<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
PEC ISRAEL ECONOMIC CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, $1.00 Par Value
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(2) Aggregate number of securities to which transaction applies:
3,424,396
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
$30 per share (proposed cash payment)
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(4) Proposed maximum aggregate value of transaction:
$102,731,880
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(5) Total fee paid:
$20,546.38
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE>
LOGO
PEC ISRAEL ECONOMIC CORPORATION
511 FIFTH AVENUE
NEW YORK, NEW YORK 10017
, 1999
Dear Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders of
PEC Israel Economic Corporation (the "Company") to be held at 511 Fifth Avenue,
17(th) Floor, New York, New York, on February 25, 1999, at 10:00 a.m., local
time (the "Special Meeting").
At the Special Meeting you will be asked to consider and vote upon a
proposal to approve a merger agreement by and among the Company, Discount
Investment Corporation Ltd., an Israeli corporation ("DIC"), and PEC Acquisition
Corporation ("Merger Sub"), a wholly-owned subsidiary of DIC. Under the terms of
the merger agreement, Merger Sub will be merged with and into the Company (the
"Merger") and the Company will become a wholly-owned subsidiary of DIC. In the
Merger, each outstanding common share of the Company not owned by DIC (the
"Public Shares," and the holders thereof, the "Public Shareholders") or by
shareholders who perfect their appraisal rights in accordance with the Maine
Business Corporation Act, will be converted into the right to receive $30 per
share in cash, without interest. Immediately following the Merger, the entire
equity interest in the Company will then be owned by DIC.
I have enclosed with this letter a Notice of Special Meeting, Proxy
Statement, proxy card and return envelope.
THE COMPANY'S BOARD OF DIRECTORS (THE "BOARD OF DIRECTORS"), BASED UPON THE
UNANIMOUS RECOMMENDATION OF A SPECIAL COMMITTEE OF INDEPENDENT DIRECTORS (THE
"SPECIAL COMMITTEE"), HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, AND
RECOMMENDS THAT YOU VOTE IN FAVOR OF APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT.
In arriving at its recommendation, our Board of Directors gave careful
consideration to a number of factors described in the enclosed Proxy Statement,
including, among other things, the unanimous recommendation of the Special
Committee and the opinion of Merrill Lynch International ("Merrill Lynch"), the
financial advisor to the Special Committee, that the $30 in cash per Public
Share to be received by the Public Shareholders in the Merger is fair from a
financial point of view to the Public Shareholders. The full text of such
opinion, dated December 16, 1998, is attached as Annex C to the Proxy Statement,
and the Public Shareholders are urged to read it in its entirety.
The affirmative vote of at least a majority of all of the outstanding common
shares of the Company (the "Shares") is required to approve the Merger. DIC,
which owns 81.35% of the outstanding Shares, has agreed to vote its Shares in
favor of the Merger. Accordingly, approval of the Merger is assured regardless
of the vote of the Public Shareholders.
Whether or not you plan to attend the Special Meeting, please complete, sign
and date the accompanying proxy card and return it in the enclosed prepaid
envelope as soon as possible. If you attend the Special Meeting, you may vote
your Shares in person, even if you have previously submitted a proxy card to us.
Sincerely,
Frank J. Klein
PRESIDENT
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION
511 FIFTH AVENUE
NEW YORK, NEW YORK 10017
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 25, 1999
To the Shareholders of PEC Israel Economic Corporation:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of PEC Israel
Economic Corporation (the "Company") will be held at 511 Fifth Avenue, 17(th)
Floor, New York, New York, on February 25, 1999, at 10:00 a.m., local time (the
"Special Meeting"), for the following purposes:
1. To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger, dated as of December 15, 1998 (the "Merger
Agreement"), by and among the Company, Discount Investment Corporation Ltd.,
an Israeli corporation ("DIC"), and PEC Acquisition Corporation ("Merger
Sub"), a Maine corporation and a wholly-owned subsidiary of DIC. Pursuant to
the terms of the Merger Agreement, (a) Merger Sub will be merged with and
into the Company (the "Merger") with the Company as the surviving
corporation in the Merger, and (b) each outstanding common share, par value
$1.00 per share, of the Company (the "Shares"), except those shares owned by
DIC and by shareholders who perfect their appraisal rights in accordance
with the Maine Business Corporation Act (the "MBCA"), will be converted into
the right to receive $30 in cash, without interest, upon consummation of the
Merger, all as more fully described in the accompanying Proxy Statement.
Immediately following the Merger, DIC will own the entire equity interest in
the Company. A copy of the Merger Agreement is included as Annex A to the
accompanying Proxy Statement.
2. To transact such other business as may be properly brought before
the Special Meeting or any adjournments or postponements thereof.
Only holders of Shares of record at the close of business on ,
1999 are entitled to notice of and to vote at the Special Meeting. Each Share
outstanding on such date is entitled to one vote at the Special Meeting. A list
of shareholders entitled to notice of and to vote at the Special Meeting will be
available for inspection during ordinary business hours at the principal place
of business of the Company, 511 Fifth Avenue, 10(th) Floor, New York, New York,
for the 10-day period prior to the Special Meeting.
Pursuant to the MBCA, the affirmative vote of at least a majority of all of
the outstanding Shares is required to approve and adopt the Merger Agreement.
DIC, which beneficially owns approximately 81.35% of the outstanding Shares, has
agreed to vote its Shares in favor of the approval and adoption of the Merger
Agreement. Accordingly, approval and adoption of the Merger Agreement is assured
regardless of the vote of any other shareholder of the Company.
If the Merger is consummated, the shareholders of the Company who dissent
from the proposed Merger and comply with the requirements of Section 909 of the
MBCA will have the right to receive payment in cash of the fair value of their
Shares, as determined by a court pursuant to the MBCA. See "SPECIAL
FACTORS--Rights of Dissenting Shareholders" in the accompanying Proxy Statement
and Annex B thereto for a statement of the rights of dissenting shareholders and
a description of the procedures required to be followed by dissenting
shareholders to obtain such fair value of their Shares. Such fair value may be
equal to, greater than, or less than the $30 per Share received in the Merger.
Whether or not you plan to attend the Special Meeting, please complete,
sign, date and return the enclosed proxy card in the enclosed prepaid envelope
without delay. Any shareholder present at the Special Meeting may vote in person
on each matter brought before the Special Meeting and any proxy given by a
shareholder may be revoked at any time before it is exercised.
<PAGE>
The Company's board of directors and a special committee of independent
directors have unanimously approved the Merger Agreement and recommend that you
vote for the approval and adoption of the Merger Agreement.
By Order of the Board of Directors,
James I. Edelson
EXECUTIVE VICE PRESIDENT AND SECRETARY
New York, New York
, 1999
PLEASE DO NOT SEND ANY CERTIFICATES FOR YOUR SHARES AT THIS TIME.
<PAGE>
[LOGO]
PRELIMINARY
PROXY STATEMENT
PEC ISRAEL ECONOMIC CORPORATION
511 FIFTH AVENUE
NEW YORK, NEW YORK 10017
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 25, 1999
THIS PRELIMINARY PROXY STATEMENT ASSUMES THAT THE SHARES OF THE COMPANY HELD
BY IDB DEVELOPMENT AND THE SHARES OF MERGER SUB HAVE BEEN TRANSFERRED TO DIC, AS
HEREINAFTER DESCRIBED. SUCH TRANSACTION IS EXPECTED TO TAKE PLACE ON JANUARY 7,
1999.
This Proxy Statement is being furnished to the shareholders of PEC Israel
Economic Corporation, a Maine corporation (the "Company"), in connection with
the solicitation of proxies by the Board of Directors of the Company (the "Board
of Directors" or the "Company's Board") from holders of outstanding shares of
common stock, par value $1.00 per share, of the Company (the "Shares"), for use
at a Special Meeting of Shareholders of the Company to be held on February 25,
1999 at 10:00 a.m., local time, at 511 Fifth Avenue, 17(th) Floor, New York, New
York 10017, and at any adjournments or postponements thereof (the "Special
Meeting"). This Proxy Statement and the related proxy card are first being
mailed to shareholders on or about , 1999.
At the Special Meeting, holders of the Shares on , 1999, the
record date for shareholders entitled to notice of and to vote at the Special
Meeting, will consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger, dated as of December 15, 1998 (the "Merger
Agreement"), pursuant to which PEC Acquisition Corporation ("Merger Sub"), a
Maine corporation and a wholly-owned subsidiary of Discount Investment
Corporation Ltd., an Israeli corporation ("DIC"), will be merged with and into
the Company (the "Merger") at the effective time of the Merger (the "Effective
Time"), and each Share that is outstanding at the Effective Time owned by
shareholders other than DIC or Shares in respect of which appraisal rights have
been perfected in accordance with the Maine Business Corporation Act (the
"MBCA"), will be converted into the right to receive $30 in cash, without
interest (the "Merger Consideration"). As a result of the Merger, the entire
equity interest in the Company, as the surviving corporation in the Merger, then
will be owned by DIC, and current shareholders of the Company (other than DIC)
will no longer have any equity interest in the Company. The original proposal
for the Merger was made by IDB Development Corporation Ltd. ("IDB Development"),
the Company's then immediate parent and the parent of DIC. On January 7, 1999,
IDB Development, the original party to the Merger Agreement, assigned to DIC all
of its Shares and all of its rights and obligations under the Merger Agreement,
and DIC assumed all such obligations. The Shares owned by shareholders of the
Company other than DIC are herein referred to as the "Public Shares" and the
holders of the Public Shares are herein referred to as the "Public
Shareholders." A conformed copy of the Merger Agreement is included in this
Proxy Statement as Annex A.
The Board of Directors has fixed the close of business on , 1999
as the record date ("Record Date") for determining holders of Shares who will be
entitled to notice of and to vote at the Special Meeting. Only the holders of
record of Shares on the Record Date will be entitled to vote at the Special
Meeting.
Pursuant to the MBCA, the affirmative vote of holders of at least a majority
of all of the outstanding Shares is required to approve and adopt the Merger
Agreement. DIC, which owns 81.35%
<PAGE>
of the outstanding Shares, has agreed to vote such Shares in favor of the
approval and adoption of the Merger Agreement. Accordingly, approval and
adoption of the Merger Agreement is assured regardless of the vote of any other
shareholder of the Company.
On , 1999, the last full trading date before the mailing of this
Proxy Statement, the closing sales price of the Shares as reported on the New
York Stock Exchange ("NYSE") was $ per share. On September 4, 1998, the
last full trading day prior to the public announcement of IDB Development's
proposal to take the Company private, the closing sales price of the Shares as
reported on the NYSE was $22 13/16.
Instructions with regard to the surrender of share certificates, together
with a letter of transmittal to be used for this purpose, will be forwarded to
the Public Shareholders as promptly as practicable following the Effective Time.
Public Shareholders should surrender share certificates only after receiving a
letter of transmittal. PUBLIC SHAREHOLDERS SHOULD NOT SEND ANY STOCK
CERTIFICATES AT THIS TIME.
The Public Shareholders have the right to dissent from the Merger and to be
paid the "fair value" of their Shares, as determined by a court pursuant to the
MBCA, by following the procedures prescribed in the MBCA. SHAREHOLDERS WHO FAIL
TO COMPLY STRICTLY WITH THE APPLICABLE PROCEDURES WILL FORFEIT THEIR DISSENTERS'
RIGHTS IN CONNECTION WITH THE MERGER. See Annex B and "SPECIAL FACTORS--Rights
of Dissenting Shareholders". The fair value of a Share, as determined pursuant
to the MBCA, may be equal to, greater than, or less than the Merger
Consideration.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION"), NOR HAS THE COMMISSION
PASSED UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE
ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
No persons have been authorized to give any information or to make any
representations other than those contained in this Proxy Statement in connection
with the solicitation of proxies made hereby, and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or any other person.
The Board of Directors knows of no additional matters that will be presented
for consideration at the Special Meeting. Execution of the accompanying proxy,
however, confers on the designated proxies discretionary authority to vote the
Shares covered thereby in accordance with their best judgment on such other
matters, if any, that properly may come before, and all matters incident to the
conduct of, the Special Meeting or any adjournments or postponements thereof.
The date of this Proxy Statement is , 1999, and it is first
being mailed to holders of Shares on , 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER..................................................................... i
SUMMARY.................................................................................................... iv
Parties to the Merger Agreement.......................................................................... iv
Background of the Merger................................................................................. iv
Purpose and Structure of the Merger; Reasons for the Merger.............................................. iv
Effective Time for the Merger............................................................................ iv
Certain Effects of the Merger; Plans for the Company after the Merger.................................... v
Appraisal Rights......................................................................................... v
The Fairness Opinion of the Financial Advisor............................................................ v
Conditions to the Merger................................................................................. v
Termination of the Merger Agreement...................................................................... v
Amending or Waiving Terms of the Merger Agreement........................................................ vi
Financing of the Merger.................................................................................. vi
Accounting Treatment..................................................................................... vi
Certain Federal Income Tax Consequences.................................................................. vi
Litigation Related to the Merger......................................................................... vi
Market Prices and Dividends.............................................................................. viii
Selected Summary Financial Information Concerning the Company............................................ ix
INTRODUCTION............................................................................................... 1
General.................................................................................................. 1
Voting at the Special Meeting and Revocation of Proxies.................................................. 1
SPECIAL FACTORS............................................................................................ 2
Background of the Merger................................................................................. 2
Exchange of Company Shares between IDB Development and DIC; Assignment of the Merger Agreement........... 5
Recommendation of the Special Committee and the Company Board............................................ 5
Fairness of the Merger................................................................................... 6
Opinion of Merrill Lynch................................................................................. 8
Interests of Certain Persons in the Merger............................................................... 12
Position of DIC and IDB Development Regarding Fairness of the Merger..................................... 13
Payment for Shares....................................................................................... 14
Purpose and Effects of the Merger; Reasons for the Merger................................................ 15
Plans for the Company after the Merger................................................................... 15
Certain Effects of the Merger............................................................................ 16
Accounting Treatment of the Merger....................................................................... 16
Regulatory Approvals..................................................................................... 16
Certain Shareholder Litigation........................................................................... 16
The Merger Agreement..................................................................................... 17
Certain U.S. Federal Income Tax Consequences of the Merger............................................... 21
Rights of Dissenting Shareholders........................................................................ 23
Fees and Expenses........................................................................................ 25
FINANCING OF THE MERGER.................................................................................... 25
BUSINESS OF THE COMPANY.................................................................................... 25
SELECTED FINANCIAL INFORMATION OF THE COMPANY.............................................................. 27
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
OWNERSHIP OF SHARES........................................................................................ 29
TRANSACTIONS BY CERTAIN PERSONS IN SHARES.................................................................. 30
MANAGEMENT OF THE COMPANY, DIC, IDB DEVELOPMENT, IDB HOLDING, AND MERGER SUB............................... 31
Directors and Executive Officers of the Company.......................................................... 31
Directors and Executive Officers of DIC.................................................................. 33
Directors and Executive Officers of IDB Development...................................................... 35
Directors and Executive Officers of IDB Holding.......................................................... 37
Directors and Executive Officers of Merger Sub........................................................... 38
INFORMATION CONCERNING DIC AND MERGER SUB.................................................................. 39
INDEPENDENT PUBLIC ACCOUNTANTS............................................................................. 40
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................................................ 40
PROXY SOLICITATION......................................................................................... 40
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING.............................................................. 41
ADDITIONAL AVAILABLE INFORMATION........................................................................... 41
OTHER MATTERS.............................................................................................. 41
ANNEX A Agreement and Plan of Merger
ANNEX B Section 909 of the Maine Business Corporation Act
ANNEX C Opinion of Merrill Lynch International
</TABLE>
ii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
<TABLE>
<S> <C>
Q: WHAT WILL HAPPEN IF THE PROPOSED
MERGER IS COMPLETED?
A: The Company will merge with Merger
Sub, a wholly-owned subsidiary of
DIC, with the Company as the
surviving corporation, and the Public
Shareholders who do not exercise
their appraisal rights will receive
$30 in cash in exchange for each of
their Shares. The merger agreement is
described on pages 17 through 21 and
attached as Annex A to this proxy
statement. We encourage you to
carefully read the merger agreement,
as it is the legal document that
governs the merger.
Q: WHY IS THE COMPANY PROPOSING TO MERGE
AT THIS TIME? HOW WILL I BENEFIT?
A: On March 25, 1998, IDB Development
announced that it was considering a
possible restructuring relating to
the Company which might involve the
acquisition of the Public Shares. On
September 8, 1998, the Company
received a proposal from IDB
Development to take the Company
private through a merger of the
Company which contemplated the
acquisition of all Public Shares by a
wholly-owned subsidiary of IDB
Development or, in the event IDB
Development completed the
contemplated transfer to DIC of its
shares of the Company's common stock
prior to consummation of the merger,
by DIC. On January 7, 1999, IDB
Development completed such transfer
of Company shares to DIC and assigned
to DIC all of its rights and obli-
gations in connection with the
merger. The Company's board of
directors, relying in large part upon
the unanimous recommendation of a
special committee of directors who
have no financial interest in IDB
Development, IDB Holding Corporation
Ltd. ("IDB Holding"), the parent of
IDB Development, DIC or their
affiliates, believes that the merger
consideration is fair and in your
best interests. The price of $30 per
Share, which you will receive if the
merger is completed, represents a 32%
premium over the closing price per
share for our common stock on
September 4, 1998, the last trading
day before we announced our receipt
of the proposal from IDB Devel-
opment, and exceeds the highest price
at which the common stock of the
Company has traded on the NYSE for
the four-year period prior to such
date.
Q: DOES THE BOARD OF DIRECTORS RECOMMEND
VOTING IN FAVOR OF THE MERGER?
A: Our board of directors, relying in
large part upon the unanimous
recommendation of the special
committee, has unanimously determined
that the merger consideration is fair
to you and in your best interests and
unanimously recommends that you vote
in favor of the merger.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: If the merger is completed, you will
have the right to receive $30 in cash
for each of your shares.
Q: WHEN DO YOU EXPECT THE MERGER TO BE
COMPLETED?
A: We are working towards completing the
merger as quickly as possible. We
hope to complete the merger by
February 28, 1999.
Q: WILL I OWE ANY FEDERAL INCOME TAX AS
A RESULT OF THE MERGER?
A: Your receipt of cash for your shares
in the merger will be a taxable
transaction for federal income tax
purposes and may also be a taxable
transaction under applicable state,
local, foreign or other tax laws.
Generally, you will recognize gain or
loss for such purposes equal to the
difference between the cash received
in connection with the merger and
your tax basis for your shares. For
federal income tax purposes, this
gain or loss generally will be a
capital gain or loss if you held your
shares as a capital asset.
</TABLE>
(i)
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<TABLE>
<S> <C>
Tax matters are very complicated, and
the tax consequences of the merger to
you will depend on the facts of your
own situation. You should consult
your tax advisor for a full
understanding of the tax consequences
of the merger to you.
Q: WHEN AND WHERE IS THE SPECIAL
SHAREHOLDER MEETING?
A: The special meeting will be held on
February 25, 1999 at 511 Fifth
Avenue, 17(th) Floor, New York, New
York 10017 at 10:00 a.m. local time.
Q: WHO CAN VOTE ON THE MERGER?
A: Only holders of record of the
Company's common stock at the close
of business on , 1999,
the record date for the special
meeting, may vote on the merger.
Q: WHAT VOTE IS REQUIRED?
A: The merger must be approved by the
affirmative vote of at least a
majority of the outstanding shares of
common stock. As of the record date,
DIC owned 81.35% of the outstanding
shares of common stock. DIC has
agreed to vote all of its shares in
favor of the merger. Therefore,
approval of the merger is assured
without the affirmative vote of any
other shareholders.
Q: WHAT DO I NEED TO DO NOW?
A: After you have carefully reviewed
this proxy statement, please indicate
how you want to vote on your proxy
card and sign and mail it in the
enclosed return envelope as soon as
possible, in order for your shares to
be represented at the special
meeting. If you sign and send in the
proxy card and do not indicate how
you want to vote, your proxy will be
voted for the merger. If you do not
vote by either sending in your proxy
card or voting in person at the
special meeting, that will have the
same effect as a vote against the
merger.
Q: SHOULD I SEND IN MY STOCK CER-
TIFICATES NOW?
A: No. After the merger is completed, we
will send you written instructions
for sending in your stock
certificates and receiving the cash
payment for your shares.
Q: IF MY SHARES ARE HELD IN "STREET
NAME" BY MY BROKER, WILL MY BROKER
VOTE MY SHARES FOR ME?
A: Your broker will vote your shares
only if you provide instructions as
to how to vote your shares. You
should follow the directions provided
by your broker regarding how to
instruct your broker to vote your
shares. Without instructions, your
shares will not be voted by your
broker and the failure to vote will
have the same effect as a vote
against the merger.
Q: CAN I CHANGE MY VOTE AFTER I HAVE
MAILED MY SIGNED PROXY CARD?
A: Yes. You can change your vote at any
time before the vote is taken at the
special meeting. You can do this in
one of three ways. First, you can
send a written notice dated later
than your proxy card stating that you
revoke your current proxy. Second,
you can complete and submit a new
proxy card dated later than your
original proxy card. If you choose
either of these two methods, you must
submit your notice of revocation or
your new proxy card to the General
Counsel and Secretary of our Company
at our executive offices in New York.
We must receive the notice or new
proxy card before the vote is taken
at the special meeting. Third, you
can attend the special meeting and
vote in person. Simply attending the
special meeting, however, will not
revoke your proxy. If you have
instructed a broker to vote your
shares, you must follow the
directions received from your broker
as to how to change your vote.
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
Q: WHAT OTHER MATTERS WILL BE VOTED ON
AT THE SPECIAL MEETING?
A: We do not expect to ask you to vote
on any other matters at the special
meeting.
Q: WHAT ARE MY RIGHTS IF I OBJECT TO THE
MERGER?
A: If you object to the merger and do
not
vote for it, you have the right to
receive the appraisal value for your
shares if you follow the procedures
required by Maine law. Those
procedures are described on pages 23
to 25 of this proxy statement and in
Annex B. If you vote in favor of the
merger, you will not be able to seek
payment for the appraisal value of
your shares under Maine law.
</TABLE>
(iii)
<PAGE>
SUMMARY
WE ARE PROVIDING YOU WITH THE FOLLOWING SUMMARY OF CERTAIN INFORMATION IN
THIS PROXY STATEMENT OR IN THE DOCUMENTS ATTACHED AS ANNEXES. HOWEVER, YOU
SHOULD GIVE CAREFUL CONSIDERATION TO ALL OF THE INFORMATION CONTAINED IN THIS
PROXY STATEMENT (INCLUDING INFORMATION INCORPORATED FROM OTHER DOCUMENTS) AND
THE ANNEXES.
PARTIES TO THE MERGER AGREEMENT
THE COMPANY. Our Company is a Maine corporation primarily engaged in the
organization, acquisition of interests in, financing and participation in the
management of companies predominantly located in or related to Israel, engaged
in various fields of business, including telecommunications and technology,
manufacturing, real estate, retailing, shipping and consumer products. Its
executive offices are located at 511 Fifth Avenue, 10(th) Floor, New York, New
York 10017, and the telephone number is (212) 687-2400.
DIC. DIC is an Israeli corporation which invests and participates in the
initiation, development and direction of a diverse portfolio of business
enterprises, including Israeli companies engaged in telecommunications and
technology, manufacturing, real estate, financing and automobile leasing,
retailing, shipping and consumer products. DIC owns shares of most of the same
Israeli companies in which the Company has holdings and, through a subsidiary,
has an agreement with our Company that DIC and the Company each will offer the
other equal participation in business opportunities that become available to
either of them in Israel. DIC owns 81.35% of the outstanding shares of common
stock of the Company. Its executive offices are located at 14 Beth Hashoeva
Lane, Tel Aviv 61016, Israel, and the telephone number is 972-3-567-2700.
MERGER SUB. Merger Sub, a Maine corporation newly organized in connection
with the Merger, is a wholly-owned subsidiary of DIC. It has not carried on any
activities other than in connection with the Merger and will cease to exist when
the Merger is completed. Its executive offices are located at One Portland
Square, Portland, Maine 04101, and the telephone number is (207) 774-4000.
BACKGROUND OF THE MERGER
For a description of the events leading to the approval of the Merger
Agreement by the Board of Directors of the Company, see "SPECIAL
FACTORS--Background of the Merger".
PURPOSE AND STRUCTURE OF THE MERGER; REASONS FOR THE MERGER
The purpose of the Merger is for DIC to increase its ownership of the Shares
from 81.35% to 100% and to terminate the Company's status as a public company.
In determining to propose the Merger, DIC relied on a number of factors,
including the superseded business purpose of the Company, synergistic savings,
avoidance of costs associated with compliance with United States securities
laws, the Company's inability to raise capital at an acceptable price,
elimination of possible conflicts of interests between the Company and DIC and
its affiliates, and elimination of constraints under the 1940 SEC Order
exempting the Company from the Investment Company Act of 1940. See "SPECIAL
FACTORS--Purpose and Structure of the Merger; Reasons for the Merger".
EFFECTIVE TIME FOR THE MERGER
The Merger shall be consummated at the Effective Time, when the articles of
merger are filed with the Secretary of State of Maine in accordance with the
MBCA. The required filing is expected to be made as soon as practicable after
the approval of the Merger Agreement by the Company's shareholders at the
Special Meeting and the satisfaction or waiver of the other conditions to
consummation of the Merger. See "SPECIAL FACTORS--The Merger Agreement".
(iv)
<PAGE>
CERTAIN EFFECTS OF THE MERGER; PLANS FOR THE COMPANY AFTER THE MERGER
Following the Merger, DIC will own 100% of the Company's capital stock and
will be the sole beneficiary of any future earnings and growth of our Company
and any divestitures, acquisitions and other corporate opportunities. Upon
completion of the Merger, the Public Shareholders will cease to have any
ownership interests in, or rights as shareholders of, our Company. After the
Merger, our Company will be a closely held corporation. There will be no public
market for the common stock of the Company. The registration of the Shares under
the Securities Exchange Act of 1934 (the "Exchange Act") will be terminated, and
our Company will no longer be required to file periodic reports with the
Commission. See "SPECIAL FACTORS--Certain Effects of the Merger".
Following the completion of the Merger, the Company and DIC will undergo a
restructuring program involving the assets of both companies. See "SPECIAL
FACTORS--Plans for the Company after the Merger." You will have no interest in
this restructuring program.
APPRAISAL RIGHTS
Under Maine law, if you do not vote in favor of the Merger and you follow
all of the procedures for demanding your appraisal rights described on pages 23
through 25 and in Annex B, you may receive a cash payment for the "fair value"
of your Shares, as determined by a court pursuant to Maine law, instead of the
amount to be received by the other Public Shareholders pursuant to the Merger
Agreement. If you properly exercise and perfect your appraisal rights, the fair
value of your Shares will be determined by a court and may be more than, the
same as or less than the amount you would have received in the Merger if you had
not exercised your appraisal rights. If you want to exercise your appraisal
rights you are urged to read and follow carefully the required procedures.
Failure to take any of the steps required under Maine law could result in the
loss of your appraisal rights. If you vote in favor of the Merger, you will not
be able to seek payment for the fair value of your Shares under Maine law. See
"SPECIAL FACTORS--Rights of Dissenting Shareholders".
