Africa Israel Investments Ltd.

Transcription

1 Consolidated Financial Statements

2 Consolidated Financial Statements Contents Page Auditors Reports 2 3 Consolidated Statements of Financial Position 4 5 Consolidated Statements of Income 6 Consolidated Statements of Comprehensive Income 7 Consolidated Statements of Changes in Shareholders Equity 8 9 Consolidated Statements of Cash Flows Notes to the Financial Statements 12 Appendix List of Group Companies 280

3 Report of the Auditors to the Shareholders of Africa Israel Investments Ltd. regarding Audit of Internal Control Components over Financial Reporting In accordance with Section 9B(c) of the Securities Regulations (Periodic and Immediate Reports), 1970 We have audited internal control components over financial reporting of Africa Israel Investments Ltd. and its subsidiaries (hereinafter the Company ) as at December 31, These internal control components were determined as explained in the following paragraph. The Company s Board of Directors and Management are responsible for maintenance of effective internal control over financial reporting and for their evaluation of the effectiveness of internal control components over financial reporting attached to the Periodic Report for the above-mentioned date. Our responsibility is to express an opinion on internal control components over the Company s financial reporting based on our audit. Internal control components over financial reporting audited by us were determined in accordance with Audit Standard 104 of the Institute of Certified Public Accountants in Israel Audit of Internal Control over Financial Reporting (hereinafter Audit Standard 104 ). These components are: (1) controls at the level of the organization, including controls over the preparation and closing process of financial reporting and general controls of information systems; (2) controls over investments in investee companies; (3) controls over investment property; (4) controls over inventory of buildings held for sale (all of these will be referred to hereinafter as the Audited Control Components ). We conducted our audit in accordance with Audit Standard 104. Pursuant to this Standard we are required to plan and perform the audit with the goal of identifying the Audited Control Components and to obtain a reasonable level of certainty whether these control components were effectively maintained in all material respects. Our audit included gaining an understanding of the internal control over financial reporting, identification of the Audited Control Components, evaluation of the risk that a significant weakness exists in the Audited Control Components, and examination and evaluation of the effectiveness of the planning and operation of those control components based on the assessed risk. Our audit, with respect to those control components, also included performance of other procedures such as those we considered necessary under the circumstances. Our audit referred solely to the Audited Control Components, as opposed to internal control over the overall significant processes in connection with the financial reporting and, therefore, our opinion relates solely to the Audited Control Components. In addition, our audit did not refer to reciprocal impacts between the Audited Control Components and those not audited and, therefore, our opinion does not take into account these possible impacts. We believe our audit provides a reasonable basis for our opinion in the context described above. Due to built-in limitations, internal control over financial reporting, in general, and components thereof, in particular, may not prevent or discover a material misrepresentation. In addition, making of conclusions with respect to the future on the basis of evaluation of any present effectiveness whatsoever is exposed to risk that the controls will become inappropriate due to changes in circumstances or the extent of compliance with the policies or the procedures will change for the worse. In our opinion, the Company effectively maintained, in all material respects, the Audited Control Components as at December 31, We have also audited, in accordance with generally accepted auditing standards in Israel, the Company s consolidated financial statements as at December 31, 2010 and 2009 and for each of the three years the last one of which ended on December 31, 2010 and our report, dated March 30, 2011, included an unqualified opinion on those financial statements, based on our audit and the reports of the other auditors. Somekh Chaikin Certified Public Accountants (Isr.) Breitman Almogar Zohar & Co. Certified Public Accountants (Isr.) March 30,

4 Auditors Report to the Shareholders of Africa Israel Investments Ltd. We have audited the accompanying consolidated statements of financial position of Africa Israel Investments Ltd. (hereinafter the Company ) as at December 31, 2010 and 2009, and the consolidated statements of income, the consolidated statements of comprehensive income, the consolidated statements changes in shareholders equity, and the consolidated statements cash flows for each of the three years the last one of which ended on December 31, These financial statements are the responsibility of the Company s Board of Directors and of its Management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of certain consolidated subsidiaries and joint ventures, whose assets constitute about 12% and about 13% of the total consolidated assets as at December 31, 2010 and 2009 respectively, and whose revenues constitute about 20%, about 19% and about 42% of the total consolidated revenues for the three years the last one of which ended on December 31, 2010, respectively. In addition, we did not audit the financial statements of investee companies and jointly controlled entities, the investment in which totaled NIS 354,419 thousand and NIS 406,424 thousand, as at December 31, 2010 and 2009, respectively, and the Company s share in their income (losses) was NIS 113,630 thousand, NIS (167,716) thousand and NIS (533,336) thousand for the three years the last one of which ended on December 31, 2010, respectively. The financial statements of those companies were audited by other auditors, whose reports thereon were furnished to us, and our opinion, insofar as it relates to amounts included in respect of those companies, is based on reports of the other auditors. We conducted our audits in accordance with generally accepted auditing standards in Israel, including standards prescribed by the Auditors Regulations (Manner of Auditor s Performance), Such standards require that we plan and perform the audits in order to obtain reasonable assurance that the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Company s Board of Directors and by its Management, as well as evaluating the overall financial-statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and on the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of the Company and its subsidiaries as at December 31, 2010 and 2009, and the results of their operations, the changes in the shareholders equity and their cash flows, for each of the three years the last one of which ended on December 31, 2010, in accordance with International Financial Reporting Standards (IFRS) and the provisions of the Securities Regulations (Annual Financial Statements), We also audited, in accordance with Auditing Standard 104 of the Institute of Certified Public Accountants in Israel Audit of Internal Control Components over Financial Reporting the internal control components over the Company s financial reporting as at December 31, 2010, and our report dated March 30, 2011 included an unqualified opinion with respect to the effective maintenance of those internal control components. Somekh Chaikin Certified Public Accountants (Isr.) Breitman Almogar Zohar & Co. Certified Public Accountants (Isr.) March 30,

