================================================================================
Gilat Satellite Networks (Dollars in millions, except per share data(1))
<TABLE>
<CAPTION>
--------------- ----------------- -------------
Total Company PEC's % Interests PEC's Value
Valuation Range Valuation Range(2) Per Share(3)
--------------- ----------------- -------------
<S> <C> <C> <C>
Current Trading Price (12/09/98) $751 $42 $2.29
Historical Trading Analysis
52-Week High/Low $764 - $284 $43 - $16 $2.33 - $0.86
Comparable Company Analysis
1999 EPS(4)(5) 21.5x - 11.0x $764 - $391 $43 - $22 $2.33 - $1.19
1999 P/E to Growth(4) 1.05x - 0.65x $971 - $601 $54 - $34 $2.96 - $1.83
--------------- ----------------- -------------
Valuation Range $893 - $601 $50 - $34 $2.72 - $1.83
--------------- ----------------- -------------
</TABLE>
(1) Assumes exchange rate of (NIS/US$) 4.18.
(2) Assumes PEC Israel Economic Corporation owns 5.6% of Gilat Satellite
Network's diluted stock.
(3) Assumes 18,362,188 shares outstanding.
(4) Based on Scientific Atlantic; Digital Microwave and California Microwave.
(5) Pro forma for the pending GE Capital Spacenet Services transaction
announced on July 28, 1998.
- --------------------------------------------------------------------------------
32 [LOGO] Merrill Lynch
<PAGE>
Public Holdings
================================================================================
Tambour (Dollars in millions, except per share data(1))
<TABLE>
<CAPTION>
--------------- ----------------- -------------
Total Company PEC's % Interests PEC's Value
Valuation Range Valuation Range(2) Per Share(3)
--------------- ----------------- -------------
<S> <C> <C> <C>
Current Trading Price (12/09/98) $79 $34 $1.86
Historical Trading Analysis
52-Week High/Low $114 - $59 $49 - $26 $2.67 - $1.40
Comparable Company Analysis
LTM Sales(4) 0.90x - 0.70x $98 - $70 $42 - $30 $2.31 - $1.65
LTM EBITDA(5) 9.0x - 6.0x $104 - $60 $45 - $26 $2.45 - $1.41
Comparable Acquisition Analysis
LTM Sales(6) 0.80x - 0.70x $84 - $70 $36 - $30 $1.98 - $1.65
LTM EBITDA(6) 9.0x - 6.5x $104 - $67 $45 - $29 $2.45 - $1.58
--------------- ----------------- -------------
Valuation Range $93 - $70 $40 - $30 $2.18 - $1.65
--------------- ----------------- -------------
</TABLE>
(1) Assumes exchange rate of (NIS/US$) 4.18.
(2) Assumes PEC Israel Economic Corporation owns 43.2% of Tambour's stock.
(3) Assumes 18,362,188 shares outstanding.
(4) Based on Kalon and McWhorter Technologies.
(5) Based on Kalon, Lilly Industries and McWhorter Technologies.
(6) Based on McWhorter Tech./Syntech; RPM/Tremco; Kalon/Euridep.; Pratt &
Lambert/United Coatings; Bowater/Specialty Coatings; Ferro Corporation/
ICI-Powder Crating Business.
- --------------------------------------------------------------------------------
33 [LOGO] Merrill Lynch
<PAGE>
Public Holdings
================================================================================
Scitex Corporation (Dollars in millions, except per share data(1))
<TABLE>
<CAPTION>
--------------- ----------------- -------------
Total Company PEC's % Interests PEC's Value
Valuation Range Valuation Range(2) Per Share(3)
--------------- ----------------- -------------
<S> <C> <C> <C>
Current Trading Price (12/09/98) $436 $29 $1.57
Historical Trading Analysis
52-Week High/Low $629 - $246 $42 - $16 $2.27 - $0.89
Comparable Company Analysis
LTM EBITDA(4) 13.0x - 8.5x $609 - $428 $40 - $28 $2.20 - $1.55
Comparable Acquisition Analysis
LTM EBITDA(5) 10.0x - 8.5x $489 - $428 $32 - $28 $1.76 - $1.55
--------------- ----------------- -------------
Valuation Range $489 - $377 $32 - $25 $1.76 - $1.36
--------------- ----------------- -------------
</TABLE>
(1) Assumes exchange rate of (NIS/US$) 4.18.
(2) Assumes PEC Israel Economic Corporation owns 6.6% of Scitex Corporation's
diluted stock.
(3) Assumes 18,362,188 shares outstanding.
(4) Based on Heidelberger Druchmaschinen and Gerber Scientific and Presstek.
(5) Based on Axiohm/DH Technology and Clayton, Dubilier & Rice/IBM
Corporation-Lexmark.
- --------------------------------------------------------------------------------
34 [LOGO] Merrill Lynch
<PAGE>
Public Holdings
================================================================================
Other Public Holdings
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Share Price Shares in PEC's % Equity Market Value
Other Public Holdings (12/09/98) Ownership Owned of PEC's Holding
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Agis Industries 2,240 727,000 2.50% 3,892
Caniel 4,110 1,633,589 30.10% 22,900*
Cell Pathways $10.75 162,140 0.67% 1,743
Electronic Line 534 833,250 13.90% 1,063
Gilat Communications $8.69 888,075 9.80% 7,715
Ham-Lat (Israel Canada) 1,861 768,676 6.80% 3,419
Isrotel 620 1,167,942 2.30% 1,731
Klil Industries 8,500 352,122 17.90% 7,154
Lipman 2,700 133,300 2.50% 860
Lirax 2,550 1,209,419 20.20% 7,371
Logal $0.53 248,690 4.30% 132
Macpell 588 110,744 0.70% 156
Maxima (NIS 1 shares) 392 790,803 12.10% 741
(NIS 5 shares) 1,402 315,159 1,056
Mul-T-Lock 600 2,283,017 14.90% 3,274
Nice $22.75 576,833 5.21% 13,123
Tefron $7.00 958,433 7.10% 6,709
Exchange rate (NIS/$) 4.184 Total 83,039
Effective Tax Rate on
Estimated Gains 25%
PEC's Share Outstanding 18,362,188 Per Share $4.52
- -------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------
PEC's Unrealised Projected Capital Liquidation
Other Public Holdings Cost Gain/(Loss) Gain/(Loss) Taxes Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Agis Industries 5,882 (1,990) (497) 4,390
Caniel 2,821 20,079 5,020 17,880
Cell Pathways 1,000 743 186 1,557
Electronic Line 1,999 (936) (234) 1,297
Gilat Communications 1,010 6,705 1,676 6,039
Ham-Lat (Israel Canada) 4,398 (979) (245) 3,664
Isrotel 2,413 (682) (171) 1,901
Klil Industries 6,222 932 233 6,921
Lipman 780 80 20 840
Lirax 6,027 1,344 336 7,035
Logal 403 (271) (68) 200
Macpell 269 (113) (28) 184
Maxima (NIS 1 shares) 1,719 78 19 1,777
(NIS 5 shares)
Mul-T-Lock 3,260 14 3 3,270
Nice 10,492 2,631 658 12,465
Tefron 262 6,447 1,612 5,097
Exchange rate (NIS/$) 48,957 34,082 8,520 74,518
Effective Tax Rate on
Estimated Gains
PEC's Share Outstanding $2.67 $1.86 $0.46 $4.06
- ----------------------------------------------------------------------------------
</TABLE>
* Value of Caniel stake is at the sale price as agreed by the Company
Source: Public market values.
- --------------------------------------------------------------------------------
35 [LOGO] Merrill Lynch
<PAGE>
Exhibit 99(b)(3)
[LETTERHEAD OF A.O. ADAV FINANCIAL CONSULTANTS LTD.]
Tel Aviv, December 15, 1998
Messrs:
The Board of Directors of IDB Development Corporation Ltd.
3 Daniel Frisch Street
Tel Aviv.
Dear Members of the Board of Directors,
RE: OPINION DATED OCTOBER 15, 1998 RELATING TO THE FAIRNESS
OF THE EXCHANGE RATIO OF THE SHARES OF DISCOUNT INVESTMENT
CORPORATION LTD. AND SHARES OF PEC ISRAEL ECONOMIC CORPORATION
--------------------------------------------------------------
1. On October 15, 1998 an Opinion was submitted to you (hereinafter: "the
Opinion") relating to the fairness of the exchange ratio determined in
the context of an agreement for the transfer of 14,937,792 common shares
of US dollar 1 par value each of the PEC Israel Economic Corporation
("PEC"). We were requested by you to check whether there were
significant developments or changes from the date of the Opinion
relating to the value of the net assets of the companies which would
require a change in the Opinion.
2. As we stated in our Opinion, in view of the similarity of the
investments portfolio of the two companies, the exchange ratio has a low
sensitivity to reasonable changes in the values of the companies held by
Discount Investments and PEC.
3. In order to check the aforementioned we studied the amended Immediate
Report of IDB Development, the financial statements of Discount
Investments, PEC and important companies included in their investment
portfolios for the third quarter of 1998, we checked the data available
to the public (including developments in the stock exchange prices of
the affiliated listed companies) and surveys published about companies
and the branches in which they operate, and received additional data and
clarifications from the managements of Discount Investments and PEC.
4. In view of the procedures we applied, the details of which are mentioned
above, and in view of the low sensitivity, as mentioned, of the exchange
ratio to changes in the values of the affiliated companies, in our
opinion, despite changes which took place in the evaluations of some of
the affiliated companies, there were no material developments or changes
from the date of the Opinion relating to the value of the net assets of
Discount Investments and PEC, which would require a change in the
Opinion.
<PAGE>
5. It should be emphasized that this letter should be read together with
our letter of October 15, 1998.
6. This letter is not a reevaluation of the exchange ratio.
7. In addition, we were requested to give a professional opinion regarding
the fairness of the issue of 10,712 additional shares of Discount
Investments to IDB Development in consideration for 3,484 shares of
Property and Building Corp. Ltd., based on the net asset value of
Discount Investments and the value of Property and Building Corp. Ltd.
as determined in the said exchange ratio evaluation. In our opinion the
issue of 10,712 additional shares of Discount Investments in
consideration for 3,484 shares of Property and Building Ltd. was fair
and reasonable from the point of view of IDB Development.
8. We agree that this letter will be included and/or mentioned in the
amended Immediate Report to be published regarding the engagement.
Yours sincerely,
Arie Ovadia
A.O. Adav Financial Consultants Ltd.
<PAGE>
[LETTERHEAD OF A.O. ADAV FINANCIAL CONSULTANTS LTD.]
Tel Aviv, October 15, 1998
Messrs:
The Board of Directors of IDB Development Corporation Ltd.
3 Daniel Frisch Street
Tel Aviv.
Dear Members of the Board of Directors,
RE: FAIRNESS OF THE EXCHANGE RATIO BETWEEN SHARES
OF DISCOUNT INVESTMENTS CORPORATION LTD. AND
SHARES OF PEC ISRAEL ECONOMIC CORPORATION
-----------------------------------------
1. We were requested by you to give a professional opinion relating to the
fairness of the exchange ratio determined in the framework of the
agreement for a transfer of 14,937,792 common shares of US$1 par value
each of PEC Economic Corporation ("PEC"), which comprise 81.4% of the
rights in that company, held by IDB Development Corporation Ltd.
(hereinafter: "IDB Development") to Discount Investments Corporation
Ltd. ("Discount Investments") in consideration for a private placement
of 17,395,593 common shares of NIS 1 par value each of Discount
Investments (hereinafter: "the Private Placement"). The exchange ratio
was determined according to an average ratio of 1.327 between the net
assets value of Discount Investments and the net assets value of PEC. It
should be mentioned that the investment portfolios of the two companies
are very similar in their composition and about 80% of the net value of
the assets of the two companies are based on identical investments in
over 40 corporations. According to simulations carried out by us, the
exchange ratio has a very low sensitivity to changes within reasonable
fields (+/- 25%) of the value of the companies' net assets.
2. The Opinion focuses on the question whether the exchange ratio
determined in the said agreement reflects, from an economic point of
view, a fair and reasonable exchange ratio from the point of view of
IDB Development.
3. For the purpose of preparing the Opinion we based ourselves on data
included in the opinions of Prof. Yitzhak Swary and Uri Cohen, CPA. of
Yitzhak Swary Ltd., dated October 15, 1998 ("Swary") and we assumed
their correctness, exactness and completeness. We were not requested and
did not carry out independent checks to verify the above-mentioned data
or to verify the Results of Operations of Discount Investments and PEC
and/or the companies held by them.
<PAGE>
4. For the purpose of preparing the Opinion, we studied the following
documents:
4.1 Swary's opinion.
4.2 The working papers of Itzbak Swary Ltd. with regard to Swary's
opinion.
4.3 The audited financial statements of Discount Investments and PEC
for the year ended December 31, 1997 and the reviewed financial
statements for the period of six months ended June 30, 1998.
4.4 The audited financial statements of the companies held by Discount
Investments and PEC for the year ended December 31, 1997 and the
reviewed financial statements for the period of six months ended
June 30, 1998.
4.5 PEC's 10-K form for the year ended December 31, 1997.
4.6 PEC's 10-Q form for the period of 6 months ended June 30, 1998.
4.7 Publicly available data and reviews published about the Companies
and branches in which they operate.
4.8 The clarifications given to us by Discount Investments and PEC on
our request regarding details in the agreement and the items in
the financial statements.
4.9 The immediate reports of Discount Investments and IDB Development
dated October 15, 1998 which relate to the Private Placement.
5. For the purpose of preparing our Opinion we met with Prof. Swary and Uri
Cohen, CPA of Swary Ltd., and received from them explanations and
details about Swary's Opinion.
6. The Opinion does not include any stand or recommendation whether to
carry out the Private Placement. The Opinion is not a recommendation to
shareholders of Discount Investments and/or PEC and/or IDB Development
how to vote in general meetings with regard to the Private Placement.
7. We hereby certify that we have no personal interest in Discount
Investments and/or PEC and/or IDB Development and that we have no
personal interest in the exchange ratio determined. It should be
clarified that we were not partners in the negotiations between Discount
Investments and IDB Development.
8. Regarding the Opinion IDB Development undertook to A.O. Adav Financial
Consultants Ltd. (hereinafter: "Adav") as follows: If Adav will be sued
in a legal proceedings to pay any amount whatsoever to a third party in
a legal proceeding for a reason which may result directly or indirectly
from this Opinion, IDB Development will compensate Adav for all
reasonable expenses which Adav will accrue or be required to pay for
legal representation, legal consulting, professional consulting,
defending itself from legal proceedings, negotiations, etc., and IDB
Development will compensate ADAV for the amount it will be charged, in
the legal
<PAGE>
proceeding, to pay a third party over and above one million US dollars.
The amount of compensation will not apply if it is determined that Adav
acted in supplying the services, the subject of the Opinion, with
serious negligence or with malicious intent.
9. After studying the documents mentioned in clause 4 and our meetings as
detailed in clause 5, we consider, to the best of our professional
opinion, that the exchange ratio determined in the said agreement in
clause 1 above, reflects a fair and reasonable ratio from the point of
view of IDB Development.
We would like to emphasize, that in view of the legal limitations
connected with the possibility of a public issue in the U.S. of Cellcom
Israel Ltd. ("Cellcom") whose shares are held among others by Discount
Investments and PEC, we were requested by you to check the fairness and
reasonability of the exchange ratio taking into account the general
indication of a ratio in the field of Cellcom's value. The indication is
based on a comparison of the market prices and multipliers of similar
European cellular companies, taking into account the discount resulting
from a lack or marketability and liquidity of the investment in Cellcom
compared to those companies checked. We should state that the investments
of Discount Investments and PEC in Cellcom are material to their economic
value, but the ownership has little significant effect on the exchange
ratio due their identical holdings in Cellcom. It should be emphasized
that in view of your aforementioned instructions, we did not carry out an
evaluation and did not apply any other procedures relating to the
investments in Cellcom.
As in our Opinion the indications checked by us and the range of
variance checked by us with regard to the value of Cellcom (+/- 25%)
reflect a reasonable range of Cellcom's economic value, and as a change
in the estimated value of Cellcom in the range mentioned, does not
result in a significant variance in the results of the exchange ratio.
In our Opinion this limitation does not harm the reasonability and
validity that the exchange ratio is fair and reasonable.
10. The Opinion does not express the price in which the shares of Discount
Investments and/or PEC should be traded after the notice of approval or
after implementation of the Private Placement. The evaluation of the
exchange ratio is not an evaluation of the value of the assets or the
share capital of Discount Investments and/or PEC.
11. We hereby agree that this Opinion is attached and/or mentioned in the
Immediate Report.
Yours sincerely,
Arie Ovadia
A.O. Adav Financial Consultants Ltd.
<PAGE>
Exhibit 99(b)(4)
CONFIDENTIAL
FOR INTERNAL USE ONLY
- --------------------------------------------------------------------------------
PROJECT ALPHA
PRESENTATION TO THE BOARD OF DIRECTORS
DECEMBER 15, 1998
- --------------------------------------------------------------------------------
[LOGO]
<PAGE>
CONFIDENTIAL
PROJECT ALPHA FOR INTERNAL USE ONLY
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Section
-------
I. Executive Summary
II. Offer Analysis
III. Precedent Going Private Premiums
IV. Indications of PEC Valuation
Appendix
--------
A. PEC Trading History
B. Holding Company Discounts
- -------------------
These materials were prepared by BT Wolfensohn ("BTW") based on publicly
available information and information supplied by PEC and Prof. Swary, without
independent verification by BTW. These materials are subject to further due
diligence and discussion and do not constitute a specific transaction
recommendation or an opinion as to valuation or otherwise, and should not be
relied upon as the basis for any investment decision. No representation or
warranty (express or implied) is made by BTW or BT Alex. Brown as to the
accuracy or completeness of the information herein. The materials are intended
solely for review by the client and are not for publication or distribution to
any other parties.
- --------------------------------------------------------------------------------
[LOGO]
February 17, 1999 Page ii
<PAGE>
CONFIDENTIAL
PROJECT ALPHA FOR INTERNAL USE ONLY
- --------------------------------------------------------------------------------
I. EXECUTIVE SUMMARY
- --------------------------------------------------------------------------------
[LOGO]
February 17, 1999 Section I
<PAGE>
CONFIDENTIAL
PROJECT ALPHA FOR INTERNAL USE ONLY
- --------------------------------------------------------------------------------
EXECUTIVE SUMMARY
- - The negotiations between IDBD and the independent committee resulted in
an agreement to buy out the minority shareholders of PEC at a price of
$30 per share, payable in cash.
- - This price represents a 31.5% premium over the PEC stock price on
September 4, 1998, prior to the initial offer announcement, and a 17.6%
premium over the initial offer price of $25.50.
- - The transaction is pending requisite Board of Director and shareholder
approvals.
- - The objectives of this presentation include:
- Review of premium implied by $30 per share agreed to price
- Comparison of premium to precedent market benchmarks
- --------------------------------------------------------------------------------
[LOGO]
February 17, 1999 Page 1
<PAGE>
CONFIDENTIAL
PROJECT ALPHA FOR INTERNAL USE ONLY
- --------------------------------------------------------------------------------
II. OFFER ANALYSIS
- --------------------------------------------------------------------------------
[LOGO]
February 17, 1999 Section II
<PAGE>
CONFIDENTIAL
PROJECT ALPHA FOR INTERNAL USE ONLY
- --------------------------------------------------------------------------------
OFFER ANALYSIS
<TABLE>
<CAPTION>
INITIAL OFFER FINAL OFFER
AT $25.50 AT $30.00
------------- -----------
Date of Offer: September 6, 1998 December 8, 1998
Premium of Offer Over:
- ---------------------------------------------------------------------------
Prior to PEC
Announcement Date Stock Price
--------------------- ----------------- ---------------
<S> <C> <C> <C> <C>
1 day September 4, 1998 $22.8125 11.8% 31.5%
1 week August 28, 1998 23.8125 7.1 26.0
4 weeks August 7, 1998 25.0625 1.7 19.7
</TABLE>
- -------------------------
Note: Final offer of $30 per share represents a 17.7% increase over the initial
offer of $25.50.
- --------------------------------------------------------------------------------
[LOGO]
February 17, 1999 Page 2
<PAGE>
CONFIDENTIAL
PROJECT ALPHA FOR INTERNAL USE ONLY
- --------------------------------------------------------------------------------
III. PRECEDENT GOING PRIVATE PREMIUMS
- --------------------------------------------------------------------------------
[LOGO]
February 17, 1999 Section III
<PAGE>
CONFIDENTIAL
PROJECT ALPHA FOR INTERNAL USE ONLY
- --------------------------------------------------------------------------------
PRECEDENT GOING PRIVATE PREMIUMS
- --------------------------------------------------------------------------------
BTW HAS REVIEWED TRANSACTIONS ANNOUNCED / COMPLETED IN THE U.S. SINCE MARCH 3,
1990, WITH DEAL VALUE GREATER THAN $100 MILLION, WHERE THE ACQUIROR HELD AT
LEAST A 51% OWNERSHIP POSITION IN THE TARGET. SUMMARIZED BELOW ARE THE ANALYSIS
RESULTS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ALL OBSERVATIONS - FINAL OFFER PREMIUMS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FINAL OFFER PREMIUM TO:
------------------------------------------------------- % INCREASE OF
ANNOUNCEMENT DATE: FINAL TRANSACTION
-------------------------------------------------------- PRICE SINCE
1 DAY PRIOR 1 WEEK PRIOR 4 WEEKS PRIOR INITIAL OFFER
------------ -------------- --------------- -----------------
<S> <C> <C> <C> <C>
Mean 18.6% 25.6% 25.7% 8.5%
Median 15.6 18.8 23.6 4.5
High 60.3% 78.8% 78.8% 31.3%
Low (0.8) 2.3 (3.6) 0.0
- --------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
FOUR OF THE GOING PRIVATE TRANSACTIONS HAD PUBLIC FLOAT BELOW 25%.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
25% OR LESS FLOAT PRECEDENTS - FINAL OFFER PREMIUMS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FINAL OFFER PREMIUM TO:
------------------------------------------------------- % INCREASE OF
ANNOUNCEMENT DATE: FINAL TRANSACTION
-------------------------------------------------------- PRICE SINCE
1 DAY PRIOR 1 WEEK PRIOR 4 WEEKS PRIOR INITIAL OFFER
------------ -------------- --------------- -----------------
<S> <C> <C> <C> <C>
Mean 6.0% 7.3% 6.8% 5.9%
Median 5.3 7.3 1.1 5.5
High 13.3% 12.5% 28.6% 12.6%
Low 2.0 2.3 (3.6) 0.0
- --------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
[LOGO]
February 17, 1999 Page 3
<PAGE>
CONFIDENTIAL
PROJECT ALPHA FOR INTERNAL USE ONLY
- --------------------------------------------------------------------------------
PRECEDENT GOING PRIVATE PREMIUMS
(continued)
KOOR-TADIRAN OFFER ANALYSIS
- --------------------------------------------------------------------------------
IN A RECENT GOING PRIVATE TRANSACTION, KOOR AGREED TO PAY $36.375 PER SHARE FOR
THE 34% OF TADIRAN IT DID NOT ALREADY OWN. THE OFFER REPRESENTED A 38.6% PREMIUM
TO TADIRAN'S UNAFFECTED STOCK PRICE ONE DAY PRIOR TO THE INITIAL OFFER.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
KOOR OFFERS:
-----------------------------------------
INITIAL OFFER FINAL OFFER
OCTOBER 25, 1998 NOVEMBER 19, 1998
-----------------------------------------
$31.150 $36.375
Premium of Offer Over:
- ---------------------------------------------------------------------------
Prior to Tadiran
Announcement Date Stock Price
--------------------- ----------------- ---------------
<S> <C> <C> <C> <C>
1 day October 23, 1998 $26.2500 18.7% 38.6%
1 week October 16, 1998 24.6875 26.2 47.3
4 weeks September 25, 1998 29.0000 7.4 25.4
</TABLE>
- --------------------------------------------------------------------------------
[LOGO]
February 17, 1999 Page 4
<PAGE>
CONFIDENTIAL
PROJECT ALPHA FOR INTERNAL USE ONLY
- --------------------------------------------------------------------------------
IV. INDICATIONS OF PEC VALUATION
- --------------------------------------------------------------------------------
[LOGO]
February 17, 1999 Section IV
<PAGE>
CONFIDENTIAL
PROJECT ALPHA FOR INTERNAL USE ONLY
- --------------------------------------------------------------------------------
INDICATIONS OF PEC VALUATION - PER SWARY ANALYSIS
(US$ in millions, except per share data)
<TABLE>
<CAPTION>
PEC
Ownership Gross
Interest % Value PEC Share
----------------- ------- -----------
<S> <C> <C> <C>
Elron Electronics 13.5% $312.2 $42.2
Property and Building 41.1 425.1 174.7
Super-Sol 17.6 551.4 97.0
Cellcom 12.5 1,784.5 223.1
Other Investments 370.5
-------
Implied NAV $907.5
PER SHARE $49.42
Tax Expense (192.5)
-------
AFTER TAX NAV $715.0
PER SHARE $38.94
Closed End Fund Discount
(%) 30% - 50%
($) (214.5) - (357.5)
------- -------
Underlying Value $500.5 - $357.5
PER SHARE $27.26 - $19.47
Going Private Premium
(%) 26% 7%
($) $130.1 - $25.0
- ---------------------------------------------------------------------------------------------
FINAL INDICATION OF VALUE $630.6 - $382.5
PER SHARE $34.34 - $20.83
- ---------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
[LOGO]
February 17, 1999 Page 5
<PAGE>
CONFIDENTIAL
PROJECT ALPHA FOR INTERNAL USE ONLY
- --------------------------------------------------------------------------------
INDICATIONS OF PEC VALUATION
BASED ON THE PEC-DIC EXCHANGE RATIO
(in US$, as of December 7, 1998)
<TABLE>
<S> <C>
DIC Stock Price(a) $25.80
PEC-DIC Exchange Ratio 1.1642x
---------
Implied Value per PEC Share $30.03
</TABLE>
- ------------------------
(a) NIS to $US spot rate: 4.179. DIC stock price as of December 7, 1998.
- --------------------------------------------------------------------------------
[LOGO]
February 17, 1999 Page 6
<PAGE>
CONFIDENTIAL
PROJECT ALPHA FOR INTERNAL USE ONLY
- --------------------------------------------------------------------------------
APPENDIX A. PEC TRADING HISTORY
- --------------------------------------------------------------------------------
[LOGO]
February 17, 1999 Appendix A
<PAGE>
CONFIDENTIAL
PROJECT ALPHA FOR INTERNAL USE ONLY
- --------------------------------------------------------------------------------
HISTORICAL TRADING LEVELS
- --------------------------------------------------------------------------------
SINCE JANUARY 1, 1996, PEC SHARES HAVE TRADED AS HIGH AS $26.375 ON 9/18/98, AND
AS LOW AS $14.625 ON 11/08/96, WITH AN AVERAGE DAILY TRADING VOLUME OF 10,624
SHARES.