THE FAIRNESS OPINION OF THE FINANCIAL ADVISOR
On December 16, 1998, Merrill Lynch delivered to the Special Committee an
opinion that as of such date, and subject to the assumptions made, matters
considered and limitations on the review undertaken, the proposed cash
consideration to be received by the shareholders of the Company, other than IDB
Development and its affiliates, in the Merger was fair to such shareholders from
a financial point of view. This opinion is included as Annex C to this Proxy
Statement, and we encourage you to read it carefully. See "SPECIAL
FACTORS--Background of the Merger" and "SPECIAL FACTORS--Opinion of Merrill
Lynch".
CONDITIONS TO THE MERGER
The Merger will be completed only if the following conditions are met or
waived:
- the required shareholder approval has been obtained; and
- no law, injunction or order restrains or prohibits the completion of the
Merger.
If these conditions are not satisfied or waived, we expect that our Company
will continue its present business as a public company with its common stock
listed on the NYSE. See "SPECIAL FACTORS--The Merger Agreement".
TERMINATION OF THE MERGER AGREEMENT
The Company (upon approval of the Special Committee), DIC and Merger Sub may
agree to terminate the Merger Agreement at any time. In addition, any party may
terminate the Merger Agreement if the Merger is not completed by December 31,
1999 or if:
- party materially breaches a provision of the Merger Agreement;
- Company's Board (with the consent of the Special Committee) or Special
Committee withdraws, modifies or changes its recommendation of the Merger
Agreement or resolves to do so; or
(v)
<PAGE>
- court or other government body issues a final order or ruling restraining
the Merger. See "SPECIAL FACTORS--The Merger Agreement".
AMENDING OR WAIVING TERMS OF THE MERGER AGREEMENT
AMENDMENT. The parties may amend the Merger Agreement by mutual agreement,
but only with the approval of the Special Committee.
WAIVER. Any party may extend the time for the performance of the
obligations of another party. Also, any party may waive any inaccuracies in the
representations and warranties or noncompliance by another party with any of the
agreements or conditions in the Merger Agreement. Any such extension or waiver
by the Company must be approved by the Special Committee. See "SPECIAL
FACTORS--The Merger Agreement".
FINANCING OF THE MERGER
DIC needs approximately $103 million to complete the Merger. DIC shall
forward Merger Sub $103 million to finance the Merger, which debt will be
assumed by the Company after the Merger. The loan will be unsecured indebtedness
of the Company maturing in one year from the date of the loan. See "FINANCING OF
THE MERGER".
ACCOUNTING TREATMENT
The Merger will be accounted for under the "purchase" method of accounting.
Accordingly, a determination of the fair value of the Company's assets and
liabilities will be made by DIC for accounting purposes only in order to
allocate the purchase price to the assets acquired and the liabilities assumed.
See "SPECIAL FACTORS-- Accounting Treatment of the Merger".
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Your receipt of cash for your Shares in the Merger will be a taxable
transaction to you for federal income tax purposes and may also be a taxable
transaction to you under applicable state, local, foreign or other tax laws.
Generally, you will recognize gain or loss for federal income tax purposes equal
to the difference between the cash received in connection with the Merger and
your adjusted tax basis for the Shares. For federal income tax purposes, this
gain or loss generally will be a capital gain or loss if you held your Shares as
a capital asset.
Tax matters are very complicated, and the tax consequences of the Merger to
you will depend on the facts of your own situation. You should consult your tax
advisor for a full understanding of the tax consequences of the Merger to you.
See "SPECIAL FACTORS-- Certain U.S. Federal Income Tax Consequences of the
Merger".
LITIGATION RELATED TO THE MERGER
As of the date of this Proxy Statement, the Company and DIC are aware of two
lawsuits that have been filed relating to the Merger, one of which was
discontinued after the defendants moved to dismiss it. The Company and its
directors are defendants in the current lawsuit. This lawsuit was filed by two
of the Company's shareholders claiming to represent all shareholders of the
Company.
The allegations of the class action complaint generally assert that the
Merger Consideration is unfair and inadequate and is below the fair or inherent
value of the assets and future prospects of our Company. The complaint also
alleges that the defendants engaged in self-dealing without regard to conflicts
of interest, and that the defendants breached their fiduciary duties in
approving the merger agreement.
The complaint seeks to prohibit, among other things, completion of the
Merger. To date no motion to enjoin any of the proceedings contemplated by the
Merger Agreement has been made. The complaint also seeks unspecified damages,
attorneys' fees and other relief. The Company believes that the allegations
contained in the complaint are without merit and intends to contest the action
vigorously. The Company does not believe that these matters will have any
significant impact on the timing or completion of the Merger; however, there can
be no assurance that a motion to enjoin the transactions contemplated by the
Merger Agreement will not be made and, if made, that it would not be granted.
(vi)
<PAGE>
In April 1998, following IDB Development's March 1998 purchase of 1,774,200
Shares in a privately negotiated purchase and the filing with the Commission of
an amendment to IDB Development's Schedule 13D stating that IDB Development was
considering possible corporate restructuring transactions relating to the
Company which might involve IDB Development's acquisition of the Public Shares,
a purported class action was filed against the Company, certain directors of the
Company, and certain directors of IDB Development and its affiliates. The
complaint alleged, among other things, that the defendants had failed to take
those actions necessary to ensure that the Public Shareholders would receive
maximum value for their Shares if IDB Development sought to acquire the Public
Shares, that the Company and its directors could not be expected to act in the
best interests of the Public Shareholders because of conflicts of interest, that
the defendants had breached their fiduciary and other common law duties to the
Public Shareholders, and that the Public Shareholders would be prevented from
obtaining a fair and adequate price for their Shares. In June 1998, the
plaintiff voluntarily discontinued such action after the defendants moved to
dismiss the suit. See "SPECIAL FACTORS--Certain Shareholder Litigation".
(vii)
<PAGE>
MARKET PRICES AND DIVIDENDS
Our Shares are listed and traded on the NYSE under the symbol "IEC". The
following table sets forth, for the quarters indicated, the high and low prices
per share on the NYSE as reported by the Dow Jones News Service:
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1996:
First Quarter.................................................................................... $24 3/4 $19 1/2
Second Quarter................................................................................... 22 7/8 17 1/2
Third Quarter.................................................................................... 19 15 1/2
Fourth Quarter................................................................................... 18 1/8 14
1997:
First Quarter.................................................................................... $21 1/2 $17
Second Quarter................................................................................... 25 1/8 18
Third Quarter.................................................................................... 24 1/4 18 3/4
Fourth Quarter................................................................................... 22 3/8 18 1/2
1998:
First Quarter.................................................................................... $23 1/8 $19 15/16
Second Quarter................................................................................... 24 1/4 21 11/16
Third Quarter.................................................................................... 26 1/2 22 3/4
Fourth Quarter................................................................................... 29 23 5/8
</TABLE>
On September 4, 1998, the last full trading day prior to our public
announcement of IDB Development's proposal to take our Company private, the
closing price per Share as reported on the NYSE was $22 13/16. On March 24,
1998, the last full trading day before the announcement that IDB Development was
considering a possible restructuring of our Company, the closing price per share
as reported on the NYSE was $21 1/8. On , 1999, the last full
trading day prior to the date of this Proxy Statement, the closing price per
Share as reported on the NYSE was $ .
SELECTED SUMMARY FINANCIAL INFORMATION CONCERNING THE COMPANY
Set forth below is financial information excerpted or derived from the
audited financial statements in the Company's Annual Report on Form 10-K for the
year ended December 31, 1997 (the "Form 10-K") and the unaudited financial
statements in the Company's report on Form 10-Q for the quarter ended September
30, 1998. More comprehensive financial information is included in those
documents, which are incorporated by reference in this Proxy Statement. The
summary financial information is qualified by reference to these reports. You
may obtain copies of those documents, but not the related exhibits, free of
charge by requesting them from the Secretary of the Company. See "ADDITIONAL
INFORMATION".
(viii)
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, FISCAL YEAR ENDED DECEMBER 31,
---------------------- ----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Income from:
Equity in net income of Affiliated
Companies......................... $ 25,695 $ 39,065 $ 48,538 $ 23,438 $ 23,720 $ 25,338 $ 33,542
Total Revenues........................ 37,472 73,115 88,630 44,535 42,065 40,798 60,648
Net Income*........................... 18,370 48,099 54,503 28,213 25,242 32,566 41,970
Net Income per Common Share*
Basic............................... 1.00 2.60 2.95 1.51 1.35 1.73 2.24
Diluted............................. 0.98 2.57 2.92 1.49 1.34 1.72 2.23
Weighted Average Number of Outstanding
Common Shares....................... 18,362 18,508 18,472 18,714 18,759 18,759 18,759
Total Assets.......................... 473,419 464,340 461,104 407,703 392,967 383,691 347,873
Total Liabilities..................... 64,706 44,348 44,979 33,827 35,680 42,223 40,636
Shareholders' Equity.................. 408,713 419,992 416,125 373,876 357,287 341,468 307,237
Common Shareholders' Equity per Common
Share............................... 22.26 22.69 22.66 20.20 19.05 18.20 16.38
Number of Outstanding Common Shares at
the End of Each Period.............. 18,362 18,508 18,362 18,508 18,759 18,759 18,759
</TABLE>
- ------------------------
* Net income for 1993 is after the cumulative effect of a change in accounting
for income taxes of ($1,174,000) or $(.06) per share of Common Stock. Net
income for 1994 is after the cumulative effect of a change in accounting for
marketable securities of $2,473,000 or $.13 per share of Common Stock. Net
income is after loss from discontinued operations of General Engineers
Limited, net of income taxes, of $380,000 for 1995 ($.02 per share),
$104,000 for 1994 ($.01 per share) and $67,000 for 1993 (no cents per
share).
No dividends were paid during the last five years. Pursuant to a loan
agreement, the Company cannot pay dividends that will result in its
consolidated total net assets over consolidated total liabilities (exclusive
of liabilities subordinated in terms of payment to the loan) to fall below
$300,000,000.
(ix)
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(amounts in thousands of dollars)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
-------------------------- SEPTEMBER 30,
1996 1997 1998
------------ ------------ -------------
<S> <C> <C> <C>
Pre-tax income from continuing operations.............................. $ 33,002 $ 76,041 $ 26,313
Less: Undistributed income of Affiliated Companies..................... (41,559) (54,153) (35,509)
Add: Equity in losses of Affiliated Companies.......................... 20,964 6,118 11,331
------------ ------------ -------------
Adjusted Pre-tax income................................................ $ 12,407 $ 28,006 $ 2,135
------------ ------------ -------------
------------ ------------ -------------
Fixed charges:
Interest expense and amortization of deferred financing costs on all
indebtedness (A)................................................... 6 12 939
Interest component of operating leases (B)........................... 0 0 0
------------ ------------ -------------
TOTAL FIXED CHARGES.............................................. 6 12 939
------------ ------------ -------------
EARNINGS BEFORE INCOME TAXES, DISCONTINUED
OPERATIONS AND FIXED CHARGES......................................... 12,413 28,018 3,074
------------ ------------ -------------
------------ ------------ -------------
RATIO OF EARNINGS TO FIXED CHARGES..................................... 2,068.83 2,334.83 3.27
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
- ------------------------
(A) Amount includes interest expense of $6, $12 and $107 for the years ended
December 31, 1996, 1997 and nine months ended September 30, 1998,
respectively, for General Engineers Limited, a wholly-owned subsidiary of
the Company.
(B) The interest component of the Company's operating leases is considered to be
de minimis and accordingly, no such amount has been included in the
computation.
(x)
<PAGE>
INTRODUCTION
GENERAL
This Proxy Statement and the accompanying proxy card are first being mailed
on or about , 1999 to holders of Shares. These materials are being
furnished in connection with the solicitation by the Company's Board of proxies
to be voted at the Special Meeting scheduled to be held on February 25, 1999 and
at any adjournment or postponement thereof.
At the Special Meeting, shareholders will be asked to consider and vote upon
a proposal to approve and adopt the Merger Agreement. A conformed copy of the
Merger Agreement is included with this Proxy Statement as Annex A. Upon the
terms and subject to the conditions of the Merger Agreement, Merger Sub will be
merged with and into the Company, with the Company as the surviving corporation.
As a result of the Merger, the Company will become a direct, wholly-owned
subsidiary of DIC.
On December 15, 1998, the Company entered into the Merger Agreement with DIC
and Merger Sub, pursuant to which the Public Shares, other than those shares
owned by shareholders who perfect their appraisal rights in accordance with the
MBCA ("Dissenting Shareholders"), shall be converted into the right to receive
$30 in cash, without interest. Upon consummation of the Merger, DIC will own the
entire equity interest in the Company.
Under the MBCA, the affirmative vote of at least a majority of all of the
outstanding Shares is required to approve and adopt the Merger Agreement and the
transactions contemplated thereby, including the Merger. DIC owns 14,937,792
Shares (representing approximately 81.35% of the issued and outstanding Shares).
As required by the Merger Agreement, DIC will cause all its Shares to be voted
in favor of the approval and adoption of the Merger Agreement. Approval and
adoption of the Merger Agreement is assured with the vote of DIC without the
affirmative vote of any other shareholder of the Company.
The Company anticipates that the directors and executive officers of the
Company and its affiliates will vote their Shares, which equal an aggregate of
21,900 Shares, in favor of the approval and adoption of the Merger Agreement.
VOTING AT THE SPECIAL MEETING AND REVOCATION OF PROXIES
On the Record Date, 18,362,188 Shares were outstanding and entitled to vote
at the Special Meeting, and there were [2,268] holders of record. Shareholders
are entitled to one vote per Share on each matter to be voted upon. The
presence, in person or by properly executed proxy, of the holders of a majority
of the Shares outstanding is necessary to constitute a quorum at the Special
Meeting. The approval and adoption of the Merger Agreement require the
affirmative vote of holders of at least a majority of the Shares outstanding as
of the Record Date.
All Shares that are represented at the Special Meeting by properly executed
proxies received prior to or at the Special Meeting and not revoked will be
voted at the Special Meeting in accordance with the instructions indicated on
such proxies. If no instructions are indicated, such proxies will be voted FOR
the approval and adoption of the Merger Agreement. Abstentions and broker
non-votes will have the same effect as a vote AGAINST the approval and adoption
of the Merger Agreement. Failure either to return a properly executed proxy card
or to vote in person at the Special Meeting will have the same effect as a vote
AGAINST the approval and adoption of the Merger Agreement.
All Shares represented by a properly executed proxy received prior to or at
the Special Meeting and not revoked will be treated as present at the Special
Meeting for purposes of determining a quorum, without regard to whether the
proxy is marked as casting a vote or abstaining.
You may revoke your proxy at any time prior to its exercise by attending the
Special Meeting and voting in person (although attendance at the Special Meeting
will not in and of itself constitute revocation of a proxy), by giving notice of
revocation of your proxy at the Special Meeting, or by delivering a written
notice of revocation or a duly executed proxy relating to the matters to be
<PAGE>
considered at the Special Meeting and bearing a later date than your proxy card
to the Secretary of the Company at the Company's Executive Offices, 511 Fifth
Avenue, New York, New York 10017. Unless revoked in the manner set forth above,
proxies in the form enclosed will be voted at the Special Meeting in accordance
with your instructions.
SPECIAL FACTORS
BACKGROUND OF THE MERGER
From time to time the management of IDB Development, DIC and the Company
expressed the view in informal meetings and discussions that the Company's
original business purpose, to serve as a United States vehicle to attract
American investors to Jewish industry and business enterprises in what was then
Palestine, had been superseded for a number of years. As a result, those
involved believed that the Company and DIC were duplicating management efforts
and resources, and that the Company was incurring substantial compliance costs
as a public company in the United States. The Company's corporate structure also
resulted in conflicts of interest between the Company and DIC due to the effect
of different laws in Israel and the U.S. on their respective equity holdings. In
addition, the Company's holding company status adversely affected the market
price for the Company's shares, which, in turn, adversely affected the Company's
ability to raise capital at an acceptable price. Accordingly, the management of
IDB Development, DIC and the Company discussed the possibility of a going
private transaction involving the Company and, with their legal and financial
advisors, conducted studies of various tax and other issues relevant to such a
transaction. On October 29, 1997, various officers of IDB Development, DIC and
the Company as well as representatives of Goldman, Sachs & Co. ("Goldman,
Sachs") held a meeting in Israel to discuss such issues. Goldman, Sachs had not
been formally engaged to provide financial advice in connection with such a
transaction but had provided financial advisory services from time to time to
affiliates of IDB Development. On February 26, 1998, an affiliate of Goldman,
Sachs became a 9.49% stockholder in IDB Holding.
At the October 29(th) meeting, the participants discussed various
alternative means of restructuring the Company to minimize the tax and cost
inefficiencies (under United States and Israeli laws) of the Company's existing
corporate structure, but the discussion did not address the fairness of any
transaction to the Public Shareholders. IDB Holding did not engage Goldman,
Sachs for the purpose of considering a possible restructuring of the Company,
and no recommendations were made at the October 29(th) meeting. Although the
individuals at the meeting made no decision to proceed with a going private
transaction, they determined to continue discussions and studies of issues
relevant to such a transaction. By the end of summer of 1998, however,
representatives of Goldman, Sachs had ceased participating in discussions of a
possible restructuring of the Company.
On March 25, 1998, IDB Development acquired 1,744,200 Shares in a privately
negotiated purchase at a price of $25.50 per Share. On such date, IDB
Development amended its Schedule 13D with the Commission with respect to the
Company to report such purchase. Such amendment stated that IDB Development was
considering possible corporate restructuring transactions relating to the
Company which might involve the acquisition by IDB Development of the Public
Shares, but that no determination had been made as to whether any such
transaction would be executed.
In July 1998, representatives of the management of IDB Development, DIC, the
Company and their professional advisors held a meeting in Israel to discuss the
corporate and tax issues relevant to a going private transaction involving the
Company and the restructuring of the assets of the Company and DIC. No
determination was made at such meeting as to whether any such transactions would
be carried out, and the participants at the meeting decided to continue
discussions and studies of relevant issues. On September 2, 1998, BT Wolfensohn
was engaged to act as financial advisor to IDB Development with respect to a
possible going private transaction involving the Company.
2
<PAGE>
To assist IDB Development in its consideration of such a transaction, in
July 1998, subsequent to the July 1998 meeting in Israel, the Company provided
IDB Development with internally prepared estimates of the liquidation value of
the Company and discounted net asset values of the Company. The estimates were
based on various assumptions believed to be valid at the time, market prices on
July 17, 1998 for the Company's holdings of publicly traded securities,
estimates of the fair values of the Company's holdings in private companies,
prepared without in-depth analyses or independent appraisals, and estimates of
the capital gains taxes to which the Company might be subject. These estimates
were prepared for internal use without the assistance of professional financial
advisors, were not reviewed by an independent outside reviewer and were not
prepared in accordance with the Policy on Projections of the Commission or the
Guidelines for preparation of financial forecasts of the American Institute of
Certified Public Accountants. Various factors outside the control of the Company
could cause these estimates to prove not to be correct, including developments
with respect to the companies in which the Company holds securities, economic
conditions in Israel and fluctuations in the market prices of the Company's
holdings of publicly traded securities. The information provided to IDB
Development reflected an estimated after tax liquidation value for the Company
of $829 million or $45.13 per Share and an undiscounted net asset value, after
adjustment for estimated taxes (including certain tax savings anticipated to be
realized as a result of the Newco transaction (see "--Plans for the Company
after the Merger")), of $990 million. Based on discounts ranging from 0% to 50%,
the Company estimated this would result in discounted net asset values per Share
ranging from $53.93 to $26.96. The estimates provided to IDB Development in July
1998 were subsequently provided to the Special Committee.
At a meeting held in Israel on September 7, 1998, the Board of Directors of
IDB Development (the "IDB Board") discussed issues relevant to a going private
transaction. BT Wolfensohn made a presentation to the IDB Board of IDB
Development on the historical trading levels, price and volume analysis of the
Shares, and an analysis of the proposed offer to the Public Shareholders. After
reviewing such issues and presentation, the IDB Board approved the submission to
the Company's Board of a letter setting forth a proposal (the "Proposal") to
acquire all of the outstanding Shares of the Company not already owned by IDB
Development for a cash price of $25.50 per Share through a merger of a
wholly-owned subsidiary of IDB Development into the Company. Such letter noted
that IDB Development intended to exchange all of its Shares of the Company with
DIC for newly issued shares of DIC, and that in the event IDB Development
completed such transfer to DIC prior to completion of such merger, IDB
Development would assign to DIC all of its rights and obligations in connection
with the Proposal, including any rights to acquire the Shares pursuant to the
Merger.
In response to such Proposal, the Company's Board of Directors of the
Company met on September 9, 1998 and formed a special committee (the "Special
Committee") of independent directors, comprised of Messrs. Robert H. Arnow and
Alan R. Batkin, to review and evaluate the Proposal. The Board empowered the
Special Committee to study, evaluate and negotiate the terms of the Proposal on
behalf of the Company with a view toward making a recommendation, or such other
report as the Special Committee deemed appropriate, to the Company's Board with
respect to the Proposal. In addition, the Company's Board authorized the Special
Committee, among other things, to retain independent legal counsel and financial
advisors. The Company's Board authorized the Company to pay $20,000 to each
member of the Special Committee for his service as a member thereof and to
indemnify each of the members of the Special Committee to the fullest extent
permitted by law from all losses incurred by him in connection with his services
as a member of the Special Committee.
The Special Committee subsequently met and determined to retain Skadden,
Arps, Slate, Meagher & Flom LLP ("Skadden, Arps") as special counsel to
represent the Special Committee. On September 15, 1998, the Special Committee
met with representatives of Skadden, Arps, who briefed the Special Committee on
the process and the scope of the Special Committee's duties and discussed the
fiduciary duties of the members of the Special Committee under applicable state
law. At that meeting,
3
<PAGE>
the Special Committee also discussed retaining independent financial advisors
and determined to interview certain investment banking firms in order to select
a financial advisor to the Special Committee.
On September 25, 1998, the Special Committee and representatives of Skadden,
Arps met with three investment banking firms to discuss their credentials and
suitability to act as financial advisor to the Special Committee. Following that
meeting, the Special Committee determined to retain Merrill Lynch as financial
advisor to the Special Committee based on its international reputation,
expertise in the industry, advisory experience in similar transactions and the
belief that Merrill Lynch had no material relationship with the Company, IDB
Development, DIC or their respective affiliates. On October 30, 1998, the
Special Committee finalized an engagement letter with Merrill Lynch.
During October and early November, 1998, Merrill Lynch continued its due
diligence investigation of the Company. On October 5 and November 20, 1998,
representatives of Merrill Lynch met with members of the Company's management
for due diligence sessions.
On November 25, 1998, the Special Committee met with representatives of
Merrill Lynch and Skadden, Arps. At this meeting, representatives of Merrill
Lynch advised the Special Committee of the progress of its due diligence
investigation of the Company and presented the Special Committee with its
preliminary views on the Proposal. Representatives of Merrill Lynch advised the
Special Committee of its preliminary view that the Proposal to acquire the
Shares for $25.50 per Share should be negotiated by the Special Committee in an
effort to obtain a higher per Share price for the minority interest in the
Company. The Special Committee then authorized representatives of Merrill Lynch
to discuss with BT Wolfensohn, financial advisor to IDB Development, Merrill
Lynch's preliminary view of the value of the Company. In addition, the Special
Committee authorized representatives of Merrill Lynch to negotiate with BT
Wolfensohn with a view toward receiving a revised proposal for the acquisition
of the Shares.
On November 25, 1998, representatives of Merrill Lynch met with
representatives of BT Wolfensohn to discuss the Proposal. Subsequently,
representatives of Merrill Lynch held a number of telephone conferences with
representatives of BT Wolfensohn concerning the Proposal. In addition, Mr.
Batkin, on behalf of the Special Committee, had various conversations with
representatives of IDB Development.
On December 8, 1998, Mr. Batkin met with Mr. Oudi Recanati, Chairman of the
Company and Vice Chairman of IDB Development, to discuss valuation issues. Mr.
Arnow was out of the country and unable to attend such meeting. At this meeting,
Mr. Recanati submitted a revised proposal on behalf of IDB Development to
acquire all of the Shares not currently owned by IDB Development for $30.00 per
Share in cash. Later that day, Mr. Batkin discussed the $30.00 per Share
proposal with Mr. Arnow and with representatives of Merrill Lynch and Skadden,
Arps by telephone conference. On December 8, the Company sent to the Special
Committee and its financial and legal advisors a draft of a proposed merger
agreement. From December 8 through December 15, representatives of the Special
Committee and Skadden, Arps negotiated the terms of the Merger Agreement with
representatives of IDB Development and its legal advisors.
On December 11, 1998, the Special Committee met with representatives of
Merrill Lynch and Skadden, Arps by telephone conference. At that meeting,
representatives of Merrill Lynch orally advised the Special Committee that the
$30.00 per Share proposed to be received by the holders of the Shares, other
than IDB Development and its affiliates, pursuant to the Merger was fair to such
shareholders from a financial point of view. The Special Committee then
unanimously recommended that the Board of Directors approve and recommend to the
Company's shareholders the revised $30.00 per Share proposal, subject to
negotiation and execution of a mutually acceptable merger agreement. On December
11, the Company's Board met and unanimously recommended and approved the $30.00
per Share proposal. On December 15, the Special Committee and representatives of
Skadden, Arps
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completed their negotiations of the terms of the Merger Agreement with IDB
Development and its advisors and the Merger Agreement was executed. On December
16, 1998, Merrill Lynch issued its written opinion as to the fairness of the $30
per Share Merger Consideration to the shareholders of the Company, other than
IDB Development and its affiliates, from a financial point of view.
EXCHANGE OF COMPANY SHARES BETWEEN IDB DEVELOPMENT AND DIC; ASSIGNMENT OF THE
MERGER AGREEMENT
On October 15, 1998, the Boards of Directors of IDB Development and DIC
approved entering into an agreement (the "Private Placement Agreement") pursuant
to which IDB Development would exchange all of its Shares of the Company for
newly issued shares of DIC in a ratio (the "Exchange Ratio") of 1.1642 shares of
DIC for one Share of the Company. As of October 14, 1998 (the day immediately
preceding the date of such Board approvals) the closing price of one share of
DIC on the Tel Aviv Stock Exchange (the "TASE") was 87.60 New Israeli Shekels
("NIS") and U.S. $1 was equivalent to NIS 4.185 (as published by the Bank of
Israel on such date) so that the closing price on such date of 1.1642 shares of
DIC on the TASE was the equivalent to $24.36. As of December 8, 1998 (the day
the Special Committee received a draft of the proposed merger agreement), the
closing price of one share of DIC on the TASE was NIS 107.50 and U.S. $1 was
equivalent to NIS 4.18 (as published by the Bank of Israel on such date), so
that the closing price on such date of 1.1642 shares of DIC on the TASE was
equivalent to $29.94. Completion of the transactions contemplated by the Private
Placement Agreement was subject, among other things, to approval of the
shareholders of each of IDB Development and DIC.
The Exchange Ratio was determined by Yitzchak Swary Ltd. ("Swary") who was
engaged by IDB Development and DIC as an independent evaluator to render an
economic opinion as to the fair exchange ratio. In addition, IDB Development and
DIC received opinions from Dr. Arie Ovadia of A. O. Adav Financial Consultants
Ltd. and Giza Advisory & Financial Consulting & Management [1988] Ltd.,
respectively, which stated that the Exchange Ratio determined by Swary was a
fair and reasonable ratio from the point of view of IDB Development and DIC,
respectively.
