UNITED
STATES

SECURITIES
AND EXCHANGE COMMISSION

WASHINGTON,
D.C. 20549










FORM
20-F



(Mark
One)

☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934



OR



☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934



For
the fiscal year ended December 31, 2015



OR



☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the transition period from __________
to __________



OR



☐
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



Date of event requiring this
shell company report _____________



Commission
file number 0-28996










ELBIT
IMAGING LTD.

(Exact
name of registrant as specified in its charter)



N/A

(Translation
of registrant’s name into English)



ISRAEL

(Jurisdiction
of incorporation or organization)



7
MOTA GUR STREET, PETACH TIKVA 4952801, ISRAEL

(Address
of principal executive offices)



RON
HADASSI

Tel:
+972-3-608-6000

Fax:
+972-3-608-6050

7
MOTA GUR STREET, PETACH TIKVA 4952801, ISRAEL

(Name,
Telephone, E-Mail and/or Facsimile Number and Address of Company Contact Person)



Securities
registered or to be registered pursuant to Section 12(b) of the Act:



|Title
    of each class:          |  | Name
    of each exchange on which registered:
|--------------------------------- |  | ----------------------------------------------
|ORDINARY
    SHARES, NO PAR VALUE |  | NASDAQ
    GLOBAL SELECT MARKET               








Securities
registered or to be registered pursuant to Section 12(g) of the Act:

NONE












Securities
for which there is a reporting obligation pursuant to Section 15(d) of the Act:

NONE




















Indicate
the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period
covered by the annual report: 27,472,426 ordinary shares, no par value per share, as of December 31, 2015.



Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

YES
☐          NO ☒





If
this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934.

YES
☐          NO ☒



Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.

YES
☒          NO ☐





Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES
☐          NO ☐



Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition
of “accelerated filer and large accelerated filer” in Rule 12b-2 in the Exchange Act. (Check one):



Large
Accelerated Filer ☐                           Accelerated
Filer ☐                           Non-Accelerated
Filer ☒



Indicate
by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:



|☐ | U.S.
    GAAP
|- | -------------



|☒ | International
    Financial Reporting Standards as issued by the International Accounting Standards Board
|- | ---------------------------------------------------------------------------------------------------------



|☐ | Other
|- | -----



If
"Other" has been checked in response to the previous question, indicate by check mark which financial statement item
the registrant has elected to follow:

☐
Item 17   ☐ Item 18



If
this is an annual report indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act:

YES
☐          NO ☒




















TABLE
OF CONTENTS



|ITEM                              |  | DESCRIPTION                                                                  |  | Page
|--------------------------------- |  | ---------------------------------------------------------------------------- |  | ----
|                                  |  | FORWARD LOOKING STATEMENTS                                                   |  | 1   
|1.                                |  | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS                        |  | 3   
|2.                                |  | OFFER STATISTICS AND EXPECTED TIMETABLE                                      |  | 3   
|3.                                |  | KEY INFORMATION                                                              |  | 3   
|4.                                |  | INFORMATION ON THE COMPANY                                                   |  | 25  
|4A.                               |  | UNRESOLVED STAFF COMMENTS                                                    |  | 47  
|5.                                |  | OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                 |  | 47  
|6.                                |  | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                   |  | 88  
|7.                                |  | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                            |  | 97  
|8.                                |  | FINANCIAL INFORMATION                                                        |  | 99  
|9.                                |  | THE OFFER AND LISTING                                                        |  | 100 
|10.                               |  | ADDITIONAL INFORMATION                                                       |  | 101 
|11.                               |  | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                    |  | 112 
|12.                               |  | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                       |  | 115 
|13.                               |  | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              |  | 116 
|14.                               |  | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |  | 116 
|15.                               |  | CONTROLS AND PROCEDURES                                                      |  | 116 
|16A.                              |  | AUDIT COMMITTEE FINANCIAL EXPERT                                             |  | 117 
|16B.                              |  | CODE OF ETHICS                                                               |  | 117 
|16C.                              |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                       |  | 117 
|16D.                              |  | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                   |  | 118 
|16E.                              |  | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS       |  | 118 
|16F.                              |  | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT                                 |  | 118 
|16G.                              |  | CORPORATE GOVERNANCE                                                         |  | 118 
|16H.                              |  | MINE SAFETY DISCLOSURE                                                       |  | 118 
|17.                               |  | FINANCIAL STATEMENTS                                                         |  | 118 
|18.                               |  | FINANCIAL STATEMENTS                                                         |  | 118 
|19.                               |  | EXHIBITS                                                                     |  | 120 
|CERTIFICATIONS                    |  |                                                                             
|INDEX
    TO FINANCIAL STATEMENTS |  | F-1                                                                         









Special
Explanatory Note



Share
and share price information in this annual report have been adjusted to reflect the 1-for-20 reverse share split effected by us
on August 21, 2014.



FORWARD-LOOKING
STATEMENTS



THIS
ANNUAL REPORT ON FORM 20-F CONTAINS "FORWARD-LOOKING STATEMENTS,” WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
(THE "EXCHANGE ACT"). FORWARD-LOOKING STATEMENTS INCLUDE STATEMENTS REGARDING
THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE COMPANY AND ITS MANAGEMENT ABOUT THE COMPANY’S
BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS, RELATIONSHIPS WITH EMPLOYEES, BUSINESS PARTNERS AND OTHER THIRD PARTIES,
THE CONDITION OF ITS PROPERTIES, LOCAL AND GLOBAL MARKET TERMS AND TRENDS, AND THE LIKE. WORDS SUCH AS “BELIEVE,”
“EXPECT,” “INTEND,” “ESTIMATE” AND SIMILAR EXPRESSIONS ARE INTENDED
TO IDENTIFY FORWARD-LOOKING STATEMENTS BUT ARE NOT THE EXCLUSIVE MEANS OF IDENTIFYING SUCH STATEMENTS. ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE PROJECTED, EXPRESSED OR IMPLIED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS INCLUDING,
WITHOUT LIMITATION, THE FACTORS SET FORTH BELOW UNDER THE CAPTION “RISK FACTORS.” ANY FORWARD-LOOKING STATEMENTS CONTAINED
IN THIS ANNUAL REPORT SPEAK ONLY AS OF THE DATE HEREOF, AND WE CAUTION EXISTING AND PROSPECTIVE INVESTORS
NOT TO PLACE UNDUE RELIANCE ON SUCH STATEMENTS. SUCH FORWARD-LOOKING STATEMENTS DO NOT PURPORT TO BE PREDICTIONS
OF FUTURE EVENTS OR CIRCUMSTANCES, AND THEREFORE, THERE CAN BE NO ASSURANCE THAT ANY FORWARD-LOOKING STATEMENT CONTAINED HEREIN
WILL PROVE TO BE ACCURATE. WE UNDERTAKE NO OBLIGATION TO UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS.



CURRENCY
TRANSLATION



For
the reader’s convenience, financial information for 2015 has been translated from various foreign currencies to the U.S.
dollar (“$” or "U.S. dollar"), as of December 31, 2015, in accordance with the following exchange rates:



|Currency                      |  | $1.00 as of December 31, 2015 |        
|----------------------------- |  | ----------------------------- | -------
|1 New Israeli Shekel (NIS)    |  |                               | 0.25657
|1 Euro                        |  |                               | 1.09270
|1 Great British Pound (GBP)   |  |                               | 1.48259
|1 Hungarian Forint (HUF)      |  |                               | 0.00349
|1 Czech Republic Koruny (CZK) |  |                               | 0.04045
|1 Romanian LEI (RON)          |  |                               | 0.24129
|1 Polish Zloty (PLN)          |  |                               | 0.25771
|1 Indian Rupee (INR)          |  |                               | 0.01511
|1 Crore (10 million INR)      |  |                               | 151,100



The
U.S. dollar amounts reflected in these convenience translations should not be construed as representing amounts that actually
can be received or paid in U.S. dollars or convertible into U.S. dollars (unless otherwise indicated), nor do such convenience
translations mean that the foreign currency amounts (i) actually represent the corresponding U.S. dollar amounts stated, or (ii)
could be converted into U.S. dollars at the assumed rate. The Federal Reserve Bank of New York does not certify for customs purposes
a buying rate for cable transfers in New Israeli Shekel (“NIS”). Therefore all information about exchange rates is
based on the Bank of Israel rates.





1






EXCHANGE
RATES



The
exchange rate between the NIS and U.S. dollar published by the Bank of Israel was NIS 3.7630 to the U.S. dollar on April 19, 2016.
The exchange rate has fluctuated during the six month period beginning October 2015 through April 19, 2016 from a high of NIS
3.983 to the U.S. dollar to a low of NIS 3.763 to the U.S. dollar. The monthly high and low exchange rates between the NIS and
the U.S. dollar during the six month period beginning October 2015 through April 19, 2016, as published by the Bank of Israel,
were as follows:



|                              |  | HIGH               |        |  | LOW                | 
|----------------------------- |  | ------------------ | ------ |  | ------------------ | 
|MONTH                         |  | 1 U.S. dollar =NIS |        |  | 1 U.S. dollar =NIS | 
|October 2015                  |  |                    | 3.9230 |  |                    | 
|November 2015                 |  |                    | 3.9210 |  |                    | 
|December 2015                 |  |                    | 3.9050 |  |                    | 
|January 2016                  |  |                    | 3.9830 |  |                    | 
|February 2016                 |  |                    | 3.9640 |  |                    | 
|March 2016                    |  |                    | 3.9120 |  |                    | 
|April 2016 (through April 19) |  |                    | 3.8190 |  |                    | 





The
average exchange rate between the NIS and U.S. dollar, using the average of the exchange rates on the last day of each month during
the period, for each of the five most recent fiscal years was as follows:



|PERIOD                              |  | AVERAGE EXCHANGE RATE
|----------------------------------- |  | ---------------------
|January 1, 2011 - December 31, 2011 |  | 3.577 NIS/$1         
|January 1, 2012 - December 31, 2012 |  | 3.857 NIS/$1         
|January 1, 2013 - December 31, 2013 |  | 3.609 NIS/$1         
|January 1, 2014 - December 31, 2014 |  | 3.577 NIS/$1         
|January 1, 2015 – December 31, 2015 |  | 3.885 NIS/$1         





2






PART
I



|ITEM 1. | IDENTITY OF DIRECTORS, SENIOR
MANAGEMENT AND ADVISORS
|------- | -----------------------------------------------------



Not
Applicable.



|ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE
|------- | ---------------------------------------



Not
Applicable.



|ITEM 3. | KEY INFORMATION
|------- | ---------------



|A. | SELECTED FINANCIAL DATA
|-- | -----------------------



The following selected consolidated financial data of Elbit Imaging Ltd. and
its subsidiaries (together, “EI,” "Elbit," the “Company,” “our,”
“we” or “us”) are derived from our 2015 consolidated financial statements and are set forth below in
table format. Our 2015 consolidated financial statements and notes included elsewhere in this report were prepared in
accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting
Standards Board ("IASB").



The
2015 consolidated financial statements were audited by Brightman Almagor Zohar & Co., a firm of certified public accountants
in Israel and a member of Deloitte Touche Tohmatsu. Our selected consolidated financial data are presented in NIS. A convenience
translation to U.S. dollars is presented for 2015 only.



The
selected financial data for the years ended December 31, 2015, 2014, 2013, 2012 and 2011 which are presented in the table below
are derived from our consolidated financial statements prepared in accordance with IFRS and do not include consolidated financial
data in accordance with U.S. GAAP.



3






CONSOLIDATED
STATEMENTS OF OPERATIONS IN ACCORDANCE WITH IFRS

(in
thousands, except share and per share data)



|                                                                                             |  | 2015
                                                                                Convenience translation |         |   | 2015 |  |          | 2014 |  |  | 2013       |   |  | 2012 |            |   | 2011 | 
|-------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------ | ------- | - | ---- |  | -------- | ---- |  |  | ---------- | - |  | ---- | ---------- | - | ---- | 
|                                                                                             |  | ($'000)                                                                                                      |         |   |      |  |          |      |  |  |            |   |  |      |            |   |      | 
|Income revenues and gains                                                                    |  |                                                                                                              |         |   |      |  |          |      |  |  |            |   |  |      |            |   |      | 
|Revenues                                                                                     |  |                                                                                                              |         |   |      |  |          |      |  |  |            |   |  |      |            |   |      | 
|Revenues from sale of commercial centers                                                     |  |                                                                                                              | 51,276  |   |      |  | 200,078  |      |  |  | 201,571    |   |  |      | 8,614      |   |      | 
|Revenues from hotel operations and management                                                |  |                                                                                                              | 37,900  |   |      |  | 147,886  |      |  |  | 197,007    |   |  |      | 202,791    |   |      | 
|Total revenues                                                                               |  |                                                                                                              | 89,176  |   |      |  | 347,964  |      |  |  | 398,578    |   |  |      | 211,405    |   |      | 
|Gains and other                                                                              |  |                                                                                                              |         |   |      |  |          |      |  |  |            |   |  |      |            |   |      | 
|Rental income from commercial centers                                                        |  |                                                                                                              | 21,489  |   |      |  | 83,849   |      |  |  | 113,661    |   |  |      | 129,748    |   |      | 
|Gains from sale of investees                                                                 |  |                                                                                                              | 1,720   |   |      |  | 6,712    |      |  |  | 11,301     |   |  |      | -          |   |      | 
|Gains from changes of shareholding in investees                                              |  |                                                                                                              | -       |   |      |  | -        |      |  |  | -          |   |  |      | -          |   |      | 
|Total gains                                                                                  |  |                                                                                                              | 23,209  |   |      |  | 90,561   |      |  |  | 124,962    |   |  |      | 129,748    |   |      | 
|Total income revenues and gains                                                              |  |                                                                                                              | 112,385 |   |      |  | 438,525  |      |  |  | 523,540    |   |  |      | 341,153    |   |      | 
|                                                                                             |  |                                                                                                              |         |   |      |  |          |      |  |  |            |   |  |      |            |   |      | 
|Expenses and losses                                                                          |  |                                                                                                              |         |   |      |  |          |      |  |  |            |   |  |      |            |   |      | 
|Commercial centers                                                                           |  |                                                                                                              | 74,413  |   |      |  | 290,360  |      |  |  | 291,864    |   |  |      | 124,737    |   |      | 
|Hotel operations and management                                                              |  |                                                                                                              | 32,509  |   |      |  | 126,849  |      |  |  | 173,918    |   |  |      | 179,137    |   |      | 
|General and administrative expenses                                                          |  |                                                                                                              | 4,274   |   |      |  | 16,678   |      |  |  | 39,785     |   |  |      | 60,643     |   |      | 
|Share in losses of associates, net                                                           |  |                                                                                                              | 11,001  |   |      |  | 42,925   |      |  |  | 17,298     |   |  |      | 339,030    |   |      | 
|Financial expenses                                                                           |  |                                                                                                              | 60,558  |   |      |  | 236,288  |      |  |  | 237,601    |   |  |      | 334,101    |   |      | 
|Financial income                                                                             |  |                                                                                                              | (552    | ) |      |  | (2,154   | )    |  |  | (6,317     | ) |  |      | (3,930     | ) |      | 
|Change in fair value of financial instruments measured at fair value through profit and loss |  |                                                                                                              | 1,396   |   |      |  | 5,446    |      |  |  | 71,432     |   |  |      | 68,407     |   |      | 
|Financial gain from debt restructuring                                                       |  |                                                                                                              | -       |   |      |  | -        |      |  |  | (1,616,628 | ) |  |      | -          |   |      | 
|Write-down, charges and other expenses, net                                                  |  |                                                                                                              | 9,815   |   |      |  | 38,298   |      |  |  | 531,042    |   |  |      | 840,034    |   |      | 
|                                                                                             |  |                                                                                                              | 193,414 |   |      |  | 754,690  |      |  |  | (260,005   | ) |  |      | 1,942,159  |   |      | 
|                                                                                             |  |                                                                                                              |         |   |      |  |          |      |  |  |            |   |  |      |            |   |      | 
|Profit (loss) before income taxes                                                            |  |                                                                                                              | (81,029 | ) |      |  | (316,165 | )    |  |  | 783,545    |   |  |      | (1,601,006 | ) |      | 
|Income taxes (tax benefits)                                                                  |  |                                                                                                              | 1,443   |   |      |  | 5,631    |      |  |  | (2,287     | ) |  |      | (30,937    | ) |      | 
|Profit (loss) from continuing operations                                                     |  |                                                                                                              | (82,472 | ) |      |  | (321,796 | )    |  |  | 785,832    |   |  |      | (1,570,069 | ) |      | 
|Profit(loss) from discontinued operations, net                                               |  |                                                                                                              | 1,762   |   |      |  | 6,874    |      |  |  | (1,475     | ) |  |      | 5,059      |   |      | 
|Profit (loss) for the year                                                                   |  |                                                                                                              | (80,710 | ) |      |  | (314,922 | )    |  |  | 784,357    |   |  |      | (1,565,010 | ) |      | 
|                                                                                             |  |                                                                                                              |         |   |      |  |          |      |  |  |            |   |  |      |            |   |      | 
|Attributable to:                                                                             |  |                                                                                                              |         |   |      |  |          |      |  |  |            |   |  |      |            |   |      | 
|Equity holders of the Company                                                                |  |                                                                                                              | (47,709 | ) |      |  | (186,150 | )    |  |  | 1,008,999  |   |  |      | (1,155,645 | ) |      | 
|Non-controlling interest                                                                     |  |                                                                                                              | (33,001 | ) |      |  | (128,772 | )    |  |  | (224,642   | ) |  |      | (409,365   | ) |      | 
|                                                                                             |  |                                                                                                              | (80,710 | ) |      |  | (314,922 | )    |  |  | 784,357    |   |  |      | (1,565,010 | ) |      | 
|                                                                                             |  |                                                                                                              |         |   |      |  |          |      |  |  |            |   |  |      |            |   |      | 
|Earnings per share - (in NIS)                                                                |  |                                                                                                              |         |   |      |  |          |      |  |  |            |   |  |      |            |   |      | 
|Basic earnings (loss) per share:                                                             |  |                                                                                                              |         |   |      |  |          |      |  |  |            |   |  |      |            |   |      | 
|From continuing operations                                                                   |  |                                                                                                              | (2.00   | ) |      |  | (7.00    | )    |  |  | 42.55      |   |  |      | (932.15    | ) |      | 
|From discontinued operations                                                                 |  |                                                                                                              | -       |   |      |  | 0.25     |      |  |  | (0.06      | ) |  |      | 3.84       |   |      | 
|                                                                                             |  |                                                                                                              | (2.00   | ) |      |  | (6.75    | )    |  |  | 42.49      |   |  |      | (928.31    | ) |      | 
|Diluted earnings (loss) per share:                                                           |  |                                                                                                              |         |   |      |  |          |      |  |  |            |   |  |      |            |   |      | 
|From continuing operations                                                                   |  |                                                                                                              | (2.00   | ) |      |  | (7.00    | )    |  |  | 42.55      |   |  |      | (932.15    | ) |      | 
|From discontinued operations                                                                 |  |                                                                                                              | -       |   |      |  | 0.25     |      |  |  | (0.06      | ) |  |      | 3.84       |   |      | 
|                                                                                             |  |                                                                                                              | (2.00   | ) |      |  | (6.75    | )    |  |  | 42.49      |   |  |      | (928.31    | ) |      | 
|                                                                                             |  |                                                                                                              |         |   |      |  |          |      |  |  |            |   |  |      |            |   |      | 
|Dividend declared per share                                                                  |  |                                                                                                              | 0       |   |      |  | 0        |      |  |  | 0          |   |  |      | 0          |   |      | 