- --------------------------------------------------------------------------------
[GRAPHIC]
Date Total Weekly Volume $ Per Share
2-Jan-96 2800 24.75
3-Jan-96 1400 24.25
4-Jan-96 8700 24
5-Jan-96 5100 24
8-Jan-96 1700 24.25
9-Jan-96 6800 24.125
10-Jan-96 1600 23.5
11-Jan-96 1900 23.625
12-Jan-96 1300 23.5
15-Jan-96 1400 23.125
16-Jan-96 800 23
17-Jan-96 31600 24.125
18-Jan-96 16500 23.625
19-Jan-96 30600 23.125
22-Jan-96 4000 23.125
23-Jan-96 3900 23.25
24-Jan-96 30600 23
25-Jan-96 3000 23.25
26-Jan-96 20500 23.25
29-Jan-96 400 23.25
30-Jan-96 25900 23.125
31-Jan-96 3400 23
1-Feb-96 1800 23
2-Feb-96 41000 22.625
5-Feb-96 1400 22.625
6-Feb-96 7000 22.625
7-Feb-96 10100 22.625
8-Feb-96 30400 22.875
9-Feb-96 9000 22.875
12-Feb-96 4200 23.125
13-Feb-96 3400 23
14-Feb-96 3700 22.75
15-Feb-96 2800 22.875
16-Feb-96 2200 23
20-Feb-96 22700 22.5
21-Feb-96 11800 22.25
22-Feb-96 33800 21.875
23-Feb-96 10600 21.875
26-Feb-96 2100 21.625
27-Feb-96 3900 22.125
28-Feb-96 5800 21.875
29-Feb-96 300 21.75
1-Mar-96 12300 21.5
4-Mar-96 1200 21.5
5-Mar-96 2800 21.375
6-Mar-96 5100 21.25
7-Mar-96 1200 21.375
8-Mar-96 4000 20.75
11-Mar-96 7600 21
12-Mar-96 4300 20.875
13-Mar-96 1700 20.875
14-Mar-96 6400 20.5
15-Mar-96 10400 19.875
18-Mar-96 7600 19.75
19-Mar-96 5300 20
20-Mar-96 2200 20
21-Mar-96 4900 20
22-Mar-96 2600 20.375
25-Mar-96 1000 20.875
26-Mar-96 10000 21.5
27-Mar-96 2200 21.5
28-Mar-96 2600 21.375
29-Mar-96 18700 21.5
1-Apr-96 112100 21.875
2-Apr-96 100 21.875
3-Apr-96 400 21.875
4-Apr-96 1200 22.125
8-Apr-96 900 21.75
9-Apr-96 1200 21.5
10-Apr-96 5000 21.5
11-Apr-96 200 21.25
12-Apr-96 100 21.25
15-Apr-96 4000 21.5
16-Apr-96 1000 22
17-Apr-96 9400 22.125
18-Apr-96 800 22
19-Apr-96 1500 21.75
22-Apr-96 4100 22.25
23-Apr-96 2500 22.5
24-Apr-96 1300 22.375
25-Apr-96 600 22.375
26-Apr-96 7800 22.75
29-Apr-96 4800 22.5
30-Apr-96 5600 22.625
1-May-96 6300 22.375
2-May-96 14300 22.25
3-May-96 2200 22.375
6-May-96 5300 22.25
7-May-96 8000 22.125
8-May-96 9300 21.625
9-May-96 1900 21.125
10-May-96 27800 21.25
13-May-96 3900 21.75
14-May-96 5200 21.625
15-May-96 24800 21.5
16-May-96 3800 21.375
17-May-96 6800 21.75
20-May-96 600 22
21-May-96 17700 21.25
22-May-96 4800 21.125
23-May-96 20500 20.75
24-May-96 2900 20.375
28-May-96 17900 20
29-May-96 18200 19.625
30-May-96 31400 19.125
31-May-96 63300 19.25
3-Jun-96 17700 18.875
4-Jun-96 16800 18.75
5-Jun-96 25500 18.75
6-Jun-96 13500 18.75
7-Jun-96 1800 18.75
10-Jun-96 10600 18.75
11-Jun-96 1900 18.625
12-Jun-96 12600 18.125
13-Jun-96 12700 17.75
14-Jun-96 103300 17.625
17-Jun-96 7800 18.625
18-Jun-96 6300 19
19-Jun-96 6500 18.625
20-Jun-96 2500 18.25
21-Jun-96 1700 18.375
24-Jun-96 9700 17.875
25-Jun-96 1100 17.75
26-Jun-96 1800 17.625
27-Jun-96 1200 17.875
28-Jun-96 2300 18.125
1-Jul-96 2300 18.25
2-Jul-96 13800 18.125
3-Jul-96 1100 18
5-Jul-96 1400 18.25
8-Jul-96 2500 17.875
9-Jul-96 6400 17.5
10-Jul-96 15400 16.5
11-Jul-96 21100 16
12-Jul-96 5700 15.875
15-Jul-96 15100 15.875
16-Jul-96 1200 15.5
17-Jul-96 12200 16
18-Jul-96 36400 17.25
19-Jul-96 9700 17.125
22-Jul-96 3000 16.5
23-Jul-96 2500 16.125
24-Jul-96 9600 16.375
25-Jul-96 7500 16.375
26-Jul-96 5200 16.375
29-Jul-96 21800 16.5
30-Jul-96 5300 17
31-Jul-96 13700 17.375
1-Aug-96 24600 17.375
2-Aug-96 2900 17.25
5-Aug-96 7500 17.5
6-Aug-96 5500 17.75
7-Aug-96 6100 17.75
8-Aug-96 3500 17.75
9-Aug-96 2700 17.875
12-Aug-96 1200 18
13-Aug-96 24400 17.75
14-Aug-96 29800 18
15-Aug-96 23800 18
16-Aug-96 5100 18.25
19-Aug-96 6200 17.875
20-Aug-96 18600 18
21-Aug-96 1100 17.75
22-Aug-96 15700 18
23-Aug-96 4600 18
26-Aug-96 6000 17.5
27-Aug-96 7200 17.25
28-Aug-96 7900 17.375
29-Aug-96 3300 17.25
30-Aug-96 3800 17.625
3-Sep-96 9000 17.875
4-Sep-96 18800 18.375
5-Sep-96 2500 18.25
6-Sep-96 8000 18.375
9-Sep-96 4700 18.875
10-Sep-96 13900 18.75
11-Sep-96 9400 18.625
12-Sep-96 21500 18
13-Sep-96 4500 18.125
16-Sep-96 5500 18.375
17-Sep-96 23200 18
18-Sep-96 7600 17.875
19-Sep-96 104800 17.375
20-Sep-96 4900 17.75
23-Sep-96 2900 17.625
24-Sep-96 2200 17.625
25-Sep-96 3500 17.375
26-Sep-96 16700 17.25
27-Sep-96 3600 17.125
30-Sep-96 3600 17.125
1-Oct-96 4800 16.875
2-Oct-96 2800 17.375
3-Oct-96 7200 17.125
4-Oct-96 5300 17.125
7-Oct-96 2700 17.125
8-Oct-96 9700 17
9-Oct-96 1300 16.875
10-Oct-96 2400 16.875
11-Oct-96 11700 16.875
14-Oct-96 10100 16.75
15-Oct-96 7600 16.375
16-Oct-96 1800 16.375
17-Oct-96 1000 16.625
18-Oct-96 800 16.5
21-Oct-96 2800 16.75
22-Oct-96 2200 16.625
23-Oct-96 1600 16.625
24-Oct-96 4100 16.25
25-Oct-96 8500 16
28-Oct-96 500 15.875
29-Oct-96 29100 15.375
30-Oct-96 44700 15.125
31-Oct-96 28800 15.25
1-Nov-96 13200 15.25
4-Nov-96 4900 15.75
5-Nov-96 4700 15.5
6-Nov-96 3500 15
7-Nov-96 164500 14.75
8-Nov-96 11100 14.625
11-Nov-96 600 14.75
12-Nov-96 20200 15
13-Nov-96 12100 15.5
14-Nov-96 7700 15.5
15-Nov-96 15800 15.125
18-Nov-96 40200 15.5
19-Nov-96 15600 15.625
20-Nov-96 16000 15.75
21-Nov-96 8800 16.25
22-Nov-96 14300 16.25
25-Nov-96 4300 16.25
26-Nov-96 6700 16.125
27-Nov-96 18100 16.25
29-Nov-96 9700 16.625
2-Dec-96 20700 16.5
3-Dec-96 10100 17
4-Dec-96 3800 17
5-Dec-96 8600 17
6-Dec-96 7300 16.625
9-Dec-96 13900 17.125
10-Dec-96 7300 17.25
11-Dec-96 50400 17
12-Dec-96 33800 16.875
13-Dec-96 44700 16.875
16-Dec-96 53800 16.5
17-Dec-96 2300 16.125
18-Dec-96 13500 16.625
19-Dec-96 41600 17.375
20-Dec-96 4500 17.625
23-Dec-96 19700 17.875
24-Dec-96 26500 18
26-Dec-96 18300 17.625
27-Dec-96 2200 17.5
30-Dec-96 7000 17.25
31-Dec-96 12500 16.75
2-Jan-97 13500 17.75
3-Jan-97 42100 17.75
6-Jan-97 6300 17.5
7-Jan-97 800 17.625
8-Jan-97 2700 17.5
9-Jan-97 4900 17.5
10-Jan-97 4200 17
13-Jan-97 12700 17.875
14-Jan-97 8100 18.125
15-Jan-97 24300 18.875
16-Jan-97 14400 19.25
17-Jan-97 1800 19.375
20-Jan-97 6200 19.5
21-Jan-97 24800 19.875
22-Jan-97 4000 20
23-Jan-97 6600 20.375
24-Jan-97 3600 19.875
27-Jan-97 900 19.75
28-Jan-97 2500 19.75
29-Jan-97 11000 20
30-Jan-97 3000 20.25
31-Jan-97 3100 20.125
3-Feb-97 9000 20.75
4-Feb-97 3400 20.875
5-Feb-97 8100 20.875
6-Feb-97 1100 20.5
7-Feb-97 13400 20.75
10-Feb-97 12400 20.75
11-Feb-97 600 20.625
12-Feb-97 10900 20.75
13-Feb-97 5000 21
14-Feb-97 1000 20.75
18-Feb-97 4500 21.5
19-Feb-97 6100 21.375
20-Feb-97 6300 21.375
21-Feb-97 6600 21.5
24-Feb-97 1700 21
25-Feb-97 1700 21.375
26-Feb-97 4400 21.125
27-Feb-97 14500 20.25
28-Feb-97 1100 20.125
3-Mar-97 2000 20.125
4-Mar-97 3900 20.25
5-Mar-97 4200 20.25
6-Mar-97 5100 20.375
7-Mar-97 11000 20.5
10-Mar-97 300 20.375
11-Mar-97 11000 20.625
12-Mar-97 2800 20.25
13-Mar-97 1900 20.125
14-Mar-97 1100 20.125
17-Mar-97 4100 19.875
18-Mar-97 4700 19.875
19-Mar-97 5400 19.625
20-Mar-97 10700 19.375
21-Mar-97 2000 19.25
24-Mar-97 900 19
25-Mar-97 3200 18.375
26-Mar-97 3900 19.125
27-Mar-97 13100 18.875
31-Mar-97 3300 18.875
1-Apr-97 18700 18.875
2-Apr-97 36000 18.75
3-Apr-97 1100 18.75
4-Apr-97 5300 19.25
7-Apr-97 1800 19.375
8-Apr-97 0 19.375
9-Apr-97 3100 19
10-Apr-97 1100 19.25
11-Apr-97 5500 18.625
14-Apr-97 5900 19.125
15-Apr-97 5500 18.75
16-Apr-97 800 18.75
17-Apr-97 500 18.75
18-Apr-97 1000 18.75
21-Apr-97 1100 18.625
22-Apr-97 8600 18
23-Apr-97 1700 18.375
24-Apr-97 2400 18.75
25-Apr-97 0 18.75
28-Apr-97 3300 18.5
29-Apr-97 3100 18.75
30-Apr-97 3000 19
1-May-97 3600 18.875
2-May-97 2600 19.125
5-May-97 1600 19.625
6-May-97 300 19.75
7-May-97 400 19.375
8-May-97 1000 19.125
9-May-97 1200 19.25
12-May-97 22700 19.25
13-May-97 16300 19.875
14-May-97 4800 20.25
15-May-97 8300 20.375
16-May-97 1300 20.75
19-May-97 3900 21.125
20-May-97 3700 21.5
21-May-97 2400 21.75
22-May-97 4000 21.75
23-May-97 3400 21.625
27-May-97 1600 21.875
28-May-97 7300 22.5
29-May-97 7800 22.875
30-May-97 2700 22.75
2-Jun-97 10600 23.125
3-Jun-97 39700 23.125
4-Jun-97 11300 23.25
5-Jun-97 2000 23.375
6-Jun-97 4500 23.875
9-Jun-97 1600 23.75
10-Jun-97 1900 23.625
11-Jun-97 1300 23.875
12-Jun-97 2300 23.875
13-Jun-97 19200 24.5
16-Jun-97 20500 24.5
17-Jun-97 152900 25
18-Jun-97 30500 25.125
19-Jun-97 79200 24.875
20-Jun-97 43800 24.625
23-Jun-97 5100 24.125
24-Jun-97 3000 23.625
25-Jun-97 900 23.75
26-Jun-97 9200 24.25
27-Jun-97 100 24
30-Jun-97 3900 24
1-Jul-97 6100 23.875
2-Jul-97 4500 24
3-Jul-97 1200 24
7-Jul-97 2600 24
8-Jul-97 7900 24
9-Jul-97 8000 23.625
10-Jul-97 15700 24.25
11-Jul-97 2000 24.125
14-Jul-97 300 24.125
15-Jul-97 600 23.9375
16-Jul-97 9000 23.8125
17-Jul-97 7300 23.1875
18-Jul-97 7900 23.4375
21-Jul-97 7400 22.8125
22-Jul-97 3000 22.8125
23-Jul-97 4000 22.875
24-Jul-97 6900 22.5
25-Jul-97 5000 22.25
28-Jul-97 4100 22.8125
29-Jul-97 20500 22.8125
30-Jul-97 4000 22.5
31-Jul-97 0 22.625
1-Aug-97 3100 22.5625
4-Aug-97 600 22.25
5-Aug-97 2200 22.5625
6-Aug-97 1500 22.75
7-Aug-97 300 22.6875
8-Aug-97 1000 22.1875
11-Aug-97 6600 22
12-Aug-97 11400 21.6875
13-Aug-97 5500 21.875
14-Aug-97 12300 21.75
15-Aug-97 16700 20.625
18-Aug-97 11300 20.5625
19-Aug-97 28400 20.625
20-Aug-97 58500 21.25
21-Aug-97 16700 21.875
22-Aug-97 5400 21.25
25-Aug-97 9700 20.8125
26-Aug-97 7500 20.8125
27-Aug-97 17100 20.875
28-Aug-97 6800 20.875
29-Aug-97 2900 20.6875
2-Sep-97 8300 20.75
3-Sep-97 2900 20.625
4-Sep-97 24100 20.75
5-Sep-97 9400 20.75
8-Sep-97 6800 20.8125
9-Sep-97 3700 20.6875
10-Sep-97 1100 20.375
11-Sep-97 1400 20.6875
12-Sep-97 2300 20.625
15-Sep-97 6600 20.6875
16-Sep-97 16700 20.125
17-Sep-97 2300 20.0625
18-Sep-97 700 20.125
19-Sep-97 5600 19.9375
22-Sep-97 34200 19
23-Sep-97 12700 19.125
24-Sep-97 303800 19.25
25-Sep-97 5000 19.4375
26-Sep-97 8100 19.5
29-Sep-97 23600 19.25
30-Sep-97 11700 19.3125
1-Oct-97 41900 19.8125
2-Oct-97 12600 20.125
3-Oct-97 7400 20
6-Oct-97 18700 19.875
7-Oct-97 15500 20
8-Oct-97 67300 19.9375
9-Oct-97 49000 19.9375
10-Oct-97 106200 20.0625
13-Oct-97 15200 20.5625
14-Oct-97 24700 21
15-Oct-97 64200 21.5625
16-Oct-97 13200 21.5
17-Oct-97 25500 21.5
20-Oct-97 9900 21.5
21-Oct-97 2600 21.5
22-Oct-97 13100 21.5
23-Oct-97 22600 21.25
24-Oct-97 8100 21.125
27-Oct-97 34400 19.625
28-Oct-97 15900 19.9375
29-Oct-97 14000 20.375
30-Oct-97 13200 20.1875
31-Oct-97 4800 20
3-Nov-97 3900 20.25
4-Nov-97 15300 20.25
5-Nov-97 6200 20.375
6-Nov-97 20700 20
7-Nov-97 19700 19.75
10-Nov-97 28400 19.8125
11-Nov-97 9300 19.75
12-Nov-97 14000 18.9375
13-Nov-97 4600 18.9375
14-Nov-97 6800 19.5625
17-Nov-97 3700 20.125
18-Nov-97 3700 19.375
19-Nov-97 5100 19.0625
20-Nov-97 11600 19.625
21-Nov-97 9500 20.4375
24-Nov-97 7800 20.25
25-Nov-97 4100 20.125
26-Nov-97 3100 20.4375
28-Nov-97 100 20.4375
1-Dec-97 44900 20.375
2-Dec-97 27400 20.4375
3-Dec-97 24500 21.125
4-Dec-97 14800 22
5-Dec-97 9100 22.1875
8-Dec-97 4500 22
9-Dec-97 12000 21.625
10-Dec-97 4800 21.8125
11-Dec-97 4100 21.125
12-Dec-97 4400 21.125
15-Dec-97 5500 21.5
16-Dec-97 2000 21.5
17-Dec-97 8800 21
18-Dec-97 1000 21.0625
19-Dec-97 2100 21.0625
22-Dec-97 10300 21.4375
23-Dec-97 16200 21.6875
24-Dec-97 5300 21.625
26-Dec-97 3600 21.625
29-Dec-97 18700 21.625
30-Dec-97 2900 21.5
31-Dec-97 3700 21.625
2-Jan-98 700 21.75
5-Jan-98 13400 21.6875
6-Jan-98 6400 21.6875
7-Jan-98 50800 21.625
8-Jan-98 1400 21.3125
9-Jan-98 2400 21
12-Jan-98 8200 20.625
13-Jan-98 5200 20.75
14-Jan-98 1300 20.75
15-Jan-98 1500 20.5
16-Jan-98 5600 20.875
20-Jan-98 9600 21
21-Jan-98 6500 20.5
22-Jan-98 3500 19.9375
23-Jan-98 6000 20.375
26-Jan-98 7300 20.375
27-Jan-98 4500 20.3125
28-Jan-98 4500 20.3125
29-Jan-98 5400 20.5
30-Jan-98 6700 20.6875
2-Feb-98 6800 21.25
3-Feb-98 3800 21.75
4-Feb-98 15600 21.25
5-Feb-98 2700 20.6875
6-Feb-98 500 20.5
9-Feb-98 800 20.4375
10-Feb-98 1500 20.625
11-Feb-98 1400 20.1875
12-Feb-98 12800 20
13-Feb-98 41900 20.4375
17-Feb-98 3900 20.875
18-Feb-98 2700 20.625
19-Feb-98 1500 20.5
20-Feb-98 7000 20.375
23-Feb-98 4200 20.625
24-Feb-98 2100 20.875
25-Feb-98 1400 20.625
26-Feb-98 5900 20.3125
27-Feb-98 4900 20.1875
2-Mar-98 2900 20.6875
3-Mar-98 6600 20.875
4-Mar-98 1800 20.8125
5-Mar-98 2900 20.75
6-Mar-98 6500 20.9375
9-Mar-98 3100 21.0625
10-Mar-98 7600 21.6875
11-Mar-98 18800 21.8125
12-Mar-98 4600 21.875
13-Mar-98 8400 21.8125
16-Mar-98 4600 21.875
17-Mar-98 200 21.8125
18-Mar-98 2500 21.75
19-Mar-98 3200 21.9375
20-Mar-98 2800 21.9375
23-Mar-98 3000 21.5
24-Mar-98 2900 21.125
25-Mar-98 2700 21.375
26-Mar-98 36500 22.9375
27-Mar-98 20600 23.0625
30-Mar-98 13000 22.6875
31-Mar-98 21800 22.9375
1-Apr-98 22800 23.625
2-Apr-98 11400 23.75
3-Apr-98 45800 24.25
6-Apr-98 15600 24
7-Apr-98 13300 23.8125
8-Apr-98 8500 23.5
9-Apr-98 3400 23.1875
13-Apr-98 12500 23.5
14-Apr-98 7900 23.8125
15-Apr-98 9700 23.9375
16-Apr-98 3200 23.9375
17-Apr-98 13100 24
20-Apr-98 10600 24
21-Apr-98 1500 24.125
22-Apr-98 4100 24.125
23-Apr-98 32000 23.75
24-Apr-98 30000 23.625
27-Apr-98 20300 23.125
28-Apr-98 8600 23.375
29-Apr-98 3300 23.375
30-Apr-98 4600 23.5625
1-May-98 300 23.625
4-May-98 17500 23.8125
5-May-98 4700 23.875
6-May-98 8300 23.5625
7-May-98 15100 23.3125
8-May-98 21700 23.3125
11-May-98 26900 23.3125
12-May-98 17200 23.375
13-May-98 34500 23.25
14-May-98 4700 23.25
15-May-98 3800 23.125
18-May-98 12800 23.125
19-May-98 5200 23.0625
20-May-98 13200 22.875
21-May-98 4100 22.875
22-May-98 3700 22.6875
26-May-98 1400 22.6875
27-May-98 13800 22
28-May-98 7300 22
29-May-98 12800 22.125
1-Jun-98 11600 21.8125
2-Jun-98 15100 21.6875
3-Jun-98 20600 22.4375
4-Jun-98 30400 22.375
5-Jun-98 27000 22.375
8-Jun-98 2500 22.3125
9-Jun-98 20500 22.8125
10-Jun-98 5300 22.75
11-Jun-98 2700 22.875
12-Jun-98 1600 22.6875
15-Jun-98 5200 22.25
16-Jun-98 11200 22.375
17-Jun-98 16300 22.25
18-Jun-98 5900 22.6875
19-Jun-98 10700 23.125
22-Jun-98 4000 23.125
23-Jun-98 2800 23.0625
24-Jun-98 7400 23.4375
25-Jun-98 6500 23.6875
26-Jun-98 3200 23.75
29-Jun-98 10800 23.75
30-Jun-98 6100 23.875
1-Jul-98 8900 23.875
2-Jul-98 2800 23.9375
6-Jul-98 17000 24
7-Jul-98 46400 23.9375
8-Jul-98 10900 24
9-Jul-98 8200 24.25
10-Jul-98 1900 24.3125
13-Jul-98 11100 24.75
14-Jul-98 8000 24.75
15-Jul-98 5300 24.9375
16-Jul-98 9900 24.9375
17-Jul-98 500 24.8125
20-Jul-98 2400 25
21-Jul-98 6500 24.8125
22-Jul-98 13200 24.9375
23-Jul-98 2200 24.8125
24-Jul-98 12800 25
27-Jul-98 9300 25.1875
28-Jul-98 8600 24.8125
29-Jul-98 8200 24.625
30-Jul-98 4200 24.6875
31-Jul-98 14800 24.875
3-Aug-98 2700 24.5625
4-Aug-98 15500 24.6875
5-Aug-98 1200 24.4375
6-Aug-98 12700 25.0625
7-Aug-98 11000 25.0625
10-Aug-98 3800 25.0625
11-Aug-98 3600 24.25
12-Aug-98 17100 25
13-Aug-98 20200 25
14-Aug-98 4800 24.8125
17-Aug-98 5100 25
18-Aug-98 11800 25.125
19-Aug-98 8000 25.125
20-Aug-98 8000 25
21-Aug-98 5200 24.5625
24-Aug-98 4500 24.75
25-Aug-98 4900 25
26-Aug-98 4300 24.875
27-Aug-98 14000 23.75
28-Aug-98 4900 23.8125
31-Aug-98 16500 23.25
1-Sep-98 17400 23.4375
2-Sep-98 5800 23.5625
3-Sep-98 19400 22.8125
4-Sep-98 8900 22.8125
8-Sep-98 37500 25
9-Sep-98 61200 25.625
10-Sep-98 22500 25.375
11-Sep-98 15700 25.875
14-Sep-98 8300 26.0625
15-Sep-98 1600 26
16-Sep-98 5300 26.25
17-Sep-98 8500 26.1875
18-Sep-98 5400 26.375
21-Sep-98 4000 26.125
22-Sep-98 2800 26.125
23-Sep-98 6900 25.875
24-Sep-98 13000 26.0625
25-Sep-98 7000 25.875
28-Sep-98 8400 25.875
29-Sep-98 18800 25.5
30-Sep-98 1600 25.625
1-Oct-98 7700 24.875
2-Oct-98 17100 25.625
5-Oct-98 12100 25.5
6-Oct-98 4000 24.875
7-Oct-98 6600 24.5
8-Oct-98 11800 24.1875
9-Oct-98 3500 24.125
12-Oct-98 18200 25
13-Oct-98 200 25
14-Oct-98 1700 24.9375
15-Oct-98 3700 24.6875
16-Oct-98 1300 24.9375
19-Oct-98 1900 24.9375
20-Oct-98 1600 25.1875
21-Oct-98 3100 24.5625
22-Oct-98 900 24.8125
23-Oct-98 100 24.875
26-Oct-98 900 24.9375
27-Oct-98 5000 24.8125
28-Oct-98 1200 24.875
29-Oct-98 600 24.8125
30-Oct-98 1400 24.8125
2-Nov-98 20300 25.0625
3-Nov-98 8000 24.9375
4-Nov-98 0 25.0625
5-Nov-98 4300 24.75
6-Nov-98 1200 24.875
9-Nov-98 2200 24.9375
10-Nov-98 4700 24.3125
11-Nov-98 1500 24.625
12-Nov-98 0 24.5
13-Nov-98 3000 24.125
16-Nov-98 12300 23.9375
17-Nov-98 4400 24.25
18-Nov-98 700 24.375
19-Nov-98 1800 24.5
20-Nov-98 3600 24.3125
23-Nov-98 400 24.25
24-Nov-98 2700 24.0625
25-Nov-98 400 24.1875
27-Nov-98 0 24.1875
30-Nov-98 700 24.0625
1-Dec-98 600 24.375
2-Dec-98 1400 24.5625
3-Dec-98 2000 24.5625
4-Dec-98 0 24.5625
7-Dec-98 700 24.5
- --------------------------------------------------------------------------------
[LOGO]
February 17, 1999 Appendix A - Page 1
<PAGE>
CONFIDENTIAL
PROJECT ALPHA FOR INTERNAL USE ONLY
- --------------------------------------------------------------------------------
[GRAPHIC]
PEC Adjusted DIC PEC Actual
6-Sep-96 18.375 21.0594 18.375
9-Sep-96 18.875 21.3026 18.875
10-Sep-96 18.75 20.9678 18.75
11-Sep-96 18.625 19.999 18.625
12-Sep-96 18 20.2018 18
13-Sep-96 18.125 20.1905 18.125
16-Sep-96 18.375 20.5995 18.375
17-Sep-96 18 20.3282 18
18-Sep-96 17.875 20.2187 17.875
19-Sep-96 17.375 20.2675 17.375
20-Sep-96 17.75 20.2545 17.75
23-Sep-96 17.625 20.2639 17.625
24-Sep-96 17.625 20.2147 17.625
25-Sep-96 17.375 20.1796 17.375
26-Sep-96 17.25 19.113 17.25
27-Sep-96 17.125 19.078 17.125
30-Sep-96 17.125 18.4361 17.125
1-Oct-96 16.875 18.2561 16.875
2-Oct-96 17.375 18.1701 17.375
3-Oct-96 17.125 17.9371 17.125
4-Oct-96 17.125 17.929 17.125
7-Oct-96 17.125 18.3313 17.125
8-Oct-96 17 18.3894 17
9-Oct-96 16.875 18.0512 16.875
10-Oct-96 16.875 17.5029 16.875
11-Oct-96 16.875 17.5037 16.875
14-Oct-96 16.75 16.8203 16.75
15-Oct-96 16.375 17.5387 16.375
16-Oct-96 16.375 18.0471 16.375
17-Oct-96 16.625 18.4642 16.625
18-Oct-96 16.5 18.3351 16.5
21-Oct-96 16.75 18.1426 16.75
22-Oct-96 16.625 18.4637 16.625
23-Oct-96 16.625 18.9927 16.625
24-Oct-96 16.25 19.0709 16.25
25-Oct-96 16 19.047 16
28-Oct-96 15.875 18.8035 15.875
29-Oct-96 15.375 18.4566 15.375
30-Oct-96 15.125 18.4582 15.125
31-Oct-96 15.25 18.8321 15.25
1-Nov-96 15.25 18.9452 15.25
4-Nov-96 15.75 18.9937 15.75
5-Nov-96 15.5 18.653 15.5
6-Nov-96 15 19.1361 15
7-Nov-96 14.75 19.6531 14.75
8-Nov-96 14.625 19.6322 14.625
11-Nov-96 14.75 20.2401 14.75
12-Nov-96 15 20.613 15
13-Nov-96 15.5 20.933 15.5
14-Nov-96 15.5 20.9529 15.5
15-Nov-96 15.125 20.9829 15.125
18-Nov-96 15.5 20.3437 15.5
19-Nov-96 15.625 20.5329 15.625
20-Nov-96 15.75 20.7629 15.75
21-Nov-96 16.25 20.4317 16.25
22-Nov-96 16.25 20.4105 16.25
25-Nov-96 16.25 20.2648 16.25
26-Nov-96 16.125 20.2782 16.125
27-Nov-96 16.25 20.2476 16.25
29-Nov-96 16.625 20.4139 16.625
2-Dec-96 16.5 20.2167 16.5
3-Dec-96 17 21.2208 17
4-Dec-96 17 21.3866 17
5-Dec-96 17 21.8049 17
6-Dec-96 16.625 21.7858 16.625
9-Dec-96 17.125 21.6876 17.125
10-Dec-96 17.25 22.0722 17.25
11-Dec-96 17 21.789 17
12-Dec-96 16.875 21.8603 16.875
13-Dec-96 16.875 21.8273 16.875
16-Dec-96 16.5 21.2189 16.5
17-Dec-96 16.125 20.8012 16.125
18-Dec-96 16.625 20.9647 16.625
19-Dec-96 17.375 21.1635 17.375
20-Dec-96 17.625 21.2286 17.625
23-Dec-96 17.875 21.6214 17.875
24-Dec-96 18 21.6811 18
26-Dec-96 17.625 21.7378 17.625
27-Dec-96 17.5 21.8186 17.5
30-Dec-96 17.25 21.8441 17.25
31-Dec-96 16.75 21.3667 16.75
2-Jan-97 17.75 22.3471 17.75
3-Jan-97 17.75 22.2879 17.75
6-Jan-97 17.5 23.9572 17.5
7-Jan-97 17.625 24.2976 17.625
8-Jan-97 17.5 24.5802 17.5
9-Jan-97 17.5 24.4563 17.5
10-Jan-97 17 24.3802 17
13-Jan-97 17.875 25.2368 17.875
14-Jan-97 18.125 25.2345 18.125
15-Jan-97 18.875 25.7276 18.875
16-Jan-97 19.25 26.2635 19.25
17-Jan-97 19.375 26.1688 19.375
20-Jan-97 19.5 25.6484 19.5
21-Jan-97 19.875 25.5175 19.875
22-Jan-97 20 24.916 20
23-Jan-97 20.375 24.3068 20.375
24-Jan-97 19.875 24.3585 19.875
27-Jan-97 19.75 23.969 19.75
28-Jan-97 19.75 24.3519 19.75
29-Jan-97 20 25.0039 20
30-Jan-97 20.25 25.1249 20.25
31-Jan-97 20.125 25.1225 20.125
3-Feb-97 20.75 26.686 20.75
4-Feb-97 20.875 26.2616 20.875
5-Feb-97 20.875 26.2614 20.875
6-Feb-97 20.5 26.119 20.5
7-Feb-97 20.75 26.0062 20.75
10-Feb-97 20.75 25.7644 20.75
11-Feb-97 20.625 25.5863 20.625
12-Feb-97 20.75 25.4099 20.75
13-Feb-97 21 24.9079 21
14-Feb-97 20.75 24.9085 20.75
18-Feb-97 21.5 26.6191 21.5
19-Feb-97 21.375 26.4907 21.375
20-Feb-97 21.375 27.1065 21.375
21-Feb-97 21.5 27.1347 21.5
24-Feb-97 21 26.1837 21
25-Feb-97 21.375 25.0564 21.375
26-Feb-97 21.125 24.5007 21.125
27-Feb-97 20.25 24.377 20.25
28-Feb-97 20.125 24.3878 20.125
3-Mar-97 20.125 23.6649 20.125
4-Mar-97 20.25 24.1246 20.25
5-Mar-97 20.25 23.8599 20.25
6-Mar-97 20.375 23.7778 20.375
7-Mar-97 20.5 23.7707 20.5
10-Mar-97 20.375 23.4136 20.375
11-Mar-97 20.625 22.54 20.625
12-Mar-97 20.25 22.5426 20.25
13-Mar-97 20.125 22.753 20.125
14-Mar-97 20.125 22.7594 20.125
17-Mar-97 19.875 22.9871 19.875
18-Mar-97 19.875 22.505 19.875
19-Mar-97 19.625 22.456 19.625
20-Mar-97 19.375 22.4567 19.375
21-Mar-97 19.25 22.4998 19.25
24-Mar-97 19 21.9845 19
25-Mar-97 18.375 22.2458 18.375
26-Mar-97 19.125 22.2897 19.125
27-Mar-97 18.875 22.9579 18.875
31-Mar-97 18.875 24.1603 18.875
1-Apr-97 18.875 24.3386 18.875
2-Apr-97 18.75 25.1903 18.75
3-Apr-97 18.75 25.9394 18.75
4-Apr-97 19.25 25.8982 19.25
7-Apr-97 19.375 25.9595 19.375
8-Apr-97 19.375 25.8026 19.375
9-Apr-97 19 25.1517 19
10-Apr-97 19.25 25.0438 19.25
11-Apr-97 18.625 25.0109 18.625
14-Apr-97 19.125 25.5928 19.125
15-Apr-97 18.75 25.1651 18.75
16-Apr-97 18.75 24.9401 18.75
17-Apr-97 18.75 24.2813 18.75
18-Apr-97 18.75 24.2698 18.75
21-Apr-97 18.625 24.3482 18.625
22-Apr-97 18 24.3153 18
23-Apr-97 18.375 24.8305 18.375
24-Apr-97 18.75 24.8008 18.75
25-Apr-97 18.75 24.7731 18.75
28-Apr-97 18.5 24.7566 18.5
29-Apr-97 18.75 24.5174 18.75
30-Apr-97 19 24.633 19
1-May-97 18.875 24.5024 18.875
2-May-97 19.125 24.4539 19.125
5-May-97 19.625 25.3791 19.625
6-May-97 19.75 25.8873 19.75
7-May-97 19.375 25.9067 19.375
8-May-97 19.125 25.906 19.125
9-May-97 19.25 25.9394 19.25
12-May-97 19.25 25.9612 19.25
13-May-97 19.875 26.0161 19.875
14-May-97 20.25 27.1232 20.25
15-May-97 20.375 27.2228 20.375
16-May-97 20.75 27.3261 20.75
19-May-97 21.125 27.736 21.125
20-May-97 21.5 28.5595 21.5
21-May-97 21.75 28.274 21.75
22-May-97 21.75 28.5932 21.75
23-May-97 21.625 28.6095 21.625
27-May-97 21.875 28.9071 21.875
28-May-97 22.5 29.1586 22.5
29-May-97 22.875 28.6512 22.875
30-May-97 22.75 28.5907 22.75
2-Jun-97 23.125 28.8426 23.125
3-Jun-97 23.125 28.854 23.125
4-Jun-97 23.25 28.6761 23.25
5-Jun-97 23.375 29.3857 23.375
6-Jun-97 23.875 29.3826 23.875
9-Jun-97 23.75 30.6739 23.75
10-Jun-97 23.625 30.6333 23.625
11-Jun-97 23.875 30.6582 23.875
12-Jun-97 23.875 29.7549 23.875
13-Jun-97 24.5 29.6768 24.5
16-Jun-97 24.5 30.222 24.5
17-Jun-97 25 30.0248 25
18-Jun-97 25.125 30.3745 25.125
19-Jun-97 24.875 30.3192 24.875
20-Jun-97 24.625 30.2098 24.625
23-Jun-97 24.125 29.7222 24.125
24-Jun-97 23.625 28.7198 23.625
25-Jun-97 23.75 28.3277 23.75
26-Jun-97 24.25 27.574 24.25
27-Jun-97 24 27.3893 24
30-Jun-97 24 26.9267 24
1-Jul-97 23.875 28.2084 23.875
2-Jul-97 24 29.0033 24
3-Jul-97 24 29.0085 24
7-Jul-97 24 29.9803 24
8-Jul-97 24 29.5501 24
9-Jul-97 23.625 29.025 23.625
10-Jul-97 24.25 28.5274 24.25
11-Jul-97 24.125 28.4616 24.125
14-Jul-97 24.125 28.6715 24.125
15-Jul-97 23.937 28.7735 23.9375
16-Jul-97 23.812 28.4599 23.8125
17-Jul-97 23.187 29.3202 23.1875
18-Jul-97 23.437 29.3845 23.4375
21-Jul-97 22.812 28.5312 22.8125
22-Jul-97 22.812 28.6013 22.8125
23-Jul-97 22.875 29.8616 22.875
24-Jul-97 22.5 30.7306 22.5
25-Jul-97 22.25 30.8133 22.25
28-Jul-97 22.812 31.6639 22.8125
29-Jul-97 22.812 32.682 22.8125
30-Jul-97 22.5 31.977 22.5
31-Jul-97 22.625 32.9564 22.625
1-Aug-97 22.562 32.9509 22.5625
4-Aug-97 22.25 32.2497 22.25
5-Aug-97 22.562 31.8886 22.5625
6-Aug-97 22.75 31.2395 22.75
7-Aug-97 22.687 31.5602 22.6875
8-Aug-97 22.187 31.6775 22.1875
11-Aug-97 22 31.1878 22
12-Aug-97 21.687 31.1271 21.6875
13-Aug-97 21.875 31.176 21.875
14-Aug-97 21.75 31.7572 21.75
15-Aug-97 20.625 31.9211 20.625
18-Aug-97 20.562 31.1804 20.5625
19-Aug-97 20.625 31.0784 20.625
20-Aug-97 21.25 31.3536 21.25
21-Aug-97 21.875 30.8999 21.875
22-Aug-97 21.25 30.9716 21.25
25-Aug-97 20.812 29.1237 20.8125
26-Aug-97 20.812 28.4177 20.8125
27-Aug-97 20.875 28.8034 20.875
28-Aug-97 20.875 28.7394 20.875
29-Aug-97 20.687 28.6872 20.6875
2-Sep-97 20.75 28.2114 20.75
3-Sep-97 20.625 28.7534 20.625
4-Sep-97 20.75 28.4862 20.75
5-Sep-97 20.75 28.5288 20.75
8-Sep-97 20.812 27.3717 20.8125
9-Sep-97 20.687 28.4586 20.6875
10-Sep-97 20.375 28.7554 20.375
11-Sep-97 20.687 29.321 20.6875
12-Sep-97 20.625 29.4042 20.625
15-Sep-97 20.687 28.8123 20.6875
16-Sep-97 20.125 28.0267 20.125
17-Sep-97 20.062 27.7229 20.0625
18-Sep-97 20.125 27.2788 20.125
19-Sep-97 19.937 27.3049 19.9375
22-Sep-97 19 27.7551 19
23-Sep-97 19.125 28.0379 19.125
24-Sep-97 19.25 27.8009 19.25
25-Sep-97 19.437 28.335 19.4375
26-Sep-97 19.5 28.2674 19.5
29-Sep-97 19.25 29.3704 19.25
30-Sep-97 19.312 29.1437 19.3125
1-Oct-97 19.812 29.0785 19.8125
2-Oct-97 20.125 29.1159 20.125
3-Oct-97 20 29.1076 20
6-Oct-97 19.875 30.0363 19.875
7-Oct-97 20 30.035 20
8-Oct-97 19.937 30.8638 19.9375
9-Oct-97 19.937 30.5108 19.9375
10-Oct-97 20.062 30.4874 20.0625
13-Oct-97 20.562 30.9402 20.5625
14-Oct-97 21 30.9407 21
15-Oct-97 21.562 30.8062 21.5625
16-Oct-97 21.5 30.8424 21.5
17-Oct-97 21.5 30.6799 21.5
20-Oct-97 21.5 30.9621 21.5
21-Oct-97 21.5 31.1041 21.5
22-Oct-97 21.5 30.9959 21.5
23-Oct-97 21.25 31.0015 21.25
24-Oct-97 21.125 30.8345 21.125
27-Oct-97 19.625 29.1389 19.625
28-Oct-97 19.937 26.1148 19.9375
29-Oct-97 20.375 28.0717 20.375
30-Oct-97 20.187 27.1087 20.1875
31-Oct-97 20 27.1985 20
3-Nov-97 20.25 28.0723 20.25
4-Nov-97 20.25 27.4138 20.25
5-Nov-97 20.375 28.0834 20.375
6-Nov-97 20 28.0839 20
7-Nov-97 19.75 28.003 19.75
10-Nov-97 19.812 27.1293 19.8125
11-Nov-97 19.75 27.6404 19.75
12-Nov-97 18.937 26.7703 18.9375
13-Nov-97 18.937 27.0144 18.9375
14-Nov-97 19.562 27.0103 19.5625
17-Nov-97 20.125 28.3894 20.125
18-Nov-97 19.375 27.6749 19.375
19-Nov-97 19.062 27.0531 19.0625
20-Nov-97 19.625 26.9287 19.625
21-Nov-97 20.437 26.9393 20.4375
24-Nov-97 20.25 26.5516 20.25
25-Nov-97 20.125 26.6396 20.125
26-Nov-97 20.437 26.9471 20.4375
28-Nov-97 20.437 27.415 20.4375
1-Dec-97 20.375 28.092 20.375
2-Dec-97 20.437 28.2494 20.4375
3-Dec-97 21.125 28.2758 21.125
4-Dec-97 22 28.248 22
5-Dec-97 22.187 28.1666 22.1875
8-Dec-97 22 28.2106 22
9-Dec-97 21.625 28.1845 21.625
10-Dec-97 21.812 27.5892 21.8125
11-Dec-97 21.125 26.9777 21.125
12-Dec-97 21.125 26.9423 21.125
15-Dec-97 21.5 27.0561 21.5
16-Dec-97 21.5 27.696 21.5
17-Dec-97 21 28.08 21
18-Dec-97 21.062 27.9114 21.0625
19-Dec-97 21.062 27.9271 21.0625
22-Dec-97 21.437 26.8411 21.4375
23-Dec-97 21.687 27.4813 21.6875
24-Dec-97 21.625 26.7177 21.625
26-Dec-97 21.625 26.997 21.625
29-Dec-97 21.625 27.445 21.625
30-Dec-97 21.5 27.9868 21.5
31-Dec-97 21.625 27.9595 21.625
2-Jan-98 21.75 27.8912 21.75
5-Jan-98 21.687 27.4173 21.6875
6-Jan-98 21.687 27.1265 21.6875
7-Jan-98 21.625 26.7408 21.625
8-Jan-98 21.312 26.348 21.3125
9-Jan-98 21 26.3513 21
12-Jan-98 20.625 24.1701 20.625
13-Jan-98 20.75 24.7965 20.75
14-Jan-98 20.75 24.3692 20.75
15-Jan-98 20.5 23.7824 20.5
16-Jan-98 20.875 23.6647 20.875
20-Jan-98 21 24.5273 21
21-Jan-98 20.5 24.764 20.5
22-Jan-98 19.937 24.0968 19.9375
23-Jan-98 20.375 24.1301 20.375
26-Jan-98 20.375 24.0398 20.375
27-Jan-98 20.312 24.0196 20.3125
28-Jan-98 20.312 24.0456 20.3125
29-Jan-98 20.5 24.601 20.5
30-Jan-98 20.687 24.5535 20.6875
2-Feb-98 21.25 25.2886 21.25
3-Feb-98 21.75 24.782 21.75
4-Feb-98 21.25 24.3088 21.25
5-Feb-98 20.687 24.512 20.6875
6-Feb-98 20.5 24.5005 20.5
9-Feb-98 20.437 24.2115 20.4375
10-Feb-98 20.625 24.002 20.625
11-Feb-98 20.187 24.2446 20.1875
12-Feb-98 20 24.2347 20
13-Feb-98 20.437 24.2056 20.4375
17-Feb-98 20.875 24.6541 20.875
18-Feb-98 20.625 25.1201 20.625
19-Feb-98 20.5 24.9971 20.5
20-Feb-98 20.375 24.9791 20.375
23-Feb-98 20.625 26.1139 20.625
24-Feb-98 20.875 25.5643 20.875
25-Feb-98 20.625 24.7525 20.625
26-Feb-98 20.312 24.5185 20.3125
27-Feb-98 20.187 24.528 20.1875
2-Mar-98 20.687 25.3869 20.6875
3-Mar-98 20.875 25.2754 20.875
4-Mar-98 20.812 24.6928 20.8125
5-Mar-98 20.75 23.9542 20.75
6-Mar-98 20.937 23.9351 20.9375
9-Mar-98 21.062 25.4226 21.0625
10-Mar-98 21.687 26.1089 21.6875
11-Mar-98 21.812 26.0843 21.8125
12-Mar-98 21.875 26.1292 21.875
13-Mar-98 21.812 26.1644 21.8125
16-Mar-98 21.875 25.737 21.875
17-Mar-98 21.812 26.2541 21.8125
18-Mar-98 21.75 25.9258 21.75
19-Mar-98 21.937 26.0864 21.9375
20-Mar-98 21.937 26.0373 21.9375
23-Mar-98 21.5 26.6315 21.5
24-Mar-98 21.125 26.2702 21.125
25-Mar-98 21.375 26.6075 21.375
26-Mar-98 22.937 26.529 22.9375
27-Mar-98 23.062 26.4476 23.0625
30-Mar-98 22.687 26.3747 22.6875
31-Mar-98 22.937 26.2888 22.9375
1-Apr-98 23.625 26.6512 23.625
2-Apr-98 23.75 26.5602 23.75
3-Apr-98 24.25 26.4305 24.25
6-Apr-98 24 26.9144 24
7-Apr-98 23.812 26.5961 23.8125
8-Apr-98 23.5 26.5823 23.5
9-Apr-98 23.187 27.5553 23.1875
13-Apr-98 23.5 28.119 23.5
14-Apr-98 23.812 27.8495 23.8125
15-Apr-98 23.937 28.1549 23.9375
16-Apr-98 23.937 28.1396 23.9375
17-Apr-98 24 28.1321 24
20-Apr-98 24 28.2642 24
21-Apr-98 24.125 27.5891 24.125
22-Apr-98 24.125 26.7305 24.125
23-Apr-98 23.75 26.9383 23.75
24-Apr-98 23.625 26.9037 23.625
27-Apr-98 23.125 26.507 23.125
28-Apr-98 23.375 27.1719 23.375
29-Apr-98 23.375 27.2723 23.375
30-Apr-98 23.562 27.2686 23.5625
1-May-98 23.625 27.3062 23.625
4-May-98 23.812 28.9142 23.8125
5-May-98 23.875 29.2313 23.875
6-May-98 23.562 29.0802 23.5625
7-May-98 23.312 28.6154 23.3125
8-May-98 23.312 28.6762 23.3125
11-May-98 23.312 28.9391 23.3125
12-May-98 23.375 28.9087 23.375
13-May-98 23.25 29.8911 23.25
14-May-98 23.25 29.8701 23.25
15-May-98 23.125 29.8767 23.125
18-May-98 23.125 29.6634 23.125
19-May-98 23.062 29.5085 23.0625
20-May-98 22.875 29.5754 22.875
21-May-98 22.875 30.6286 22.875
22-May-98 22.687 30.7013 22.6875
26-May-98 22.687 31.7879 22.6875
27-May-98 22 30.7993 22
28-May-98 22 30.2742 22
29-May-98 22.125 30.2372 22.125
1-Jun-98 21.812 30.1712 21.8125
2-Jun-98 21.687 30.1934 21.6875
3-Jun-98 22.437 31.2931 22.4375
4-Jun-98 22.375 31.4517 22.375
5-Jun-98 22.375 31.4277 22.375
8-Jun-98 22.312 32.0507 22.3125
9-Jun-98 22.812 31.8118 22.8125
10-Jun-98 22.75 31.4289 22.75
11-Jun-98 22.875 30.8819 22.875
12-Jun-98 22.687 30.748 22.6875
15-Jun-98 22.25 29.7268 22.25
16-Jun-98 22.375 30.3646 22.375
17-Jun-98 22.25 31.203 22.25
18-Jun-98 22.687 31.4261 22.6875
19-Jun-98 23.125 31.5471 23.125
22-Jun-98 23.125 31.6557 23.125
23-Jun-98 23.062 31.3556 23.0625
24-Jun-98 23.437 32.4041 23.4375
25-Jun-98 23.687 32.7513 23.6875
26-Jun-98 23.75 32.6704 23.75
29-Jun-98 23.75 32.8349 23.75
30-Jun-98 23.875 32.0362 23.875
1-Jul-98 23.875 31.918 23.875
2-Jul-98 23.937 32.0933 23.9375
6-Jul-98 24 32.1568 24
7-Jul-98 23.937 31.7907 23.9375
8-Jul-98 24 31.428 24
9-Jul-98 24.25 31.1531 24.25
10-Jul-98 24.312 31.1826 24.3125
13-Jul-98 24.75 31.3708 24.75
14-Jul-98 24.75 32.0426 24.75
15-Jul-98 24.937 31.903 24.9375
16-Jul-98 24.937 31.6506 24.9375
17-Jul-98 24.812 31.6376 24.8125
20-Jul-98 25 32.5679 25
21-Jul-98 24.812 32.5032 24.8125
22-Jul-98 24.937 33.4199 24.9375
23-Jul-98 24.812 33.1244 24.8125
24-Jul-98 25 33.223 25
27-Jul-98 25.187 33.8065 25.1875
28-Jul-98 24.812 33.4993 24.8125
29-Jul-98 24.625 33.195 24.625
30-Jul-98 24.687 33.058 24.6875
31-Jul-98 24.875 33.1079 24.875
3-Aug-98 24.562 32.1945 24.5625
4-Aug-98 24.687 32.0828 24.6875
5-Aug-98 24.437 31.1623 24.4375
6-Aug-98 25.062 31.7367 25.0625
7-Aug-98 25.062 31.4688 25.0625
10-Aug-98 25.062 34.1729 25.0625
11-Aug-98 24.25 33.3941 24.25
12-Aug-98 25 33.9669 25
13-Aug-98 25 33.1142 25
14-Aug-98 24.812 33.1265 24.8125
17-Aug-98 25 32.1955 25
18-Aug-98 25.125 32.203 25.125
19-Aug-98 25.125 32.2129 25.125
20-Aug-98 25 32.0324 25
21-Aug-98 24.562 31.9986 24.5625
24-Aug-98 24.75 30.2896 24.75
25-Aug-98 25 30.407 25
26-Aug-98 24.875 29.4375 24.875
27-Aug-98 23.75 27.8817 23.75
28-Aug-98 23.812 27.3589 23.8125
31-Aug-98 23.25 27.8236 23.25
1-Sep-98 23.437 26.8401 23.4375
2-Sep-98 23.562 26.4745 23.5625
3-Sep-98 22.812 25.658 22.8125
4-Sep-98 22.812 25.7928 22.8125
8-Sep-98 21.848 27.6774 25
9-Sep-98 21.774 27.5844 25.625
10-Sep-98 20.766 26.3067 25.375
11-Sep-98 20.796 26.3453 25.875