On January 7, 1999, general meetings of the shareholders of IDB Development
and DIC approved the Private Placement Agreement, and shortly thereafter IDB
Development transferred to DIC its 14,937,792 Shares of the Company in exchange
for 17,390,593 shares of DIC. The shares of DIC which IDB Development received
pursuant to the exchange are subject to certain transfer restrictions pursuant
to the TASE rules.
On January 7, 1999 IDB Development assigned to DIC all of its Shares and all
of its rights under the Merger Agreement, and DIC assumed all of IDB
Development's obligations thereunder. Accordingly, upon consummation of the
Merger, the Company will become a wholly-owned subsidiary of DIC. IDB
Development also assigned to DIC all of its shares of Merger Sub. In addition,
IDB Development assigned to DIC its rights and obligations under an agreement
between IDB Development and PEC Israel Finance Corporation Ltd., a wholly-owned
subsidiary of the Company, under which such company is required to pay IDB
Development an annual management fee of $130,000. In addition, DIC will
indemnify IDB Development with respect to any expense or damage arising from any
claim brought against IDB Development under the Private Placement Agreement,
subject to certain exemptions provided under the Private Placement Agreement.
RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE COMPANY BOARD
On December 11, 1998, the Special Committee unanimously determined that the
Merger is fair to, and in the best interests of, the Public Shareholders, and
unanimously voted to recommend and approve the Merger and the Merger Agreement.
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On December 11, 1998, the Board of Directors, by a unanimous vote, adopted
the recommendation of the Special Committee, approved the Merger Agreement and
the transactions contemplated thereby, determined that the Merger is fair to,
and in the best interests of the Public Shareholders, and recommended that all
holders of Shares approve and adopt the Merger Agreement.
FAIRNESS OF THE MERGER
SPECIAL COMMITTEE. In reaching its determinations, the Special Committee
considered:
- the historical market prices of the Shares, including the fact that the
$30 per Share represented a premium of approximately 32% over the
$22 13/16 per share closing price on September 4, 1998, the last full
trading day prior to the September 8, 1998 announcement, and exceeds the
highest price at which the shares have traded on the NYSE for the
four-year period prior to the announcement date;
- the opinion of Merrill Lynch that, based upon and subject to the
assumptions and qualifications stated in its opinion, the $30 per Share to
be received by the Public Shareholders in the Merger is fair to the Public
Shareholders from a financial point of view, and the report and analysis
presented to the Special Committee in connection with the submission of
the opinion (see "SPECIAL FACTORS--Opinion of Merrill Lynch");
- that the terms of the Merger Agreement were determined through
arm's-length negotiations between the Special Committee and its legal and
financial advisors, on one hand, and representatives of DIC and IDB
Development, on the other;
- the purchase by IDB Development of 1,744,200 shares at $25.50 per Share in
a privately negotiated transaction in March 1998;
- the DIC has sufficient stock ownership to control a disposition of the
Company and informed the Special Committee that it would not be interested
in a third party sale or liquidation of the Company; the Special Committee
and Merrill Lynch were not authorized to, and did not, solicit third party
indications of interest for the acquisition of the Company, nor were any
offers from third parties received;
- the lack of liquidity in the Shares and in shares of other closed-end
holding companies;
- that in October 1998 plans for the proposed initial public offering of
shares in Cellcom Israel Ltd. (the Company's largest single holding) were
discontinued due to instability in the stock market, and although the
Special Committee believed that such investment could provide significant
value, there was no guarantee when, if ever, such public offering would be
undertaken;
- the ability of Public Shareholders who object to the Merger to obtain
"fair value" for their Shares if they exercise and perfect their appraisal
rights under the MBCA; and
- the low level of trading volume of the Shares on the NYSE (an average
daily trading volume of 8,879 shares during 1998). As a result, Public
Shareholders who desire to sell their Shares may find that the illiquidity
of the Shares may currently result in volatility of the price of the
Shares.
THE BOARD OF DIRECTORS. In reaching its determinations referred to above,
the Board of Directors considered the following factors, each of which, in the
view of the Board of Directors, supported its determinations:
- the conclusions and recommendations of the Special Committee;
- the factors referred to above which were taken into account by the Special
Committee, including the opinion of Merrill Lynch addressed solely to the
Special Committee that, based upon and
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subject to the assumptions stated in the report, the $30 per Share to be
received by the Public Shareholders in the Merger is fair to the Public
Shareholders from a financial point of view, as well as the analysis
presented to the Special Committee;
- that, notwithstanding the fact that the adoption of the Merger Agreement
is not conditioned upon receiving the approval of holders of a majority of
Public Shares and the possible conflicts of interest of certain directors
and members of management of the Company, the composition of the Special
Committee, consisting of independent members of the Board with no
financial interest in DIC, IDB Development or their affiliates, permitted
the Special Committee to represent effectively the interests of the Public
Shareholders. The Special Committee was delegated exclusive authority for
negotiating the Merger Agreement and was advised during the negotiations
by Merrill Lynch, and it relied upon the opinion of Merrill Lynch;
- that the Company was originally formed in 1926 in the United States to
raise capital for investment in business enterprises in what was then
Palestine, and such business rationale is no longer valid. In addition, it
has become inefficient for IDB Development to hold similar Israeli
investments through two separate public companies, DIC and the Company;
and
- the exchange by IDB Development of all of its Shares of the Company for
newly issued shares of DIC in a separately negotiated transaction between
IDB Development and DIC, in an exchange ratio, determined by an
independent evaluator jointly engaged by IDB Development and DIC to
determine a fair exchange ratio, equivalent to $24.36 per Share on October
14, 1998 and $29.94 per share on December 8, 1998, based on the closing
price of shares of DIC on the TASE and the exchange rates of the NIS to
the United States Dollar on such dates.
Neither the Board of Directors nor the Special Committee considered a
liquidation analysis because liquidation of the Company was not an alternative
presented by IDB Development or DIC, and the Company's Board believed that the
Company would incur substantial income taxes if it were to liquidate its assets.
The Company's Board and the Special Committee, based on United States federal
income tax rates applicable to capital transactions effected by the Company,
concluded that the applicable effective tax rate on any estimated gain on the
sale of the Company's assets could be as high as 35%.
In evaluating the Merger, the members of the Board of Directors, including
the members of the Special Committee, considered their knowledge of the
business, financial condition and prospects of the Company, and the advice of
financial and legal advisors. In light of the number and variety of factors that
the Company's Board and the Special Committee considered in connection with
their evaluation of the Merger, neither the Company's Board nor the Special
Committee found it practicable to assign relative weights to the foregoing
factors, and, accordingly, neither the Company's Board nor the Special Committee
did so.
The Board of Directors recognized that the Merger is not structured to
require the approval of holders of a majority of the Public Shares, and that DIC
currently has sufficient voting power to approve the Merger Agreement without
the affirmative vote of any other shareholder of the Company.
However, the Board of Directors, including the members of the Special
Committee, believes that the Merger is procedurally fair because, among other
things:
- the Special Committee, consisting of directors with no financial interest
in DIC, IDB Development, IDB Holding, or their affiliates, was appointed
to represent the interests of the Public Shareholders;
- the Special Committee retained and was advised by independent legal
counsel;
- the Special Committee retained Merrill Lynch as its independent financial
advisor to assist it in evaluating a potential transaction with DIC;
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- the Special Committee engaged in deliberations to evaluate the Merger and
alternatives thereto;
- the $30 per Share price and the other terms and conditions of the Merger
Agreement resulted from active arm's-length bargaining between
representatives of the Special Committee, on the one hand, and
representatives of DIC and IDB Development, on the other; and
- the Public Shareholders may obtain "fair value," as determined by a court
pursuant to the MBCA, for their Shares if they perfect their appraisal
rights under the MBCA.
OPINION OF MERRILL LYNCH
Merrill Lynch was retained to act as the financial advisor to the Special
Committee in the Merger. On December 16, 1998, Merrill Lynch delivered its
written opinion to the Special Committee, a copy of which is included in this
Proxy Statement as Annex C, that as of such date and based upon the assumptions
made, matters considered and limits of review in connection with such opinion,
the proposed cash consideration to be received by the holders of the Shares,
other than IDB Development and its affiliates, was fair from a financial point
of view. The final presentation of Merrill Lynch to the Special Committee dated
December 11, 1998 shall be made available for inspection and copying at the
principal executive offices of the Company during its regular business hours by
any interested shareholder of the Company or his or her representative who has
been so designated in writing.
In arriving at its opinion, Merrill Lynch, among other things, (i) reviewed
certain publicly available business and financial information which Merrill
Lynch deemed to be relevant relating to (a) the Company, (b) certain public and
private companies, interests in which comprise the larger holdings in the
Company's investment portfolio (the "Portfolio Companies") and (c) certain other
companies, which are contained in the Company's investment portfolio; (ii)
reviewed certain publicly available business and financial information relating
to IDB Development and DIC which Merrill Lynch deemed to be relevant; (iii)
reviewed certain information relating to the business, earnings, cash flow,
assets, liabilities and prospects of the Company furnished to Merrill Lynch by
the Company; (iv) conducted discussions with members of senior management of the
Company and IDB Development concerning their respective businesses and
prospects; (v) conducted discussions with members of senior management of
certain of the private Portfolio Companies concerning their respective
businesses and prospects; (vi) 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 Merrill
Lynch deemed to be reasonably similar to such Portfolio Companies; (vii)
reviewed the results of operations of certain of the private Portfolio Companies
and compared them with those of certain publicly traded companies which Merrill
Lynch deemed to be reasonably similar to such Portfolio Companies; (viii) in
connection with its review of certain of the Portfolio Companies, reviewed the
financial terms of transactions which Merrill Lynch deemed to be relevant; (ix)
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 Merrill Lynch deemed to be reasonably similar to the Company; (x) compared
the proposed financial terms of the Merger with the financial terms of certain
other transactions which Merrill Lynch deemed to be relevant; (xi) participated
in certain discussions and negotiations among representatives of the Company and
IDB Development and their legal and financial advisors; (xii) reviewed a draft
dated December 1998 of the Merger Agreement; and (xiii) reviewed such other
financial studies and analyses and performed such other investigations and took
into account such other matters as Merrill Lynch deemed necessary.
In preparing its opinion, Merrill Lynch relied on the accuracy and
completeness of all information supplied or otherwise made available to it by
the Company, and Merrill Lynch did not independently verify such information or
undertake an independent appraisal of the assets of the Company. In preparing
its opinion, Merrill Lynch was informed by the Company that it does not make
financial
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forecasts and did not possess (and could not provide access to) financial
forecasts for the Portfolio Companies and, accordingly, Merrill Lynch was not
able to conduct certain analyses that it would otherwise have conducted. In
addition, Merrill Lynch was not afforded the opportunity to meet with the
management of Cellcom Israel Ltd. ("Cellcom"), the Company's largest single
holding, and thus was not able to discuss with such management the business
prospects of Cellcom. Merrill Lynch's opinion was necessarily based upon market,
economic and other considerations as they existed on, and could be evaluated as
of the date of, its opinion. In connection with the preparation of its opinion,
Merrill Lynch was not authorized by the Special Committee, the Company or its
Board of Directors to solicit, nor did it solicit, third-party indications of
interests for the acquisition of all or any part of the Company.
The full text of the Merrill Lynch opinion which sets forth the assumptions
made, matters considered and certain limitations on the review undertaken, is
included as Annex C to this Proxy Statement and is incorporated herein by
reference. The summary of the Merrill Lynch opinion set forth in this Proxy
Statement is qualified in its entirety by reference to the full text of the
opinion. You are urged to read the full text of the Merrill Lynch opinion in its
entirety.
The Merrill Lynch opinion was delivered for the information of the Special
Committee only, and the opinion did not address the merits of the underlying
decision by the Company to engage in the Merger nor the decision by the Special
Committee to recommend that the holders of the Shares accept the proposed terms
of the Merger. The Merrill Lynch opinion does not constitute a recommendation to
any shareholder as to how such shareholder should vote on the proposed Merger.
The following is a summary of certain financial and comparative analyses
performed by Merrill Lynch in connection with its oral advice to the Special
Committee on December 11, 1998 and in arriving at its written opinion delivered
to the Special Committee on December 16, 1998 as to the fairness, from a
financial point of view, of the proposed cash consideration to be received by
the holders of the Shares, other than IDB Development and its affiliates,
pursuant to the proposed Merger.
HISTORICAL STOCK TRADING ANALYSIS. Merrill Lynch analyzed the cash
consideration to be received by holders of Shares in the Merger in relation to
the historical trading levels of the Shares. This analysis indicated that the
cash consideration to be received by holders of Shares represented: a 32%
premium over the closing trading price for the Shares on September 4, 1998 (the
last trading day before IDB Development's initial proposal of $25.50 per Share
was announced); a 28% premium over the closing trading price for the Shares on
September 1, 1998 (one week before IDB Development's initial proposal); a 20%
premium over the closing trading price for the Shares on August 7, 1998 (one
month before IDB Development's initial proposal); a 13% premium over the 52-week
high closing trading price for the Shares of $26.50 on September 18, 1998; a 50%
premium over the 52-week low closing trading price for the Shares of $19.94 on
January 22, 1998; and a 43% premium over the average closing trading price of
$21.02 for the three months preceding March 25, 1998 (the day IDB Development
announced that it had acquired an additional 9.5% of the Company's Shares and
indicated its potential interest in acquiring the remaining Shares).
COMPARABLE ACQUISITION TRANSACTION ANALYSIS. Merrill Lynch reviewed certain
publicly available information regarding completed "going private" transactions
with total values of $100-500 million from January 1, 1995 to December 9, 1998.
This analysis indicated that the mean average premium over the target company's
share price was 25.4% for the day immediately preceding the public announcement
of the transaction, 29.2% for the day one week before such announcement and
34.7% for the day one month before such announcement. This analysis also
indicated that the median average premium over the target company's share price
was 22.6% for the day immediately preceding the public announcement of the
transaction, 25.2% for the day one week before such announcement and 29.2% for
the day one month before such announcement.
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Merrill Lynch also reviewed certain publicly available information regarding
completed "going private" transactions in which less than 25% minority
shareholdings were acquired from January 1, 1995 to December 9, 1998. This
analysis indicated that the mean average premium over the target company's share
price was 19.5% for the day immediately preceding the public announcement of the
transaction, 23.6% for the day one week before such announcement and 30.8% for
the day one month before such announcement. This analysis also indicated that
the median average premium over the target company's share price was 19.7% for
the day immediately preceding the public announcement of the transaction, 24.8%
for the day one week before such announcement and 28.6% for the day one month
before such announcement.
HOLDING COMPANY/CLOSED END FUND DISCOUNT ANALYSIS. Merrill Lynch reviewed
the historical discounts to net asset value of certain closed-end funds and
Israeli holding companies which Merrill Lynch deemed reasonably comparable to
the Company. In this analysis, Merrill Lynch compared the trading prices of the
shares of the funds and holding companies in question to their recent net asset
values derived from selected analysts' reports as of the most recent practicable
date. This analysis indicated that: shares of Morgan Stanley Emerging Markets
Fund, Inc. were trading at a discount to net asset value of 20.56%; shares in
Foreign and Colonial Emerging Middle East Fund were trading at a discount of
22.94%; shares in First Israel Fund were trading at a discount of 19.84%; shares
of Koor Industries were trading at a discount of 29.0%; and shares of
Ampal-American Israel Corporation were trading at a discount of 47.8%. Merrill
Lynch noted that shares of Israeli holding companies, such as the Company,
traded at higher discounts to net asset value than the reasonably comparable
closed-end funds.
Merrill Lynch also reviewed the historical discounts to net asset value for
the Company based on certain analysts' reports. This analysis indicated that
since April 1997, the Shares had been trading at a discount to net asset value
in excess of 30% and that, as of November 19, 1998, the date of the most recent
analysts' report reviewed, this discount was 46.2%
NET ASSET VALUE ANALYSES. Merrill Lynch conducted a variety of valuation
analyses in respect of specific components of the Company's investment
portfolio. For the public Portfolio Companies, these analyses included: review
of selected analysts' reports; review of public share trading prices; analyses
of public share trading prices and certain financial multiples of companies
Merrill Lynch deemed to be reasonably comparable to such Portfolio Companies;
and reviews of selected transactions involving companies Merrill Lynch deemed
reasonably comparable to such Portfolio Companies. Merrill Lynch conducted
similar analyses for the private Portfolio Companies, except that there were no
public share trading prices to review for such companies. In respect of the
smaller public holdings in the Company's investment portfolio, Merrill Lynch
reviewed public share trading prices. In addition, Merrill Lynch considered the
Company's recent agreement to sell its shareholdings in Caniel-Israel Can
Company Ltd. for $22.9 million in cash. Merrill Lynch also reviewed the initial
cost and carrying values of the Company's holdings.
Based on the above analyses, Merrill Lynch derived indicative ranges of
pre-tax value for specific components of the Company's investment portfolio.
This analysis indicated: a range of values for the public Portfolio Company
holdings of $341-$468 million or $18.59-$25.47 per Share; a range of values for
the private Portfolio Company holdings of $351-$431 million or $19.14-$23.47 per
Share; a value for the Company's smaller public company holdings approximating
$83 million or $4.52 per Share; a value for the Company's smaller private
company holdings approximating $51 million or $2.78 per Share; and a value for
the Company's other net assets approximating $30 million or $1.62 per Share.
This analysis indicated a range of total pre-tax values for the Company's equity
portfolio of $857 million-$1.062 billion or $46.65-$57.86 per Share. Merrill
Lynch also reviewed the Company's cost basis for each holding (based on
information provided by the Company). In order to derive after-tax values for
the Company's investments, Merrill Lynch assumed an applicable effective tax
rate on estimated gain of
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25%. Merrill Lynch further assumed a closed-end fund/Israeli holding company
discount of 30% (based on the analyses summarized above). This analysis
indicated a range of values of $492-$601 million or $26.82-$32.70 per Share.
Merrill Lynch also performed sensitivity analyses which indicated that: an
increase in the assumed applicable effective tax rate on estimated gain of 5%
would result in a reduction in the indicated range of value per Share of
approximately $1.55 (at the top end of the range) and $1.17 (at the bottom end
of the range); an increase in the assumed closed-end funds/Israeli holding
company discount of 5% would result in a reduction in the indicated range of
value per Share of approximately $2.33 (at the top end of the range) and $.92
(at the bottom end of the range); and a $500 million increase in the valuation
of Cellcom would result in an increase in the value per Share of approximately
$1.79.
In performing the above net asset value analyses, Merrill Lynch used the
public share closing prices of December 9, 1998 and an applicable exchange rate
of $1.00 = NIS 4.162. Based on information obtained from the Company, Merrill
Lynch treated the Company's outstanding loans to Cellcom as a part of the net
assets of the Company.
The summary set forth above does not purport to be a complete description of
the analyses underlying the Merrill Lynch opinion. The preparation of a fairness
opinion is a complex analytic process involving various determinations as to the
most appropriate and relevant methods of financial analysis and the application
of those methods to the particular circumstances and, therefore, such an opinion
is not readily susceptible to partial analysis or summary description. In
arriving at its opinion, Merrill Lynch did not attribute any particular weight
to any analysis or factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each analysis and factor.
Accordingly, Merrill Lynch believes that its analyses must be considered as a
whole and that selecting portions of its analyses, without considering all
analyses, would create an incomplete view of the process underlying its opinion.
In performing its analyses, Merrill Lynch made numerous assumptions with
respect to industry performance, general business, economic, market and
financial conditions, and other matters, many of which are beyond the Company's
control. Any estimates contained in the analyses performed by Merrill Lynch are
not necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses.
Additionally, estimates of the value of businesses or securities do not purport
to be appraisals or to reflect the prices at which such businesses or securities
might actually be sold. Accordingly, such analyses and estimates are inherently
subject to substantial uncertainty.
As part of its investment banking business, Merrill Lynch is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, strategic transactions, negotiated underwritings,
private placements and valuations for corporate and other purposes. The Special
Committee selected Merrill Lynch because of its expertise, reputation and
familiarity with transactions similar to the Merger and with the Israeli
financial markets. Pursuant to a letter agreement dated October 30, 1998 (the
"Engagement Letter"), the Company engaged Merrill Lynch to act as financial
advisor to the Special Committee in connection with the proposed Merger. The
Company agreed to pay Merrill Lynch a fee of $125,000 (the "Advisory Fee") upon
execution of the Engagement Letter. In addition, if the Merger is consummated,
the Company has agreed to pay Merrill Lynch a further fee of $500,000, less the
amount of the Advisory Fee, plus, in the event that the consideration to be
received by the holders of the Shares exceeds $28 per Share but is not more than
$33 per Share, further fees of $150,000 for each $1 of increase in the
consideration above $28 per Share and in the event that the consideration to be
received by the holders of the Shares exceeds $33 per Share, further fees of
$250,000 for each $1 of increase in the consideration above $33 per Share. In no
event, however, may the fees payable to Merrill Lynch under the Engagement
Letter exceed $2,500,000.
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Pursuant to the Engagement Letter, in the event the Merger is not completed, the
Company will pay Merrill Lynch a work fee of between $125,000 and $500,000 (less
the amount of the Advisory Fee) to be determined by the Special Committee in
consultation with Merrill Lynch based on time elapsed, work done and other
factors. The Company also agreed to reimburse Merrill Lynch for its reasonable
out-of-pocket expenses incurred in connection with Merrill Lynch's activities
under the Engagement Letter, including the reasonable fees and disbursements of
its legal counsel, and to indemnify Merrill Lynch and certain related persons
and entities for certain liabilities, including liabilities under securities
laws, related to or arising out of its engagement.
Merrill Lynch and its affiliates may in the past have provided and may be
currently engaged to provide financial advisory, investment banking or other
services to the Company, the Portfolio Companies, or IDB Development and their
respective affiliates and may have received or may receive in the future fees
for rendering such services. Merrill Lynch and its affiliates have not received
any fees for such services from the Company or IDB Development during the past
two years. In addition, in the ordinary course of its securities business,
Merrill Lynch may actively trade debt or equity securities of the Company, the
Portfolio Companies and IDB Development and their respective affiliates for its
own account and the accounts of its customers and therefore may from time to
time hold a long or short position in such securities.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
You should be aware that DIC has certain interests that present actual or
potential conflicts of interest in connection with the Merger. As of January 6,
1999, DIC owned approximately 81.35% of the outstanding Shares, IDB Development
owned approximately 71.7% of the outstanding shares of DIC, and IDB Holding
owned approximately 71% of the outstanding shares of IDB Development. By reason
of their positions with and control of voting of shares of IDB Holding, Mr.
Raphael Recanati and Mrs. Elaine Recanati, who are brother-in-law and
sister-in-law, and Mr. Leon Recanati and Mrs. Judith Yovel Recanati, who are
brother and sister, may each be deemed to share the power to direct the voting
and disposition of the outstanding Shares owned by DIC and may each, under
existing regulations of the Commission, therefore be deemed a beneficial owner
of these Shares. Mr. Leon Recanati and Mrs. Judith Yovel Recanati are the nephew
and niece of Mr. Raphael Recanati and Mrs. Elaine Recanati. Mr. Oudi Recanati,
the Chairman of the Company, and Mr. Michael A. Recanati, Vice Chairman and a
director of the Company, are the sons of Mr. Raphael Recanati. Companies
controlled by Mr. Raphael Recanati, Mrs. Elaine Recanati, Mr. Leon Recanati and
Mrs. Judith Yovel Recanati hold approximately 53% of the outstanding shares of
IDB Holding.
In considering the recommendation of the Company's Board and the Special
Committee with respect to the Merger, shareholders should be aware that certain
officers and directors of DIC and the Company have interests in the Merger which
are described below and which may present them with certain potential conflicts
of interest. Currently, of the 11 directors of the Company, three are also
directors of DIC and/or its affiliates. Mr. Oudi Recanati is the Chairman of the
Company and DIC, Vice Chairman of IDB Development and Vice Chairman and Co-Chief
Executive Officer of IDB Holding. Mr. Eliahu Cohen is a director of the Company,
Chairman of the Executive Committee of IDB Holding, Co-Chief Executive Officer
of IDB Development and a director of DIC. Mr. Hermann Merkin is a director of
the Company, IDB Holding and DIC. See "OWNERSHIP OF SHARES" for information
regarding Shares beneficially owned by certain of DIC's executive officers or
directors.
DIC owns shares of many Israeli companies in which the Company has holdings
and, through a subsidiary, has an agreement with the Company that each of DIC
and the Company will offer the other equal participation in business
opportunities that become available to either of them in Israel for a fee of
2.5% of the equity or long-term debt invested by the paying party in business
opportunities initiated or initially presented by the other party. The Company
and DIC have agreed to cooperate on matters
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concerning the advancement and development of companies in which each of them
owns voting interests, including the use of their voting power as shareholders
on a mutually agreed basis.
Upon recommendation of the Company's Compensation Committee, the Company has
agreed to pay Messrs. Frank J. Klein, President of the Company, James I.
Edelson, Executive Vice President, Secretary and General Counsel of the Company,
and William Gold, Treasurer of the Company, cash payments of $360,000, $180,000
and $90,000, respectively, upon consummation of the Merger.
The Merger Agreement provides that all rights to indemnification or
exculpation in favor of the present and former directors, officers, employees,
agents and fiduciaries of the Company (collectively, the "Indemnified Parties")
existing as of the date of the Merger Agreement with respect to matters
occurring at or prior to the Effective Time shall survive the Merger and shall
continue in full force and effect. In addition, all persons who are currently
covered by the Company's directors' and officers' liability insurance shall
receive coverage on terms not less favorable than the coverage in effect at the
Effective Time through "tail" directors' and officers' insurance to be
maintained in effect for six years from the Effective Time. See "SPECIAL
FACTORS--The Merger Agreement".
The Special Committee and the Board of Directors were aware of these actual
and potential conflicts of interest and considered them along with the other
matters described under "SPECIAL FACTORS--Fairness of the Merger".
POSITION OF DIC AND IDB DEVELOPMENT REGARDING FAIRNESS OF THE MERGER
DIC and IDB Development believe that the consideration to be received by the
Public Shareholders pursuant to the Merger Agreement is fair to the Public
Shareholders. DIC and IDB Development base their belief on the following facts:
- the exchange by IDB Development of all of its Shares of the Company for
newly issued shares of DIC in a separately negotiated transaction between
IDB Development and DIC, in an exchange ratio, determined by an
independent evaluator jointly engaged by IDB Development and DIC to
determine a fair exchange ratio, equivalent to $24.36 per Share on October
14, 1998 (the day immediately preceding the approval by the Boards of
Directors of IDB Development and DIC of such exchange ratio), based on the
closing price of shares of DIC on the TASE, and the exchange ratio between
the NIS and the United States Dollar on such date;
- the report prepared by BT Wolfensohn analyzing the offer to the Public
Shareholders;
- $30 per Share represents a premium of 32% over the closing price per share
on September 4, 1998, the last trading day before the Company announced
receipt of the proposal from IDB Development;
- the fact that IDB Development paid $25.50 per Share for an aggregate of
1,744,000 Shares in privately negotiated purchases executed on March 25,
1998;
- the Merger will provide consideration to the Public Shareholders entirely
in cash;
- the fact that the Special Committee and the Board of Directors of the
Company concluded that the Merger is fair to, and in the best interests
of, the Public Shareholders; and
- notwithstanding the fact that Merrill Lynch's opinion was provided solely
for the information and assistance of the Special Committee and that DIC
and IDB Development are not entitled to rely on it, the opinion of Merrill
Lynch stated that the $30 per Share in cash to be received by the Public
Shareholders in the Merger is fair to such holders from a financial point
of view.
