SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
Commission file number 1-8707
PEC Israel Economic Corporation
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Maine 13-1143528
- ---------------------------------------- --------------------------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
511 Fifth Avenue, New York, N.Y. 10017
- ---------------------------------------- --------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (212) 687-2400
- --------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report.
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES |X} NO|_|.
As of May 14, 1999 there were outstanding 18,362,188 shares of Common
Stock with par value of $1.00 per share.
Page 1 of 23 pages
<PAGE>
PART I - FINANCIAL INFORMATION
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
---------------------------
1999 1998
---------------------------
(In thousands - except per
share amounts)
Assets
Cash and cash equivalents $ 26,383 $ 22,007
Investments 484,893 432,112
Assets of General Engineers Limited 7,644 7,950
Other assets 4,529 4,860
--------- ---------
Total assets $ 523,449 $ 466,929
========= =========
Liabilities and Shareholders' Equity
Liabilities:
Notes payable - Banks $ 44,223 $ 20,000
Liabilities of General Engineers Limited 4,697 5,163
Deferred income taxes 37,261 28,487
Other liabilities 8,219 8,054
--------- ---------
Total liabilities 94,400 61,704
--------- ---------
Shareholders' equity:
Common stock, $1.00 par value 31,952 31,952
Additional paid-in capital 104,747 104,616
Retained earnings 367,019 354,976
Accumulated comprehensive income (54,302) (65,952)
--------- ---------
449,416 425,592
Treasury stock (20,367) (20,367)
--------- ---------
Total shareholders' equity 429,049 405,225
--------- ---------
Total liabilities and shareholders' equity $ 523,449 $ 466,929
========= =========
See notes to consolidated financial statements.
Page 2 of 23 pages
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended:
---------------------------
3/31/99 3/31/98
------- -------
(In thousands - except share
and per share amounts)
<S> <C> <C>
Revenues:
Interest and dividends $ 1,248 $ 182
Equity in net income of Affiliated Companies 10,357 11,828
Net gain on issuance of shares by Affiliated Companies 6,777 59
Revenues of General Engineers Limited 2,801 2,198
Net (loss) gain on sales of investments in Affiliated Companies (800) 696
Net gain on sales, and changes in market
value, of trading securities 7 3,345
Other 464 844
------------ ------------
20,854 19,152
------------ ------------
Expenses:
General and administrative 1,350 858
Cost of sales and expenses of General Engineers Limited 2,758 2,570
------------ ------------
4,108 3,428
------------ ------------
Income before interest and income taxes 16,746 15,724
Interest expense 459 155
------------ ------------
Income before income taxes 16,287 15,569
Income taxes 4,244 4,826
------------ ------------
Net income 12,043 10,743
------------ ------------
Other comprehensive income:
Unrealized gain on available-for -sale securities, arising during
the period, net of tax provision of $3,616 (1999) and
$14 (1998) 6,717 26
Translation adjustment, net of tax provision (benefit)
of $992 (1999) and ($1,632) (1998) 4,933 (3,031)
------------ ------------
Other comprehensive income (loss) 11,650 (3,005)
------------ ------------
Comprehensive income $ 23,693 $ 7,738
============ ============
Earnings per common share - basic $ 0.66 $ 0.59
============ ============
Earnings per common share - diluted $ 0.64 $ 0.57
============ ============
Number of shares outstanding 18,362,188 18,362,188
------------ ------------
</TABLE>
See notes to consolidated financial statements.