14-Sep-98 22.180 28.0983 26.0625
15-Sep-98 21.610 27.3762 26
16-Sep-98 21.976 27.8401 26.25
17-Sep-98 21.312 26.9986 26.1875
18-Sep-98 21.388 27.095 26.375
21-Sep-98 21.411 27.1235 26.125
22-Sep-98 21.389 27.0959 26.125
23-Sep-98 21.500 27.2371 25.875
24-Sep-98 21.434 27.1526 26.0625
25-Sep-98 21.370 27.0724 25.875
28-Sep-98 20.696 26.2177 25.875
29-Sep-98 20.694 26.2154 25.5
30-Sep-98 20.693 26.2138 25.625
1-Oct-98 19.511 24.717 24.875
2-Oct-98 19.161 24.2739 25.625
5-Oct-98 19.154 24.2648 25.5
6-Oct-98 17.642 22.3493 24.875
7-Oct-98 16.788 21.2681 24.5
8-Oct-98 15.567 19.7202 24.1875
9-Oct-98 15.646 19.8211 24.125
12-Oct-98 15.586 19.7442 25
13-Oct-98 16.558 20.9765 25
14-Oct-98 16.481 20.8782 24.9375
15-Oct-98 16.993 21.5273 24.6875
16-Oct-98 17.005 21.543 24.9375
19-Oct-98 17.096 21.6579 24.9375
20-Oct-98 17.319 21.9398 25.1875
21-Oct-98 17.136 21.7084 24.5625
22-Oct-98 17.615 22.3148 24.8125
23-Oct-98 18.030 22.8404 24.875
26-Oct-98 18.284 23.1623 24.9375
27-Oct-98 18.481 23.4128 24.8125
28-Oct-98 18.330 23.2206 24.875
29-Oct-98 17.872 22.6404 24.8125
30-Oct-98 17.987 22.7865 24.8125
2-Nov-98 17.891 22.6654 25.0625
3-Nov-98 17.893 22.6673 24.9375
4-Nov-98 17.944 22.7324 25.0625
5-Nov-98 17.631 22.336 24.75
6-Nov-98 17.598 22.2933 24.875
9-Nov-98 16.834 21.3255 24.9375
10-Nov-98 16.589 21.0159 24.3125
11-Nov-98 16.955 21.4786 24.625
12-Nov-98 16.747 21.2156 24.5
13-Nov-98 16.747 21.2156 24.125
16-Nov-98 17.089 21.6493 23.9375
17-Nov-98 17.762 22.5018 24.25
18-Nov-98 17.989 22.7891 24.375
19-Nov-98 18.44 23.3598 24.5
20-Nov-98 18.345 23.2399 24.3125
23-Nov-98 18.883 23.922 24.25
24-Nov-98 19.701 24.9572 24.0625
25-Nov-98 19.706 24.9638 24.1875
26-Nov-98 19.746 25.0145 24.1875
27-Nov-98 19.522 24.7312 24.1875
30-Nov-98 19.944 25.265 24.0625
1-Dec-98 19.472 24.6679 24.375
2-Dec-98 19.331 24.4886 24.5625
3-Dec-98 19.564 24.7841 24.5625
4-Dec-98 19.564 24.7841 24.5625
7-Dec-98 20.312 25.7322 24.5
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[LOGO]
February 17, 1999 Appendix A - Page 2
<PAGE>
CONFIDENTIAL
PROJECT ALPHA FOR INTERNAL USE ONLY
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APPENDIX B. HOLDING COMPANY DISCOUNTS
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[LOGO]
February 17, 1999 Appendix B
<PAGE>
CONFIDENTIAL
PROJECT ALPHA FOR INTERNAL USE ONLY
- --------------------------------------------------------------------------------
PEC HISTORICAL DISCOUNTS(a)
- --------------------------------------------------------------------------------
OVER THE LAST YEARS, INDEPENDENT THIRD PARTY RESEARCH ANALYSTS HAVE ESTIMATED
PEC'S DISCOUNT TO ITS AFTER-TAX NAV FROM APPROXIMATELY 30% TO 51%.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
ESTIMATED DISCOUNT TO NAV
ANALYST PRE-TAX NAV SHARE ---------------
REPORT DATE PER SHARE PRICE PRE-TAX AFTER-TAX
------------- ------------- ------- --------- -----------
<S> <C> <C> <C> <C> <C>
PEC(b) 11/19/98 $45.10 $24.500 (45.7%) (38.30%)
09/11/98 46.76 25.875 (44.7) (36.97)
05/26/98 51.94 22.688 (56.3) (50.26)
03/27/98 51.10 23.063 (54.9) (50.71)
12/05/97 35.29 Conservative 22.188 (37.1) (30.97)
38.16 Aggressive 22.188 (41.9) (36.63)
11/19/97 35.29 Conservative 19.063 (46.0) (40.69)
38.16 Aggressive 19.063 (50.0) (45.55)
11/18/97 34.47 19.375 (43.8) NA
09/12/97 36.41 Conservative 20.625 (43.4) (37.44)
39.28 Aggressive 20.625 (47.5) (42.45)
09/03/97 34.15 20.625 (39.6) NA
06/24/97 36.68 Conservative 23.625 (35.6) (30.04)
38.59 Aggressive 23.625 (38.8) (33.79)
04/09/97 28.03 19.000 (32.2) NA
- --------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------------
(a) Research analysts valued the Company's NAV under both aggressive and
conservative scenarios.
(b) Incorporated in the U.S. and subject to U.S. taxation.
Source: Publicly disclosed research reports.
- --------------------------------------------------------------------------------
[LOGO]
February 17, 1999 Appendix B - Page 1
<PAGE>
CONFIDENTIAL
PROJECT ALPHA FOR INTERNAL USE ONLY
- --------------------------------------------------------------------------------
ISRAELI HOLDING COMPANY BENCHMARKS(a)
(continued)
- --------------------------------------------------------------------------------
THE DISCOUNT TO AFTER-TAX NAV FOR AMPAL-AMERICAN, A COMPARABLE U.S. HOLDING
COMPANY, HAS INCREASED TO OVER 47% DURING 1998.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
ESTIMATED
ANALYST PRE-TAX NAV SHARE DISCOUNT TO NAV
REPORT DATE PER SHARE PRICE PRE-TAX AFTER-TAX
----------- ----------- ------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Ampal-American Israel 09/04/98 $9.92 Conservative $4.563 (54.0%) (47.74%)
Corporation(b)
12/05/97 9.76 Conservative 4.875 (50.1) (43.12)
10.16 Aggressive 4.875 (52.0) (46.13)
09/12/97 8.18 Conservative 5.438 (33.5) (19.92)
8.84 Aggressive 5.438 (38.5) (28.08)
06/25/97 8.97 Conservative 6.125 (31.7) (16.21)
9.60 Aggressive 6.125 (36.2) (25.40)
09/04/96 7.88 Conservative 4.750 (39.7) (22.39)
8.25 Aggressive 4.750 (42.4) (32.05)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------------------
(a) Research analysts valued the Company's NAV under both aggressive and
conservative scenarios.
(b) Incorporated in the U.S. and subject to U.S. taxation.
Source: Publicly disclosed research reports.
- --------------------------------------------------------------------------------
[LOGO]
February 17, 1999 Appendix B - Page 2
<PAGE>
Exhibit (b)(5)
October 1998
VALUATION OF THE NUMBER OF SHARES
OF DISCOUNT INVESTMENT CORPORATION
WHICH WILL BE ISSUED TO IDB DEVELOPMENT CORPORATION LTD.
IN CONSIDERATION FOR 14,937,792 SHARES OF $1 PAR VALUE
OF PEC - ISRAEL ECONOMIC CORPORATION
Itzhak Swary Uri Cohen
Itzhak Swary Ltd.
<PAGE>
Itzhak Swary Ltd.
Financial Consulting
- --------------------------------------------------------------------------------
Messrs:
IDB Development Corporation Ltd. Discount Investments Corporation Ltd.
3 Daniel Frisch Street 14 Bet Hashoeva Lane,
Tel Aviv. Tel Aviv.
Dear Sirs:
Re:Valuation dated October 15, 1998 of the number of shares of Discount
Investment Corporation Ltd. ("Discount Investments") which will be issued to
IDB Development Corporation Ltd. ("IDB Development") in consideration
for 14,937,792 shares of $1 par value of PEC Economic Corporation ("PEC")
We were requested by you to evaluate the number of shares of Discount
Investments which will be issued to IDB Development in consideration for
14,937,792 common shares of $1 par value of PEC, which comprise some 81.4% of
the rights in that company (hereinafter: "The Exchange Ratio"). The suitable
Exchange Ratio is determined as a function of the ratio of the net assets value
of Discount Investments to the net assets value of PEC.
In our opinion, in view of the data we received and the checks we carried out,
the fair and reasonable exchange ratio between the shares of PEC which will be
transferred to Discount Investments and the shares of Discount Investments which
will be issued in consideration therefor are as follows:
In consideration for 14,937,792 common shares of $1 par value of PEC, 17,390,593
shares of NIS 1 par value of Discount Investments should be issued to IDB
Development, which expresses a ratio of 1.1642 common shares of NIS 1 par value
of Discount Investments in consideration for a share of $1 par value of PEC.
This exchange ratio was determined based on an average ratio of 1.327 between
the net assets value of Discount Investments and the net assets value of PEC.
It should be mentioned that the investments portfolio of the two companies is
similar in composition, and that about 80% of the value of the companies is
derived from identical investments in over 40 companies. In addition IDB
Development holds some 54.3% of the shares of Discount Investments prior to the
transaction, and therefore is situated on "both sides of the fence" in the
exchange transaction. As a result, according to simulations we carried out, the
exchange ratio has a low sensitivity to changes within reasonable ranges (+/-
25%) of the valuations of the companies.
We wish to emphasize that in view of the legal limitations connected with the
possibility of a public issue in the U.S. of Cellcom Israel Ltd. ("Cellcom"),
whose shares are held among other things by Discount Investments and PEC, we
were requested by you to determine an exchange ratio taking into account a
general indication of the value of Cellcom. The indication will be based on the
comparison of market prices and multipliers of similar European cellular
companies, taking into account a discount resulting from the lack of
marketability and liquidity of an investment in Cellcom as compared with the
comparative group. We should state that the investments of the companies in
Cellcom are significant to their economic value, but have little effect on the
exchange rates due to identical holdings in that company. We emphasize that in
view of your said directive, we did not carry out an evaluation and we did not
apply any other procedures regarding this investment.
We should mention that a deviation of +/- 25% in the value of Cellcom will
result in a ratio of about 1.318 - 1.339 between the net assets value of
Discount Investments and the net assets value of PEC, and the number of shares
of Discount Investments to be issued to IDB Development resulting from the
amended range will stand at 17,522,056 - 17,246,417 shares (a variance of +/-
0.8% of the number of
<PAGE>
shares stated in the exchange ratio valuation). As in our estimate the
indication calculated by us and the range of the variation checked, reflect a
reasonable range of the economic value of Cellcom, and as a change in the
estimated value in the range stated does not result in a significant variance in
the results of valuation of the exchange ratio, in our opinion this limitation
does not detrimentally affect the reasonability and validity of the valuation of
the exchange ratio.
Determining a fair exchange ratio is based on the valuation of the value of
portfolio investments of the two companies less the value of their net financial
liabilities, taking into account tax effects which apply on profits from the
realization of the investments. For the purpose of valuing the exchange ratio we
based ourselves on the draft and immediate statements of IDB Development dated
October 1, 1998 which relates to the said transaction, the periodic reports and
audited financial reports, the interim financial reports and the prospectuses
which were published by Discount Investments, PEC and the principal companies
included in their investment portfolios. Moreover, we based ourselves on
additional data and clarification received from the managements of Discount
Investments and PEC, including regarding significant companies included in their
investment portfolios, on discussions with senior management members of Discount
Investments and PEC and on data available to the public and the views published
about the companies and the branches in which they operate. In addition we acted
according to your directives regarding the treatment of the investment in
Cellcom in view of the legal limitations mentioned.
We relied on sources which seemed to us trustworthy. Nothing came to our
knowledge which should reflect on the lack of reasonability of the data we used.
We did not check the data independently and therefore our work is not a
verification of the correctness, completeness and exactness of this data.
The valuation of a suitable exchange ratio is aimed at determining the number of
shares of Discount Investments which will be issued to IDB Development only, and
relates to the totality of elements connected with the valuation of the exchange
ratio only, does not discuss other aspects of the transaction, and is in no way
a recommendation to any shareholder regarding the way he should vote in the
proposed exchange transaction. The valuation of the exchange ratio is not a
valuation of the value of the assets or of the share capital of Discount
Investments or PEC.
An economic valuation should reflect in a reasonable and fair manner a given
situation at a certain time, on the basis on known data while relating to basic
assumptions and forecasts which were made on the basis of this information.
The valuation of a published exchange ratio at the time in which there are
fluctuations in the capital and financial markets in the world and in Israel,
which are affected by real and monetary influences and there is a possibility
also of overreactions of the investing public to these influences. For the
purpose of differentiating between the long-term effects and the
overreactions which in their nature are transitory, requires among other
things, a reexamination in view of the perspective of time. On the other hand
despite these difficulties there is the low sensitivity of the exchange ratio
to changes within reasonable ranges in the valuation of the companies as
mentioned above.
We agree, that this Opinion will be included and/or mentioned in the Immediate
Amended Report to be published with regard to this exchange transaction. We wish
to state, that we have no personal interest in the shares of IDB Development,
Discount Investments or PEC.
In addition we would like to state, that in the context of our engagement with
you to carry out the valuation of the exchange ratio, we have been given an
indemnity, according to which, should be sued to pay any amount to a third party
in a legal procedure for any grounds which are liable to stem, directly or
indirectly, from this Opinion, you will indemnify us for reasonable expenses
which we will incur or be required to pay for representation, legal counseling,
professional fees, defense against legal proceedings, negotiations etc., and you
will also indemnify us for any amount
<PAGE>
which we will be obliged to pay in legal proceeding, to a third party, which
exceeds $1.5 million. There will be no obligation to pay indemnity if it is
determined that we acted, with regard to this opinion, with serious negligence
or malice.
Our Opinion follows.
Yours sincerely,
( - ) ( - )
Date: ------------ ---------
October 15, 1998 Itzhak Swary Uri Cohen
<PAGE>
CONTENTS
Page
----
1. Background and Summary of Valuation of the Exchange Ratio
a. Background 1
b. Summary of valuation of the exchange ratio 2 - 3
c. Relationship between exchange ratio and the value of
the companies according to the prices of their shares
on the Stock Exchange. 4 - 5
2. Methodology
a. General 8
b. Considerations when valuing of the net assets value
of Discount Investments and the net assets value of PEC 8-
c. Tax aspects 8 - 12
d. Calculating the number of shares of Discount Investments
which should be issued to IDB Development based on the
net assets value ratio 12
3. Details of the valuation of certain companies held by Discount Investments
and/or PEC whose value has a significant effect on the valuation of the
exchange ratio.
a. Property and Building Company Ltd. 13 - 26
b. Supersol Ltd. 27 - 43
c. Elron Electronic Industries Ltd. 44 - 54
d. Ilanot Batucha Investment House Ltd. 55 - 61
e. General indication of the range of values of
Cellcom (Israel) Ltd. which is not an evaluation 62 - 64
Appendices
1. Calculation of the number of shares of Discount Investments which should be
issued to IDB Development in consideration for the shares of PEC at its
disposal.
2. Comparison of the level of marketability of the shares of Discount
Investments and PEC and the development of value ratio of Discount
Investments to the value of PEC according to their share prices on the Stock
Exchange.
3. Opinion of the assessor Mr. Alfred Irani.
<PAGE>
1. Background and Summary of the Valuation of the Exchange Ratio(1)
a. Background
IDB Development holds about 54.3% of the share capital of
Discount Investments, a company whose shares are listed for
trading on the Tel-Aviv Stock Exchange (hereinafter: "The Stock
Exchange") and about 81.4% of the share capital of PEC, a company
incorporated in the State of Maine in the United States ((whose
shares are listed for trading on the New York Stock Exchange
(hereinafter: "NYSE")). It is the intention of IDB Development
and Discount Investments to merge PEC with Discount Investments
by way of an exchange of holdings of IDB Development in PEC with
shares of Discount Investments which will be issued to IDB
Development, and the acquisition of the shares of the minority in
PEC in cash. After completing the transactions, PEC will become a
wholly owned subsidiary of Discount Investments, and its shares
will be delisted from trading on the NYSE. The transactions are
not interdependent, and their implementation is subject to the
mechanisms of negotiation and approval, as detailed in the
Immediate Report in which this evaluation is included.
The acquisition of the shares of the minority in PEC will be
financed by Discount Investments, and will be carried out according
to a procedure called in the U. S. - a Reverse Subsidiary Merger.
According to this procedure, IDB Development will set up a wholly
owned subsidiary(2), where Discount Investments will arrange to put
the financial resources required to pay for the shares of the
minority in PEC at PEC's disposal and will merge with PEC. As a
result of the merger, this Company will cease to exist, and the
minority shareholders in PEC will receive cash in consideration for
their shares which will be acquired by PEC(3). On September 7, 1998
IDB Development published a cash purchase offer for the shares of
the minority in PEC at a share price of $25.50, based on the
valuation of the Company of some 468 million dollars. The final
price is subject to negotiations with the Committee of the Board of
Directors of PEC, which is independent of IDB Development.
In view of the intention of the parties, as described above, we have
been requested to value the number of Discount Investments' shares
of NIS 1 par value, which should be issued to IDB Development in
consideration for 14,937,792 shares of $ 1 par value of PEC, which
comprise some 81.4% of the rights in PEC.
- ----------
(1) All the financial data in this work are expressed in NIS of June 1998,
unless specifically stated otherwise. The data on market values is based
on the rates of the shares on the Stock Exchange in current terms.
(2) In the event that the exchange of the holdings of IDB Development in PEC
for shares of Discount Investments will be prior to the acquisition of the
shares of the minority, IDB Development will transfer to Discount
Investments its holdings in the subsidiary which will be set up for the
purpose of acquiring the shares of the minority in PEC, without
consideration.
(3) In the event that the exchange of the holdings of IDB Development in PEC
for shares of Discount Investments will not be carried out by the end of a
year from the date of acquisition of the shares in the minority, IDB
Development will see that the subsidiary will repay the loan, at market
conditions.
1
<PAGE>
b. Summary of the valuation of the exchange ratio
In our opinion, in view of the data we have received and the checks
we performed, the suitable exchange ratio between the shares of PEC
which will be transferred to Discount Investments and the shares of
Discount Investments which will be issued in consideration for them
is as follows:
In consideration for 14,937,792 shares of $1 par value of PEC,
17,390,593 shares of NIS 1 par value shares of Discount Investments
should be issued to IDB Development.
The exchange ratio is fixed at a ratio of 1.327 between the net
assets value of Discount Investments and the net assets value of
PEC.
It should be mentioned, that as about 80% of the investment
portfolio of the two companies is absolutely identical, and as about
54.3% of the shares of Discount Investments are held by IDB
Development prior to the transaction (so that IDB Development is
found on "both sides of the fence" in the exchanged transaction),
significant changes in the value of most of the companies included
in the portfolio, affect only slightly the exchange ratio. On the
other hand, joint investments at equal rates between the companies
have a greater effect on the ratio.
We wish to emphasize, that in view of the legal limitations connected with
the possibility of a public issue in the Unites States of Cellcom Company,
whose shares are held, among others, by Discount Investments and PEC, we
were requested by you to determine the exchange ratio taking into account
general indication regarding the range of the values of Cellcom. The
indication will be based on a comparison of market prices and multipliers
of similar European cellular companies, taking into consideration the
discount resulting from the lack of marketability and liquidity of the
investment in Cellcom as compared with the comparative group. We should
state, that the companies' investments in Cellcom are significant to their
economic value, however that have little effect on the exchange ratio due
to identical holdings in Cellcom. We should emphasize that in view of your
instructions, we did not carry out an evaluation and we did not apply any
other procedures with regard to this investment.
We state that a variance of +/-25% in the value of Cellcom will result in
obtaining a ratio of about 1.318 - 1.339 between the net assets value of
Discount Investments and the nets asset value of PEC, and the number of
shares of Discount Investments which will be issued to IDB Development,
resulting from the amended range, will be some 17,522,056 - 17,246,417
shares (a variance of +/- 8% of the number of shares which were determined
in the valuation of the exchange ratio). As in our estimate, the
indication calculated by us and the range of variance examined, reflect a
reasonable range of the economic value of Cellcom, and as a change in the
estimated value within the range stated, does not result in a significant
variance in the results of the valuation of the exchange ratio, in our
opinions this limitation does not harm the reasonability and validity of
the valuation of the exchange ratio.
2
<PAGE>
The calculation of the number of shares of Discount Investments, which
should be issued to IDB Development in consideration for the shares of PEC
at its disposal, is attached as Appendix 1 to this Opinion.
The valuation of the suitable exchange ratio is based on the valuation of
the net assets value (NAV) of Discount Investments and PEC, i.e. an
evaluation of the value of the investments portfolio and other assets of
the two companies, less financial liabilities, and taking into account the
tax effect which will apply to profits from realizing the investments.
Details of the net assets value of Discount Investments and PEC, according
to affiliated companies whose value has a significant effect on the
exchange ratio determined(4), is included in a table on Page 6.
c. The connection between the exchange ratio and the value of the companies
according to the price of their shares on the Stock Exchanges.
The net assets value used as a basis to determine the exchange ratio is
not necessarily identical to the economic value of the share capital of
Discount Investments and PEC.
Both Discount Investments and PEC are holding companies. Researches
carried out showed, that in many cases, the value of holding companies is
lower than their net assets value(5), among other things for the following
reasons:
- The lack of flexibility of the investor when choosing investments
and regarding the timing of investments and their realization, as
compared with direct investments in the basic assets of the holding
company;
- The lack of business focus of the holding company;
- The non optimal investment of management's time, which may be
expressed on the one hand, in superfluous investment for negligible
investments, and on the other hand neglecting small investments,
which may, on an accumulated basis, be a significant part of the
investments portfolio;
- The lack of sufficient information regarding the basic assets of the
holding company;
- The cost of maintaining the holding company's central management.
We should state, that in the researches some advantages are also presented
when investing in an investment company, such as access to investments as
well as other reasons. Nevertheless, there is wide agreement that the
disadvantages significantly exceed the advantages, and for this there
exists numerous empirical proof. Today, holding companies tend to
implement procedures of business focusing, apart from exceptions such
as the GE Corporation.
These reasons, and experience in a large number of holding companies and
closed end finds, require a check whether the economic value of the two
companies is lower than their net assets value. Thus, for example, the
value of Discount
- ----------
(4) In the context of the group of other companies, companies were included in
which a change of +/- 25% in their economic value compared to the value
taken into account in the exchange ratio valuation, will result in a
change of less than about 0.5% in the consideration to IDB Development.
(5) This characteristic is called "Discount of Holding Companies".
3
<PAGE>
Investments' share capital, as calculated based on the average price of
the share in the Stock Exchange in the period 9/8- 10/8/1998, is lower by
some 27% than the net assets value of this company according to this
valuation(6). Discount differences can be observed similarly in other
holding companies traded on the Stock Exchange.
It should be emphasized that investors among the public in the shares of
PEC, immediately prior to the exchange transaction, are exposed to
additional characteristics, which may reduce the value of the shares of
PEC held by them as compared with its net assets value, including low
marketability and liquidity, limitations on the methods of investment
applied to the Company as a foreign investment company as a result of
American law (which will be removed as a result of the transaction)(7),
the country risk (which is relevant to American investors in the
Company most of whose assets have the Israeli risk), taxation imposed
on the investment of Israeli investors in this Company and more.
These additional characteristics are likely to explain an additional
gap between the price of PEC's share when traded on the Stock Exchange,
and between the value of PEC calculated on the net assets value taking
into account the above mentioned discount, which does not include an
indication of exposures which are special for investors among the minority
in PEC. In other words, the discount expressed in a comparison of market
price to net assets values in PEC, as calculated by us, is higher than the
equivalent data in the shares of Discount Investments.
In our opinion, the factors we mentioned above, which may reduce the value
of the share capital as compared with the net assets value of the holding
company, should not affect the value of the exchange ratio, and this
because the character of the transaction is one of a merger transaction.
The nature of the transaction is a combination of investment portfolios of
the two companies (of which about 80% of their investments are absolutely
identical in both companies) to jointly manage in one framework, and
therefore the ratio of the net assets value expresses the contribution of
each party to the joint portfolio on the "day after the transaction",
without the need for further adjustments.
As described in the immediate report, IDB Development on September 7, 1998
approached the Board of Directors of PEC with an offer to purchase all the
PEC's shares held by the public in consideration for 25.50 U.S. dollars
per share in cash. The final price of purchase offer will be determined in
negotiations between a Special Committee of the Board of Directors of PEC,
which is independent of IDB Development, and between IDB Development, and
is subject to the right of the shareholders who will appeal to the Court
with a request to determine a fair price for the purchase of their shares.
- ----------
(6) This discount is liable to be affected due to the reasons mentioned, and
the differences in the net assets value (mainly differences in evaluating
the basic assets and/or the tax influence), including difference in
valuing Cellcom, in view of the fact that the investment in this company
was not valued by us but was included in the valuation based on general
indications of its value.
(7) We were told that the Investment Company Act (1940) stipulates, among
other things, special approval procedures and imposes obligations of
disclosure and reporting on transactions with companies held by the
investment company. Soon after the Law was legislated, PEC received an
approval that it is not subject to the Law, as long as most of the
investments portfolio of PEC will be invested in companies in which PEC
and the companies connected with it have a holding exceeding 25%, and
where PEC and the companies connected with it participate in their
management.
4
<PAGE>
The purchase offer price is, from the point of view the shareholders being
offered, close to and an amendment of the market price of PEC's shares, as
the only alternative at their disposal for the purchase offer price is the
sale of shares on the market. As the purchase offer price, to be
determined, is also affected by the factors we mentioned above, in our
opinion there is no need for additional adjustments to the net assets
value ratio as a result of the purchase offer.
The following is a description of the methodology and main points of the
financial analysis used in determining the exchange ratio. The following
description does not claim to be a full and detailed description of all
the procedures we applied, but relates to the main ones, and does not
constitute a full detailed description of Discount Investments, PEC, the
companies whose shares are held by them and their business environments.
5
<PAGE>
Structure of holdings and net assets of Discount Investments and PEC
(NIS millions)
<TABLE>
<CAPTION>
------------------------
-------------- ---------------------- Surplus Holding of
Joint Holdings Surplus Holding of PEC Discount Investments
Name of Average value -------------- ---------------------- --------------------
Company of Company Rate Value Rate Value Rate Value
------- ---------- ---- ----- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Properties and Building 1,781.0 14.89% 265.2 26.18% 466.3 - - See Clause 3.a
Cellcom * 7,476.0 12.50% 934.5 - - - - See Clause 3.e
Suipersol 2,310.0 17.60% 406.6 - - 4.72% 109.0 See Clause 3.b
Iron 1,308.0 13.51% 176.7 - - 32.77% 167.0 See Clause 3.c
Ilanot Batucha 212.5 - - 50.00% 106.3 See Clause 3.d
Others*** - 413.7
-------
1,279.8 205.3 796.0
------- ------- 499.0
-------
Other assets, net 3,062.8 67.0 1,295.0
======= ------- =======
-------------- 738.6
=======
The net assets value before provision for taxes 3,801.4 4,357.8
Provision for tax on the investments rates (807.6) (383.8)
------- -------
Net assets value ** 2,993.7 3,974.0
======= =======
Rate of identical joint holdings from the total investments value 82% 79%
----------------------- -------------------------
------------------------------------------------------------------------
Net assets value ratio: 1.327
-------------------------------------------------------------------------
IDB Develoment's holdings in Discount Investments after the merger: 73.7%
-------------------------------------------------------------------------
</TABLE>
* Indications of the value of the Company does not constitute an economic
evaluation, in view of the customer's instructions when ordering the work.