5 Consolidated Statements of Financial Position In Thousands of New Israeli Shekels At December 31 Note Current Assets Cash and cash equivalents 8 2,155,726 1,560,504 Short-term investments 9 191, ,971 Marketable securities , ,148 Trade receivables , ,776 Other receivables and debit balances, including financial derivatives 11 1,064, ,075 Income taxes receivable 32,443 79,617 Inventory of buildings held for sale 12 3,007,503 *3,438,636 Other inventories , ,195 Assets held for sale 14 1,784, ,969 10,151, ,044, Non-Current Assets Investments in investee companies accounted for using the equity method of accounting 15 1,516,346 1,174,053 Loans to investee companies ,034 1,288,968 Property, plant and equipment ,661 **1,582,910 Investment property 17 5,192,277 5,387,076 Investment property under construction 18 6,051,801 5,265,491 Long-term loans, investments and other debit balances ,368 1,887,436 Inventory of real estate 20 1,639,952 *1,986,328 Intangible assets , ,247 Excess of assets over liabilities in respect of employee benefits 22 1,626 2,332 Deferred tax assets 36 96, ,452 16,251, ,789, * Reclassified see Note 2G. ** Retroactive application of new accounting standard see Note 2(H)2. 26,402,816 27,834,184 Lev Leviev Izzi Cohen Ron Fainaro Chairman of the Board of Directors CEO CFO Approval date of the financial statements: March 30, 2011 The accompanying notes to the consolidated financial statements are an integral part thereof. 4

6 Consolidated Statements of Financial Position In Thousands of New Israeli Shekels At December 31 Note Current Liabilities Debentures 23 1,277,346 7,576,961 Short-term credit from banks and others 23 2,270,373 3,984,439 Contractors and suppliers , ,025 Other payables and credit balances, including financial derivatives ,624 1,212,956 Income taxes payable 90,613 49,629 Advances from customers , ,907 Provisions , ,757 Liabilities held for sale 14 1,620,226 26,681 8,144, ,769, Long-Term Liabilities Debentures 23 3,984,767 1,701,023 Liabilities to banks 23 4,965,081 5,469,018 Other liabilities , ,431 Excess of losses on investments in investee companies accounted for using the equity method of accounting , ,458 Options issued 7D(1) 10,698 34,986 Employee benefits 22 14,749 19,259 Provisions 27 3,139 Liabilities for deferred taxes , ,113 10,217, ,744, Equity 37 Share capital and premium 374, ,604 Premium on shares 3,552,657 1,812,964 Capital reserves (2,350,584) (1,295,145) Retained earnings 1,955, ,293 Total equity allocated to the owners of the Company 3,532,765 1,135,716 Rights not conferring control 4,508,141 *3,184,686 Total equity 8,040, ,320, * Retroactive application of new accounting standard see Note 2(H)1. 26,402,816 27,834,184 The accompanying notes to the consolidated financial statements are an integral part thereof. 5

7 Consolidated Statements of Income In Thousands of New Israeli Shekels (unless stated otherwise) For the Year Ended December 31 Note 2010 *2009 *2008 Revenues Construction and real estate transactions 28 2,706,043 2,491,739 2,783,908 Rental and operation of properties 440, , ,452 Industry 1,876,727 1,383,938 1,915,557 Other activities 28,246 11,860 20,550 Share in income of investee companies accounted for using the equity method of accounting, net ,167 Increase in fair value of investment property, net , ,660 Other income , , ,653 5,924, ,639, ,645, Cost and expenses Construction and real estate transactions 30 2,363,278 2,201,499 2,630,412 Update of provision for decline in value of inventory of land and buildings 28 (60,195) 577,125 1,365,968 Maintenance, supervision and management of real estate and properties , , ,460 Decline in value of investment property, net ,951 Decline in value of investment property under construction, net 18 20, ,494 2,060,671 Industry 32 1,724,479 1,300,536 1,815,630 Other activities 39,440 2,412 3,232 Share in losses of investee companies accounted for using the equity method of accounting, net , ,679 Administrative and general expenses , , ,634 Amortization of intangible and other expenses , , ,929 4,746, ,508, ,328, Operating income (loss) 1,177,458 (869,086) (3,682,835) Financing expenses 35 (1,130,883) (1,404,568) (1,532,785) Financing income (see Note 1C) 35 1,729,598 1,891, ,965 Financing income (expenses), net 598, , (1,070,820) Operating income (loss) before taxes on income 1,776,173 (382,516) (4,753,655) Taxes on income 36 (155,825) (327,434) (174,952) Income (loss) from continuing activities 1,620,348 (709,950) (4,928,607) Income (loss) from discontinued activities (after taxes) 5 213,327 (53,428) (18,618) Income (loss) for the year 1,833,675 (763,378) (4,947,225) Allocated to: The owners of the Company 1,702,056 (673,023) (4,860,956) Rights not conferring control 131,619 (90,355) (86,269) Income (loss) for the year 1,833,675 (763,378) (4,947,225) Income (loss) per share attributed to the owners of the Company Basic income (loss) per share (in NIS) **(12.14) **(91.67) Diluted income (loss) per share (in NIS) **(12.14) **(91.67) * Restated due to discontinuance of activities see Note 5. ** Restated due to issuance of rights see Note 1C. *** Regarding income (loss) per share from discontinued activities see Note 5. The accompanying notes to the consolidated financial statements are an integral part thereof. 6