4






SELECTED
BALANCE SHEET DATA IN ACCORDANCE WITH IFRS



|                                      |  | 2015
                                                                                 Convenience translation |         |  | 2015 |  |           | 2014 |  |  | 2013      |  |  | 2012 |            |   | 2011 | 
|------------------------------------- |  | ------------------------------------------------------------------------------------------------------------- | ------- |  | ---- |  | --------- | ---- |  |  | --------- |  |  | ---- | ---------- | - | ---- | 
|                                      |  | ($ '000)                                                                                                      |         |  |      |  |           |      |  |  |           |  |  |      |            |   |      | 
|                                      |  |                                                                                                               |         |  |      |  |           |      |  |  |           |  |  |      |            |   |      | 
|Current Assets                        |  |                                                                                                               | 55,752  |  |      |  | 217,544   |      |  |  | 488,702   |  |  |      | 694,348    |   |      | 
|Non-current Assets                    |  |                                                                                                               | 637,111 |  |      |  | 2,486,008 |      |  |  | 3,172,611 |  |  |      | 3,870,096  |   |      | 
|Total                                 |  |                                                                                                               | 692,863 |  |      |  | 2,703,552 |      |  |  | 3,661,313 |  |  |      | 4,564,444  |   |      | 
|                                      |  |                                                                                                               |         |  |      |  |           |      |  |  |           |  |  |      |            |   |      | 
|Current Liabilities                   |  |                                                                                                               | 206,625 |  |      |  | 806,251   |      |  |  | 358,985   |  |  |      | 4,794,477  |   |      | 
|Non-current Liabilities               |  |                                                                                                               | 408,313 |  |      |  | 1,593,237 |      |  |  | 2,589,091 |  |  |      | 178,597    |   |      | 
|Shareholders' equity Attributable to: |  |                                                                                                               |         |  |      |  |           |      |  |  |           |  |  |      |            |   |      | 
|Equity holders of the company         |  |                                                                                                               | 4,943   |  |      |  | 19,287    |      |  |  | 231,979   |  |  |      | (1,032,637 | ) |      | 
|Non-controlling interest              |  |                                                                                                               | 72,982  |  |      |  | 284,777   |      |  |  | 481,258   |  |  |      | 624,007    |   |      | 
|Total                                 |  |                                                                                                               | 692,863 |  |      |  | 2,703,552 |      |  |  | 3,661,313 |  |  |      | 4,564,444  |   |      | 



|B. | CAPITALIZATION AND INDEBTEDNESS
|-- | -------------------------------



Not
Applicable.



|C. | REASONS FOR THE OFFER AND USE OF PROCEEDS
|-- | -----------------------------------------



Not
Applicable.



|D. | RISK FACTORS
|-- | ------------



The
following is a list of the material risk factors that may affect our business our financial condition, results of operations and
our cash flows. We cannot predict nor can we assess the impact, if any, of such risk factors on our business or the extent to
which any factor, or a combination of factors, may cause actual results to differ materially from those projected in any forward-looking
statement. Furthermore, we cannot assess the occurrence, probability or likelihood of any such risk factor, or a combination of
factors, to materialize, nor can we provide assurance that we will not be subject to additional risk factors resulting from local
and/or global changes and developments not under our control that might impact our businesses or the markets in which we operate.



GENERAL
RISKS



Following
the consummation of our debt restructuring we essentially ceased significant business development activities, particularly in
the fields of hotels, plots in India, and residential projects, which may have a material adverse effect on our operations and
cash flow.



As
discussed below under "Our Debt Restructuring", on February 20, 2014, we completed a major debt restructuring pursuant
to an arrangement under Section 350 of the Israeli Companies Law, 5759-1999 (the "Companies Law"). Since then, due to
constraints imposed due to the Debt Restructuring, as well as other circumstances, such as the change of control of the Company,
the replacement of our board members, our participation in the rights offering of PC in the framework of its own debt restructuring
in a significant amount which limited our available resources, lack of new financing and related matters, we did not initiate
any new projects nor make any significant progress in projects that were under development. Rather we, and our subsidiary, PC,
are focused on enhancing parts of our backlog projects and selling them at favorable market conditions. In addition, we did not
commence new cycles of entrepreneurship-development-improvement-realization, and focused only on our backlog projects with no
new pipeline. Since we are highly dependent on the realization of our current assets as a source of cash flow this change in corporate
strategy and focus may adversely affect our operations, and may cause us to suffer adverse effects in the future, including our
ability to generate future cash flow in order to meet our obligations.





5






As
a result of the Debt Restructuring, we have numerous liens on our assets and subsidiaries, which may result in a material adverse
effect on our operations.



In
accordance with the terms of the Debt Restructuring, we placed floating liens on all of our assets and fixed liens on our various
holdings and rights in our subsidiaries Elbit Ultrasound (Luxembourg) B.V./S.ar.l (through which we hold a controlling stake in
Plaza, of which we own approximately 44.9% of its share capital) and Elscint Holdings and Investments N.V. (through which we hold
our Radisson Complex in Bucharest), including rights to a shareholder’s loan granted by us to each of such entities.



In
addition, in accordance with the refinancing agreement with Bank Hapoalim, we placed fixed liens on BEA Hotels’ holdings
and shareholder’s loan (subject to certain exception) in Bea Hotels Eastern Europe B.V. (through which we hold a in the
Radisson Blu Complex in Bucharest) and we placed a lien on approximately 13% of share capital in PC. In event that we default
on the terms of the Debt Restructuring or the refinancing agreement, applicable liens may be foreclosed, which may result in the
liquidation of our subsidiaries and material harm to our operations and cash flow. In addition, such liens limit our ability to
sell our holdings and other rights in these subsidiaries (subject to certain exceptions included in the New Notes, as defined
below) without making early prepayment of certain amounts to Bank Hapoalim.



The
grant of liens pursuant to the Debt Restructuring and the amended loan agreement with Bank Hapoalim resulted in most of our valuable
assets being subject to liens and encumbrances. In the event that we need additional financing for our operations, we will not
be able to provide adequate collateral, which may adversely affect our ability to raise the financing on favorable terms or at
all. Such outcome may substantially limit our ability to further develop our assets. In addition, we are significantly exposed
to exchange rate fluctuations and if we enter into currency hedging transactions we would be required by the financing bank to
secure certain cash collateral to secure our obligations under the hedge agreement. The liens imposed on us as part of our Debt
Restructuring may prevent us to provide such collateral without the prior consent of our note holders.



As
a result of the new notes that we issued pursuant to the Debt Restructuring, we have limited flexibility in making dividends due
to prepayment obligations.



The
new notes issued to our note holders pursuant to the Debt Restructuring (the “New Notes”) include mandatory prepayment
provisions in the event we pay a dividend or make any other distribution before the full redemption of the New Notes, such that
we will be obligated to prepay an amount equal to the amount distributed by us, in the following order: (i) first, towards all
unpaid amounts under the Series H notes, and (ii) secondly, towards all unpaid amounts under the Series I notes. In addition,
pursuant to the Refinancing Agreement, in the case of a distribution, including payment of a dividend in any manner to the Company's
shareholders, we are required to prepay Bank Hapoalim an amount equal to the amount paid to the note holders on such date multiplied
by the ratio between our debt to Bank Hapoalim and our total debt to Bank Hapoalim and to the note holders as of such date. Such
provisions may substantially limit our ability to distribute dividends to our shareholders. In addition, such limitation could
prove burdensome and limit our ability to raise equity investments due to the limited ability to avail our shareholders of the
return of such investments by way of dividends or distributions.



We
have significant capital needs and additional financing may not be available.



The
sectors in which we compete are capital intensive. We require substantial up-front expenditures for land development and construction
costs for our existing plots designated for commercial centers, investments in research and development as well as for the ongoing
maintenance of our Radisson Complex or operation of our commercial centers. In addition, following construction, additional financing
is necessary to maintain the centers in good condition until they are almost fully leased to tenants and sold. Accordingly, we
require substantial amounts of cash and financing for our operations. We cannot be certain that our own capital will be sufficient
to support such future development or that such external financing would be available on favorable terms, on a timely basis or
at all. Furthermore, any changes in the global economy, real estate or business environments in which we operate, any negative
trend in the capital markets, any restrictions on the availability of credit and/or decrease the credit rating of PC, might have
a material adverse effect on our ability to raise capital.



As
a result of our recent financial difficulties, our suspension of payments in respect of our outstanding notes during the year
leading up to the Debt Restructuring, the restructuring of our financial debt as part of the Debt Restructuring and the restructuring
of PC's debt as part of the Amended PC Plan (as defined below), we may experience difficulties raising financing from investors,
especially in Israel, at attractive terms or at all.



In
addition, under the terms of our outstanding notes, the net proceeds of any debt we raise must be used to repay the notes, unless
raised to refinance the debt to Bank Hapoalim under the Refinancing Agreement. This further limits our ability to secure additional
debt financing. In addition, as part of the Debt Restructuring and the Refinancing Agreement, most of our valuable assets are
subject to liens and encumbrances. In the event we shall need additional financing for our operations, we will not be able to
provide adequate collateral, which may adversely affect our ability to raise the financing on favorable terms or at all. Such
outcome may substantially limit our ability to pursue our business plan.





6






Furthermore,
as part of PC's debt restructuring under the Amended PC Plan which is described more fully below, inter alia, PC is required
to assign 75% of the net proceeds received from the sale or refinancing of any of its assets to early repayment of its debt to
its note holders. PC will be permitted to make investments only if its cash reserves contain an amount equal to general and administrative
expenses and interest payments for such debt for a six-month period, has placed a negative pledge on its assets and undertook
certain limitations on distribution of dividends and incurring of new indebtedness, financial covenants and other undertakings
with respect to the sale and financing of certain projects and investment in new projects, all together, imposing considerable
limitations on obtaining new financing.



Events
of default under our debt arrangements may result in cross-defaults being triggered under our other credit facilities.



If
an event of default were to subsist under one or more of our debt arrangements, namely, either the Company's Debt Restructuring
or the Amended PC Plan, that event of default may, in accordance with cross-default provisions, constitute an event of default
under our other debt arrangements or credit facilities. Upon an event of default (whether due to cross-default or otherwise),
the relevant lenders would have the right, subject to the terms of the relevant facility arrangements to, inter alia, declare
the borrower’s outstanding debts under the relevant facilities to be due and payable and/or cancel their respective commitments
under the facilities, enforce their security, take control of certain assets or make a demand on any guarantees given in respect
of the relevant facility. Accordingly, in the event we do not fulfill our obligations under the notes issued pursuant to our Debt
Restructuring or if PC does not fulfill its obligations under the notes issued for trading on the Tel Aviv Stock Exchange or issued
to certain Polish shareholders (including but not limited to payment obligations), as the case may be, the respective trustees
representing holders of our notes in case of the Company or the Israeli notes in case of PC, may be able to claim an immediate
settlement, and declare all or any part of the unsettled balance of our notes or PC's Israeli notes or Polish notes, as the case
may be, immediately due and payable. Such event of default will trigger cross-default provisions included in other credit facilities
which may lead the financing banks to foreclose the collateral granted to them as part of their respective financing agreements
(related mainly to operational commercial centers and the Radisson Complex). The occurrence of one or more of these factors may
have a material adverse effect on our business, financial condition or prospects and/or results of operations and cash flow.



Our
ability to satisfy our obligations under certain credit facilities depends on the value of our assets.



Although
the use of borrowings is intended to enhance the returns on our invested capital when the value of our underlying assets increases,
it may have the opposite effect where the value of underlying assets falls. Any fall in the value of any of our properties may
significantly reduce the value of our equity investment in the entity which holds such property, meaning that we may not make
a profit, may incur a loss on the sale or impairment of any such property and/or increase the likelihood of breaching certain
financial covenants in our existing debt arrangements (namely, our Debt Restructuring or the Amended PC Plan) or credit facilities
resulting in an event of default under such arrangements, and trigger potential cross defaults. The occurrence of one or more
of these factors may have a material adverse effect on our business, financial condition, prospects and/or results of operations
and cash flow.



We
may be exposed to liabilities under the Foreign Corrupt Practices Act and similar worldwide anti-bribery laws, and any determination
that we or any of our subsidiaries has violated the Foreign Corrupt Practices Act or similar worldwide laws could have a material
adverse effect on our business.



We
are subject to compliance with various laws and regulations, including the Foreign Corrupt Practices Act ("FCPA") and
similar worldwide anti-corruption laws, including Sections 290-295 of the Israeli Penal Code, which generally prohibit companies
and their intermediaries from engaging in bribery or making other improper payments to foreign officials for the purpose of obtaining
or retaining business or gaining an unfair business advantage. The FCPA also requires proper record keeping and characterization
of such payments in our reports filed with the SEC.



While
our employees and agents are required to comply with these laws, we operate in many parts of the world that have experienced governmental
and commercial corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws may conflict
with local customs and practices. Despite our commitment to legal compliance and corporate ethics, we cannot ensure that our policies
and procedures will always protect us from intentional, reckless or negligent acts committed by our employees or agents. Violations
of these laws, or allegations of such violations, could disrupt our business and result in financial penalties, debarment from
government contracts and other consequences that may have a material adverse effect on our business, financial condition or results
of operations.



In
particular, in March 2016 PC announced that its board had become aware of certain issues with respect to certain agreements
that were executed in the past by PC in connection with the Casa Radio Project in Romania. In order to address this matter,
PC's Board appointed the chairman of its Audit Committee to investigate the matters internally. PC's Board also appointed
independent law firms to perform an independent review of the issues raised. PC has approached and is co-operating fully with
relevant Romanian authorities regarding the matters that have come to its attention in this respect, and it has submitted its
findings to the Romanian authorities. As the investigation is ongoing, PC is unable to comment on any details related to this
matter. Following PC's report to us, our audit committee decided to appoint a special committee to examine the matters raised
in PC's announcement, including any internal control and reporting issues. At this time, we cannot predict the results of
this investigation.





7






We
have no controlling shareholders who are able to influence the composition of our board of directors.



Our
largest shareholders include affiliates of York Capital Management Global Advisers LLC and affiliates of Davidson Kempner Capital
Management LLC beneficially own an aggregate of approximately 19.7% and 14.3%, respectively, of our outstanding ordinary shares.
In addition, as per the general shareholders meeting held on March 31, 2016 and based on the information available to us as of
such date, certain Israeli institutional investors held, in aggregate, approximately 6% of our outstanding ordinary shares. To
our knowledge, these shareholders are not party to a shareholders’ agreement between them or with any other shareholders.
As a result, we have no controlling shareholder able to influence the composition of our board of directors. Consequently, following
the next annual general meeting of our shareholders, a board of directors comprised of new individuals may be elected. Such new
board or directors may have significantly different corporate strategies than our current board of directors, which may cause
a material change in our operations and financial results.



The
market price of our ordinary shares may suffer from fluctuation and may decline significantly.



There
are a number of different major groups of shareholders (as described below) with different and possibly opposing interests who
may at any time sell their shares in the Company. There may be an adverse effect on the market price of our shares as a result
of a substantial number of shares being sold or available for sale. If our shareholders sell substantial amounts of our ordinary
shares, the market price of our ordinary shares may fall. The ordinary shares issued pursuant to the Debt Restructuring are generally
freely tradable, and the potential sales of such shares could cause the market price of our ordinary shares to decline significantly.
They also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that
we deem appropriate.



We
are restricted from receiving dividends from PC and other subsidiaries.



The
Amended PC Plan includes certain limitations on the distribution of dividends as well as subordination provisions, which would
significantly limit our ability to generate cash flow from PC and may significantly affect our cash flow and operations. In addition,
other subsidiaries of ours are subject to limitations on the payment of dividends by virtue of legal or regulatory restrictions
in their respective jurisdictions. These limitations may have material adverse effects on our cash flow and in turn our ability
to service our debts in timely manner.



IF
PC fails to comply with the provisions of the Amended PC Plan, it may enter into liquidation or we may lose our control over PC.



As
part of the Amended PC Plan we and our affiliates participated in a rights offering conducted by PC. Should PC default under the
Amended PC Plan, there is no obligation or assurance that we will be able to further support PC, and such default may result in
massive dilution of our holdings causing us to lose our control over PC or the liquidation of PC, which would result in the loss
of our investment in PC.



Conditions
and changes in the local and global economic environments may adversely affect our business and financial results including our
ability to comply with certain financial covenants.



Adverse
economic conditions in the markets in which we operate can harm our business. Such adverse economic conditions may result in economic
factors including diminished liquidity and tighter credit conditions, leading to decreased credit availability, as well as declines
in economic growth, employment levels, purchasing power and the size and amount of transactions.



The
credit crisis of recent years could have a number of follow-on effects on our business, including a possible: (i) decrease in
asset values that are deemed to be permanent, which may result in impairment losses and possible noncompliance with certain financial
covenants in credit and loan agreements to which we are a party, (ii) negative impact on our liquidity, financial condition and
share price, which may impact our ability to raise capital in the market, obtain financing and other sources of funding in the
future on terms favorable to us, which would harm our ability to finance the development of our projects and engage with co-investors,
(iii) slowdown in our business resulting from potential buyers experiencing difficulties in raising capital from financial institutions
in order to finance the purchase of our assets from us, which may significantly impact our cash flow and our ability to serve
our debts in a timely manner and (iv) imposition of regulatory limitations on financial institutions with respect to their ability
to provide financing to companies such as us and/or projects such as those in which we are engaged, while creating a credit crunch.
If such financial and economic uncertainty shall occur, it may materially adversely affect our results of operations and cash
flow and may increase the difficulty for us to accurately forecast and plan future business.





8






We
are highly leveraged and our debts contain financial and operational covenants, which if breached could adversely affect our ability
to operate our business.



We
are highly leveraged and have significant debt service obligations. As of the balance sheet date our consolidated debt toward
banks and note holders amount to NIS 2,170 million ($556 million), out of which a corporate -level debt (i.e.: debts of the Company
on a standalone balance sheet) amounted to NIS 755 million (approximately $194 million).



In
addition, we may incur additional debt from time to time to finance development of projects or refinancing our existing operational
projects.



As
a result of our substantial indebtedness:



| | ● | we could be more vulnerable to general adverse economic
and industry conditions;                                                                           
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                            
| | ● | we may find it more difficult to obtain additional financing
to fund future working capital, capital expenditures and other general corporate requirements;
| |   |                                                                                                                                                            
| | ● | we may have limited flexibility in planning for, or
reacting to, changes in our business and in the industry;                                              
| |   |                                                                                                                                                            
| | ● | we may face difficulties in establishing strategic or
other long-term business joint ventures; and                                                         
| |   |                                                                                                                                                            
| | ● | we may not be able to refinance our outstanding indebtedness.                                                                                              



We
cannot guarantee that we will be able to generate enough cash flow from operations or that we will be able to obtain sufficient
capital to serve our debt or fund our planned capital expenditures. In addition, we may need to refinance some or all of our indebtedness
on or before maturity. We cannot guarantee that we will be able to refinance our indebtedness on commercially reasonable terms
or at all.



Delays
in the realization of our assets could result in significant harm to our financial condition and our ability to repay our indebtedness
in a timely manner.



