"The controlling shareholders in Aryt Industries used information reaching them by virtue of their being controlling shareholders and parties at interest in the company, to acquire the company's rights in Telegate for $2 million, with no consideration paid to Aryt in respect of the assignation of its rights in the allocation". So allege Aryt's shareholders in filing an ex parte motion for a temporary lien on Aryt shares and options allocated in mid-July to Aryt's controlling shareholders and parties at interest in the Giza issue.
The shareholders also claim: "Aryt's controlling shareholders plan to sell the rights in the next few weeks, for $10 million, and will have thereby derived enormous profits at the expense of the company and its public shareholders".
Alternatively, BABC, Eitan Sariel, Idan Hayut and Eli Goldfine motioned the court to order that if the convertible debentures allocated in the Giza issue had not yet been converted into shares, a provisional lien be entered in Telegate's books on all rights deriving from the debentures issued in the Giza issue.
According to the applicants, the respondents, Binyamin Shabtai, Gild Shabtai and Yoram Oron caused the dilution of Aryt's holdings in Telegate, which constitute Aryt's principal asset, and pocketed Aryt's holdings in Telegate at a price not exceeding 20% of the real value of the shares allocated to them.
The applicants maintain that the usurpation took place after Aryt invested tens of millions of shekels raised from the public in Telegate. They also allege an interested party transaction, concluded without compliance with reporting requirements and without the requisite approvals. The applicants maintain that the respondents used inside information in their possession deriving from the conduct of negotiations for the sale of Telegate at an amount several times the allocation amount.
The applicants also allege that in mid-July, Aryt notified the Tel Aviv Stock Exchange that Telegate had signed an agreement for the issue of $11 million convertible debentures. The notice stated that $7 million had been raised from a group of investors headed by Giza and including parties at interest in Aryt. The notice allegedly did not name the interested parties in whose favour the issue was made, but the applicants learned from Aryt chairman Gilad Shabtai, that the brother of the Israeli representative of Aryt controlling shareholder Benny Shabtai was one of the purchasers.
In the purchasers' opinion, the notice means that Aryt agreed to assign the respondents, free of charge, its right to participate in the Giza allocation; and the respondents are parties at interest in the company. The holders of other rights in Telegate participated in the Giza issuance, while Aryt assigned its right, free of charge, to the respondents, and as a result, its holdings in Telegate were diluted on the eve of sale by over 50%.
The applicants claim the respondents acquired 52.5% of Aryt's Telegate holdings for $2 million several weeks before approval of the deal in which those same holdings are being sold for $10 million.
"By assigning them Aryt's right in the Giza allocation free of charge, the respondents exploited Aryt and robbed it of the fruits of an investment of many years, all a few days before Aryt was about to reap the fruits of its investment", the statement of claim says.
Judge Sarah Brosh rejected the motion for the ex parte imposition of a lien prior to the filing of the claim itself. (Sundry Civil Motions 6052699).
Published by Israel's Business Arena October 31, 1999