8 Consolidated Statements of Comprehensive Income In Thousands of New Israeli Shekels For the Year Ended December Income (loss) for the year 1,833,675 (763,378) (4,947,225) Other components of comprehensive income (loss) Foreign currency translation differences in respect of foreign activities (834,266) 145,713 (1,037,627) Change in fair value of cash flow hedges, net of tax 39,389 (4,312) (52,983) Change in fair value of financial assets available for sale, net of tax 3,694 (33,217) Loss from decline in value of financial assets available for sale transferred to the statement of income, net of tax 33,217 Loss of control in subsidiary, net of tax (14,893) Realization of comprehensive income of investee company accounted for using the equity method of accounting, net of tax (594) 15,857 Total comprehensive income (loss) for the year 1,041,898 (621,013) (6,037,835) Total comprehensive income (loss) allocated to: The owners of the Company 1,290,425 (555,809) (5,651,480) Rights not conferring control (248,527) (65,204) (386,355) Total comprehensive income (loss) for the year 1,041,898 (621,013) (6,037,835) The accompanying notes to the consolidated financial statements are an integral part thereof. 7

9 Statements of Changes in Shareholders Equity In Thousands of New Israeli Shekels Attributable to the owners of the Company Reserve for transactions Capital with Holders reserve Revaluation holders of of Share from reserve rights rights capital Premium cash Other for not not and on flow capital Translation acquisition conferring Retained conferring Total premium shares hedges reserves adjustments in stages control earnings Total control equity Balance at January 1, ,604 1,812,964 (30,078) 24,444 (1,299,925) 10, ,293 1,135,716 *3,184,686 4,320,402 Net income for the year 1,702,056 1,702, ,619 1,833,675 Other comprehensive loss for the year 24,914 3,694 (440,239) (411,631) (380,146) (791,777) Total comprehensive income (loss) for the year 24,914 3,694 (440,239) 1,702,056 1,290,425 (248,527) 1,041,898 Issuance of ordinary shares, net** 6,237 1,739,693 1,745,930 1,745,930 Share-based payments (net of tax) 4,502 4, ,450 Dividend to holders of rights not conferring control (15,430) (15,430) Issuance of capital to holders of rights not conferring control 120, ,538 Acquisition and sale of rights not conferring control 3, ,205 (1,819) (784,459) (643,808) 1,465, ,118 Balance at December 31, ,841 3,552,657 (1,899) 28,138 (1,600,959) 8,595 (784,459) 1,955,851 3,532,765 4,508,141 8,040,906 * Retroactive application of new accounting standard see Note 2H(1). ** See Note 1C. The accompanying notes to the consolidated financial statements are an integral part thereof. 8

10 Statements of Changes in Shareholders Equity In Thousands of New Israeli Shekels Attributable to the owners of the Company Capital Holders reserve Revaluation of Share for reserve rights capital Premium cash Other for not and on flow capital Translation acquisition Retained conferring Total premium shares hedges reserves adjustments in stages earnings Total control equity Balance at January 1, ,604 1,812,964 (37,750) 24,444 (1,419,576) 20, ,296 1,685,505 *3,452,049 5,137,554 Loss for the year (673,023) (673,023) (90,355) (763,378) Comprehensive income for the year 7, ,651 (10,109) 117,214 25, ,365 Total comprehensive loss for the year 7, ,651 (10,109) (673,023) (555,809) (65,204) (621,013) Share-based payments (net of tax) 6,020 6,020 (1,416) 4,604 Exit of subsidiary from the consolidation to an associated company (66,872) (66,872) Dividend paid to holders of rights not conferring control (222,513) (222,513) Entry into the consolidation 9,237 9,237 Issuance of capital holders of rights not conferring control 62,717 62,717 Acquisition and sale of rights not conferring control 16,688 16,688 Balance at December 31, ,604 1,812,964 (30,078) 24,444 (1,299,925) 10, ,293 1,135,716 *3,184,686 4,320,402 Attributable to the owners of the Company Capital Holders reserve Revaluation of Share for reserve rights capital Premium cash Other for not and on flow capital Translation acquisition Retained conferring Total premium shares hedges reserves adjustments in stages earnings Total control equity Balance at January 1, , ,807 24,444 (666,802) 20,523 6,174,572 6,721,657 *4,550,424 11,272,081 Loss for the year (4,860,956) (4,860,956) (86,269) (4,947,225) Comprehensive loss for the year (37,750) (752,774) (790,524) (300,086) (1,090,610) Total comprehensive loss for the year (37,750) (752,774) (4,860,956) (5,651,480) (386,355) (6,037,835) Issuance of ordinary shares, net** 477 1,011,362 1,011,839 1,011,839 Share-based payments (net of tax) 2,680 2,680 6,228 8,908 Debentures converted into shares Dividend to equity holders (400,000) (400,000) (400,000) Dividend paid to holders of rights not conferring control (240,520) (240,520) Rights not conferring control in business combinations (482,238) (482,238) Issuance of capital to holders of rights not conferring control 58,881 58,881 Acquisition of rights not conferring control (54,371) (54,371) Balance at December 31, ,604 1,812,964 (37,750) 24,444 (1,419,576) 20, ,296 1,685,505 *3,452,049 5,137,554 * Retroactive application of new accounting standard see Note 2H(1). ** Less issuance expenses in the amount of NIS 5,031 thousand. 9