**As we have stated, the net basic value is not necessarily identical to the
value of the share capital of the companies
<TABLE>
<CAPTION>
--------------------
-------------- ---------------------- Surplus Holding of
***Others Joint Holdings Surplus Holding of PEC Discount Investments Main valuation method
- --------- Average value -------------- ---------------------- -------------------- ---------------------
of Company Rate Value Rate Value Rate Value
---------- ---- ----- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tevel 1,285.0 23.73% 304.9 - - 0.97% 12.5 Discounted cash flows
El-Yam 1,966.0 10.10% 198.6 - - 4.23% 83.2 Net assets value
Tambour 422.0 42.31% 178.5 1.02% 4.3 Transaction, market value
Others 597.8 201.0 318.0
----- ----- -----
1279.8 205.3 413.7
====== ===== =====
-------------- -------------------- -----------------
</TABLE>
6
<PAGE>
2. Methodology
a. General
Calculation of the number of shares of Discount Investments which
should be issued to IDB Development in consideration for the shares
of PEC held by it, was done in two stages:
o Calculation of the ratio of the net assets value of Discount
Investments to the net assets value of PEC;
o Calculation of the number of shares which should be issued to
IDB Development, based on the aforementioned ratio.
The following are the main considerations which guided us in
choosing the methodology for the first stage of the work, and
details of the method of calculation of the number of shares that
will be issued, which is mainly a technical stage.
b. Considerations when estimating the ratio of the net assets value of
Discount Investments and the net assets value of PEC
1) Relying on the Stock Exchange prices is not suitable in the
present case
In theory, the natural starting point in valuing a suitable
exchange ratio is the share price in various markets, in view
of the fact that the shares of both companies are traded, and
as some 80% of the investment portfolios of the companies are
identical.
The problem is, that in the present case the ratio of the
market value of the share capital cannot be used as a basis
for the valuation for the following main reasons:
o A basic condition for using the prices of shares in
trading as an expression of economic value, is the level
of their trading. In the present case, significant
differences exist in the level of trading of the shares.
From the beginning of 1998, the average daily turnover
of Discount Investments' shares on the Stock Exchange
exceeded one million dollar, while the average daily
turnover of PEC's shares on the NYSE totaled about
0.2-0.3 million dollars only. An additional expression
in differences in the marketability of shares is the
high fluctuation in the development of the value ratio
of the companies according to the price of their shares
in the Stock Exchange.
Comparison of the level of marketability of the shares
of Discount Investments and PEC and a graph of the
development of the proportional ratio according to the
prices of the shares on the stock exchange are attached
as Appendix No. 2. We should state that the exchange
ratio determined in the evaluation is significantly
different to the exchange ratio according to share
prices on the stock exchange.
7
<PAGE>
o As Discount Investments is traded on the Tel Aviv Stock
Exchange while PEC is traded in the U.S., there are different
aspects which affect the value of the shares in the market
which are not relevant to the valuation of the exchange ratio
as they will not affect the merged company after the
transaction.
The principal additional aspects are:
o The effects of differential economic developments in the
economies of the U.S. and Israel on the behavior of the
capital markets.
o PEC is a company most of whose assets are located in
Israel, and therefore American investors who cost the
shares are liable to take the country risk into account
including the currency risk as an additional risk which
is likely to reduce the value as compared to the
relationship of Israeli investors who are the main
investors in Discount Investments;
o As we were told, PEC is exposed to limitations of the
investment possibilities of foreign investment companies
under American law. The merged company will not be
exposed to these limitations after the transaction.
o Possible differences in the costs of the transaction
between the stock exchange (such as the spread of the
purchase and sale, commissions, the effective cost is
different with the limitations of timing transactions
which result from differences in marketability and
liquidity between those shares).
o Additional factors which are liable to affect share prices on
the stock exchange which do not necessarily affect the
exchange ratio are:
o Different levels of control of the controlling
shareholders in the companies and the different level of
protection given by the American law and the Israeli law
to minorities in the Company. This factor too, should
not affect the exchange ratio, as after the transaction
Discount Investments will remain the only traded
company.
o The different level of management costs which are
affected among other things by the arrangement for
giving services between the companies, and the
differences of the cost of keeping staff in Israel and
in the U.S. As a result of the transaction, the two
investment portfolios will be merged and will be managed
jointly under one management, so there is no place to
consider the differences in management costs under the
previous management set-up when determining the exchange
ratio.
o A minority investor in PEC is passive and lacks any
access to the basic assets of the Company, while in the
merger procedure basic assets are examined in substance
due to the nature of this transaction
8
<PAGE>
2) Calculation of the exchange ratio on the basis of an
evaluation of the net assets values of the companies
As in our opinion one cannot rely on the exchange ratios of
the companies based on their share price on the stock
exchange, the exchange ratio has been determined based on the
net assets value of the companies calculated as follows:
o We estimated the value of every investment in the
investment portfolios of Discount Investments and PEC.
The methodology of the evaluation of every investment
was chosen on an item by item basis. Based on the
following principal considerations:
o In those companies where there is a market
price the ability to rely on the market price
was checked in view of the level of trading of
marketability of the share and checking the
companies value according to operative and
financial data;
o Adjusting the method in view of the
characteristics of the operations and in view of
checking the operative and financial data of the
Company in the background of the business
environment.
o Sensitivity of the exchange ratio to the value of
the Company. In the case where a change in the
value of the company being valued is likely to
cause a significant change in the exchange ratio
determined, the value of the investment was
checked by using additional/other methods on the
market price also with regard to marketable
investments.
o In those cases where a range of values was
calculated for the company, an average was taken
into account for the purpose of calculating the
exchange ratio.
o As we mentioned, in view of your instructions and
the legal limitations, we did not carry out a
valuation of Cellcom Ltd., which is included in
the investment portfolio of both companies. The
value of the investment in Cellcom was included
using a valuation based on general indications of
its value, as detailed below. As we stated, a
variance of +/-25% in the economic value of
Cellcom causes a variance of +/-0.8% in the number
of shares of Discount Investments to be issued to
IDB Development. As in our opinion, the
indications calculated by us and the field of
variance checked reflect a reasonable field for
the economic value of Cellcom, and as this
variance is not a significant variance in the
results of the exchange ratio valuation, in our
opinion this limitation does not harm the
reasonability and validity of the valuation of the
exchange ratio.
Details of the methodology and the evaluation of companies
whose value has significant effect on the exchange ratio is
included in chapter 3 below.
<PAGE>
o Based on the value of every investment we
calculated the tax effect which will apply on
capital gains from its realization, taking into
account the data we received from Discount
Investments and PEC regarding the tax base of the
investments; the tax status as given us by the
managements of Discount Investments and PEC,
taking into account the tax laws of Israel and the
U.S., and the exchanges expected in the tax laws
in Israel which are in advanced stages of
legislation, and taking into account the estimated
effects of delaying the realization of the
effective tax liability.
o In order to receive the net assets value of every
company, we added to the value of the investment
portfolio (after an estimate of the tax effects)
additional assets (mainly financial assets) owned
by the companies and we deducted their financial
liabilities based on the balance sheet of June 30,
1998.
c. Tax Aspects
1) General
The economic value of the companies included in the investment
portfolio of Discount Investments and/or PEC expresses, among
other things, the tax liability on their taxable revenues in
the future, including capital gains and land betterment tax,
whichever relevant.
Therefore, this value relates to a direct investment in the
shares of these companies, whose cost is used as the basis for
calculating capital gains in the future. In the case before
us, as this relates to the value of an investment portfolio
owned by holding companies, the tax basis of the investment is
liable to be different from their economic value, and
therefore Discount Investments and PEC are likely to be liable
for capital gains tax in the event that they realize the
holdings in their companies valued.
The effective tax liability is conditional, among other
things, on the following factors:
o Profit for tax purposes which is determined by the
difference between the economic value of the investment
and their cost, taking into account the specific
provision determined in the tax laws regarding the
method of adjusting the investment, deductions and
setoffs allowed, etc.
o Statutory tax rate
o Timing of the realization. The later the realization,
the lower the present value of the tax liability.
o The ability to setoff losses and transferable deductions
from taxable profits
o The existence of profits suitable for distribution.
o The ability to initiate the distribution of dividends
prior to the realization of the holdings in the
companies
There are significant differences between Discount Investments
and PEC with regard to the tax status of the various
investments, and therefore a different relationship is
required to calculate the tax provision when realizating the
investment, as detailed below.
<PAGE>
2) A description of the main differences in the tax status of
Discount Investments and PEC
The following is a summarized description of the tax status of
Discount Investments and PEC. The following description is
meant only to give an understanding in handling the tax
aspects when valuing the exchange ratio, and is not a full and
detailed description of the tax status of the companies and
their investments in the various companies.
Discount Investments is a company resident in Israel and
assessed under Israeli tax laws.
The tax liability from realizing investments in Israel is
subject to the tax status of the investments:
o Realization of holdings in private companies (such as
Cellcom, Tevel, Albar, etc.) is taxed according to the
provisions of section E of the Income Tax Ordinance
(hereinafter: "The Ordinance"), according to which the
Company is liable to tax at a rate of 10% on
inflationary profits accumulated up to December 31, 1993
and on its share in the amount of profits suitable for
distribution ("the additional inflationary amount") of
the company sold as defined in the Ordinance. The
inflationary profits accumulated between December 31,
1993 and the date of realization are tax exempt. Capital
gains exceeding the inflationary amounts as mentioned,
is liable to tax at a rate of 36%.
o The realization of holdings in companies whose shares
are traded on the stock exchange is taxed as follows:
o Companies in which the Income Tax Law (Adjustments
for Inflation) (hereinafter: "The Adjustments
Law") does not apply to them(1) are tax exempt on
gains from securities, similar to the tax status
of an individual. According to the proposed law,
which is in advanced stages of legislation,
companies which are not directly owned by private
shareholders will not be able to choose this tax
status in the future, and therefore the
Adjustments Law will apply to them.
o Companies to whom Adjustments Law applies, are
liable to a tax at a rate of 36% of the real
profit from the realization of the marketable
securities according to two main tracks:
o Profit from the realization of "controlling
shares" as defined in the Adjustments Law
(such as profits from the realization of the
shares of Properties and Buildings, Klil),
are tax exempt, excluding accumulated
profits during the year of sale (the basis
for the tax debit is the price of the share
on the stock exchange at the end of the year
prior to the year of the sale). According to
the proposed law, which is in advanced
stages of legislation, the status of
controlling shares will be canceled
retroactive from 1.1.99, and the same law
will apply to them as applies to other
marketable shares.
o Real profit from the realization of other
marketable shares is liable to tax at a rate
of 36%.
- ----------
(1) Companies without "revenues from business", which did not claim finance
expenses for tax purposes, and which chose this tax status.
<PAGE>
There are provisions in other laws according to which Discount
Investments is likely to reduce its tax liability, such as the
exemption of profits from the realization of marketable shares of an
"industrial company" pursuant to the provisions of the Law for the
Encouragement of Industry (Taxes).
Revenues from dividends received from affiliated companies are
exempt in principle from tax. Dividend from profits of "an approved
enterprise" as defined in the Law for the Encouragement of Capital
Investments, is liable to tax at a reduced rate, unless the dividend
was concatenated by the recipient company. The rate of tax is
subject to the benefits track chosen by the company which owns the
approved enterprise and the structure of its ownership.
In view of the tax status as described above, the provision for tax
on the profit included in the difference between the valuation of
the investment and the adjusted costs, has been calculated for tax
purposes on June 30, 1998 as follows:
o The effective tax rate of 25% has been taken into account as
compared with the statuary tax rate of 36%. This, in order to
express the present value of the future tax liability and the
possibility to reduce effective tax by the distribution of
dividends.
o In holdings and investments companies (Properties and
Buildings, Elron, R.D.C.) for which the tax liability was
taken into account for the realization of the investments in
the context of the valuation of the investee companies, an
additional provision of 7.5% was taken into account in order
to express the additional potential tax liability in the
event of realizing the shares of the holding and investment
company.
o In those cases where the economic value of the investment in
marketable shares with the status of "controlling shares" or
the status of tax exemption, exceeds their market value, the
provisions for taxes was calculated at the above rates on the
surplus of the economic value over the market value, in view
of the changes expected in the tax laws in Israel.
PEC is an American company which is assessed according to American
laws and is liable to Federal tax at a rate of 35% on all its
taxable income, including capital gains and dividends from
investments in Israeli resident companies which comprise most of the
investment portfolio of PEC. In general PEC is not liable to local
tax (government tax and municipal taxes) on its revenues from
investments in Israel. The tax base for calculating capital gains is
the nominal dollar cost of the investment.
In those cases where, according to Israeli law and the provisions of
the Israeli-U.S. Treaty for the Prevention of Double Taxation, PEC
is liable to capital gains in Israel, and can use the tax paid as a
deduction against its tax liability in the U.S. In practical terms,
usually the tax liability in the U.S. is greater than the tax paid
in Israel, mainly due to the tax basis for taxation purposes in the
U.S. (calculation of costs in terms of nominal dollars) is lower
than the tax basis in Israel (a cost adjusted to the consumer price
index in Israel).
<PAGE>
The tax laws in the U.S. permit a choice, under certain conditions
and limitations, between a deduction of the tax paid by PEC abroad
against the tax liability in the U.S., and receiving a credit for
the tax paid abroad by PEC or the tax paid by companies held by it,
before the payment of the dividend to PEC. The choice between the
two alternatives is with regard to all the taxes paid abroad during
the tax year. A choice of receiving the credit is liable to reduce,
to some extent, the tax liability on dividends, as compared with the
statuary tax rate of 35%.
In view of the tax status, as described above, PEC's ability to
reduce the effective tax liability is reduced considerably as
compared with Discount Investments. Therefore, we calculated the tax
provision on the income included in the difference between the
valuation of the investment and the dollar cost for tax purposes as
at June 30, 1998 as follows:
o An effective tax rate of 33% was taken into account, as
compared with the statuary tax rate in the U.S. of 35%;
o An additional provision for the possibility to realize
holdings in holdings and investment companies (Properties and
Buildings, Elron, R.D.C.) was calculated using a tax rate of
15%.
It should be mentioned that after the exchange transaction and the
purchase of the public shares in PEC, a reorganization is planned
according to which all the holdings in PEC and Discount Investments
in listed affiliated companies will be concentrated in the context
of a joint holding company. This reorganization is likely to enable
the reduction of the tax liability of the Group in the U.S. for its
listed investments under certain conditions and limitations. The
possible effect of this reorganization in the reduction of PEC's tax
liability has not been taken into account in the framework of the
valuation, mainly for the following reasons:
o The implementation of the reorganization is subject to
arrangements and agreements with the tax authorities in Israel
and the U.S., whose character and details have not yet been
finalized or approved, and therefore they are uncertain.
o Receiving tax benefits is subject to the joint holding company
not selling the holdings in the shares of the companies
transferred to it for a period of 5 years from the date of the
transfer. The sale of the holdings during this period will
cancel the tax benefits with regard to the holdings sold.
o Details of the reorganization, including the identity of the
holdings which will be concentrated in a joint company have
not yet been decided, and therefore there is uncertainty
regarding the identity of the investments which will be
entitled to the conditional tax benefits.
o Finally, even after the planned reorganization, PEC will be
fully taxed on realization of shares in the joint holding
company, or the receipt of dividends from it.
d. Calculation of the number of shares of Discount Investments which
should be issued to IDB Development based on the ratio of the net
assets value
<PAGE>
The calculation of the number of shares of Discount Investments to
be issued to IDB Development is based on the ratio of the net assets
value of Discount Investments and the net assets value of PEC as
detailed above, on the rate of holdings of IDB Development in both
companies prior to the transaction and on the number of shares of
Discount Investments immediately prior to the transaction.
If we define the net assets value of Discount Investments with V(d)
and the net assets value of PEC with V(p) we can express the value
of Discount Investments after the transaction using the following
formula:
V(d) + 81.35% x V(p)
As the net assets value of the investments of IDB Development in the
two companies should not change due to the exchange, if we define
the rate of holdings of IDB Development in Discount Investments
after the transaction as S, then the following equation must be
correct:
81.35% x V(p) + 54.29% x V(d) = S(x)(V(d) + 81.35% V(p))
We will define the ratio of the net assets value of Discount
Investments to the ratio of the net assets value of PEC by
P (P=V(d)/V(p)) By dividing the above equation by V(d) and
simplifying the equation we will get:
S=(54.29% x P + 81.35%) / (P + 81.35%)
From a technical point of view if we define the number of shares of
Discount Investments before the transaction by N, and the number of
shares issued to IDB Development by S(n) the rate of holdings
calculated (S) we will also get the following equation:
Total number of shares held by IDB Development
in Discounts Investments after the transaction S(n) + 54.29% x N
S = ------------------------------------------------ = -----------------
Total number of shares of Discount Investments (N + S(n))
after the transaction
By solving the latter two equations we get:
S(n) = N x (81.35%/ p)
<PAGE>
3. Details of the valuation of the certain companies held by Discount
Investments and/or PEC whose value significantly affects the exchange
ratio valuation
a. Property and Building Corporation
The Property and Building Corporation Ltd. (hereinafter: "The
Company" or "Property and Building") is very important in
determining the exchange ratio, as the rate of holdings of the
companies is significantly different: PEC 41.07 % and Discount
Investments 14.89%, and in view of the significant economic value in
the investments portfolios of both companies.
1) General
Property and Building is among the largest real estate
companies in Israel. During the years 1996-1997 and the
period 1-6/98 consolidated revenues turnover reached some NIS
389.8, NIS 444.4 and NIS 231.3 million respectively. Net
earnings for those periods totaled about NIS 63.2, NIS 69.1
and about NIS 43.5 million respectively. As of June 30, 1998
the shareholders equity of the Company is some NIS 951.3
million and its shares are traded on the Tel Aviv Stock
Exchange (hereinafter "The Stock Exchange") with a value of
some NIS 1,293 million.(1)
Most of the Company's advantages is in the land reserves in
excellent locations which it has held for long periods.
The Property and Building Group includes its subsidiary
companies, the main ones of which are Bayside Land Ltd.
(64.7%, hereinafter - "Bayside") and Hadarim Properties Ltd.
(90%, hereinafter - "Hadarim Properties") whose shares are
traded on the Stock Exchange. The Group is engaged in the real
estate market with all its varied activities and concentrates
mainly in three main fields of operations:
a) Construction for residential and commercial purposes -
companies wholly owned by Hadar Properties Ltd. operate
in this field: Gad Buildings Ltd. (hereinafter "Gad")
and Naveh Building and Development Ltd. (hereinafter:
"Naveh"), which on June 30, 1998 were in the stage of
constructing about 240 residential units at 4 different
sites. The company also owns about 23.1% of K.B.A Ltd.
(hereinafter: "K.B.A.") which is engaged in constructing
projects for residential and commercial purposes in
Ashdod, and owns some 1,660 dunam net, in this area
(which are about 2.605 dunam gross). Additional
companies active in this field are Bayside Area Co.
which erects residential projects in Kiryat Motzkin and
Ramat Gan (together with Naveh) and the Company itself
which has a project in Petach Tikva (the "Mother of
Settlements") with 712 residential units of which about
66 residential units are designated for rental.
- ----------
(1) Data of the market value of the Company and the other companies in the
Group traded on the Stock Exchange as detailed below, relate to the
average market value during the period 9.4.98 - 8.10.98. This data is
given as background only and was not used in the valuation.
<PAGE>
Of the 646 remaining residential units, about 408 have
not yet been constructed, about 126 residential units
were completed of which 116 have been sold and about
112 are being erected as of June 30, 1998.
b) Income producing assets - This activity is centralized
mainly in the Bayside corporation and its affiliated
companies, which own some 400,000 sq. meters of
industrial and commercial buildings for rental, in which
average occupation as at 6.30.98 was about 91%. Bayside
holds some 35.23% of Ispro Israel Company for Renting
Buildings Ltd. (hereinafter: "Ispro") which owns about
9,356 sq. meters of buildings for rental. Ispro's shares
are traded on the Stock Exchange.
In addition, the company and its wholly owned
subsidiaries have buildings for rental with a total area
of about 37,537 sq. meters, which are rented with full
occupancy, apart from 6,272 sq. meters in a building in
the area of the Ramat Gan Diamond Exchange ("Harel
House") in the final stages of building, of which about
50% have been rented. In the whole Group some 100,000
additional sq. meters of revenue producing areas are
being constructed, mainly by the Bayside Company.
The rate of occupancy in income producing assets of the
Group during the years 1996-1997 varies between 91-.95%
on average. The average occupancy on 6.30.98 was about
91%, and expresses a drop in occupancy as compared with
the past, both due to market conditions and due to the
increase of revenue producing areas owned by the Group.
c) The Citrus Branch - The Company is engaged in this field
through Hadarim Properties which holds about 34.9% of
the shares of Mehadrin Ltd. (hereinafter: "Mehadrin"),
whose shares are traded on the Stock Exchange. Mehadrin
has complete control of Pri-Or Ltd. and together they
are the largest exporter of citrus fruit in Israel.
Mahadrin is the owner of many orange groves in a strip
stretching from Gedera to Hadera, with a total area of
about 15,394 dunam, and it is operating to develop the
agricultural real estate it leases in those sites where
a change in the use of the land is being planned.
Moreover, the Company and its wholly owned subsidiary are
engaged in various fields of operations: Aklim 2000 (for
ecology), (hereinafter: "Aklim") is engaged in installing
air-conditioning systems and Hon Investment and Trust Co.
Ltd. (hereinafter: "Hon") which provides management and
maintenance services for real estate.
The main companies in the Group are public companies or
companies partially owned where the operational structure and
cash flows are separated from one another. Therefore, an
analysis of the Group and a valuation was done separately and
the reference is to individual
<PAGE>
financial statements of each company. (This with the exception
of Bayside, Naveh, Mehadrin and Ispro) whose subsidiary
companies are wholly owned or they are included on the basis
of proportional consolidations, so that the assets in the
consolidated statements reflect the Company's share.
The economic valuation of the real estate assets is based on
the opinion of an assesor Alfred Irani, dated October 15, 1998
who agreed to mention and include it in our Opinion and it is
attached hereto as Appendix No. 3. See the reference in the
Opinion on item 5b on page 24 below.
The following is the structure of the Company's holdings on
6.30.98:
<PAGE>
PROPERTIES AND BUILDING - HOLDINGS CHART - AS AT JUNE 30, 1998 (NIS million)
[ORGANIZATIONAL CHART OMITTED]
19
<PAGE>
2) Property and Building "Solo" a wholly owned (100%) companies
The Company has buildings for rent with a total area of some 40,000 sq.
meters which on 6.30.98 were completely occupied. Moreover, the Company
has office floors in the Hard Building in Ramat Gan in the final stages of
completion with an area of 6,272 sq. meters of which about 50% have been
rented.
The balance sheet value of these assets is about NIS 131,487 thousand as
compared with an economic value of some NIS 321,376 thousand. In addition
the Company has building projects for residential purposes in Petach Tikva
("Mother of Settlements"), which as on 6.30.98 included inventory of real
estate for construction of 408 residential units on which building had not
yet started. About 112 residential units are under construction and about
10 residential units are completed and in inventory. The balance sheet
value of these assets, less advances from purchasers of apartments, totals
some NIS 10,910 thousand and the economic value is estimated at some NIS
94,080 thousand.
Moreover, the Company has vacant land in Tirat Hacarmel with an area of
some 80.6 dunam. The balance sheet value is about NIS 686 thousand as
compared with an economic value estimated at about NIS 12,468 thousand.
3) The Affiliated Companies
a) Bayside
The Bayside Company is one of the largest and oldest real estate
companies in Israel. The Company is engaged in initiating, planning,
constructing, renting and managing industrial and storage areas,
Hi-Tech industrial parks, office buildings and commercial centers,
and initiating, constructing and marketing prestigious residential
quarters.
On 6.30.98 shareholders equity totaled some NIS 663.4 million and
its shares are traded on the stock exchange at an average market
value of about NIS 831 million. In 1997 and during the period 1-6/98
its revenues turnover totaled about NIS 241.9 million and 91.7
million, respectively. Net income for those periods totaled about
NIS 61.9 million and about NIS 32.9 million, respectively.
<PAGE>
The following is a summary of data regarding the Bayside's assets as at 6.30.98:
<TABLE>
<CAPTION>
Average % occu-
Depreciated monthly rent pation
Balance Economic Rent per leased sq. as at
at 6.30.98 value 1-6/98 Area meter 6.30.98
---------- ----- ------ ---- ----- -------
sq.
NIS thousand meters (NIS)
------------------------------- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Income producing
assets 456,332 788,607 45,449 309,727 26.9 91%(2)
Land and income producing
assets under construction(1) 239,712 305,901 420,694
Other fixed assets 1,133 1,133 -- --
------- --------- ------- -------
Total fixed assets 697,177 1,095,641 45,449 730,421
======= ========= ======= =======
</TABLE>
The main income producing assets include the Bayside Center in
Herzliya with a total area of about 26,500 sq. meters which is
leased for commerce and hi-tech (mainly up to the year 2002). An
additional site in Herzliya with an area of about 22,300 sq.
meters, which is mainly leased to Scitex Ltd. (up to the year
2003), industrial and commercial buildings in the Haifa Bay area
with an area of 54,533 sq. meters (rented usually for periods of
between 3-5 years) and industrial areas in Yavneh and Caesaria
with a total area of some 77,418 sq. meters of which 34,000 sq.
meters are rented until the year 2006 and the balance rented for
an average period of 3-5 years.
The income producing assets under construction including mainly a
second and third building in the Bayside Center in Herzliya with a
total area of about 40,500 sq. meters and an office building in the
South Kirya Tel Aviv with a total area of about 35,000 sq. meters
(Bayside and Hadarim assets each have 24.5% of the building).
Bayside owns real estate whose balance sheet value on 6.30.98
totaled about NIS 62,317 thousand and whose economic value is
estimated at some NIS 191,600 thousand. Moreover, on 6.30.98 Bayside
had 2 residential projects under construction. One in Kiryat Motzkin
in which abut 1,224 residential units are planned and the second
project "Merom Naveh" in Ramat Gan in cooperation with the Naveh
Company in which 919 residential units are planned. The total
investment as at 6.30.98 in inventory of work in process, including
inventory of apartments which have not yet been sold, totaled some
NIS 163,372 thousand. The economic value of these projects and the
inventory of apartments is estimated at some NIS 214,134 thousand.
b) Hadarim Properties
Hadarim Properties are engaged, on it own or through affiliated
companies, mainly in the following fields:
o Construction for residential purposes - In this field the Company
operates through the wholly owned consolidated companies Gad and
Naveh. The main building sites are: Ramat Gan ("Merom Naveh"),
Herzelyia ("Naveh Amirim"),
- ----------
(1) Liabilities for work under construction relating to combination
transaction totaling NIS 54,945 thousand was set-off from the depreciated
balance of the economic value.
(2) Average rate of occupation over the years 1994-1997 range between 97-99%.
<PAGE>
Tel Aviv ("Ramot Naveh"), Givat Shmuel ("Givat Naveh") and Jerusalem
("Givat Mesuah").
o Nechasim Menivim - The Company is engaged in the initiation,
development, planning and construction, renting and management of
industrial, office and commercial buildings. These operations are
concentrated mainly in Ispro in which it holds some 35.23% and
through the hi-tech industrial center ("HTIC") in which it holds
some 25% (Bayside has an identical holding in these companies).
Ispro and HTIC have rented areas in an aggregate area of some
118,000 sq. meters.
o Hadarim - Hadarim Properties hold 334 dunam of orchards owned by it
and leased by it in Nes Ziona, Beit Degan and Kadima. Moreover,
through its holding of 34.96% in the Mehadrin Pri-Or Group it
operates a range of activities in the citrus branch: planting,
working, packaging and marketing to the local market and exports.
In addition to these activities, Mehadrin has extensive areas of
orchards in areas between Gedara and Hadera in a total area of about
15,394 dunam, (most of which are leased from the Israel Lands
Administration). Mehadrin is active in developing the real estate in
which it plans a change of approved usage from agricultural real
estate to building.
Shareholders equity of Hadarim Properties on 6.30.98 totaled about
NIS 439.2 million(1) and its shares are traded on the stock exchange
with a value of about NIS 485 million. Its turnover in the "Solo"
account in 1997 and for the period 1-6/98 totaled some NIS 12,350
and NIS 18,210 thousand, respectively. Net earnings for those
periods totaled about NIS 6,637 and NIS 15,786 thousand,
respectively. The considerable increase in earnings during the
period 1-6/98 results from recognizing revenues from the sale of 47
residential units in the project of the Naveh Company in the Lamed
Area of Tel Aviv ("Ramot Naveh") in the first half of 1998.
- ----------
(1) Including receipts on account of options totaling NIS 10,191 thousand.
<PAGE>
The following is a summary of data regarding income producing assets,
real estate and inventory of work in process, net
according to the companies held by Hadarim Properties as at 6.30.98
(in NIS thousand)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Type of asset Income producing assets
- ------------- ----------------------------------------------------------------------------
NIS per
Sq. meter Occupancy
Balance Economic Rent Rented per rate
sheet value sq. meters value 1-6/98 month 6.30.98
----------- ---------- ----- ------ ----- -------
<S> <C> <C> <C> <C> <C> <C>
Hadarim
Properties
(Solo) 3,674 2,400 13,055 436 30.2 100%
Naveh -- -- -- -- -- --
Gad 5,761 7,035 31,848 1,170 35.1 79%
----- ----- ------ ----- ----
Total 9,435 9,435 44,903 1,606 33.6
===== ===== ====== ===== ====
- ------------------------------------------------------------------------------------------
</TABLE>
(Continued)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Inventory of work in progress
less advances from customers
Type of Income producing assets under (construction for building for
asset construction residential purposes) Real Estate
- ----------- --------------------------------- ---------------------------------- --------------------
Balance Balance Balance
sheet Sq. Economic sheet No. of Economic sheet Economic
value meter value value units value value value
----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Hadarim
Properties
(Solo) 59,339 12,810 67,840 -- -- -- 12,042 91,675
Naveh -- -- -- 32,519 238 80,164 212,345 255,553
Gad 25,112 4,050 34,103 3,058 22 11,280 210,559 233,364
------ ------ ------- ------- ------- ------ ------- -------
Total 84,451 16,860 101,943 35,577 260 91,444 434,946 580,592
====== ====== ======= ======= ======= ====== ======= =======
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
c) Ispro
Ispro is engaged on its own and through subsidiaries in initiating,
planning, constructing, renting industrial commercial and storage
buildings and the production of industrialized elements for the
construction industry through the Trom-raz Plant in Beersheva.
Ispro's shareholders' equity as at 6.30.98 totaled some NIS 126.7
million, and its shares are traded on the stock exchange with a
value of some NIS 127 million. We should state that the
marketability of the shares is very low (the average daily trading
volume during the period 1-6/98 and 1997 was about 8.8 and about NIS
37.9 thousand respectively), and therefore its market value cannot
be used as a reliable indication of its economic value.
In 1997 and during the period 1-6/98 turnover totaled about NIS
22,299 and about NIS 12,046 thousand, respectively. Net earnings for
those periods totaled about NIS 5,607 and NIS 2,992 thousand,
respectively.
<PAGE>
On 6.30.98 Ispro owned about 90,356 sq. meters of revenue producing
assets, at an occupancy rate of some 88% at that date. Average
occupancy rate over recent years ranged between 88 - 90%. Revenues
from rentals for the period 1-6/98 totaled some NIS 8,581 thousand
which is an average of about NIS 18 per leased sq. meter per month.
Ispro has a leading project in Netanya with an area of about 12,870
sq. meters rented at an occupancy rate of about 95%. In addition it
has about 8,000 additional sq. meters in various stages of
construction. Moreover, it has an income producing asset in
Beersheva with a total area of about 46,400 sq. meters rented with
an occupancy rate of about 86%.
Ispro together with Gad Ltd. received a license for the construction
of two commercial stories with an area of about 2,800 sq. meters
above a parking garage and above them about 60 residential units in
Givat Shaul Jerusalem.
The following is a summary of the data of income producing assets
leased and under construction (NIS thousand)
<TABLE>
<CAPTION>
Income Producing
Income Producing Assets (including the Assets under
Company's offices construction Total
---------------------------------------------- -------------------- ---------------------
NIS
per sq.
Balance meter Balance Balance
sheet Sq. Economic Rent leased per sheet Economic sheet Economic
value meters value 1-6/98 month value value value value
----- ------ ----- ------ ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
103,219 90,356 166,665 8,581 17.9 32,882 76,091 163,101 242,755
</TABLE>
We should state that in the prefabricated building sector there is a
significant drop in sales and gross profits, resulting from the
weakness of the market in the construction industry. The following
is a summary of data of prefabricated building operations. (NIS
thousand).
1-6/98 1997 1996 1995
------ ---- ---- ----
Sales 3,465 5,251 8,782 15,101
Cost of sales (3,377) (5,581) (7,811) (13,231)
------- ------- ------- -------
Gross profit, (loss) 88 (330) (971) 1,870
------- ------- ------- -------
Due to the recession in the branch, no significant improvement is
expected in this field of operations in the near future, and
therefore these operations do not significantly affect the estimated
value of this valuation. In view of this Ispro is focusing today in
the field of incoming producing assets.
d) Mehadrin
The Company was incorporated in 1951 by a group of citrus growers
with government encouragement with a view to rehabilitate and
develop the citrus industry in Israel.
Today its business operations are focused mainly on operations in
the citrus fruit branch, the promotion of projects in agricultural
fields, supplying storage services and land for fruit, and
developing agricultural land it leases, in which a change in
permitted use is being planned. In addition the Company has income
producing assets rented: The "Hadarim" shopping mall in Netanya.
offices and shops in Tel
<PAGE>
Aviv and areas in Even Yehuda and Gan Haim. Operations and
profitability in the citrus industry is cyclical and affected by the
significant risks to which the branch is exposed.
Mehadrin's shareholders' equity totaled about NIS 259.5 million on
6.30.98, and its shares are quoted on the stock exchange with a
value of about NIS 441 million. On 6.30.98 Mehadrin and its 100%
owned subsidiary - Pri-Or - have orchards with a total area of about
15,394 dunam (most of which are leased from the Israel Land
Administration), as follows:
Economic Average Price
Site Dunam Value Per Dunam
- --------------- ------- -------- --------------
(NIS thousand)
-------------------------
Zita 1,666 51,925 31.2
Pardasisa 1,909 97,982 51.3
Hadassim 1,110 89,548 80.7
Sarafand 2,476 91,675 37.0
Ashkelon 2,779 48,954 17.6
Others 5,454 185,661 34.1
------- ------- ----
Total owned
by Mehadrin 15,394 565,745 36.7
Real estate
requisitioned(1) 1,036 29,336 28.2
------- ------- ----
Total 16,430 595,081 36.2
======= ======= ====
The main asset owned by Mehadrin is the above orchards, which are
valued by an assessor. In addition he assessed the value of income
producing assets and packing plants. The cold storage equipment and
the packing plant equipment is estimated at their balance sheet
value. In our opinion the asset value of the active real estate in
the field of orchards (including the packing houses) and the
equipment owned by Mehadrin is higher than the value of these assets
in the existing operations, and result from cash flows expected from
the operation of orchards and the installations connected with these
operations. Therefore, the economic value was determined according
to the asset value.
The following is a table summarizing the data of income producing
assets (including cold storage installations), packing plants and
orchards owned by Mehadrin (NIS thousand):
Income Producing Assets (including cold storage equipment)
<TABLE>
<CAPTION>
Packing Plants Orchards
-------------- --------
-------------------- ---------------------------------
Balance Sq. Economic Rent 1- Total Balance Economic Balance Dunam Economic
sheet meters value 6/98 NIS per sheet value sheet value
value sq. value value
meter
monthly
rent
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
105,500 34,320 124,171 9,908 48.1 36,065 60,139 72,548 16,430 595,081
</TABLE>
e) K.B.A.
- ----------
(1) Mehadrin submitted a claim to the District Court in Tel Aviv regarding
orchards which were requisitioned with a total area of about 1,036 dunam,
in which the Court was requested to declare that Mehadrin is entitled to
full and fair compensation due to the requisition of the said land. In
April 1998 with the agreement of Mehadrin and the State, an expert
assessor was appointed by the Court in order to evaluate the value of the
land requisitioned. His opinion will be submitted to the Court, which is
entitled to rule at its discretion. The value included in the assessor's
valuation and the evaluation was determined taking into account this
procedure.