Our
business activity is characterized by cycles of entrepreneurship-development-improvement-realization, with the objective to create
value with our assets and, as a result, following the realization of such assets, to create value for our company. Our cash flow
is dependent upon maintaining synchronization between the realization timetables to the payment schedules of our indebtedness.
Delays or inability to realize our assets could harm our cash flow and our ability to service our indebtedness. Difficulties in
realizing our assets may be attributed to a number of factors, including delays in obtaining permits and licenses from municipal
and planning authorities and the hardening of financing policies by banks and financial institutions for the financing of our
projects (both for entrepreneurs and potential purchasers). We and PC are dependent on realizing a significant part of our assets
in order to serve our debts in a timely manner, some of which require further development before placing them in the market. There
is no assurance that we and PC will succeed in the realization of our assets in synchronization with the maturity date of our
debts, which would prevent our ability to avoid a recurrence of such events.



Our
real estate assets and investments are managed in foreign currencies while our liabilities and the liabilities of PC are denominated
in NIS.



We
are impacted by exchange rate fluctuations as a significant part of our cash flow is dependent on our real estate assets and investments
which are acquired and managed in foreign currencies (mainly Euro, US Dollar and Rupee) while our debts (mainly our and PC's Notes)
are mainly incurred in NIS and Euro. As a result of this currency discrepancy, the proceeds from the realization of our real estate
assets and investments may significantly fluctuate and we may be adversely affected by such discrepancy. Currently we do not have
any material hedges against exchange rate fluctuations. If a devaluation of the foreign currency against the NIS will occur when
we will realize these assets and investments our cash flow may be significantly harmed. In addition such exchange rate fluctuations
will affect our shareholders equity and our net asset value in the event we will have currency exchange losses that are attributed
to the our profit and loss or directly to our shareholders equity in accordance with accounting standard.



Our
financial instruments (mainly our loans and notes) and our derivative financial instruments are subject to fluctuation in interest
rates, changes in the consumer price index and/or changes in fair value, which may have a negative impact on our earnings, balance
sheet and cash flows.



Floating
interest rates on of our debt facilities expose us to increases in market interest rates and subsequent increases in interest
costs. From time to time, we may engage in transactions to hedge a portion of this risk through currency swaps in order to reduce
our risk of increases in interest costs. To the extent that at any time we do not have any hedges or our hedges are insufficient
against interest rate fluctuations, our earnings, cash flow, and financial position may be negatively impacted. Currently we do
not have hedges for all of our loans against interest rate fluctuations. In addition, certain debt agreements may include default
interest under certain circumstances, which may be higher than the original interest rate set out in the debt agreement. If a
lender successfully asserts its right to invoke a default interest clause, it will increase our effective interest costs in respect
of facilities with that lender.





9






The
principal and interest of most of our debt instruments is determined by reference to the Israeli consumer price index (the "CPI"),
which may entail significant risks not associated with similar investments in a conventional fixed or floating rate debt security.
The historical value of the CPI is not indicative of future CPI performance and its value is affected by, and sometimes depends
on, a number of interrelated factors, including direct government intervention and economic, financial, regulatory, and political
events, over which we have no control. An increase in the CPI will result in additional financing expenses to our profits and
losses and will have a negative impact on our cash flows. Currently we do not have any material hedges against fluctuations in
the CPI.



Certain
of our financial instruments and derivative financial instruments are measured by fair value. Any change to the fair value of
such instrument will affect our profits and losses and may have a material effect on our results.



The
fair value of our real estate assets (including commercial centers, hotels, plots in India and others) may be harmed by certain
factors that may entail impairment losses not previously recorded, which would affect our financial results and the satisfaction
of financial covenants.



Certain
circumstances may affect the fair value of our real estate assets (whether operating or under construction), including, among
other things, (i) the absence of or modifications to permits or approvals required for the construction and/or operation of any
real estate asset; (ii) in commercial centers where a significant part of the rental areas is subject to long-term leases with
a small group of retailers which is distinguished from other lessees, we may be exposed to a risk of rental fee rates being significantly
lower than originally anticipated and a material long term decline in the business operations of such retailers may therefore
have an adverse effect on the real estate assets recoverable amount and their final sale prices; (iii) delays in completion of
works, beyond the anticipated target, may adversely affect the fair value of the assets and our results of operations and cash
flow; (iv) costs overruns in the constructions of our real estate and higher operational costs than anticipated may affected the
fair value of our real estate; (v) an increase in the applicable discounts rates in which we discount the anticipated operational
cash flow of the real estate may have a material adverse affect on the fair value of the real estate (vi) lawsuits that are pending,
whether or not we are a party thereto, may have a significant impact on our real estate assets and/or on certain of our shareholding
rights in the companies owning such assets; (vii) full or partial eminent domain proceedings (with or without compensation) regarding
such real estate assets; and (viii) findings indicating soil or water contamination or the existence of historical or geological
antiquities may require the company to absorb significant cleaning, purification or preservation costs, and may limit the use
or exploitation of the land, resulting in significant decrease in its fair value. In addition, certain laws and regulations applicable
to our business in certain countries where the legislation process undergoes constant changes may be subject to frequent and substantially
different interpretations, and agreements which may be interpreted by governmental authorities so as to shorten the term of use
of real estate, which may be accompanied by a demolition or nationalization order with or without compensation, may significantly
affect the value of such real estate asset. The fair value of our real estate assets may be significantly decreased thereby resulting
in potential impairment losses not previously recorded in our financial results, which would impact our ability to satisfy financial
covenants under our bank loans.



Since
market conditions and other parameters (such as macroeconomic and microeconomic environment trends, and others) that affect the
fair value of our real estate and investments vary from time to time, the fair value may not be adequate on a date other than
the date the measurement was executed (in general, immediately after the balance sheet date). In the event the underlying assumptions
included in the valuation of the real estate (mainly the projected forecasts regarding the future cash flows generated by those
assets and the applicable discount rate) are not met, we may have to record an additional impairment loss not previously recorded.



The
failure to comply with government regulation may adversely affect our business and results of operations.



Our
business is subject to numerous national and local government regulations, including those relating to acquisition of real estate
properties, building and zoning requirements, fire safety control, access for the disabled, environmental law and health board
reviews and standards. In addition, we are subject to laws governing our relationships with employees, including minimum wage
requirements, overtime, working conditions, and work permit requirements,. A determination that we (or any of our tenants, where
applicable) are not in compliance with these regulations could result in the imposition of fines, an award of damages to private
litigants and significant expenses in bringing our operations into compliance with such laws and regulations. In addition, our
ability to terminate the employment of workers whom we think we no longer need may be hampered by local labor laws and courts,
which traditionally favor employees in disputes with former employers.





10






Operating
globally exposes us to additional and unpredictable risks.



We
conduct our businesses in multiple countries. Our future results could be materially adversely affected by a variety of factors
relating to international transactions, including changes in exchange rates, general economic conditions, regulatory requirements,
dividend restrictions, tax structures or changes in tax laws or practices, and longer payment cycles in the countries in our geographic
areas of operations. International operations may be limited or disrupted by the imposition of governmental controls and regulations,
political instability, hostilities, natural disasters and difficulties in managing international operations. In the CEE region
and India, laws and regulations, particularly those involving taxation, foreign investment and trade, title to securities, and
transfer of title that are applicable to our activities, can change quickly and in a far more volatile manner than in developed
market economies. We cannot assure you that one or more of these factors will not have a material adverse effect on our international
operations and, consequently, on our business, financial condition results of operations and our cash flow. A failure to effectively
manage the expansion of our business could have a negative impact on our business.



If
we are characterized as a passive foreign investment company for U.S. federal income tax purposes, U.S. holders of ordinary shares
may suffer adverse tax consequences.



Generally,
if for any taxable year, 75% or more of our gross income is passive income, or at least 50% of the value of our assets, averaged
quarterly, are held for the production of, or produce, passive income, we will be characterized as a passive foreign investment
company ("PFIC"), for U.S. federal income tax purposes. Our PFIC status is determined based on several factors, including
our market capitalization, the valuation of our assets, the assets of companies held by us in certain cases and certain assumptions
and methodologies upon which we base our analysis. A determination that we are a PFIC could cause our U.S. shareholders to suffer
adverse tax consequences, including having gains realized on the sale of our shares taxed at ordinary income rates, rather than
capital gains rates, and being subject to an interest charge on such gain. Similar rules apply to certain "excess distributions"
made with respect to our ordinary shares. A determination that we are a PFIC could also have an adverse effect on the price and
marketability of our shares. If we are a PFIC for U.S. federal income tax purposes, highly complex rules would apply to U.S. holders
owning our ordinary shares. Accordingly, you are urged to consult your tax advisors regarding the application of such rules. See
"Item 10.E. Taxation - Tax consequences if we are a Passive Foreign Investment Company" in our Annual Report on Form
20-F.



We
are subject to a class actions proceeding that may have a material adverse effect on our results of operations and cash flow.



In
November 1999 a claim was initiated against us and certain other third parties, including former directors of the Company and
Elscint Ltd., in connection with the change of control of our company and our former subsidiary Elscint Ltd. ("Elscint,"
which was merged into us in 2010) in May 1999 and the acquisition of the hotel businesses and the Arena Commercial Center in Israel
by Elscint in September 1999 from Europe Israel (our former controlling shareholder prior to the Debt Restructuring), as well
as motions to certify certain of such claims as class actions (Gadish et al v. Elscint et al). On May 28, 2012, the Supreme Court
certified the lawsuit as a class action with respect to the claim that the hotels and the Arena Commercial Center were allegedly
sold to us at a price higher than the then-current fair value and that Elron Electronic Industries Ltd. (an unrelated third party)
had breached certain minority rights in the framework of the sale of Elscint's shares to Europe Israel), and the case was remanded
to the Court for hearing the case without prejudicing the parties' rights and arguments with respect to a derivative action. On
April 6, 2016 we announced that the we and other defendants in the case entered into a settlement agreement with the Plaintiffs
which is subject to court approval and satisfaction of additional preconditions, including, but not limited to the right of the
insurer to terminate the settlement under certain circumstances. For additional details regarding the class action lawsuit filed
against us, see "Note 14 (B) (1) in our 2015 annual financial statements”.



In
the event the settlement is not completed and the class action is reverted to court, a determination against us in this class
action, may materially adversely affect our results of operations and cash flow.



Our
results of operations fluctuate due to the seasonality of our various businesses.



Our
annual revenues and earnings are substantially dependent upon general business activity, vacation and holiday seasons and the
influence of weather conditions. As a result, changes in any of the above have a disproportionate effect on the annual results
of operations of our hotels and fashion retail businesses (as well as on the consumer activity in our commercial centers).



Our
annual and quarterly results may fluctuate, which may cause the market price of our shares and notes to decline.



We
have experienced at times in the past, and may in the future experience, significant fluctuations in our quarterly and annual
operating results, which may cause the market price of our shares and notes to decline. These fluctuations may be caused by various
factors including, among other things, significant sales of our properties and the frequency of such transactions. As a result
of the disposition of our real estate assets and/or investments, we may experience significant fluctuations in our annual and
quarterly results. As a result, we believe that period-to-period comparisons of our historical results of operations may not necessarily
be meaningful and that investors should not rely on them as an indication of our future performance. It is likely that in some
future periods, our operating results may be below expectations of public market analysts or investors.





11






Our
business is subject to general business and macro and microeconomic risks.



In
addition to risks that are relevant to a specific activity or relate to a specific territory, certain conditions and changes in
the economic environment in the countries in which we operate may have an adverse effect on our business performance. Changes
in the global economy, in real estate and/or the business environment in which we operate, and/or a negative trends in the capital
markets and/or a decrease in our capital and/or impairments in our real estate assets as described in this Item 3 under “The
fair value of our real estate assets (including commercial shopping centers, hotels, plots in India and others) may be harmed
by certain factors that may entail impairment losses not previously recorded, which would affect our financial results and the
satisfaction of financial covenants” risk factor above, may have an adverse effect on our ability to raise funds. Macroeconomic
or microeconomic changes as described above may influence our compliance with financial covenants under certain bank loans and
credit agreements, including but not limited to, as a result of the decrease in the LTV or Debt Service Cover Ratio ("DSCR")
and/or a decrease in our capital.



If
we do not satisfy the NASDAQ requirements for continued listing, our ordinary shares could be delisted from NASDAQ.



Our
listing on the NASDAQ Stock Market is contingent on our compliance with the NASDAQ's conditions for continued listing. One of
such conditions is maintaining a bid price for our ordinary shares of least $1.00 per share. On January 14, 2016, NASDAQ notified
us of our noncompliance with the aforementioned condition and set a period of 180 days in order to regain compliance.



Our
Board has unanimously recommended that our shareholders will authorize the effecting of a reverse share split of shares at a ratio,
to be established by our Board in its sole discretion, not to exceed one-for-ten, or to abandon the reverse share split in order
to increase the per share trading price of our ordinary shares to satisfy NASDAQ's conditions for continued listing. Our Board
intends to effect a reverse share split only if it believes that a decrease in the number of shares outstanding is likely to improve
the trading price of our shares and is necessary to continue our listing on the Nasdaq Global Select Market. If the reverse stock
split is authorized by our shareholders, our Board will have the discretion to implement the reverse stock split once during the
next 12 months, or effect no reverse share split at all. On March 31, 2106, our shareholders approved a 1-for-10 reverse split
of our ordinary shares, no par value.



If a delisting were to occur, and our shares did not thereafter qualify for trading on the
Nasdaq Global Market or the Nasdaq Capital Market, trading in our shares in the United States may be conducted, if available,
on the Over the Counter Bulletin Board or another medium. In the event of such delisting, an investor may find it significantly
more difficult to dispose of, or to obtain accurate quotations as to the value of, our shares, and our ability to raise future
capital through the sale of our shares could be adversely affected. Moreover, we would be unable to use the SEC's "short
form" Form F-3 to register the offering and sale of securities, even for limited primary offerings. In addition, in the event
of such delisting, we may be required to comply with enhanced reporting obligations under the Israeli securities laws, in addition
to the reporting obligations under the U.S. securities laws, which could require additional management attention, increase
our legal and accounting expenses and raise our exposure to sanctions for possible violations of Israeli securities laws.



There
is no assurance that following the reverse share split the share price will not fall below $1.00 per share or that we will not
be in violation of the Nasdaq Listing Rule.



If
PC and Elbit Medical Technologies Ltd. do not satisfy the applicable stock exchange conditions of for continued listing, their
shares could be delisted.



The
shares of PC are listed for trading on the main board of the London Stock Exchange under the symbol "PLAZ", on
the main list of the Warsaw Stock Exchange under the symbol "PLZ", and on the Tel Aviv Stock Exchange under
the symbol "PLAZ". The shares of our subsidiary Elbit Medical Technologies are listed on the Tel-Aviv Stock Exchange
under the symbol "EMTC". If PC or Elbit Medical Technologies Ltd. do not satisfy the conditions of the applicable stock
exchange for continued listing (such as, but not limited to, free-float requirements), their shares could be delisted. Such occurrences
would make the realization of those investments or any part thereof by us more difficult and could limit the possibility to attract
new investors to those portfolios.



Our
Ordinary Shares are traded on different markets and this may result in price variations.



Our
ordinary shares are traded on the Tel Aviv Stock Exchange and on the Nasdaq Stock Market. Trading in our ordinary shares on these
markets will be made in different currencies (NIS on the Tel Aviv Stock Exchange and USD on the Nasdaq) and will take place at
different times (resulting from different time zones, different trading days and different public holidays in the United States
and Israel). The trading prices of our ordinary shares on these two markets may differ due to these and other factors. Any decrease
in the price of our ordinary shares on any of these markets could cause a decrease in the trading price of our ordinary shares
on the other market.





12






RISKS
RELATING TO THE COMMERCIAL CENTERS BUSINESS



There
is no assurance that we will successfully implement our disposal strategy in the commercial centers business and in such event
our results and cash flows may be materially adversely affected.



Generally,
our strategy in the commercial centers business is to sell such commercial centers to third parties and to use the proceeds from
such sales in order to reduce PC's corporate debt in accordance with the provisions of PC debt Restructuring and invest in the
development and building of certain plots that are designated to be developed as commercial centers. Certain of PC's existing
plots, which currently do not have commercial centers built on them, are designated for the development and subsequent disposal
of commercial centers upon completion, or operation of commercial centers following completion until such time as we reach the
minimum occupancy threshold necessary for the property to be attractive to potential buyers and to allow us to attempt to obtain
the best price for our completed commercial centers. Our decision to sell properties is based on various factors, including market
conditions. There is no assurance that such sales will actually occur or that they will occur according to the timetable we predicted
or planned. In addition there is no assurance that we will have the financial resource to invest in the plots designated for commercial
centers. There can be no assurance that we will be able to complete dispositions under commercially reasonable terms or at all.
Accordingly, our results of operation and cash flows can be materially adversely affected.



Suitable
locations are critical to the success of a commercial center; however, there is no guarantee that our existing plots that are
designated for developments are in the most suitable locations, which may adversely affect our business and results of operations.



The
choice of suitable locations for the development of commercial center projects for certain of PC's plots designated for development
is an important factor in the success of the individual projects. Ideally, these sites should be located (i) within, or near,
the city center, with well-developed transportation infrastructure (road and rail) located in close proximity to facilitate customer
access and (ii) in areas with sufficient population to support the centers.There is no assurance that the plots designated
for development of commercial centers will prove to be suitable in commercially optimal locations. In addition, our estimations
as to the urban development of the area and/or consumer spending power or the growth thereof may be wrong or may be influenced
by factors we cannot predict, which can cause the results of the center to be less than we predicted and/or difficulty to reach
the desirable occupancy rates, and/or require us to sell the center at a time or upon terms different that we had planned.



We
are dependent on attracting third parties to enter into lease agreements, and in particular on anchor tenants.



We
are dependent on our ability to enter into new leases on favorable terms with third parties, including anchor tenants (such as
the operators of supermarkets, department stores, cinemas, national retail outlets and large electrical appliances stores) in
order to receive a profitable price for each commercial center. Anchor stores in commercial centers play an important part in
generating customer traffic and making a center a desirable location for other tenants. We may find it more difficult to engage
tenants to enter into leases during periods when market rents are increasing, or when general consumer activity is decreasing,
or if there is competition for tenants from competing centers. The global economic slowdown, pressures that affect consumer confidence,
job growth, energy costs and income gains can affect retail sales growth, and a continuing soft economic cycle (as well as vacancies
and available spaces at other shopping centers as a result of the recession) may impact our ability to find tenants for our commercial
centers. Failure to attract tenants, the termination of a tenant’s lease, or the bankruptcy or economic decline of a tenant
may adversely affect the price obtainable for the commercial center and adversely affect our financial condition results of operations
and cash flow. The failure of tenants to abide by the terms of their agreements may cause delays or result in a temporary or long
term decline in rental income, the effects of which we may not be able to offset due to difficulties in finding a suitable replacement
anchor tenant. Furthermore, the tenants or operators of units comprising part of a development may be unable to obtain the necessary
governmental permits or licenses which are necessary for the operation of their respective businesses. Where such operations are
delayed or not permitted due to lack of necessary permits, a negative impact on the attractiveness of the project and on revenues
and cash flow may result.



We
may lease developed commercial centers until we dispose of them or other developments at below expected rental rates or sell at
a price that is below what was expected or at a delayed date, which would materially harm our business.