11 The accompanying notes to the consolidated financial statements are an integral part thereof. 10

12 Consolidated Statements of Cash Flows In Thousands of New Israeli Shekels For the Year Ended December Cash flows from operating activities Net income (loss) for the year 1,833,675 (763,378) (4,947,225) Adjustments: Share in losses (income) of investee companies accounted for using the equity method of accounting, net (352,615) 252, ,074 Gain from decline in rate of holdings (483,950) (49,769) (34,303) Depreciation and amortization and decline in value of property, plant and equipment 258, , ,960 Update of provision for decline in value of inventory of land and buildings (60,195) 577,125 1,365,968 Decline in value of investments, net 10,781 97,248 44,672 Loss from decline in value of intangible assets 32, ,662 Change in fair value of investment property under construction, net 20, ,494 2,060,671 Capital losses (gains) on sale of property, plant and equipment and investment property, net 8,714 53,632 (118,122) Share-based payments 5,450 4,604 8,908 Marketable securities, net 20,386 75,961 36,562 Change in fair value of investment property, net (221,242) 245,951 (165,585) Taxes on income 158, , ,538 Change in time value in respect of put options to holders of rights not conferring control (586) 1,391 5,260 Financing (income) expenses, net (562,736) (559,793) 1,229,710 Change in real estate category 53, ,542 (95,470) Change in long-term debt 33, ,635 (336,070) Change in inventory of buildings held for sale 472,719 (30,984) (630,035) Change in other inventories (200,537) 61,828 32,298 Change in trade receivables and other receivables and debits (88,659) 354, ,573 Change in contractors, trade payables and other payables and credits 136,536 (507,552) 141,916 Change in advance deposits from customers 79,902 50,122 (183,563) Change in provisions and employee benefits 21,319 13,637 22,599 Income taxes paid, net (29,208) (6,053) (238,252) Net cash provided by (used in) operating activities 1,114, ,027 (657,254) The accompanying notes to the consolidated financial statements are an integral part thereof. 11

13 Consolidated Statements of Cash Flows In Thousands of New Israeli Shekels For the Year Ended December Cash flows from investing activities Initial consolidation of subsidiary (75,666) (181,097) Investment in associated and other companies (10,831) (76,613) (284,936) Repayment (provision) of loans to associated companies, net 327,584 (8,017) (209,229) Investment in intangible assets (4,785) (11,527) (9,767) Proceeds from sale of shares of investee companies 379, , ,624 Investment in investment property and investment property under construction (638,446) (1,516,903) (2,803,281) Investment in property, plant and equipment (108,151) (85,504) (310,029) Proceeds from sale of property, plant and equipment 3,886 14, ,463 Proceeds from sale of investment property 32, , ,250 Investment in long-term deposits and loans (62,265) (113,522) (4,678) Repayment of long-term deposits and loans 213,048 81, ,772 Acquisition of marketable securities (424,921) (581,712) (2,242,642) Sale of marketable securities 441, ,152 3,234,230 Dividends received 14,227 26,863 38,313 Interest received 120, ,149 89,722 Short-term investments, net 133,590 30,324 (110,268) Net cash provided by (used in) investing activities 417,518 (591,375) (1,250,553) Cash flows from financing activities Interest paid (880,078) (960,753) (1,132,869) Dividend paid to holders of rights not conferring control (15,430) (222,513) (240,520) Dividend paid to the equity holders (400,000) Acquisition of rights not conferring control (22,805) *(5,516) *(121,599) Issuance of capital to the owners of the Company 380,559 1,016,870 Issuance expenses (5,031) Proceeds from issuance of rights in subsidiaries 3,278 Issuance of capital to holders of rights not conferring control 118,884 64,621 58,881 Receipt of long-term loans and liabilities 1,132,763 3,642,624 4,566,102 Repayment of long-term loans and liabilities (1,511,412) (2,321,485) (1,939,481) Short-term credit, net (94,787) (1,416,157) (1,818,976) Net cash used in financing activities (889,028) (1,219,179) (16,623) Increase (decrease) in cash and cash equivalents 643,309 (869,527) (1,924,430) Cash and equivalents at the beginning of the year 1,560,504 2,263,510 4,502,529 Cash from discontinued operations (24,457) Effect of exchange rate fluctuations on balances of cash and cash equivalents (23,630) 166,521 (314,589) Cash and cash equivalents at the end of the year 2,155,726 1,560,504 2,263,510 * Retroactive application of new accounting standard see Note 2H(1). The accompanying notes to the consolidated financial statements are an integral part thereof. 12