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DIC and IDB Development did not find it practicable to assign, nor did they
assign, relative weights to the individual factors considered in reaching their
conclusions as to fairness.
PAYMENT FOR SHARES
As a result of the Merger, holders of certificates formerly representing
Shares will cease to have any equity interest in the Company. After consummation
of the Merger, each Share issued and outstanding immediately prior to the
consummation of the Merger held by Public Shareholders will be required to be
surrendered to ChaseMellon Shareholder Services, L.L.C. (the "Paying Agent") in
order that such Share be canceled and converted automatically into the right to
receive the cash price of $30 per Share. No interest will be paid or accrued on
the cash payable upon the surrender of such certificates.
Detailed instructions with regard to the surrender of certificates, together
with a letter of transmittal, will be forwarded to former holders of Shares by
the Paying Agent promptly following the Effective Time. PUBLIC SHAREHOLDERS
SHOULD NOT SUBMIT THEIR CERTIFICATES TO THE PAYING AGENT OR THE COMPANY UNTIL
THEY HAVE RECEIVED SUCH MATERIALS. Payment for Shares will be made to the Public
Shareholders as promptly as practicable following receipt by the Paying Agent of
their certificates and other required documents. At any time after 180 days
after the Effective Time, the Company will be entitled to require the Paying
Agent to deliver to it any funds which had been made available to the Paying
Agent and not disbursed to the Public Shareholders, and thereafter the Public
Shareholders shall be entitled to look to the Company only as general creditors
with respect to any payment that may become due upon surrender of their
certificate(s). See "SPECIAL FACTORS--The Merger Agreement".
PURPOSE AND EFFECTS OF THE MERGER; REASONS FOR THE MERGER
The purpose of the Merger is for DIC to increase, within the terms
established by the Merger Agreement, its ownership of Shares from approximately
81.35% to 100% and to terminate the Company's status as a public company. As a
result of the Merger, the Company will be a wholly-owned subsidiary of DIC.
In determining to effectuate the Merger, DIC and the Board of Directors of
the Company considered the following factors:
- SUPERSEDED BUSINESS PURPOSE. The original business purpose for the
Company's status as a public company in the United States has become
obsolete. The Company was formed in 1926 to attract U.S.-based investors,
primarily from the Jewish community, to invest in and support young Jewish
industry and business enterprises in what was then Palestine. At that time
it was the common belief that by using a U.S. entity as a vehicle to raise
capital, the Company would be more attractive to U.S. investors. The Board
of Directors of the Company, DIC and IDB Development believe that this
business rationale is no longer valid, as Israeli companies are now more
easily able to raise capital directly in the U.S.
- EFFICIENCY AND REALIZATION OF SYNERGISTIC SAVINGS. The equity portfolios
of the Company and DIC are substantially similar, due in part to an
agreement which gives each company the right to participate in the other
company's investment opportunities. The division of holdings between the
Company and DIC results in a duplication of management efforts and
resources, including dealing with the distinct corporate, legal,
accounting and tax aspects of operating both in the U.S. and Israel. The
Merger and subsequent restructuring program would result in a streamlined
management and would eliminate the duplication of efforts in participation
in the management of the Portfolio Companies;
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- COMPLIANCE COSTS. Terminating the Company's public status would eliminate
significant compliance costs (estimated at approximately $525,000 per
year) associated with the Company's public status (including NYSE listing
fees, transfer agent fees and expenses, and the costs of preparing and
distributing reports and other information required by the Exchange Act);
- COMPANY'S INABILITY TO RAISE CAPITAL. The Merger and restructuring program
would eliminate the current inefficient corporate structure which the
Board of Directors of the Company believes reduces the Company's
attractiveness to the investment community and impairs the Company's
ability to conduct its business and to raise capital at an acceptable
price;
- ELIMINATION OF CONFLICTS OF INTERESTS WITH PUBLIC SHAREHOLDERS. The Merger
would eliminate concerns about possible conflicts of interests with regard
to transactions between the Company and DIC and its affiliates;
- ELIMINATION OF CONSTRAINTS UNDER THE 1940 SEC ORDER EXCLUDING THE COMPANY
FROM THE INVESTMENT COMPANY ACT OF 1940. In 1941, the Commission issued an
order excluding the Company from the provisions of the Investment Company
Act of 1940. At that time, the Commission found that the Company was
operating through companies it controlled, which were engaged in similar
lines of business other than that of an investment company required to be
registered under the Investment Company Act. The Board of Directors
believes that the Company has been somewhat constrained by that order from
acquiring interests in companies, particularly by the requirement that it
operate through controlled companies.
The Boards of Directors of the Company and DIC have concluded that the
Company's separate public status no longer provides benefits that justify, as a
business matter, maintenance of that status.
PLANS FOR THE COMPANY AFTER THE MERGER
As a result of the Merger, the Company will become a wholly-owned subsidiary
of DIC. Thereafter, the Company intends to sell to DIC or its subsidiaries most
of its smaller Portfolio Companies for cash, for debt or in exchange for
repayment of the Company's loan from DIC. The Company and DIC plan to form a
new, jointly held private Israeli corporation ("Newco"), to be engaged in the
business of making investments in Israeli corporations. DIC intends to
contribute some of its publicly traded Portfolio Companies to Newco in exchange
for Newco non-voting common stock and voting preferred stock, and the Company
intends to contribute its holdings in the same publicly traded Portfolio
Companies to Newco in exchange for Newco non-voting common stock. Upon
completion of these transactions, DIC will hold all of the voting power of the
outstanding stock of Newco.
The Board of Directors believes that such reorganization of assets and
corporate structure will enhance the Company's ability to further its strategic
objectives. In addition, the Company will derive a significant benefit in
contributing some of its Portfolio Companies to Newco because the distribution
of dividends by these Portfolio Companies to Newco, rather than to the Company,
will not be subject to Israeli withholding taxes. Further, so long as Newco does
not sell, and is not treated as selling, stock holdings contributed by the
Company to Newco within the period ending on the fifth anniversary of the last
day of the taxable year in which the contribution is made and Newco is not
treated as a passive foreign investment company ("PFIC") or a controlled foreign
corporation ("CFC") for U.S. federal income tax purposes, Newco will be able to
dispose of its investments without the obligation of the Company to pay U.S.
federal income tax on the gain from such transactions. However, if Newco should
sell, or should be treated as selling, any stock holdings contributed by the
Company within the five-year period described above, the Company will be
required to pay U.S. federal income tax on the amount of built-in gain that
existed on the date of contribution with respect to the sold investments, plus
interest accruing from the date prescribed for filing the Company's U.S. federal
income tax return for the year
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in which the contribution to Newco is made through the date U.S. federal income
tax is paid as a result of Newco's sale. Moreover, if Newco should be classified
as a PFIC or a CFC in a year in which Newco derives gains from the sale of stock
holdings, the Company will be subject to U.S. federal income taxation on its
share of such gains, whether or not cash dividends are distributed to it (with
adjustments in the event the Company is required to recognize gain for the
reasons described in the immediately preceding sentence).
CERTAIN EFFECTS OF THE MERGER
Upon consummation of the Merger, the Company will become a privately held
corporation. Accordingly, the Public Shareholders will not have the opportunity
to participate in the earnings and growth of the Company after the Merger and
will not have any right to vote on corporate matters. Similarly, shareholders
will not face the risk of any losses generated by the Company's operations or
decline in the value of the Company after the Merger.
Following the completion of the Merger, the Shares will no longer be traded
on the NYSE. In addition, the registration of the Shares and the Company's
reporting obligations under the Exchange Act will be terminated. Accordingly,
following the Merger there will be no publicly-traded Shares outstanding.
It is expected that if the Merger is not consummated, the Company's current
management, under the general direction of the Board of Directors of the
Company, will continue to manage the Company and the Shares will continue to be
traded on the NYSE.
ACCOUNTING TREATMENT OF THE MERGER
The Merger will be accounted for under the "purchase" method of accounting.
Accordingly, a determination of the fair value of the Company's assets and
liabilities will be made by DIC for accounting purposes only in order to
allocate the purchase price to the assets acquired and the liabilities assumed.
REGULATORY APPROVALS
DIC and the Company know of no remaining consents, governmental
authorizations, permits, filings or notifications that are required in order to
consummate the Merger, other than the filing of the articles of merger with the
Secretary of State of the State of Maine. Upon consummation of the Merger, DIC
is required under Israeli law to make the applicable filings with the Israel
Securities Authority, the TASE, and the Israel Registrar of Companies.
CERTAIN SHAREHOLDER LITIGATION
As of the date of this Proxy Statement, the Company and DIC are aware of two
lawsuits that have been filed relating to the Merger, one of which was
discontinued after the defendants moved to dismiss it. The Company and its
directors are defendants in the current lawsuit, which was filed by two Public
Shareholders claiming to represent all Public Shareholders of the Company.
The allegations of the class action complaint generally assert that the
Merger Consideration is unfair and inadequate and is below the fair or inherent
value of the assets and future prospects of the Company. The complaint also
alleges that the defendants engaged in self-dealing without regard to conflicts
of interest, and that the defendants breached their fiduciary duties in
approving the Merger Agreement.
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The complaint seeks to prohibit, among other things, completion of the
Merger. To date no motion to enjoin any of the proceedings contemplated by the
Merger Agreement has been made. The complaint also seeks unspecified damages,
attorneys' fees and other relief. The Company believes that the allegations
contained in the complaint are without merit, and the Company intends to contest
the actions vigorously. The Company does not believe that these matters will
have any significant impact on the timing or completion of the Merger; however,
there can be no assurance that a motion to enjoin the transactions contemplated
by the Merger Agreement will not be made and, if made, that it would not be
granted.
To date none of the defendants has been required to answer, move or
otherwise respond to the complaint and no discovery has been taken.
In April 1998, following IDB Development's March 1998 purchase of 1,774,200
Shares in a privately negotiated purchase and the filing with the Commission of
an amendment to IDB Development's Schedule 13D stating that IDB Development was
considering possible corporate restructuring transactions relating to the
Company which might involve IDB Development's acquisition of the Public Shares,
a purported class action was filed against the Company, certain directors of the
Company, and certain directors of IDB Development and its affiliates. The
complaint alleged, among other things, that the defendants had failed to take
those actions necessary to ensure that the Public Shareholders would receive
maximum value for their Shares if IDB Development sought to acquire the Public
Shares, that the Company and its directors could not be expected to act in the
best interests of the Public Shareholders because of conflicts of interest, that
the defendants had breached their fiduciary and other common law duties to the
Public Shareholders, and that the Public Shareholders would be prevented from
obtaining a fair and adequate price for their Shares. In June 1998, the
plaintiff voluntary discontinued such action after the defendants moved to
dismiss the suit.
THE MERGER AGREEMENT
The following is a summary of the material provisions of the Merger
Agreement. A copy of the Merger Agreement is attached as Annex A to this Proxy
Statement and is incorporated herein by reference. Such summary is qualified in
its entirety by reference to the Merger Agreement. Shareholders are urged to
read the Merger Agreement for a more detailed description of the terms and
conditions of the Merger.
THE MERGER. The Merger Agreement provides that, following the approval of
the Merger by the shareholders of the Company and the satisfaction or waiver of
the other conditions to the Merger Agreement, Merger Sub will be merged with and
into the Company, with the Company surviving the Merger (the "Surviving
Corporation") as a wholly-owned subsidiary of DIC. The Public Shareholders will
receive the Merger Consideration and DIC, as the holder of the common stock of
Merger Sub, will become the sole shareholder of the Company after the Effective
Time. At the Effective Time, (i) the articles of incorporation and by-laws of
the Company in effect immediately prior to the Effective Time will be the
articles of incorporation and by-laws of the Surviving Corporation after the
Merger; (ii) the directors of Merger Sub immediately prior to the Effective Time
will become the directors of the Company after the Merger; and (iii) the
officers of the Company immediately prior to Effective Time will remain the
officers of the Company after the Merger.
EFFECTIVE TIME OF MERGER. The Effective Time will occur upon the filing of
the articles of merger with the Secretary of State of the State of Maine. The
articles of merger will be filed as soon as practicable after the approval and
adoption of the Merger Agreement by the shareholders of the Company at the
Special Meeting and the satisfaction of the other conditions to the consummation
of the Merger.
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TREATMENT OF SHARES IN THE MERGER. At the Effective Time without any action
on the part of the Company, Merger Sub, or the holders of any of the Shares, (i)
each Public Share outstanding immediately prior to the Effective Time, except
for Dissenting Shares (as defined below), will be canceled and converted into
the right to receive the Merger Consideration, subject to withholding taxes,
upon surrender of the certificate representing that Public Share; (ii) each
Share owned by DIC will be retired and become authorized but unissued; (iii)
each Share held by the Company as treasury stock will continue as treasury stock
of the Surviving Corporation; and (iv) the outstanding shares of common stock of
Merger Sub immediately prior to the Effective Time will be converted into
14,937,792 Common Shares of the Surviving Corporation.
DISSENTING SHAREHOLDERS. The Merger Agreement provides that any Public
Share which is issued and outstanding immediately prior to the Effective Time
and held by a shareholder who has not voted in favor of or consented to the
Merger in writing ("Dissenting Share") and who complies with Section 909 of the
MBCA (a "Dissenting Shareholder") shall be canceled but not be converted into or
represent the right to receive the Merger Consideration. Such Dissenting
Shareholder shall instead be entitled to receive payment of the court-determined
fair value of the Dissenting Shares pursuant to the MBCA. However, Public Shares
outstanding immediately before the Effective Time held by a Dissenting
Shareholder who fails to establish his or her entitlement to dissenters rights'
as provided in Section 909 of the MBCA or withdraws or forfeits those rights
will be deemed to be converted as of the Effective Time into the right to
receive the Merger Consideration, without interest. See "--Rights of Dissenting
Shareholders".
EXCHANGE OF SHARE CERTIFICATES. The Company has designated ChaseMellon
Shareholder Services, L.L.C. to act as the Paying Agent under the Merger
Agreement. Promptly following the Effective Time, the Surviving Corporation will
deposit in trust with the Paying Agent funds to which holders of Public Shares
shall become entitled upon conversion of their Public Shares into the Merger
Consideration (the "Exchange Fund").
As of the Effective Time, the Surviving Corporation will cause the Paying
Agent to mail to each holder of record of an outstanding certificate or
certificates for Public Shares (the "Certificates") as of the Effective Time, a
letter of transmittal and instructions for use in effecting the surrender of
those Certificates for payment in accordance with the Merger Agreement. Upon
surrender to the Paying Agent of a Certificate, together with a duly completed
and validly executed letter of transmittal and such other documents as may be
required pursuant to those instructions, the holder will be entitled to receive
cash in an amount equal to the number of Public Shares represented by the
Certificate times the Merger Consideration, less any applicable withholding tax.
At any time commencing 180 days after the Effective Time, the Surviving
Corporation may require the Paying Agent to deliver to it any portion of the
Exchange Fund which had not been disbursed to the Public Shareholders (including
any interest or other income received with respect thereto). Any Public
Shareholder who has not complied with the procedures described above must look
to the Surviving Corporation for payment of their claim for the Merger
Consideration, without interest, only as a general creditor of the Surviving
Corporation. Neither the Paying Agent nor any party to the Merger Agreement will
be liable to any holder of Certificates formerly representing the Public Shares
for any amount to be paid to a public official pursuant to any applicable
abandoned property, escheat or similar law.
WITHHOLDING RIGHTS. The Surviving Corporation and the Paying Agent may
deduct and withhold from the amounts payable to any holder of Public Shares
those amounts that the Surviving Corporation or the Paying Agent are required to
deduct and withhold under applicable tax law. Amounts so deducted and withheld
by the Surviving Corporation or the Paying Agent will be treated for all
purposes of the Merger Agreement as having been paid to the relevant holder of
Public Shares.
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CONDITIONS TO THE MERGER, AMENDMENT, WAIVER. The obligations of the parties
to complete the Merger are subject to the satisfaction at or prior to the
Effective Time of the following conditions, unless waived in writing by each of
them: (i) the proposal to approve and adopt the Merger Agreement at the Special
Meeting shall have received the affirmative vote of the holders of at least a
majority of all of the outstanding Shares; and (ii) the absence of any law,
rule, regulation, order, judgment or decree enacted, issued, promulgated,
enforced or entered prohibiting or having the effect of preventing the
completion of the Merger.
Prior to the Effective Time, any party to the Merger Agreement may (i)
extend the time for the performance of any obligation of any other party, (ii)
waive any inaccuracy in the representations and warranties of any other party,
and (iii) waive compliance with any agreement or condition of any other party.
Any such extension or waiver by the Company requires the prior approval of the
Special Committee.
The Merger Agreement may be amended by written agreement of DIC, Merger Sub
and the Company, only with the approval of the Special Committee, at any time
prior to the Effective Time.
TERMINATION. The Merger Agreement may be terminated at any time prior to
the Effective Time, either before or after approval by the shareholders of the
Company by:
- mutual written consent authorized by the Boards of Directors of DIC,
Merger Sub and the Company (and, in the case of the Company, only with the
approval of the Special Committee);
- either DIC or the Company, (i) if the Effective Time does not occur on or
before December 31, 1999 (the right to terminate the Merger Agreement
under this provision will not be available to any party whose failure to
fulfill any obligation under the Merger Agreement has been the cause of,
or resulted in, the failure of the Effective Time to occur on or before
that date); (ii) if any court of competent jurisdiction or other
governmental or regulatory authority, domestic or foreign, issues an
order, decree or ruling or takes any other action restraining, enjoining
or otherwise prohibiting the Merger and that order, decree, ruling or
other action is final and nonappealable; or (iii) if there is a breach of
any covenant, representation or warranty of DIC and Merger Sub (in case of
termination by the Company) or the Company (in case of termination by
DIC), which breach is not cured within 30 days following written notice of
such breach, but only if such breach, together with all other such
breaches, would reasonably be expected to result in a material adverse
effect on the breaching party and its subsidiaries taken as a whole; or
- DIC if the Board of Directors of the Company (with the approval of the
Special Committee) or the Special Committee withdraws, modifies or changes
its recommendation of the Merger Agreement or the Merger in a manner
adverse to DIC or Merger Sub or resolves to do so.
In the event of termination of the Merger Agreement in accordance with its
terms, no party thereto will have any liability to any other party to the
agreement, except for its own costs and expenses incurred in connection with the
Merger Agreement and for any willful breach thereof.
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REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains various
representations and warranties of the Company to DIC and Merger Sub, including
the following: (i) the due organization, valid existence and good standing of
the Company; (ii) the capitalization of the Company; (iii) the due
authorization, execution and delivery of the Merger Agreement and its binding
effect on the Company; (iv) the absence of conflicts between the Merger
Agreement and the transactions contemplated thereby with the Company's articles
of incorporation or bylaws or equivalent organizational documents of any of the
Company's subsidiaries, any contract or other obligation to which it or its
subsidiaries are parties or by which any property or asset of any of them is
bound, or any law, rule, regulation, order, judgement or decree (a "Law")
binding upon the Company or its subsidiaries; (v) regulatory filings and
approvals; (vi) the accuracy of the information provided by the Company for
inclusion in this Proxy Statement; (vii) the absence of any change or event
which is reasonably likely to be materially adverse to the business, properties,
financial condition, assets or liabilities of the Company and its subsidiaries
taken as a whole since September 30, 1998; (viii) the inapplicability of Section
611-A(a)(A) of the MBCA; and (ix) brokers or finders.
The Merger Agreement also contains representations and warranties of DIC and
Merger Sub to the Company, including the following: (i) the due organization,
valid existence and good standing of each of DIC and Merger Sub; (ii) the due
authorization, execution and delivery of the Merger Agreement by DIC and Merger
Sub and its binding effect on those parties; (iii) the absence of conflicts of
the Merger Agreement and the transactions contemplated thereby with the charter
or bylaws or equivalent organizational documents of each of DIC and Merger Sub,
or any contract or other obligation to which DIC or Merger Sub are parties or by
which any property or asset of any of them is bound or affected, or any Law
binding upon any of those parties; (iv) regulatory filings and approvals; (v)
the accuracy of the information provided by DIC and Merger Sub for inclusion in
this Proxy Statement; (vi) brokers and finders; and (vii) as of the date of the
Merger Agreement and through the Effective Time, the ownership by DIC of all of
the outstanding capital stock of Merger Sub and the absence of any obligations
or liabilities incurred, business activities engaged in, or agreements entered
into, by Merger Sub.
CONDUCT OF BUSINESS PENDING THE MERGER. From the date of the Merger
Agreement to the Effective Time (a) the Company must conduct its business in the
ordinary course and consistent with past practice and use all reasonable efforts
to preserve intact its business organization and to maintain existing
relationships with those having significant business relationships with it; and
(b) the Company will not (i) issue, sell or pledge or authorize the issuance,
sale or pledge of any shares of its capital stock, convertible securities,
rights, warrants, or options; (ii) acquire or redeem any of its outstanding
shares of capital stock; (iii) split, combine or reclassify its capital stock or
declare, set aside or make any dividend or distribution; (iv) propose or adopt
any amendment to the Company's articles of incorporation or by-laws; or (v)
agree to take any action which would make any representation or warranty in the
Merger Agreement untrue or incorrect in any material respect or otherwise result
in any of the conditions to the Merger not being satisfied.
CERTAIN AGREEMENTS. The Company, acting through its Board of Directors,
must (i) call and convene the Special Meeting; (ii) include in the Proxy
Statement the opinion of Merrill Lynch that the Merger Consideration is fair to
the Public Shareholders from a financial point of view and the recommendation of
the Board of Directors of the Company and the Special Committee that the
shareholders of the Company approve and adopt the Merger Agreement and the
Merger, unless the Board of Directors (with the approval of the Special
Committee) determines to withdraw their recommendations in light of their
respective fiduciary duties; and (iii) use its reasonable best efforts to obtain
the necessary approvals by the Public Shareholders of the Merger Agreement and
the Merger.
At the Special Meeting, DIC is obligated to cause all Shares then owned by
it and its subsidiaries (other than the Company) to be voted in favor of the
approval and adoption of the Merger Agreement and the Merger.
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The Company is also required to prepare and file with the Commission this
Proxy Statement and a Schedule 13E-3 Transaction Statement (the "Disclosure
Documents") and to use its reasonable best efforts to have the Disclosure
Documents cleared with the Commission as soon as practicable. The Company, DIC,
and Merger Sub must cooperate with each other in the preparation and filing of
the Disclosure Documents, and respond promptly to any comments made by the
Commission with respect to them.
From the date of the Merger Agreement through the Effective Time, the
Company must, and must cause its officers, directors, employees, auditors and
agents to, afford the officers, employees, auditors and agents of DIC and Merger
Sub complete access during normal business hours to the officers, employees,
auditors, agents, properties, offices and other facilities, books and records of
the Company and must furnish DIC and Merger Sub with all financial and other
data and information as they reasonably request.
DIC and Merger Sub have agreed that all rights to indemnification or
exculpation in favor of the Indemnified Parties existing as of the date of the
Merger Agreement with respect to matters occurring at or prior to the Effective
Time shall survive the Merger and shall continue in full force and effect.
The Surviving Corporation is required to obtain and maintain in effect for
six years from the Effective Time, "tail" directors' and officers' liability
insurance policies under which all of the persons who are currently covered by
the Company's directors' and officers' liability insurance shall receive
coverage on terms not less favorable than the coverage in effect as of the
Effective Time. The Surviving Corporation may, however, substitute therefor
policies of at least the same coverage containing terms and conditions which are
not materially less favorable. In the event the Company or the Surviving
Corporation or any of their respective successors or assigns consolidates with
or merges into any other person and is not the continuing or surviving
corporation or entity of such consolidation or merger, or transfers all or
substantially all of its properties and assets to any person, then, and in each
such case, proper provision must be made so that the successors and assigns of
the Surviving Corporation or the Company, or at DIC's option, DIC, shall assume
the foregoing indemnification obligations. See "MANAGEMENT OF THE COMPANY, DIC,
IDB DEVELOPMENT, IDB HOLDING, AND MERGER SUB--Directors and Executive Officers
of the Company".
Pursuant to the Merger Agreement, DIC has agreed to honor and to cause the
Surviving Corporation to honor the employment, severance, and other similar
arrangements to which the Company is a party.
The parties must give prompt notice to each other of the occurrence or
nonoccurrence of any event which would likely cause any representation or
warranty of the party giving notice to be false or inaccurate and any failure to
comply with or satisfy any covenant, condition or agreement under the Merger
Agreement.
The parties must use their reasonable best efforts to take all appropriate
action necessary or advisable under applicable law or otherwise to consummate
the Merger, including obtaining any required consents of third parties and
governmental authorities.
DIC must advance or cause to be advanced prior to the Effective Time
sufficient funds to the Company or to Merger Sub to acquire all of the
outstanding Public Shares in the Merger. The Company shall reasonably cooperate
with DIC in obtaining financing as aforesaid.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a summary of certain federal income tax considerations that
may be relevant to certain shareholders. The discussion below is based upon the
provisions of the Internal Revenue Code of 1986, as amended (the "Code") and the
regulations, rulings, and judicial decisions thereunder as of the date hereof,
all of which are subject to repeal, revocation, or modification so as to result
in federal income tax consequences different from those discussed below. This
summary deals only with
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shareholders that held Shares as capital assets within the meaning of Section
1221 of the Code, and does not address tax considerations applicable to
investors that may be subject to special tax rules, such as banks, tax-exempt
entities, insurance companies, dealers in securities or currencies, shareholders
who acquired Shares pursuant to the exercise of employee stock options or
otherwise as compensation, individuals who are not citizens or residents of the
United States, foreign corporations, and investors that held Shares as part of a
"straddle," "hedge," or "conversion transaction." The following discussion is
not binding on the Internal Revenue Service ("IRS") and no ruling from the IRS
has been sought or will be sought with respect to such tax consequences. In
addition, the following discussion does not consider the application and effect
of the alternative minimum tax, and state, local, and foreign tax laws.
THIS DISCUSSION IS INCLUDED FOR YOUR GENERAL INFORMATION ONLY AND IS BASED
ON EXISTING TAX LAW AS OF THE DATE OF THIS PROXY STATEMENT, WHICH MAY DIFFER
FROM THE TAX LAW IN EFFECT AS OF THE DATE OF THE EFFECTIVE TIME OF THE MERGER.
YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER TO YOU, INCLUDING THE APPLICATION AND EFFECT OF
STATE, LOCAL, FOREIGN, AND OTHER TAX LAWS.
The Merger, in which the Public Shareholders will receive cash for their
Shares, will be disregarded for federal income tax purposes and the transaction
will be treated (i) as a redemption by the Company of its Shares, subject to the
provisions and limitations of Section 302 of the Code, to the extent the source
of funds to pay the Merger Consideration to Public Shareholders is loaned to the
Merger Sub, or (ii) as a sale of the Shares to DIC to the extent the source of
funds to pay the Merger Consideration to Public Shareholders is contributed by
DIC to the Merger Sub's capital.
Under Section 302 of the Code, a redemption of the Shares will be treated as
a sale or exchange if such redemption results in a "complete termination" of a
Public Shareholder's interest in the Company. Public Shareholders should
experience a complete termination of their interests in the Company because, as
a result of the Merger, DIC will acquire ownership of all the stock of the
Company and the constructive ownership rules of Section 318 of the Code should
not apply to cause any Public Shareholder to be treated as owning Shares
actually owned by DIC. Accordingly, to the extent Shares are treated as being
redeemed by the Company, a Public Shareholder will recognize capital gain or
loss equal to the difference between such shareholder's adjusted tax basis in
those Shares treated as redeemed and the amount of cash received in exchange for
such Shares.
