Release Details

Immediate Report - Land Dispute

February 19, 2001
Immediate Report - Land Dispute
February 19, 2001

The Securities Authority
22 Kanfei Nesharim St
Fax: 02-6513940

The Tel Aviv Stock Exchange
54 Ahad Ha'am St.
Tel Aviv
Fax: 03-5105379

The Registrar of Companies
P.O.B. 767
Fax: 02-6247874

Dear Sirs,
Further to the immediate reports of the Company on the subject of the
decision of the Ministerial Committee for Privatization dated 27
August 2000 ("the Privatization Decision"), immediate notice is hereby
given by the Company as follows:
1. According to the Privatization Decision, the proceeding of
referral to the various entities interested in purchasing shares of
the Company in a round of capital raising for the Company, which will
accompany the privatization of the State's holdings in the Company by
way of a private placement ("the Sale"), shall not take place except
after completion, with the consent and approval of the Attorney
General, inter alia, of a detailed description of the nature of the
land dispute. On 18 February 2001, the approval of the Attorney
General dated 15 February 2001 was received.
2. Attached to this immediate report is the document "Description of
the disputes regarding Bezeq land", where the stance of the Company in
the dispute, as worded by the Company, is described in Section 6 of
the document, and the stance of the State, as worded by the State, is
described in Section 7 of the document.
3. It is noted that according to the Privatization Decision, the
Companies Authority together with the Israel Lands Administration, the
Accountant General at the Ministry of Finance and the Ministry of
Justice, were authorized "to determine - with the approval of the
Attorney General - a mechanism for deciding and accounting between the
Company and the State and between the buyer in the Sale and the State,
in relation to the land in dispute". Said accounting mechanism has not
yet been determined, and will be determined before the submission of
the proposals for the Sale.

Yours sincerely,

Shlomo Koppel
Corporate Secretary

Description of the Disputes Regarding Bezeq Land

1. Section 47(b) of the Telecommunications Law, 5742-1982, stipulates

"The stipulations of any law or agreement notwithstanding and subject
to the provisions of the State Assets Law, 5711-1951, it is permitted,
in an agreement, to grant the Company the State's rights in assets
which were made available to the Ministry of Communications for the
purposes of providing telecommunications services and the rights and
powers of the State according to the agreements, the engagements and
the transactions which were valid with regard to telecommunications
services prior to application of the agreement; aforesaid agreement
shall hereinafter in this Chapter be called an "Asset Transfer

2. In 1984, an Asset Transfer Agreement was signed between the State
and Bezeq (hereinafter - Bezeq or the Company). That agreement
stipulated that the State transfers to the Company, inter alia,
various rights relating to land, among them: in perpetual lease
(hereinafter: "the Leased Assets"), in renewable rental for two years
(hereinafter: "the Assets Under Renewable Rental"), and rights in
those parts designated for Bezeq's use in assets designated for the
joint use of Bezeq, the Postal Authority and the Ministry of
Communications (hereinafter: "the Joint Assets"). In 1993, a framework
agreement was signed between the Company and the Israel Lands
Administration (hereinafter: "the Administration"), to which was
attached a list of assets as Annex A to that agreement.

From the lists of assets which were attached to the Asset Transfer
Agreement as Annex A, lists of assets are attached to this document as
follows: List A - Assets Under Renewable Rental, List B - Leased
Assets, and List C - Assets from the Joint Assets regarding which
Bezeq contends that their status is as that of the Leased Assets
(hereinafter: "Joint Assets Named in List C"). Also attached, as List
B1, is a document dated 4 December 1985 which sets our amendments to
the data in some of the assets listed in Annex A to the Asset Transfer

3. The Company and the State are in dispute as to the rights in the
assets named in the aforementioned lists.

4. It is noted that with regard to some of the assets described in
the lists attached to this document, actual use by Bezeq is not the
same as the use noted against them in the lists; however, on this
point, see the position of the State in Section 7.B.1 below, and in
contrast, the position of the Company in Sections 6.B.1.c. and
6.C.1.c. below. Furthermore, with regard to a number of assets named
in the lists, Bezeq contends discrepancies, as described in Section
6.E. below. The State does not agree with these contentions, as noted
in Section 7.A.2. below.

It is further noted that List B includes 9 assets in which the
Company's rights were sold by the Company, and List C includes 2
assets in which the Company's rights (in whole or in part) were sold
by the Company; concerning some of these assets, the State (the Land
Administration) gave its consent on terms which were stipulated; for
the sale of some of these assets, the transactions are being examined
by the Land Administration and not all the approvals have yet been
given, insofar as required (and see also, on this point, the position
of the State in Section 7.D. below).

5. The parties negotiated in the past, in an attempt to settle the
various disputes by way of a settlement, but that attempt failed. At
the present time, the intention is to bring the disputes before the
court for its decision.


A. General

1. It is the position of the Company that in the Asset Transfer
Agreement and in the framework agreement, its rights were unlawfully
prejudiced, inter alia in that in practice, the Company was not
granted all the rights of the State, prior to the transfer, in the
assets which were made available to the Ministry of Communications for
the purpose of providing telecommunications services, and among them
the Leased Assets, Joint Assets Named in List C and Assets Under
Renewable Rental.

2. In this matter, the Company contends, inter alia, that the
Legislator and the Government intended, as reflected, inter alia, in
the Telecommunications Law and in the Telecommunications Order (Assets
and claims transferred to the Company), 5744-1984, and the intention
of the parties to the Asset Transfer Agreement, was that the Company
should step, in all matters and respects, into the shoes of the State,
and to transfer to it all the rights of the State (as is) in the above
assets, as they were immediately prior to the date of transfer.

3. It is the opinion of the Company that any action and/or engagement
made contrary to the above legislation is overshadowed by the
legislation and should be automatically dismissed.

B. The Assets Under Renewable Rental

1. a. Concerning the Assets Under Renewable Rental, the Company
contends that from the outset there was no need to define, in the
Asset Transfer Agreement, the rights of the Company therein as rights
of "renewable rental", which appear, prima facie, to be construed as
lesser rights than the full rights of the State, immediately prior to
the transfer, in those assets.

b. It is the Company's opinion that it was and still is entitled to
receive, in relation to those assets, rights of ownership or
"quasi-ownership" which are not less than the full rights of the State
in the assets immediately prior to their transfer to the Company, and
which are not subject to any restrictions, inter alia, in connection
with their use, transferability to a third party and the nature of
their optimal use.

c. Accordingly, the Company contends that it may use the Assets Under
Renewable Rental in any way it sees fit and as if it had full

2. Alternatively, the Company contends that the Company's rights in
the Assets Under Renewable Rental are rights of "perpetual

3. Alternatively to the alternative, the Company contends that it can
be seen as having purchased in the Assets Under Renewable Rental a
kind of proprietary right, i.e. "equitable property

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