14 All amounts are presented In Thousands of New Israeli Shekels unless indicated otherwise Note 1 General A. The Reporting Entity Africa Israel Investments Ltd. (hereinafter the Company ) is an Israeli-resident company that was incorporated in Israel and its registered address is Derech Hahoresh 4, Yehud. The Group s consolidated financial statements as at December 31, 2010, include the financial statements of the Company and those of its subsidiaries (hereinafter the Group ) as well as the Group s rights in associated companies and jointly controlled entities. The Company s controlling shareholder is Mr. Lev Leviev, who holds the Company directly as well as through companies he wholly owns and controls. The Group is engaged in holdings and investments in a variety of sectors in and outside of Israel. The Company s securities are registered for trading on the Tel-Aviv Stock Exchange. B. Impacts of the Global Financial Crisis on the Group s Activities Since September 2008 and thereafter, the global financial crisis has taken a dramatic turn for the worse and the extent of its impact has increased on both the world economy and the Israeli economy. As a result of the said crisis, which has triggered the collapse of significant players in the world credit market, there has been a decline in the amount of credit extended by banks and non-bank lenders (in and outside of Israel), and a process of a general economic slowdown has taken hold in a large number of countries throughout the world, including countries in which the Group companies operate. The financial crisis has affected the Israeli economy and capital markets, in general, and the Group companies, in particular, including by causing an increase in the interest rates paid on bank loans, stricter terms for receipt and/or renewal of financing, an adverse effect on the Company s ability to sell its properties, a decline in the fair value of investment and real estate properties, a slowdown in the rate of sales of residential units and construction of residential projects by the Group companies and a decrease in the demand for rental properties. In addition, in certain cases the crisis has given rise to an increase in the discount rates, which in turn affects the results of the Company s operations. The financial crisis has caused a number of the Group companies not to comply with financial covenants with respect to part of the liabilities (as stated in Note 23) and the need to make a significant change in the terms of the loans by means of, among other things, active requests by the Group to financers and lenders, in order to conform the loans and financing terms of the Group s projects in and outside of Israel to the present financial situation. In light of the credit bottleneck caused by the said crisis, and taking into account the significant credit available to the Group at the outbreak of the crisis, on August 30, 2009, the Company s Board of Directors authorized Company Management to start talks with the holders of the Company s debentures in order to formulate a plan for reorganization of the Company s liabilities to the holders of all its different debenture series and on May 16, 2010, the debt arrangement process was completed. For details regarding the debt arrangement and its impact on the Company s financial statements see Section C., below. 13

15 Note 1 General (Cont.) B. Impacts of the Global Financial Crisis on the Group s Activities (Cont.) At the present time, the markets are still in a crisis condition, however, the indicators have strengthened that it may be concluded that in mid 2009 the worldwide recession bottomed out (this can be learned mainly from the rise in the prices of securities on the world stock markets, relaxation of the global credit bottleneck, and from appearance of signs of renewal of capital fundraisings by means of issuance of debentures and shares). Nevertheless, it is noted that the demand and worldwide activities are still at a low level. It is not possible know whether the full impacts of the crisis, as stated, have been exhausted, and there is a fear of a worsening of the recession in more and more of the world s economies. The above-mentioned developments impact and may continue to impact in the future, both directly and indirectly, the Group s business activities, including the value of its assets, its liquidity, its ability to sell off its properties, as well as its ability to raise capital and comply with its financial covenants. C. Debt Arrangement On February 9, 2010, the Company published an Immediate Report regarding convening of a meeting of the holders of the Company s debentures, for approval of the arrangement with the holders of the Company s debentures, as well as an Immediate Report regarding convening of a meeting of the Company s shareholders for approval of the above-mentioned arrangement, pursuant to Section 350 of the Companies Law. (1) Set forth below are the highlights of the arrangement with the holders of the Company s debentures: (a) Under the proposed arrangement, the Company s controlling shareholder (including through a company in his control and/or a trustee on behalf of either) and/or any representative thereof shall invest in the Company the amount of NIS 750 million on the dates and under the terms set forth hereinafter: No later than the execution date of the arrangement, an issuance of rights to the Company s shareholders will be completed, designed to raise capital in the amount of no less than about NIS 400 million (hereinafter Initial Rights Offer ). The controlling shareholder (as defined in the arrangement) undertook to respond to the Initial Rights Offer and invest in the Initial Rights Offer pro rata to his share in the Company s current share capital (about %), that is, a total of NIS 300 million and partial linkage differences (defined hereinafter) (hereinafter the Initial Investment ). See also Section 2A below. After the Execution Date, the controlling shareholder committed as part of the commitment certificate, to invest NIS 450 million including partial linkage differences (as defined below) (hereinafter the Additional Investments ), on the dates and under the terms as follows: 14