If
rental leases decrease below our expectations or if circumstances arise beyond our control, such as market prices, market demand
and negative trends, or if we are required to sell a center in order to meet certain payment obligation under our outstanding
financing facilities or notes when due, we may have to sell a commercial center at a price below our projections. In addition,
we could be in the position where there will be no demand at acceptable prices and we will be required to hold, operate and maintain
the commercial center until the financial environment improves and we are able to attempt to achieve the best price for our completed
commercial centers. This will cause a considerable delay in the sale of the asset and will require us to devote (or acquire by
way of outsourcing) the resources (including, in some cases, injecting additional capital) required for its operation and maintenance.





13






Zoning
restriction and local opposition can delay or prevent construction of a project.



Existing
plots designated for the development of commercial centers require zoning for activities of the type common for such use and developments.
Where the existing zoning is not suitable or has yet to be determined, we apply for the required zoning classifications. This
procedure may be protracted, particularly in countries where the bureaucracy is cumbersome and inefficient, and we cannot be certain
that the process of obtaining proper zoning will be completed in a timely manner to enable the commercial centers to open ahead
of the competition or at all.



Opposition
by local residents to zoning and/or building permit applications may also cause considerable delays or even rejection of such
applications. In addition, arbitrary changes to applicable zoning may jeopardize projects that have already commenced. Therefore,
if we cannot receive zoning approvals or if the procedures for the receipt of such zoning approvals are delayed, our costs will
increase and competition may strengthen, which will have an adverse effect on our business.



Building
permits may contain conditions that we must satisfy in order to develop a project. Such conditions may require us to contribute
to local infrastructure or alter a planned development to include additional landscaping or planted areas. If we are obligated
to maintain certain areas of the project site as “green areas” this may reduce areas that contribute to revenues which
in turn may reduce potential revenues while increasing development costs.



Certain
zoning permits are granted for limited time periods and if the term is not extended the rights revert back to the local government
or municipality. Furthermore, these rights may be subject to termination under certain circumstances by the government and any
termination prior to the expiration of such rights could have a material adverse effect on our business, prospects and results
of operations or financial condition.



We
depend on contractors and subcontractors to construct our commercial centers, which may lead to increased development and construction
costs and the loss of our competitive advantage.



We
rely on subcontractors for all of our construction and development activities. If we cannot enter into subcontracting arrangements
on terms acceptable to us or at all, we will incur additional costs which will have an adverse effect on our business. The competition
for the services of quality contractors and subcontractors may cause delays in construction, thus exposing us to a loss of our
competitive advantage. Subcontracting arrangements may be on less favorable terms than would otherwise be available, which may
result in increased development and construction costs. By relying on subcontractors, we become subject to a number of risks relating
to these entities, such as quality of performance, varied work ethics, performance delays, construction defects, breach or non-performance
of agreements and the financial stability of the subcontractors. A shortage of workers or materials would have a detrimental effect
on us and our subcontractors and, as a result, on our ability to conclude construction phases on time and within budget.



Some
of our projects are co-owned and control of such investments is shared with third parties



Some
of our projects are held through joint venture arrangements with third parties or government authorities with whom we share ownership
and control of such assets. As a result, these arrangements entail risks in addition to those associated with projects in which
we own a controlling interest, including the possibility that: (i) our joint venture partner might, at any time, have economic
or other business interests that are inconsistent with ours; (ii) our joint venture partner may be in a position to take action
contrary to our instructions or requests, or contrary to our policies or objectives, or frustrate the execution of acts which
we believe to be in the interest of any particular project; (iii) our joint venture partner may have different objectives than
us, including with respect to the appropriate timing and pricing of any sale or refinancing of a development and whether to enter
into agreements with potential contractors, tenants or purchasers; (iv) our joint venture partner might become bankrupt or insolvent;
and (v) we may be required to provide financing to make up any shortfall due to our joint venture partner failing to provide such
equity finance or to furnish collaterals to the financing third parties.



Disputes
or disagreements with any of our joint venture partners could result in significant delays and increased costs associated with
the development of our properties. Even when we have a controlling interest, certain major decisions (such as whether to sell,
refinance or enter into a lease or contractor agreement and the terms on which to do so) may require approval from a joint venture
partner or other third party. If we are unable to reach or maintain agreement with a joint venture partner or other third party
on matters relating to the business operations, our financial condition and results of operations may be materially adversely
affected.



Delays
in the completion of construction projects could affect our success.



An
important element in the success of the construction process of our commercial projects is the short construction time, and our
ability to open projects such as commercial centers ahead of our competitors, particularly in cities which do not have projects
of the type constructed by us.



This
makes us subject to a number of risks relating to these activities, including:



| | ● | the inability to obtain financing for development at
attractive terms or at all;                                  
| | - | ------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                   
| | ● | delays in obtaining zoning (or land classification,
as the case may be for each jurisdiction) and other approvals;





14






| | ● | the unavailability of materials and labor;
| | - | ------------------------------------------



| | ● | the abilities of subcontractors to complete work competently
and on schedule;
| | - | -----------------------------------------------------------------------------



| | ● | the surface and subsurface condition of the land underlying
the project;
| | - | ------------------------------------------------------------------------



| | ● | environmental uncertainties;
| | - | ----------------------------



| | ● | extraordinary circumstances or "acts of God";
and
| | - | -------------------------------------------------



| | ● | ordinary risks of construction that may hinder or delay
the successful completion of a particular project.
| | - | ----------------------------------------------------------------------------------------------------------



In
addition, under our development contracts with local municipalities or governmental authorities, we have deadlines for several
of our projects (subject to limited exceptions). If construction of a project does not proceed in accordance with our schedule,
we may in some instances be required to pay penalties to the vendor (usually local municipalities, but may also be a governmental
authority that has allotted the land) based on the extent of the delay and in certain cases to forfeit rights in the land. The
failure to complete a particular project on schedule or on budget may have a material adverse effect on our business, prospects
and results of operations or financial condition.



We
may be held liable for design or construction defects of third-party contractors.



We
rely on the quality and timely performance of construction activities by third-party contractors. Claims may be asserted against
us by local government and zoning authorities or by third parties for personal injury and design or construction defects. These
claims may not be covered by the professional liability insurance of the contractors or of the architects and consultants. These
claims may give rise to significant liabilities.



Shortages
in raw materials and employees may have a material adverse effect on our results of operations.



The
building industry may from time to time experience fluctuating prices and shortages in the supply of raw materials as well as
shortages of labor and other materials. The inability to obtain sufficient amounts of raw materials and to retain efficient employees
on terms acceptable to us may delay construction and increase the budget of our projects and, as a result, have a material adverse
effect on the results of our operations.



Our
Casa Radio project in Romania may be subject to governmental expropriation or monetary sanctions.



In
2006, PC added the Casa Radio project in Romania to its portfolio. The nature of the development and exploitation rights granted
to the joint venture company in relation to the Casa Radio site in Bucharest are for a period of only 49 years, and in the event
that this term is not extended, the rights in relation to the site would revert to the Government of Romania. Additionally, there
may be other regulatory risks relating to the Romanian government's right to expropriate the rights to the Casa Radio Site in
Bucharest or that they will impose sanctions on PC with respect to the property, See "Item 4 – Information on the Company
– History and Development of the Company – Recent Events - Casa Radio Project in Bucharest, Romania" for more
information regarding the Casa Radio Site. Furthermore, these rights are subject to termination under certain circumstances by
the Romanian government, such as in the event a delay in the project timetable, and any termination prior to the expiration of
such rights may have a material adverse effect on our business.



RISKS
RELATING TO THE HOTEL BUSINESS



The
hotel industry may be affected by economic conditions, oversupply, travel patterns, weather and other conditions beyond our control
which may adversely affect our business and results of operations.



The
hotel industry may be adversely affected by changes in national or local economic conditions and other local market conditions,
especially in times of economic crisis. Our Radisson Complex in Bucharest, Romania, comprised mainly of the Radisson Blu hotel
and the Park Inn hotel and commercial areas (collectively, the "Radisson Complex"), may be subject to the risk of oversupply
of hotel rooms. Other general risks that may affect our Radisson Complex are changes in travel patterns (business or tourism),
changes in trends as to performance of exhibitions, conferences and conventions in Romania or at all (including as a result of
a financial crisis). Extreme weather conditions, changes in Romanian governmental regulations which influence or determine wages,
workers’ union activities, changes in interest rates, the availability of financing for operating or capital needs, and
changes in real estate tax rates and other current operating expenses. Unforeseen events, such as terrorist attacks, volcanic
eruptions, extreme weather conditions, outbreaks of epidemics and health concerns (such as SARS, avian flu, swine flu) and the
economic recession had, and may continue to have, an adverse effect on local and international travel patterns and, as a result,
on occupancy rates and rates in our Radisson Complex. Downturns or prolonged adverse conditions in the real estate or capital
markets or in national or local economies and difficulties in securing financing for the development of hotels could have a material
adverse effect on our business, results of operations and cash flow, ability to develop new projects and the attainment of our
strategic goals.





15






Competition
in the hotels industry could have an adverse effect on our business and results of operations.



The
hotel business is highly competitive. Competitive factors within the industry include: (i) convenience of location and accessibility
to business centers; (ii) room rates; (iii) quality of accommodations; (iv) brand name recognition; (v) quality and nature of
service and guest facilities provided; (vi) reputation; (vii) convenience and ease of reservation systems; and (viii) the supply
and availability of alternative lodging.



Many
of these competitors have greater financial resources and better brand name recognition than we do, and may have more established
relationships with prospective franchisers, representatives in the local Romanian industry. The number of competitive lodging
facilities in Bucharest could have a material adverse effect on our Radisson Complex's occupancy and rates and, therefore, results
of operations and cash flows. New or existing competitors may significantly reduce their rates or offer greater convenience, services
or amenities or significantly expand or improve hotels in Bucharest, thereby materially adversely affecting our business and results
of operations.



We
rely on management agreements with the Rezidor Hotel Group, which may not provide the intended benefits and may be terminated.
Any significant decline in the reputation of the Rezidor Hotel Group or in the performance of our Radisson Complex could adversely
affect our results of operation.



Our
Radisson Complex operates under a long-term management agreement with the Rezidor Hotel Group ("Rezidor"). Any significant
decline in the reputation of Rezidor or in its ability to ensure the performance of our Radisson Complex at anticipated levels
could adversely affect our results of operations. If our agreement with Rezidor is terminated, we cannot be certain that we would
be able to obtain alternative management services of the same standard on similar or better terms.



The
long-term management arrangements entail additional risks, including the possibility that: (i) Rezidor might, at any time, have
economic or other business interests that are inconsistent with ours or with the management of our Radisson Complex; (ii) Rezidor
may be in breach of the agreement or in a position to take action contrary to the agreement, or frustrate the execution of acts
which we believe to be in the interest of our Radisson Complex; and (iii) Rezidor might become bankrupt or insolvent.



Disputes
or disagreements with Rezidor could result in interruption to the business operations of our Radisson Complex, may materially
impact our financial condition, cash flow, and results of operations.



Our
agreement with Rezidor imposes obligations on us that may force us to incur significant costs.



Our
agreement with Rezidor, contains specific standards for, and restrictions and limitations on, hotel operation and maintenance.
These standards, restrictions and limitations may conflict with our priorities, and impose capital demands upon us. In addition,
Rezidor may alter its standards or hinder our ability to improve or modify our Radisson Complex. We may be forced to incur significant
costs or make capital improvements in order to comply with the requirements of Rezidor and, if our relationship with Rezidor is
terminated, to change the franchise affiliation of our Radisson Complex.



The
value of our investment in our Radisson Complex is subject to various risks related to ownership and operation of real property.



In
addition to the items set forth above, our investment in our Radisson Complex is subject to varying degrees of risk related to
the ownership and operation of real property. The fair value of our Radisson Complex and income from our Radisson Complex may
be materially adversely affected by:



| | ● | changes in global and national economic conditions,
including global or national recession, such as those triggered by the recent economic crisis;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | a general or local slowdown in the real property market
which may make it difficult to sell a property, such as the recent global slowdown;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------



| | ● | political events that may have a material adverse effect
on the hotel industry;
| | - | -------------------------------------------------------------------------------



| | ● | competition from other lodging facilities, and oversupply
of hotel rooms in Romania;
| | - | ------------------------------------------------------------------------------------



| | ● | material changes in operating expenses, including as
a result of changes in real property tax systems or rates or labor laws;
| | - | -----------------------------------------------------------------------------------------------------------------------------



| | ● | changes in the availability, cost and terms of financing;
| | - | ---------------------------------------------------------



| | ● | the effect of present or future environmental laws;
| | - | ---------------------------------------------------



| | ● | our ongoing need for capital improvements and refurbishments;
and
| | - | -----------------------------------------------------------------



| | ● | material changes in governmental rules and policies.
| | - | ----------------------------------------------------



We
are in a violation of our lease agreement with the Israeli Land Administration with respect the plots in Tiberius.



In
2007, we have entered into a lease agreement with the Israel Land Administration ("ILA") with respect to a plot in Tiberius
which was designated for the development of a hotel. Under the agreement we undertook to complete the hotel (following extension
granted) by July 2013. As of the date of this filling we did not start the development work on the project. These rights are subject
to termination under certain circumstances by the ILA and they may also forfeit bank guarantee of approximate NIS14 million granted.

16






RISKS
RELATING TO OUR PLOTS IN INDIA



Our
plots located in India are subject to highly regulated legal regime which is burdensome for foreigner investors



Our
plots are located in India, and are subject to the Indian Foreign Exchange Management Act, 1999, and the regulations framed thereunder
with respect to the construction development sector in India. That sector is governed by provisions of the Foreign Exchange Management
Act and the consolidated Foreign Direct Investment (“FDI”)
policy issued by the Department of Industrial Policy and Promotion (“DIPP”) of the Indian Ministry of Commerce and
Industry, and updated/ revised from time to time through various Press Notes (“FDI Policy”). The last release with
respect to the FDI Policy was a Consolidated FDI Policy circular issued by the DIPP, with effect from May 12, 2015, which was
followed by press note no.12 of 2015 dated November 24, 2015. These regulations forbid the sale of undeveloped land in view of
blocking speculative real-estate investments by foreigners. Such limitations block or limit our ability to separate and walk away
from unsuccessful joint ventures, terminate land acquisition contracts, dispose of land inventory that the development thereof
is not economical for us or control the timing of such disposition. In addition, that legislation is subject to continuous rapid
and unexpected changes that can jeopardize our business strategy, planning and conduct, and can cause severe delays in timetables
for the disposition of the plots and could have a material adverse effect on our operations, cash flow and in turn, our ability
to repay our debts in timely manner.



Restrictions
on the repatriation of capital in India may adversely affect our cash flows and results of operations.



Pursuant
to regulations promulgated under the FDI Policy and by the Reserve Bank of India(“RBI”), the repatriation of capital
with regard to investments made in the real estate sector is subject to strict regulatory procedures, and is restricted during
three years commencing on the date of such investment. At times, the RBI will further slow-down repatriation of capital by requiring
real estate investors to comply with additional regulatory and time-consuming bureaucratic processes. Although recent regulations
promulgated by the RBI in this respect have been more beneficial to our operations, if we are unable to repatriate capital from
our investments in India, in whole or in part, this may have an adverse effect on our cash flows and our results of operations.



We
may have difficulties exercising mortgages/guarantees given in connection with our project in Bangalore, India which may significantly
affect our ability to dispose of such asset and complete our strategy relating to our plots in India



Although
the real estate sector in India is experiencing a challenging downturn, our strategy with respect to our plots in India is to
dispose of such assets under the most optimal market conditions. Our plots in India are partially owned by our subsidiary, Elbit
Plaza India Real Estate Holdings Limited, or EPI, and by local Indian partners. Due to regulatory , physical and other limitations
to develop our project in Bangalore, India, ,on December 2, 2015 we announced that EPI signed an agreement to sell 100% of its
interest in a special purpose vehicle which holds a site in Bangalore, India to a local Investor. The transaction is subject to
certain conditions precedent, and closing will take place once these conditions are met and no later than 30 September 2016. In
the event the closing conditions aren't met by this date, the local investor would be subject to the terms of an agreed upon separation
mechanism under which EPI will be entitled, under certain circumstances, to exercise guarantees placed by the local investor.
In the event the separation mechanism isn't properly executed and we are unable to enforce the terms of the separation mechanism
on the local investor, we may face regulatory, judicial, and/or legal difficulties in exercising the guarantees placed by the
local investor due to, among other things, injunctive relief requested by the local investor or third parties which may materially
adversely affect our ability to dispose of the land to third parties which may jeopardize our business strategy, planning and
operations, and could cause severe delays in disposition of the plots and could have a material adverse affect on our operations,
cash flow and in turn, our ability to repay our debts in timely manner.



Even
if we are able to properly execute the separation mechanism and/or exercise the guarantees placed by the local investor, there
is no guarantee that we will be able to dispose of the land in the Bangalore project due to third party proprietary claims to
certain parts of the Bangalore project, and third party holdings on parts of the land within the Bangalore project thus making
the holdings in the land a non-contiguous property. In addition, legal and regulatory restrictions placed by local authorities
can materially impede our ability to dispose of the land on optimal commercial terms.





17






We
may have difficulties disposing our project in Chennai, India which may significantly affect our ability to complete our strategy
relating to our plots in India



Due
to regulatory and legal restrictions in India which make it difficult to register a transfer of ownership rights in our Indian
projects, our ability to secure full title to our projects in India may be significantly restricted. For example, in September
2015 we announced that EPI obtained a backstop commitment for the purchase of our Chennai, India project. The project was owned
80% by EPI and 20% by a local Indian partner through Kadavanthara Builders Private Limited, a special purpose vehicle. Since the
transaction did not close by January 15, 2016, EPI exercised its right to receive the local Indian partner’s 20% holdings
in Kadavanthara Builders Private Limited and now contractually owns 100% of the Chennai, India project. Due to local regulatory
and legal restrictions and a lack of cooperation from our local Indian partners such newly acquired 20% holdings may be difficult
to register under applicable Indian regulations, see "Item 3 – Key Information – Risk Factors – Risks Relating
to Our Plots in India - Real estate legislation in India does not assure clear title and ownership status" for more information.



In
addition, there are ongoing court cases with respect to third party proprietary claims to certain parcels of land within the Chennai,
India project which further impede our ability to dispose of the asset. Physical and geographical limitations such as lack of
an access road leading to the Chennai project territory, theft of sand and destruction of property, and third party holdings throughout
the Chennai project territory (which we are unable to purchase from such third parties at all or on reasonable market terms) may
also impede our ability to dispose of the Chennai project on optimal commercial terms.



Even
in the event we are successful in obtaining full title to the Chennai India project, the presence of other limitations described
above means that there is no assurance that we will be able to sell such project to third parties which may harm our business
strategy and our cash flow.



Limitations
by the Indian government to invest in India may adversely affect our business and results of operations.



Under
the Indian FDI Policy, an acquisition or investment in an Indian sector or activity, in particular in the commercial centers business,
which does not comply with certain limitations, is subject to governmental approval. With respect to the real estate sector, these
limitations include, among other things, restrictions on selling an undeveloped land without governmental approval and a minimum
lock in of 3 years for each tranche of investment. In addition, under the FDI Policy it is not permitted for foreign investors
to acquire agricultural land for real estate development purposes. There is no assurance that we will comply with the limitations
prescribed in the FDI Policy in order to not be required to receive governmental approvals. Failure to comply with the requirements
of the FDI Policy will require us to receive governmental approvals which we may not be able to obtain or which may include limitations
or conditions that will make the investment unviable or impossible, and non-compliance with investment restrictions may result
in the imposition of penalties and inability to dispose of our projects.