<PAGE>
K.B.A.. was established in 1957 as a private enterprise, with a view
to plan and develop the city of Ashdod, in consideration for
receiving rights and part of the areas of the city according to an
agreement with the government which own half of the rights in K.B.A.
during the years 1964-1985.
Today, the shareholders of K.B.A. are: The Company (23.13%), The
Israel Central Corporation for Trade and Investments (52.84%), a
member of the Clal Group, Shikun Ovdim (24.02%). Shareholders'
equity as at 6.30.98 totals some NIS 12.5 million.
K.B.A. owns about 1,660 dunam net in Ashdod (equals about 2,605
gross dunam), of which about 970 dunam is undeveloped and their use
has not yet been determined, and about 540 dunam which are
designated for residential and commercial purposes, and 150 dunam
earmarked for industry. Most of this land, has not yet been
registered in the name of K.B.A., but is still registered in the
State's name.
The following is a summary of data of real estate owned by K.B.A.
(including the Promenade project and the Company's offices) (NIS
thousands):
Balance Sheet Economic Area in dunams, Average value per
value value gross dunam
----- ----- ----- -----
6,934 509,016 2,605 195.4
It should be emphasized that to the best of K.B.A's knowledge, the
Regional Commission on Planning and Building Ashdod is discussing
new plans according to which the undeveloped area owned by the
Company of about 60 dunam net, (which is about 1,000 dunam gross)
will be kept as an open area ("dunes"). The assessor's evaluation
takes this into account.
In December 1997 the Ben-Ami family sold 10.5% of the holdings in
K.B.A. to A.A. Holdings Ltd., a member of the Clal Group. The price
of the transaction reflected a company value of about 137.5 million
dollars.
4) The positioning of the Company in the Construction and Real Estate
Branch
The Company is one of the largest real estate companies in Israel
and the other three large competitors are: Azorim (which controls
SHOP - Housing & Development for Israel Ltd.), Africa Israel and
Housing and Construction Holdings, the controlling shareholder of
Shikun Ovdim. The shares of most of the large real estate companies
are quoted on the stock exchange apart from Shikun Ovdim and Ashdar
(a member of the Ashtrom Group). This, mainly due to the capital
intensive requirements of companies in the construction branch.
<PAGE>
The following are a number of indicators about the four largest companies in
the branch:
Housing &
Property & Construction
Data as at 6/30/98 Building Azorim Africa Israel Holdings
- -------------------------------- -------- ------ ------------- --------
Market value (NIS
million) 1,362 1,007 940 1,200
Shareholders equity
(NIS million) 951 1,238 994 21
Total balance sheet
(NIS million) 2,100 3,721 3,206 2,127
Capital multipliers 1.43 0.81 0.94 58
Multiplier of market
value of the assets(1) 0.95 0.62 0.80 0.87
- --------------------------------------------------------------------------------
Data for 1997 (adjusted to 6/98)
Revenues from buildings
(NIS million) 244 753 781 929
No. of residential units
sold 328 1,300 969 896
Revenues per residential
unit (NIS thousand) 1,338 580 805 1,038
- --------------------------------------------------------------------------------
Revenues from income
producing real estate
(NIS million) 140 74 91 21
Area of income
producing real estate
(thousands of sq. meters) 460 92 135 --
Revenues per sq. meters
per month (5) 6.9 18.2 15.3 --
- --------------------------------------------------------------------------------
Other revenues 60 339 236 2,662
--- ----- ----- -----
Total revenues
(NIS million) 444 1,166 1,108 3,612
=== ===== ===== =====
In a comparison between the companies we should state that the
companies are differentiated in their focusing on different fields
of real estate (initiating and building contractors, revenue
producing assets, contracting for roads and infrastructure) and are
engaged also in additional fields. In this way, for example, Housing
and Construction Holdings is engaged also in the fields of
electromechanical contracting, the manufacturing of raw materials
for construction and paving and contracting abroad (although most of
its operating profitability are provided from its activities in the
real estate sectors). The above comparison is given as background
only, and is not used for the purpose of the valuation of Properties
and Building. Compared to the other companies (excluding Housing and
Construction Holdings) the Company has land reserves in excellent
locations held for a long time, which explains the difference in the
multipliers of the market value of the assets.
The real estate branch is affected by limitations of land reserves
in Israel which are mainly owned by the State, from the capital
intensitivity required of it, from the long periods of the
procedures of planning and licensing, and from the consequences of
political processes. Therefore, the government's policies
- ----------
(1) This multiplier is meant to cancel the distortion of the capital
multiplier, which results from differences in leverage between companies.
The multipliers are calculated as follows: Market value of the share
capital plus the balance sheet value of balance sheet values net as at
6.30.98 divided by the total balance sheet (less financial assets which
were set-off from liabilities, as at 6.30.98).
<PAGE>
regarding the use of land reserves, the vulnerability of capital and
its cost (the restraining policies of the Bank of Israel, the market
situation, the initial capital, etc.) and the policy of investing in
infrastructure, has considerable effects on industry.
In the building for residential purposes sector the sharp slowdown
which started in 1996 is apparent. The number of building starts in
1997 totaled about 50,850 residential units (a drop of 10% as
compared with the previous year) and in the first quarter of 1998
about 10,060 residential units (a drop of about 21% as compared with
the equivalent quarter in the previous year). Moreover, inventory of
unsold apartments is increasing and in the third quarter of 1997
reached a record 9,727 residential units which comprise about 69.7%
of the total apartments offered (private building in 24 largest
cities).
Also in the revenue producing real estate sector there is a slowdown
since 1996 and in fact this year, for the first time in the 90's, a
drop of some 5% in building starts in areas which are not for
residential purposes, which totaled about 3.5 million sq. meters.
This trend worsened in 1997 as a result of the drop of some 17% in
building starts which totaled about 2.9 million sq. meters only. The
following is a summarized description of the characteristics of the
market in the field of income producing real estate:
Industrial buildings - According to valuations the surplus supply in
industrial buildings today is about 2 million sq. meters, and the
total industrial buildings being built today is double the expected
demand up to the end of the year 2000. Most of the supply is
centered today in the southern part of the country and the number of
sites in the center, such as Netanya, Gedara, Rosh Ha'ayin and
Caesarea. We should state that in view of the low price levels
today, there is a trend of purchasing buildings by end users.
Offices - A similar trend, but more moderate, of over supply of
office areas, where most of the supply is in the Tel Aviv area as a
result of the construction of new buildings (the Levinson Towers,
Platinum and the Azrieli Center) and in Ramat Gan in the area of the
Diamond Exchange. On the other hand, the amendment to the Betterment
Tax Law, which cancels the exemption of apartments not used for
residential purposes, is liable to encourage the evacuation of
offices in residential buildings and a gradual transition to office
buildings. According to valuations today, the large supply in Tel
Aviv and Ramat Gan is expected to continue and force prices
downward, but at a more moderate rate.
In view of the surplus supply in the real estate branches and the
consequences of the recession in the economy, and when the crisis in
this field will pass, the valuation relates to the asset value and
the potential inherent in the existing assets of companies in the
Group, and does not include the potential profitability from
additional promoting activities in the future in which there is
considerable uncertainty.
<PAGE>
5) Evaluation
a) Summary of the valuation
In our opinion and in view of the data we received, the checks
we carried out and based on the valuation of an assessor, the
value of Properties and Buildings is estimated at some NIS
1,781 million as compared with shareholders' equity in the
balance sheet as at 6.30.98 totaling about NIS 951.3 million.
The valuation of Property and Building is higher by 1.36 than
the average value of the stock exchange over the period
9/4-8/10/98, which totaled some NIS 1,293 million.
The following is the composition of the estimated value of the
companies.
Rate of
holdings in Balance Economic
capital sheet value value
% (NIS thousand)
---------- -----------------------
Property &
Building - Solo
and 100% owned See clause
subsidiaries(1) 100 111,487 307,365 2 above
Bayside 64.7 430,693 702,842 See clause
c)1 below
Hadarim See clause
Properties 90.0 389,596 744,685 c)2 below
K.B.A 23.13 19,577 82,870 See clause
3)e above
Provision for tax
as a result of the
realization of
affiliated
companies (56,406)
Total
shareholders'
equity 951,333 1,781,356
======= =========
- ----------
(1) Including the Herzliya Center A+B, Shadar, The Nachlat Beit Hashoeva
assets, the new "Mother of Settlements" North, Gilat Building Corporation,
the capital of the Investments and Trust Company, Aklim 2000, Property and
Building (Finance 1996).
<PAGE>
b. Methodology
The value of Property and Building was based on the net assets value
method, which is based on the aggregate market value of its assets,
taking into account the tax effect and less the value of its
liabilities. The following is a description of the main methodology
applied in the valuation.
As we stated, the market value of the real estate assets of the
companies was based on an estimate prepared by the assessor Mr.
Alfred Irani (hereinafter: "the Assessor"). This estimate is not an
Assessor's Opinion pursuant to the provisions of the Land Assessor's
Regulations as the Assessor performed only part of the obligatory
procedures required for the purpose of a full Assessor's Opinion.
The estimate was prepared based on the following main principles:
The value of revenue producing assets was based on a discount
coefficient of about 9.5% - 11.0%.
The discount coefficient for each asset was determined mainly taking
into account the location of the asset and the level of demand for
assets of the type valued at that location and with a level of
occupancy of the particular asset (the more attractive the location,
the higher the demand and occupancy, so that the discount rate used
was lower).
A deduction of about 10-30% of the basic value of large sites was
taken into account. The rate of deduction for each asset was
determined mainly taking into account the area of the asset and
taking into account factors which also affect the discount rate as
detailed above;
In building projects under construction for residential purposes,
the Assessor valued the land only (including building rights),
without the cost of construction accumulated up to June 30, 1998 and
in view of this, for the purpose of a full valuation of the above
projects, we added the value to the land, as mentioned, to the
building costs accumulated to June 30, 1998, and the promoter's
profit, which is estimated at some NIS 18 thousand (about 5 thousand
dollars) per unit, before tax, which in our opinion is fitting for
the assets valued, taking into account the fairly limited volume of
building for residential purposes in the Group.
From the economic value of the assets, we deducted an estimate of
the expected tax liability in realizing them as follows:
o Projects under construction for residential purposes (business
inventory) - 36%;
o Fixed assets - 28% (excluding K.B.A. where a tax at the rate
of 20% was deducted as most of the assets have been held for a
long period and are entitled to reduced tax rates).
<PAGE>
Over and above the tax liability on the realization of the assets,
an additional provision for tax at the rate of 7.5% was taken into
account on the addition to the value of the affiliated companies.
This addition expresses the potential to increase the tax liability
in the event that the shares of the affiliated company will be
realized instead of the assets.
The value of the companies which are engaged mainly in supplying
services to companies in the Group or in other fields, whose
contribution to profitability and to the balance sheet value is
lower, has been taken at their balance sheet values.
The value of options which Bayside issued was deducted from the
value of the net assets in order to receive the value of the share
capital. The value of the option warrants was estimated using the
Black & Scholes model based on an expected range of variances for
returns on shares of about 30-45% (based on the weekly variance of
shares of real estate companies on the Stock Exchange during the
quarter prior to the valuation, and based on the period of
realization of the options), the rate of real interest without risk
of about 6.5% (the accepted rate of interest for use in models at
the time of evaluation), the exercise period and price per share
embodied in the evaluation of the Company.
<PAGE>
c. Details of Valuation of the Main Companies
1) Bayside (consolidated)
<TABLE>
<CAPTION>
Balance Economic
sheet value value Remarks
----------- ----- -------
(NIS thousands)
<S> <C> <C> <C>
Fixed assets 697,177 1,095,641 See clause 3(a) on page
Real Estate 62,317 191,600 See as above
See above, advances totaling NIS
Residential projects under construction and 57,884 were deducted from the value of
inventory of apartments, net 105,489 156,251 the projects
Investment in affiliated companies:
Ispro (35.23%) 41,243 71,870 See Clause 3(a) on page 18
Hi-Tech Industry Park (25%) 5,013 17,796
-------- --------
Total investment in affiliated companies 46,256 89,666
Deferred expenses 4,972 -
Financial liabilities less
current assets (240,896) (240,896) Balance sheet value
Deferred taxes/provision for tax (11,929) (177,971)
Marketable option warrants - (35,500) Estimated using the B&S model
-------- --------
Shareholders equity 663,386 1,078,79
======== ========
</TABLE>
<TABLE>
<CAPTION>
Balance Economic
sheet value value Remarks
----------- ----- -------
<S> <C> <C> <C>
Value of investments in Property &
Building
In shares 429,333 697,977
In marketable option warrants 1,360 3,194
-------- --------
430,693 701,171
2) Hadarim Properties
Investment in affiliated companies 334,889 652,381 See Note A below
Revenue producing assets under
construction 59,339 67,840 See Clause 3 (b) on page 18
Land 12,042 91,675 See above
Revenue producing assets 3,674 13,055 See above
Fixed assets and others 4,052 1,738
Current assets less financial liabilities 25,218 25,218 Balance sheet value
Provision for tax - (24,474)
-------- --------
Shareholders' equity 439,214 827,433
======== ========
Value of investment in Property & Building
In shares (90%) 389,596 744,685
======== ========
</TABLE>
Note A - Details of investment in affiliated companies
<PAGE>
Investment according to balance sheet value
-------------------------------------------
In shares In loans Total
---------- --------- -------
Naveh(100%) 115,344 6,586 121,930
Gad (80)% 45,091 27,059 72,150
Mehadrin (34.96%) 85,734 -- 85,734
Ispro (35.23%) 39,699 -- 39,699
Others 15,376 -- 15,376
---------- --------- -------
301,244 33,645 334,889
========== ========= =======
contd.
<TABLE>
<CAPTION>
Investment according to economic value
--------------------------------------
In shares In loans Total Remarks
---------- --------- ------- --------------------------
<S> <C> <C> <C> <C>
Naveh (100%) 190,844 6,586 197,430 See Clause 3(b) on page 18
Gad (80)% 94,865 27,059 121,924 See above
Mehadrin(34.96%) 233,027 -- 233,077 See Clause 3(d) on page 70
Ispro (35.23%) 71,870 -- 71,870 See Clause 3(c) on page 18
Others 28,130 -- 28,130
---------- --------- -------
618,737 33,645 652,381
========== ========= =======
</TABLE>
<PAGE>
B. Supersol Ltd.
The valuation of Supersol Ltd. is significant in determining the exchange
ratio due to the value of the Company and due to the different rates of
holdings of PEC (17.60%) and Discount Investments (22.32%).
1. Description of the Company
Supersol started operations in 1958, and today operates 125
supermarkets of various types. At the beginning of 1997, the Company
acquired 25 food stores from the Shekem chain (of which two stores
were closed after the acquisition), in consideration for some NIS
264 million, and in this way it significantly increased its market
share. The sales turnover of Supersol's food chains in 1997 totaled
about NIS 4.4 billion and was about 41% of the food sales of the
marketing chains in Israel and approximately 16% of all food sales
in Israel.
During the years 1997-1998, the Company ceased operations in a
number of fields which had resulted in losses - an investment in the
supermarket chain in Hungary, in the Super Office chain which sold
office equipment in Israel, and in a partnership with Ace-Buy and
Build which is engaged in the sale of "Do-It-Yourself" products. The
Company today focuses on the supermarket and food business.
90% of the Company's revenues during the last five years come from
the sales in the supermarkets. In addition to the supermarkets
business, the Company gave consulting services and supplied products
to grocery stores, mini-markets etc. Moreover, it invests in
shopping malls and commercial centers in those strategic locations
in which it operates "anchor" stores. Revenues from leasing assets
to third parties total some NIS 29 million in 1997 and some NIS 15
million during the first half of 1998.
Similar to its main competitor, the Blue Square Company, the Company
has a number of types of chains which are distinguished from each
other by their locations which are suitable for each one, size,
target population, the level of service, the range of products sold,
and the rate of gross profit which is characteristic to each one.
The following is a summary of data of the food activity of Supersol
according to the types of chains:
<PAGE>
<TABLE>
<CAPTION>
Number of store Total area as
--------------------------- Average size at 3.30.98 Typical
Type of chain 9/98 12/31/97 12/31/96 of store (sq.mt) (Sq. m.) location
- ------------- ---- -------- -------- ---------------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Supersol(1) 42 42 42 1,100 47,600 Urban suburbs
Hyperkol(1) 32 31 26 2,000 57,150 Shopping malls,
Commercial centers
Hyper Neto(1) 34 32 11 1,940 75,200 Commercial centers in
small cities
Universe Club(2) 3 2 2 7,150 24,350 Industrial areas
Rachel's Blessing 5 5 3 2,200 11,900 Religious communities
Cosmos(1) 1 1 -- 8,900 8,900 Industrial areas
"Hagal Hayarok"
(Green Wave(3)) 8 9 10 980 7,700 In small cities
--- --- -- ----- -------
Total 125 122 94 1,787 232,800
=== === == ===== =======
</TABLE>
The Company intends to open about 30 new stores, with a total area
of some 100,000 square meters from the second half of 1998 and until
the end of the year 2000.
To-date about 75% of the goods was distributed to the stores by the
suppliers (and were even placed on the shelves by them). This method
creates a logistical burden on the branches, which are likely to
handle about 100 distribution trucks a day, and reduces the
flexibility in moving inventory and managing it. In March 1998, the
Company inaugurated a logistic center of 26,000 sq. m. in Rishon
Le'Zion, which was set up at a cost of NIS 205 million. The Center
is expected to gradually replace a considerable part of the direct
distribution by suppliers to the branches, to reduce the number of
supplier deliveries and to make managing the inventory more
efficient. As a result of applying this method, the rate of gross
profit should increase (due to suppliers discount in consideration
for the saving of distribution costs from their point of view), and
on the other hand, the costs of operating the logistic center and
self distribution will increase marketing costs. Consequently, an
improvement in the rate of operating profit is expected in the
future. The Company expects that operating the logistic center will
reduce the level of inventory. We should state that during the
period of trial operations, the level of inventory in the Company
increased as the level of inventory in the stores has not yet
reduced concurrently with the accumulation of inventory in the
logistic center. In the natural sequence of events, success in a
strategic change as this, which involves very large investments and
a change in the structure of the Company's operation, has
considerable risk and is subject mainly to the quality of
management, and the cooperation and an appropriate technological
level of the suppliers.
- ----------
(1) Full service.
(2) Cheap chain based on customers club.
(3) Limited service (limited offer of products compared to the full service
chains)
<PAGE>
As a complementary operation to its main operation, a subsidiary of
the Company, Gidron, produces bakery products, prepared foods and
salads, which are sold in the chain itself and to outsiders.
The Company employs 7,660 employees as at June 30, 1998, as follows:
Type of Job No. of Employees
----------- ----------------
Supermarkets 6,600
Administrative employees 570
Gidron employees (bakery) 350
Management and administration 140
-----
7,660
=====
About 77% of the Company's employees and about 56% of wage expenses
are at the level of minimum wage. In April 1998, the minimum wage
was increased by 8.5%. The increase in minimum wage resulted in an
increase of about 4.8% in labor costs from March and thereafter.
Recently negotiations with the Worker's Committee concluded
regarding the new labor contract, whose effect on wage expenses is
not significant on the results of operations.
The Company has real estate owned by it and leased as at June 30,
1998, apart from real estate for the supermarket business, whose
value is estimated, according to the Assessor's opinion(1) at
about NIS 335.0 million as compared with a depreciated cost of
about NIS 381.5 million.
2. Description of the Business Environment
The retail food branch in Israel is composed of food chains,
mini-markets, grocery stores and open markets. The scope of
operations in this branch in Israel is some NIS 47 billion including
VAT. The leading chains in Israel are Supersol, Blue Square,
Hypershuk, Co-Op Tzafon and Greenberg. The division of the market
between the food chains and between the independent stores and
markets generally reflect the standard of living: as the standard of
living increases, so does the share of the chains, who offer a more
conformable purchasing and a wider choice of products at their sales
points. An improving level of mobility contributes also to this
trend. According to estimates which the Company published (in Form
F-20 for the year 1997), the marketing chains hold some 39% of total
expenses on food.
- ----------
(1) The Opinion of the Assessor, Mr. Alfred Irani dated October 15, 1998 who
agreed that we mention it in our Opinion. The opinion is not an assessor's
evaluation according to the provisions of the Land Assessors Regulations,
as the Assessor carried out only part of the procedures required for in
order to issue a full assessor's opinion according to the said
Regulations. As the value of these assets does not significantly affect
the exchange ratio, the Assessor's opinion has not been attached.
<PAGE>
The following is summarized data regarding the consumption of food
and the development of sales of the organized retail market in
Israel.
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ---- ----
(in NIS of June 1998)
<S> <C> <C> <C> <C> <C> <C> <C>
Consumption of food by households(2)
(in NIS millions) 34,630 36,041 38,759 42,094 44,841 47,015 48,360
Rate of annual increase in % 5.4 4.1 7.5 8.6 6.5 4.8 ??
Rate of increase of sales in organized
retail trading - food in % 3.3 0.8 7.8 10.3 12.5 15.9 9.1
Expense on food consumption per
capita (NIS thousands) 5.53 5.56 5.82 6.16 6.39 6.53 6.44
Rate of annual increase -0.7 0.5 4.7 5.84 3.7 2.2 ??
</TABLE>
Source: Bureau of Statistics, 1998.
From an analysis of the retail trading operation in the food field
in the 90's, it can be seen that over the years 1991-1992 the rate
of increase of private consumption exceeded the rate of increase of
the chains' operations, and therefore the share of the chains in the
said market decreased. After a stabilization of market share of the
chains in 1993, the rate of increase of the marketing chains
exceeded the rate of increase of private expenditures by a
considerable difference since 1994 and thereafter. This trend is
affected by a number of principle factors. Firstly, the immigration
from the former Soviet Union was characterized by a rapid absorption
into the labor force and an increasing demand for consumption
products, with a clear preference for shopping at the marketing
chains which offer cheaper prices. Secondly, the rapid growth of the
Israeli economy in the first half of the 90's resulted in an
increase in the standard of living and an increase in private
consumption. Moreover, the creation of formats of "Discount" stores
lead to a penetration into an additional population sector - the
medium-lower income group. An accompanying trend to the above
changes, is a continued change in the consumers' preference and
patterns of their behavior over the last five years, according to
which the Israeli consumer prefers comfort, quality and saving.
The high rate of growth of food market chains and the increase in
their share of food sales, are affected, among other things, by a
strategy of segmentation- strategy to cover a market where the chain
addresses a number of market sectors, through an adjusted mix of
each sector. On the other hand, this method involves higher costs of
development, production and marketing of many products, and the need
to adjust them to the specific market segments.
In this framework, there were many significant changes in recent
years. Among recent development in the food chains, one can mention
the rapid deployment of chains throughout the country, the
establishment of "Discount Chains", the establishment independent
distribution centers in order to reduce costs and make operations
more efficient, the
- ----------
(2) Including VAT
<PAGE>
establishment of customer clubs for the purpose of encouraging
sales, the acquisition of independent chains etc.
The proportional share of the marketing chains in food sales in the
United States is about 80% and in Western Europe about 60%.
Therefore, it seems that the potential for growth in the market
sector of marketing chains in Israel has not yet been exhausted. The
low rate of penetration of chains in Israel is explained mainly by
the standard of living and the higher level of motorization in these
other countries.
The following is a distribution of total sales of the food chains in
1997:
<TABLE>
<CAPTION>
The
Blue Square Supersol HyperShuk Greenberg Co-op Jerusalem Total
----------- -------- --------- --------- --------------- -----
(in NIS millions of June 1998)
<S> <C> <C> <C> <C> <C> <C>
Sales 3,863.9 4,621.4(1) 1,589.5 744 452.2 11,271
% from total 34.3% 41% 14.1% 6.6% 4.0% 100%
</TABLE>
Source: Dunn and Bradstreet, 1997.
The proportional share of Supersol in food sales of the marketing
chains in 1997 is estimated at some 41% (as compared with about 39%
in 1996). Its share of total retail food sales in 1997, is estimated
at some 16% (as compared with 14% in 1996).
The following is a description of Supersol positioning in the retail
food market in Israel according to the SWOT(2) model.
Advantages
a) Economics of scale - the Company has a larger sales area and
turnover than its competitors. In this branch there is an
advantage to size, both due to the bargaining power with
suppliers and due to the capacity which enables the operation
of an independent distribution and logistic organization,
which enables it to become more efficient and result in saving
for the Company, which is also likely to cause more
distribution expenses to independent stores.
b) The use of a marketing segmentation strategy - the spread of
stores which are aimed at different population segments and
supply a good response for the needs of different types of
customers.
c) Real estate basis in chosen location which ensures the choice
of the chain as an anchor in these locations, and gives the
Company additional profits.
d) An independent logistic center, which is expected to result in
savings of distribution costs, improvement in inventory
management in the stores and increased flexibility in
supplying the stores.
- ----------
(1) Includes also operations which have been terminated. Food sales turnover
alone reached some NIS 4.4 billion.
(2) SWOT - "Strengths, Weaknesses, Opportunities, Threats"
<PAGE>
e) The management information system - the use of an advanced
technology system which reduces the cost of maintaining
inventory and costs connected with purchasing.
Disadvantages
a) A slow penetration of the chain's private brands - private
brands comprise only about 1% of the Company's sales. These
brands are characterized by higher gross profits due to their
lower cost as compared with the manufacturer's brands. The
Company did not invest significant resources to penetrate them
into the market, and therefore their proportional share in
sales is lower than the share acceptable abroad and compared
to the other chains in Israel. For comparison, the rate of
sales of private brands in Western Europe in 1997 stood at
about 22%.
b) Minimum wage - a high proportion of wage costs which is
determined by the authorities without any control by the
Company.
Opportunities
a) Absorbing the Shekem stores which were acquired in 1997. These
stores were characterized by a low rate of sales per square
meter as compared with similar stores in the Company.
Increasing sales of these stores to a level close to that
acceptable in the chain, will contribute considerably to the
Company's profitability. The estimate of investment in
renovating the Shekem stores (which is spread over three
years) is about NIS 60 million.
b) Penetrating the Arab and Religious sectors. The religious
sector includes about 75,000 families (over 3 years) and about
40% of the consumption basket of this market segment is
allocated to food, as compared with about 22% of the general
population. Consumption characteristics in the Arab population
are similar. The Company has five stores aimed at the
religious sector, and is recently setting up its first store
of the chain (Hyperneto) in the Arab sector in Kalanswa.
c) Increasing the share of private brands which is expected to
increase gross profits.
d) The Supersol chains are characterized by a fairly low level of
the "non-food" sales as compared with other chains, and
therefore there is a potential growth which has not yet been
exploited in expanding this field (including pharmacies and
bank branches), mainly in chains with large sales areas.
e) Developing direct marketing methods - telephone and internet
marketing. Success in implementing these methods requires a
considerable investment in developing suitable infrastructure
and friendly methods for the user.
<PAGE>
Threats
a) Recession in the economy - a drop in demand and a freezing of
consumption per capita. The slowdown will result in a
reduction in consumption and the share of luxury items in this
basket. These products are characterized by fairly high rates
of profitability in the average consumption basket.
b) Increased competition in the branch - there is increasing
difficulty in obtaining good locations to open new stores. The
location has considerable importance, as being first makes it
easier to mobilize new faithful customers.
c) International food chains - there is an apprehension (with a
fairly low likelihood) that global chains will see the
potential in the branch, and penetrate into the market while
increasing competition. International chains enjoy large
budgets and considerable experience.
3. Financial Analysis
A summary of the Statement of Earnings and the Balance Sheet of the
Company is attached on the next page.
a) Sales and profitability
During the years 1995 - 1997 the Company's sales have
increased considerably, from about NIS 2.9 billion in 1995 to
about NIS 4.4 billion in 1997, an increase of about 49%.
The following is the distribution of the increase in revenues
between increasing commercial areas (including the acquisition
of the Shekem branches) and between increasing the level of
operations of existing stores:
<TABLE>
<CAPTION>
Total increase
1-6/98 1997 1996 1995- 6/1998
------ ---- ---- ------------
(NIS thousands)
<S> <C> <C> <C> <C>
Increase resulting from opening new stores 10.4% 20.6% 12.4% 1,300
Increase resulting from existing stores 1.3% 4.0% 7.6% 389
---- ---- ---- -----
Total increase in sales 11.7% 24.6% 20.0% 1,689
==== ==== ==== =====
Estimate of sales per sq. m. (NIS thousands)* 21.4 20.4 23.8
---- ---- ----
Rate of change in sales per sq. m 4.9% (14.3%) 6.3%
---- ---- ----
</TABLE>
* Including sales not through the stores.
<PAGE>
Summarized data of Supersol
SuperSol Ltd.
Summary of Data*
(In thousands of shekels of 6/98)
- --------------------------------------------------------------------------------
Condensed Consolidated Statements of Income
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1-6/98 1-6/97 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Sales 2,363,431 2,115,629 4,353,503 3,493,857 2,912,330
Cost of sales (1,756,889) (1,588,121 (3,241,306) (2,592,325) (2,129,382)
---------- ---------- ---------- ---------- ----------
Gross profit from sales 606,542 527,508 1,112,197 901,532 782,948
Rent and operating malls 15,219 14,879 29,407 27,425 27.693
Selling, general & administrative expenses (479,737) (409,934) (846,957) (668,438) (377,923)
Depreciation and amortization (51,618) (41,411) (91,156) (70,033) (62,713)
---------- ---------- ---------- ---------- ----------
Operating earnings 90,406 91,042 203,490 190,486 170,005
Financing revenues, net 8,361 7,655 458 14,563 18,615
Other revenues (expenses), net** 15,319 (2,935) (1,831) (6,584) (4,062)
---------- ---------- ---------- ---------- ----------
Earnings before taxes on income 114,086 95,762 202,117 198,465 184,558
Taxes on income (46,973) (36,670) (71,669) (73,105) (75,962)
---------- ---------- ---------- ---------- ----------
Earnings after taxes on income 67,113 59,092 130,448 125,360 108,596
Company's share in earnings of associated
companies 1,192 812 1,931 2,285 1,981
Company's share in losses of Super Office -- (9,190) (12,974) (33,780) (12,693)
Company's share in losses of Super Quart -- (2,313) (5,498) (1,816) (1,452)
Minority's share in losses (profit) of
consolidated companies (60) (37) 504 240 4,903
---------- ---------- ---------- ---------- ----------
Net Profit 68,245 48,364 114,411 ?? 101,335
========== ========== ========== ========== ==========
Rate of change in sales 11.7% 24.6% 20.0%
Rate of gross profit 25.7% 24.9% 25.5% 25.8% 26.00%
Rate of operating earnings to revenues 3.8% 4.3% 4.7% 3.3% 5.5%
Rate of profit from revenues 2.9% 2.3% 2.6% 3.2% 3.5%
Effective tax rates 41.2% 38.3% 35.5% 36.8% 41.2%
Return on shareholders' equity at beginning of
year (on annual basis) 9.7% 8.3% 9.6% 10.2% 10.0%
</TABLE>
* For the first half of 1998 the item includes capital gains from the sale of
Super Quart of NIS 31,313 thousand.
- --------------------------------------------------------------------------------
Condensed Consolidated Balance Sheet
- --------------------------------------------------------------------------------
6/30/98 12/31/97
Current assets
Cash 33.420 l5,600
Marketable securities 138,337 269,331
Short-term loans and deposits 30,228 23,588
Customers 549,044 537,362
Other receivables 50,880 52,100
Inventory 320,564 291,568
--------- ---------
1,122,473 1,089,549
--------- ---------
Investments and loans
Investments in Super Office
and Super Quart -- 1,144
Investment in associated
company 71,055 79,908
Long-term loans and
receivables 30,357 24,980
--------- ---------
101,442 106,032
--------- ---------
Fixed assets 1,595,363 1,506,275
--------- ---------
Other assets 59,615 76,617
--------- ---------
--------- ---------
Total 2,879,393 2,778,473
========= =========
Current ratio 1.45 1.46
Current liabilities
Credit from banks 10,066 38,972
Suppliers payable 591,982 579,860
Other debtors 17l,984 126,817
--------- ---------
774,032 745,649
--------- ---------
Long-term liabilities
Bank obligations
380,013 386,751
Other obligations 6,573 6,200
Severance pay 6,289 4,843
Deferred taxes 28,468 26,492
--------- ---------
421,523 424,486
--------- ---------
Shareholders
equity 1,683,838 1,608,338
--------- ---------
--------- ---------
Total 2,879,393 2,778,473
========= =========
Financial leverage 0.06 0.06
A calculation carried by us based on audited consolidated statements, from which
the data relating to Super Office and Super quart have been extracted.
<PAGE>
The decrease in sales per sq.m. in 1997 is because the level of
operations of the Shekem stores purchased, was lower by some 40%
than the level of the other stores in the chain. During the first
half of 1998, there was an improvement in the level of sales at the
Shekem stores, and the Company expects their level to reach a level
close to the level of sales of the other stores in the chain.
The trend of increasing sales per square meter is affected, among
other things, by the increase in the standard of living in Israel
(an increase in food consumption per capita), and from the expansion
of direct marketing and food distribution operations to other stores
by the head office (which is technically expressed, in the increase
in sales per sq. m.).
Gross profit
The rate of gross profit of the Company went down from about 26.9%
in 1995 to a level of about 25.5 - 25.8% in 1996 and thereafter.
Among the factors for the drop in gross profit are:
o an increase in the proportion of sales in the cheap chains,
where gross profit is l ow, due to the increase in the
commercial areas of these chains.
o The effect of the recession in the market led to a change in
the basket of purchases: a drop in the share of luxury
products which are characterized by higher gross profits, and
an increase in the share of basic food products, which are
characterized by lower gross profits.
o The strong competition between the chains created a price war
on the consumer's pocket. Local campaigns which are earmarked
to maintain a market share, reduce gross profit (e.g. the
"500" campaign which took place recently at the Hyperkol,
according to which the chain undertook to supply 500 products
at the cheapest prices in the market.
A factor which sets off the drop in gross profit is the increasing
discounts by suppliers due to the increasing volume of operations.
Selling, General and Administrative Expenses:
The following is the distribution of selling, general and
administrative expenses (in NIS of June 1998):
<TABLE>
<CAPTION>
1-6/98 1997 1996
------ ---- ----
NIS % NIS % NIS %
thousands of sales thousands of sales thousands of sales
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Wages 247,507 10.47 435,906 10.01 350,999 10.00
Rent and Taxes 71,813 3.04 130,406 3.00 98,339 2.81
Gross advertising expenses 50,921 2.15 69,163 1.59 49,650 1.42
Other expenses, net 109,496 4.64 211,482 4.86 169,450 4.85
------- ----- ------- ----- ------- -----
Total selling, general and
administrative expenses 479,737 20.30 846,957 19.46 668,438 19.08
======= ===== ======= ===== ======= =====
</TABLE>
<PAGE>
These expenses are fixed in character, partly at the general company
level and part at the store level. Advertising expenses are derived
from management decisions taking into account the competitive
condition in the market. The considerable increase in advertising
costs reflects a significant increase in the level of competition in
the Company's business environment, as the drop in gross profit is
also discernible. We should state that some of the suppliers
participate in the advertising costs during joint campaigns with the
Company.
Over and above increasing the number of branches and selling areas,
there are additional reasons for increasing overhead expenses in the
Company, as follows:
o the increasing use in means of direct marketing which includes
operating costs such as: postage, advertising, telephone
operators, packaging etc.
o The total cost of the logistic center, the warehouses and
distribution system was estimated to reach some NIS 60 million
per year. The additional cost for the logistic center, which
was set up in March 1998, is about NIS 16 million on an annual
basis. As the center did not operate at full capacity, its
operation has reduced gross profit at this stage.