16 Note 1 General (Cont.) C. Debt Arrangement (Cont.) (1) Set forth below are the highlights of the arrangement with the holders of the Company s debentures: (Cont.) (a) (Cont.) (Cont.) (i) An additional amount of NIS 100 million no later than one year from the Execution Date; (ii) An additional amount of NIS 100 million no later than two years from the Execution Date; (iii) An additional amount of NIS 100 million no later than three years from the Execution Date; (iv) An additional amount of NIS 150 million no later than four years from the Execution Date. The Additional Investments (or a part thereof, as set forth below) are to be executed in the form of private placements: however the controlling shareholder may decide, prior to the Execution Date of each investment increment, that execution of any of the investment increments set forth in Sections (i)-(iv) above (the above amounts represent the share of the controlling shareholder only) (or any part thereof) will be executed in the form of an issuance of rights, in place of a private placement, provided that (a) the share of the controlling shareholder in the rights issuance is no less than NIS 25 million (with this amount being linked to the partial linkage differences); (b) the Company s Board of Directors approves the rights issue in place of the private placement, and; (c) the rights issuance shall not postpone the investment of the relevant amounts by the controlling shareholder in full and in a timely manner. Investments of monies under this Section shall be executed according to a share price of NIS (hereinafter the Base Share Price ). The Base Share Price shall be subject to adjustments in respect of distributions of bonus shares and dividends, provided that the reduction of the Base Share Price resulting from the said dividend distribution does not exceed 5% of the Base Share Price in any year, cumulatively, beginning on the date of the repayment of the debentures (Series Y) and onward. To the extent that investments of the monies are executed in the form of an issue of rights, the said investments will be executed according to a share price that does not exceed 90% of the average closing price of a Company share on the TASE in the three trading days preceding the date of the resolution by the Company s Board of Directors regarding execution of the rights issuance. The amounts of the Initial Investment and the Additional Investments, shall be linked to one-half of the rate of increase in the CPI compared to the index for September 2009 published on October 15, 2009 (hereinabove and hereinafter the Partial Linkage Differences ). 15

17 Note 1 General (Cont.) C. Debt Arrangement (Cont.) (1) Set forth below are the highlights of the arrangement with the holders of the Company s debentures: (Cont.) (a) (Cont.) No later than the Execution Date, the Company shall issue to the trustee of the debenture holders (Series Z) shares, the number of which shall be equal to the Additional Investments including the Partial Linkage Differences up to the issuance date; divided by the Base Share Price (hereinafter the Agreed Relief Shares ). So long as the Agreed Relief Shares are held by the Share Trustee they will constitute dormant shares, which do not grant any party, including the controlling shareholder, the new debenture holders, or the Share Trustee, any rights in the Company, its capital or voting rights (including the right to receive dividends) and/or any other right (including the right to participate in an issue of rights) (see also Section (2)(b), below). Immediately prior to execution of any investment increment of any Additional Investment, the Company will issue to the Share Trustee additional shares, the quantity of which shall be equal to the difference between the balance of the Additional Investments linked to the Partial Linkage Differentials (up to the issuance date), divided by the Base Share Price, adjusted for the distribution of dividends and bonus shares; and the quantity of Agreed Relief Shares held by the Share Trustee in trust. Immediately after execution of each Additional Investment, the Share Trustee shall transfer to the controlling shareholder ordinary shares of the Company, from the Agreed Relief Shares, in a quantity equal to the amounts of the Additional Investments, including the Partial Linkage Differentials; divided by the Base Share Price subject to adjustments in respect of distributions of dividends and bonus shares. It is clarified that the controlling shareholder may execute each Additional Investment in several parts or at once, at his discretion. In the event that the Controlling Shareholder breaches his obligation to invest the first or second increment of the Additional Investments in entirety and/or in a timely manner, the Share Trustee shall transfer a relative share of the Agreed Relief Shares to the new debenture holders (as defined below) who shall hold shares on the entitlement date (as published by the Share Trustee). In the event that the Controlling Shareholder breaches his obligation to invest the third or fourth increment of the Additional Investments in entirety and/or in a timely manner, the Share Trustee shall transfer the relative share of the Agreed Relief Shares to the Bondholders (Series Z) who shall hold shares on the entitlement date. 16