Page 3 of 23 pages
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(Unaudited) (In thousands)
<TABLE>
<CAPTION>
Accumulated Other
Comprehensive Income
---------------------------------
Additional Unrealized Gains Cumulative
Common Paid-in on Available- Translation Retained Treasury
Stock Capital for-Sale Securities Adjustment Earnings Stock Total
-------- ---------- ------------------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999 $ 31,952 $104,616 $ 1,783 ($67,735) $354,976 ($20,367) $405,225
Paid in capital of
Affiliated Companies -- 131 -- -- -- -- 131
Change in market value
of available-for-
sale equity securities,
net of tax -- -- 6,717 -- -- -- 6,717
Cumulative translation
adjustment, net of tax -- -- -- 4,933 -- -- 4,933
Net income -- -- -- -- 12,043 -- 12,043
-------- -------- -------- -------- -------- -------- --------
Balance, March 31, 1999 $ 31,952 $104,747 $ 8,500 ($62,802) $367,019 ($20,367) $429,049
======== ======== ======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
Page 4 of 23 pages
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended:
---------------------------
3/31/99 3/31/98
---------------------------
(In thousands)
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 12,043 $ 10,743
Adjustments to reconcile net income to net cash
provided by operating activities:
Change in market value of trading securities (144) (494)
Purchase of trading securities -- (4,936)
Proceeds from sale of trading securities 132 9,951
Equity in net income of Affiliated Companies (10,357) (11,828)
Loss (gain) on sales of investments in Affiliated Companies 800 (696)
Net loss (gain) on sales of trading securities 137 (2,851)
Net gain (loss) on investment in partnerships 77 (198)
(Income) loss of consolidated subsidiaries (43) 162
Net gain on issuance of shares by Affiliated Companies (6,777) (59)
Dividends from Affiliated Companies 259 5,760
Change in other assets and liabilities 958 (1,486)
Provision for deferred income taxes 3,972 2,380
-------- --------
Net cash provided by operating activities 1,057 6,448
-------- --------
Cash Flows from Investing Activities:
Collection of loans 8,449 --
Purchase of notes receivable (1,033) (326)
Proceeds from sale of equity interests -- 2,645
Acquisitions of equity interests (28,163) (44,775)
Return of capital 66 12,582
-------- --------
Net cash used in investing activities (20,681) (29,874)
-------- --------
Cash Flows from Financing Activities:
Proceeds of Bank loan, net 24,000 20,026
-------- --------
Net cash provided by financing activities 24,000 20,026
-------- --------
Net increase (decrease) in cash and cash equivalents 4,376 (3,400)
Cash and cash equivalents, beginning of period 22,007 8,948
-------- --------
Cash and cash equivalents, end of period $ 26,383 $ 5,548
======== ========
Supplemental Disclosures of Cash Flow Information:
Cash paid during period for:
Income taxes $ 440 $ 416
Interest $ -- $ 144
</TABLE>
See notes to consolidated financial statements.
Page 5 of 23 pages
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. The December 31, 1998 balance sheet presented herein was derived from the
audited consolidated financial statements of PEC Israel Economic
Corporation and subsidiaries ("PEC" or the "Company") for the year ended
December 31, 1998 (the "1998 Financial Statements").
2. These financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with
the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The
financial statements should be read in conjunction with the 1998 Financial
Statements for a description of the significant accounting policies, which
have continued without change, and other footnote information.
3. On May 3, 1999, Mr. Norman Frank, allegedly a shareholder of PEC,
instituted a purported class action in the Superior Court in Cumberland
County, State of Maine against PEC, PEC Acquisition Corporation ("PEC
Acquisition") and the directors of PEC. In his complaint, the plaintiff
alleges that the $30 cash consideration to be paid to PEC's public
shareholders for each of their shares of PEC common stock in the proposed
merger of PEC Acquisition, a wholly owned subsidiary of PEC's parent
corporation, Discount Investment Corporation Ltd., into PEC is unfair and
grossly inadequate. The plaintiff asserts that in approving the proposed
merger, the defendant directors of PEC breached their fiduciary duties and
engaged in improper, unfair dealing and wrongful and coercive conduct
without regard to their alleged conflicts of interest. PEC believes that
the allegations in Mr. Frank's complaint are without merit and PEC intends
to contest the actions vigorously.
4. On April 20, 1999, a subscriber of Tevel Israel International
Communications Ltd. ("Tevel"), a cable television corporation in which PEC
has a 23.7% ownership interest through PEC's holdings in DIC and PEC Cable
TV Ltd., commenced an action in the District Court in Tel Aviv, Israel
against Tevel and Israel's Minister of Communications alleging that Tevel
is a monopoly in its area of operations and that Tevel should compensate
all of its subscribers from May 10, 1996 though April 1, 1999 for the
difference between the price that Tevel would have charged for cable
television services during this period if the cable television market had
been competitive and the price Tevel actually charged, an amount the
plaintiff estimates is New Israel Shekel ("NIS") 260 million
(approximately $63 million). The plaintiff requests that the District
Court recognize his action as a class action on behalf of all of Tevel's
subscribers since May 10, 1996 under Israel's Anti-Trust Law.
In addition to seeking compensation, the plaintiff requests that the
District Court order Tevel to reduce its prices to the "market price" as
calculated by the plaintiff for as long as Tevel is a monopoly in its
areas of operations and that the District Court order Israel's Minister of
Communication not to extend Tevel's cable television license. The
plaintiff acknowledges that the prices Tevel charged were less than the
maximum prices Tevel was permitted to charge under its license from
Israel's Ministry of Communications.