To the extent the Merger Consideration received by Public Shareholders is
treated for federal income tax purposes as proceeds from the sale of Shares to
DIC, a Public Shareholder will recognize capital gain or loss in an amount equal
to the difference between such shareholder's adjusted tax basis in those Shares
treated as sold to DIC and the amount of cash received in exchange for such
Shares.
Any dissenting Public Shareholder who objects to the Merger and perfects his
or her rights of appraisal under the MBCA generally will recognize either
capital gain or loss in an amount equal to the difference between the Public
Shareholder's adjusted tax basis in its Shares and the amount of cash received
in exchange therefor.
In general, the maximum rate on net long-term capital gains recognized by
individuals, trusts and estates from the sale or exchange of capital assets held
for more than 12 months is 20%, as compared with a maximum rate 39.6% on
ordinary income. For 15% bracket taxpayers, the maximum rate on net long-term
capital gains is ten percent. Corporate shareholders generally are subject to
tax at a maximum rate of 35% on both capital gains and ordinary income. The
distinction between capital gain and ordinary income may be relevant for certain
other purposes, however, including a corporate taxpayer's ability to utilize
capital loss carryovers to offset any gain recognized.
22
<PAGE>
RIGHTS OF DISSENTING SHAREHOLDERS
Public Shareholders of the Company are entitled to appraisal rights in
connection with the Merger under Section 909 of the MBCA. Section 909 is
reprinted in Annex B to this Proxy Statement. The following discussion is only a
summary of the material provisions of the law relating to statutory appraisal
rights. Any holder of Shares who wishes to exercise statutory appraisal rights,
or who wishes to preserve the right to do so, should review the following
discussion and Annex B carefully. FAILURE TO TIMELY AND PROPERLY COMPLY WITH THE
PROCEDURES SPECIFIED MAY RESULT IN THE LOSS OF DISSENTERS' APPRAISAL RIGHTS
UNDER THE MBCA.
A person with a beneficial interest in Shares that are held of record in the
name of another person, such as a broker or nominee, must act promptly to cause
the record holder to follow the steps summarized below in a timely manner to
perfect whatever appraisal rights the beneficial owner may wish to exercise.
Public Shareholders who desire to exercise their appraisal rights under
Section 909 must (i) deliver a written objection to the Merger to the Company
prior to or at the Special Meeting (at 511 Fifth Avenue, New York, NY 10017,
Attention: Secretary), and (ii) not vote in favor of the adoption of the Merger
Agreement. The written objection must be in addition to and separate from any
abstention or vote against the approval of the Merger Agreement. Voting against,
abstaining from voting or failing to vote on the approval of the Merger
Agreement will not constitute an objection to the Merger within the meaning of
Section 909. (Public Shareholders who timely file such written objection and who
do not vote their Shares in favor of the Merger are referred to hereinafter as
"Dissenting Shareholders.")
If the Merger is approved, on or before the 15(th) day after the date on
which the shareholder vote was taken (the "Shareholder Demand Date"), Dissenting
Shareholders must make written demand to the Company for payment of the fair
value of their Shares. That written demand must be delivered in person or by
registered or certified mail to the Company (at its registered office within the
State of Maine at One Portland Square, 9(th) Floor, Portland, ME 04101,
Attention: Peter B. Webster, Clerk, or at its principal place of business at 511
Fifth Avenue, New York, NY 10017, Attention: Secretary) and must specify the
Dissenting Shareholder's current address. Dissenting Shareholders who fail to
make a written demand within the 15-day period in the prescribed form and manner
lose their appraisal rights under Section 909, and their Shares will be canceled
and converted into the right to receive $30 per share pursuant to the terms of
the Merger Agreement.
A written demand for payment of the fair value of a Dissenting Shareholder's
Shares may not be withdrawn without the Company's consent. Any Public
Shareholder making an objection and demand pursuant to Section 909 shall
thereafter be entitled only to payment as provided by Maine law and shall not be
entitled to vote or to exercise any other rights of a shareholder.
At the time of filing the written demand for payment with the Company or
within 20 days thereafter, Dissenting Shareholders must submit the
certificate(s) representing their Shares to the Company or ChaseMellon
Shareholder Services, L.L.C., its transfer agent, for notation thereon that such
demand had been made. Those certificate(s) will promptly be returned after entry
thereon of that notation. A Dissenting Shareholder's failure to submit Shares
for notation will, at the option of the Company, terminate such shareholder's
rights under Section 909 unless a court of competent jurisdiction, for good and
sufficient cause shown, otherwise directs.
Section 909 requires the Company to give each Dissenting Shareholder who has
made a demand as provided therein written notice that the Merger has been
effected, and a written offer stating the price the Company deems to be the fair
value of its Shares, together with the most recently available balance sheet and
profit and loss statement of the Company for the 12-month period ended as of the
date of the balance sheet. This written notice, offer and financial statements
must be provided on or before the 10(th) day after the Effective Time or the
10(th) day after the Shareholder Demand Date, whichever is later (the "Company
Offer Date").
23
<PAGE>
If the Company and the Dissenting Shareholder agree on the fair value of the
Dissenting Shareholder's shares within 20 days after the Company Offer Date, the
Company must pay such fair value to the Dissenting Shareholder within 90 days
after the Effective Time, upon surrender of the certificate(s) representing the
Share(s).
If within 20 days after the Company Offer Date, the Dissenting Shareholder
and the Company fail to agree on the fair value of the Dissenting Shares and the
Company receives a written demand for suit from any Dissenting Shareholder
within 60 days after the Effective Time, then within 30 days of receipt of the
written demand the Company must file an action in the Superior Court of
Cumberland County, Maine for a determination of the fair value of the Shares. In
the absence of a demand for suit, the Company may of its own accord bring an
action in said court within 60 days after the Effective Time. If the Company
fails to file an action in such 60-day period, any Dissenting Shareholder may do
so in the Company's name. No such action may be brought by either the Company or
any Dissenting Shareholder later than six months after the Effective Time.
The jurisdiction of the court in any action to determine fair value is
plenary and exclusive. All Dissenting Shareholders (other than those who have
agreed upon the price to be paid for their Shares) are parties to the
proceedings and must be served with a copy of the complaint and will be entitled
to judgment against the Company for the fair value of their Shares, as
determined by the court.
The court may appoint one or more persons as appraisers to make a
recommendation on fair value. The fair value of the Dissenting Shares will be
determined by the court as of the day prior to the date of the Special Meeting,
excluding any appreciation or depreciation of Shares in anticipation of the
Merger. The Maine Supreme Judicial Court, which is the highest court in the
state, has previously determined the "fair value" of shares of a public company
by reference to the shares' stock market price, net asset value and investment
value as appropriately weighted. The method used in that case, while not
exclusive, suggests the types of factors likely to be considered by a Maine
court in determining the "fair value" of the Dissenting Shares.
Fair value, as determined by the court, is payable to each Dissenting
Shareholder only upon and concurrently with the surrender to the Company of the
certificates representing the Dissenting Shareholder's Shares. Upon payment, the
Dissenting Shareholder ceases to have any interest in the Dissenting Shares. The
judgment shall include an allowance for interest at such rate as the court may
find to be fair and equitable under the circumstances, from the date of the
Special Meeting to the date of payment, unless the court finds that the refusal
of the shareholder to accept the Company's offer for payment was arbitrary,
vexatious or not in good faith.
The costs and expenses of any proceeding will be determined by the court and
will be assessed against the Company, but all or any part of such costs and
expenses may be apportioned and assessed as the court deems equitable against
any or all of the Dissenting Shareholders who are parties to the proceeding to
whom the Company made an offer to pay for their Shares if the court finds that
the action of such Dissenting Shareholders in failing to accept the Company's
offer was arbitrary, vexatious or not in good faith. Expenses shall include
reasonable compensation for and reasonable expenses of the appraisers, but
exclude the fees and expenses of counsel or experts employed by any party unless
the court otherwise orders for good cause. If, however, the fair value of the
Dissenting Shares as determined by the court materially exceeds the amount which
the Company offered to pay therefor, or if no offer was made, the court, in its
discretion, may award to any Dissenting Shareholder who is a party to the
proceeding a sum as the court may determine to be reasonable compensation to any
expert employed by the Dissenting Shareholder and may award the Dissenting
Shareholder all or part of the Dissenting Shareholder's attorney's fees and
expenses.
Shareholders considering seeking appraisal should be aware that the fair
value of their Shares determined under Section 909 could be more, the same, or
less than the $30 that they are entitled to receive pursuant to the Merger
Agreement if they do not seek appraisal of their Shares. Investment banking
opinions as to fairness from a financial point of view are not necessarily
opinions as to fair
24
<PAGE>
value under Section 909. Maine case law has established that a merger offer
premium for shares of a corporation does not fix a minimum price at which a
court can determine the value of shares in an appraisal proceeding. Because
judicial determination of fair value of corporate stock must be calculated
independently of the merger transaction, the appraisal may result in a different
price than the price which was determined to be fair in an investment banking
opinion.
Failure to follow the steps required by Section 909 of the MBCA for
perfecting appraisal rights may result in the loss of such rights. In view of
the complexity of Section 909 of the MBCA, shareholders of the Company who are
considering dissenting from the Merger should consult their legal advisors.
FEES AND EXPENSES
The Merger Agreement provides that all costs and expenses incurred in
connection with the Merger and other transactions will be paid by the party
incurring them.
THE COMPANY
The Company estimates that it will incur approximately $1.5 million in
expenses in connection with the Merger, including: (i) investment banking fees
of $800,000; (ii) Commission filing fees of $20,546; (iii) legal fees and
expenses of approximately $563,120; (iv) accounting fees of approximately
$25,000; and (v) fees to the Paying Agent, printing and mailing costs of
approximately $50,000.
DIC
DIC estimates that it will incur approximately $1.25 million in expenses in
connection with the Merger, including: (i) investment banking fees of $450,000;
(ii) legal fees of approximately $300,000; (iii) fees relating to economic
opinions of $300,000; and (iv) accounting fees of approximately $100,000.
FINANCING OF THE MERGER
Approximately $103 million will be required to purchase the Public Shares
pursuant to the Merger, and approximately $1.5 million will be required to pay
related fees and expenses incurred by the Company in connection with the Merger.
Under the Merger Agreement, DIC has agreed to provide prior to the Effective
Time sufficient funds to Merger Sub or the Company to acquire all of the
outstanding Public Shares in the Merger. The Company must reasonably cooperate
with DIC in obtaining such financing. The total amount of funds required by
Merger Sub to complete the Merger is estimated to be approximately $103 million.
Under a loan agreement between Merger Sub and DIC, dated , 1999,
Merger Sub will borrow an aggregate of $ . Such loan, bearing
interest at a rate of not less than LIBOR + 0.5% per annum, will have a
repayment date of one year, provided that the lender will be entitled to an
early repayment of the loan amount, and the borrower will be entitled to prepay
the loan, upon written notice at least 30 days prior to such early repayment or
prepayment. Upon consummation of the Merger, the Surviving Corporation shall
assume such loan.
BUSINESS OF THE COMPANY
The Company organizes, acquires interests in, finances and participates in
the management of companies predominantly located in or related to the State of
Israel. The Company is often involved in the early development of a company and
has participated in the organization, financing or increase in capital of over
150 Israeli enterprises since its incorporation in 1926. The Company
participates actively in management through representation on boards of
directors and is involved in a broad cross-section of Israeli companies engaged
in various fields of business, including telecommunications and technology,
manufacturing, real estate, retailing, shipping and consumer products.
25
<PAGE>
Among the Company's holdings are significant interests in one of Israel's
three cellular telephone providers (Cellcom Israel Ltd.), the Company's largest
single holding and a private corporation controlled by an unaffiliated third
party, the cable television company that serves the Tel-Aviv metropolitan area
and several other areas in Israel (Tevel Israel International Communications
Ltd.), a company that is a world leader in digital visual information
communication for the graphic design, printing, publishing and video markets
(Scitex Corporation Ltd.), one of Israel's leading diversified high technology
holding companies (Elron Electronic Industries Ltd.), Israel's largest paint
manufacturer (Tambour Ltd.), one of Israel's most active real estate
construction and development companies (Property and Building Corporation Ltd.),
one of Israel's largest shipping companies (El-Yam Ships Ltd.) and Israel's
largest supermarket chain in terms of revenue (Super-Sol Ltd.). The Company is
also involved in several venture capital funds and early stage development
companies.
The Company acquires interests in companies it believes have attractive
long-term growth potential. The Company generally seeks to acquire and maintain
a sufficient equity interest in a company to permit the Company, in conjunction
with other companies controlled by IDB Holding (and, together with the companies
controlled by it, the "IDB Group"), to have a significant influence in the
management and operation of that company. The Company emphasizes the potential
for long-term capital appreciation over the ability or intention of an
enterprise to provide a cash return in the near future. Among the other factors
the Company considers in determining whether to acquire an interest in a
specific enterprise are quality of management, global or domestic market share,
export sales potential, and ability to take advantage of the growth of the
domestic Israeli economy.
IDB Holding, through DIC, its indirect majority-owned subsidiary,
beneficially owns approximately 81.35% of the outstanding common stock of the
Company. IDB Holding is one of the largest business enterprises operating in the
private sector of the Israeli economy, with consolidated assets exceeding $2.8
billion as of September 30, 1998. DIC owns shares of many Israeli companies in
which the Company has holdings and, through a subsidiary, has an agreement with
the Company that each will offer the other equal participation in business
opportunities that become available to either of them in Israel for a fee of
2.5% of the equity or long-term debt invested by the paying party in business
opportunities initiated or initially presented by the other party. The Company
participates directly and through a contractual arrangement with DIC in the
management of the companies in which both the Company and DIC hold equity
interests. The Company and DIC have agreed to cooperate on matters concerning
the advancement and development of companies in which each owns voting
interests, including the use of their voting power as shareholders on a mutually
agreed basis. The Company also has entered into voting agreements with other
members of the IDB Group with respect to voting of the stock of certain of such
companies.
The Company believes that its agreements with DIC and the Company's
relationship with the IDB Group afford the Company an important source of new
business opportunities in Israel, significant influence in the management and
operations of companies in which the Company holds shares, and savings in the
Company's cost of conducting its business. See "SPECIAL FACTORS--Purpose and
Structure of the Merger; Reasons for the Merger".
The Company has received an Order from the Commission determining that it is
not an investment company within the meaning of the Investment Company Act of
1940. In light of the Order, the Company has determined that its business
holdings should continue to be concentrated in Israel-related companies that it,
IDB Holding and other members of the IDB Group control or in which they exercise
a significant influence. See "SPECIAL FACTORS--Purpose and Structure of the
Merger; Reasons for the Merger".
26
<PAGE>
SELECTED FINANCIAL INFORMATION OF THE COMPANY
Set forth below is financial information excerpted or derived from the
audited financial statements in the Company's Annual Report on Form 10-K for the
year ended December 31, 1997 (the "Form 10-K") and the unaudited financial
statements in the Company's report on Form 10-Q for the quarter ended September
30, 1998. More comprehensive financial information is included in those
documents, which are incorporated by reference in this Proxy Statement. The
summary financial information is qualified by reference to these reports. You
may obtain copies of those documents, but not the related exhibits, free of
charge by requesting them from the Secretary of the Company.
PEC ISRAEL ECONOMIC CORPORATION
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, FISCAL YEAR ENDED DECEMBER 31,
---------------------- ----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Income from:
Equity in net income of Affiliated
Companies......................... $ 25,695 $ 39,065 $ 48,538 $ 23,438 $ 23,720 $ 25,338 $ 33,542
Total Revenues........................ 37,472 73,115 88,630 44,535 42,065 40,798 60,648
Net Income*........................... 18,370 48,099 54,503 28,213 25,242 32,566 41,970
Net Income per Common Share*
Basic............................... 1.00 2.60 2.95 1.51 1.35 1.73 2.24
Diluted............................. 0.98 2.57 2.92 1.49 1.34 1.72 2.23
Weighted Average Number of Outstanding
Common Shares....................... 18,362 18,508 18,472 18,714 18,759 18,759 18,759
Total Assets.......................... 473,419 464,340 461,104 407,703 392,967 383,691 347,873
Total Liabilities..................... 64,706 44,348 44,979 33,827 35,680 42,223 40,636
Shareholders' Equity.................. 408,713 419,992 416,125 373,876 357,287 341,468 307,237
Common Shareholders' Equity per Common
Share............................... 22.26 22.69 22.66 20.20 19.05 18.20 16.38
Number of Outstanding Common Shares at
the End of Each Period.............. 18,362 18,508 18,362 18,508 18,759 18,759 18,759
</TABLE>
- ------------------------
* Net income for 1993 is after the cumulative effect of a change in accounting
for income taxes of ($1,174,000) or $(.06) per share of Common Stock. Net
income for 1994 is after the cumulative effect of a change in accounting for
marketable securities of $2,473,000 or $.13 per share of Common Stock. Net
income is after loss from discontinued operations of General Engineers
Limited, net of income taxes, of $380,000 for 1995 ($.02 per share),
$104,000 for 1994 ($.01 per share) and $67,000 for 1993 (no cents per
share).
No dividends were paid during the last five years. Pursuant to a loan
agreement, the Company cannot pay dividends that will result in its
consolidated total net assets over consolidated total liabilities (exclusive
of liabilities subordinated in terms of payment to the loan) to fall below
$300,000,000.
27
<PAGE>
PEC ISRAEL ECONOMIC CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(amounts in thousands of dollars)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
-------------------------- SEPTEMBER 30,
1996 1997 1998
------------ ------------ -------------
<S> <C> <C> <C>
Pre-tax income from continuing operations.............................. $ 33,002 $ 76,041 $ 26,313
Less: Undistributed income of Affiliated Companies..................... (41,559) (54,153) (35,509)
Add: Equity in losses of Affiliated Companies.......................... 20,964 6,118 11,331
------------ ------------ -------------
Adjusted Pre-tax income................................................ $ 12,407 $ 28,006 $ 2,135
------------ ------------ -------------
------------ ------------ -------------
Fixed charges:
Interest expense and amortization of deferred financing costs on all
indebtedness (A)................................................... 6 12 939
Interest component of operating leases (B)........................... 0 0 0
------------ ------------ -------------
TOTAL FIXED CHARGES.............................................. 6 12 939
------------ ------------ -------------
EARNINGS BEFORE INCOME TAXES, DISCONTINUED
OPERATIONS AND FIXED CHARGES......................................... 12,413 28,018 3,074
------------ ------------ -------------
------------ ------------ -------------
RATIO OF EARNINGS TO FIXED CHARGES..................................... 2,068.83 2,334.83 3.27
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
- ------------------------
(A) Amount includes interest expense of $6, $12 and $107 for the years ended
December 31, 1996, 1997 and nine months ended September 30, 1998,
respectively, for General Engineers Limited, a wholly-owned subsidiary of
the Company.
(B) The interest component of the Company's operating leases is considered to be
de minimis and accordingly, no such amount has been included in the
computation.
28
<PAGE>
OWNERSHIP OF SHARES
The following table presents information provided to the Company as to the
beneficial ownership of the Shares (such Shares being the only class of voting
securities now outstanding), as of , 1999 by persons holding 5% or
more of such Shares:
<TABLE>
<CAPTION>
TITLE OF NAME AND ADDRESS
CLASS OF BENEFICIAL OWNER NUMBER OF SHARES NATURE OF OWNERSHIP PERCENTAGE OF CLASS
- ----------------- --------------------------------- ----------------- -------------------- -------------------
<S> <C> <C> <C> <C>
Common Stock DIC 14,937,792 Direct ownership 81.35%
14 Beth Hashoeva Lane
Tel Aviv 61016, Israel
</TABLE>
The following table shows, for each director and each executive officer of
the Company, and for all directors and executive officers of the Company as a
group, the total number of Shares beneficially owned as of , 1999,
and the nature of such beneficial ownership.
<TABLE>
<CAPTION>
TITLE OF NUMBER OF SHARES
CLASS NAME OF BENEFICIAL OWNER OWNED DIRECTLY*
- ----------------- ---------------------------------------------------------------------------- -----------------
<S> <C> <C>
Common Stock Oudi Recanati............................................................... -0-
Frank J. Klein.............................................................. 1,200
Robert H. Arnow............................................................. 3,900
Alan R. Batkin.............................................................. 1,000
Joseph Ciechanover.......................................................... 2,000
Eliahu Cohen................................................................ -0-
Alan S. Jaffe............................................................... 400(1)
Hermann Merkin.............................................................. -0-
Harvey M. Meyeroff.......................................................... 10,400
Michael A. Recanati......................................................... -0-
Alan S. Rosenberg........................................................... -0-
James I. Edelson............................................................ 2,000
William Gold................................................................ 1,000(2)
All Executive Officers and Directors as a group (13 in number).............. 21,900
</TABLE>
- ------------------------
(1) Mr. Jaffe shares the power to vote and dispose of these Shares with his
wife.
(2) Includes 500 Shares owned by Mr. Gold's wife. Mr. Gold disclaims beneficial
ownership of these Shares.
* None of the executive officers and directors, or the executive officers and
directors as a group, owns as much as 1% of the Shares of the Company.
None of the directors and executive officers of DIC nor of Merger Sub, other
than those who are directors and executive officers of the Company listed above,
own any Shares. For information on the ownership of shares of DIC, IDB
Development and IDB Holding, see "SPECIAL FACTORS-- Interests of Certain Persons
in the Merger".
29
<PAGE>
TRANSACTIONS BY CERTAIN PERSONS IN SHARES
The Company and DIC have not effected any transactions in Shares during the
past 60 days. To the best of the Company's and DIC's knowledge, no officer or
director of the Company or DIC has effected any transaction in Shares during the
past 60 days other than the sale by Alan S. Rosenberg, a director of the
Company, of 5,000 Shares on January 4, 1999 at $28.50 per share. According to
IDB Development's and DIC's records, since January 1, 1995, the Company, IDB
Development and DIC have purchased the following number of Shares at the
following average price per Share:
<TABLE>
<CAPTION>
COMPANY IDB DEVELOPMENT
-------------------------------------------- ---------------------------------
AVERAGE RANGE AVERAGE RANGE
NUMBER PRICE OF NUMBER PRICE OF
OF PER PRICES OF PER PRICES
SHARES SHARE PAID SHARES SHARE PAID
--------- ----------- -------------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1995:
First Quarter................................ -0- -- -- -0- -- --
Second Quarter............................... -0- -- -- -0- -- --
Third Quarter................................ -0- -- -- -0- -- --
Fourth Quarter............................... -0- -- -- -0- -- --
1996:
First Quarter................................ -0- -- -- -0- -- --
Second Quarter............................... -0- -- -- -0- -- --
Third Quarter................................ 45,200 18.09 17.00--19.00 -0- -- --
Fourth Quarter............................... 205,000 16.58 15.00--17.25 -0- -- --
1997:
First Quarter................................ -0- -- -- -0- -- --
Second Quarter............................... -0- -- -- -0- -- --
Third Quarter................................ 14,700 19.47 19.25--19.50 -0- -- --
Fourth Quarter............................... 131,500 20.30 19.7150--21.50 -0- -- --
1998:
First Quarter................................ -0- -- -- 1,744,200 $ 25.50(1) 25.50
Second Quarter............................... -0- -- -- -0- -- --
Third Quarter................................ -0- -- -- -0- -- --
Fourth Quarter (through , 1998)........ -0- -- -- -0- -- --
<CAPTION>
DIC
-----------------------------------------
AVERAGE RANGE
NUMBER PRICE OF
OF PER PRICES
SHARES SHARE PAID
------------- ------------- -----------
<S> <C> <C> <C>
1995:
First Quarter................................ -0- -- --
Second Quarter............................... -0- -- --
Third Quarter................................ -0- -- --
Fourth Quarter............................... -0- -- --
1996:
First Quarter................................ -0- -- --
Second Quarter............................... -0- -- --
Third Quarter................................ -0- -- --
Fourth Quarter............................... -0- -- --
1997:
First Quarter................................ -0- -- --
Second Quarter............................... -0- -- --
Third Quarter................................ -0- -- --
Fourth Quarter............................... -0- -- --
1998:
First Quarter................................ -0- -- --
Second Quarter............................... -0- -- --
Third Quarter................................ -0- -- --
Fourth Quarter (through , 1998)........ -0- -- --
</TABLE>
- ------------------------------
(1) The 1,744,200 were purchased on March 25, 1998 in privately negotiated
transactions from 15 individuals or entities.
30
<PAGE>
MANAGEMENT OF THE COMPANY, DIC, IDB DEVELOPMENT,
IDB HOLDING, AND MERGER SUB
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the name, current business address,
citizenship and present principal occupation or employment, and material
occupations, positions, offices or employments and business addresses thereof
for the past five years of each director and executive officer of the Company.
Unless otherwise indicated, the current business address of each person is PEC
Israel Economic Corporation, 511 Fifth Avenue, New York, New York 10017.
Citizenship of each individual is the same as the country of business address or
residence unless otherwise noted.
DIRECTORS
The Company's current directors and certain biographical information
concerning such individuals are set forth below.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME AND CURRENT RESIDENCE/ MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
BUSINESS ADDRESS AND BUSINESS ADDRESSES THEREOF
<S> <C>
Oudi Recanati....................... Chairman of the Company and from June 1997 to June
c/o IDB Holding Corporation Ltd. 1998 Vice Chairman; Director, member of the Executive
"The Tower" Committee, Vice Chairman since August 1998 and
3 Daniel Frisch Street Co-Chief Executive Officer since November 1996 of IDB
Tel Aviv 64731, Israel Holding; Director and Vice Chairman of IDB
Development; Director since November 1996 and
Chairman since March 1997 of DIC; For more than five
years prior to October 7, 1998, Chairman, Y.L.R.
Capital Markets (1992) Ltd., Investment Banking;
Director, Overseas Shipholding Group, Inc.
Frank J. Klein...................... President of the Company since January 1, 1995;
Director, Elron Electronic Industries Ltd., Level 8
Systems, Inc., Scitex Corporation Ltd., Super-Sol
Ltd. and Tefron Ltd.; For more than 20 years prior to
1995, an officer of Israel Discount Bank of New York
(Executive Vice President from December 1985 to
December 1994); Executive Vice President of the
Company from November 1977 to November 1991 and
Treasurer of the Company from May 1980 to November
1991.
Robert H. Arnow..................... Chairman of the Board of Weiler Arnow Mgt. Co., Inc.,
c/o Weiler Arnow Mgt. Co. Real Estate
1114 Avenue of the Americas
New York, New York 10036
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME AND CURRENT RESIDENCE/ MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
BUSINESS ADDRESS AND BUSINESS ADDRESSES THEREOF
<S> <C>
Alan R. Batkin...................... Vice Chairman of Kissinger Associates, Inc.,
c/o Kissinger Associates Geopolitical Consultants; Director, Hasbro, Inc.
350 Park Avenue
New York, New York 10022
Joseph Ciechanover.................. President of Atidim-Etgar Nihul Kranot B.M., General
c/o Atidim-Etgar Nihul Kranot B.M. Partner, Investments; Chairman, El Al Israel Airlines
P.O. Box 55 Ltd.; From 1980 through 1994, President of the
Savion 56530, Israel Company
Eliahu Cohen........................ Director, Chairman of the Executive Committee since
c/o IDB Holding Corporation Ltd. November 1996 and until November 1996 Deputy Chairman
"The Tower" of the Executive Committee of IDB Holding; Director
3 Daniel Frisch Street and Co-Chief Executive Officer of IDB Development;
Tel Aviv 64731, Israel Director, DIC, Super-Sol Ltd., and Clal (Israel) Ltd;
For more than 10 years prior to November 1996, Joint
Managing Director of IDB Holding.