Real
estate legislation in India does not assure clear title and ownership status.



Under
Indian law, the registration of ownership in land with the land registration offices does not automatically guarantee the absence
of third party rights to such land. In contrast to other countries, India does not have a central title registry for real property.
Title registries are maintained at the state and district level and, since the process of storing such records digitally has only
recently started, such records may not be available online for inspection. In addition, because it is common practice in some
parts of India (especially in villages) for transfers of title upon deaths of family members and in certain other circumstances
to be made only by notation in local revenue records, changes in the ownership of land may not be registered with the relevant
land registry in a timely manner or at all. Title registries and local revenue records may not be updated or complete. As such,
legal defects and irregularities may exist in the title to the properties on which our existing facilities and/or future facilities
are or may be located. While we utilize all reasonable efforts to ensure integrity of title in the real estate properties acquired
by us, the system of recording ownership and rights in and to immovable property is not conclusive. Our rights in respect of such
properties may be threatened by improperly executed, unregistered or insufficiently stamped conveyance instruments, unregistered
encumbrances in favor of third parties, rights of adverse possessors, ownership claims of family members of prior owners, or other
defects of which we may not be aware. These defects may arise after land is acquired by us, and are not necessarily revealed by
due diligence, due to various factors, including incomplete land records, transactions without registered documents, the decentralized
nature of land registries and local revenue records, property-related litigation in India and family disputes in previous sellers’
families. Any defects or irregularities of title may result in litigation and/or the loss of development rights over the affected
property. With respect to projects on leasehold land, revocation/expiry of the lease and any defect or irregularity in the lessor’s
title may result in loss of our rights over affected property. This would have an adverse effect on our business and results of
operations.



RISKS
RELATING TO THE COMMERCIAL CENTERS BUSINESS, TO THE HOTEL BUSINESS AND TO THE PLOTS IN INDIA BUSINESS



Real
estate investments are relatively illiquid.



Substantially
all of our portfolio's total consolidated assets consist of investments in real properties, part of which are operational and
a significant part of which are undeveloped. Because real estate investments are relatively illiquid, our ability to quickly sell
one or more properties in the portfolio in response to changing economic, financial and investment conditions is limited. Moreover,
the sale of undeveloped land to third parties will involve additional difficulties compared to selling of operational real estate
assets such as the lack of financing for development in the CEE and India, the risk of not obtaining the building permits and
approval from the authorities and the like. The real estate market is affected by many factors, such as general economic conditions,
availability of financing, interest rates and other factors, including supply and demand for space, trends, that are beyond our
control. As our projects are subject to numerous factors that are not under our control, there is no assurance that our predictions
and estimations of the timing in which we will be able to sell any property and/or the price or terms we set will actually materialize
as predicted. There is no assurance that our predictions and estimations as to the length of time needed to find a willing purchaser
and to close the sale of a property will be correct. In addition, current economic and capital market conditions might make
it more difficult for us to sell properties or might adversely affect the price we receive for properties that we do sell, as
prospective buyers might experience increased costs of debt financing or other difficulties in obtaining debt financing. Finally,
attempting to sell any of our investments in real properties at an accelerated pace due to cash flow needs may result in our receiving
lower purchase price for such investments.

18






In
addition, the number of prospective buyers interested in purchasing real estate properties may be limited. Therefore, if we want
to sell one or more of the properties in our portfolio, we may not be able to dispose of the property in the desired time period
and may receive less consideration than we originally invested in the property.



Before
a property can be sold, we may be required to make expenditures to correct defects or to make improvements. We cannot assure investors
that we will have funds available to correct those defects or to make those improvements, and if we cannot do so, we might not
be able to sell the property, or might be required to sell the property on unfavorable terms. In acquiring a property, we might
agree to provisions that materially restrict us from selling that property for a period of time or impose other restrictions,
such as limitations on the amount of debt that can be placed or repaid on that property. These factors and any others that would
impede our ability to respond to adverse changes in the performance of our properties could adversely affect our financial condition
and results of operations.



Environmental
discoveries may have a significant impact on the budget, schedule, viability and marketability of our assets.



We
may encounter unforeseen construction delays or compliance defaults due to factors beyond our control such as delays or defaults
caused by previously unknown soil contamination or the discovery of archeological findings which may have a significant impact
on development budget and schedules and which may, in turn, have a detrimental effect on the viability or marketability of the
development or cause legal liability in connection with a portfolio asset. We may be liable for the costs of removal, investigation
or remedy of hazardous or toxic substances located on or in a site owned or leased by us, regardless of whether we were responsible
for the presence of such hazardous or toxic substances. The costs of any required removal, investigation or remedy of such substances
may be substantial and/or may result in significant budget overruns and critical delays in construction schedules. The presence
of such substances, or the failure to remedy such substances properly, may also adversely affect our ability to sell or lease
such property or to obtain financing using the real estate as security. Additionally, any future sale of such property will be
generally subject to indemnities to be provided by us to the purchaser against such environmental liabilities. Accordingly, we
may continue to face potential environmental liabilities with respect to a particular property even after such property has been
sold. Laws and regulations may also impose liability for the release of certain materials into the air or water from a property,
and such release can form the basis for liability to third persons for personal injury or other damages. Other laws and regulations
can limit the development of, and impose liability for, the disturbance of wetlands or the habitats of threatened or endangered
species. Any environmental issue may significantly increase the cost of a development and/or cause delays, which could have a
material adverse effect on the profitability of that development and our results of operations and cash flows.



There
is an increasing awareness of environmental issues in CEE and India. This may be of critical importance in areas where soil pollution
may be prevalent. If a property that we acquire turns out to be polluted, such a finding will adversely affect our ability to
construct, develop and operate a commercial center, a hotel or a residential project on such property, and may cause us to suffer
expenses incurred in cleaning up the polluted site which may be significant.



RISKS
RELATING TO OUR MEDICAL COMPANIES



InSightec’s
future growth substantially depends on its ability to develop and obtain regulatory clearance and reimbursement for additional
treatment applications for the ExAblate.



Our
associate InSightec Ltd. ("InSightec") has received regulatory approvals to market the ExAblate in the United States,
Israel, Canada, Russia, Brazil, Mexico, Korea, Taiwan, Australia, New Zealand, Singapore, Japan, China and the European Union
Economic Area ("EEA"), which is comprised of the member nations of the European Union and certain additional European
nations, solely for the treatment of uterine fibroids. In addition, InSightec received CE-marking (approval to market in the EEA)
,Israeli approval and FDA approval for pain palliation of bone metastases. Finally, in December 2012, InSightec’s ExAblate
Neuro system received the CE-marking for the treatment of neurological disorders in the brain including essential tremor, Parkinson’s
disease and neuropathic pain. However, clinical experience for bone metastases and for the neurological disorders in the brain
application is still in the early stages and therefore commercial acceptance is expected to take some time. InSightec’s
objective is to expand the use of the ExAblate by developing and introducing new treatment applications, particularly for neurological
applications. InSightec is currently in various stages of product development and clinical studies for a number of new treatment
applications for the ExAblate. It will be required to obtain FDA approval in the United States and other regulatory approvals
outside of the United States before marketing the ExAblate for these additional treatment applications. InSightec cannot guarantee
that its product development activities for these other applications will be successful and if not, InSightec’s future growth
will be harmed. In particular, InSightec’s future curative oncology treatment applications are subject to significant risks
since these applications must be able to demonstrate complete ablation of malignant tumors, or meet or exceed the current medical
standard related to the oncology application in question. If InSightec is unable to demonstrate this degree of efficacy, its future
treatment applications may not prove to be successful. In addition, assuming product development is successful, the regulatory
processes can be lengthy, lasting many years in some cases, and expensive. We cannot assure that FDA approval or other regulatory
approvals will be granted.





19






In
order to obtain FDA clearance and other regulatory approvals, and to obtain reimbursement coverage for use of the ExAblate treatment
for additional applications, InSightec is required to conduct extensive clinical studies which may take several years to demonstrate
the therapeutic benefits, absence of dangerous adverse side effects and cost-effectiveness of these new treatment applications
and products. Clinical trials are expensive and may take several years to complete. If future clinical trials indicate that the
ExAblate is not as beneficial or cost-effective as existing treatment methods, or that such products cause unexpected complications
or other unforeseen adverse events, InSightec may not obtain regulatory clearance to market and sell the ExAblate for these additional
treatment applications or obtain reimbursement coverage, and InSightec’s long-term growth would be seriously harmed.



Gamida's
future growth substantially depends on  its ability to develop and obtain regulatory clearance for additional treatment
applications for their products.



Our
associate Gamida Cell Ltd. ("Gamida"), a leader in stem cell expansion technologies and therapeutic products, is substantially
dependent on receiving FDA and other applicable regulatory approval of its products and is also required to conduct extensive
clinical studies that may take several years to demonstrate the therapeutic benefits, absence of dangerous adverse side effects
and cost-effectiveness of these new treatment applications and products.



In
the event that Gamida does not receive regulatory approval to market and sell their products it would have a material adverse
effect on their respective sales and results of operations



If
the ExAblate systems do not achieve broad market acceptance, InSightec will not be able to generate sufficient sales to support
its business.



InSightec
must achieve broad market acceptance of the approved ExAblate systems among physicians, patients and third-party payors in order
to generate sufficient sales to support its business. Physicians will not recommend the use of any of the approved systems unless
InSightec can demonstrate that it produces results comparable or superior to existing alternative treatments. If long-term patient
studies do not support InSightec’s existing clinical results, or if they indicate that the use of the particular approved
systems has negative side effects on patients, physicians may not adopt or not continue to use them. Even if InSightec demonstrates
the effectiveness of the approved systems, physicians may still not use the systems for a number of other reasons. Physicians
may continue to recommend traditional treatment options simply because those methods are already widely accepted and are based
on established technologies. Patients may also be reluctant to undergo new, less established treatments. If, due to any of these
factors, the approved ExAblate systems do not receive broad market acceptance among physicians or patients, InSightec will not
generate significant sales. In this event, InSightec’s business, financial condition and results of operations would be
significantly harmed, and InSightec’s ability to develop additional treatment applications for the ExAblate would be adversely
affected.



If
physicians, hospitals and other healthcare providers are unable to obtain coverage and sufficient reimbursement from third-party
healthcare payors for treatment procedures using the ExAblate, InSightec may be unable to generate sufficient sales to support
its business.



Demand
for commercial use for the ExAblate is likely to depend substantially on the extent to which sufficient reimbursement for treatment
procedures using InSightec’s system will be available from third-party payors, such as private health insurance plans and
health maintenance organizations and, to a lesser degree, government payor programs, such as Medicare and Medicaid. Reimbursement
practices vary significantly from country to country and within some countries, by region. InSightec believes that third-party
payors will not provide reimbursement on a national basis for treatments using the ExAblate, unless InSightec can generate a sufficient
amount of data through long-term patient studies to demonstrate that such treatments produce favorable results in a cost-effective
manner relative to other treatments. Furthermore, InSightec could be adversely affected by changes in reimbursement policies of
private healthcare or governmental payors to the extent any such changes affect reimbursement for treatment procedures using the
ExAblate. If physicians, hospitals and other healthcare providers are unable to obtain sufficient coverage and reimbursement from
third-party payors for treatment procedures using the ExAblate, InSightec may be unable to generate sufficient sales to support
its business.



Our
medical companies’ operations (which include clinical trials) may lead to exposure to legal claims.



Our
medical companies’ activities in the field of medical equipment and devices development include clinical trials, which raise
exposure to legal claims due to bodily injury or side effects resulting from the usage of such medical devices or treatment or
the negligence or improper usage of such equipment by our treatment staff. Any such claims could result in harm to our business
and results of operations.





20






InSightec
is dependent on General Electric.



The
ExAblate is compatible only with certain Magnetic Resonance Imaging (MRI) systems of GE Healthcare, a division of the General
Electric Company ("GE"), which may limit InSightec’s potential market. A significant portion of the MRI systems
in use in the United States and elsewhere are not GE MRI systems. On October 17, 2012, InSightec and GE entered into a Technology,
Cooperation, and Distribution Agreement as amended on June 26, 2014, on March 30, 2015, and December 31, 2015 (the "Cooperation
Agreement") relating, inter alia, to product exclusivity, cooperation with respect to the development and sale of
the parties' complementary products, distribution, marketing and sales, intellectual property rights and licenses, sale terms
and conditions, and similar items. In the event that GE is unable to effectively market its MRI systems or compete in the MRI
market, InSightec’s ability to generate additional sales of the ExAblate could be adversely affected. In addition, InSightec's
interface technology relies on GE's intellectual property rights and licenses. If and in the event GE will terminate those IP
licenses (such as in the case of transfer of shares of InSightec to a competitor of GE), InSightec’s ability to support
its products and generate additional sales of the ExAblate may be adversely affected. As discussed below under Item 4B. “Business
Overview”, the Cooperation Agreement was amended in December 2015 such that InSightec was appointed as a non-exclusive distributor
for GE's MR Scanners in order for InSightec to sell the scanners as an Integrated Therapy Platform (ITP) together with InSightec's
products, and revocation of the right granted to GE to receive royalties' payments from InSightec and extension of the term of
the Cooperation Agreement to 5 years from December 31, 2015.



Although
InSightec was released from the product exclusivity limitations, to date it has not developed an interface to any other MRI machine
developed by MRI manufacturers other than GE. Hence, the disadvantages of a single MRI source and reliance on GE have not changed
yet.



In
light of the above, although InSightec is contractually entitled to engage with third parties, it still depends on its collaboration
with GE to ensure the compatibility of the ExAblate with new models of GE MRI systems and upgrades to existing GE MRI systems.
GE regularly develops new models of its MRI systems, as well as new capabilities for its existing MRI systems, which could affect
their compatibility with the ExAblate. If InSightec is unable to receive information regarding new models of the GE MRI systems
or upgrades to existing GE MRI systems, and coordinate corresponding upgrades to the ExAblate to ensure continued compatibility
with new and existing GE MRI systems, and if InSightec is unable to achieve collaboration with other MRI manufacturers and adjust
its products to other MRI machines, its ability to generate sales of its system will be adversely affected. In addition, if InSightec
is unable to coordinate new applications or upgrades with GE’s research and development team (or such teams of other MRI
manufacturers), it may be unable to develop such applications or upgrades in a timely manner and its future revenue growth may
be seriously harmed.



If
the ExAblate is subject to a product recall, InSightec will not be able to generate sufficient sales to support its business.



If
the ExAblate does not comply with regulatory standards or if it is subject to reports of damaging effects to patients, it may
be subject to a mandatory recall by the relevant authorities and sales may be stopped until it can clear regulatory approvals
once again. A recall may harm the reputation of InSightec and its products and its ability to generate additional sales of the
ExAblate may be adversely affected.



InSightec
and Gamida are dependent on further capital investments.



Until
InSightec achieves broad market acceptance of the ExAblate and is able to generate sufficient sales to support its business and
until Gamida begins selling its products and generating positive cash flow, each of them will need to obtain additional capital
investments to support its business in general and, in particular, its significant research and development costs and expenses.
The current volume of sales and backlog of InSightec will not suffice to maintain its current cash burn-rate and expenditure levels.
Each of InSightec's or Gamida's inability to obtain additional funding sources, particularly capital investments, might have a
material adverse effect on its business and/or ability to continue its operations.



If
InSightec and Gamida are unable to protect their intellectual property rights, their competitive position could be harmed. Third-party
claims of infringement could require InSightec and Gamida to redesign their products, seek licenses, or engage in future costly
intellectual property litigation, which could impact InSightec’s and Gamida's future business and financial performance.



InSightec’s
and Gamida's success and ability to compete depends in large part upon their ability to protect their proprietary technology.
InSightec and Gamida rely on a combination of patent, copyright, trademark and trade secret laws, and on confidentiality and invention
assignment agreements, in order to protect their intellectual property rights. The process of seeking patent protection can be
long and expensive, and there can be no assurance that InSightec’s and Gamida's existing or future patent applications will
result in patents being issued, or that InSightec’s and Gamida's existing patents, or any patents, which may be issued as
a result of existing or future applications, will provide meaningful protection or commercial advantage to InSightec and Gamida.





21






Claims
by competitors and other third parties that InSightec's or Gamida's products allegedly infringe the patent rights of others could
have a material adverse effect on InSightec’s or Gamida's business. Any future litigation, regardless of outcome, could
result in substantial expense and significant diversion of the efforts of InSightec’s and Gamida's technical and management
personnel. An adverse determination in any such proceeding could subject InSightec and Gamida to significant liabilities or require
InSightec or Gamida to seek licenses from third parties or pay royalties that may be substantial.



InSightec's
and Gamida's technology may become obsolete, which could materially adversely impact InSightec’s and Gamida's future business
and financial performance.



InSightec’s
and Gamida's success and ability to compete depends in large part upon their ability to develop and maintain unique and leading
technologies and capabilities, providing medical solutions superior to alternative treatments and technologies. The discovery
or development of more advanced, efficient or cost-effective treatments or technologies by third parties providing better solutions
to the same diseases, could make InSightec’s or Gamida's technologies or solutions inferior, obsolete or irrelevant. The
rapid development and massive research and development activities in the medical areas in which these companies operate creates
constant risk of such occurrence, which could adversely impact InSightec’s and Gamida's future business and financial performance.



RISKS
RELATING TO ISRAEL



Security
and economic conditions in Israel may affect our operations.



We
are incorporated under Israeli law and our principal offices are located in Israel. In addition, our operations in our other lines
of business, such as Elbit Medical, operate in Israel. Political, economic and security conditions in Israel directly affect our
operations. Since the establishment of the State of Israel in 1948, various armed conflicts have taken place between Israel and
its Arab neighbors, Hamas (an Islamist militia and political group in the Gaza Strip) and Hezbollah (an Islamist militia and political
group in Lebanon), and a state of hostility, varying in degree and intensity, has led to security and economic problems for Israel.



In
addition, acts of terrorism, armed conflicts or political instability in the region could negatively affect local business conditions
and harm our results of operations. We cannot predict the effect on the region of any diplomatic initiatives or political developments
involving Israel or the Palestinians or other countries in the Middle East. Recent political uprisings, social unrest and violence
in various countries in the Middle East and North Africa, including Israel’s neighbors Egypt and Syria, are affecting the
political stability of those countries. This instability may lead to deterioration of the political relationships that exist between
Israel and these countries and have raised concerns regarding security in the region and the potential for armed conflict. In
addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons, and the Islamic State
of Iraq and Levant (ISIL), a violent jihadist group, is involved in hostilities in Iraq and Syria and have been growing in influence.
Although ISIL’s activities have not directly affected the political and economic conditions in Israel, ISIL’s stated
purpose is to take control of the Middle East, including Israel. Iran is also believed to have a strong influence among extremist
groups in the region, such as Hamas in Gaza and Hezbollah in Lebanon. This situation may potentially escalate in the future to
violent events which may affect Israel and us.



Furthermore,
some neighboring countries, as well as certain companies and organizations, continue to participate in a boycott of Israeli firms
and others doing business with Israel or with Israeli companies. Restrictive laws, policies or practices directed towards Israel
or Israeli businesses could have an adverse impact on the expansion of our business. In addition, we could be adversely affected
by the interruption or curtailment of trade between Israel and its trading partners, a significant increase in the rate of inflation,
or a significant downturn in the economic or financial condition of Israel.



Service
and enforcement of legal process on us and our directors and officers may be difficult to obtain.