On May 5, 1999, a plaintiff subscriber of Tevel filed an action against
Tevel in the District Court in Tel Aviv, Israel alleging that Tevel
unnecessarily required all of its subscribers to use channel converters
and, as a result, Tevel overcharged its subscribers by NIS 151 million
(approximately $36 million). The plaintiff requests the District Court to
recognize his action as class action and to order Tevel to refund to its
subscribers the alleged NIS 151 million overcharge.
Tevel believes the allegations in both of the foregoing actions are
without merit and Tevel intends to contest both actions vigorously. Tevel
is unable at this stage to evaluate the effect of the two actions on Tevel
and, accordingly, PEC is unable to evaluate the effect, if any, of the two
actions on PEC.
Page 6 of 23 pages
<PAGE>
5. The following is a reconciliation of the net income used in the
computation of basic earnings per share to net income assuming conversion
of potential common stock ("PCEs") issued by certain of PEC's Affiliated
Companies (in thousands):
For the three months ended March 31,
1999 1998
---- ----
Net income available to common
shareholders--basic ................................... $12,043 $10,743
------- -------
Effect of dilutive securities:
Dilutive effect of PCEs issued by certain
Affiliated Companies ................................ (215) (322)
------- -------
Net income available to common shareholders--diluted .. $11,828 $10,421
======= =======
6. On May 16, 1999, the $24.0 million loan to PEC Israel Finance Corporation
Ltd., which is described in Note 9(c) of the 1998 Financial Statements,
was extended for three months to August 18, 1999.
7. Certain reclassifications have been made to the financial statements for
the three months ended March 31, 1998 to conform with the financial
statements as of and for the three months ended March 31, 1999.
8. All adjustments (recurring in nature) which are, in the opinion of
management, necessary for a fair presentation of the results of the
interim periods have been included. The results of the interim periods are
not necessarily indicative of the results for the full year.
Page 7 of 23 pages
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
Consolidated net income for the three months ended March 31, 1999 rose to
$12.0 million, up from $10.7 million for the three months ended March 31, 1998.
The rise in net income reflected increases of $6.7 million in net gain on
issuance of shares by Affiliated Companies and $1.1 million in interest and
dividend income. The increase attributable to these items was partially offset
by decreases of $3.3 million in net gain on sales, and changes in market value,
of trading securities, $1.5 million in net gain on sales of investments in
Affiliated Companies and $1.5 million in equity in net income of Affiliated
Companies.
Equity in net income of Affiliated Companies for the first quarter of 1999
was $10.4 million compared with $11.8 million for the corresponding 1998 period.
PEC had reduced net income in respect of some of its Affiliated Companies,
principally Elron, which in the first quarter of 1998 recognized a gain of
approximately $36.5 million from the sale by its affiliate, Elbit Medical
Imaging Ltd., of Elbit Medical's ultrasound division (PEC's share of Elron's net
income for the first quarter of 1999 was $764,000 compared with $5.5 million for
the first quarter of 1998), Super-Sol and Property & Building. In addition, PEC
experienced net losses in respect of certain other Affiliated Companies,
particularly Tambour which had net income in the first quarter of 1998. This
decrease was partially offset by PEC's recording net income in respect of Scitex
for the first quarter of 1999 compared with a net loss for the first quarter of
1998 when Scitex wrote off in process research and development costs in
connection with its acquisition of Idanit Technologies Ltd. (PEC's share of the
net income of Scitex for the first quarter of 1999 was $440,000 compared with a
loss of $2.9 million for the first quarter of 1998). In addition, PEC had
increased net income with respect to certain Affiliated Companies, especially
El-Yam (PEC's share of El-Yam's net income for the first quarter of 1999 was
$1.5 million compared with $300,000 for the first
Page 8 of 23 pages
<PAGE>
quarter of 1998) and Cellcom and PEC experienced reduced net losses with respect
to other Affiliated Companies, particularly Witcom Ltd.
PEC realized a net gain of $6.8 million on issuance of shares by
Affiliated Companies for the three months ended March 31, 1999 compared with a
net gain of $59,000 for the corresponding 1998 period. All of PEC's net gain for
the first quarter of 1999 resulted from Gilat Satellite's sale of ordinary
shares in a public offering in the United States in February 1999.