Alan S. Jaffe....................... Partner at Proskauer Rose LLP, Attorneys, counsel to
c/o Proskauer Rose LLP the Company
1585 Broadway
New York, New York 10036
Hermann Merkin...................... Member of the NYSE and the American Stock Exchange,
c/o Merkin & Co. Inc. Inc.; Director, IDB Holding and DIC
415 Madison Avenue
New York, New York 10017
Harvey M. Meyerhoff................. Chairman of Magna Holdings, Inc., Investments
c/o Magna Holdings, Inc.
25 South Charles Street
Baltimore, Maryland 21201
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME AND CURRENT RESIDENCE/ MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
BUSINESS ADDRESS AND BUSINESS ADDRESSES THEREOF
<S> <C>
Michael A. Recanati................. President of 511 Equities Corp. (investments) since
c/o 511 Equities Corp. December 1997. From October 1995 until March 1997,
511 Fifth Avenue Chairman and Chief Executive Officer of IFusion Com
New York, New York 10017 Corp. (development stage Internet technology
corporation). For more than five years prior to
September 1995, Executive Vice President and
Treasurer of Overseas Shipholding Group, Inc.
Alan S. Rosenberg................... Private Investor; From 1967 through 1994, Partner at
115 Central Park West Proskauer Rose LLP, Attorneys, counsel to the Company
New York, New York 10023 1585 Broadway New York, NY 10036-8299
</TABLE>
EXECUTIVE OFFICERS
The Company's current executive officers and certain biographical
information concerning such individuals are set forth below.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; MATERIAL
NAME AND POSITIONS HELD DURING THE PAST FIVE YEARS AND
CURRENT BUSINESS ADDRESS BUSINESS ADDRESSES THEREOF
<S> <C>
Frank J. Klein...................... See table of the Company's directors.
James I. Edelson.................... Executive Vice President, Secretary and General
Counsel of the Company since February 1992; U.S.
Resident Corporate Secretary of IDB Holding
William Gold........................ Treasurer of the Company since February 1992. Mr.
Gold was Secretary and Assistant Treasurer of the
Company from August 1970 to February 1992.
</TABLE>
DIRECTORS AND EXECUTIVE OFFICERS OF DIC
The following table sets forth the name, current business address,
citizenship and present principal occupation or employment, and material
occupations, positions, offices or employments and business addresses thereof
for the past five years of each director and executive officer of DIC. Unless
otherwise indicated, the current business address of each person is 14 Beth
Hashoeva Lane, Tel Aviv 61016, Israel. Citizenship of each individual is the
same as the country of business address or residence unless otherwise noted.
DIRECTORS
DIC's current directors and certain biographical information concerning such
individuals are set forth below.
<TABLE>
<CAPTION>
<S> <C>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; MATERIAL
NAME, CITIZENSHIP AND POSITIONS HELD DURING THE PAST FIVE YEARS AND
CURRENT RESIDENCE/BUSINESS ADDRESS BUSINESS ADDRESSES THEREOF
</TABLE>
33
<PAGE>
<TABLE>
<S> <C>
Oudi Recanati....................... See table of the Company's directors.
Eliahu Cohen........................ See table of the Company's directors.
Dalia Lev........................... Director and Co-Chief Executive Officer since
"The Tower" November 1996, and until November 1996 Principal
3 Daniel Frisch Street Accounting Officer and Deputy General Manager of IDB
Tel Aviv 64731, Israel Development; Director and member of the Executive
Committee since November 1996, and until November
1996 Principal Accounting Officer and Deputy General
Manager of IDB Holding; and Director of Clal (Israel)
Ltd., Clal Atidim Tower, Bldg. No. 4, Atidim
High-Tech Industrial Park, Tel Aviv 61581 Israel;
Since April 1997, Chairman of the Board of Directors
of Super-Sol Ltd. and Director of other companies in
IDB Group.
Dov Tadmor.......................... Managing Director of DIC; Director of IDB
Development; Director and member of the Executive
Committee of IDB Holding; and Chairman or member of
the Boards of Directors of companies in IDB Group,
including Gemini Capital Fund Management Ltd.,
Property and Building Corporation Ltd., Scitex
Corporation Ltd., Cellcom (Israel) Ltd., Tevel-Israel
International Communications Ltd., Gilat
Communications Ltd., Gilat Satellite Networks Ltd.
and NICE Systems Ltd.
Lenny Recanati...................... Director and Senior Manager of DIC; Since 1998,
Director of IDB Holding, Chairman of Ilanot Batucha
Investment House Ltd. and director of other companies
in IDB Group
Abraham Ben Naftali................. Director and member of the Audit Committee of DIC;
15 Yavne Street Attorney, Lecturer in Law School of the College of
Tel Aviv, Israel Management, Director of DIC Bonds Issues Ltd. (a
wholly-owned subsidiary of DIC, "DIC Bonds"),
Director of Wolfson Clore Mayer Corp. Ltd., Weizman
Institute of Science, Bible Lands Museum, the Israel
Friends of Ben Gurion University of the Negev, the
Arthur Rubinstein International Music Society,
Financing Financial Investments Ltd., and Pecunolia
Ltd.
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; MATERIAL
NAME, CITIZENSHIP AND POSITIONS HELD DURING THE PAST FIVE YEARS AND
CURRENT RESIDENCE/BUSINESS ADDRESS BUSINESS ADDRESSES THEREOF
<S> <C>
Gideon Lahav........................ Director and member of the Audit Committee of DIC;
124 Ahad Ha'am Street Until November 1997, Chairman of the Board of
Tel Aviv, Israel Directors of Israel Discount Bank Ltd. and of its
subsidiaries; since 1998, Director of Petrochemical
Industries, Delta Textile Industries and Phoenix
Insurance Company Ltd.
Boaz Ronen.......................... Director and member of the Audit Committee of DIC;
47 Hankin Street Lecturer in the Faculty of Management of Tel Aviv
Ranna, Israel University, Recanati Building, Ramat Aviv Israel;
business consultant at Focused Management Ltd;
Director of DIC Bonds, Lannet (from 1994-1995), and
Carniplast (from 1996-1997).
Haym Carasso........................ Director and Chairman of the Audit Committee of DIC;
24 Rival Street Director and Joint General Manager of Moise Carasso
Tel Aviv, Israel Sons Ltd., 26 Rival St., Tel Aviv 67778 Israel;
Director of IDB Holding and other family-owned
companies
Yair Hamburger...................... Director of DIC; President and Chairman of the Board
30 Yavne Street of Directors and Director of subsidiaries of Harel
Tel Aviv, Israel Insurance Investments Ltd., 3 Abba Hillel St., Ramat
Gan 52522 Israel; Chairman of the Board of Directors
of Shiloah Insurance Company Ltd., Director of Life
Insurance Companies Institute Ltd. and Director of
IDB Holding
Shimon Mizrahi...................... Director of DIC; Attorney
Carasso Tower
12 Yad Harutzim Street
Tel Aviv, Israel
Hermann Merkin...................... See table of the Company's directors above
</TABLE>
35
<PAGE>
EXECUTIVE OFFICERS
DIC's current executive officers and certain biographical information
concerning such individuals are set forth below.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
MATERIAL POSITIONS HELD DURING
NAME, CITIZENSHIP AND CURRENT THE PAST FIVE YEARS AND BUSINESS
BUSINESS ADDRESS ADDRESSES THEREOF
<S> <C>
Yoram Turbowicz..................... Deputy General Manager and Deputy Managing Director
of DIC; Until 1997, Supervisor of Anti-Trust at the
Ministry of Industry and Trade
Michael Anghel...................... Senior Manager of DIC; Director of several companies
of DIC Group
Gideon Erhard....................... Senior Manager of DIC; Director and Manager of DBIC
International Ltd., Director of several companies of
DIC Group
Joseph J. Boock..................... Finance Manager of DIC and its wholly-owned
subsidiaries; Director of several companies of DIC
Group
Jacob Laskow........................ Manager of DIC (since May 1996); President of J.
Laskow & Co. Ltd. (business consulting, from
September 1995 to May 1996), Executive Vice President
of Iscar Group (until September 1995)
Shlomo Cohen........................ Legal Counsel of DIC and its wholly-owned
subsidiaries
Amos Bankirer....................... Controller of DIC and its wholly-owned subsidiaries
Taly Oren........................... Secretary of DIC and its wholly-owned subsidiaries
since September 1997; Until July 1997, Attorney at
Hapoalim Investments Ltd.
Benny Kotton........................ Internal Auditor of DIC
</TABLE>
DIRECTORS AND EXECUTIVE OFFICERS OF IDB DEVELOPMENT
The following table sets forth the name, current business address,
citizenship and present principal occupation or employment, and material
occupations, positions, offices or employments and business addresses thereof
for the past five years of each director and executive officer of IDB
Development. Unless otherwise indicated, the current business address of each
person is "The Tower," 3 Daniel Frisch Street, Tel Aviv 64731, Israel.
DIRECTORS
IDB Development's current directors and certain biographical information
concerning such individuals are set forth below. Citizenship of each individual
is the same as the country of residence or business address unless otherwise
noted.
35
<PAGE>
<TABLE>
<CAPTION>
NAME, CITIZENSHIP AND PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
CURRENT RESIDENCE OR BUSINESS MATERIAL POSITIONS HELD DURING THE PAST FIVE
ADDRESS YEARS AND BUSINESS ADDRESSES THEREOF
<S> <C>
Raphael Recanati.................... Chairman of the Board and until August 1998 Chief
Executive Officer of IDB Development; Chairman of the
Board, until November 1996 Chairman of the Executive
Committee, and until August 1998 Chief Executive
Officer of IDB Holding; President of Finmar Equities
Co. (shipping and finance); Chairman of the Board and
Chairman of the Executive Committee until June 1998
of the Company; Chairman of DIC until March 1997.
Eliahu Cohen........................ See table of directors of the Company above
Dalia Lev........................... See table of directors of DIC above
Arie Carasso........................ Director of IDB Development; Joint Managing Director
26 Rival Street of Moise Carasso Sons Ltd., Carasso Auto Distribution
Tel Aviv, Israel Ltd. and Pacific Auto Importers Ltd., all located at
26 Rival St., Tel Aviv 67778 Israel.
Raphael Molho....................... Director of IDB Development; Director of Companies
22 Ibn Gvirol Street
Jerusalem, Israel
Leon Recanati....................... Director, since August 1998 Vice Chairman, and until
November 1996 Joint General Manager of IDB
Development; Director, Vice Chairman, member of the
Executive Committee and since August 1998 Co-Chief
Executive Officer of IDB Holding; Chairman of the
Board of Clal (Israel) Ltd. since April 1997, Clal
Atidim Tower, Bldg. No. 4, Atidim High-Tech
Industrial Park, Tel Aviv 61581 Israel
Oudi Recanati....................... See table of directors of the Company above.
Dov Tadmor.......................... See table of directors of DIC above
Abraham Ben Joseph.................. Director of IDB Development; Director of Companies;
87 Haim Levanon Street Special Consultant for Business Development to Elbit
Ramat Aviv Systems Ltd., Advanced Technology Center, Haifa
Tel Aviv, Israel
Avishay Braverman................... Director of IDB Development; President of Ben Gurion
11 Jericho Street University of the Negev, Beer Sheva, Israel
Beer Sheva, Israel
Michael Levi........................ Director of IDB Development; President of Nilit,
Textile Fashion Ctr. Ltd., Textile Fashion Center, 2 Kaufman St., Tel
2 Kaufman Street Aviv, Israel
Tel Aviv, Israel
David Leviatan...................... Director of IDB Development; Director of Companies
18 Mendele Street
Herzliya, Israel
</TABLE>
36
<PAGE>
EXECUTIVE OFFICERS
IDB Development's current executive officers who are not listed above and
certain biographical information concerning such individuals are set forth
below.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
MATERIAL POSITIONS HELD
NAME, CITIZENSHIP AND DURING THE PAST FIVE YEARS AND
CURRENT BUSINESS ADDRESS BUSINESS ADDRESSES THEREOF
<S> <C>
Rina Cohen.......................... Comptroller since 1997; Comptroller of IDB Holding
Arthur Caplan....................... Secretary; Secretary of IDB Holding
Dual citizen of Israel and Great
Britain
</TABLE>
DIRECTORS AND EXECUTIVE OFFICERS OF IDB HOLDING
The following table sets forth the name, current business address,
citizenship and present principal occupation or employment, and material
occupations, positions, offices or employments and business addresses thereof
for the past five years of each director and executive officer of IDB Holding.
Citizenship of each individual is the same as the country of business address or
residence unless otherwise noted.
DIRECTORS
IDB Holding's current director and certain biographical information
concerning such individual is set forth below.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP AND MATERIAL POSITIONS HELD
CURRENT RESIDENCE/ DURING THE PAST FIVE YEARS AND
BUSINESS ADDRESS BUSINESS ADDRESSES THEREOF
<S> <C>
Raphael Recanati.................... See table of IDB Development's directors above
Arie Carasso........................ See table of IDB Development's directors above
Haym Carasso........................ See table of DIC's directors above
Eliahu Cohen........................ See table of the Company's directors above
William M. Davidson................. Director of IDB Holding; Chief Executive Officer of
2300 Harmon Road Guardian Industries Corporation
Auburn Hills, MI 48326-1714
Gideon Dover........................ Director of IDB Holding; Director of Companies
4 Uri Street
Tel Aviv, Israel
Yair Hamburger...................... See table of DIC's directors above
Robert J. Hurst..................... Director of IDB Holding; Vice Chairman in 1997 and
85 Broad Street member of the Executive Committee in 1995 of Goldman,
New York, New York 10021 Sachs & Co.
Dalia Lev........................... See table of DIC's directors above
Hermann Merkin...................... See table of the Company's directors above
Raphael Molho....................... See table of IDB Development's directors above
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP AND MATERIAL POSITIONS HELD
CURRENT RESIDENCE/ DURING THE PAST FIVE YEARS AND
BUSINESS ADDRESS BUSINESS ADDRESSES THEREOF
<S> <C>
Lenny Recanati...................... See table of DIC's directors above
Leon Recanati....................... See table of IDB Development's directors above
Oudi Recanati....................... See table of the Company's directors above
Meir Rosenne........................ Director of IDB Holding; Attorney
14 Aluf Simhony Street
Jerusalem, Israel
Dov Tadmor.......................... See table of DIC's directors above
Israel Zang......................... Director of IDB Holding; Dean and Professor, Faculty
10 Kissufim Street of Management of Tel Aviv University, Recanati
Tel Aviv, Israel Building, Ramat Aviv Israel
</TABLE>
EXECUTIVE OFFICERS
IDB Holding's current executive officers and certain biographical
information concerning such individuals are set forth in the tables previously
presented.
On February 16, 1994, following a lengthy trial in the District Court of
Jerusalem, State of Israel, of 22 defendants, including IDB Holding, the four
largest Israeli banks, and members of their senior managements, IDB Holding, all
the banks, including Israel Discount Bank Limited ("IDBL") of which IDB Holding
was the parent, and all the management-defendants were convicted of contravening
certain provisions of Israel's laws in connection with activities that arose out
of a program related to the regulation of bank shares prior to 1983. Messrs.
Raphael Recanati, Eliahu Cohen and Oudi Recanati, who were among the
management-defendants, and IDB Holding categorically denied any wrongdoing and
appealed to the Supreme Court of Israel, which found that the share regulation
had been authorized and encouraged by high officials of the Israeli Government,
overturned the principal count of the indictments of the management-defendants,
and acquitted IDB Holding of all charges. The Court left standing the lower
court's finding that Messrs. Raphael Recanati and Eliahu Cohen, who were
principal executive officers of IDBL, and Mr. Oudi Recanati, who was a member of
that bank's senior management, caused improper advice to be given in connection
with the sale of securities and that Messrs. Raphael Recanati and Eliahu Cohen
caused false entries in corporate documents, in contravention of Israeli laws.
Messrs. Raphael Recanati, Eliahu Cohen and Oudi Recanati received from the lower
court suspended sentences of two years, two years, and 18 months, respectively,
all of which have lapsed, and they were fined approximately $200,000, $167,000,
and $134,000, respectively. None of the activities in question, which occurred
more than 15 years ago, relate to or involved the Company or its business in any
way.
DIRECTORS AND EXECUTIVE OFFICERS OF MERGER SUB
The following table sets forth the name, current business address,
citizenship and present principal occupation or employment, and material
occupations, positions, offices or employments and business addresses thereof
for the past five years of each director and executive officer of Merger Sub.
Unless otherwise indicated, the current business address of each person is c/o
DIC, 14 Beth Hashoeva Lane, Tel Aviv 61016, Israel.
38
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
Merger Sub's current directors and executive officers and certain
biographical information concerning such individuals are set forth below.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT; MATERIAL POSITIONS HELD
NAME, CITIZENSHIP AND DURING THE PAST FIVE YEARS AND BUSINESS
CURRENT BUSINESS ADDRESS ADDRESSES THEREOF
<S> <C>
Dov Tadmor.......................... Director and Chairman of the Board of Merger Sub; See
table of DIC's directors above
Yoram Turbowicz..................... Director and President of Merger Sub; See table of
DIC's executive officers above
Amos Bankirer....................... Director and Secretary and Treasure of Merger Sub;
See table of DIC's executive officers above
</TABLE>
INFORMATION CONCERNING DIC AND MERGER SUB
DIC and its affiliates invest and participate in the initiation, development
and direction of a diverse portfolio of business enterprises, predominantly
located in the State of Israel. DIC's principal executive offices are located at
14 Beth Hashoeva Lane, Tel Aviv 61016, Israel. Merger Sub is a newly
incorporated Maine corporation organized in connection with the Merger and has
not carried on any activities other than in connection with the Merger. Merger
Sub is a direct wholly-owned subsidiary of DIC. Merger Sub's principal executive
offices are located at One Portland Square, Portland, Maine 04101.
DIC owns 14,937,792 Shares, representing approximately 81.35% of the Shares
issued and outstanding at , 1999.
Except as described in this Proxy Statement, (i) none of DIC, Merger Sub,
nor, to the best knowledge of DIC and the Merger Sub, any of the directors and
executive officers of DIC or Merger Sub or any associate or majority-owned
subsidiary of DIC or Merger Sub beneficially owns or has any right to acquire,
directly or indirectly, any Shares and (ii) none of DIC, Merger Sub, nor, to the
best knowledge of DIC and Merger Sub, any of the persons or entities referred to
above nor any director, executive officer or subsidiary of any of the foregoing
has effected any transaction in the Shares during the past 60 days.
Except as provided in the Merger Agreement or as otherwise described in this
Proxy Statement, none of DIC, Merger Sub nor, to the best knowledge of DIC and
Merger Sub, any of the directors and executive officers of DIC or Merger Sub has
any contract, arrangement, understanding or relationship with any other person
with respect to any securities of the Company, including, but not limited to,
any contract, arrangement, understanding or relationship concerning the transfer
or voting of such securities, finder's fees, joint ventures, loan or option
arrangements, puts or calls, guarantees of loans, guaranties against loss,
guaranties of profits, division of profits or loss or the giving or withholding
of proxies. Except as set forth in this Proxy Statement, since January 1, 1995,
none of DIC, Merger Sub nor, to the best knowledge of DIC and Merger Sub, any of
the directors and executive officers of DIC or Merger Sub has had any business
relationship or transaction with the Company or any of its executive officers,
directors or affiliates that is required to be reported under the rules and
regulations of the Commission applicable to the Merger. Except as set forth in
this Proxy Statement, since January 1, 1995, there have been no contracts,
negotiations or transactions between DIC or any of their subsidiaries or, to the
best knowledge of DIC, any of the directors and executive officers of DIC, on
39
<PAGE>
the one hand, and the Company or its affiliates, on the other hand, concerning a
merger, consolidation or acquisition, tender offer or other acquisition of
securities, an election of directors or a sale or other transfer of a material
amount of assets.
INDEPENDENT PUBLIC ACCOUNTANTS
Upon appointment by the Company's Board, Haft & Gluckman LLP and
PricewaterhouseCoopers LLP, independent public accountants, audited and reported
on the consolidated financial statements of the Company and its subsidiaries for
its fiscal year ended December 31, 1997. Those financial statements have been
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1997 and are incorporated herein by reference in reliance upon such report.
Representatives from Haft & Gluckman LLP and PricewaterhouseCoopers LLP are
expected to be present at the Special Meeting and will have the opportunity to
make a statement if they desire to do so. They are also expected to be available
to respond to appropriate questions.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the SEC by the Company are incorporated
by reference in this Proxy Statement:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997;
2. The Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1998;
3. The Company's Current Report on Form 8-K dated September 9, 1998;
4. The Company's Current Report on Form 8-K dated December 11, 1998.
All documents and reports filed by the Company with the Commission pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Proxy Statement and prior to the date of the Special Meeting shall be deemed to
be incorporated by reference in this Proxy Statement and to be a part hereof
from the respective dates of filing of such documents or reports.
Any statement contained in a document incorporated by reference shall be
deemed to be modified or superseded for all purposes to the extent that a
statement contained in this Proxy Statement modifies or replaces such statement.
The Company undertakes to provide by first class mail, without charge, to
any person to whom a copy of this Proxy Statement has been delivered, within one
business day of the written or oral request of such person, a copy of any or all
of the documents referred to above which have been incorporated in this Proxy
Statement by reference, other than exhibits to such documents. The Company will
furnish any exhibit upon the payment of a specified reasonable fee, which fee
will be limited to the Company's reasonable expenses in furnishing such exhibit.
Request for such copies should be directed to Mr. William Gold, Treasurer of the
Company, 511 Fifth Avenue, New York, New York 10017, telephone number (212)
687-2400.
PROXY SOLICITATION
Any costs of soliciting proxies will be borne by the Company. Employees of
the Company, personally or by telephone, may solicit the return of proxies. In
addition, arrangements may be made with brokerage houses and other custodians,
nominees and fiduciaries to send proxies and proxy material to their principals,
in such circumstances, and the Company may reimburse them for their expenses in
so doing.
40
<PAGE>
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
As described in the Company's proxy statement on Schedule 14A relating to
its 1998 Annual Meeting of Shareholders, any proposals of shareholders of the
Company to be considered for inclusion in the Proxy Statement for the Company's
1999 annual meeting of shareholders (if the Merger is not consummated) had to
have been received by the Company at its principal executive offices no later
than December 31, 1998. A shareholder who intends to submit a proposal for the
Company's next annual meeting that the shareholder does not intend to request be
included in the Company's proxy materials in accordance with the Commission
rules must give notice to the Company prior to March 16, 1999. If the
shareholder does not provide the Company with timely notice of such a proposal,
the persons designated as management proxies on the Company's proxy card may
exercise their discretionary authority to vote on that proposal. If the
shareholder does provide the Company with timely notice of such a proposal,
depending upon the circumstances, management's proxies may not be able to
exercise their discretionary authority to vote on the proposal.
ADDITIONAL AVAILABLE INFORMATION
The Company is subject to the informational filing requirements of the
Exchange Act and, in accordance therewith, is required to file periodic reports,
proxy statements and other information with the Commission relating to its
business, financial condition and other matters. Information as of particular
dates concerning the Company's directors and officers, their remuneration, stock
options granted to them, the principal holders of the Company's securities and
any material interest of such persons in transactions with the Company is
required to be disclosed in proxy statements distributed to the Company's
shareholders and filed with the Commission. Such reports, proxy statements and
other information can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the Commission's regional offices located at Seven World
Trade Center, Suite 1300, New York, New York 10048 and the Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Information regarding
the public reference facilities may be obtained from the Commission by
telephoning 1-800-SEC-0330. The Company's filings are also available to the
public on the Commission Internet site (http://www.sec.gov.). Copies of such
materials may also be obtained by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. Certain reports and other information concerning the Company may also be
inspected at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
OTHER MATTERS
The Company Board does not intend to bring any other matters before the
Special Meeting and does not know of any other matters that may be brought
before the Special Meeting by others.
By Order of the Board of Directors,
James I. Edelson
EXECUTIVE VICE PRESIDENT AND SECRETARY
___________,1999
41
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
IDB DEVELOPMENT CORPORATION LTD.
PEC ACQUISITION CORPORATION
AND
PEC ISRAEL ECONOMIC CORPORATION
DATED AS OF DECEMBER 15, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
ARTICLE I
The Merger............................................................................................. 2
Section 1.01. The Merger........................................................................... 2
Section 1.02. Effective Time; Closing.............................................................. 2
Section 1.03. Effect of the Merger................................................................. 2
Section 1.04. Articles of Incorporation; By-laws................................................... 2
Section 1.05. Directors and Officers............................................................... 2
Section 1.06. Conversion of Shares................................................................. 2
Section 1.07. Dissenting Shares.................................................................... 3
Section 1.08. Surrender of Shares; Stock Transfer Books............................................ 3
Section 1.09. Withholding Rights................................................................... 4
ARTICLE II
Representations and Warranties of the Company.......................................................... 4
Section 2.01. Organization and Standing............................................................ 4
Section 2.02. Capitalization....................................................................... 4
Section 2.03. Authority Relative to this Agreement................................................. 5
Section 2.04. No Conflict.......................................................................... 5
Section 2.05. Required Filings and Consents........................................................ 5
Section 2.06. Disclosure Documents................................................................. 5
Section 2.07. Absence of Certain Changes........................................................... 6
Section 2.08. Maine Takeover Statute Inapplicable.................................................. 6
Section 2.09. Brokers.............................................................................. 6
ARTICLE III
Representations and Warranties of Parent and Merger Subsidiary......................................... 6
Section 3.01. Organization and Standing............................................................ 6
Section 3.02. Authority Relative to this Agreement................................................. 6
Section 3.03. No Conflict.......................................................................... 6
Section 3.04. Required Filings and Consents........................................................ 7
Section 3.05. Proxy Statement...................................................................... 7
Section 3.06. Brokers.............................................................................. 7
Section 3.07. Ownership of Merger Subsidiary; No Prior Activities.................................. 7
ARTICLE IV
Covenants.............................................................................................. 8
Section 4.01. Conduct of the Business Pending the Merger........................................... 8
Section 4.02. Shareholders' Meeting; Voting of Shares.............................................. 8
Section 4.03. Proxy Statement and Schedule 13E-3................................................... 9
Section 4.04. Access to Information................................................................ 9
Section 4.05. Directors' and Officers' Indemnification and Insurance............................... 9
Section 4.06. Employee Benefits.................................................................... 10
Section 4.07. Public Announcements................................................................. 10
Section 4.08. Notification of Certain Matters...................................................... 10
Section 4.09. Further Action; Reasonable Best Efforts.............................................. 10
Section 4.10. Financing............................................................................ 10
</TABLE>
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<TABLE>
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ARTICLE V
Conditions to the Merger............................................................................... 11
Section 5.01. Conditions to the Merger............................................................. 11
(a) Shareholder Approval................................................................. 11
(b) No Order............................................................................. 11
ARTICLE VI
Termination, Amendment and Waiver...................................................................... 11
Section 6.01. Termination.......................................................................... 11
Section 6.02. Effect of Termination................................................................ 11
Section 6.03. Amendment............................................................................ 12
Section 6.04. Waiver............................................................................... 12
ARTICLE VII
General Provisions..................................................................................... 12
Section 7.01. Non-Survival of Representations and Warranties....................................... 12
Section 7.02. Notices.............................................................................. 12
Section 7.03. Certain Definitions.................................................................. 13
Section 7.04. Severability......................................................................... 13
Section 7.05. Entire Agreement; Assignment......................................................... 13
Section 7.06. Parties in Interest.................................................................. 14
Section 7.07. Specific Performance................................................................. 14
Section 7.08. Fees and Expenses.................................................................... 14
Section 7.09. Governing Law........................................................................ 14
Section 7.10. Headings............................................................................. 14
Section 7.11. Counterparts......................................................................... 14
Section 7.12. Consent to Jurisdiction.............................................................. 14
</TABLE>
SCHEDULE
Schedule 4.06. Employee Benefits
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AGREEMENT AND PLAN OF MERGER, dated as of December 15, 1998 (this
"Agreement"), among IDB Development Corporation Ltd., an Israeli corporation
("Parent"), PEC Acquisition Corporation, a Maine corporation and a direct
wholly-owned subsidiary of Parent ("Merger Subsidiary"), and PEC Israel Economic
Corporation, a Maine corporation (the "Company").