Service
of process upon our directors and officers, all of whom reside outside the United States, may be difficult to obtain within the
United States. Furthermore, since the majority of our assets and all of our directors and officers are located outside the United
States, any judgment obtained in the United States against us or these individuals or entities may not be collectible within the
United States. Additionally, it may be difficult to enforce civil liabilities under U.S. federal securities law in original actions
instituted in Israel. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws on the grounds that
Israel is not the most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim,
it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content
of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process. Certain matters of procedure
will also be governed by Israeli law. There is little binding case law in Israel addressing these matters. For more information,
see below under "Enforceability of Civil Liabilities."



Furthermore,
the Debt Restructuring included an exemption from personal civil liability with respect to our then-current officers and directors,
other than Mr. Mordechai Zisser, for actions and omission during the period preceding the consummation of the Debt Restructuring.
This also limits the ability to pursue legal action against such individuals.





22






Provisions
of Israeli law may delay, prevent or make more difficult a merger or other business combination, which may depress our share price.



Provisions
of Israeli corporate law may have the effect of delaying, preventing or making more difficult a merger or acquisition involving
us. The Companies Law generally provides that a merger be approved by the board of directors and a majority of the shares present
and voting on the proposed merger. For purposes of the shareholder vote, unless a court rules otherwise, the merger will not be
deemed approved if a majority of the shares not held by the other party to the merger (or by any person who holds 25% or more
of the shares or the right to appoint 25% or more of the directors of the other party or its general manager) have voted against
the merger. Upon the request of any creditor of a party to the proposed merger, a court may delay or prevent the merger if it
concludes that there is a reasonable concern that, as a result of the merger, the surviving company will be unable to satisfy
the obligations of the surviving company. Finally, a merger may not be completed unless at least (i) 50 days have passed since
the filing of a merger proposal signed by both parties with the Israeli Registrar of Companies and (ii) 30 days have passed since
the merger was approved by the shareholders of each merging company.



The
Companies Law also provides that an acquisition of shares of a public company must be made by means of a tender offer if as a
result of the acquisition the purchaser would become (i) a 25% or greater shareholder of the company unless prior to such acquisition
there is already another 25% or greater shareholder of the company or (ii) a 45% or greater shareholder of the company unless
prior to such acquisition there is already a 45% or greater shareholder of the company. These requirements do not apply if the
acquisition (i) occurs in the context of a private placement by the company that received shareholder approval or (ii) was from
a 25% or 45% shareholder, as the case may be. The tender offer may be consummated only if (i) at least 5% of the company’s
outstanding shares will be acquired by the offeror and (ii) the number of shares tendered in the offer exceeds the number of shares
whose holders objected to the offer. In addition, under our amended articles of association, a person seeking to cross the 25%
ownership threshold is required to offer to purchase at least 10% of our outstanding ordinary shares in such a tender offer. In
any event, if as a result of an acquisition of shares the purchaser will beneficially own more than 90% of a company’s shares,
the acquisition must be made by means of a tender offer for all of the remaining shares. Shareholders may request an appraisal
in connection with a tender offer for a period of six months following the consummation of the tender offer, but the purchaser
is entitled to stipulate that any tendering shareholder surrender its appraisal rights.



Finally,
Israel tax law treats some acquisitions, such as stock-for-stock exchanges between an Israeli company and a foreign company, less
favorably than U.S. tax laws. For example, Israeli tax law may, under certain circumstances, subject a shareholder who exchanges
its ordinary shares for shares in another corporation to taxation prior to the sale of the shares received in such stock-for-stock
swap.



The
described restrictions could prevent or make more difficult an acquisition involving us, which could depress our share price.



RISKS
RELATING TO EASTERN EUROPE AND GREECE



We
are subject to various risks related to our operations in Eastern Europe, including economic and political instability, political
and criminal corruption and the lack of experience and unpredictability of the civil justice system.



Many
of the Eastern European countries in which we operate are countries which were allied with the former Soviet Union under a communist
economic system, and subject us to various risks. Certain Eastern European countries, in particular those countries that are not
expected to join the European Union in the near future, are still economically and politically unstable and suffer from political
and criminal corruption, lack of commercial experience, unpredictability of the civil justice system, land expropriation, changes
in taxation legislation or regulation, changes to business practices or customs, changes to laws and regulations relating to currency
repatriation and limitations on the level of foreign investment or development. Certain Eastern European countries also continue
to suffer from high unemployment and low wages. These risks could be harmful to us and are very difficult to quantify or predict.
In countries that are not members of the Eastern Union but have liberalized policies on international trade, foreign ownership
and development, investment, and currency repatriation to increase international trade and investment, such policies might change
unexpectedly. We will be affected by the rules and regulations regarding foreign ownership of real and personal property. Such
rules may change quickly and dramatically and thus may have an adverse impact on ownership and may result in a loss without recourse
of our property or assets. Domestic and international laws and regulations, whether existing today or in the future, could adversely
affect our ability to market and sell our products and could impair our profitability. With respect to our operations in Romania,
any foreign company or litigant may encounter difficulties in prevailing in any dispute with, or enforcing any judgment against,
the Romanian government or officers or directors under the Romanian legal system. The joint venture in relation to the Casa Radio
site in Bucharest is governed by the public-private partnership laws of Romania pursuant to which no projects have yet been implemented
in Romania. There is a risk that the legal structure of this partnership may be challenged in the future and that the development
and exploitation rights to be granted by the Romanian government to the joint venture company are more restrictive than currently
anticipated, leading to us being unable to obtain the development profits predicted for the project. Furthermore, third parties
could challenge the Romanian government’s decision, following the failure of the original partners to fulfill their obligations
or to put the contract out to tender or to carry out a new site valuation. A successful challenge on either count could result
in us having to enter a new tender process, which would lead to an increase in associated expenses and uncertainty.





23






We
and PC have become aware of certain issues with respect to certain agreements that were executed in the past in connection with
the Casa Radio. See, "Item 4 – Information on the Company – History and Development of the Company – Recent
Events - Casa Radio Project in Bucharest, Romania" for more information.



Certain
Eastern European countries such as Serbia may regulate or require governmental approval for the repatriation of investment income,
capital or the proceeds of sales of securities by foreign investors. In addition, if there is deterioration in a country’s
balance of payments or for other reasons, a country may impose temporary restrictions on foreign capital remittances abroad. Any
such restrictions may adversely affect our ability to repatriate investment loans or to remit dividends. Many emerging countries
have experienced substantial, and in some periods extremely high, rates of inflation for many years. Inflation and rapid fluctuations
in inflation rates have had and may continue to have negative effects on the economies and securities markets of certain emerging
countries. In addition, in an attempt to control inflation, price controls at our hotels have been imposed at times in certain
countries, which may affect our ability to increase our room rates.



Certain
Post-Communist Eastern Europe countries initiated legislation that cancels and nullifies transactions involving real estate that
were subject to confiscation, condemnation or eminent domain proceeding by the former communist regime. While we make every effort
to conduct thorough and reliable due diligence investigations, in some countries where former communist regimes carried out extensive
land expropriations in the past, we may be faced with restitution claims by former land owners in respect of project sites acquired
by it. If upheld, these claims would jeopardize the integrity of our title to the land and our ability to develop the land.



The
economic crisis in the Balkans is also placing stress on the real estate industry, which has been experiencing difficulties since
late 2008, although recent market data suggests that the Romanian and Serbian markets are recovering. The cost of real estate
has fallen by approximately 30% to 50% across the region, and plans for developing industrial or tourist projects have been terminated
or postponed. If the current trend continues, future prospects for the industry in this region are limited and could adversely
affect our ability to develop and sell our projects there.



While
the Greek government has overcome a number of obstacles, and the pace of contraction there continued to ease in 2014, in light
of a negative short-term outlook, areas of the economy that remain in recession and currency instability due to the Euro, targeted
policies at future growth industries and restoring confidence will be required to restore sustainable growth.



Recent
political changes in Romania have resulted in delays in receiving required communications, regulatory approvals and permits from
the Romanian government, which may affect our ability to develop and sell our projects there.



Hostilities
in Eastern European countries could have a material adverse effect on our financial conditions and results of operations.



Eastern
European countries may face military activity or terrorist attacks in the future as a result of increased global terrorist activity
in the EU, and that could influence their economies by disrupting communications and making travel more difficult and such political
tensions could create a greater perception that companies operating in such countries are usually involved in higher degrees of
risk. Events of this nature in the future, as well as social and civil unrest due to increased tendencies towards extremism in
the countries where we operate, could influence their economies and could have a material adverse effect on our financial condition
and results of operations.



Expropriation
of land



While
we make every effort to conduct thorough and reliable due diligence investigations, in some countries where former Communist regimes
carried out extensive land expropriations in the past, we may be faced with restitution claims by former land owners in respect
of project sites acquired by it. If upheld, these claims would jeopardize the integrity of our title to the land and our ability
to develop the land, which may have a material adverse effect on our business, financial condition and/or results of operations.



RISKS
RELATING TO INDIA



Hostilities
in India and other countries in Asia could have a material adverse effect on our financial conditions and results of operations.



India
has from time to time experienced instances of internal terror attacks and hostilities with neighboring countries, including Pakistan
and China. Military activity or terrorist attacks in the future could influence the Indian economy by disrupting communications
and making travel more difficult and such political tensions could create a greater perception that companies operating in India
are usually involved in higher degrees of risk. Events of this nature in the future, as well as social and civil unrest within
other countries in Asia or within India, could influence the Indian economy and could have a material adverse effect on our financial
condition and results of operations. In addition, India has from time to time experienced social and civil unrest due to religious
strife.





24






Changes
in the economic policies of the Government of India or political instability could have a material adverse effect on our business.



Since
1991, successive Indian governments have pursued policies of economic liberalization, including significantly relaxing restrictions
on the private sector and significantly reducing the roles of the state governments in the Indian economy as producers, consumers
and regulators. The Indian Government has announced policies and taken initiatives that support the continued economic liberalization
pursued by previous governments. However, this trend of liberalization may not continue in the future. The rate of economic liberalization
could change, and specific laws and policies generally affecting, among other things, foreign investments, currency exchange,
local taxation legislation, repatriation of profits and other matters affecting our investments, as well as specifically affecting
the sectors of commercial activity in which we operate, could also change. A significant shift in India’s economic liberalization
and deregulation policies could materially adversely affect business and economic conditions in India generally, as well as our
business operations in particular. In addition to potential economic instability, the Indian economy and business practices are
relatively unsophisticated and lacking in experience, and there have been some instances of political and criminal corruption.
Furthermore, India continues to suffer from high unemployment, low wages and low literacy rates. These risks could be harmful
to us and are very difficult to quantify or predict. Indian governments are democratically elected, but are invariably comprised
of a coalition of several political parties. The withdrawal of one or more of these parties from the coalition could cause the
government to fall, resulting in political instability or stagnation pending new elections. Such events could delay or even halt
the progress and development of the Indian economy and its receptiveness to foreign investment, and may have a material adverse
effect on our business.



|ITEM 4. | INFORMATION ON THE COMPANY
|------- | --------------------------



|A. | HISTORY AND DEVELOPMENT OF THE COMPANY
|-- | --------------------------------------



Elbit
Imaging Ltd. was incorporated in 1996 under the laws of the State of Israel. Our shares are listed on the NASDAQ Global Select
Market (ticker symbol: EMITF) and on the Tel Aviv Stock Exchange ("TASE"). Our executive offices are located at 5 Mota
Gur Street, Petach Tikva 4952801, Israel. You may reach us by telephone at (972-3) 608-6000 or by fax at (972-3) 608-6050. Our
address in the U.S. is c/o Elscint, Inc., 747 Third Avenue, 4th Floor, New York, N.Y. 10017-2803.



For
a summary of our recent acquisitions, dispositions and other activities and of our capital expenditures and divestitures during
the years 2013, 2014 and 2015, and that are currently in progress, see “Item 5. Operating and Financial Review and Prospects
- Overview.”



Recent
Events



Non-Binding
Letter of Intent with International Manufacturer of MRI Scanners



On
April 18, 2016 we announced that we were informed by InSightec Ltd. that it had signed a Non-binding Letter of Intent
(LOI) with an international manufacturer of MRI scanners to develop compatibility between InSightec’s MRI guided
Focused Ultrasound Systems (MRgFUS) and this manufacturer’s MRI scanners with the intention to expand the MRgFUS market
globally.The completion of the transaction outlined in the aforementioned LOI is subject to signing and
implementation of a definitive agreement between the parties that includes R&D and regulatory approvals. As of the date
of this annual report, the timelines of successful implementation are unclear.



Gadish
Settlement



On
April 6, 2016, we announced that we and some other defendants (i.e: our and Elscint's former directors and officers) entered
into a settlement agreement with the Plaintiffs in class action #1318/99 (Gadish v. Elscint et. al.) The settlement generally
provides that in consideration of a total payment of NIS 46 million (approximately $11.9 million) (a) the Hotels & Marina
Transactions cause of action (as well as any other cause of action that is – or may be – directed against us and our
former directors and officers and to Elscint and its former directors and officers) shall be exhausted with respect to all of
the defendants; and (b) all other causes of action shall be exhausted with respect to us and our former directors and officers
as well as with respect to Elscint and its former directors and officers.Our share in the aforementioned compensation
is NIS 4 million (approximately $1 million) and the rest will be financed by our D&O Insurance. The Settlement is subject
to the court's approval and additional preconditions fulfillment as determined in the settlement agreement, including, but not
limited to the right of the insurer to terminate the settlement under certain circumstances. For further information with regards
to the class action, please see Note 14B. (1) of our Annual Consolidated Financial Statements as of December 31, 2015 filed as
Exhibit 99.1 to our Report on Form 8-K filed with the SEC on March 31, 2016.





25






Acquisition
of Loan to Control Liberec Plaza in the Czech Republic and Sale of the Commercial Center



On
March 31, 2016 we announced that PC completed the sale of Liberec Plaza for €9.5 million (approximately $10 million). Following
net asset value adjustments related to PC’s balance sheet, PC received net €9.37 million (approximately $10 million).
On September 29, 2015 we had announced that PC won a tender to buy the loan in respect of the Liberec Plaza commercial center in
the Czech Republic. The €20.4 million bank loan was granted by two commercial banks which PC has agreed to buy for €8.5
million, reflecting a discount of 58%.



Reverse
Share Split



On
March 31, 2016, following Board unanimous recommendation our shareholders authorized the effecting of a reverse share split of
shares at a ratio, to be established by our Board in its sole discretion, not to exceed one-for-ten, or to abandon the reverse
share split in order to increase the per share trading price of our ordinary shares to satisfy Nasdaq's Listing Rule 5450(a)(1) which
requires that listed stocks maintain a closing bid price in excess of $1.00 per share for continued listing on the Nasdaq Global
Select Market. For more information, see "Item 3 – Risk Factors – General Risks - If we do not satisfy the NASDAQ
requirements for continued listing, our ordinary shares could be delisted from NASDAQ."



Casa
Radio Project in Bucharest, Romania



On
March 29, 2016, we announced that PC announced that its board had become aware of certain issues with respect to certain agreements
that were executed in the past by PC in connection with the Casa Radio Project in Romania. In order to address this matter, PC's
Board appointed the chairman of PC's Audit Committee to investigate the matters internally. PC's Board also appointed independent
law firms to perform an independent review of the issues raised. PC has approached and is co-operating fully with the relevant
Romanian Authorities regarding the matters that have come to its attention in this respect and it has submitted its findings to
the Romanian Authorities. Following PCs report to us, our audit committee has decided to appoint a special committee to examine
the matters raised in PC's announcement, including any internal control and reporting issues. As the investigation of this matter
is ongoing PC in unable to comment on any details related to this matter.



Addendum
to Loan Agreement with Bank Hapoalim



On
March 22, 2016, we announced that we had signed an addendum to the loan agreement with Bank Hapoalim B.M. (the
"Bank" and "Loan Agreement"), that will cancel and replace the previous loan agreement (the
"Addendum" and the "Loan"). Under the Addendum, subject to the prepayment of €15.0 million
(approximately $16 million) to the Bank by March 31, 2016, the following new terms will apply to the loan: (i) the repayment
schedule of the Loan will be as follows: €7 million (approximately $8 million) will be repaid on November 30, 2016 and
the balance will be repaid on November 30, 2017 instead of one single payment in February 20, 2017 in the existing Loan
Agreement; (ii) we will not have prepayment obligations for the planned notes repurchase program which will be executed by us
during 2016 for an amount up to NIS 50 million (approximately $13 million); and (iii) any net cash flow that will be received
by us from the refinancing of the Radisson Blu hotel in Bucharest Romania in an amount up to €97 million shall not have
repayment obligations, and shall be used by us at our sole discretion.



Notes
Repurchase Programs



On
February 1, 2016 we approved a new program to repurchase up to NIS 40 million (approximately $10.1 million) of our Notes, which
are traded on the Tel Aviv Stock Exchange. Our board of directors has determined that until further notice, we will purchase only
Series H Notes. The repurchases will be made from time to time in the open market on the Tel Aviv Stock Exchange, in privately
negotiated transactions or in a combination of the two, commencing the date of this announcement and for a period of 12 months.
The repurchase program does not require us to acquire any or a specific amount of notes, and it may be modified, suspended, extended
or discontinued without prior notice. Repurchase of Notes under this program depends on factors such as market conditions and
legal compliance. Notes repurchased by us will be canceled and removed from trading. Until the date of this report, we have bought
back 13.7 million par value Series H Notes for a total amount of NIS 12.2 million (approximately $3.13 million).



On
October 12, 2015 we approved a program to repurchase up to NIS 50 million (approximately $13 million) of our Series H Notes and
Series I Notes, which are traded on the Tel Aviv Stock Exchange. We subsequently announced that only Series H Notes will be included
in the repurchase program. The repurchases were be made from time to time in the open market on the Tel Aviv Stock Exchange, in
privately negotiated transactions or in a combination of the two for a period of 12 months. On December 17, 2015 we announced
that we had reached the repurchase program goal by purchasing NIS 56 million par value of series H notes for the total consideration
of NIS 50 million.





26






An
agreement to sell a Plot in Chennai, India



In
September 2015, we announced that our subsidiary Elbit Plaza India Real Estate Holdings Limited, or EPI, obtained a backstop commitment
for the sale of the Chennai, India project. The project is owned 80% by EPI and 20% by a local Indian partner through Kadavanthara
Builders Private Limited, a special purpose vehicle. The total consideration under the sale agreement was INR crore 161.7 (approximately
$49 million). Since the transaction did not close by January 15, 2016, EPI exercised its right to get the local Indian partner’s
20% holdings in Kadavanthara Builders Private Limited and now owns 100% of the Chennai, India plot.



An
agreement for the sale of Land Plot in Kochi, India



On
January 15, 2016 we announced that we signed an agreement to waive any of our rights and interest in a special purpose vehicle
which holds a land plot in Kochi, India. The total consideration for us is INR 10 Crores (approximately €1.4 million), which
will be paid to us upon the closing of the transaction. The transaction is subject to certain conditions precedent, and closing
will take place once these conditions are met and no later than October 15, 2016. The local Investor has provided certain security
in order to guarantee the aforementioned deadline.