PEC recorded interest and dividend income of $1.2 million for the first
quarter of 1999 compared with $182,000 for the corresponding 1998 period. In
November 1998, PEC and Discount Investment arranged a two year loan of $90
million to United Pan-Europe Communications N.V. ("UPC"). In February 1999, UPC
prepaid 50% of the loan, and in accordance with the terms of the loan agreement,
paid a fee to PEC which is the primary reason for the increase in interest and
dividend income.
PEC incurred a net loss on sales of investments in Affiliated Companies of
$800,000 for the first quarter of 1999, all of which is attributable to PEC's
write-off of a loan to Unitel Vocal Communication Ltd., a start up corporation.
During the first quarter of 1998, PEC realized a net gain of $696,000 on the
sale of its entire 13.2% ownership interest in Lego Irrigation Ltd.
PEC's comprehensive income rose to $23.7 million for the three months
ended March 31, 1999, up from $7.7 million for the corresponding 1998 period.
PEC's translation adjustment, net of taxes, increased PEC's comprehensive income
by $4.9 million for the first quarter of 1999 compared with a reduction, net of
tax benefit, of $3.0 million for the corresponding 1998 period. The exchange
rate of the New Israel Shekel increased approximately 3.0% against the U.S.
dollar as of March 31, 1999 compared with December 31, 1998 while such exchange
rate declined approximately 1.7% as of March 31, 1998 compared with December 31,
1997. PEC's unrealized gain on marketable securities, net of taxes, increased
PEC's comprehensive income by $6.7 million for the first quarter of 1999
compared with $26,000 for the corresponding 1998 period.
Page 9 of 23 pages
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, PEC'S liquid assets (consisting of cash and money
market funds) totaled approximately $26.4 million.
For the three months ended March 31, 1999, PEC received interest and cash
dividends totaling $1.9 million (including a $258,000 dividend from an
Affiliated Company, which does not affect PEC's net income for financial
statement purposes), which exceeded PEC's general and administrative and
interest expenses. During the first quarter of 1999, PEC also generated cash
totaling $8.6 million, of which $8.5 million was generated from the repayment by
Cellcom of shareholder loans.
During the first quarter of 1999, PEC Israel Finance Corporation Ltd.
("PECFC"), a wholly owned subsidiary of PEC, borrowed $24.0 million from a bank
to finance the purchase of a 0.63% ownership interest in United Pan-Europe
Communication N.V., a cable television company ("UPC") whose shares are publicly
traded on the NASDAQ National Market System under the trading symbol "UPCOY".
This loan is unsecured, bears interest at a rate of 5.75% per annum, is
guaranteed by PEC and matures on May 18, 1999. The bank in its discretion may
request PECFC to provide security for the loan. PECFC and the bank have agreed
to extend the maturity of the loan for an additional three month term at the
same interest rate.
During the first quarter of 1999, PEC also purchased securities of several
existing Affiliated Companies and other corporations for approximately $29.2
million. The securities purchased and their purchase price consist primarily of
a 0.63% ownership interest in UPC - $24.3 million; a 5.6% ownership interest in
CosmoCom, Inc. (an Internet call center software company)-$1.0 million; $1.0
million loan to an affiliate to enable such company to purchase a 5.6% ownership
interest in CosmoCom, Inc.; a 1.5% ownership interest in Klil - $658,000; a 2.9%
ownership interest in Combact Diagnostic Systems Ltd. - $635,000; a 0.2 %
ownership interest in Property & Building - $601,000; and additional shareholder
contributions to Mondex - $581,000. Discount Investment purchased the same
percentage ownership interests in UPC, CosmoCom, Inc. and Mondex on the same
terms as PEC and purchased on the same terms as PEC such number of additional
shares of Klil and Property & Building as was needed to maintain the same
proportional ownership interest in such companies relative to PEC.
Page 10 of 23 pages
<PAGE>
In April 1999, PEC purchased an additional 0.44% ownership interest in
Elron for $2.1 million and purchased a 25% ownership interest in TeamWorks
Technology Ltd., a development stage multimedia software company, for $1.0
million.
Page 11 of 23 pages
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On May 3, 1999, Mr. Norman Frank, allegedly a shareholder of PEC,
instituted a purported class action in the Superior Court in Cumberland County,
State of Maine against PEC, PEC Acquisition Corporation ("PEC Acquisition") and
the directors of PEC. In his complaint, the plaintiff alleges that the $30 cash
consideration to be paid to PEC's public shareholders for each of their shares
of PEC common stock in the proposed merger of PEC Acquisition, a wholly owned
subsidiary of PEC's parent corporation, Discount Investment Corporation Ltd.,
into PEC is unfair and grossly inadequate. The plaintiff asserts that in
approving the proposed merger, the defendant directors of PEC breached their
fiduciary duties and engaged in improper, unfair dealing and wrongful and
coercive conduct without regard to their alleged conflicts of interest.
