Elbit Systems Ltd. and Elop Electro-Optics Industries Ltd.Announce the Signing of a Merger Agreement
(Source : Elbit Systems Ltd. ; issued Dec. 20)


HAIFA, Israel---Elbit Systems Ltd. ("Company'') announced today that, further to its announcement of July 5, 1999, a merger agreement ("Merger Agreement'') was signed on December 19, 1999 by the Company, Elop Electro-Optics Industries Ltd. ("Elop''), and shareholders of Elop including Federmann Enterprises Ltd., Heris Finanz A.G. and Rehovot Instruments Ltd., a subsidiary of Elop.

Upon finalization of the transactions, and subject to the conditions in the Merger Agreement, Elop will be merged into the Company in consideration for the issuance to Federman Enterprises Ltd. and Heris Finanz A.G. (collectively the "Elop Shareholders'') of a total of 12,100,000 Company ordinary shares, nominal value NIS 1.00 per share, which will constitute approximately 32.3% of the outstanding shares of the Company following completion of the Merger (excluding shares held by a subsidiary of the Company), subject to adjustments. The Merger Agreement provides that the parties will use their best efforts to complete the Merger by May 2000. The effective date of the Merger will be January 1, 2000.

The Merger Agreement was signed with the approval of the Company's Board of Directors following receipt of an opinion as to the fairness of the valuation from a financial point of view from CIBC World Markets Corporation. The Board of Directors believes the Merger is consistent with the Company's strategic plan and will enhance the growth of the merged company and the expansion of its business. This will result from combining resources of both companies and the efficient utilization of their complementary technological and marketing capabilities and will strengthen the position of the Company after the Merger in its areas of activities in the worldwide defense market.

Joseph Ackerman, President and Chief Executive Officer, said, "The Merger between Elbit Systems and Elop is part of the Company's strategic plan for development and creation of shareholders' value. The Merger combines two companies that complement each other and have been cooperating for years in the Israeli and worldwide defense industry. The Merger will enable Elbit Systems to expand existing business activities through the ability to offer a wider range of products and systems. It will also allow us to enter new areas by providing unique technical solutions, integrating the combined capabilities of the two companies, thus increasing the probability of success in winning projects worldwide. Combining the existing capabilities of both companies, including research and development, market presence, financial strength and high quality human resources, will facilitate the increased growth of the business of the merged company and improve its competitive position in our areas of operation. This is a first step that will enable us to realize other opportunities of this nature, both in Israel and abroad.''

Pursuant to the Merger Agreement, Michael Federmann will serve as Chairman of the Board of Directors of the merged company, Joseph Ackerman will serve as its President and Chief Executive Officer, and Jacob Toren will serve as a director of the merged company and as Chairman of the Merger Committee of the Board of Directors for the Merger period.

Elop is a leading company in the field of advanced electro-optical products for military and civilian purposes. Elop's business areas include development and production of thermal imaging products, laser products, optical systems for space applications, airborne reconnaissance systems, optical communications systems, fire control systems for combat vehicles and security systems and products.

For fiscal 1999, Elop's revenues are expected to be between $280 million and $300 million, with sales divided in the following geographic regions: Israel -23%, United States - 31%, and other parts of the world - 46%. Elop's profits for fiscal 1999 are estimated to be approximately$14.3 million before deducting management fees of approximately $3.4 million. Elop has a backlog of orders of approximately $500 million. Following completion of the Merger, Elop's operations will be conducted as a subsidiary of the Company and will be integrated with the overall operations of Elbit Systems Ltd.

For the period from January 1, 1999 until completion of the Merger, the parties to the Merger Agreement have agreed that the Company will not distribute dividends in an amount that exceeds 25% of the Company's net profit after tax (without taking into account expenses relating to the Merger). The parties also agreed that the merged company will adopt an employee stock option plan under which it will grant options to its key employees to purchase 1.5 million of its ordinary shares, nominal value NIS 1.00 per share. The terms and date of adoption of the employee stock option plan have yet to be determined.

Concurrently with the execution of the Merger Agreement, a shareholders' agreement (the "Shareholders' Agreement'') was signed between Elron Electronic Industries Ltd. ("Elron''), which presently holds approximately 33.4% of the outstanding shares of the Company, and the Elop Shareholders. The Shareholders' Agreement governs the relationship of the parties as shareholders of the merged company and includes provisions with respect to joint voting for the election of an equal number of directors to the merged company's Board of Directors, rights of first refusal, tag along rights and pre-emptive rights. Upon consummation of the Merger, subject to there being no changes in Elron's shareholdings in the Company, Elron will hold approximately 22.7% of the outstanding shares of the Company.

In addition, the Company, Elron, and the Elop Shareholders have agreed on the terms of a registration rights agreement regarding the rights of Elron and the Elop Shareholders to have their shares in the merged company registered for trading in the United States. This agreement will be signed upon completion of the Merger.

As a result of the Merger, the Company will record in its financial statements a cost surplus arising from the difference between Elop's share capital and the consideration given to Elop's Shareholders for the Merger. Part of this cost surplus will be allocated among tangible assets and intangible assets, and the remainder will be recorded as goodwill, based upon final results available at the time of completion of the Merger.

The Merger is subject to a number of conditions and the completion of all proceedings and the receipt of all approvals required by law, including approval of the Israeli Income Tax Commissioner, approval by the Israeli District Court and approvals to be obtained at duly convened creditors' and shareholders' meetings.

In addition, if the net profit of the Company for fiscal 1999 is 15% or more below $31.2 million, or if the net profit of Elop for fiscal 1999 (not including management fees that were paid by Elop) is 15% or more below $14.3 million, then the other party is entitled to treat such event as non-fulfillment of a condition precedent to the Merger.

An immediate report regarding the Merger Agreement, as required under Israeli securities regulations, will be filed separately by the Company. In addition, the shareholders of the Company will be provided with a detailed proxy statement describing the transaction.

About Elbit Systems Ltd.
Elbit Systems is engaged in a wide range of defense-related airborne, ground and command, control and communications programs throughout the world. It focuses on upgrading of existing military platforms and developing new technologies for defense applications.

About Elop Electro-Optics Industries Ltd.
Elop, a privately-held Israeli company under ownership of the Federmann Group, is a major supplier of state of the art electro-optical products for both the Israeli Defense Forces and for other customers throughout the world. These products include systems for night vision, laser range finding and designation, fire control, surveillance, space and airborne reconnaissance, intruder detection, missile warning and others.

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