WHEREAS, Parent beneficially owns approximately 81.35% of the Common Stock,
par value $1 per share of the Company (the "Shares");
WHEREAS, Parent has proposed to the Board of Directors of the Company that
Parent acquire all of the issued and outstanding Shares not owned by Parent (the
"Public Shares") through a merger (the "Merger") of Merger Subsidiary with and
into the Company pursuant to the terms of this Agreement;
WHEREAS, the Board of Directors of Parent believes that it is in the best
interest of Parent and its shareholders, and the Board of Directors of the
Company believes that it is in the best interests of the Company and its
shareholders, to enter into this Agreement and to consummate the Merger of
Merger Subsidiary with and into the Company in accordance with the terms of this
Agreement;
WHEREAS, a Special Committee (the "Special Committee") of the Board of
Directors of the Company has unanimously recommended that the Board of Directors
of the Company approve and authorize this Agreement and the Merger, which
recommendation was based in part on the opinion of Merrill Lynch International,
independent financial advisor to the Special Committee, that the consideration
to be received by the holders of Public Shares in the Merger is fair to such
holders from a financial point of view;
WHEREAS, the Boards of Directors of the Company, Parent and Merger
Subsidiary, have approved this Agreement and the Merger upon the terms set forth
in this Agreement; and
WHEREAS, Parent and Discount Investment Corporation Ltd., an Israeli
corporation ("DIC"), have entered into an agreement providing for the transfer
of Parent's shares of capital stock of the Company to DIC, and it is
contemplated that Parent's rights and obligations under this Agreement will be
assigned to DIC in the event such stock transfer is completed prior to
consummation of the Merger.
NOW, THEREFORE, in consideration of the representations, warranties and
agreements herein contained, the parties hereto agree as follows:
<PAGE>
ARTICLE I
THE MERGER
Section 1.01. The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Maine Business Corporation
Act ("Maine Law"), at the Effective Time (as defined below) Merger Subsidiary
shall be merged with and into the Company. As a result of the Merger, the
separate corporate existence of Merger Subsidiary shall cease and the Company
shall continue as the surviving corporation of the Merger (the "Surviving
Corporation").
Section 1.02. Effective Time; Closing. As promptly as practicable after
the satisfaction or, if applicable, waiver of the conditions set forth in
Article V, the parties hereto shall cause the Merger to be consummated by filing
with the Secretary of State of the State of Maine the articles of merger (the
"Articles of Merger") required by Section 903 of Maine Law, in such form or
forms as may be required by the relevant provisions of Maine Law. The Merger
shall become effective at the time of filing of the appropriate Articles of
Merger with the Secretary of State of the State of Maine, or at such later time
as mutually agreed upon by the parties to this Agreement but not to exceed 60
days, which shall be as soon as reasonably practicable, specified as the
effective time in the Articles of Merger (the "Effective Time"). Simultaneously
with such filing, a closing shall be held at the offices of Proskauer Rose LLP,
1585 Broadway, New York, New York USA 10036-8299, or such other place as the
parties shall agree, for the purpose of confirming the satisfaction or waiver,
as the case may be, of the conditions set forth in Article V.
Section 1.03. Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in the applicable provisions of Maine Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the property, rights, privileges, powers and franchises of
the Company and Merger Subsidiary shall vest in the Surviving Corporation, and
all debts, liabilities, obligations, restrictions, disabilities and duties of
the Company and Merger Subsidiary shall become the debts, liabilities,
obligations, restrictions, disabilities and duties of the Surviving Corporation.
Section 1.04. Articles of Incorporation; By-laws. (a) The articles of
incorporation of the Company, as in effect immediately prior to the Effective
Time, shall be the articles of incorporation of the Surviving Corporation
following the Effective Time until thereafter amended as provided by Maine Law.
(b) The by-laws of the Company, as in effect immediately prior to the
Effective Time, shall be the by-laws of the Surviving Corporation following the
Effective Time until thereafter amended as provided by Maine Law, the articles
of incorporation of the Surviving Corporation and such by-laws.
Section 1.05. Directors and Officers. (a) The directors of Merger
Subsidiary immediately prior to the Effective Time shall be the initial
directors of the Surviving Corporation, each to hold office in accordance with
the articles of incorporation and by-laws of the Surviving Corporation.
(b) The officers of the Company immediately prior to the Effective Time
shall be the initial officers of the Surviving Corporation, in each case until
their respective successors are duly elected or appointed and qualified.
Section 1.06. Conversion of Shares. At the Effective Time, by virtue of
the Merger and without any action on the part of Merger Subsidiary, the Company
or the holders of any of the Shares:
(a) Each Share held by the Company as treasury stock shall continue as
treasury stock of the Surviving Corporation;
(b) Each Share owned by Parent or any of its direct or indirect
subsidiaries immediately prior to the Effective Time shall be cancelled and
become authorized but unissued and no payment shall be made with respect
thereto;
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(c) Each Public Share issued and outstanding immediately prior to the
Effective Time shall be cancelled and become authorized but unissued and,
subject to Section 1.07, shall be converted automatically into the right to
receive an amount equal to $30.00 in cash (the "Merger Consideration")
payable, without interest, to the holder of such Public Share, upon
surrender, in the manner provided in Section 1.08, of the certificate that
formerly evidenced such Public Share;
(d) The holders of certificates representing Public Shares shall cease
to have any rights as shareholders of the Company, except the right to
receive the Merger Consideration and such rights, if any, as they may have
pursuant to Section 909 of Maine Law; and
(e) Each share of common stock of Merger Subsidiary outstanding
immediately prior to the Effective Time shall be converted into 149,377.92
shares of common stock of the Surviving Corporation and shall constitute the
only outstanding shares of capital stock of the Surviving Corporation.
Section 1.07. Dissenting Shares. (a) Notwithstanding any provision of this
Agreement to the contrary, the Public Shares as to which the relevant
shareholder has complied in all respects with Section 909 of Maine Law
(collectively, the "Dissenting Shares") shall be cancelled but not be converted
into or represent the right to receive the Merger Consideration. Such
shareholders shall be entitled instead to receive payment in accordance with the
provisions of such Section 909, except that all Dissenting Shares held by
shareholders who shall have failed to perfect or who effectively shall have
withdrawn or lost their rights to fair value for such Public Shares under such
Section 909, shall thereupon be deemed to have been converted into and to have
become exchangeable for, as of the Effective Time, the right to receive the
Merger Consideration, without any interest thereon, upon surrender, in the
manner provided in Section 1.08, of the certificate or certificates that
formerly evidenced such Public Shares.
(b) The Company shall give Parent (i) prompt notice of any demands for
payment of fair value received by the Company, withdrawals of such demands, and
any other instruments served pursuant to Maine Law and received by the Company
and (ii) the opportunity to direct all negotiations and proceedings with respect
to demands for payment of fair value under Maine Law. The Company shall not,
except with the prior written consent of Parent, make any payment with respect
to any demands for payment of fair value or offer to settle or settle any such
demands.
Section 1.08. Surrender of Shares; Stock Transfer Books. (a) Prior to the
Effective Time, Parent shall designate a bank or trust company reasonably
acceptable to the Company to act as agent (the "Paying Agent") for the holders
of Public Shares in connection with the Merger to receive the funds to which
holders of Public Shares shall become entitled pursuant to Section 1.06(c). Such
funds shall be deposited with the Paying Agent by the Surviving Corporation as
of the Effective Time and shall be invested by the Paying Agent as reasonably
directed by the Surviving Corporation.
(b) Promptly after the Effective Time, the Surviving Corporation shall cause
to be mailed to each person who was, at the Effective Time, a holder of record
of Public Shares entitled to receive the Merger Consideration pursuant to
Section 1.06(c) a form of letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the certificates
evidencing such Public Shares (the "Certificates") shall pass, only upon proper
delivery of the Certificates to the Paying Agent) and instructions for use in
effecting the surrender of the Certificates pursuant to such letter of
transmittal. Upon surrender to the Paying Agent of a Certificate, together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, and such other documents as may be required
pursuant to such instructions, the holder of such Certificate shall be entitled
to receive in exchange therefor the Merger Consideration for each Public Share
formerly evidenced by such Certificate. No interest shall accrue or be paid on
the Merger Consideration payable upon the surrender of any Certificate for the
benefit of the holder of such Certificate. If payment of the Merger
Consideration is to be made to a person other than the person in whose name the
surrendered
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Certificate is registered on the stock transfer books of the Company, it shall
be a condition of payment that the Certificate so surrendered shall be endorsed
properly or otherwise be in proper form for transfer and that the person
requesting such payment shall have paid all transfer and other taxes required by
reason of the payment of the Merger Consideration to a person other than the
registered holder of the Certificate surrendered or shall have established to
the satisfaction of the Surviving Corporation that such taxes either have been
paid or are not applicable.
(c) At any time commencing 180 days after the Effective Time, the Surviving
Corporation shall be entitled to require the Paying Agent to deliver to it any
funds which had been made available to the Paying Agent and not disbursed to
holders of Public Shares (including, without limitation, all interest and other
income received by the Paying Agent in respect of all funds made available to
it), and thereafter such holders shall be entitled to look to the Surviving
Corporation (subject to abandoned property, escheat and other similar laws) only
as general creditors thereof with respect to any Merger Consideration that may
be payable upon due surrender of the Certificates held by them. Notwithstanding
the foregoing, neither Parent, the Company nor the Paying Agent shall be liable
to any holder of a Public Share for any Merger Consideration delivered in
respect of such Public Share to a public official pursuant to any abandoned
property, escheat or other similar law.
Section 1.09. Withholding Rights. The Surviving Corporation and the Paying
Agent shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of Public Shares such amounts
that the Surviving Corporation or the Paying Agent is required to deduct and
withhold with respect to the making of such payment under the United States
Internal Revenue Code of 1986, as amended (the "Code"), the rules and
regulations promulgated thereunder or any provision of state, local or foreign
tax law. To the extent that amounts are so withheld by the Surviving Corporation
or the Paying Agent, such amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the Public Shares in respect of
which such deduction and withholding was made by the Surviving Corporation or
the Paying Agent.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Subsidiary
that:
Section 2.01. Organization and Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Maine and has full corporate power and authority to own its properties and
conduct its business as presently conducted. The Company is duly qualified to do
business as a foreign corporation and is in good standing in every other
jurisdiction in which the failure to so qualify or be in good standing would
have a Material Adverse Effect (as defined below) on the Company. The Company
has furnished to Parent and Merger Subsidiary true and complete copies of its
articles of incorporation (the "Company Articles of Incorporation") and by-laws
(the "Company By-laws"), each as amended to date and presently in effect.
"Material Adverse Effect" shall mean, with respect to any party hereto, any
change, event or effect that, when taken together with all other adverse
changes, events or effects, is or is reasonably likely to be materially adverse
to the business, properties, financial condition, assets or liabilities
(including, without limitation, contingent liabilities) of such party and its
subsidiaries taken as a whole.
Section 2.02. Capitalization. The authorized capital stock of the Company
consists of 40,000,000 Shares and 544,514 shares of Class B Preferred Stock (the
"Preferred Shares.") As of December 15, 1998 (i) 18,362,188 Shares were issued
and outstanding, all of which were validly issued, fully paid, nonassessable and
free of preemptive rights; (ii) 13,589,992 Shares were held in the treasury of
the Company; and (iii) no Preferred Shares were issued and outstanding. No
subscription, warrant, option, convertible security or other right (contingent
or otherwise) to purchase or acquire any shares of capital stock of the Company
is currently authorized or outstanding; the Company has no obligation
4
<PAGE>
(contingent or otherwise) to issue any subscription, warrant, option,
convertible security or other such right or to issue or distribute to holders of
any shares of its capital stock any evidence of indebtedness or assets of the
Company; and the Company has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any shares of its capital stock or any
interest therein or to pay any dividend or make any other distribution in
respect thereof.
Section 2.03. Authority Relative to this Agreement. The Company has all
necessary corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder. The execution and delivery of this
Agreement by the Company and the performance by the Company of its obligations
hereunder have been duly and validly authorized by all necessary corporate
action and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement (other than the approval of shareholders
of the Company and the filing of the Articles of Merger as required by Maine
Law). This Agreement has been duly and validly executed and delivered by the
Company and, assuming the due authorization, execution and delivery by Parent
and Merger Subsidiary, constitutes a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms.
Section 2.04. No Conflict. The execution and delivery of this Agreement by
the Company do not, and the performance of this Agreement by the Company and the
consummation of the Merger will not, (i) conflict with or violate the Company
Articles of Incorporation or Company By-laws or equivalent organizational
documents of any of its subsidiaries; (ii) conflict with or violate any law,
rule, regulation, order, judgment or decree (a "Law") applicable to the Company
or any of its subsidiaries or by which any property or asset of the Company or
any of its subsidiaries is bound; or (iii) result in any breach of or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or other
encumbrance on any property or asset of the Company or any of its subsidiaries
pursuant to any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or any property or asset of any of them is bound, except in the
case of clauses (i), (ii) and (iii) for any such conflicts, violations,
breaches, defaults or other occurrences which would not, individually or in the
aggregate, have a Material Adverse Effect on the Company or prevent the
performance by the Company of its obligations under this Agreement.
Section 2.05. Required Filings and Consents. The execution and delivery of
this Agreement by the Company do not, and the performance of this Agreement by
the Company will not, require any consent, approval, authorization or permit of,
or filing with or notification to, any governmental or regulatory authority,
domestic or foreign ("Government Entities"), except (i) for the applicable
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and filing of the Articles of Merger as required by Maine Law and (ii)
where failure to obtain such consents, approvals, authorizations or permits, or
to make such filings or notifications, would not, individually or in the
aggregate, have a Material Adverse Effect on the Company or prevent or
materially delay the performance by the Company of its obligations under this
Agreement.
Section 2.06 Disclosure Documents.
(a) Each document required to be filed by the Company with the United States
Securities and Exchange Commission (the "SEC") in connection with the
transactions contemplated by this Agreement (the "Company Disclosure
Documents"), including, without limitation, the Proxy Statement (as defined
below) to be filed with the SEC in connection with the Merger, and any
amendments or supplements thereto will, when filed, comply as to form in all
material respects with the applicable requirements of the Exchange Act.
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(b) At the time the Proxy Statement or any amendment or supplement thereto
is first mailed to the shareholders of the Company and at the time of the
Shareholders' Meeting (as defined in Section 4.02), the Proxy Statement, as
supplemented or amended, if applicable, will not contain any untrue statement of
a material fact or omit to state any material fact necessary in order to make
the statements made therein, in the light of the circumstances under which they
were made, not misleading. The foregoing notwithstanding, the Company makes no
representation or warranty with respect to any information supplied by Parent,
DIC, Merger Subsidiary or any of their representatives which is contained in any
of the Company Disclosure Documents.
Section 2.07. Absence of Certain Changes. Since September 30, 1998, except
as disclosed in the Company's quarterly report on Form 10-Q for the quarter
ended September 30, 1998: (a) the Company has not suffered any Material Adverse
Effect, (b) the Company has conducted its business in all material respects only
in the ordinary course consistent with past practice, except in connection with
the negotiation and execution and delivery of this Agreement, and (c) there has
not been (i) any declaration, setting aside or payment of any dividend or other
distribution in respect of the Shares or any repurchase, redemption or other
acquisition by the Company of any outstanding shares of capital stock or other
securities in, or other ownership interests in, the Company; or (ii) any action
by the Company that, if taken after the date of this Agreement, would constitute
a breach of Section 4.01 hereof.
Section 2.08. Maine Takeover Statute Inapplicable. The provisions of
Section 611-A(1)(A) of Maine Law are not applicable to the consummation of the
Merger.
Section 2.09. Brokers. No broker, finder or investment banker (other than
Merrill Lynch International) is entitled to any brokerage, finder's or other fee
or commission in connection with this Agreement or the Merger based upon
arrangements made by or on behalf of the Company. The Company has heretofore
furnished to Parent and Merger Subsidiary a complete and correct copy of all
agreements between the Company or the Special Committee and Merrill Lynch
International pursuant to which such firm would be entitled to any payment
relating to this Agreement or the Merger.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBSIDIARY
Parent and Merger Subsidiary hereby, jointly and severally, represent and
warrant to the Company that:
Section 3.01. Organization and Standing. Parent is a corporation duly
organized, validly existing and in good standing under the laws of Israel and
Merger Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the State of Maine.
Section 3.02. Authority Relative to this Agreement. Each of Parent and
Merger Subsidiary has all necessary corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder. The execution
and delivery of this Agreement by Parent and Merger Subsidiary and the
performance by Parent and Merger Subsidiary of their respective obligations
hereunder have been duly and validly authorized by all necessary corporate
action and no other corporate proceedings on the part of Parent or Merger
Subsidiary are necessary to authorize this Agreement (other than the filing of
the Articles of Merger as required by Maine Law). This Agreement has been duly
and validly executed and delivered by Parent and Merger Subsidiary and, assuming
the due authorization, execution and delivery by the Company, constitutes a
legal, valid and binding obligation of each of Parent and Merger Subsidiary
enforceable against each of Parent and Merger Subsidiary in accordance with its
terms.
Section 3.03. No Conflict. The execution and delivery of this Agreement by
Parent and Merger Subsidiary do not, and the performance of this Agreement by
Parent and Merger Subsidiary and the
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consummation of the Merger will not, (i) conflict with or violate the Articles
and Memorandum of Association of Parent or articles of incorporation or by-laws
of Merger Subsidiary, (ii) conflict with or violate any Law applicable to Parent
or Merger Subsidiary or by which any property or asset of either of them is
bound or affected, or (iii) result in any breach of or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or other encumbrance on any
property or asset of Parent or Merger Subsidiary pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Parent or Merger Subsidiary is a party
or by which Parent or Merger Subsidiary or any property or asset of either of
them is bound or affected, except in the case of clauses (i), (ii) and (iii) for
any such conflicts, violations, breaches, defaults or other occurrences which
would not, individually or in the aggregate have a Material Adverse Effect on
Parent and its subsidiaries taken as a whole or prevent or materially delay the
performance by Parent or Merger Subsidiary of their respective obligations under
this Agreement.
Section 3.04. Required Filings and Consents. The execution and delivery of
this Agreement by Parent and Merger Subsidiary do not, and the performance of
this Agreement by Parent and Merger Subsidiary will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental Entity, except (i) for applicable requirements, if any, of the
Exchange Act and the filing of the Articles of Merger as required by Maine Law;
(ii) for applicable filings with the Israel Securities Authority, the Tel Aviv
Stock Exchange, and the Israel Registrar of Companies; and (iii) where failure
to obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not, individually or in the aggregate, have a
Material Adverse Effect on Parent or prevent or materially delay the performance
by Parent or Merger Subsidiary of their respective obligations under this
Agreement.
Section 3.05. Proxy Statement.
(a) None of the information supplied in writing by Parent, Merger
Subsidiary, DIC or their respective representatives specifically for inclusion
in the Proxy Statement will, at the time the Proxy Statement is first mailed to
the shareholders of the Company (and at the time any supplement or amendment to
the Proxy Statement containing any such information is first mailed to such
shareholders) and at the time of the Shareholders' Meeting (as defined in
Section 4.02), contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. If at any time prior to the Shareholders' Meeting any
event with respect to Parent, Merger Subsidiary or DIC, or with respect to
information supplied by Parent, Merger Subsidiary or DIC, for inclusion in the
Proxy Statement, shall occur which is required to be described in an amendment
of, or a supplement to, such documents, such event shall be so described to the
Company in a timely manner.
Section 3.06. Brokers. No broker, finder or investment banker (other than
BT Wolfensohn) is entitled to any brokerage, finder's or other fee or commission
in connection with this Agreement or the Merger based upon arrangements made by
or on behalf of Parent, Merger Subsidiary or DIC.
Section 3.07. Ownership of Merger Subsidiary; No Prior Activities. (a)
Merger Subsidiary was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement.
(b) As of the date hereof and through the Effective Time, all of the
outstanding capital stock of the Merger Subsidiary will be owned directly by
Parent or by DIC, in the event of an assignment of this Agreement by Parent to
DIC. As of the date hereof and through the Effective Time, there will be no
options, warrants or other rights (including registration rights), agreements,
arrangements or commitments to which Merger Subsidiary is a party of any
character relating to the issued or unissued capital stock of, or other equity
interests in, Merger Subsidiary or obligating Merger Subsidiary to
7
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grant, issue or sell any shares of the capital stock of, or other equity
interests in, Merger Subsidiary, by sale, lease, license or otherwise. There are
no obligations, contingent or otherwise, of Merger Subsidiary to repurchase,
redeem or otherwise acquire any shares of the capital stock of Merger
Subsidiary.
(c) As of the date hereof and through the Effective Time, except for
obligations or liabilities incurred in connection with its incorporation or
organization and the transactions contemplated by this Agreement, Merger
Subsidiary has not and will not have incurred, directly or indirectly, through
any subsidiary, any obligations or liabilities or engaged in any business
activities of any type or kind whatsoever or entered into any agreements or
arrangements with any person; provided, however, that the provisions of this
Section 3.07 shall not be deemed to be breached by activities reasonably
undertaken by Merger Subsidiary in order to further the financing contemplated
by Section 4.10 below.
ARTICLE IV
COVENANTS
Section 4.01. Conduct of the Business Pending the Merger. Except as
contemplated by this Agreement, from the date of this Agreement to the Effective
Time, the Company shall conduct its operations in all material respects in the
ordinary course and consistent with past practice and use all reasonable efforts
to preserve intact its business organization and to maintain existing
relationships with those having significant business relationships with it.
Without limiting the foregoing and except as contemplated by this Agreement,
during the period specified in the preceding sentence, the Company shall not,
without the prior written consent of Parent (which consent shall not be
unreasonably withheld), (a) issue, sell or pledge or authorize or propose the
issuance, sale or pledge of (i) additional shares of capital stock of any class
(including the Shares) or securities convertible into or exchangeable for any
such shares or any rights, warrants or options to acquire or with respect to any
such shares of capital stock or other convertible or exchangeable securities, or
grant or accelerate any right to convert or exchange any securities for any such
shares (including the Shares), or (ii) any other securities in respect of, in
lieu of or in substitution for Shares outstanding on the date of this Agreement;
(b) otherwise acquire or redeem, directly or indirectly, any of its outstanding
Shares; (c) split, combine or reclassify its capital stock or declare, set
aside, make or pay any dividend or distribution (whether in cash, stock or
property) on any shares of capital stock of the Company; (d) propose or adopt
any amendments to the Company Articles of Incorporation or Company By-Laws; or
(e) agree to take any of the foregoing actions or any action that would make any
representation or warranty in this Agreement untrue or incorrect in any material
respect as of the date when made or as of the Effective Time or otherwise would
reasonably be expected to result in any of the conditions to the Merger not
being satisfied.
Section 4.02. Shareholders' Meeting; Voting of Shares. In order to
consummate the Merger, the Company, acting through its Board of Directors,
shall, in accordance with applicable law and the Company Articles of
Incorporation and Company By-laws, (a) duly call, give notice of, convene and
hold a special meeting of its shareholders as soon as practicable for the
purpose of considering and taking action on this Agreement and the Merger (the
"Shareholders' Meeting") and (b) include in the Proxy Statement (i) the
recommendation of the Board of Directors of the Company and the Special
Committee that the shareholders of the Company approve and adopt this Agreement
and the Merger, unless the Board of Directors or the Special Committee, as the
case may be, after consultation with and based upon the advice of counsel,
determine to withdraw such recommendation in light of their respective fiduciary
duties, and (ii) the opinion of Merrill Lynch International that the
consideration to be received by the holders of the Public Shares in the Merger
is fair to such holders from a financial point of view. The Company shall use
its reasonable best efforts to solicit from the holders of Public Shares
entitled to vote at the Shareholders' Meeting proxies in favor of such approval
and adoption. At the Shareholders' Meeting, Parent shall cause all Shares then
owned by it and its subsidiaries (other
8
<PAGE>
than the Company) to be voted in favor of the approval and adoption of this
Agreement and the Merger.
Section 4.03. Proxy Statement and Schedule 13E-3. As soon as practicable
following the execution and delivery of this Agreement by all parties hereto,
the Company shall prepare and file the Proxy Statement with the SEC under the
Exchange Act, and shall prepare and file with the SEC a Schedule 13E-3
Transaction Statement required pursuant to Section 13(e) of the Exchange Act
(the "Schedule 13E-3") and shall use its reasonable best efforts to have the
Proxy Statement and Schedule 13E-3 cleared by the SEC as soon as practicable.
Parent, Merger Subsidiary and the Company shall cooperate with each other in the
preparation of the Proxy Statement and Schedule 13E-3 and the Company shall
notify Parent of the receipt of any comments of the SEC with respect to the
Proxy Statement and Schedule 13E-3 and of any requests by the SEC for any
amendment or supplement thereto or for additional information and shall provide
to Parent promptly copies of all correspondence between the Company or any
representative of the Company and the SEC. The Company shall give Parent and its
counsel the reasonable opportunity to review the Proxy Statement and Schedule
13E-3 prior to its being filed with the SEC and shall give Parent and its
counsel the reasonable opportunity to review all amendments and supplements to
the Proxy Statement and Schedule 13E-3 and all responses to requests for
additional information and replies to comments prior to their being filed with,
or sent to, the SEC. Each of the Company, Parent and Merger Subsidiary agrees to
use its reasonable best efforts, after consultation with the other parties
hereto, to respond promptly to all such comments of and requests by the SEC and
to cause the Proxy Statement and Schedule 13E-3 and all required amendments and
supplements thereto to be mailed to the holders of Shares entitled to vote at
the Shareholders' Meeting at the earliest practicable time. The Company will,
where required by the Exchange Act and the rules and regulations thereunder,
promptly correct any statements in the Proxy Statement and Schedule 13E-3 that
to its knowledge have become materially false or misleading and take all steps
necessary to cause such Proxy Statement and Schedule 13E-3 as so corrected to be
filed with the SEC and disseminated to the shareholders of the Company in
accordance with applicable law.
Section 4.04. Access to Information. (a) From the date hereof to the
Effective Time, the Company shall, and shall cause the officers, directors,
employees, auditors and agents of the Company to, afford the officers,
employees, auditors and agents, including financing sources, of Parent and
Merger Subsidiary complete access during normal business hours and without
disrupting the orderly conduct of business by the Company to the officers,
employees, auditors, agents, properties, offices, books and records of the
Company, and shall furnish Parent and Merger Subsidiary with all financial and
other data and information as Parent or Merger Subsidiary, through its officers,
employees, auditors or agents, may reasonably request.