The plaintiff seeks, among other things, to enjoin the proposed
merger and to be paid unspecified damages and attorneys fees. To date, no motion
to enjoin the proposed merger has been made.
The plaintiff's allegations of the defendants' wrongdoing and the
relief he seeks are substantially similar to the allegations made and the relief
sought in the purported class action filed on December 11, 1998 by Crandon
Capital Partners and Kenneth Steiner in the Supreme Court of New York State,
County of New York, which is described in Item 3 of Part I of PEC's Annual
Report on Form 10-K for the year ended December 31, 1998.
PEC believes that the allegations in Mr. Frank's complaint are
without merit and PEC intends to contest the action vigorously. To date, none of
the defendants have been required to answer, move or otherwise respond to the
complaint and no discovery has been taken.
Page 12 of 23 pages
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
Exhibit 10(i) Application for Foreign Currency Loan (Floating
Interest) dated May 11, 1999 between The First
International Bank of Israel Ltd. and PEC Israel Finance
Corporation Ltd., which begins on page 15 of this
report.
Exhibit 27 Financial Data Schedule, which is page 23 of this
report.
Page 13 of 23 pages
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PEC ISRAEL ECONOMIC CORPORATION
(Registrant)
/s/ FRANK J. KLEIN
--------------------------------
Frank J. Klein
President
/s/ WILLIAM GOLD
--------------------------------
William Gold
Treasurer, Principal Financial
Officer and Principal Accounting
Officer
Date: May 17, 1999
Page 14 of 23 pages
Exhibit 10(i)
The First International Bank of Israel Ltd. May 11, 1999
Tel-Aviv Main Branch
Dear Sirs,
Whereas on February 17, 1999 we signed a Request for a loan in foreign currency
(hereinafter: "loan application") which is attached hereto and forms an integral
part hereof;
And whereas in the loan application we requested you to grant us a loan in the
amount of U.S. $24,000 000 (Twenty four million) due date May 17, 1999 ("loan")
and you granted the loan to us;
And whereas the due date of the loan will expire on May 18, 1999;
We accordingly request you to extend the validity of the loan for a period of 3
months up to the new expiry date on August 18, 1999.
All other terms and conditions of the loan as stipulated in the loan
application, remain unchanged.
Yours faithfully,
PEC Israel Finance Corporation Ltd.
[Borrower's signature]
-----------------------------------
By: s/JON BOOCK s/MICHEL DAHAN
-----------------------------------
Title:
-----------------------------------
We, the undersigned, as signatories on a Special Guarantee as stipulated in the
loan application, hereby confirm that the expiry date of the a/m loan has been
extended with our knowledge and consent and that our guarantee of the
obligations of PEC Israel Finance Corporation Ltd. towards you under the loan
remains in full force and effect.
PEC Israel Economic Corporation
Guarantor's signature: By: Frank J. Klein, President
-----------------------------------
Date: May 11, 1999
-----------------------------------
Page 15 of 23 pages
<PAGE>
THE FIRST INTERNATIONAL BANK OF ISRAEL LTD. A SAFRA BANK
APPLICATION FOR FOREIGN CURRENCY LOAN [FLOATING INTEREST]
The First International Bank Customer's name: PEC Israel Finance
of Israel Ltd. Tel Aviv Main Corporation Ltd.
Branch Account No: 467057
Date: May 11, 1999
Date of disbursement of loan: May 18, 1999
Dear Sirs:
Within the scope of the General Debit Agreement signed between us
(hereinafter the "debit agreement") and subject to our obligations towards you
therein and under any other document signed an/or to be signed by us, we request
you to grant to us a foreign currency loan (hereinafter - "the loan") on the
terms set forth below:
1. LOAN CURRENCY AND AMOUNT
The loan will be in U.S. Dollars (hereinafter - "the loan currency") in
the amount of $24,000,000.