InSightec
Series D Share Purchase Agreement



On
December 31, 2015, InSightec and some of its existing and new shareholders signed and executed an amendment to certain Series
D Preferred Share Purchase Agreement, dated June 26, 2014, as amended from time to time, under which Insightec completed an investment
of $22 million at a price of $1.94 per share, in consideration for approximately 7.3% of InSightec's outstanding share capital,
on a fully diluted basis. The terms and conditions of the investment are the same as in the original Series D Preferred Share
Purchase Agreement, based on the same pre-money valuation and subject to certain adjustments. As for the terms and conditions
of the Original Series D agreement see "Item 4 – Business Overview – Medical Companies - Recent Investment Rounds
in Insightec."



In
addition, General Electric company, Healthcare Division ("GE") and the shareholders signed and executed an agreement
for the sale of 20 million Preferred B and Preferred C Shares held by GE, which constitutes approximately 13% of InSightec's issued
and outstanding share capital (on a fully diluted basis after the closing of the Amendment Share Purchase Agreement), at a price
of $1.25 per share. Furthermore, GE granted to the shareholders an option to purchase 7.5 million additional Preferred B and B1
Shares from GE, representing approximately 4.8% of InSightec's issued and outstanding share capital (on a fully diluted basis
after the closing of the Amendment Share Purchase Agreement) for the same price. The option is exercisable within one to two years
following the closing date of the transaction, subject to the conditions stipulated in the agreement. For more information, See
"Item 4 – Business Overview – Medical Companies – InSightec- Recent Transactions in InSightech's shares".



Sale
of Cina Property in Bucharest



On
December 15, 2015, we announced, that our 98% holding subsidiary, S.C. Bucuresti Turism S.A. ("Butu") and PC signed
a transaction for the sale of the Cina property in Bucharest. The total consideration was €4 million (approximately $4.3
million), divided to €2.7 million (approximately $2.9 million) for PC and €1.3 million (approximately $1.4 million)
for BUTU. The net proceeds, after related taxes and transaction costs was approximately €2.26 million (approximately $2.5
million) for PC and approximately €1.3 million (approximately $1.4 million) for BUTU.



Agreement
to Sell a plot in Bangalore,India



On
December 2, 2015 we announced that EPI signed an agreement to sell 100% of its interest in a special purpose vehicle which holds
a site in Bangalore, India to a local Investor. The total consideration for the sale upon completion of the transaction is approximately
€45.4 million which will be paid at transaction closing. Our direct share in the proceeds is 50% (approximately €22.7
million). The transaction is subject to certain conditions precedent, and closing will take place once these conditions are met
and no later than 30 September 2016. The local partner has provided certain securities in order to guarantee the abovementioned
dead line.



Refinance
of Hotel in Bucharest



On
October 28, 2015 we announced that our subsidiary BUTU entered into a term sheet with Raiffeisen Bank International A.G and Raiffeisen
Bank S.A., leading international European banks, as lenders, ("Lenders") to amend the facilities agreement between the
parties entered into on September 16, 2011, as amended. According to the term sheet, the lenders will increase the loan under
the facilities agreement up to € 97 million. The new facility can be drawn down in two Tranches, with the first Tranche in
the amount of up €85 million, and the second Tranche in the amount
of up to € 12 million. The proceeds of the new facility shall be used,
inter alia, to prolong the outstanding facility under the existing facility agreement in the amount of approximately €60
million. The surplus of the new facility will be used for the repayment of all existing shareholder loans granted to BUTU by Elbit
Group. On March 10, 2016 BUTU and the Lenders, and us as guarantor signed a definitive facility agreement in the total amount
of €97 million. On March 24, 2016 the first draw down in an amount
of €85 million (approximately $93 million) was closed. The net cash received by us was approximately € 24.4 million
(approximately $27 million).





27








Novartis
Investment in Gamida



On
October 12, 2015 we announced that Gamida our indirect subsidiary, entered into agreements with Novartis according to which Novartis
invested in Gamida an immediate amount of $5 million, in return for approximately 2.5% of Gamida on a fully diluted basis. For
further discussion, see “Item 5. Operating and Financial Review and Prospects – Overview - 2015”.



Sale
of Koregaon Park Plaza



On
June 11, 2015 we announced that PC reached an agreement to sell Koregaon Park Plaza, the retail, entertainment and office scheme
located in Pune, India for approximately €35 million (approximately US$ 39 million), consistent with the asset’s last
reported book value. The net cash proceeds (after repayment of the related bank loan, other liabilities and transaction costs)
from the sale were approximately €7.2 million (approximately US$ 8 million).



Non-
Exercise of Novartis Option



On
September 2, 2014, Elbit Medical announced that Gamida Cell, and the vast majority of Gamida Cell’s shareholders (including
Elbit Medical), completed the execution of the Option and Investment Agreements with Novartis Pharma A.G ("Novartis").
Under such agreements, Novartis invested $35 million in Gamida Cell in exchange for approximately 15% of Gamida Cell’s share
capital and an option to purchase the holdings of the other shareholders in Gamida Cell, including Elbit Medical's holdings upon
the completion of certain milestones relating to the development of NiCord.



On
June 3, 2015 Gamida Cell notified Elbit Medical that following discussions held between the Novartis representative and the CEO
of Gamida Cell, the Novartis representative notified Gamida Cell that Novartis did not intend to exercise the Novartis Option.



Sale
of Hotels in Antwerp, Belgium



On
May 11, 2015 we announced that we had closed the Share Purchase Agreement with Astrid JV Sarl, an affiliate of Kohlberg Kravis
Roberts & Co. L.P., with regard to the sale of PC's entire (100%) holdings in PC's wholly owned subsidiary which owns and
operates our hotels in Antwerp, Belgium, the Radisson Blu Hotel and the Park Inn Hotel. The total net consideration paid to PC,
following the repayments of PC's subsidiary's bank loans was approximately €27
million out of which €1 million was deposited in escrow to secure the
Seller's indemnification obligations under the Share Purchase Agreement. In accordance with our Refinancing Loan Agreement
with Bank Hapoalim B.M we have prepaid an amount of approximately $5 million on account of a loan with the bank.



Delisting
of Bucuresti Turism S.A.



On
February 19, 2015, we announced that the extraordinary general meeting of shareholders of our subsidiary Bucuresti Turism S.A.
(in which we hold 77% of the issued share capital), which shares were traded on the Bucharest Stock Exchange market(RASDAQ)
that took place on February 18, 2015, resolved, amongst other things, that BUTU will not take the necessary legal actions for
the shares issued by it to be admitted for trading on a regulated market or to be listed on an alternate trading system. On June
9, 2015 we announced that shareholders holding 21.48% of BUTU exercised their right to withdraw from BUTU. The total amount paid
by BUTU for such withdrawal requests was approximately €13.9 million
(approximately USD $15 million). An amount of €2 million was financed
by BUTU from its own resources and the remainder in the amount of approximately €11.9
million was financed by us through a shareholder loan granted to BUTU.



Following
approval of the Financial Supervisory Authority in Romania BUTU was delisted from the RASDAQ. Upon the completion of the delisting,
all the shares acquired by BUTU during the delisting process were cancelled and the share capital of BUTU was decreased accordingly.
Following the share capital decrease, we hold (indirectly) approximately 98% of BUTU's share capital



Sale
of Elbit Fashion’s Mango franchise rights



On
September 29, 2014, we announced that our subsidiary Elbit Fashion Ltd. (“Elbit Fashion”) had received from PUNTO
FA, S.L (“Punto”) written notice of its intention not to extend the term of the franchise rights of Elbit Fashion
for operation of the "Mango" retail stores in Israel, as granted under the agreement entered between Elbit Fashion
and Punto on May 3, 2005 (the “Franchise Agreement”) and to terminate the Franchise Agreement. On October 27,
2014, we announced that Elbit Fashion signed a sale agreement (the "Fox Agreement") with Fox-Wisel Ltd.
("Fox") with regards to the sale of the operation and business of "Mango" retail stores in Israel. Under
the Fox Agreement, which was consummated on January 5, 2015, Elbit Fashion sold and assigned Fox all business activity,
stores, investments in the leased properties, furniture and equipment, inventory and customer loyalty program and any and all
rights relating thereto, free and clear of any third party rights, except as explicitly set in the Fox Agreement and net of
certain liabilities related to the business activities of Mango, for consideration of approximately NIS 37.7 million, out of
which NIS 4.9 million were deposited in escrow, subject to certain adjustments in accordance with the provisions of the
transaction documents. As of the date of this filling we received all the amounts which were deposited in Escrow. Following
the consummation of the transaction, Elbit Fashion has ceased to operate the "Mango" retail stores activity, and
accordingly the said activity was classified as discontinued operation in our financial statements.





28






PC
Debt Restructuring



On
November 18, 2013 our subsidiary PC announced that it had filed for reorganization proceedings (preliminary suspension of payments)
with the District Court of Amsterdam in the Netherlands (the “Dutch Court”) and submitted a restructuring plan to
the Dutch Court proposed to its creditors, which was further amended (the “Amended PC Plan”). The Amended PC Plan
proposed, inter alia, that all principal payments of any unsecured debt due during 2013-2015 be deferred for three years
from the date of approval of the Amended PC Plan by the Dutch Court (“Approval Date”). If within two years from the
Approval Date PC manages to repay 50% of such unsecured debt, then the remaining principal payments shall be deferred for an additional
one year. Under the Amended PC Plan, following the removal of the suspension of payments order by the Dutch Court, PC will be
required to assign 75% of the net proceeds received from the sale or refinancing of any of its assets to early repayment of its
unsecured debt, to be allocated among the holders of such unsecured debt. PC will be permitted to make investments only if its
cash reserves contain an amount equal to general and administrative expenses and interest payments for such unsecured debt for
a six-month period. The Amended PC Plan was made contingent upon a cash injection of approximately €20 million in PC, by
way of a rights issuance (the “Rights Offering”), under which, we, PC, and its directors and officers would be fully
released from all claims. On June 23, 2014, subject to the application of certain conditions
precedent, we undertook to exercise (or procure that other persons will exercise) all of our rights in the proposedRights
Offering and to procure subscriptions for any unexercised portion of theRights Offering
(the “Undertaking”).On June 26, 2014 PC announced that a majority of its creditors voted to approve the Amended
PC Plan, and on July 10, 2014, the Dutch Court approved the Amended PC Plan, with the Approval Date being July 18, 2014,upon which PC’s management resumed full control of PC’s business. On December 19, 2014, PC announced that it
had successfully completed the Rights Offering.



In
addition, the Amended PC Plan includes other provisions which essentially prevent us from using the proceeds from realization
of PC’s projects for the development of PC’s existing projects designated for development. As a result, any future
development of existing projects by PC may not be executed due to insufficient cash for equity injection into such projects.



Our
Debt Restructuring



During
2013, our Board resolved to suspend all payments to its unsecured creditors and to negotiate with its unsecured creditors on a
restructuring plan for the unsecured financial debts. On October 17, 2013 our unsecured financial creditors approved a Plan of
Arrangement (the “Arrangement”) (as adjusted from time to time) and on January 1, 2014, the Israeli District Court
approved the Arrangement. The closing of the Arrangement took place on February 20, 2014. The general terms of the Arrangement
are: (i) in consideration of the extinguishment of our unsecured financial debts (i.e.: Series A-G notes, series 1 note and our
debts to Bank Leumi), we issued at the closing of the Arrangement the following instruments (A) New ordinary shares, representing
immediately following such exchange 95% of our outstanding share capital on a fully diluted basis; and (B) Two series of new notes
in the aggregate principal amount of NIS 666 million, (ii) the new Shares and the new notes were allocated among the various unsecured
financial creditors in proportion to the outstanding balance (principal, interest and CPI linkage) under each obligation as of
the closing of the Arrangement. The new Shares are listed for trading on both the Tel Aviv Stock Exchange and the NASDAQ Stock
Market, and the new notes are listed for trading on the Tel Aviv Stock Exchange, and (iii) pursuant to the terms of the Arrangement,
we amended our Articles of Association to include among other things that s decision to engage in a new field of business which
is material to us, in which neither the we nor any of our subsidiaries is engaged and which new field of business is not complementary
to our business or our subsidiaries, shall require the unanimous approval of all of the members of the board.



|B. | BUSINESS OVERVIEW
|-- | -----------------



We
operate primarily in the following principal fields of business:





| | ● | Commercial
                                         Centers  - Initiation, construction and sale of commercial centers and other
                                         mixed-use real property projects, predominantly in the retail sector, located in Central
                                         and Eastern Europe and in India, primarily through PC. In certain circumstances and depending
                                         on market conditions, we operate and manage commercial centers prior to their sale;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

| | ● | Hotels- Operation and management of our Radisson Complex in Bucharest, Romania;
| | - | -------------------------------------------------------------------------------
| |   |                                                                                

| | ● | Medical
                                         Industries - (a) research and development, production and marketing of magnetic resonance
                                         imaging guided focused ultrasound treatment equipment and (b) development of stem cell
                                         population expansion technologies and stem cell therapy products for transplantation
                                         and regenerative medicine; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Plots
                                         in India - Sale of plots in India which were initially designated as residential
                                         projects.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





29






Following
our Debt Restructuring and PC's Debt Restructuring we are no longer focused on developing our principal fields of business, rather
our focus is on disposing our assets at optimal market conditions.



Commercial
Centers



This
business includes operational commercial centers, plots designated for the construction and/or development of commercial centers
in CEE as well as plots not designated for development in the foreseeable future or designated
for sale these plots without further development. Certain projects designated for
development aremixed-use real estate projects which include predominantly commercial centers combined with other elements
of operations, including offices, residential units, conference centers and leisure facilities. In this annual report, we refer
to all projects mentioned above, as “commercial centers.” Construction or development of each such project is generally
conducted through a special purpose project corporation, owned by PC. In certain cases, such special purpose corporation is held
as a joint venture with project partners.



As
of the date of this annual report, our commercial segment of operations includes a total of four operating projects and four projects
which are designated to be developed by PC in the coming years. In addition, we have eleven projects which are not designated
to be developed by us in the foreseeable future. Our projects are located in Romania, Poland, Serbia, Latvia, Bulgaria, Greece,
and Hungary.



Business
Concept and Strategy



General



In
this field of operations, our focus is the development and construction of new commercial
centers and redeveloping existing centers, where there is significant redevelopment potential, in both capital cities and important
regional centers and the subsequent sale of such centers.



Our
commercial centers vary in size and may range between 6,000 square meters and 66,000 square
meters gross lettable area (“GLA”), but we may develop larger commercial centers if our development criteria
are met. We develop commercial centers whose size, tenant mix and design are dictated by market demand, and that take into account
particular factors such as the size of the population in the area (generally a minimum of 50,000 people), the socio-economic status
of the population, any competing commercial centers in the locality, local retail demand (whether for fashion, grocery, local
convenience stores or entertainment) and the location of the site (whether city center or suburban).



Our
commercial centers are comprised of large retail anchor tenants (such as Tesco, Match, Peek&Cloppenburg, New Yorker, H&M,
TKMaxx, Toys ‘R Us, Zara, C&A etc.). These anchor tenants form the basis of the shopping areas around which smaller
boutiques, international brands (such as Hugo Boss, Mango, Aldo, Sephora, Reserved, House, Esprit) and local retailers create
a carefully balanced tenant mix to meet local demand. Leases with anchor tenants generally run for a term of ten to fifteen years,
with an option to extend. Leases with semi-anchor tenants are usually for a term of five to ten years, while standard units are
usually leased for three to five years.



Our
commercial centers also include a multiplex cinema complex of between four and 12 theater screens, depending on the size of the
center, and, where appropriate, an IMAX auditorium. The entertainment areas also include a gaming area comprising a video games
arcade, bowling alley, electronic gaming machines, billiards, discotheque, bar and a children’s playground. Each entertainment
area also includes a food court offering a wide range of food outlets, coffee shops and restaurants.





30






Operational
commercial centers



Our
main goal is to sell the operational commercial centers subject to prevailing market conditions. Up to the consummation of a transaction
for the sale of the operational commercial centers we will operate the commercial centers. During the operational period of the
commercial centers we aim to improve their operational results by increasing the occupancy rates, the average rent rate as well
as changing the mixture of the tenants.PC regularly monitors whether according to market yields at the relevant time it
is favorable to hold and operate centers or to sell upon completion. While yields are high, PC believes that it has the management
skills to operate the assets, as done in the past, until the next low yields cycle. Currently, PC operates and manages its four
active commercial centers, attempting to stabilize them prior to selling them, as it believes that investors are seeking to invest
in assets with a track record and an occupancy rate above 90%. Mindful of the impact of the ongoing issues in the geographical
area on the economies in which PC operates, PC intends to simultaneously reduce its ratio of capital to debt while leading its
limited development program into the stronger economies of the CEE. PC’s cautious but opportunistic approach is set to unlock
significant value on behalf of its creditors and shareholders. It will continue to attempt to sell completed developments but
will hold them on its balance sheet and benefit from the rental income until sufficient sale prices are achieved. PC believes
that selling developments at the present time, due to ongoing economic conditions, will unlikely recover invested equity, and
therefore PC is focusing, where possible, on developing projects and realizing value at an appropriate stage.



The
following provides additional information with respect to our operational projects, as of December 31, 2015:



|Name of Project   |  | Location                |  | PC Share % |     |  | Approx. Gross Lettable Area (m2) |  |        | Opening Date
|----------------- |  | ----------------------- |  | ---------- | --- |  | -------------------------------- |  | ------ | ------------
|Riga Plaza        |  | Riga, Latvia            |  |            | 50  |  |                                  |  | 49,000 |             
|Liberec Plaza (1) |  | Liberec, Czech Republic |  |            | 100 |  |                                  |  | 17,000 |             
|Zgorzelec Plaza   |  | Zgorzelec, Poland       |  |            | 100 |  |                                  |  | 13,000 |             
|Suwałki Plaza     |  | Suwałki, Poland         |  |            | 100 |  |                                  |  | 20,000 |             
|Torun Plaza       |  | Torun, Poland           |  |            | 100 |  |                                  |  | 40,000 |             



| | (1) | Project
                                         was sold on March 31, 2016
| | --- | ---------------------------------------------------------------------------



Projects
Proposed for Development



Our
goal is to develop modern western-style commercial centers and mixed-use developments in the capital and regional cities of selected
countries, primarily in CEE, focusing in the medium-term on Serbia and Romania.



All
of our plots designated for development are currently in the planning stages and construction work has not yet started (except
for the Belgrade Plaza (Visnjicka) project). The last commercial center which was built by us was the Kragujevac Plaza which was
opened to the public in March 2012. As of the date of this filling all of our commercial centers are planning stages and construction
work has not yet started (except for the Belgrade Plaza (Visnjicka) project).



In
light of market conditions at the time, PC made the strategic decision to scale back on starting new projects and to focus on
projects with available external financing and strong tenant demand. PC currently plans to progress in a selected number of projects,
which are: (i) Casa Radio (Phase 1) in Romania; (ii) Timisoara in Romania; (iii) Belgrade Plaza (MUP) in Serbia; and (iv) Belgrade
Plaza (Visnjicka) in Serbia. All of PC’s other projects are not designated to be developed in the foreseeable future. PC
intends to either sell these plots without further development or to hold them until market conditions in CEE improve. Due to
the recent Debt Restructuring and due to the existing backlog of undeveloped plots, PC is not actively seeking any significant
acquisitions of new plots or operating commercial centers.