Other expenses include, among other things, commissions to credit
card companies of some 0.75% of the transaction volume cleared
through them (about 62% of turnover), which totaled during the first
half of 1998, about NIS 13 million and for 1997 about NIS 24
million.
Financing Revenues, net
The Company has net financing revenues resulting from two main
sources: net financial investment, and financial revenues from
operations.
Financial revenues from operations are derived from the erosion of
debts to suppliers (for an average period of about 48 - 51 days)
less the erosion of customers debts (an average period of about 20
days). The credit to customers results mainly from the use of credit
cards (about 62% of the volume of the Company's operations, as
compared with cash payments which is about 30%, checks about 5% and
purchase voucher about 3%). It should be emphasized that most of the
credit (over 90%) is given through credit cards, the volume of
credit in the balance sheet represents the top credit in the month
(where a large part of it is paid on the 2nd of the following
month), and not the average level of credit over the year. We
estimate, that the average volume of credit during the whole period
is about 60% of the level of balance sheet credit at end points. The
level of credit
<PAGE>
to customers in Israel is proportionally higher than that acceptable
in the world, and remained constant over the last two and a half
years.
We should state, that in view of expectations of low inflation, it
is expected that the operating financial revenues in the future will
decrease.
With regards to financial financing revenues, net, we should state
that loans given and received are linked to the index, and therefore
the Company is not exposed to risks connected with changes in the
rate of exchange.
The following is the composition of financing revenues in the years
1996 - 1998:
1-6-/98 1997 1996
------- ---- ----
(NIS thousands)
Financial financing revenues (expenses) 2,961 (9,075) (2,000)
Operating financing revenues 5,400 9,533 16,563
----- ----- ------
Total 8,361 458 14,563
===== ===== ======
The considerable increase in financing expenses in 1997 results
mainly from the investment in acquiring the Shekem stores.
Taxes -
The Company has final tax assessments (including independent
assessments considered to be final) up to and including the 1991 tax
year. Thirteen consolidated companies received final assessments for
the years between 1990 and 1994. Five additional consolidated
companies have not yet received assessments since their
establishment. The following are the effective tax rates in recent
years:
1997 1996 1995
---- ---- ----
35.5% 36.8% 41.2%
The drop in the effective rate is due mainly to the use of losses
from previous years, for which no deferred tax was created. The
effective tax rate in the future is expected to stand close to the
statutory tax rate plus about 1 - 2% for non-recognized expenses.
b) Balance sheet analysis
The balance sheet structure shows high financial stability.
Shareholders equity as at June 30, 1998 totaled about NIS 1,684
millions which comprised about 58% of the total balance sheet.
Current assets totaled about NIS 1,222 million, including the
balance of customers of about NIS 549 million, which is mainly
composed (85%) of the balances of credit card companies, cash and
marketable securities totaling about NIS 201 million. The high
liquidity is
<PAGE>
expressed in the comparison of the current ratio to those of the
Company's main competitor:
30.6.1998 31.12.1997
--------- ----------
Supersol 1.45 1.46
The Blue Square 0.84 0.87
The composition of fixed assets as at June 30, 1998, is as follows:
NIS thousands
-------------
Real estate in operating stores 673,300
Other real estate 381,471
Equipment and installations 418,684
Renovations 110,856
Vehicles 11,552
---------
Total 1,595,863
=========
The other assets are comprised mainly of goodwill totaling NIS
39,929 million, mainly resulting from the acquisition of the Shekem
store chain (76%).
The financial leverage is composed mainly of long term index linked
loans bearing interest of a rate of 3% - 4.4% percent, which is
lower than market rates.
The deferred tax reserve, results mainly from the difference between
the rate of depreciation on the buildings in the books (about 2%)
and between the rate of depreciation for tax purposes (about 4%).
Deferred taxes receivable for capital loss are transferred for tax
purposes, are the main factor in reducing the said reserve. Capital
losses can be set off in the future against capital gains only
(including capital reserve from the sale of Ace Buy and Build in the
third quarter of the year).
4. Valuation
a) Summary of the valuation
The value of Supersol is estimated by us in the area of NIS 2.156 -
2,464 millions, as compared with shareholders equity of NIS 1,684
million as at June 30, 1998. The value of the Company, based on the
average share price on the Stock Exchange during the period of
September 28th - October 8th, 1998, is about NIS 2,146 million.
<PAGE>
The composition of the estimated value is as follows:
<TABLE>
<CAPTION>
NIS millions
------------
<S> <C>
Capitalization of the expected cash flows
from operating the stores 1,921.4 - 2,229.4
Value of real estate assets which are not
operated for stores, according to an assessor's evaluation 335.0
Economic value of investment in Avnat Ltd., according
to an assessor's evaluation 13.8
Balance sheet value of investment in Lev Hamifratz company 23.8
Value of investment in Ace Buy and Build, less tax 33.0
Financial liabilities, net (170.8)
-----------------
Total value of share capital 2,156.2 - 2,464.2
=================
</TABLE>
Based on the above valuation, the value of Discount Investments'
investment (22.3%) in the Company is estimated at about NIS 481 -
549 million, and the value of PEC's investment (17.5%) at about NIS
377 - 431 million.
The estimated value expresses a multiplier of 16.5 - 18.9 of net
earning for the first half of 1998 grossed up on an annual basis.
These multipliers express a considerable expected growth in revenues
(about 10% per annum in real terms in the coming five years) and in
net operating earnings (over 20% per annum for the coming four years
and about 4.5% for the year thereafter). For comparison, the average
market value of the shares of the Blue Square, in the month prior to
the valuation, expresses a multiplier of about 16 respectively.
b. Methodology
The valuation was prepared by the discounted cash flows method. The
expected cash flows is a function of the forecasted profit while
taking into account the influence of exogenous factors for the
Company, such as the economic situation in the economy and the rate
of increase of the population, and taking into account the Company's
operations in the market, where competition between the large
marketing change results in a limitation on profit margins. A
setting-off trend of this effect, is extricating itself from
losing operation and logistic efficiency being taken.
c. Basic assumptions
(1) Revenues and gross profits
Supersol's volume of operations is subject to the level of expenses
on food and related products in Israel, and on the market share
which Supersol will succeed in attaining in this market.
The expected change in the volume of sales is estimated based on the
following principles:
o The rate of increase of the population in Israel is estimated
at about 2.4% average per year, as compared with about 2.6%
<PAGE>
average in the last 15 years, which was partially affected by the
waves of immigration.
o The change in expenses on food is derived from the rate of
increase of the population and the expected rate of increase
in consumption per capita. We assumed, that in view of the
recession in the economy, there will be no change in expenses
on food per capita in the first two years of the forecast, and
thereafter there will be an increase in consumption per capita
of about 2% per annum, similar to the average change over the
last 15 years.
o In view of the increase in the standard of living in Israel
and the expected development momentum of the marketing chains,
including Supersol (increasing commercial areas of the
marketing chains over the increase of commercial areas of
private stores and markets), we assumed, that the share of
marketing chains will increase from an estimated average of
40% in the first half of 1998 to about 53% after five years of
growth (annual growth of about 2.5 - 3% in market share of the
chains).
o The dominant marketing chains today (excluding Hypershuk -
Co-Op Tsafon) are the owners of the dominant resources in the
Israeli economy. Therefore, there is no reason to assume a
significant change in market share of the large chains, and
therefore we assumed a stability in market share of Supesol
within the chains.
o At the end of the forecast period, we assumed that the rate of
increase in sales will be an average of about 4.5%, similar to
the expected rate in expenses on food in Israel on the basis
of the above assumptions.
Rate of gross profits is subject, among other things, to the level
of competition in the market, selling methods (the "Discount" chains
are characterized by a significantly lower profit than the profit in
the traditional stores), the standard of living (the preference of
basic products against luxury products which are characterized by a
higher gross profit), the distribution center, the volume of sales
of private brands, and the strength of the Company vis-a-vis its
suppliers (which affect the distribution of profits between the
manufacturer/importer and the marketer).
In our opinion, in view of the total aforementioned factors (see
Clauses 1 - 2 above), the Company is expected to increase its gross
profit gradually from some 25.7% in the first half of the year to
about 26.5% after the four years of forecast.
(2) Selling, general and administrative expenses
These expenses are divided into expenses at the level of the head
office and the expenses of the stores, and mostly they are fixed or
variable and subject to the decision of management at every level.
<PAGE>
The forecasted expenses for the future is estimated according to
their following characteristics:
o We assumed that advertising expenses will be about 2% of
turnover as compared to about 2.15% in the first half of 1998.
The volume of investment in advertising will increase
significantly in view of the rate of increase in sales (about
8-10% per annum in real terms).
o Rent expenses and taxes connected mainly to the volume of the
areas operated by the Company and a mix of assets (assets
owned against assets rented and their location). Accordingly,
we assumed that the volume of expenses per square meter will
remain stable in the future. In this assumption there is an
assumption of a certain increase in cost, as most of the
potential development is not in centers of the cities.
o Wage expenses are affected from the increase in wages (in our
opinion about 2% per annum on average, including changes in
the minimum wage which is not controlled by the Company) and
the expected increase in commercial areas. As a significant
part of wage expenses relate to the head office, we assumed
that wage expenses will increase by about 45% of the increase
expected in the commercial areas, in addition to current
price-rise. In addition, we took into account a gradual
increase of about NIS 70 million in the level of wages in the
first year of the forecast due to the operation of the
logistic center and the requirement to display prices.
o The rate of other expenses on sales stood at some 4.65 - 4.85%
in recent years, and therefore we assume that it will remain
stable with a rate of about 4.85% in the future.
(3) Operating financing revenues
These revenues are derived from the volume of credit from suppliers
as compared given with customers, and the inflationary erosion of
these balances. In the evaluation we estimated changes in the level
working capital, as mentioned, according to changes in the volume of
sales, and an inflationary erosion of 5% per annum was assumed.
(4) Tax expenses
The effective tax rate is estimated at about 2%, which is 2% higher
than the statutory tax rate.
(5) Investments in fixed assets and depreciation
Depreciation is not a cash expense, but is recognized as an expense
for tax purposes and therefore affects the payment of tax.
Therefore, we added the depreciation to net operating profit and
deducted the expected investments in fixed assets (from the total
depreciation, the
<PAGE>
depreciation on revenue producing assets which were valued
separately, was deducted).
The investment in fixed assets is divided into investment in
renovating operating branches, which is estimated at some NIS 80
million in the coming year (as compared to about NIS 80.8 million in
1997 and about NIS 39 million during the period 1 - 6/1998) and is
expected to increase with the increase in commercial areas in the
future, and investment in erecting new stores. This investment is
subject mainly to the structure of ownership on the asset, its
location, the character of the store and its area.
In the valuation we assumed, that for the purpose of realizing the
increase in sales, the Company will have to invest between NIS 210 -
260 million (including an investment in renovating branches). The
level of investment in the long run (which is earmarked to support
lower rates of growth) is estimated at some NIS 215 million. In the
long term, the level of the investment is equal to the level of
depreciation.
(6) Decrease in operative working capital
The increase in the volume of operations requires an additional
investment in customer credit and inventory, and against it the
Company enjoys additional suppliers credit. Operating the logistic
center in the second quarter of the year, caused an increase in the
level of inventory due to its running-in operation, the level of
inventories in the stores has not yet gone down concurrently with
the accumulation of the inventory in the logistic center. For the
purpose of the estimate of investments in inventory, we assumed a
gradual efficiency, which will enable the reduction of the level
inventory in terms of inventory days to a higher lever of some 5
days only, over and above the level which existed prior to the
operation of the logistic center.
As the Company pays its suppliers after sale of the goods and
collection of the consideration from the customers (on average), the
increase in the level of operations increases suppliers credit (due
to the increase purchases) over and above the need of investment in
credit to customers (as part of the sale which were added are credit
sales) and inventory and therefore results in a positive cash flow.
(7) Non operational assets in food business
These assets include the investment in Ace Buy & Build, which was
included at its selling price less the estimate of the tax applied;
the investment in Lev Hamifratz Company, which was included at its
balance sheet value; the investment in Avant Ltd., which was
estimated on the basis of the valuation of a real estate assessor
owned by it; and real estate assets, which were included in the
<PAGE>
valuation according to the valuation of the Assessor, Mr. Alfred
Irani, dated October 15, 1998. As the estimated value is not higher
than the cost of assets in the balance sheet, there is no potential
tax liability on the realization of these assets.
The following are the main details regarding real estate assets,
which are not used for food operations:
<TABLE>
<CAPTION>
Balance Built up Economic Rent Rent per leased Rate of occupancy
sheet value area value 1-6/98 meter per month as at 30.6.98
-------------- -------- -------- -------- --------------- -----------------
(NIS thousand) (Sq. m.) (NIS thousand) (Dollar) (Average)
<S> <C> <C> <C> <C> <C> <C>
Revenue producing
assets 224,844 41,611 222,260 10,526 14.2 81%
Land and revenue
producing assets
under construction 156,627 112,767
------- -------
Total 381,471 335,027
======= =======
</TABLE>
(8) Net financial liabilities
The composition of net financial liabilities, which were deducted
from the value of operations in the food field, is as follows:
NIS thousands
-------------
Long-term liabilities to banks 380,013
Short-term liabilities to banks 10,066
Liabilities for retirement of employees 6,289
Long-term liabilities to others 6,753
Cash (33,420)
Marketable securities (138,337)
Short-term loans and deposits (30,228)
Long-term loans and deposits (30,357)
-------
170,779
=======
(9) Discount rate
The Company almost never uses the financial leverage, among other
things, as a result of an issue which made in the fourth quarter of
1997 (in consideration for some 90 million dollars), and due to the
influence of the sale of the holdings in Super Office, Kozert and
recently also in Ace - Buy & Build. An analysis of the cash flows
forecasted in the future shows, that the Company is not expected to
increase the financial leverage despite the significant investments
expected to be effected to expand the chain.
The discount rate taken into account in the valuation, varies
between 8.75% - 9.75%, and reflects mainly the return required by
the shareholders. Trading in the food field, which enjoys demand
also in periods of economic recessions, gives the Company a low
level of risk compared to the "market portfolio", where the return
required in Israel is estimated in the area of 12%-13% in real terms
based on the long-term market return on shares.
<PAGE>
On the next page is a forecast of cash flows, an evaluation and a
sensitivity analysis estimated for changes in the price of capital
and the rates of growth after the end of the forecast period.
<PAGE>
Super-Sol Ltd
Cash Flow Forecast and Estimated Value
(In thousands of shekels of 6/98)
<TABLE>
<CAPTION>
1-6/98 Representative
Actual 1st year 2nd year 3rd year 4th year year
---------- ---------- ---------- ---------- ---------- ----------
(on an annual
basis)
<S> <C> <C> <C> <C> <C> <C>
Sales 4,726,862 5,203,330 5,637,989 6,212,326 6,826,600 7,483,230
Cost of Sales (3,513,778) (3,866,074) (4,174,931) (4,584,696) (5,020,964) (5,500,174)
---------- ---------- ---------- ---------- ---------- ----------
Gross Profit on Sales 1,213,084 1,337,256 1,463,058 1,627,630 1,805,636 1,983,056
---------- ---------- ---------- ---------- ---------- ----------
Rental and operating malls 30,438 Estimated
separately
Selling, general & administrative
expenses (959,474) (1,109,621) (1,197,621) (1,309,568) (1,435,319) (1,569,357)
Depreciation & amortization (103,236) (105,769) (113,323) (121,394) (129,710) (215,000)
---------- ---------- ---------- ---------- ---------- ----------
Operational earnings 180,812 121,866 151,608 196,668 240,607 198,699
---------- ---------- ---------- ---------- ---------- ----------
Other expenses, net* (1,677) -- -- -- -- --
Operating & financing revenues 10,400 18,456 19,899 21,818 23,856 26,125
---------- ---------- ---------- ---------- ---------- ----------
Earnings before tax 189,535 140,322 171,508 218,486 264,463 224,824
Taxes on income (53,322) (65,173) (83,025) (100,496) (85,433)
--------------------------------------------------------------------------------
Net operating earnings 86,999 106,335 135,461 163,967 139,391
With addition of depreciation 105,769 113,823 121,394 129,710 215,000
Less investments in fixed assets (210,000) (240,000) (240,000) (260.000) (215,000)
Plus decrease in operational
capital 10,587 25,241 30,859 36,000 2,000
--------------------------------------------------------------------------------
Net operational cash flow (6,645) 5,399 47,713 69,677 141,391
================================================================================
Net operational cash flows net of
capitalization (6,343) 4,696 37,812 50,312 1,973,447
==================================================================
</TABLE>
<TABLE>
<CAPTION>
Sensitivity Analysis of the Estimated Worth (In NIS '000)
---------------------------------------------------------
Summary of Estimated Worth NIS thousands Rate of growth at the end of the forecast period
- -------------------------- ------------- ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
3.5% 4.5% 5,5% 6.5%
Value of operation in the food field 2,059,924 775% 2,919,724 3,708,018 5,197,017 9,068,413
Value of investment in Ace Do it Y- 33,000 8.25% 2,611,220 23,212,668 4,251,513 6,477,672
Yourself less tax
Value of investment in Lev Hamifraz Corp 23,769 Capitalization 8.75% 2,361,823 2,834,293 3,597,507 5,039,132
Economic value of investment in Avnat 13,817 rate 9.25% 2,156,122 2,535,947 3,118,347 4,124,309
Value of investment in Real estate 335,028 9.75% 1,983,612 2,294,759 2,752,328 3,491,478
Net financial liabilities (170,779) 10.25% 1,186,916 2,095,812 2,463,715 3,027,834
---------
Total worth of the Company 2,294,759 10.75% 1,710,690 1,928,963 2,230,387 2,673,658
=========
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Data of the first half of 1998 on an annual basis include capital gains from
the sale of Super Quart in a total sum of NIS 32,315 thousand.
Assumptions
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Rate of capitalization 9.75%
Rate of growth following the end of
the forecast period 4.5%
1st year 2nd year 3rd year 4th year Representative year
-------- -------- -------- -------- -------------------
Rate of growth in sales 11.7% 10.1% 8.4% 10.2% 9.9% 9.6%
Rate of gross profit from sales 25.7% 25.7% 26.0% 26.2% 26.5% 26.5%
Rate of operating earnings 3.3% 2.3% 2.7% 3.2% 3.2% 2.7%
Rate of effective tax 0.0% 38.0% 38.0% 36.0% 38.0% 38.0%
</TABLE>
<PAGE>
C. Elron Electronic Industries
The evaluation of Elron Electronic Industries Ltd. (hereinafter: "Elron"
or "the Company") is significant in determining the exchange ratio mainly
due to the different rate of holdings of PEC (13.51%) and Discount
Investments (26.28%).
1) Description of the Company
Elron is an investment company investing in companies operating in the
fields of defense electronics, communications, medical imaging,
semiconductors, computerized systems for optical testing and information
and Internet technologies.
Elron's investments in Elbit Medical Imaging, Elbit Systems, and Elbit
which were created as a result the split-up of Elbit in effect from
December 1996, comprises about 71% of the total assets of the Company. The
Company has a number of investments in private companies in the field of
hi-tech which are at various stages of products development, and which
have not yet reached profitability. Therefore, their economic value is
subject to considerable uncertainty.
The Company's share are traded on the Tel Aviv Stock Exchange and NASDAQ.
The market value of the Company (according to the average share price
during the periods September 28 - October 8, 1998) totaled some $263
million. The Company's shareholders equity on June 30, 1998 stood at some
at about $261.7 million.
2) The summary of the evaluation
The value of Elron is estimated at some $326.9 million (about NIS 1,308
million according to rate of exchange of NIS 4 to the dollar), compared to
shareholders equity on June 30, 1996 of about $261.7 million and a market
value of $263 million (at average price per share during the period
September 28 to October 8, 1998).
The following are details of the estimated value of the main affiliated
companies:
<TABLE>
<CAPTION>
Value or
investment in Value of Rate of
Estimated Rate of Elron balance sheet Elron contribution
value Holdings on 6.30.98 Holdings to value
----- -------- ---------- -------- --------
($ million) ($ million)
<S> <C> <C> <C> <C> <C>
Elbit Imaging 321.9 39.85% 111.0 131.5 31.8%
Elbit Systems 275.7 34.77% 52.5 97.0 27.9%
Chip Express 100.0 36.81% 4.5 36.8 10.6%
Elbit 66.0 40.00% 35.3 28.2 8.1%
Mediagate 60.0 39.16% 3.1 23.5 6.7%
Zoran 60.8 16.21% 6.2 9.9 2.8%
Netvision
(fully diluted) 37.5 25.92% 5.8 9.7 2.8%
Others 14.5 32.4 9.3%
---------- -------- --------
Total value of holdings in companies 232.9 369.0 100.0%
--------
Less provision for tax on revaluation of value of
holdings -- (34.6)
Net financial assets 28.8 28.8
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Amortization of value (Discount) due to Elron
operating as a holding company (10%) -- (36.3)
---------- --------
Total value of a share holders equity 261.7 326.9
========== ========
</TABLE>
<PAGE>
ELRON ELECTRONIC INDUSTRIES LTD.
SUMMARY OF DATA
(IN THOUSANDS OF US DOLLARS)
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1-6/98 1-6/97 1997 1996 1995
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
REVENUES
Company's share of earnings (losses)
of affiliated companies (1)36,640 338 (75) 2,751 4,667
Profits from changes of holdings in
affiliated companies 1,890 29 10,826 690 3,799
Net sales 7,700 -- 3,367 -- --
Other revenues, net 8,721 10,650 18,976 10,846 5,755
------ ------ ------ ------ -----
54,951 11,017 33,094 14,288 24,221
------ ------ ------ ------ -----
OPERATING EXPENSES (2)(11,783) (2,218) (7,308) (3,580) (5,415)
------ ------ ------ ------ -----
Operating earnings 43,168 8,799 25,786 10,708 8,806
Net financing revenues 569 361 1,202 571 1,498
------ ------ ------ ------ -----
Earnings before taxes 43,737 9,160 26,988 11,279 10,304
Tax on Income -- -- (243) -- --
------ ------ ------ ------ -----
NET EARNINGS 43,737(1)(2) 9,160 26,745 11,279 10,304
</TABLE>
1) Includes Elron's share of the profits in the sale of the Ultrasound
(diagnostic) division by Elbit Medical Imagining for a sum of about $36.5
million.
2) The increase in operational expenses is due to the operations of the
consolidated subsidiary company Elron Software, which began operation at the end
of October 1997. These expenses are mainly marketing and selling expenses as
well as research and development expenses.
Rate of change in revenues 398.8% 131.6% 0.5%
Rate of operational earnings from revenues 78.6% 79.9% 77.9% 74.9% 61%
Rate of net earnings from revenues 79.6% 83.1% 80.6% 78.9% ?
Return on shareholders' equity at beginning
of the year* 44.1% 9.3% 13.3% 5.7% --
* In yearly terms.
CONDENSED CONSOLIDATED BALANCE SHEET
6/30/98 12/31/97
------- --------
Current assets 30,640 29,038
Long-term receivables 240,439 193,356
Fixed assets 1,251 473
Other assets 7,754 --
------- --------
Total 280,084 222,867
======= ========
Current ratio
6/30/98 12/31/97
------- --------
Current liabilities 8,667 4,443
Long-term liabilities 9,700 --
Shareholders equity 261,717 218,424
------- --------
Total 280,084 222,867
======= ========
Financial leverage None None
- ------------------------------------------
OWNERSHIP STRUCTURE AS AT 6/30/98 (%):
Discount Investments 26.28
PEC 13.51
Discount 5.59
Galil Uzia 0.90
Poalim Provident Funds 7.16
Leumi Provident Funds 5.01
Poalim Mutual Funds 3.03
Ilanot Discount 1.48
Leumi Mutual Funds 1.37
Public 35.67
------
100.00
======
- ------------------------------------------
<PAGE>
3) Methodology
The marketability of Elron shares is reasonable. Average daily trading
stood at about NIS 1,672 thousand at the Tel Aviv Stock Exchange and about
$475 thousand on the NASDAQ during the period January to July 1998. In
view of its material significance in the investments portfolio of Discount
Investments, we did not rely on the market value of the Company as a sole
indication of its economic value which was valued according to its Net
Asset Value -- (NAV). According to this method, the value of the
investment company is equal to the value of its various holdings, taking
into account the cost of management, surplus assets, the financial
liabilities of the parent company and tax aspects. This method is the most
suitable for an investment company which does not enjoy constant or
regular cash flows.
4) The affiliated companies
The following is a description of the main affiliated companies and the
methodology used in their economic evaluation:
a) Elbit Systems Ltd.
Elbit Systems Ltd. (hereinafter: "ESL") is engaged in projects to
improve the platforms of airborne, land and sea weapons, projects
for developing and producing integrated military systems, designing
and developing electronic systems and products in the military
field. ESL is significantly affected by the trend of cuts in
security budgets in Israel and abroad, which result in budget cuts
for the acquisition of new equipment on the one hand, and a
significant increase in budgets for the improvement of old equipment
(mainly in developing countries) on the other hand. Recently there
was an increase in the level of the Company's operations. This trend
is expected to continue in the near future due to the increase in
the number of projects for improving aircraft. Among the projects
carried out by ESL in this field recently, include projects to
improve MIG 21 aircraft for Rumania (with a total turnover of some
$348 million) a transaction to supply avionic systems with a
turnover of some $65 million in the framework of a project to
improve F-4 aircraft for the Turkish Air Force, in which the Company
acts as a sub-contractor of the Israel Aircraft Industries and
participates in the project to improve 45 F-5 aircraft of the
Turkish Air Force with an expected turnover of some $21 million.
A summary of ESL's financial statements, of its market value and the
structure of its ownership are detailed on page 48.
The Company's order backlog as at June 30, 1998 totaled some $681
million (about 76% of the supplies during 1998-1999), as compared
with $670 million on 12.31.97. 74% of the orders are from abroad, a
situation which shows the drop in Elbit's dependence on the Israeli
defense market. The Company reports revenues from projects based on
the Finished Work Method. Sales in 1997 were characterized by an
increase in sales to the European market (32% of total sales in 1997
as compared with about 17% in 1996) and a drop in sales to South
America and Asia. Sales to the Israeli market comprised some 27% of
total sales in 1997 and sales to the
<PAGE>
US - 29%. About 60% of the sales are in the field of airborne
systems, about 20% in the field of control and supervision and about
14% in the field of armored vehicles.
In 1997 there was an improvement in the Company's profitability. The
rate of gross profit increased in 1997 to about 27% as compared with
about 24.7% in 1996, and net earnings totaled some $22.2 million as
compared with about $18 million in 1996.
Evaluation
The marketability of Elbit Systems shares is reasonable (an average
daily aggregated turnover on NASDAQ and the Tel Aviv Stock Exchange
of $1,182 thousand. We chose to value the Company according to its
market value as some $275.7 million (an average period
9/28-10/8/98). Moreover, we checked the reasonability of the
Company's market prices according to the market value and in
comparison with average multipliers of the air and defense
industries (these multipliers are based on 50 leading companies in
the industry). This comparison is relevant in view of the
significant export operations of ESL:
ESL Air and Defense Industries*
--- ---------------------------
Net earnings multiplier 10.9 14.75
Sales multiplier 0.70 0.79
Shareholders equity multiplier 1.89 3.34
* Source: www.marketguide.com, 10/13/98
The equivalent group comprises some 50 companies, in which Elbit
Systems is placed 17 on the list from the point of view of its
market value. ESL multipliers are to some extent lower than the
multipliers in the industry, both due to the relatively improved
results which it presented in 1996 and 1-6/98 (the improvement in
the report results relate partly from fluctuations which
characterized operations in long-term large projects, the rates of
profitability and the periods of performance are different), and due
to the larger risk environment of the Company as compared with
American companies due to its location in Israel.
The value of Elron's holdings in ESL shares (34.77%), plus the value
of holdings in its bonds totaling $1.1 million, therefore totals
some $97.0 million.
<PAGE>
Page 48 (Hebrew - table)
ELBIT SYSTEMS LTD.
Summary of Data
(in thousands of US dollars)
Condensed Consolidated Statements of Income
<TABLE>
<CAPTION>
1-6/98 1-6/97 1997 1996 1995
------ ------ ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sales 203,341 178,968 372,342 307,508 299,858
Cost of sales (146,988) (131,105) (271,795) (231,418) (219,442)
-------- -------- -------- -------- --------
Gross profit 56,353 47,863 100,547 76,090 80,416
Research & Development expenses, net (16,988) (14,572) (27,884) (21,768) (18,243)
Selling expenses (15,414) (13,091) (28,264) (21,573) (24,064)
General & administrative expenses (6,178) (6,047) (13,232) (9,690) (8,870)
-------- -------- -------- -------- --------
Operating earnings 17,773 14,153 31,167 23,059 29,239
Financing revenues (expenses), net 350 100 (316) 595 1,349
Other revenues, net 113 122 83 12 324
-------- -------- -------- -------- --------
Earnings before taxes 18,236 14,375 30,934 23,666 30,912
Taxes on income (4,970) (4,150) (8,316) (5,812) (6,579)
-------- -------- -------- -------- --------
Earnings after taxes 13,266 10,225 22,618 17,854 24,333
Company's share in earnings (losses) of
partnership (408) (420) (463) 155 (160)
-------- -------- -------- -------- --------
Net earnings 12,858 9,805 22,155 18,009 24,173
======== ======== ======== ======== ========
Rate of change in sales 13.6% 21.1% 2.6%
Rate of gross profit 27.7% 26.7% 27.0% 24.7% 26.8%
Rate of operating earnings from revenues 8.7% 7.9% 8.4% 7.5% 9.8%
Rate of net earnings from revenues 6.3% 5.5% 6.0% 5.9% 8.1%
Return on shareholders' equity at beginning of 19.9% 26.9% 28.5% 29.3%
year*
</TABLE>
* In annual terms
Condensed Consolidated Balance Sheet
6/30/98 12/31/97
------- --------
Current assets 188,753 216,160
Long-term 99,357 73,772
receivables
Fixed assets 33,337 29,797
Other assets 804 958
------- --------
Total 322,251 320,687
======= =======
Current ratio 5.34 1.40
Quick ratio
Current liabilities 140,927 154,692
Long-term liabilities 35,327 30,675
Shareholders equity 145,997 135,320
------- --------
Total 322,251 320,687
======= =======
Financial leverage None None
Ownership structure as at 6/30/98 (%):
Elron 34.77
BenLeumi Provident Fund 4.02
Leumi Trust Fund 3.64
Leumi provident Fund 3.09
Dikla Trust Fund 1.32
Ilanot Discount 1.22
Gil Emanuel 0.95
Galil Uzia 0.88
Bruchei Ygal 0.28
Akerman Joseph 0.22
Public 49.61
------
100.00
======
<PAGE>
b) Elbit Medical Imaging
Elbit Medical Imaging (hereinafter: "EMI") is engaged in the fields of
medical imaging through subsidiary companies. On April 9, 1998 EMI sold
its ultrasound operations (the holdings of a 100% in the shares of
Diosonic) to General Electric in consideration for $228 million and
registered capital gains of about $111 million. As a result of this sale
the Company remained with liquid assets of some $200 million, out of which
it distributed a dividend of $21.5 million. After the sale the Company
remained with two subsidiaries:
1) Elscint (in which it holds about 57%) is engaged in the development,
production and marketing of advanced medical diagnosis systems: CT,
gama cameras (MN) MRI and mammography. Elscint's shares are traded
on the New York Stock Exchange with an average market value of
Elscint for the period 9/28-10/8/98 (after the notice of the
realization of the transaction of the CT and the MRI - see below)
totaling some $173 million. The marketability of Elscint's shares is
low and thus market value cannot be relied upon as a reasonable
indication of its economic value.
Recently, (September 1998) Elscint signed an agreement in principle
for the sale of the CT division to Picker, in consideration for $275
million, and an agreement in principle for the sale of the MRI
division and the distribution and service divisions in the field of
nuclear medicine (NM) to G.E. Medical Systems in consideration for
$100 million.
On the completion of these transactions Elscint will remain mainly
with liquid assets of some $250 million (taking into account the
above considerations and estimated tax and reorganization expenses
at a rate of some 33% of the consideration, plus production
operations with subcontractors and an investment in a joint venture
with the GE Group in the field of nuclear medicine, whose value is
estimated at some $40 million based on a multiplier of about 16 and
net expected representative earnings of some $2.5 million.
Therefore, Elscint's value is estimated at some $290 million
compared with shareholders equity on June 30, 1998, prior to the
above transactions, totaling about $202 million.
2) Elbit Medical Services (EMS), which is 100% owned is engaged in
the operation of three medical diagnostic and treatment centers in
Hungary and one center in India. EMS has marginal profitability and
in view of its secondary importance in the valuation, the investment
in it was valued at its balance sheet value as at June 30, 1998
totaling $16.5 million.
Evaluation
EMI shares are traded on the Tel Aviv Stock Exchange and on NASDAQ.
Average daily trade in turnover is the Tel Aviv Stock Exchange
during the months January to July 1998, where some $331 thousand and
the average daily turnover on NASDAQ stood during that period at
about $582 thousand. Despite the reasonable market turnover, there
was an extreme condition in which the market value of EMI, about
$200 million on average during the period 9/28 -10/8/98, was higher
than the net monetary assets of this Company (about $147.1 million
on 6/30/98) and does not
<PAGE>
correctly reflect the value of the investment in Elscint according
to its net asset value.
In view of the aforesaid, we valued EMI at net asset value, about
85% of which reflects the net financial assets in view of the above
estimates. The following is the estimated value composition:
EMI
Valuation balance sheet
--------- -------------
(NIS million)
-------------------------
Surplus of Solo balance sheet assets
of EMI as at 6.30.98 140.1(1) 134.7
Balance sheet value of investment in
EMS(2) 16.5 16.5
Value of investment in Elscint 165.3 115.0
--------- -------------
Value of EMI 321.9 266.2
========= =============
The value of Elron's investment (39.85%) in EMI's shares is
estimated on this basis at some $128.3 million plus the investment
in bonds totaling some $3.2 million, give a total investment of
Elron in EMI of some $131.5 million.
c) Elbit Ltd.
Elbit Ltd. (hereinafter: "ELB") focuses its business operations in
the field of communications of local networks and access products to
public networks in the field of projects and products in the
telecommunication field. Elbit operates in the field of
communications through the following subsidiaries:
o Elbit Com (100% owned by "ELB"), whose only asset is an indirect
holding of some 16.5% in Partner Communications Ltd., which on
2.19.98 won the license for the third cellular operator in Israel
using the GSM technology, and started marketing its services in
October 1998.
o Hynex (60% owned by ELB) - a company whose shares were acquired
towards the end of 1996 in consideration for some NIS 27 million.
The Company is engaged in the transfer of data in local and public
communications networks using ATM technology. Hynex recently started
selling its first product at a level which is as yet still not
significant. The other shareholders in Hynex have an option to sell
Elbit an additional 34% in consideration for NIS 31.8 million.
o Cabeltel (100% owned by ELB) - is engaged in the field of
transferring telephone conversations and data on a cable television
network and connecting the network to the public telephone network
("WAN"). In
- ----------
(1) Balance sheet value, plus deposit in banks for giving loans to employees,
which were deducted in the EMI balance sheet from its shareholders'
equity.
(2) Including a loan of some $7.3 million
<PAGE>
January 1995 it set up a company together with two Chinese
companies which have licenses to build and maintain a
communications network for the supply of cable television in the
Province of Tiansin in China, a joint venture, whose goal is to
market Cabeltel systems in China. The system is in the trial
stages in China and has not yet received all the approvals
required to operate. In addition, the venture is confronting
competition on the part of companies which manufacture standard
telephone equipment. In view of the aforesaid, the Company's
operations are subject to uncertainty, both technologically and
commercially.