18 Note 1 General (Cont.) C. Debt Arrangement (Cont.) (1) Set forth below are the highlights of the arrangement with the holders of the Company s debentures: (Cont.) (b) No later than the Execution Date, the Company shall repay, as a partial repayment, to all holders of the debentures holding debentures on the determining date, the amount of NIS 559 million (hereinafter the Cash Payment ) under the following terms and in the following manner (this amount includes NIS 3.6 million paid to holders of the debentures (Series I) in January 2010 for accumulated interest in respect of the debentures (Series I) up to January 5, 2010): (c) On the Execution Date, the Company shall issue to all the debenture holders who hold debentures on the determining date in respect of the balance of their holdings in the debentures after the Cash Payment and execution of the partial repayment as set forth in Section (b) above), two new series of debentures whose terms are as follows (see also Section 2(c), below): i. NIS 1,016 million par value of registered debentures (Series Y) of the Company of par value NIS 1 each, payable in a single installment at the end of twenty-four months (24) from the Execution Date. The Debentures (Series Y) shall be linked to the CPI (principal and interest), and the base index is the index known on the Determining Date, and shall bear fixed annual interest from the Execution Date at the rate of 4.5%, payable together with the Debentures (Series Y) principal on the final redemption date of the Debentures (Series Y), as stated above. The Debentures (Series Y) shall be secured by collateral as set forth below. On the Execution Date, the Debentures shall be replaced by Debentures (Series Y) in the matter set forth in the arrangement. ii. NIS 3,626 par value of registered debentures (Series Z), with a par value of NIS 1 each, repayable in thirteen (13) consecutive annual installments beginning after the elapse of three years from the Execution Date (that is, one payment of principal in each of the years from 2013 to 2025). The Debentures (Series Z) shall be linked to the CPI known on the Determining Date, and shall bear effective annual interest at an average rate of 7% per annum, to be increased gradually from 6% per year to 10.75% per year, all as set forth in the arrangement. The interest in respect of the Debentures (Series Z) is payable in consecutive semi-annual installments beginning six months after the Execution Date, in each of the years from 2010 to The Company shall take steps to have the Debentures (Series Z) rated by a rating company certified by the Supervisor of the Capital Market, no later than one year from the Determining Date. Furthermore, the Company shall take steps to maintain the rating of the Debentures (Series Z) by said rating company during the entire term of the Debentures (Series Z). On the Execution Date, the Debentures (Series Z) will be substituted replaced in the manner set forth in the arrangement. The debentures (Series Y) and the debentures (Series Z), will be referred to hereinafter and hereinabove, together, a the New Debentures ). 17

19 Note 1 General (Cont.) C. Debt Arrangement (Cont.) (1) Set forth below are the highlights of the arrangement with the holders of the Company s debentures: (Cont.) (c) (Cont.) iii. It is noted that the arrangement defines provisions regarding the matter of early redemption of the New Debentures, whether the Company elects to make an early repayment as stated, or whether the Company is obligated to make the said early repayment, as well as provisions concerning damages to the holders of the New Debentures (in certain cases) in respect of a voluntary early repayment of the Debentures (Series Z), all as set forth in the arrangement. As at the date of the report, there is no violation requiring early repayment of the debentures. (d) On the Execution Date, the Company is to issue to the debenture holders who hold debentures on the Determining Date, in respect of the balance of their holdings in the debentures (after the Cash Payment and the partial redemption as set forth in Section (b) above, and issuance of the New Debentures as set forth in Section (c) above), ordinary shares of NIS 0.1 par value each of the Company, in a quantity equal to the debt converted into Company shares (that is, a total of NIS 1.4 billion) divided by the Base Share Price. Company shares so issued to the debenture holders shall be listed for trading from the date of issue, (see also Section 2(e) below). (e) On the Execution Date, the Company will transfer to the debenture holders who hold debentures on the Determining Date, in respect of the balance of their holdings in the debentures, 92,720,923 global depository receipts (GDRs) representing 17.7% of the shares of AFI Development PLC, and shares of Africa Israel Properties (hereinafter in this Section AFI Development and Africa Properties, respectively, and jointly the Shares of the Subsidiaries ), such that the value (defined below) of the Shares of the Subsidiaries amounts to the amount of the debt converted into the Shares of the Subsidiaries. The debt converted into the Shares of the Subsidiaries a total amount of NIS 1.2 billion. Shares of the Subsidiaries transferred to the debenture holders shall be listed for trading from the date of their transfer. Value for purposes of this Section, shall be determined on the basis of the average of the market value and the book value known on the Determining Date of each of the Subsidiaries. Based on the conditions, on the execution date of the arrangement, the Company transferred to the New Debenture holders 92,720,923 global deposit receipts (GDRs) and 3,372,948 shares of Africa Properties see Section 2(d) below. 18

20 Note 1 General (Cont.) C. Debt Arrangement (Cont.) (1) Set forth below are the highlights of the arrangement with the holders of the Company s debentures: (Cont.) (f) The Company has tax arrangements granted by the Tax Authorities and VAT Authorities regarding the arrangement that govern the various tax aspects all as detailed in the arrangement. (g) To secure the Company s obligations under the New Debentures, the Company shall pledge on the Execution Date, in favor of the trustees of the New Debenture Holders, pro rata to the par value amount of the New Debentures part of the Company s share holdings and accompanying rights in Africa Properties, the Company s rights in the shareholders loans granted to Africa Properties and management fees from Africa Properties as well as part of the rights in AFI Development. The Company may exchange the Pledged Assets or any part thereof for the Shares of the Subsidiaries and/or other negotiable securities held by the Company, subject to several conditions defined in the arrangement. No later than the date of the final, full, and precise repayment of the New Debentures, the Company undertakes, in respect of each of its own (solo) assets, existing now or hereafter on the Determining Date of the Arrangement (jointly hereinafter the Company s Assets ), to refrain from pledging, mortgaging, assigning through a lien, or granting it as other collateral of any other kind or as other guarantee for any debt of the Company or of others, in favor of any third party, without approval of the New Debenture Holders, as the case may be, to be adopted by regular majority. It is clarified that the restrictions imposed on the Company under the negative pledge, shall also apply to transfer of any of the Company s Assets with no consideration. This undertaking shall not apply to any of the following actions or transactions: i. A specific charge on any asset, the purchase and/or development of which were financed by any third party, provided that the charge secures only the amount of financing provided by the third party for the purchase and/or development of said asset (as the case may be)(lien in rem); ii. Granting a specific charge on any of the Company s Assets in favor of a buyer or the entity that finances purchase of the Asset by the buyer, provided that the charge secures only the transfer of rights in the Asset in the Buyer s favor and/or satisfaction of the Company s obligations under its agreement with the Buyer, and prior to creation of the charge, the Buyer transfers to the Company (or to its trustee, including a joint trustee with the Buyer) the entire consideration (or a material part thereof) in respect of the purchase of the asset; 19