(b) No investigation pursuant to this Section 4.04 shall affect any
representation or warranty in this Agreement or any condition to the obligations
of the parties hereto.
Section 4.05. Directors' and Officers' Indemnification and Insurance. (a)
Each of Parent and Merger Subsidiary agrees that all rights to indemnification
or exculpation now existing in favor of the present and former directors,
officers, employees, agents and fiduciaries of the Company (collectively, the
"Indemnified Parties") as provided in the Company Articles of Incorporation or
the Company By-laws or otherwise in effect as of the date of this Agreement with
respect to matters occurring at or prior to the Effective Time shall survive the
Merger and shall continue in full force and effect; PROVIDED, HOWEVER, that any
determination required to be made with respect to whether an Indemnified Party's
conduct complies with the standards set forth under Maine Law or under the
Company Articles of Incorporation or the Company By-laws or otherwise, as the
case may be, shall be made by independent legal counsel selected by such
Indemnified Party and reasonably acceptable to Parent. Each of Parent and Merger
Subsidiary shall cause Surviving Corporation to honor all such rights to
indemnification or exculpation described in this Section 4.05 in favor of the
Indemnified Parties.
9
<PAGE>
(b) The Surviving Corporation shall obtain and maintain in effect for six
years from the Effective Time, "tail" directors' and officers' liability
insurance under which all of the persons who are currently covered by the
Company's directors' and officers' liability insurance shall receive coverage
containing terms and conditions which are not less favorable than the coverage
provided prior to the Effective Time (provided that the Surviving Corporation
may substitute therefor policies of at least the same coverage containing terms
and conditions which are not less favorable than the coverage provided prior to
the Effective Time) with respect to matters occurring at or prior to the
Effective Time.
(c) In the event the Company or the Surviving Corporation or any of their
respective successors or assigns (i) consolidates with or merges into any other
person and shall not be the continuing or surviving corporation or entity of
such consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then, and in each such case, proper
provision shall be made so that the successors and assigns of the Company or the
Surviving Corporation, as the case may be, or at Parent's option, Parent, shall
assume the obligations set forth in this Section 4.05.
Section 4.06. Employee Benefits. Parent agrees to honor, and from and
after the Effective Time shall cause the Surviving Corporation to honor, in
accordance with their respective terms as in effect on the date hereof, the
employment, severance and bonus agreements and similar arrangements to which the
Company is a party which are set forth in Schedule 4.06.
Section 4.07. Public Announcements. Parent and the Company shall consult
with each other before issuing any press release or otherwise making any public
statements with respect to this Agreement or the Merger and shall not issue any
such press release or make any such public statement prior to such consultation,
except as may be required by law or any listing or similar agreement with a
securities exchange to which Parent or the Company is a party, in which case
Parent or the Company, as applicable, shall use its reasonable best efforts to
consult with the other party before issuing such release or making any such
public statement.
Section 4.08. Notification of Certain Matters. The Company and Merger
Subsidiary shall give prompt notice to Parent, and Parent shall give prompt
notice to the Company and Merger Subsidiary, of the occurrence, or
nonoccurrence, of any event the occurrence, or nonoccurrence, of which would be
likely to cause (i) any representation or warranty of such party or parties
contained in this Agreement to be untrue or inaccurate in any material respect
and (ii) any failure to comply with or satisfy in any material respect any
covenant, condition or agreement to be complied with or satisfied by it or them
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 4.08 shall not limit or otherwise affect the remedies available
hereunder to the party or parties receiving such notice.
Section 4.09. Further Action; Reasonable Best Efforts. Upon the terms and
subject to the conditions hereof, each of the parties hereto shall use its
reasonable best efforts to take, or cause to be taken, all appropriate action,
and to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the Merger,
including, without limitation, using its reasonable best efforts to obtain all
licenses, permits, consents, approvals, authorizations, qualifications and
orders of each Governmental Entity and parties to contracts with the Company and
the Subsidiaries as are necessary for the consummation of the Merger. In case at
any time after the Effective Time any further action is necessary or desirable
to carry out the purposes of this Agreement, each party to this Agreement and
the Surviving Corporation shall use their reasonable best efforts to take all
such action.
Section 4.10. Financing. Parent shall advance or cause to be advanced
prior to the Effective Time sufficient funds to the Company or Merger Subsidiary
to acquire all the outstanding Public Shares in the Merger. The Company shall
reasonably cooperate with Parent in obtaining such financing.
10
<PAGE>
ARTICLE V
CONDITIONS TO THE MERGER
Section 5.01. Conditions to the Merger. The respective obligations of each
party to effect the Merger shall be subject to the satisfaction at or prior to
the Effective Time of the following conditions, unless waived in writing by all
parties (to the extent permitted by applicable law):
(a) Shareholder Approval. This Agreement and the Merger shall have been
approved and adopted by the affirmative vote of the holders of at least a
majority of the outstanding Shares entitled to vote at the Shareholders'
Meeting as required by Maine Law; and
(b) No Order. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any Law (whether temporary, preliminary or
permanent) which is then in effect and has the effect of preventing or
prohibiting consummation of the Merger.
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER
Section 6.01. Termination. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, notwithstanding any
requisite approval and adoption of this Agreement by the shareholders of the
Company:
(a) by mutual written consent duly authorized by the Boards of Directors
of each of Parent, Merger Subsidiary and the Company (and, in the case of
the Company, only with approval of the Special Committee);
(b) by either Parent or the Company if the Effective Time shall not have
occurred on or before December 31, 1999; provided, however, that the right
to terminate this Agreement under this Section 6.01(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date;
(c) by either Parent or the Company if any court of competent
jurisdiction or other Governmental Entity shall have issued an order,
decree, ruling or taken any other action restraining, enjoining or otherwise
prohibiting the Merger and such order, decree, ruling or other action shall
have become final and nonappealable;
(d) by either Parent or the Company if there shall be a breach of any
covenant, representation or warranty in this Agreement of Parent and Merger
Subsidiary (in case of termination by the Company) or the Company (in case
of termination by Parent), in each case as if such representation or
warranty was made as of the time of such termination (unless such
representation or warranty specifically speaks as of an earlier time, in
which case such representation or warranty shall have been breached as
aforesaid as of such earlier time), which breach is not cured within 30 days
following written notice of such breach by the party seeking to terminate;
PROVIDED, HOWEVER, that neither party shall have the right to terminate this
Agreement unless such breach, together with all other such breaches, would
reasonably be expected to result in a Material Adverse Effect; or
(e) by Parent if the Board of Directors of the Company (only with the
approval of the Special Committee) withdraws, modifies or changes its
recommendation of this Agreement or the Merger in a manner adverse to Parent
or Merger Subsidiary or shall have resolved to do any of the foregoing.
Section 6.02. Effect of Termination. In the event of the termination of
this Agreement pursuant to Section 6.01, this Agreement shall forthwith become
void, except for the provisions set forth in
11
<PAGE>
Section 7.08, and there shall be no liability on the part of any party hereto,
except that nothing herein shall relieve any party from liability for any
willful breach hereof.
Section 6.03. Amendment. This Agreement may not be amended except by
action of the Board of Directors of each of the parties hereto (and, in the case
of the Company, only with the approval of the Special Committee) set forth in an
instrument in writing signed on behalf of each of the parties hereto.
Section 6.04. Waiver. At any time prior to the Effective Time, any party
hereto may (i) extend the time for the performance of any obligation or other
act of any other party hereto, (ii) waive any inaccuracy in the representations
and warranties of any other party contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any agreement or condition of
any other party contained herein. Any such extension or waiver shall be valid if
set forth in an instrument in writing signed by the party or parties to be bound
thereby but, in the case of any extension or waiver by which the Company is to
be bound, only if approved by the Special Committee.
ARTICLE VII
GENERAL PROVISIONS
Section 7.01. Non-Survival of Representations and Warranties. The
representations and warranties in this Agreement shall terminate at the
Effective Time or upon the termination of this Agreement pursuant to Section
6.01, as the case may be.
Section 7.02. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing in the English language and shall
be given (and shall be deemed to have been duly given upon receipt) by delivery
(i) in person, (ii) by telecopy, or (ii) by registered or certified mail (or the
closest local equivalent thereto), postage prepaid, to the respective parties at
the following addresses (or at such other address for a party as shall be
specified in a notice given in accordance with this Section 7.02):
if to Parent or Merger Subsidiary:
IDB Development Corporation Ltd.
3 Daniel Frisch St.
"The Tower"
Tel Aviv 64731 Israel
Telecopier No: 011 972 3 695-2069
Attention: Zehavit Joseph
Executive Vice President
with copies to:
Proskauer Rose LLP
1585 Broadway
New York, New York 10036-8299
Telecopier No: (212) 969-2900
Attention: Peter G. Samuels, Esq.
and
Prof. Joseph Gross, Hodak & Co.
23 King Shaul Blvd.
Tel Aviv, 64367 Israel
Telecopier No: 011-972-3-695-8397
Attention: David Hodak, Esq.
12
<PAGE>
if to the Company:
PEC Israel Economic Corporation
511 Fifth Avenue
New York, New York 10017
Telecopier No: (212) 599-6281
Attention: James I. Edelson, Esq.
Executive Vice President, Secretary
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899-0636
Telecopier No: (302) 651-3092
Attention: Robert B. Pincus, Esq.
Section 7.03. Certain Definitions. For purposes of this Agreement, the
term:
(a) "affiliate" of a specified person means a person who directly or
indirectly through one or more intermediaries controls, is controlled by, or
is under common control with, such specified person;
(b) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management
and policies of a person, whether through the ownership of voting
securities, as trustee or executor, by contract or credit arrangement or
otherwise;
(c) "person" means an individual, corporation, partnership, limited
partnership, limited liability company, syndicate, person (including,
without limitation, a "person" as defined in Section 13(d)(3) of the
Exchange Act), trust, association or entity or government, political
subdivision, agency or instrumentality of a government; and
(d) "subsidiary" or "subsidiaries" of the Surviving Corporation, Parent
or any other person means an affiliate controlled by such person, directly
or indirectly, through one or more intermediaries.
Section 7.04. Severability. If any term or other provision of this
Agreement is determined by any court of competent jurisdiction to be invalid,
illegal or incapable of being enforced by any rule of law, or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the Merger
is not affected in any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely as
possible in a mutually acceptable manner in order that the Merger be consummated
as originally contemplated to the fullest extent possible.
Section 7.05. Entire Agreement; Assignment. This Agreement constitutes the
entire agreement among the parties with respect to the subject matter hereof and
supersedes all prior agreements and undertakings, both written and oral, among
the parties, or any of them, with respect to the subject matter hereof. This
Agreement shall not be assigned by any party, except that Parent may,
notwithstanding anything to the contrary contained herein, assign (i) all or any
of its rights and obligations hereunder to any wholly-owned subsidiary thereof,
provided that no such assignment shall relieve Parent of its obligations
hereunder if such assignee does not perform such obligations; or (ii) all
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<PAGE>
of its rights and obligations hereunder in their entirety to DIC, in which event
Parent shall be relieved of all of its obligations hereunder provided that DIC
shall assume all of such obligations.
Section 7.06. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, other than Section 4.05 and Section 4.06 (which is intended
to be for the benefit of the persons covered thereby and may be enforced by such
persons).
Section 7.07. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
Section 7.08. Fees and Expenses. All fees and expenses incurred in
connection with this Agreement shall be paid by the party incurring such fees
and expenses, whether or not such transactions are consummated.
Section 7.09. Governing Law. Except to the extent that Maine Law is
mandatorily applicable to the Merger, this Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York (without regard
to conflicts of laws principle thereof). All actions and proceedings arising out
of or relating to this Agreement shall be heard and exclusively determined in
any New York State or federal court sitting in the County of New York and the
parties hereto hereby consent to the jurisdiction of such courts in any such
action or proceeding.
Section 7.10. Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
Section 7.11. Counterparts. This Agreement way be executed in one or more
counterparts (including by facsimile transmission), and by the different parties
hereto in separate counterparts, each of which when executed shall be deemed to
be an original but all of which taken together shall constitute one and the same
agreement.
Section 7.12. Consent to Jurisdiction. Each party hereto hereby (a)
submits to the jurisdiction of any New York State and Federal courts sitting in
the County of New York with respect to matters arising out of or relating
hereto, (b) agrees that any claim, action or proceeding with respect to such
matters may be heard and determined in such New York State or Federal courts,
(c) waives the defense of an inconvenient forum, (d) consents to service of
process upon it in the same manner as notice may be given under Section 7.02
hereof, (e) agrees that a final judgment in any such action or proceeding shall
be conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law, and (f) to the extent that it or its
properties have or hereafter may acquire immunity from jurisdiction of any court
or from any legal process (whether through service or notice, attachment prior
to judgment, attachment in aid of execution, execution or otherwise), waives
such immunity in respect of its obligations under this Agreement.
14
<PAGE>
IN WITNESS WHEREOF, Parent, Merger Subsidiary and the Company have caused
this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
<TABLE>
<S> <C> <C>
IDB DEVELOPMENT CORPORATION LTD.
By: /s/ ELIAHU COHEN
-----------------------------------------
Name: Eliahu Cohen
Title: Co-Chief Executive Officer
By: /s/ ARTHUR CAPLAN
-----------------------------------------
Name: Arthur Caplan
Title: Corporate Secretary
PEC ACQUISITION CORPORATION
By: /s/ DOV TADMOR
-----------------------------------------
Name: Dov Tadmor
Title: Chairman of the Board
By: /s/ YORAM TURBOWICZ
-----------------------------------------
Name: Yoram Turbowicz
Title: President
PEC ISRAEL ECONOMIC CORPORATION
By: /s/ FRANK J. KLEIN
-----------------------------------------
Name: Frank J. Klein
Title: President
</TABLE>
15
<PAGE>
SCHEDULE 4.06--EMPLOYEE BENEFITS
<TABLE>
<S> <C>
1. Upon consummation of the Merger cash payments to be paid to the
individuals and in the amounts indicated below
Frank J. Klein............................................ $ 360,000
James I. Edelson.......................................... $ 180,000
William Gold.............................................. $ 90,000
2. Supplemental Retirement Agreement dated as of January 1, 1995 between
the Company and Frank J. Klein
</TABLE>
<PAGE>
ANNEX B
MAINE BUSINESS CORPORATION ACT.
SECTION 909. RIGHT OF DISSENTING SHAREHOLDERS TO PAYMENT FOR SHARES.--1. A
shareholder having a right under any provision of this Act to dissent to
proposed corporate action shall, by complying with the procedure in this
section, be paid the fair value of his shares if the corporate action to which
he dissented is effected. The fair value of shares shall be determined as of the
day prior to the date on which the vote of the shareholders, or of the directors
in case a vote of the shareholders was not necessary, was taken approving the
proposed corporate action, excluding any appreciation or depreciation of shares
in anticipation of such corporate action.
2. The shareholder, whether or not entitled to vote, shall file with the
corporation, prior to or at the meeting of shareholders at which such proposed
corporate action is submitted to a vote, a written objection to the proposed
corporate action. No such objection shall be required from any shareholder to
whom the corporation failed to send notice of such meeting in accordance with
this Act.
3. If the proposed corporate action is approved by the required vote and the
dissenting shareholder did not vote in favor thereof, the dissenting shareholder
shall file a written demand for payment of the fair value of his shares. Such
demand
A. Shall be filed with the corporation or, in the case of a merger or a
consolidation, with the surviving or new corporation; and
B. Shall be filed by personally delivering it, or by mailing it via
certified or registered mail, to such corporation at its registered office
within this State or to its principal place of business or to the address given
to the Secretary of State pursuant to section 906, subsection 4, paragraph B; it
shall be so delivered or mailed within 15 days after the date on which the vote
of shareholders was taken, or the date on which notice of a plan of merger of a
subsidiary into a parent corporation without vote of shareholders was mailed to
shareholders of the subsidiary; and
C. Shall specify the shareholder's current address; and
D. May not be withdrawn without the corporation's consent.
4. Any shareholder failing either to object as required by subsection 2 or
to make demand in the time and manner provided in subsection 3 shall be bound by
the terms of the proposed corporate action. Any shareholder making such
objection and demand shall thereafter be entitled only to payment as in this
section provided and shall not be entitled to vote or to exercise any other
rights of a shareholder.
5. The right of a shareholder otherwise entitled to be paid for the fair
value of his shares shall cease, and his status as a shareholder shall be
restored, without prejudice to any corporate proceedings which may have been
taken during the interim,
A. If his demand shall be withdrawn upon consent, or
B. If the proposed corporate action shall be abandoned or rescinded, or the
shareholders shall revoke the authority to effect such action, or
C. If, in the case of a merger, on the date of the filing of the articles of
merger the surviving corporation is the owner of all the outstanding shares of
the other corporations, domestic and foreign, that are parties to the merger, or
D. If no action for the determination of fair value by a court shall have
been filed within the time provided in this section, or
E. If a court of competent jurisdiction shall determine that such
shareholder is not entitled to the relief provided by this section.
6. At the time of filing his demand for payment for his shares, or within 20
days thereafter, each shareholder demanding payment shall submit the certificate
or certificates representing his shares to
<PAGE>
the corporation or its transfer agent for notation thereon that such demand has
been made; such certificates shall promptly be returned after entry thereon of
such notation. A shareholder's failure to do so shall, at the option of the
corporation, terminate his rights under this section unless a court of competent
jurisdiction, for good and sufficient cause shown, shall otherwise direct. If
shares represented by a certificate on which notation has been so made shall be
transferred, each new certificate issued therefor shall bear a similar notation,
together with the name of the original dissenting holder of such shares, and a
transferee of such shares shall acquire by such transfer no rights in the
corporation other than those which the original dissenting shareholder had after
making demand for payment of the fair value thereof.
7. Within the time prescribed by this subsection, the corporation, or, in
the case of a merger or consolidation, the surviving or new corporation,
domestic or foreign, shall give written notice to each dissenting shareholder
who has made objection and demand as herein provided that the corporate action
dissented to has been effected, and shall make a written offer to each such
dissenting shareholder to pay for such shares at a specified price deemed by
such corporation to be the fair value thereof. Such offer shall be made at the
same price per share to all dissenting shareholders of the same class. The
notice and offer shall be accompanied by a balance sheet of the corporation the
shares of which the dissenting shareholder holds, as of the latest available
date and not more than twelve months prior to the making of such offer, and a
profit and loss statement of such corporation for the 12 months' period ended on
the date of such balance sheet. The offer shall be made within the later of 10
days after the expiration of the period provided in subsection 3, paragraph B,
for making demand, or 10 days after the corporate action is effected; corporate
action shall be deemed effected on a sale of assets when the sale is
consummated, and in a merger or consolidation when the articles of merger or
consolidation are filed or upon which later effective date as is specified in
the articles of merger or consolidation as permitted by this Act.
8. If within 20 days after the date by which the corporation is required, by
the terms of subsection 7, to make a written offer to each dissenting
shareholder to pay for his shares, the fair value of such shares is agreed upon
between any dissenting shareholder and the corporation, payment therefor shall
be made within 90 days after the date on which such corporate action was
effected, upon surrender of the certificate or certificates representing such
shares. Upon payment of the agreed value the dissenting shareholder shall cease
to have any interest in such shares.
9. If within the additional 20-day period prescribed by subsection 8, one or
more dissenting shareholders and the corporation have failed to agree as to the
fair value of the shares:
A. Then the corporation may, or shall, if it receives a demand as provided
in sub-paragraph (1), bring an action in the Superior Court in the county in
this State where the registered office of the corporation is located praying
that the fair value of such shares be found and determined. If, in the case of a
merger or consolidation, the surviving or new corporation is a foreign
corporation without a registered office in this State, such action shall be
brought in the county where the registered office of the participating domestic
corporation was last located. Such action:
(1) Shall be brought by the corporation if it receives a written demand for
suit from any dissenting shareholder, which demand is made within 60 days after
the date on which the corporate action was effected; and if it receives such
demand for suit, the corporation shall bring the action within 30 days after
receipt of the written demand; or,
(2) In the absence of a demand for suit, may at the corporation's election
be brought by the corporation at any time from the expiration of the additional
20-day period prescribed by subsection 8 until the expiration of 60 days after
the date on which the corporation action was effected.
B. If the corporation fails to institute the action within the period
specified in paragraph A, any dissenting shareholder may thereafter bring such
an action in the name of the corporation.
2
<PAGE>
C. No such action may be brought, either by the corporation or by a
dissenting shareholder, more than 6 months after the date on which the corporate
action was effected.
D. In any such action, whether initiated by the corporation or by a
dissenting shareholder, all dissenting shareholders, wherever residing, except
those who have agreed with the corporation upon the price to be paid for their
shares, shall be made parties to the proceeding as an action against their
shares quasi in rem. A copy of the complaint shall be served on each dissenting
shareholder who is a resident of this State as in other civil actions, and shall
be served by registered or certified mail, or by personal service without the
State, on each dissenting shareholder who is a nonresident. The jurisdiction of
the court shall be plenary and exclusive.
E. The court shall determine whether each dissenting shareholder, as to whom
the corporation requests the court to make such determination, has satisfied the
requirements of this section and is entitled to receive payment for his shares;
as to any dissenting shareholder with respect to whom the corporation makes such
a request, the burden is on the shareholder to prove that he is entitled to
receive payment. The court shall then proceed to fix the fair value of the
shares. The court may, if it so elects, appoint one or more persons as
appraisers to receive evidence and recommend a decision on the question of fair
value. The appraisers shall have such power and authority as shall be specified
in the order of their appointment or an amendment thereof.
F. All shareholders who are parties to the proceeding shall be entitled to
judgment against the corporation for the amount of the fair value of their
shares, except for any shareholder whom the court shall have determined not to
be entitled to receive payment for his shares. The judgment shall be payable
only upon and concurrently with the surrender to the corporation of the
certificate or certificates representing such shares. Upon payment of the
judgment, the dissenting shareholder shall cease to have any interest in such
shares.
G. The judgment shall include an allowance for interest at such rate as the
court may find to be fair and equitable in all the circumstances, from the date
on which the vote was taken on the proposed corporate action to the date of
payment. If the court finds that the refusal of any shareholder to accept the
corporate offer of payment for his shares was arbitrary, vexatious, or not in
good faith, it may in its discretion refuse to allow interest to him.
H. The costs and expenses of any such proceeding shall be determined by the
court and shall be assessed against the corporation, but all or any part of such
costs and expenses may be apportioned and assessed as the court may deem
equitable against any or all of the dissenting shareholders who are parties to
the proceeding to whom the corporation shall have made an offer to pay for the
shares, if the court shall find that the action of such shareholders in failing
to accept such offer was arbitrary or vexatious or not in good faith. Such
expenses shall include reasonable compensation for and reasonable expenses of
the appraisers, but shall exclude the fees and expenses of counsel for any party
and shall exclude the fees and expenses of experts employed by any party, unless
the court otherwise orders for good cause. If the fair value of the shares as
determined materially exceeds the amount which the corporation offered to pay
therefor, or if no offer was made, the court in its discretion may award to any
shareholder who is a party to the proceeding such sum as the court may determine
to be reasonable compensation to any expert or experts employed by the
shareholder in the proceeding, and may, in its discretion, award to any
shareholder all or part of his attorney's fees and expenses; and
I. At all times during the pendency of any such proceeding, the court may
make any and all orders which may be necessary to protect the corporation or the
dissenting shareholders, or which are otherwise just and equitable. Such orders
may include, without limitations, orders:
(1) Requiring the corporation to pay into court, or post security for, the
amount of the judgment or its estimated amount, either before final judgment or
pending appeal;
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(2) Requiring the deposit with the court of certificates representing shares
held by the dissenting shareholders;
(3) Imposing a lien on the property of the corporation to secure the payment
of the judgment, which lien may be given priority over liens and encumbrances
contracted after the vote authorizing the corporate action from which the
shareholders dissent;
(4) Staying the action pending the determination of any similar action
pending in another court having jurisdiction.
10. Shares acquired by a corporation pursuant to payment of the agreed value
therefor or to payment of the judgment entered therefor, as in this section
provided, may be held and disposed of by such corporation as in the case of
other treasury shares, except that, in the case of a merger or consolidation,
they may be held and disposed of as the plan of merger or consolidation, may
otherwise provide.
11. The objection required by subsection 2 and the demand required by
subsection 3 may, in the case of a shareholder who is a minor or otherwise
legally incapacitated, be made either by such shareholder, notwithstanding his
legal incapacity, or by his guardian, or by any person acting for him as next
friend. Such shareholder shall be bound by the time limitations set forth in
this section, notwithstanding his legal incapacity.
12. Appeals shall lie from judgments in actions brought under this section
as in other civil actions in which equitable relief is sought.
13. No action by a shareholder in the right of the corporation shall abate
or be barred by the fact that the shareholder has filed a demand for payment of
the fair value of his shares pursuant to this section.
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ANNEX C
Merrill Lynch
International
Ropemaker Place
25 Ropemaker Street
London EC2Y 9LY
Telephone: 0171-628-1000
Direct: 0171-867
Telex: 8811047 MERLYN G
[LOGO]
Special Committee of the Board of Directors of
PEC Israel Economic Corporation
511 Fifth Avenue
New York, NY 10017
December 16th, 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:
<TABLE>
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(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;
</TABLE>
<PAGE>
<TABLE>
<C> <S>
(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;
(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.
</TABLE>
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 signification 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
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and may be currently engaged to provided financial advisory, investment banking
and/or other services to the 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
/s/ Merrill Lynch International
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PEC ISRAEL ECONOMIC CORPORATION
PROXY
The undersigned appoints Oudi Recanati, Frank J. Klein and James I. Edelson,
and any of them, as Proxies, each with full power of substitution, and hereby
authorizes them to represent and to vote on behalf of the undersigned all of the
shares of PEC Israel Economic Corporation (the "Company") which the undersigned
is entitled to vote at the Special Meeting of Stockholders to be held at 511
Fifth Avenue, 17(th) Floor, New York, New York on , 1999 at 10:00
A.M., and at any adjournment or adjournments thereof, hereby revoking all
proxies heretofore given with respect to such stock, upon the following proposal
more fully described in the notice of, and proxy statement relating to, the
Special Meeting (receipt whereof is hereby acknowledged).
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR (1).
1. PROPOSAL TO APPROVE AND ADOPT THE AGREEMENT AND PLAN OF MERGER, dated as of
December 15, 1998, by and among the Company, Discount Investment Corporation
Ltd., and PEC Acquisition Corporation.
/ / FOR / / AGAINST / / ABSTAIN
2. In their discretion upon such other matters as may properly come before the
meeting.
<PAGE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSAL 1. IF MORE THAN ONE OF SAID PROXIES OR THEIR SUBSTITUTES
SHALL BE PRESENT AND VOTE AT SAID MEETING, OR ANY ADJOURNMENT OR ADJOURNMENTS
THEREOF, A MAJORITY OF THEM SO PRESENT AND VOTING (OR IF ONLY ONE BE PRESENT AND
VOTE, THEN THAT ONE) SHALL HAVE AND MAY EXERCISE ALL THE POWERS HEREBY GRANTED.
Please sign exactly as your name appears on your stock certificates. When
shares are held by joint tenants, both should sign. When signing as attorney,
executor, administrator, trustee, or guardian, please give full title as such.
If a corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
--------------------------
Signature
--------------------------
Signature if held jointly
DATED: _____________, 1999
Please mark, sign, date and return the Proxy Card in the enclosed postage paid
envelope.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