Moreover, ELB has operations in additional fields through the
following affiliated companies:
o Elbit Computerized Optical Testing Systems Ltd. - EVS ( some
54% owned by ELB), which is engaged in the development,
production and marketing of computerized systems for optical
testing used mainly for improving quality and discovering
defects in production processes. EVS's shares are traded on
the NASDAQ. The average market value of the Company (for the
period 9.28-10/8/98) is about $12.5 million.
o Inframatrix Inc (20% owned by ELB) is developing, producing
and marketing thermal imaging systems based on infra-red
technology. In the past Eblit held 100% of the shares of this
Company and in September 1996 sold 80% of the shares in
consideration for about NIS 96 million. The purchasers have
the option to acquire the balance of Elbit's holdings in
Inframatrix for $10 million.
o Foxboro N.M.R Ltd. (25% owned by ELB) is developing
applications for process control in the petrochemical
industry.
Up to the end of 1997 the Company operated a plant for Elbit CTV
television sets, which operations were terminated. Most of the
Company's operations today are carried out through EVS, while the
balance of the companies are in product development stages and have
not yet presented significant revenues.
In addition to the above holdings Elbit holds some 20% of the shares
of Histour Elbit, a travel agency controlled by Koor Tourist
Enterprises (51%) and a member of the Koor Industries Group.
ELB shares are traded on the Tel Aviv Stock Exchange and NASDAQ. The
market value of the Company (according to average in the period
9/28-10/8/98) stands at some $55.2 million.
A summary of the financial data of ELB, the development of its
market value and the structure of its ownership are attached on the
next page. As the main part of its investments do not yet express
current profitability the business results of the past have a
marginal effect from the value point of view.
Valuation
<PAGE>
The marketability of ELB shares is comparatively low (the average
aggregate daily turnover in NASDAQ and the Tel Aviv Stock Exchange
are about $296 thousand during the period 1-7/98) and therefore
there is difficulty in relying on the market value of the Company as
a sole indication determining its economic value. In view of the
description of the Company's operations as mentioned above, which
reflect a high level of uncertainty regarding future profitability,
we cannot rely on the cost of the investments in determining its
value. Shareholders equity of ELB as at 6.30.98 totaled some $76.8
million.
In view of the above considerations, and in view of its low weight
of the investments of ELB in valuing the exchange ratio, we valued
ELB in the field of its market value and balance sheet value at some
$55.2 - $76.8 million. Elron's share (40%) of shareholders equity
plus the value of the investment in bonds totaling some $1.8
million, therefore ranges in the field of $23.9 -$32.5 million.
d) Chip Express Corporation
The Company is developing a unique laser technology which enables it
to reduce and speed up production processes of computer components.
The Company operates in the U.S. and operates a development center
in Haifa which employs some 50 people. Its annual sales turnover
totals some $40 million. Among its main customers are Motorola, IBM,
3COM and others. On 6.30.98 Elron held some 36.8% of the Company's
shares, after selling 10% of the shares in April 98 to the giant
communications and software company Losnet in consideration for $10
million. In view of the small weight of the investment in the
exchange ratio valuation and as no information has come to our
knowledge which shows that the updated value of the Company is
different from the value on which the price of the transaction is
based, the value of Chip Express was estimated according to this
transaction at some $100 million. The share of Elron in this Company
is $36.8 million.
<PAGE>
Table to be included
<PAGE>
e) Mediagate N.V.
Mediagate develops a modem server which will enable direct access to
the Internet from any existing means of communications, including
personal computers, telephones, videophones and fax machines. To
date the Company has not yet registered any revenues whatsoever, and
its products are in the field trial stage prior to their first
sales. It should be mentioned that the Company received initial
orders at a level of some millions of dollars.
Mediagate was valued by us at some $60 million, based on a private
placement carried out in April 1998, according to a company value of
$62 million (out of the money), and based on the transaction on
August 1998 in which Clal Electronic Industries purchased 10% of
Company's shares in consideration for about $22 million (reflects a
Company value of about $60 million). This method was used in view of
the small weight of the Mediagate investment in valuing the exchange
ratio and as no information came to our notice which shows that the
updated value of the Company is different from the value inherent in
the prices of the above-mentioned transactions. Elron holds some 39%
of the Company's shares and therefore the value of its share in the
Company is some $23.5 million.
f) Zoran Corporation
A Company for developing and producing printed circuits. It develops
and markets advanced digital signal processing (DSP), very large
scale integration (VLSI) to compress pictures and voice for
multi-media, and electronic consumption products.
The Company's shares in which Elron holds some 16%, are traded on
the NASDAQ and they have a fairly low level of marketability (the
average daily turnover of some $1.5 million during the period
1-7/98). Therefore, we valued the Company according to its market
value at some $60.8 million (average of the period 9/28-10/8/98).
The value of Elron holdings (some 16.21%) is $9.9 million).
g) Netvision Ltd.
Netvision holds some 50% of the Internet access services market in
Israel and operates additional on-line services including Intranet
and Electronic Trading. The Company has about 60 thousand
subscribers.
In January 1998 Tevel purchased 33.3% of the Company's shares in
consideration for $10 million. The Company has an option program for
its employees, which if exercised, will dilute Tevel's holdings to
about 26.7%. In view of the small weight of the investment in
Netvision in the valuation of the exchange ratio, and as no
information came to our knowledge which shows that the updated value
of the Company is different from the value inherent in the price of
that transaction, the value of the Company was based on this
transaction (fully diluted) at some $37.5 million. Elron's share
(32.33% directly and 25.92% after being fully diluted) totals some
$9.7 million.
<PAGE>
D. Ilanot Batucha Investment House Ltd.
1) Background
The importance of Illanot Batucha Investment House Ltd.
(hereinafter: "Illanot Batucha" or "The Company") in valuing the
exchange ratio stems from the difference in the rates of holdings
between the companies as 50% of the shares held are held by Discount
Investments and PEC does not hold any shares in the Company. Illanto
Batucha is engaged in managing securities portfolios, managing
mutual funds and provident funds, coordinating and underwriting
issues and brokerage. In addition the Company manages its Nostro
portfolio. The Company operates in the present structure as of
December 31, 1996 as a result of a merger between Batucha
Securities and Investments Ltd. and "Ilanot - the Mutual Fund
Management of Discount Ltd.". Ilanot-Batucha is a member of the Tel
Aviv Stock Exchange, (hereinafter: "The Stock Exchange"). The
Company employs some 160 people and operates from its head office in
Tel Aviv and 6 branches, of which 2 are in Tel Aviv and branches in
Ramat Hasharon, Haifa, Jerusalem and Kiryat Motzkin.
Recently a transaction was completed in which the Company purchased
for NIS 86 million 100% of the shares of Y.L.R. Capital Markets
(1992) Ltd. which were held by B.D.L. Securities a member of the
I.D.B. Holding Corporation Ltd. Group.
On September 9 1998 a transaction in principle was approved
according to which shares comprising 33.33% of the share capital of
the Company were allocated to Israel Discount Bank Ltd.
(hereinafter: "the Bank"). In consideration for the share
allocation, the portfolio management operations of Tachlit
Consulting and Investment Management Company Ltd. (a subsidiary of
the Bank) will be merged with the portfolio management operations of
the Company, the underwriting activities of Discount Capital Markets
and Investments Ltd. (a subsidiary of the Bank) will discontinue and
will be carried out by the Company and the Bank will invest in the
Company over a period to be agreed upon, the distribution fees which
will be paid it for the distribution of mutual funds in the
management of Ilanot Discount Ltd. and for underwriting operations
which will be carried out in the framework of the Company - with a
change in the existing distribution agreement between the Bank and
Ilanot Discount Ltd.
It was decided, that the consideration for the allocation totaled a
third of the value of the Company as valued by a professional
opinion, and therefore, in the event that the asset value described
above will be lower than that, the Bank will invest the difference
in cash. The transaction is subject to the signature of the detailed
agreements and the approvals as required.
A summary of the Company's financial statements and the structure of
its ownership are attached on the next page.
<PAGE>
PAGE 56 TABLE
ILANOT-BATUCHA INVESTMENTS HOUSE LTD.
Summary of Data
(in thousands of shekels of 6/98)
Condensed Consolidated Statements of Income
<TABLE>
<CAPTION>
1-6/98 1-6/97 1997 1996 1995
------ ------ ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commissions and consulting revenues 45,690 38,433 84,164 73,547 92,570
Financing revenues 6,525 4,608 11,830 12,181 18,238
------- ------- -------- ------- -------
Total revenues 52,215 43,041 95,994 85,727 110,808
Management fees to holding companies (9,031) (5,637) (9,924) (5,797) (9,785)
Costs and other expenses (43,197) (37,367) (85,608) (84,198) (101,492)
------- ------- -------- ------- -------
Operating earnings (loss) (13) 37 462 (4,268) (469)
Other financing revenues (expenses), net 45 (889) (929) (200) (28)
------- ------- -------- ------- -------
Earnings (loss) before taxes 32 (852) (467) (4,468) (497)
Taxes on income (772) (345) (977) (586) (1,374)
------- ------- -------- ------- -------
Net loss (740) (1,197) (1,444) (5,054) (1,871)
======= ======= ======== ======= =======
Net profit (loss) before management
fees* 3,926 1,613 3,437 (2,430) 2,935
======= ======= ======== ======= =======
</TABLE>
* Excluding a management fee of NIS 1 million per year before tax, that were not
added to the earnings as they represent an estimate of certain services given by
the holding companies.
Condensed Consolidated Balance Sheet
6/30/98 12/31/97
------- --------
Current assets 222,035 247,797
Long-term receivables 3,374 3,855
Fixed asset 13,222 11,479
------- --------
Total 238,631 263,132
======= =======
Current ratio 2.32 2.07
Current liabilities 95,794 119,642
Tax provision 213 124
Shareholder's equity 142,624 143,366
------- --------
Total 238,631 263,132
======= =======
Financial leverage None None
- ---------------------------------------
Ownership structure as at 19/8/98 (%):
Discount Investments 50
Clal Capital Market 50
---
100
===
- ---------------------------------------
* A company within the Clal (Israel) Group.
<PAGE>
2) Financial Analysis
a) Revenues and Profitability
Ilanot-Batucha is engaged, as mentioned, in a range of operations in
the capital markets. In 1997 the Company's net earnings before
management fees to the holding company totaled about NIS 3.4 million
as compared with net loss as mentioned totaling some NIS 2.4 million
in 1996 and net earnings of about NIS 2.9 million in 1995(1).
The following are details regarding the structure of the Company's
profitability:
(1) Revenues from commissions and consulting
1997 1996
NIS thousand % NIS thousand %
------------ --- ------------ ---
Management of mutual funds
and provident funds 49,248 59 40,095 55
Commissions from managing
clients portfolios 30,612 36 29,616 40
Distribution and underwriting
commissions 3,320 4 3,248 4
Consulting 984 1 588 1
------------ --- ------------ ---
84,164 100 73,547 100
------------ --- ------------ ---
The Company manages through a subsidiary in Ilanot Discount Ltd. 39
mutual funds, whose total assets as at December 31, 1997 reached
some NIS 3.5 billion, which is about 70% of the volume of the funds
assets in Israel. The volume of the assets on June 30, 1998 totaled
some NIS 3.7 billion which is about 14.3% of total funds assets in
Israel. The Company's revenues from this source are from management
fees (at a rate of 0.25% - 0.75% per year) and a rate of increase
(0.25% - 1.5%) collected from the purchasers of units at the time of
their acquisition (in some of the funds, the purchase of units is
exempt from this addition). The Company significantly increased its
market share in 1997 (from about 14% to about 17%) due to the
success of its shekel mutual fund. The level of revenues between
this fund is lower than the level of revenues from other funds.
Moreover, the Company managed through its subsidiary (100%) Ilanot
Batucha Provident Ltd., 8 provident and severance pay funds. The
size of the provident and severance fund is estimated at some NIS
0.3 billion.
On August 16, 1998, an agreement was signed between the Company and
Clal Insurance Company Ltd., according to which the Company will
sell all its holdings in Ilanot Batucha Provident in consideration
for NIS 3,750
- ----------
(1) All the financial data for the period 12/31/96 include the data of the two
merging companies (basis pooling of interests)
<PAGE>
thousand linked to the consumer price index of May 1998, plus the value of
the surplus assets, net, of Ilanot Batucha Provident. The total
consideration, less tax applying to the transaction is estimated at some
NIS 4.4 million as compared with the negative market value of the
investment totaling some NIS 0.9 million.
Managing customers portfolios is carried out in the Company itself, mainly
through external portfolio managers or by the clients. The Company's
revenues in this field are a purchase and sales commissions (0.2% - 0.7%
of the transaction price) and guardianship fees (up to 0.1% of the average
value of the portfolio). Clients whose files are managed by the Company
pay, in addition, management fees at a rate of up to 2.4% pa. The average
rate of commissions is half of the above mentioned ceiling. The volume of
the portfolio assets in June 1998 totaled some NIS 2.4 billion.
Operations in the underwriting field are carried out through a subsidiary
(100%) Ilanot Batucha Underwriting Ltd.
On July 21, 1998 an agreement between the Company (through a subsidiary)
and Clal Capital markets went into effect, according to which Clal Issuers
(a company wholly owned by Clal Capital Markets) will cease operations in
the underwriting field and will transfer them to the Company in
consideration for NIS 4.9 million. Concurrently, Clal (Israel) Ltd.
undertook with regard to itself and regard to its wholly owned
subsidiaries, that for a period of 4 years it will not compete with the
Company in the field of underwriting.
For the period January - June 1998 revenues from commissions and
consulting totaling NIS 45,690 thousand which are an increase of some 19%
as compared with equivalent period in the previous year (NIS 38,433
thousand).
2) Financing revenues, net
Composition:
1997 1996
---- ----
NIS thousand
------------
Earnings from marketable securities 5,724 7,301
Interest from shekel deposits 4,119 1,806
Interest from clients(1) 1,636 2,019
Companies in the Clal Group, net (408) 766
Others 759 289
------- -------
11,830 12,181
======= =======
(1) The Company usually grants its clients unlinked credit and issues
guarantees for them to secure their liabilities to third parties
During the first half of 1998 net financing revenues increased at a rate
of about 42% and aggregated some NIS 6,525 thousand, as compared with
about NIS 4,608 thousand in the previous year.
65
<PAGE>
3) Costs and expenses
Composition:
1997 1996
---- ----
NIS thousand
------------
Wages and salaries 30,261 35,325
Rent and maintenance of office 13,554 12,082
Management fees to parent companies(1) 9,924 5,797
Commissions and management fees to
banks(2) 12,154 8,689
Computer services 9,010 9,369
Commissions and levies to Stock Exchange 5,802 4,473
Professional services 2,793 2,769
Advertising, marketing and public relations 7,429 3,896
Others 4,605 7,595
------ ------
95,532 89,995
====== ======
(1) Management fees in the past were close to the net earnings.
(2) Bank Discount is a banker which is the main distributor of most of
the funds, its clients hold a considerable part of the investments
managed by the Company. Bank Discount receives commissions for the
distribution of these units at a rate of 50% of the rate of increase
collected from the purchasers of the units through it, and not less
than 0.25% of their price. In addition, the Bank receives
distribution commissions at a rate of 0.5% pa. from the average
volume of the assets of those finds.
During the first half of 1998 costs and expenses totaled NIS 52,228
thousand, which is an increase of 21% as compared with equivalent period
in the previous year.
4) Taxes
The Company and three of its subsidiaries are financial institutions and
the tax rate on their revenues is 45.3%.
The Company has losses for tax purposes of considerable amounts for which
it does not carry out a tax allocation in view of the opinion of its
managers that such set-offs are not likely in the near future.
b) Balance Sheet Analysis
Current assets as at June 30, 1998 include mainly liquid assets, of which
investments in marketable securities (most of them in Maof shares) of NIS
119.8 million and a short-term deposit (mortgaged to the Maof Clearing
House) totaling some NIS 34.9 million. Fixed assets, totaling some NIS
13.2 million including mainly office equipment and vehicles.
Most of the current liabilities are unlinked loans from companies in the
Clal Group totaling NIS 53.3 million which bear interest at a rate of
12.46%-14.4%. Moreover, the Company has liabilities relating to Maof
options of some NIS 22.5 million. Shareholders equity as at June 30, 1998
totaled about NIS 142.6 million (about NIS $38.9 million), which comprise
about 60% of the total balance sheet.
66
<PAGE>
3) Evaluation
The best method from a theoretical point of view to value companies
operating as going concerns, is the discounted cash flow method.
Nevertheless, this method is not suitable in our opinion to value Ilanot
Batucha, due to the considerable difficulty in forecasting its cash flows,
in view of the character of the branch in which it operates - the capital
markets, which is a branch with many changes, and fluctuations in its
revenues are very considerable. Moreover, the Nostro operations
contributed considerably to the Company's profits in recent years. These
characteristics are also similar to other companies operating in the
capital markets field. Therefore, we estimated the value of Ilanot
Batucha's operations in the capital markets by a comparison of multipliers
of shareholders equity of a number of companies operating in the branch
and traded on the Stock Exchange. The average capital multiplier of the
above companies which are characterized by a range of fields of activities
similar to those of Ilanot Batucha is some 1.2-1.3. A summary of the
comparative data appears in table 4 on page 67. In view of the advantages
of size(1) compared to the average comparative group, we think that a
capital multiplier suitable for the Company ranges between 1.4-1.5. The
value of the investment in Ilanot Batucha Provident was valued according
to a selling price to Clal Insurance less tax according to the transaction
in August, 1998.
An additional indication to the capital multiplier suitable for the
Company can be found in the transaction of the purchase of Y.L.R.
described above. Y.L.R's shareholders' equity on 6/30/98 totaled some NIS
55 million and therefore this transaction embodies a multiplier of
shareholders equity of 1.56.
The following is the composition of the estimated value:
Balance
sheet Economic
value value
----------- -----------
(NIS millions)
-------------------------
Values of operations in the field
of the capital market 143.5 200.9-215.3
Value of the investment of
Ilanot Batucha Provident (0.9) 4.4
----------- -----------
142.6 205.3-219.7
Value in millions of dollars as at 6.30.98 38.9 56.0-59.9
=========== ===========
- ----------
(1) Therefore, for example, the average revenues from services in the group of
comparative companies (excluding Gachelet) stands at some NIS 8.5 million
during the period 1-6/98, and some NIS 19.9 million for 1997 as compared
with about NIS 45.7 million and about NIS 84.2 million respectively, for
Ilanot Batucha.
67
<PAGE>
PAGE 61 TABLE
INDICATORS FOR VALUE MULTIPLIERS OF COMPANIES OPERATING IN THE CAPITAL MARKETS
WHOSE SHARES ARE TRADED ON THE STOCK EXCHANGE
<TABLE>
<CAPTION>
Average Market Value Own Equity Multiplier Net Earnings Earnings Multiplier
(According to 1997 earnings)
-------------------- --------------------- ------------- ----------------------------
Own Equity 9/8/98- 9/8/98- 9/8/98- ? in the
As at 10/8/98 7-9/98 10/8/98 7-9/98 1997 1-6/98 10/8/98 7-9/98 Stock Exchange
6/30/98 -------------------- --------------------- ------------- -----------------------------------------
($ Million) ($ Million) ($ Million)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Company Name
Analyst* 19.0 19.9 26.1 1.0 1.4 3.9 1.1 5.1 6.7 ?
Excellent 10.7 13.6 14.6 1.3 1.4 1.2 0.5 11.2 12.1
Gachelet 24.4 31.8 38.9 1.3 1.6 3.4 2.3 9.4 11.4 ?
Dovrat Shrem
Investments 8.4 13.6 14.9 1.6 1.8 1.4 0.5 9.9 10.8
Merkazit securities 19.4 18.3 20.1 0.9 1.0 1.3 0.1 14.3 16.0
Nessuah 11.5 11.8 12.2 1.0 1.1 1.2 (0.2) 9.7 10.0
Sahar Securities** 13.3 14.4 14.4 1.1 1.1 1.3 0.6 8.6 10.4
Arrithmetic average 1.2 1.3 9.7 11.1
Weighted average to 1.2 1.3 9.0 10.4
size of equity
</TABLE>
* Due to the existence of securities valued at NIS 27.6 Million presented in
financial statements at their value (fixed investment), while the market
value is greater than the book costs by about NIS 8.8 million, shareholders
equity in the Table was increased by about $2.4 million, as compared to the
equity in the financial statements as at 6.30.98
** The value is fixed based on the sale transaction of 70% of the equity and
75% of the voting rights to Gmul Investment Company in August 1998 in
consideration for the equity plus NIS 2.8 million (a total consideration
about 10.1 million dollars). It should be emphasized that we did not consider
value of the controlling interest in this deal.
68
<PAGE>
E. General indications in the field of the Value of Cellcom (Israel) Ltd.
which is not a valuation
1) Background
Cellcom is in the process checking the possibility to carry out an initial
issue of its shares to the public in the US. In accordance with the rules
in the U.S. there are limitations on the publication of data and
evaluations regarding a Company which intends to make an issue (Cellcom)
before carrying out the issue process to the public.
In view of the aforesaid, we were directed by those who ordered this work,
that when determining the exchange ratio a valuation of Cellcom should not
be performed, but to use general indications only for the value of this
Company, which was based on a comparison of acceptable value multipliers
of similar cellular phone companies abroad, on analysts reports published
regarding Cellcom and on the financial statements of Cellcom published to
the public.
We should state that the investments of Discount Investments and PEC in
Cellcom are material to their economic value, but have little effect on
the exchange ratio due to identical holdings in this Company.
In view of the instructions we received, we did not carry out a valuation
and we did not apply all the other procedures regarding this investment.
The following is a description of the method of determining the general
indication of the value of Cellcom used for the purpose of calculating the
exchange ratio.
2) A comparison of the acceptable multiplier value of similar cellular
companies abroad.
For the purpose of calculating the indication for the value of Cellcom we
chose to relate to a group of six cellular companies in Europe. We should
mention that in our estimate the comparison of the cellular market in the
U.S. is less relevant for a number of significant reasons:
o The method of payment acceptable in the US is "the cellular
subscriber pays". i.e., the payment for an incoming call is imposed
on the recipient and therefore many subscribers tend to close the
instrument (or use a beeper to receive a warning of the requested
call) and thereby reduce the use of the cellular telephone. On the
other hand, in Europe and Israel the method of "the person
contacting pays", which encourages the use of cellular telephones.
o The deployment of cells in many areas in the US are considerably
limited as compared with Europe and Israel so that the sound quality
is lower which reduces the demand for the service.
o The US has a fairly high proportion of old analog networks, which
have a limited potential for advanced services. On the other hand,
in Europe most of the suppliers use digital technology and in Israel
today all the suppliers use
69
<PAGE>
digital technology (including Pelephone which is shortly to launch a
CDMA network with a capacity of about 1 million subscribers).
o In a number of areas in the U.S. the rate of subscribers
relinquishing their line is considerable (up to about 30% in certain
areas), while the extent of relinquishing and the transfer between
companies in Israel is a few percent only. The cost of relinquishing
in the U.S. is lower, among other things because in many cases there
is no need to change the instrument (there is no compulsory
installation of a hand-free appliance in the vehicle) and because
there is no need to exchange the number in a transfer between
supplier, contrary to what is acceptable in Israel.
In view of the difference in the structure of the cellular market in the
U.S. and Europe, and as the market in Israel is more similar to the
European market, a sample of European cellular companies which are traded
both on the European and U.S. stock exchanges was chosen.
For the purpose of calculating the indication we calculated two types of
acceptable multipliers to cost cellular companies: The multiplier of the
value per subscriber and the multiplier per EBIDTA.
The following is data regarding six companies taken for the purpose of
comparison.
<TABLE>
<CAPTION>
Company value multipliers
-------------------------
Estimate of
No. of Average
Traded on subscribers Company No. of
stock Q4/1998(1) value(2) To subscribers
Company Country exchange (thousand) ($ million) EBITDA(3) Q4/1998
- ------- ------- -------- ---------- ----------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Netcom Norway Oslo 487 1,338 16.4 2,746.2
Europolitan Sweden Stockholm 529 3,096 20.4 5,858.1
Telcel Portugal Lisbon 954 2,455 9.6 2,572.2
Tim Italy Milan 10,923 39,757 11.8 3,639.6
Vodophone Britain NASDAQ, 5,550 34,125 18.7 6,148.6
London
Stet Hellas Greece NASDAQ 524 1,994 12.1 3,802.8
Amsterdam
---- -------
Average 14.8 3,190.2(4)
==== =======
</TABLE>
- ----------
(1) Source: Average reports of analysts who review the companies
(2) Value of the company (Enterprise Value) according to the rates of the
shares during the period 9/28-10/8/98
(3) Based on EBITDA (operating profit before depreciation and amortization)
expected for 1998 according to an average forecast of analysts who
reviewed the companies.
(4) Average does not include extraordinary multipliers of Europolitan (which
is likely to be affected by the potential growth in the number of
subscribers resulting from the low market share of the company compared to
comparative groups and the expectations of its increase) and Vodaphone
(which is likely to be effected by the potential growth of the number of
subscribers resulting from its shares in companies and cellular developers
outside Britain).
70
<PAGE>
For the purpose of obtaining an indication of the value Cellcom from these
multipliers we use the data of EBITDA of Cellcom for the first half of
1998, grossed up on an annual basis and an estimate of the average number
of subscriber in 1998 according to known data at the date of preparing the
work. From the value of the Company we deducted the net financial
liabilities as at 6/30/98 in order to receive an indication of the value
of its shareholders equity. The basic indication of the value of Cellcom
according to the multiplier of the value per subscriber is NIS 10,176
million, and according to the EBITDA some NIS 10,860 million.
In addition, in view of the fact that the investment in Cellcom is not
marketable and not liquid, while the shares in the comparative group are
marketable, we deducted 15%-25% from the basic indication calculated in
order to reflect the difference between Cellcom and the comparative group.
The range of the rate of discount estimated is based on researches carried
out on this matter mainly in the U.S.(1) and on the characteristics of
investments of Discount Investments and PEC in Cellcom. Most of the
researches are engaged in a comparison of the price in which private
transactions are carried out in block shares for identical share prices in
the same day in the stock exchange. From these researches we can see that
the rate of discount is liable to range in a wide field between a few
percentages up to 85%. The rate of discount increases as long as the
marketability of the share is lower. On the other hand, as long as the
investor in the blocked shares can have control and influence the company,
and as long as the company is larger and more stable, the discounted price
is smaller. In the case before us the share is not marketable at all (a
factor which increased the rate of discount required), but Cellcom is a
Company with a fairly large volume of operations and profitability and has
high financial stability. Moreover, Discount Investments and PEC have a
significant influence on Cellcom (factors which operate to reduce the rate
of discount).
On the basis of the above principles the indication for the value of
Cellcom according to a multiplier of the value of per share is in the
range of NIS 7,632 - NIS 8,650 million, and the indication to the value
according to the EDBITDA multiplier is in the range of NIS 8,145 - NIS
9,230 million.
3) Additional indications regarding the value of Cellcom according to the
reports of analysts who reviewed Discount Investments
In addition to the comparison with cellular companies in Europe as an
additional indication to the value of Cellcom, the following are updated
values to the value of Cellcom published in the analysts reports:
Investment House Date of valuation Value of Cellcom
- ---------------- ----------------- ----------------
(NIS million)
Sahar 8.23.98 7,000
Ofek 9.8.98 4,438
Lehman Brothers 9.14.98 7,675
- ----------
(1) See a leading article in the field:
Silber William L. "Discounts on Restricted Stock: The Impact of liquidity
on Stock Prices" Financial Analysts Journal, July-August, 1991, pp 60-64.
71
<PAGE>
Ilanot Batucha 9.17.98 5,400
Bank Hamizrahi 9.24.98 4,100
Metav 9.28.98 5,000
-----
Average 5,602
=====
72
<PAGE>
4) Summary of the indications of the value of Cellcom for the purpose of the
valuation of the exchange ratio
NIS million
Indication of the value of Cellcom
according to the multiplier value of a
subscriber(1) 7,632-8,650
Indication of the value according to the EBITDA
multiplier(1) 8,145-9,230
Indication of the value according to analysts' values 5,600
Average indication of the value 7,476
=====
- ----------
(1) Taking into account the discount of 15%-25% from the basic indication due
to the lack of marketability and the lack of liquidity of the investors in
Cellcom as compared with a comparative Group.
73
<PAGE>
APPENDICIES
74
<PAGE>
Appendix No. 1
Structure of holdings in Discount Investments before and after the merger
Discount Investments
------------------------- ------------------------
Before the transaction After the transaction
------------------------- ------------------------
Shares of NIS Rate of Shares of NIS Rate of
1 par value holding 1 par value holding
---------- ------ ---------- ------
IDB Development 15,404,752 54.29% 32,795,345 71.66%
Others 12,972,341 45.71% 12,972,341 28.34%
---------- ------ ---------- ------
28,377,093 100.00% 45,767,686 100.00%
========== ====== ========== ======
PEC
Shares of Rate of The number of shares of
$1 par value holding Discount Investments which
will be issued to IDB
Development:
17,390,593
IDB Development 14,937,792 81.35%
Others 3,424,396 18.65%
---------- ------
18,362,188 100.00%
========== ======
The exchange ratio of the net assets of Discount Investments as compared with
value of the net assets of PEC 1.327.
75
<PAGE>
APPENDIX NO. 2
A. Comparing level of marketability of Shares of Discount Investments and
PEC.
B. Development of ratio of value of Discount Investments according to share
prices on the stock exchange.
[GRAPHS OMITTED]
76
<PAGE>
APPENDIX NO. 3
OPINION OF APPRAISER MR. ALFRED IRANI
<PAGE>
[LETTERHEAD OF A. IRANI CIVIL ENGINEER REAL ESTATE APPRAISER
October 15, 1998
Our ref.: 98-1447A
Prof. Itzhak Swary,
Itzhak Swary Ltd.,
3 Daniel Frisch Street,
Tel Aviv.
Dear Sir,
RE: ESTIMATE OF VALUE OF RIGHTS IN REAL ESTATE ASSETS
OWNED BY COMPANIES IN THE PROPERTY & BUILDINGS
CORPORATION LTD. GROUP
1. I was requested by you to estimate the value of the rights in a list of
properties presented to me, belonging to various companies, as detailed in
Appendix A' attached hereto.
2. The value estimates appearing in Appendix A' are based on data included in
prospectuses and in the Immediate Reports which public companies in the
Group published, as detailed in Appendix B' of the data, and
clarifications given to us by the Property & Building Corporation Ltd.
through you, including:
- Details of the property.
- Location of the property.
- Areas of land and of buildings.
- Purpose (use) of the property.
- Legal state.
- Rent from revenue producing assets.
In addition we were given data and details regarding rights of K.B.A.
Ltd., detailed in an Appraisers Opinion handed to us dated August 15,
1997. I should state that I did not rely on the value mentioned in that
Opinion for the purpose of my Opinion.
3. I must point out that the attached value estimates are not an Appraiser's
Opinion pursuant to the provisions of the Land Appraisers Regulations, as
we did not carry out some of the obligatory procedures required for a
full Appraisers Opinion. (We did not visit the sites of the properties or
the Local Planning and Building Committees connected with these
properties).
<PAGE>
4. We were not presented with documents relating to ownership/leasehold
rights in the real estate.
5. Regarding the properties under construction, we based ourselves on the
actual state of construction, according to data we received from the
companies' representatives.
6. Estimates of the value were checked according to the three usual
approaches in real estate appraisals:
- The comparative approach.
- The cost approach.
- The revenues approach.
Each property was valued according to the most suitable approach for it.
Furthermore:
6.1 A property which can be compared with properties sold in the area,
the value was checked using the comparative approach. This method
was used to value most of the properties, including properties of
the type detailed in clauses 6.2, 6.3 below.
6.2 A property under construction, was values using the cost approach,
i.e. the value of the land plus actual building costs and plus
promoter's profit.
6.3 The value of revenue producing properties was checked using the
discounting of revenues approach.
7. The main parameters used in determining the value of the rights are as
follows:
a. Discount rate used for the purpose of determining value based on the
revenues approach was taken in accordance with the type of property
and ranged between 9.5%-11.0%. The discount rate for every property
was determined according to the level of demand in the market for
the type of property valued in that area, the existing level of
rental occupancy, the connection between the rent received from
similar properties and similar selling prices, and the level of risk
existing in the rent received from the property. The lower the level
of risk, the lower the discount rate.
b. In valuing large sites in all types of properties, both revenue
producing properties, offices and commercial areas, projects for
residential purposes and vacant land, (1O-30)% were deducted from
the basic value.
Factors affecting the discount:
Position of the property and the area in which it is situated.
Existing level of activities in the area for that type of property.
Area of the property - land and attachments (taking into account
their age).
Existing demand in the area for similar properties.
Revenue producing properties - rate of occupancy and periods of
rental.
c. The discount taken into account in clause b above, including the
effects of the delay factor in certain real estate on their value.
<PAGE>
8. The properties valued, are detailed in Appendix A divided into groups
according to the holding company, the type of property and its condition,
properties whose value is higher than 5% of the value of all the real
estate properties of Property & Building have been stated separately.
9. I agree that this Opinion of mine be mentioned and/or included in your
Opinion which will be included in the Immediate Reports to be be published
regarding the exchange transaction between I.D.B. Development Corporation
Ltd. and the Discount Investments Corporation Ltd.
10. I hereby declare that I have no personal interest or share in the said
property and that this evaluation is prepared according to the best of the
my professional knowledge, understanding and experience.
Yours sincerely,
(-)
--------------------------------
A. Irani,
Engineer & Real Estate Appraiser
Attached: Appendix A - Details of value estimates according to property
summaries.
Appendix B - List of prospectuses and Immediate Reports used as a
source for the valuation of the real estate.
<PAGE>
PROPERTY AND BUILDING AND 100% OWNED SUBSIDIARIES
Summary of properties
(The balance sheet value and rental are in NIS thousands of June 1998)
Revenue-Producing Properties
<TABLE>
<CAPTION>
Balance Appraiser's
Units Built Rented value Value
under up area area Rate of 6.30.98 Rent 1-6/98 Monthly rent 10.15.98
construction in sq. m. in sq. m. Occupancy (NIS '000) (NIS '000) Per sq. m.(NIS) (NIS '000)
------------ --------- --------- --------- --------- ----------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Center-commercial & offices (1) 35,754 32,618 91%(1) 121,539 11,548 59 260,174
Center - for rent, commercial and
residence under construction 66 8,000 0% 7,621 53,172
South & Jerusalem -Commercial 1,783 1,783 100% 2,897 401 22 8,031
Profit not yet realized related to
revenue producing properties (570)
- ------------------------------------------------------------------------------------------------------------------------------------
Total 66 45,537 34,401 76% 131,487 11,949 58 511,377
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes revenue-producing properties under construction, at finishing
stage, where 50% of it has been rented. Rate of occupancy in other
properties is about 100%. Calculation of rental per sq. m does not include
this asset.
Real Estate Appraiser's Value
Book As at 10.15.98
Location/Region (NIS '000) (NIS '000)
- --------------- ---------- --------------
- ----------------------------------------------------------------------------
Total 8,307 83,074
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Residential Construction in Process
<TABLE>
<CAPTION>
NIS thousands
------------------------------
Land Appraiser's Total
The share Value as Initiative Construction economic
of the land Construction at 10.15.98 profit costs value
Region Costs In Costs Advances Net Units NIS '000 NIS '000 NIS '000 NIS '000
- ------ ----- -------- -------- --- ----- -------- -------- -------- --------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Center 16,719 4,801 18,349 (1,630) 112 20,169 2,054 11,918 34,140
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Inventory of Apartments
Balance sheet Appraiser's Value
Value As at 10.15.98
Region Units (NIS '000) (NIS '000)
- ------ ----- ---------- ----------
- ------------------------------------------------------------------------------
Center 10 4,919 6,782
- ------------------------------------------------------------------------------
* Herzliya's center A+B, Nachalat Beit HaShoeva properties, Shadar and the
new Em Hamosahavot Hatsafon.