21 Note 1 General (Cont.) C. Debt Arrangement (Cont.) (1) Set forth below are the highlights of the arrangement with the holders of the Company s debentures: (Cont.) (g) (Cont.) iii. A charge and/or other security interest of any kind on the Company s Assets, against receipt of financing to be used to discharge liabilities to the New Debenture Holders and the banks, provided that the ratio between the amount discharged to the New Debenture Holders and the amount discharged to banks is not smaller than the ratio between the debt balance in respect of the New Debentures and the debt balance to the banks on the date of the discharge of the liabilities; and the charge and/or security interest shall secure only the amount of financing provided by the third part to discharge the liabilities to the financial creditors, as stated above. iv. A charge in favor of banks against the assets and/or projects set forth in the arrangement. (h) The Company undertakes that, until the final and absolute repayment of the New Debentures, the ratio between the net financial debt and the CAP, as defined in Appendix R to the Proposed Arrangement, shall not exceed 70% (subject to the allowance of a minor deviation of no more than 10% in the stated ratio in the first two years subsequent to the Execution Date, and 5% thereafter) (hereinafter the Financial Covenants ). Subject to the restrictions defined, any breach by the Company of its obligation to comply with the Financial Covenants shall constitute grounds for a demand for immediate repayment based on the New Debentures, in addition to the grounds for action set forth in the deeds of trust concerning the New Debentures. As at the date of the report, the Company is in compliance with the covenants determined. (i) The Company may make a distribution, as defined in the Companies Law, exclusively subject to the following cumulative conditions: the Company is in compliance with the Financial Covenants on the date of the decision to make a distribution; the distribution does not constitute or cause any non-compliance with the Financial Covenants; the Company transferred to the trustees a confirmation signed by the Company regarding this matter and a copy of the transcript of the decision of the Company s Board of Directors with respect to the distribution, wherein the Board of Directors confirms that, in its opinion and after having reviewed the Company s situation, it concluded that no reasonable risk exists that the distribution will prevent the Company from being able to repay the New Debentures based on their terms. 20

22 Note 1 General (Cont.) C. Debt Arrangement (Cont.) (1) Set forth below are the highlights of the arrangement with the holders of the Company s debentures: (Cont.) (i) (Cont.) Notwithstanding that stated above, to the extent that the debentures (Series Y) have not yet been repaid, the Company may not make a distribution, as this term is defined in the Companies Law, without approval of the New Debenture Holders, adopted by a regular majority at a meeting of the New Debenture Holders prior to the distribution declaration date. The Company will take steps to convene said meeting prior to the distribution declaration date. The restriction on making a distribution under this Section shall not apply after the earlier of repayment of debentures (Series Y) or the Controlling Shareholder performs his obligation to make additional investments in the amount of NIS 200 million, as stated in Section (a) above. In the event that the Controlling Shareholder breaches his obligation to make one or more of the payments which he undertook to pay over the four years subsequent to the Execution Date (that amount to a total of NIS 450 million), as stated in Section (a) above (hereinafter the Controlling Shareholder s Investment Obligation ), all the funds that the Controlling Shareholder is entitled to receive in respect of any distribution by the Company shall be applied to payments on account of the Controlling Shareholder s Investment Obligation, the payment date of which has not yet occurred. The Company will set off from the amounts of said distribution, [amounts] in respect of the Controlling Shareholder s Investment Obligation, and any said set-off is deemed performance of the Controlling Shareholder s Investment Obligations whose payment date has not yet occurred, and which shall grant the Controlling Shareholder the right to receive Agreed Relief Shares. The arrangement under this Section shall remain in force until the earlier of full satisfaction of the Controlling Shareholder s Investment Obligations or the elapse of four (4) years from the Determining Date. (j) As part of the arrangement, restrictions were placed on sale of Company shares by the controlling shareholder. (k) The Company may not extend any of the New Debentures series without approval of separate meetings of the New Debenture Holders, by resolution adopted by a regular majority. In addition, so long as the debentures (Series Z) have not yet been repaid in full, the Company may not issue additional series of debentures whose terms are identical, similar, or preferred compared to the terms of the New Debentures, according to criteria set forth in the Proposed Arrangement, and subject to specific restrictions defined. Further, the Company may, at any time, purchase new debentures at any price it deems fit, without detracting from the obligation to repay the outstanding the New Debentures, provided that purchase of the new debentures by the Company in transactions over the counter shall not be performed from a Related Holder (as defined below). The new debentures so purchased and/or held by the Company shall be voided upon their purchase and stricken from trading, and the Company may not re-issue them. 21