2. REPAYMENT OF PRINCIPAL
The principal amount of the loan will be repaid in the loan currency:
|_| by _____ monthly/quarterly/semi-annual consecutive and equal
installments_of ________ each on the ____ day of the month commencing on
_____________.
|_| by _____ consecutive and equal installments of _________ each on the last
day of March, June, September and December in each year commencing on
_______.
|X| in one bullet payment on August 18, 1999.
|_| by installments in amounts and on dates as follows:
the sum of _____________ on _______________.
the sum of _____________ on _______________.
the sum of _____________ on _______________.
the sum of _____________ on _______________.
the sum of _____________ on _______________.
3. LOAN INTEREST
a. Interest payment dates
Interest on the loan will be paid in the loan currency on the
following dates:
|X| on the principal payment dates specified in clause 2 above.
|_| on the last day of each calendar month commencing on ________ and a
final payment on the date of payment of the final installment of
loan principal.
|_| on the last day of March, June, September and December in each year
commencing on _____, and a final payment on the date of payment of
the final installment of loan principal.
|_| monthly/quarterly/semi-annually on the _____ of each month
commencing on the _____ and a final payment on the date of payment
of the final installment of loan principal.
Page 16 of 23 pages
<PAGE>
b. Interest periods
Interest on the outstanding principal amount of the loan will be
computed by you in relation to interest periods.
The first period will run from the date of disbursement of the loan
up to the first interest payment date stipulated in sub-para. a)
above or the deferred date pursuant to para. 4 below (exclusive of
such date). Subsequent interest periods will run from an interest
payment date (inclusive of such date) to the next following interest
payment date stipulated in sub-para. a) above or the deferred date
pursuant to para. 4 below (exclusive of such date).
c. Rate of interest and manner of determination
The principal amount of the loan outstanding from time to time shall
carry daily interest from the date of disbursement of the loan up to
the principal payment date(s), calculated according to the actual
number of days elapsed based on a year of 360 days, at the Foreign
Currency Base Rate (as defined below) determined from time to time
by the Bank for the first day of each interest period, plus 0.75%
p.a. "Foreign Currency Base Rate" herein shall mean the interest
rate determined by the bank from time to time, based on interest
rates prevailing in international currency markets, for loans in the
loan currency and for a period of 1, 2, 3, 6 or 12 months (each such
period being hereinafter referred to as a "fixed period") according
to the interest period stipulated in sub-para. b) above PROVIDED
HOWEVER that:
1. in a loan where interest is payable in a lump sum concurrently
with the principal amount and the period of the loan does not
coincide with any fixed period, the Foreign Currency Base Rate
for the loan will be the Foreign Currency Base Rate determined
by the bank for the first fixed period which is immediately
longer than the period of the loan;
2. in a loan where interest is payable by installments and the
first and/or the last interest period(s) is/are shorter than
the intervening interest period(s), the Foreign Currency Base
Rate for the first and/or the last interest periods (as the
case may be) will be the Foreign Currency Base Rate determined
by the bank for a fixed period coinciding with the intervening
interest period(s).
The Foreign Currency Base Rate for the first interest period is 5.0% p.a.
and the full interest rate for the first period is 5.75% p.a. At the end
of each interest period, the bank will determine the Foreign Currency Base
Rate for the following interest period and notice of the full interest
rate for such period will be sent to us.
4. DEFERRED PAYMENT
In this paragraph "business day" means a day on which transactions
in the loan currency are carried out in your bank.
Page 17 of 23 pages
<PAGE>
If any date for payment of principal and/or interest and/or
commission shall fall on a day which is not a business day in the bank,
the date for effecting such payment shall be deferred to the next
following business day and interest up to such date will be calculated
accordingly.
5. INTENTIONALLY DELETED
6. EFFECTIVE COST
The effective cost of the loan is ____%.
7. TAXES DUTIES AND OTHER CHARGES
a. Without derogating from our aforementioned obligations, we undertake
to pay to you any amount demanded by you to pay any tax, duty or
fees that you have been and/or may be obliged to pay and/or which we
have been obliged and/or may be obliged to pay in connection with
the loan as well as in the event that the bank may demand immediate
repayment of the loan for any reason before the scheduled maturity
date(s).
b. All amounts due from us under the loan will be paid to you by us in
full without deduction, set-off or withholding whatsoever in respect
of taxes, levies, duties, fees or any other impositions, present or
future (hereinafter "tax") levied on any such amount (hereinafter:
"payment"). Should we be required to deduct or withhold tax at
source from any payment in accordance with the requirements of
applicable law (except Israel Law) and/or any competent authority,
we shall effect such payment increased at the required rate to
ensure that after deduction or withholding as aforesaid, you will
receive on the due date such amount as you would have received had
no such deduction or withholding been made as aforesaid.