** Appraiser's values, plus cost of construction and estimated initiative
profit.
<PAGE>
Summary of properties
(The balance sheet value and rental data are in NIS thousands of June 1998)
Revenue Producing Properties
<TABLE>
<CAPTION>
Rate of Rented Balance value
Holding in Built up area area Rate of 30.6.98
the Company in sq. m. in sq. m. Occupancy (NIS `000)
----------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Herzliya* 64.70% 48,894 45,960 94% 92,840
South -- industrial & commercial** 64.70% 44,211 40,401 91% 27,386
Center - offices and commercial 64.70% 101,180 90,727 90% 140,443
North-offices, industrial & commercial 64.70% 122,371 110,463 90% 198,987
Original difference related to?? 64.70% 1,695
- ---------------------------------------------------------------------------------------------------------------
Total 316,656 287,551 91% 461,351
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
Monthly rent Appraiser's Value
1-6/98 Monthly rent As at 15.10.98
(NIS '000) Per sq. m. (NIS) (NIS '000)
---------- ---------------- ----------
<S> <C> <C> <C>
Herzliya* 10,700 39 185,184
South -- industrial & commercial** 5,350 22 85,863
Center - offices and commercial 16,631 31 270,038
North-offices, industrial & commercial 17,734 25 270,258
Original difference related to?? 0
- ---------------------------------------------------------------------------------------------
Total 49,415 29 811,342
- ---------------------------------------------------------------------------------------------
</TABLE>
* 26,252 sq. m. in a capitalized lease and 22,642 sq. m. ownership, which
are intended for commercial and industrial (High-Tech).
** Includes 25% of the Science Industries Park properties.
Revenue- Producing Properties under Construction
<TABLE>
<CAPTION>
Balance value Appraiser's Value
Rate of Project area 30.6.98 As at 10.15.98
holding Sq. M. (NIS '000) (NIS '000)
------- ------ ---------- ----------
<S> <C> <C> <C> <C>
Center-offices, commercial,
industrial & storage 64.70% 67,760 74,561 170,882
North -- industrial & commercial 64.70% 9,519 8,178 14,668
Miscellaneous -- future planning 64.70% 568 0
Capitalizing finance 64.70% 967 0
- -----------------------------------------------------------------------------------------------
Total 77,279 84,274 185,550
- -----------------------------------------------------------------------------------------------
Vacant land available for erecting Revenue- Producing Properties
South 64.70% 66,050 17,668 18,702
Center 64,70% 112,882 143,555 56,545
North 64.70% 120,634 46,098 45,104
Land earmarked for public areas 64.70% 43,849 3,062 0
- -----------------------------------------------------------------------------------------------
South - industrial 343,415 210,383 120,351
- -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
GAV-YAM
Summary of Properties
(The balance sheet value and rental data are in NIS thousands of June 1998)
Real Estate
Rights in the Land
<TABLE>
<CAPTION>
Commercial Balance Sheet Appraiser's Value
Rate & Vacation Value as at 6.30.98 As at 10.15.98
Location/Region Of Holdings Units (Dunam) (NIS'000) In NIS'000
- --------------- ----------- ----- ------- ---------- -----------
<S> <C> <C> <C> <C> <C>
South 64.70% 240 1,947 14,301
Center 64.70% 262 41,527 96,809
North 64.70% 234 183 18,843 80,491
- ---------------------------------------------------------------------------------------------------------------------
Total 736 183 62,317 191,600
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Residential Construction in Process NIS thousands
<TABLE>
<CAPTION>
Rate of Units The share
Holdings in Under of land
Region Company Construction Costs in costs Advances Net
- ------ ------- ------------ ----- -------- -------- ---
<S> <C> <C> <C> <C> <C> <C>
Kiriat Motskin-Neve Ganim 64.70% 230 110,884 15,555 44,044 66,840
Center 64.70% 72 33,336 11,412 13,840 19,496
- --------------------------------------------------------------------------------------------------
Total 302 144,220 26,967 57,884 86,336
- --------------------------------------------------------------------------------------------------
<CAPTION>
Land
Appraiser's Value Initiative Costs of Total
As at 10.15.98 profit construction economic value
Region In NIS'000 NIS'000 NIS'000 NIS'000
- ------ ----------- -------- -------- --------
<S> <C> <C> <C> <C>
Kiriat Motskin-Neve Ganim 42,171 4,217 95,329 141,717
Center 26,659 1,320 21,923 49,902
- -----------------------------------------------------------------------------------
Total 68,830 5,537 117,252 191,619
- -----------------------------------------------------------------------------------
</TABLE>
* Appraiser's values, plus cost of construction and estimated initiative profit.
Inventory of Apartments
<TABLE>
<CAPTION>
Rate of Balance Appraiser's Value
Holdings in Sheet value As at 10.15.98
Region Company Units (NIS '000) In NIS '000
- ------ ------- ----- ---------- -----------
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kiriat Motskin-Neve Ganim 64.70% 37 19,153 22,515
- --------------------------------------------------------------------------------------
</TABLE>
<PAGE>
HADARIM PROPERTIES
Summary of Properties
(The balance sheet value and rental data are in NIS thousands of June 1998)
Revenue Producing Properties
<TABLE>
<CAPTION>
Rented Balance value
Rate of Built up area area Rate of 30.6.98
Holding in sq. m. in sq. m. Occupancy (NIS `000)
------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Center - Offices 2,400 2,400 100% 3,674
Jerusalem-industry & offices * 6,929 6,929 100% 5,020
- -----------------------------------------------------------------------------------------------------------------
Total 90.00% 9,329 9,329 100% 8,694
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
Appraiser's Value
Monthly rent 1-6/98 Monthly rent As at 15.10.98
(NIS `000) Per sq. m. (NIS) (NIS `000)
---------- ---------------- ----------
<S> <C> <C> <C>
Center Offices 437 61 13,055
Jerusalem-industry & offices * 1,329 64 22,735
- ---------------------------------------------------------------------------------------------------
Total 1,766 61 35,790
- ---------------------------------------------------------------------------------------------------
</TABLE>
Includes 25% of the Science Industries Park.
Revenue Producing Properties under construction
<TABLE>
<CAPTION>
Balance value Appraiser's Value
Rate of Project area 30.6.98 As at 15.10.93
Region Holding (sq. m.) (NIS `000) (NIS `000)
- ------ ------- -------- ---------- ----------
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Center & Jerusalem - offices and
commercial 90.00% 12,810 59,339 67,840
- ------------------------------------------------------------------------------------------------------
Vacant Land
- ------------------------------------------------------------------------------------------------------
North 90.00% 337,400 12,042 91,675
- ------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NAVE
Summary of Properties
(The balance sheet value and rental data are in NIS thousands of June 1998)
Real Estate
<TABLE>
<CAPTION>
Rights in the Land
-------------------------------------------------------------
Balance Sheet
Value as Residence Area with Commercial Vacation & Appraiser's Value
Rate at 6.30.98 Area no Zoning area Parking area as at 10.15.98
Location/Region of Holdings (NIS '000) (Dunam) (Dunam) Units (built sq. m.) (built sq. m.) In NIS '000
- --------------- ----------- ---------- ------- ------- ----- -------------- -------------- -----------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Center 90.00% 212,345 36+ 12+ 512+ 350+ 3,130 255,553
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Residential Construction in Process
<TABLE>
<CAPTION>
NIS thousands
------------------------------------------- Land Addition of
Rate of The share Appraiser's Value Cost of initiative Total
Holdings in of land As at 10.15.98 construction profit economic value
Region Company Costs in costs Advances Net Net In NIS '000 NIS '000 NIS '000 NIS '000*
- ------ ------- ----- -------- -------- --- --- ----------- -------- -------- ---------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Center 90.00% 87,434 34,828 54,915 32,519 86,336 78,107 52,606 4,366 135,079
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Inventory of Units
<TABLE>
<CAPTION>
Rate of Balance sheet value Appraiser's Value
Holdings in as at 6.30.98 As at 10.15.95
Region Company Units (NIS '000) (NIS '000)
- ------ ------- ----- ---------- ----------
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Center 90.00% 15 13,632 17,455
- --------------------------------------------------------------------------------------
</TABLE>
* Appraiser's values, plus cost of construction and estimated initiative
profit.
<PAGE>
GAD
Summary of Properties
(The balance sheet value and rental data are in NIS thousands of June 1998)
Revenue Producing Properties
<TABLE>
<CAPTION>
Rate of Area Balance value
Holding in Built up area Rented Occupancy 30.6.98
the Company in sq. m. in sq. m. Rate (NIS '000)
----------- --------- --------- ---- ----------
<S> <C> <C> <C> <C> <C>
Office center 90% 1,980 1,980 100% 5,330
Jerusalem -Industrial 90% 4,800 3,600 75%
Other 90% 255 0 0 431
- -----------------------------------------------------------------------------------------------
Total 7,035 5,580 79% 5,761
- -----------------------------------------------------------------------------------------------
<CAPTION>
Appraiser's Value
Monthly rent 1-6/98 Monthly rent As at 15.10.98
(NIS '000) Per sq. m. (NIS) (NIS '000)
---------- ----------------- ----------
<S> <C> <C> <C>
Office center 925 78 16,685
Jerusalem -Industrial 245 11 11,624
Other 0 0 3,539
- -----------------------------------------------------------------------------------------------
Total 1,170 35 33,848
- -----------------------------------------------------------------------------------------------
</TABLE>
Revenue Producing Properties under construction
Balance value Appraiser's Value
Rate of 30.6.98 As at 15.10.98
Holding (NIS '000) (NIS '000)
------- ---------- ----------
- --------------------------------------------------------------------------------
Jerusalem 90% 25,112 34,103
- --------------------------------------------------------------------------------
Real Estate
<TABLE>
<CAPTION>
Rate of Balance value Appraiser's Value Cost of Total
Holding in 30.6.98 As at 15.10.98 Construction economic value
Location/Region the Company (NIS '000) (NIS '000) NIS '000 NIS '000
- --------------- ----------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Jerusalem ** 90% 140,547 78,657 79,002
Center *** 90% 70,012 137,329 17,033 154,362
For the purpose of the consolidated -
canceling interest capitalization -6,826
Original difference in properties and building
for Gad 476
- --------------------------------------------------------------------------------------------------------------------------------
Total 90% 204,209 215,986 17,033 233,364
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Assessed value plus cost of building of project in process of being built.
** Including properties in a consolidated company of Gad, held at a rate of
67%. The economic value including Appraiser's value and properties not
assessed by the Appraiser and taken at the balance sheet value in the sum of
NIS 345 thousand.
*** Includes properties in consolidated company of Gad, held at the rate of 75%.
Residential Construction in Process NIS thousands
<TABLE>
<CAPTION>
Rate of The share
Holding in Units under of the land
the Company Construction Costs Costs Advances Net
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Jerusalem 22 14,286 5,154 11,512 2,774
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
Appraiser's Value Building Total
As at 15.10.98 Daily profit cost economic value
Finish rate NIS '000 NIS '000 NIS '000 NIS '000
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jerusalem 12,468 403 9,132 22,003
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Inventory
<TABLE>
<CAPTION>
Rate of Type of Balance value Appraiser's Value
Holding in Ownership 30.6.98 As at 15.10.98
the Company (ownership/lease type) Units (NIS '000) NIS '000
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jerusalem 90% 1 284 789
- ----------------------------------------------------------------------------------------------------
</TABLE>
* Appraiser's value, plus to the cost of building and estimated daily profit.
<PAGE>
ISPRO
Summarization of properties
(The balance sheet value and rental data are in NIS thousands of June 1998)
Revenue Producing Properties
<TABLE>
<CAPTION>
Rate of Area
Holding in Built up area Rented Occupancy
the Company in sq. m. in sq. m. Rate
----------- --------- --------- ----
<S> <C> <C> <C> <C>
South - industry 70.46% 60,879 51,124 85%
Center - offices and commercial 70.46% 567 484 85%
Center - industry* 70.46% 28,910 28,200 98%
Original difference related to ?? 70.46%
- ------------------------------------------------------------------------------------------------
Total 90,356 79,808 88%
- ------------------------------------------------------------------------------------------------
<CAPTION>
Balance value Appraiser's Value
30.6.98 Monthly rent 1-6/98 Monthly rent As at 15.10.98
(NIS '000) (NIS '000) Per sq. m. (NIS) (NIS '000)
<S> <C> <C> <C> <C>
South - industry 57,761 3,985 13 88,668
Center - offices and commercial 3,911 469 162 8,324
Center - industry* 42,203 4,127 24 69,673
Original difference related to?? -9,958 0 0
- ----------------------------------------------------------------------------------------------------------------
Total 93,917 8,581 18 166,665
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* Includes asset owned by a consolidated company of ISPRO (74%)
Revenue Producing Properties under Construction
<TABLE>
<CAPTION>
Area Balance value Appraiser's Value
Project area/ 30.6.98
Company Land (NIS'000) (NIS'000)
------- ---- ---------- ----------
<S> <C> <C> <C> <C>
Center-- industrial Ispro 8,000 13,317 18,152
South- industrial Ispro 5,200 12,379 23,102
- ---------------------------------------------------------------------------------------------------------
Sub-Total 13,200 25,696 41,254
- ---------------------------------------------------------------------------------------------------------
Vacant land available for Erecting Revenue Producing Properties
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
South - industrial 7,186 34,837
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
MEHADRIN LTD.
Details of Composition of Properties
(The balance value data are in NIS thousands of June 1998)
<TABLE>
<CAPTION>
Balance Value Assessor's value
30.6.99 As at 15.10.98
Name of Site Rate of Holding Area In Dunam (NIS'000) NIS'000
------------ --------------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
1. Packaging houses 34.96% 193.50 28,731 52,805
- --------------------------------------------------------------------------------------------------------
2. Revenue producing real estate
- --------------------------------------------------------------------------------------------------------
Center 79,202 97,873
- --------------------------------------------------------------------------------------------------------
<CAPTION>
Balance Value Assessor's value Assessor's value
30.6.98 As at 15.10.98 Per Dunam
(NIS'000) NIS'000 (NIS)
---------- -------- -----
<S> <C> <C> <C> <C> <C>
3. Orchards
Ashkelon 2,796 48,954 17,509
Hadasim-Amalia Netanya 34.96% 1,110 89,548 80,674
Zita 34.96% 1,666 51,925 31,167
Pardesia 34.96% 1,909 97,982 51.326
Tsirifin 34.96% 2,476 91,675 37,025
Other--South 34.96% 1,185 19,618 16,556
Other--Center 34.96% 5,104 189,584 37,144
Other--North 34.96% 184 5,794 31,488
- ---------------------------------------------------------------------------------------------------------------------------
Total 16,430 72,547 595,081 36,219
</TABLE>
<PAGE>
K.B.E.
Details of Composition of Properties
(The apartment value data are in NIS thousands of June 1998)
1. Real Estate
<TABLE>
<CAPTION>
Construction rights
--------------------------------- Appraiser's Value
Rate of Area Commercial Other As at 15.10.98
Holding in sq.m. Units Sq. m. Sq. m. (NIS'000)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
South 23.13% 2,595,989 35,814 50,735 218,793 475,978
- ------------------------------------------------------------------------------------------------------------------------------------
2. RENTED PROPERTIES
<CAPTION>
Appraiser's Value
Rate of Area As at 15.10.98
Holding in sq. m. (NIS '000)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
South--industrial & offices 23.13% 9,262 33,040
- ------------------------------------------------------------------------------------------------------------------------------------
3. TOTAL
<CAPTION>
Appraiser's Value Appraiser's Value
Rate of As at 30.6.98 As at 15.10.98
Holding (NIS'000) (NIS'000)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
23.13% 76,934 509,017
====================================================================================================================================
</TABLE>
<PAGE>
Adjustment between the Appraiser's Opinion and the Details included
in the Valuation of the Exchange Ratio
A. Property & Building
<TABLE>
<CAPTION>
Revenue-producing
properties Real Estate
---------- -----------
Balance Economic Balance Economic
sheet value value sheet value value
----------- ----- ----------- -----
(the balance sheet value is in
NIS thousands of June 1998)
<S> <C> <C> <C> <C>
According to Appraiser's opinion 131,487 321,376 8,307 83,974
Breakdown in valuation of the exchange ratio:
Residential construction project in Petach Tikvah - gross
less advances from apartment purchasers
Residential construction project in Petach Tikvah -- net
According to the breakdown in the valuation of the exchange
ratio
Land in Tirat HaCarmel before the breakdown in the
valuation of the exchange ratio
-----------------------
131,487 321,376
-----------------------
<CAPTION>
Total real-estate,
inventory
Project for & project for
Inventory of Apartments residential construction residential construction
----------------------- ------------------------ ------------------------
Balance Economic Balance Economic Balance Economic
sheet value value sheet value value sheet value value
----------- ----- ----------- ----- ----------- -----
(the balance sheet value is in NIS thousands of June 1998)
<S> <C> <C> <C> <C> <C> <C>
According to Appraiser's opinion 4,919 6,782 16,719 34,140 29,945 124,896
Breakdown in valuation of the exchange ratio:
Residential construction project in Petach Tikvah - gross 29,259 112,429
less advances from apartment purchasers (18,349) (18,349)
---------------------
Residential construction project in Petach Tikvah -- net
According to the breakdown in the valuation of the exchange
ratio 10,910 94,080
Land in Tirat HaCarmel before the breakdown in the
valuation of the exchange ratio 686 12,468
</TABLE>
<PAGE>
B. Gav Yam
<TABLE>
<CAPTION>
Land for the
Revenue-producing Revenue-producing construction of revenue-
properties properties in construction producing properties
---------- -------------------------- --------------------
(the balance sheet value is in NIS thousands of June 1998)
Balance sheet Economic Balance sheet Economic Balance Economic
value value value value sheet value value
----- ----- ----- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
According to Appraiser' opinion 461,251 811,342 84,274 185,550 210,383 120,351
Adjustments:
Neutralization of 25% of the
properties of an affiliated
company which were presented
in the Appraiser's opinion in the
framework of the Company's
properties (5,019) (22,736)
Classification between the items -- -- 155,438 120,351 (210,383) (120,351)
-------------------------------------------------------------------------------------
According to detail in the valuation
of the exchange ratio 456,332 788,607 239,712 308,901 --
=====================================================================================
<CAPTION>
Inventory of Project for
Real estate apartments residential construction
----------- ---------- ------------------------
(the balance sheet value is in NIS thousands of June 1998)
Balance sheet Economic Balance sheet Economic Balance Economic
value value value value sheet value value
----- ----- ----- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
According to Appraiser's opinion 62,317 191,600 19,153 22,515 144,220 191,619
Adjustments:
Neutralization of 25% of the
properties of an affiliated
company which were presented
in the Appraiser's opinion in the
framework of the Company's
properties
Classification between the items -- -- (19,153) (22,515) 19,152 22,515
---------------------------------------------------------------------------------
According to detail in the valuation
of the exchange ratio 62,317 191,600 -- -- 163,372 214,134
=================================================================================
</TABLE>
<PAGE>
C. Hadarim Properties
<TABLE>
<CAPTION>
Revenue-producing Revenue-producing
properties properties in construction
---------- --------------------------
Balance Economic Balance Economic
sheet value value sheet value value
----------- ----- ----------- -----
(the balance sheet value is in NIS thousands of June 1998)
<S> <C> <C> <C> <C>
According to Appraiser's opinion 8,694 35,790 59,339 67,840
Adjustments:
Neutralization of 25% of the properties of an affiliated
company which were presented in the Appraiser's opinion
in the framework of the Company's properties (5,020) (22,736)
------------------------------------------------
According to detail in the valuation of the exchange ratio 3,674 13,055 59,339 67,840
================================================
<CAPTION>
Land for construction of
revenue producing properties
----------------------------
Balance sheet Economic
value value
----- -----
(the balance sheet value is in NIS thousands of June 1998)
<S> <C> <C>
According to Appraiser's opinion 12,042 91,675
Adjustments:
Neutralization of 25% of the properties of an affiliated
company which were presented in the Appraiser's opinion
in the framework of the Company's properties
------------------------
According to detail in the valuation of the exchange ratio 12,042 91,675
========================
</TABLE>
<PAGE>
D. Nave
<TABLE>
<CAPTION>
Real Estate Residential construction
-------------------------- ------------------------
Balance Economic Balance sheet Economic
Sheet value value value value
----------- ----- ----- -----
<S> <C> <C> <C> <C>
According to Appraiser's opinion 212,345 255,553 87,434 135,079
Adjustments:
Advances from unit purchasers (54,915) (54,915)
----------------------------------------------------
According to detail in the valuation of
the exchange ratio 212,345 255,553 32,519 80,164
====================================================
</TABLE>
<PAGE>
E. Gad
<TABLE>
<CAPTION>
Revenue-producing
Revenue-producing properties in
properties construction
--------------------- ----------------------
Balance Economic Balance Economic
sheet value value sheet value Value
----------- ----- ----------- -----
<S> <C> <C> <C> <C>
According to Appraiser's opinion 5,761 31,848 25,112 34,103
Adjustments:
Classification between items
Addition of costs of construction for land in
construction stages
Property evaluated according to balance sheet value
Adjustments for the purpose of consolidation -- -- -- --
Advances from unit purchasers
----------------------------------------------
According to detail in the valuation of the
Exchange ratio 5,761 31,848 25,112 34,103
==============================================
<CAPTION>
Residential Inventory of
Real Estate Construction apartments
----------- ------------ ----------
(the balance sheet value is in NIS thousands of June 1998)
Balance Economic Balance Economic Balance Economic
sheet value value sheet value value sheet value value
----------- ----- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
According to Appraiser's opinion 204,209 215,986 14,286 22,003 284 789
Adjustments:
Classification between items 284 789 (284) (789)
Addition of costs of construction for land in
construction stages 17,033
Property evaluated according to balance sheet value 345
Adjustments for the purpose of consolidation 6,350 -- -- -- -- --
Advances from unit purchasers (11,512) (11,512)
-------------------------------------------------------------------
According to detail in the valuation of the
Exchange ratio 210,559 233,364 3,058 11,280 -- --
===================================================================
</TABLE>
<PAGE>
F. Ispro
<TABLE>
<CAPTION>
Revenue-producing Revenue-producing Vacant land for construction of
properties properties in construction revenue producing properties
--------------------- -------------------------- -------------------------------
Balance Economic Balance Economic Balance sheet Economic
sheet value value sheet value value value value
----------- ----- ----------- ----- ----- -----
(the balance sheet value is in NIS thousands of June 1998)
<S> <C> <C> <C> <C> <C> <C>
According Co Appraiser's opinion 93,917 166,665 25,696 41,254 7,186 34,837
Adjustments:
Original difference 9,958
Minority share in a property of a consolidated
company(74%) (656)
Classification between the items 7,186 34,837 (7,186) (34,837)
------------------------------------------------------------------------------
According to detail in the valuation of the
exchange ratio 103,219 166,665 32,882 76,091 -- --
==============================================================================
</TABLE>
<PAGE>
G. Mehadrin
<TABLE>
<CAPTION>
Revenue-producing
Packaging houses properties Orchards
---------------- ---------- --------
Balance Economic Balance Economic Balance sheet Economic
sheet value value sheet value value value value
----------- ----- ----------- ----- ----- -----
(the balance sheet value is in NIS thousands of June 1998)
<S> <C> <C> <C> <C> <C> <C>
According to Appraiser's opinion 28,731 52,805 79,202 97,873 72,547 595,081
Adjustments:
- ------------
Equipment according to balance sheet value 7,334 7,334 26,298
---------------------------------------------------------------------------------
According to detail in the valuation of the
exchange ratio 36,065 60,139 105,500 124,171 72,547 595,081
=================================================================================
</TABLE>
<PAGE>
Itzhak Swary Ltd.
Financial Consulting
- --------------------------------------------------------------------------------
Messrs:
IDB Development Corporation Ltd., Discount Investment Corporation Ltd.
3 Daniel Frisch Street, 14 Bet Hashoeva Lane
Tel Aviv. Tel Aviv.
Dear Sirs:
Re: Valuation dated October 15, 1998 of the number of shares of Discount
Investment Corporation Ltd. ("Discount Investments") which will be
issued to IDB Development Corporation Ltd. ("IDB Development") in
consideration for 14,937,792 shares of $1 par value of PEC Economic
Corporation ("PEC")
On October 15, 1998 you were given an valuation of the said exchange ratio.
According to the provisions of the Private Placement Agreement between Discount
Investments and IDB, and after publishing the financial statements of Discount
Investments and PEC for the third quarter of 1998, we were requested by you to
check whether there were significant developments or changes regarding the net
asset value of Discount Investments and the net asset value of PEC which would
require a change in the said valuation, given on October 15, 1998.
As we stated in the valuation of the exchange ratio, in view of the similarity
in the investment portfolios of the two companies and in view of the holdings of
IDB Development of some 54.3% of the shares of Discount Investments prior to the
transaction, the exchange ratio has a low sensitivity to changes, within a
reasonable range, of values of the companies included in the investment
portfolios of Discount Investments and PEC.
In order to check this, we studied the drafts of the amended immediate reports
of IDB Development, we studied the financial statements of Discount Investments,
PEC and the principal companies included in their investment portfolios for the
third quarter of 1998, we checked publicly available data (including
developments in stock exchange prices of those companies in the Group traded)
and reviews published about the companies and about the branches in which they
operate, and we received additional data and clarification from the managements
of Discount Investments and PEC. Moreover we rechecked the indications in the
range of the value of Cellcom which was calculated in view of your detailed
instructions in the said valuation.
In view of the procedures we applied, the principles of which are detailed
above, and in view of the low sensitivity of the exchange ratio to changes in
the values of the companies, as mentioned, despite changes which took place in
the valuations of some of the companies included in the investment portfolios,
in our opinion there were no material developments or changes in the ratio of
the net value of the assets which should require a change in the said valuation.
We should emphasize that all the conditions and provisions detailed in the
valuation of the said exchange ratio are valid also with regard to this letter,
and therefore it should be read together with the valuation of the said exchange
ratio. Moreover, this letter is not a revaluation of the exchange ratio.
In addition, we were requested to calculate the number of share of Discount
Investments which should be issued to IDB in consideration for 3,484 shares of
Properties and Building Ltd., taking into account the net asset value of
Discount Investments and the value of Properties and Buildings as determined in
the said valuation of the exchange ratio. In our opinion, based on the
aforesaid, IDB should be issued 10,712 additional shares of Discount Investments
in consideration for 3,484 shares of Properties and Buildings.
<PAGE>
We agree that this letter will be included and/or mentioned in the amended
immediate report which will be published regarding the exchange transaction.
Yours sincerely,
(-) (-)
Itzhak Swary Uri Cohen
------------ ---------
Date:
December 14, 1998.
<PAGE>
Exhibit 99(b)(6)
[LETTERHEAD OF GIZA Economic Consulting and Financial Management (1988) Ltd.]
October 15, 1998
The Board of Directors,
Discount Investments Corporation Ltd.,
14 Beit Hashoeva Lane,
Tel-Aviv, Israel.
Dear Members of the Board of Directors,
Re: Fairness of the exchange ratio between the shares
of Discount Investments Corporation Ltd. and the
shares of PEC Israel Economic Corporation - Amended
1. We were requested by you to give our professional opinion regarding the
fairness of the exchange ratio determined in the context of an engagement
in an agreement for the transfer of 14,937,792 common shares of US $1 par
value each of PEC Israel Economic Corporation ("PEC"), which comprise some
81.4% of the rights in this Company, held by IDB Development Corporation
Ltd. (hereinafter: "IDB Development") to Discount Investments Corporation
Ltd. ("Discount Investments") in consideration for a private placement of
17,390,593 common shares of NIS 1 par value each of Discount Investments
(hereinafter: "the Private Placement"). The exchange ratio was determined
according to an average ratio of 1.327 between the net assets value of
Discount Investments and the net assets value of PEC. It should be
mentioned that the investments portfolio of the two companies is very
similar in composition, and about 80% of the net assets value of the two
companies come from identical investment sources in over 40 companies.
According to simulations carried out by us, the exchange ratio has very
low sensitivity to changes within reasonable ranges (+/- 25%) of the
evaluation of the net assets value of the companies.
2. The opinion focuses on the question whether the exchange ratio stipulated
in the said agreement reflects, from an economic point of view, a fair and
reasonable exchange ratio from the point of view of Discount Investments.
3. In preparing our opinion, we based ourselves on the data included in the
opinion of Professor Ithak Swary and Uri Cohen, C.P.A. of Ithak Swary Ltd.
dated October 15, 1998 ("Swary") and we assumed their correctness,
accuracy and completeness. We were not requested and we did not carry out
independent checks to verify the above-mentioned data or to verify the
results of operations of Discount Investments and PEC and/or the companies
held by them.
<PAGE>
4. For the purpose of preparing our opinion we studied the following
documents:
4.1 Swary's opinion.
4.2 Working papers of Ithak Swary Ltd. with regard to Swary's opinion.
4.3 The audited financial statements of Discount Investments and PEC for
the year ended December 31, 1997 and the reviewed financial
statements for the period of six months ended June 30, 1998.
4.4 The audited financial statements of the companies held by Discount
Investments and PEC for the year ended December 31, 1997 and the
reviewed financial statements for the period of six months ended
June 30, 1998.
4.5. The 10-K Report of PEC for the year ended December 31, 1997.
4.6 The 10-Q Report of PEC for the period of six months ended June 30,
1998.
4.7 Public data and reviews which were published about the companies and
the branches in which they operate.
4.8 Clarifications given to us by Discount Investments and PEC, on our
request regarding the details of the agreements and items of the
financial statements.
4.9 Immediate reports of Discount Investments and IDB Development dated
October 15, 1998 relating to the Private Placement.
5. For the purpose of preparing our opinion we met with Professor Swary and
Uri Cohen, C.P.A. of Swary and received from them explanations and details
relating to Swary's Opinion.
6. The Opinion does not include a stand or a recommendation whether to carry
out the private placement. The Opinion is not a recommendation to the
shareholders of Discount Investments and/or PEC and/or IDB Development on
how to vote at the General Meeting regarding the Private Placement.
7. In the past we carried out, for payment, various economic work for
Discount Investments and companies held by it.
8. We hereby certify that we do not have a personal interest in Discount
Investments and/or PEC and/or IDB Development Ltd., and that we do not
have a personal interest regarding the exchange ratio determined. It
should be clarified that Giza was not a partner in the negotiations
between Discount Investments and IDB Development.
2
<PAGE>
9. Regarding the Opinion, Discount Investments undertook to Giza Economic
Consulting and Financial Management (1988) Ltd. ("Giza") as follows: if
Giza will be sued in a legal procedure to pay any amount to a third party
for a cause which is likely to result from, directly or indirectly, this
Opinion, Discount Investments will compensate Giza for any reasonable
expenses which Giza will incur or will be required to pay for legal
representation, legal counseling, professional consulting, defending in
legal proceedings, negotiations etc. Discount Investments will also
compensate Giza for any amount which it will be required to pay, in a
legal proceeding, to a third party, in excess of one million US dollars.
The obligation to compensate will not apply if it is found that Giza acted
in rendering its services relating to this Opinion, with serious
negligence or maliciously.
10. After studying the documents mentioned in Clause 4 and subsequent to our
meetings as detailed in Clause 5, we estimate, to the best of our
professional opinion, that the exchange ratio determined in the agreement
mentioned in Clause 1 above, reflects a fair and reasonable exchange ratio
from the point of view Discount Investments.
We wish to emphasize, that in light of the legal limitations connected
with the possibility of a public issue in the United States of Cellcom
Israel Ltd. ("Cellcom"), whose shares are held, among others, by Discount
Investments and PEC, we were requested by you to check the fairness and
reasonability of the exchange ratio taking into account general
indications relating to the range of values of Cellcom. The indication is
based on the comparison of market prices and multipliers of similar
European cellular companies, and taking into consideration the discount
resulting from a lack of marketability and liquidity in the Cellcom
investment as compared to the comparative group. We should state, that the
holdings of Discount Investments and PEC in Cellcom are material to the
economic value, however by lower comparative effect on the exchange ratio
due to identical holdings in Cellcom. It should be emphasized that in view
of your aforementioned directive, we did not carry out an evaluation and
we did not apply other procedures regarding the investment in Cellcom.
As, in our evaluation the indication checked by us in the field of the
range of variance checked by us with regard to the value of Cellcom (+/-
25%) reflect a reasonable range of the economic value of Cellcom, and as a
change in the estimated value of Cellcom in the fields mentioned does not
result in a significant variance in the results of the exchange ratio, in
our opinion this limitation does not detrimentally affect the
reasonability and the validity of test of reasonability and fairness of
the exchange ration.
3
<PAGE>
11. This Opinion does not express an opinion on the price in which the shares
of Discount Investments and/or PEC will be traded after the notice of
approval of the Private Placement. The evaluation of the exchange ratio is
not an evaluation of the assets or of the share capital of Discount
Investments and/or PEC.
12. We hereby agree that this Opinion will be attached and/or mentioned in the
Immediate Report.
Yours sincerely,
( - )
Zvi Shechter
Joint General Manager
GIZA Economic Consulting and
Financial Management (1988) Ltd.
4
<PAGE>
[LETTERHEAD OF GIZA Economic Consulting and Financial Management (1988) Ltd.]
December 15, 1998
The Board of Directors,
Discount Investments Corporation Ltd.
14 Beit Hashoeva Lane,
Tel-Aviv, Israel
Dear Members of the Board of Directors,
Re: Opinion dated October 15, 1998 regarding to the fairness of the exchange
ratio between the shares of Discount Investments Corporation Ltd. and
the shares of PEC Israel Economic Corporation
1. On October 15, 1998 an opinion was submitted to you (hereinafter:
"Opinion") relating to the fairness of exchange ratio fixed in the context
of engagement in an agreement for the transfer of 14,937,792 common shares
of US $1 par value each of PEC Israel Economic Corporation ("PEC"). We
were requested by you to check whether there were significant developments
or changes from the date of the opinion relating to the net asset value of
the corporations, which should require a change in the Opinion.
2. As we stated in the Opinion, in view of the similarity in the investment
portfolio of the two companies, the exchange ratio has a low sensitivity
to changes within reasonable ranges of the evaluations of the companies
held by Discount Investments Corporation Ltd. ("Discount Investments") and
PEC.
3. For the purpose of the said check, we studied the Immediate Amended Report
of Discount Investments, we studied the financial statements of Discount
Investments, PEC and the main companies included in their investment
portfolios for the third quarter of 1998, we checked data available to the
public (including developments in the share prices of those affiliated
companies traded) and reviews published on the companies and on the
branches in which they operate, and we received additional data and
clarifications from the management of Discount Investments and PEC.
4. In light of the procedures we applied, the principles of which are
detailed above, and in view of the low sensitivity, as mentioned, of the
exchange ratio to changes in the values of the affiliated companies, in
our opinion, despite changes which took place in the evaluations of some
of the affiliated companies, there were no significant developments or
changes from the date of the Opinion relating to the net assets value of
Discount Investments and PEC, which would require a change in the Opinion.
<PAGE>
5. It should be emphasized that this letter should be read together with our
letter dated October 15, 1998.
6. This letter does not constitute a reevaluation of the exchange ratio.
7. In addition, we were requested to give our professional opinion regarding
the fairness of the issue of 10,712 additional shares of Discount
Investments to IDB Development Corporation Ltd. in consideration for 3,484
of Properties and Building Ltd., based on the net assets value of Discount
Investments and the value of Properties and Building Ltd. as determined in
the evaluation of the said exchange ratio. In our opinion, the issue of
10,712 additional shares of Discount Investments in consideration for
3,484 shares of Properties and Building Ltd. is fair and reasonable from
the point of view of Discount Investments.
8. We agree that this letter be included and/or mentioned in the Immediate
Amended Report which will be published with regard to the engagement.
Yours sincerely,
( - )
Zvi Shechter
Joint General Manager
GIZA Economic Consulting and
Financial Management (1988) Ltd.
2