8. INCREASED COST
If the result of any law or regulation or change in the
interpretation or application thereof after the date hereof or compliance
by you with the requirements or directives of the Bank of Israel or other
competent authority (including, but without limiting, those relating to
liquidity or reserve requirements) is that the cost to your bank of
making, funding or maintaining the loan or any part thereof is increased
compared to the cost on the date of disbursement; then and in each such
case:
a. you shall notify us in writing of such event and of the rate
of increase (hereinafter "notice of increase").
b. we shall pay such additional amount as you shall determine
will compensate you for such increased cost and/or dilution of
yield.
c. we shall be entitled to prepay the outstanding amount of the
loan together with all interest accrued thereon subject as
stated below:
Page 18 of 23 pages
<PAGE>
1. prepayment shall take place on a principal payment date as
stated in para. 2 above provided that such day is a business
day as defined in para. 4 above. Should such day not be a
business day we may effect payment on the next following
business day.
2. we shall give you not less than thirty days' prior written
notice of the prepayment. Such notice shall be irrevocable and
may not be changed.
3. we shall pay you, in respect of any amount of principal
prepaid as aforesaid, a prepayment commission (if any) payable
on the date of prepayment.
4. we shall pay you, in respect of the period between the date of
giving a notice of increase and actual repayment, the
additional amount referred to in sub-para.(b) above.
9. LOAN CONVENTION
a. You may at any time at your discretion convert the unpaid balance of
the loan or any part thereof into a shekel loan linked to the loan
currency and you may reconvert the same or any part thereof and
repeat such conversions, each conversion as aforesaid being referred
to hereinafter as a "conversion".
b. A conversion will be effected by making a new loan available, in
shekels or the loan currency as the case may be, in the amount that
the bank wishes to convert out of the existing loan and the proceeds
of the new loan will be used to redeem all or part of the existing
loan.
c. For so long as a loan is maintained in shekels, the principal amount
thereof and interest thereon shall be linked to the middle rate (as
defined in para. 5 above) of the loan currency as published by you
from time to time.
d. For the avoidance of doubt, we note that no change shall take effect
by reason of any conversion, in the amount of principle, interest or
commission payable by us to you in the loan currency had such
conversion not taken place.
e. Save as aforesaid, the terms and conditions of the loan as specified
herein shall remain unchanged.
10. PREPAYMENT
We shall be entitled to prepay all or any part of the outstanding
principal amount of the loan or interest thereon or any part thereof
before the payment date(s) stipulated above provided we obtain your prior
written consent thereto. You may attach such conditions to your giving
consent as you shall deem fit.
11. EURO
a. We acknowledge that the occurrence or non-occurrence of an event
connected to the Economic and Monetary Union of the European
Community (hereinafter: the "Union") shall not of
Page 19 of 23 pages
<PAGE>
itself cause the cancellation of (by way of frustration or
otherwise) or give a right to cancel the loan or to change any of
its terms save as stated in para.b) below.
b. If the loan currency is a national currency which, according to
decisions taken or to be taken within the scope of the Union will be
cancelled and replaced by a common European currency (hereinafter:
"Euro" even if such currency will be given another name), the
following provisions shall apply:
1. In the transition period between 1st January 1999 and 31st
December 2001 or such other expiry date as shall be
determined, we may instruct you on any interest payment date
stipulated in para. 3a) above to convert the outstanding
account of the loan to Euro provided we give you at least 15
days prior written notice of such intention.
2. If we do not instruct you as aforesaid, you shall convert the
outstanding balance of the loan into Euro on the date of
expiry of the transition period or, if such date does not fall
on an interest payment date hereunder, on the immediately
preceding interest payment date stipulated in para. 3a) above.
3. Conversion of the loan into Euro as aforesaid shall be
effected in accordance with the standard procedure in force in
the bank and without charge.
4. Save for the change of the loan currency to Euro, no change in
the terms of the loan shall occur as a result of the
conversion referred to in sub-paras. 1) and 2) above and the
provisions of this application shall continue to apply as
prescribed herein.
12. GOVERNING LAW AND JURISDICTION
We hereby irrevocably agree and undertake as follows:
a. This application and all matters relating thereto shall be governed
by and construed in accordance with the laws of the State of Israel.
b.
1. The competent courts in Israel as stated in sub-para. 2) below
shall have sole jurisdiction to hear any dispute deriving from
this application.
2 The sole place of jurisdiction for the purposes hereof shall
rest with the competent court in Jerusalem, Tel Aviv-Jaffa,
Haifa, Beersheva or Nazereth, whichever is closer to the
location of the Bank's branch at which the account mentioned
above is maintained.
c. We hereby waive the raising of any plea of objection in respect of
the jurisdiction as provided in sub-clause (b) above in any claim
proceeding or dispute deriving herefrom or in connection with this
application, and we shall not plead that the court as aforesaid is
not the convenient or appropriate forum.
d. Our consent to jurisdiction as provided in sub-clause (b) above
shall not impair your right to take legal proceedings against us
Page 20 of 23 pages
<PAGE>
in any other competent court in Israel or abroad, and the taking of
legal proceedings in a particular court shall not prevent you from
taking legal proceedings in another court, whether simultaneously or
otherwise.
e. We hereby give our general consent that in any claim or legal
proceeding filed in the court or before another judicial authority
in connection with this application, any relief or remedy may be
given and any proceeding shall be taken in connection with a claim
as aforesaid, including, and without derogating from the generality
of the foregoing, proceedings for the execution, enforcement and
realisation of any assets or property (unconnected to the actual use
or intended use of the said property or assets), and we also agree
to any order or judgment given in any claim and proceeding as
aforesaid.
f. Without derogating from any other legal provision regarding the
service of process, we hereby consent that any process or claim
filed as above shall be served on us at the address furnished to you
by us from time to time as the address for the dispatch of mail.
13. INTENTIONALLY DELETED
14. IRREVOCABLE INSTRUCTIONS
We hereby give you irrevocable instructions to debit our account indicated
below with the amounts in the loan currency for payments of principal,
interest and commission (hereinafter: "amounts due") or such amount in NIS
as shall be required to purchase the loan currency amount equivalent to
the amounts due, as the case may be, on the payment dates stipulated above
on the conversion dates, on the deferred dates or on payment dates
determined by you if we shall be obliged to make immediate repayment of
the loan under the Debit Agreement as the case may be (hereinafter - the
"agreed repayment dates"), and we undertake to pay any amount debited to
our account as aforesaid on the due date.
|_| Account of the type _____ in the loan currency and in the absence of
sufficient balance to cover the amounts due-a debitory account for
an indeterminate period in the loan currency or, in your discretion,
our NIS current account.
|_| Our NIS current account.
We acknowledge and warrant that all sums debited to our account as
aforesaid and not paid when due shall, in the absence of a credit balance
or agreed overdraft, carry default interest at an agreed rate or, in the
absence of agreement, at the highest rate prevailing in your bank on
overdue debit balances in foreign currency or local currency as the case
may be.
15. EXCHANGE RATE
For the purpose of carrying out this agreement, every sale of loan
currency shall be calculated at the lowest rate for transfers and drafts
published by you on the date of sale and every purchase shall be
Page 21 of 23 pages
<PAGE>
calculated at the highest rate for transfers and drafts published by you
on the data of purchase unless a different rate is agreed between us
further to a request to buy or sell currency, as the case may be, served
by us on you not later than 11:00 a.m. on the date of purchase or sale as
aforesaid.
16. APPLICABILITY OF DOCUMENTS
The provisions of the debit agreement and account-opening documents
(hereinafter "documents") shall also apply to our obligations hereunder
provided that in case of conflict between the provisions of this
instrument and the documents, the provisions of this instrument shall
prevail.
17. INTERPRETATION
In this instrument the plural shall include the singular and vice-versa.
PEC ISRAEL FINANCE CORPORATION LTD.
s/JON BOOCK s/MICHEL DAHAN
--------------------------------------
Signature of applicants(s)
Page 22 of 23 pages
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet as of March 31, 1999 and the consolidated statement
of income for the three months ended March 31, 1999 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 26,383
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 523,449
<CURRENT-LIABILITIES> 0
<BONDS> 44,223
0
0
<COMMON> 31,952
<OTHER-SE> 397,097
<TOTAL-LIABILITY-AND-EQUITY> 523,449
<SALES> 0
<TOTAL-REVENUES> 20,854
<CGS> 0
<TOTAL-COSTS> 4,108
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 459
<INCOME-PRETAX> 16,287
<INCOME-TAX> 4,244
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,043
<EPS-PRIMARY> 0.66
<EPS-DILUTED> 0.64
</TABLE>