31






The
following table provides additional information for projects designated for developments in the foreseeable future:





|Name of Project            |  | Location           |  | Type              |  | Title                |  | PC Share %1 |     |  | Approx. Land Area 
(m2) |  |        | Approx. Gross Lettable Area (m2) |  |  | Estimated Completion |     |  | Status
|-------------------------- |  | ------------------ |  | ----------------- |  | -------------------- |  | ----------- | --- |  | ----------------------- |  | ------ | -------------------------------- |  |  | -------------------- | --- |  | ------
|Timisoara Plaza            |  | Timisoara, Romania |  | Commercial Center |  | Ownership            |  |             | 100 |  |                         |  | 32,000 |                                  |  |  | 40,000               |     |  |       
|Belgrade Plaza (Visnjicka) |  | Belgrade, Serbia   |  | Commercial Center |  | Ownership            |  |             | 100 |  |                         |  | 31,000 |                                  |  |  | 32,000               |     |  |       
|Casa Radio                 |  | Bucharest, Romania |  | Mixed Use         |  | Leasing for 49 years |  |             | 753 |  |                         |  | 97,000 |                                  |  |  | 467,000              | 2,4 |  |       
|Belgrade Plaza (MUP)       |  | Belgrade, Serbia   |  | Mixed Use         |  | Ownership            |  |             | 100 |  |                         |  | 9,000  |                                  |  |  | 63,0002              |     |  |       












| | 1 | Directly or indirectly.                                                                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2 | Gross building area (“GBA”).                                                                                                                                                                                                                                                                                                                                             
| | 3 | Other investors in the project include the Government of Romania, which will procure that the project company is granted the necessary development and exploitation rights in relation to the site for a 49-year period in consideration for a 15% interest in the project, as well as an additional developer which holds 10%.                                          
| | 4 | The project will consist of a complex with a planned GBA of approximately 467,000 square meters (including parking), and will include a commercial center of approximately GLA of 90,000 square meters, with a hypermarket, office buildings of approximately GBA of 127,000 square meters, hotel complex with conference center and a Public Authority Building (“PAB”).





Total
additional estimated costs of construction, required for completion of the above 4 projects designated for development and the
percentage of pre-leased areas are presented in the following table:





|Country  |  |  | Estimated cost of completion                   |  | Percentage Pre-leased * |   
|-------- |  |  | ---------------------------------------------- |  | ----------------------- | --
|Romania1 |  |  | €251.4 million (approximately $ 274 million)   |  |                         | - 
|Serbia2  |  |  | €136.4 million (approximately $ 148.7 million) |  |                         | 45



|1 | In
                                         respect of Casa Radio, the cost represents Phase 1 of the project.
|- | --------------------------------------------------------------------------------------------------------------

|2 | Solely
                                         with respect to the Belgard Plaza(visijcka) project.
|- | ----------------------------------------------------------------------------------------------------



Projects
(plots) designated for sale



Our
main goal in respect of plots which are not designated for future development is to hold them in their current state without investments
of significant financial and managerial resource. During the last few years we have executed several transactions for the sale
of undeveloped plots and, subject to prevailing market condition, we will consider the sale of the additional undeveloped plots
in their current state to third parties.



The
following table provides additional information in respect of our plots which are designated for sale, as of December 31, 2015:



|Name of Project          |  | Location                |  | Type                                |  | Title              |  | PC Share %1 |    
|------------------------ |  | ----------------------- |  | ----------------------------------- |  | ------------------ |  | ----------- | ---
|Csiki Plaza              |  | Miercurea Ciuc, Romania |  | Commercial and Entertainment Center |  | Ownership          |  |             | 100
|Kielce Plaza             |  | Kielce, Poland          |  | Commercial and Entertainment Center |  | Perpetual Usufruct |  |             | 100
|Leszno Plaza             |  | Leszno, Poland          |  | Commercial and Entertainment Center |  | Perpetual Usufruct |  |             | 100
|Shumen Plaza             |  | Shumen, Bulgaria        |  | Commercial and Entertainment Center |  | Ownership          |  |             | 100
|Slatina Plaza(*)         |  | Slatina, Romania        |  | Commercial and Entertainment Center |  | Ownership          |  |             | 100
|Constanta Plaza          |  | Constanta, Romania      |  | Commercial and Entertainment Center |  | Ownership          |  |             | 100
|Pireas Helios Plaza (**) |  | Athens, Greece          |  | Offices/Retail                      |  | Ownership          |  |             | 100
|Arena Extension          |  | Budapest, Hungary       |  | Offices                             |  | Land use rights    |  |             | 100
|Lodz Plaza               |  | Lodz, Poland            |  | Retail and Entertainment Center     |  | Perpetual Usufruct |  |             | 100
|Lodz (Residential)       |  | Lodz, Poland            |  | Ownership/Perpetual Usufruct        |  | Ownership          |  |             | 100



(*)
On 24 March 2016 PC completed the sale of its site in Slatina to a third party developer.

(**)
On April 8, 2016 PC announced a Pre-Agreement to sell development plot in Greece for €4.7
million.

(***)
Gross area of the plot.





32






Hotels



General



Our
goal in respect of the Radisson Blu Complex is to hold and operate, and enhance its value until its sale to third parties. We
hold 98% of the Radisson Blu complex in Bucharest, while the rest is owned by various unrelated third parties. For a discussion
of the procedures under Romanian law for the delisting of the sale-out right of the minority shareholders in Bucuresti –
see "Item 4 – Information on the Company – History and Development of the Company - Recent Events".



Management
of Hotels



Rezidor
manages our hotel complex in Romania, comprised of our Radisson Blue and Park Inn hotels, and other apartments. Under the management
agreement signed with Rezidor, we undertook to pay Rezidor certain agreed upon fees which are calculated as a percentage of the
hotel’s revenue as well as a certain agreed upon percentage from the gross operating profit of the hotel. We also undertook
to participate in certain portions of the expenses incurred by Rezidor in the course of performance of their obligations (mainly
marketing and advertising expenses), up to a certain percentage of the room revenues, and to invest in the hotel's capital expenditures.
In regards to the agreement to manage the Radisson Blu Bucharest Hotel we can terminate the agreement only in limited circumstances
set forth in the agreement.



Radisson
Blu complex- additional information



The
tables below provide information with regard to our Radisson Blu Complex:





|Name                                |  | Title |          |  | Our Share As of December 31, 2015 |  |    | Approximate
Constructed Area (square feet) |  |  | Rate of Hotel |  | Total Rooms and description |                                                                                                           | Additional information
|----------------------------------- |  | ----- | -------- |  | --------------------------------- |  | -- | ------------------------------------------ |  |  | ------------- |  | --------------------------- | --------------------------------------------------------------------------------------------------------- | ----------------------
|                                    |  |       |          |  |                                   |  |    |                                            |  |  |               |  |                             |                                                                                                           |                       
|Radisson Complex Bucharest, Romania |  |       | Freehold |  |                                   |  | 98 | %                                          |  |  | 900,000       |  |                             | The Radisson Blu and elite apartments – 487 Five Star units   Park Inn
 apartments – 276 Four Stars units |                       







33






|Name                               |  | Average Room Rate (Euro) |    |  | Average Occupancy Rates (%) |  |    | Revenue Per Available room (RevPar) | 
|---------------------------------- |  | ------------------------ | -- |  | --------------------------- |  | -- | ----------------------------------- | 
|Radisson
Complex Bucharest Romania |  |                          | 90 |  |                             |  | 77 | %                                   | 



Plot
in Tiberius, Israel



In
July 2007 we entered into an agreement with the Israel Land Administration ("ILA"), according to which we leased a plot
of approximately 44,600 square meters near Tiberius, Israel for a term of 49 years (through 2056) with an option to extend the
lease term for an additional 49 years. The total consideration paid amounted to NIS 30.6 million. Under the agreement, we undertook
to complete the construction work of the hotel within a period not exceeding 36 months (July 2010). During 2010 we received an
extension of an additional three years until July 2013 to complete the construction of the hotel. Also under the agreement, we
provided the Israel Land Administration with two bank guarantees in the aggregate amount of NIS 14 million (in order to secure
our undertakings under the lease agreement). The agreement may be terminated upon a breach of its terms. We are seeking a buyer
for this plot or a joint venture partner which will manage the initiation and the construction of the project and/or return the
plot to the ILA for an agreed compensation.



Medical
Companies



Our
Medical portfolio is held by Elbit Medical Technologies Ltd. (an Israeli company traded on the TASE ("Elbit Medical").
Elbit Medical is the largest shareholder in two medical companies: InSightec Ltd. ("InSightec") and Gamida Cell Ltd.
("Gamida"). As of the date of this annual report, we hold 89.9% of Elbit Medical's share capital (83.6% on a fully diluted
basis).



In
addition to our holding in the shares of Elbit Medical, we provided throughout the year credit lines and services to Elbit Medical.
As of December 31, 2015 Elbit Medical has a total of NIS 145.6 million (approximately $47 million) outstanding loans and
current accounts due to us with the following terms:



|Loan Balance as of December 31, 2015: |  | Interest:            |  | Linkage Mechanism: |  | Contractual Repayment Date: |  | Early Repayment:                                                                                                                                                                             
|------------------------------------- |  | -------------------- |  | ------------------ |  | --------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NIS 85.2 million                      |  | 6%                   |  | Linked to USD      |  | December 31, 2017           |  | Possibility of early repayment (without penalties) after October 1, 2016, at Elbit Medical's discretion. Early repayment requires approval of an independent board committee of Elbit Medical
|NIS 52.5 million                      |  | Non-interest bearing |  | Linked to CPI      |  | December 31                 |  | Possibility of early repayment (without penalties) after April 1, 2016, at Elbit Medical's discretion. Early repayment requires approval of an independent board committee of Elbit Medical. 
|NIS 7.9 million                       |  | Non-interest bearing |  | Non-Linked         |  | December 31                 |  | Possibility of early repayment (without penalties) after April 1, 2016, at Elbit Medical's  discretion. Early repayment requires approval of an independent board committee of Elbit Medical 





34






InSightec



We
indirectly hold, through Elbit Medical, approximately 31.3% of the outstanding share capital (26.6% on a fully diluted basis)
of InSightec.



Business
Concept



InSightec
develops and markets Exablate, the first FDA approved magnetic resonance imaging guided focused ultrasound treatment platform
("MRgFUS") for a variety of neurosurgery, oncology and gynecology indications. Treatments are non-invasive and are performed
in an ambulatory setting.



InSightec’s
objective is to transform the surgical environment for the treatment of a limited number of forms of benign and malignant tumors
by replacing invasive and minimally invasive surgical procedures with an incision-less surgical treatment solution. The system
is designed to deliver safe and effective non-invasive treatments while reducing the risk of disease, potential complications,
as well as the direct and indirect costs associated with surgery.



InSightec’s
MRgFUS technology integrates the therapeutic effects of focused ultrasound energy with the precision guidance and treatment outcome
monitoring provided by MRI systems. Ultrasound is a form of energy that can pass harmlessly through skin, muscle, fat and other
soft tissue, and is widely used in diagnostic applications. The ExAblate uses a phased-array transducer that generates a high
intensity, focused beam of ultrasound energy, or a sonication, aimed at a small volume of targeted tissue. The focused ultrasound
energy provides an incision-less therapeutic effect by raising the temperature of the targeted tissue mass high enough to ablate,
or destroy it, while minimizing the risk of damage to overlaying and surrounding tissue.



InSightec
believes that by combining the non-invasive therapeutic effects of focused ultrasound energy and the precise “real-time”
data provided by the MRI system, it has developed an effective, non-invasive treatment solution for its approved applications.



InSightec
also believes that its MRgFUS technology can be applied to the treatment of other medical conditions, providing similar advantages
by presenting both physicians and patients with a safe and effective incision-less surgical treatment option for several medical
conditions, including a number of indications for which there are currently few effective treatment options.



Products



ExAblate
Neuro



The
Exablate Neuro indication is designated to preform treatment for Essential Tremor, Tremor dominate Parkinson's disease and Neuropathic
pain and others. The following items describe the significant clinical and regulatory events in the Exablate Neuro:



| | ● | In
                                         November 2015 InSightec informed us that the Korean Ministry of Food and Drug Safety
                                         (MFDS) has approved its Exablate Neuro system to treat movement, pain and behavioral
                                         disorders which allows Korean patients suffering from neurological disorders which cause
                                         significant disability access to a new, non-invasive treatment option that does not require
                                         open surgery.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

| | ● | In
                                         November 2015, InSightec informed us that they are investigating the use of MR Guided
                                         Focused Ultrasound technology to temporarily open the blood brain barrier which is a
                                         protective barrier that restricts the passage of substances from the bloodstream into
                                         the brain, protecting it from toxic chemicals and preventing the delivery of essential
                                         medication to reach the brain.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

| | ● | In
                                         October 2015 InSightec informed us that it had submitted a premarket approval application
                                         (PMA) to the FDA for its ExAblate Neuro treatment of Essential Tremor.In March 4, 2014,
                                         focused ultrasound was successfully used for the first time in the treatment of a brain
                                         tumor. The patient had a recurrent glioma, a portion of which was thermally ablated using
                                         InSightec's ExAblate For Body Platform. The treatment was conducted at the FUS Center
                                         of University Children's Hospital Zurich. Since then, three more patients were treated
                                         successfully in the treatment of brain tumor
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

| | ● | In
                                         October 2013 the Israeli Ministry of Health approved ExAblate Neuro (known as ExAblate
                                         4000) for the treatment of neurological movement disorders including Essential Tremor
                                         and tremor-dominant Parkinson’s disease.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                    

| | ● | In
                                         December 2012, ExAblate Neuro, was awarded the European CE mark for the treatment of
                                         neurological disorders in the brain including essential tremor, Parkinson’s disease
                                         and neuropathic pain.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                             

| | ● | In
                                         January 2012 a team at the University of Virginia Medical Center completed a feasibility
                                         study testing the use of ExAblate Neuro for the treatment of essential tremor in fifteen
                                         adult patients. The results show significant tremor suppression at the three-month follow
                                         up period and a very positive safety profile. This supported additional phase-I studies
                                         performed in Canada, Korea and Japan all of which were completed in early 2013. This
                                         accumulated data has led to a phase-III study for essential tremor under FDA approval
                                         that includes eight sites globally. This study commenced in 2013, and in 2014 InSightec
                                         completed the recruitment of patients and accomplished their treatment. The results were
                                         submitted to the FDA at the end of 2015 after one year’s follow up.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

| | ● | The
                                         ExAblate system is also being evaluated in additional feasibility studies for Parkinson’s
                                         disease in Korea and the United States. These studies commenced in 2013 and are expected
                                         to continue through 2016.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





35






ExAblate
For Body Platform



Exablate
for Body Platform is designated to treat the Uterine fibroids, Pain palliation of bone metastasis and others. The following items
describe the significant clinical and regulatory events in the Exablate for Body Platform:



| | ● | In
                                         October 2015 InSightec informed us that the FDA approved InSightec's Exablate For Body
                                         Platform to treat symptomatic uterine fibroids and changed the labeling to allow consideration
                                         for women who desire to maintain fertility. The updated labeling specifies that ablation
                                         of uterine fibroid tissue can now be considered for women with symptomatic uterine fibroids,
                                         who desire to retain fertility and spare their uterus. InSightec estimates that such
                                         change in labeling provides younger women suffering from symptomatic fibroids access
                                         to a new, non-invasive treatment option that is safe, effective and keeps their uterus
                                         intact without compromising their existing ability to get pregnant. The approval is based
                                         on accumulated, documented clinical data on 118 patients’ pregnancies post Exablate
                                         MRgFUS treatments.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

| | ● | In
                                         October 2004, InSightec received FDA approval to market the ExAblate For Body Platform
                                         in the United States for the treatment of uterine fibroids, a type of benign tumor of
                                         the uterus. InSightec also has regulatory approval to market the ExAblate For Body Platform
                                         for the treatment of uterine fibroids in Israel, Canada, Russia, Brazil, Mexico, Korea,
                                         Taiwan, Australia, New Zealand, Singapore, Japan, China and the European Union Economic
                                         Area ("EEA"), as well as for the treatment of breast cancer in Korea. In February
                                         2013, the Clalit healthcare fund agreed to cover treatments executed at Sheba Medical
                                         Center using ExAblate For Body Platform technology to treat uterine fibroids.CE
                                         Marking
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

| | ● | In
                                         May 2007, InSightec received CE marking for the pain palliation of bone metastases. In
                                         October 2012 the U.S. FDA approved ExAblate For Body Platform to treat pain from bone
                                         metastases in patients who do not respond or cannot undergo radiation treatment for their
                                         pain. In July 2013 ExAblate For Body Platform also received an extended European CE Mark
                                         for the local treatment of cancerous and benign primary and secondary bone tumors. In
                                         August 2013 InSightec received the approval of the Health Canada Administration, and
                                         in November 2014 the approval of Japanese Ministry of Health, for the treatment for pain
                                         result from bone tumors.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



ExAblate
For Body Platform is currently the only non-invasive treatment for uterine fibroids approved for use in Japan. InSightec is also
in various stages of development and clinical research for the application of its MRgFUS technology to the treatment of other
types of benign and malignant tumors. These additional applications are being developed to take advantage of the modular design
of the ExAblate for Body Platform, which enables it to function as a common platform for multiple MRgFUS-based surgical applications.
Currently, InSightec has an installed base of more than 130 units in academic hospitals, community hospitals, MRI clinics and
physician-formed joint ventures. Currently, the ExAblate For Body Platform is operable only with certain MRI systems manufactured
by GE.



Distribution
and Marketing



InSightec's
main distribution channel is through GE, as a non-exclusive distributor. In addition, InSightec distributes and markets its products
directly and through the entering into distribution agreements with third parties. Distribution agreements are generally for a
term of between one and five years, with an option to extend the agreement based on the performance of the distributor. InSightec
has contracted with several non-exclusive distributors in Europe and Asia who market and sell its systems.



Business
Strategy



InSightec’s
strategic objective is to continue to expand its approved applications, as well as the product development efforts and clinical
studies for additional applications, particularly with respect to its neurological applications. If the results of its clinical
studies are positive, InSightec intends to pursue regulatory approval in the United States and other targeted jurisdictions to
market the ExAblate for these additional treatment applications.





36






In
addition, InSightec aims to become the market leader in MRgFUS systems and to achieve a significant improvement in the quality
and efficacy of the treatment while demonstrating cost effectiveness To achieve this goal, InSightec intends to pursue a number
of operating and growth strategies, which include:



| | ● | developing
                                         the ExAblate® Neuro, a unique system targeted at non-invasive treatment of brain
                                         tumors and central nervous system targets;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                         

| | ● | contemplating
                                         entering into a strategic cooperation with partners in the relevant markets;
| | - | -----------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                    

| | ● | develop
                                         a new surgical method that would enable non-invasive treatment in several clinical applications;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                  

| | ● | expand
                                         the marketing of the ExAblate to additional countries, such as the United States, Europe,
                                         Asia and Ukraine; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                         

| | ● | develop
                                         further applications to its existing systems, such that each purchased system will be
                                         used to treat a variety of diseases.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In
order to expand the marketing of its products, InSightec intends to cooperate with other international MRI scanner manufacturers
with which its systems are compatible. On April 18, 2016, we announced that we were informed by InSightec, that it signed
a Non-binding Letter of Intent (LOI) with an international manufacturer of MRI scanners to develop compatibility between InSightec’s
MRI guided Focused Ultrasound Systems (MRgFUS) and this manufacturer’s MRI scanners with the intention to expand the MRgFUS
market globally. The completion of the transaction outlined in the LOI is subject to signing and implementation of a definitive
agreement between the parties that include R&D and regulatory approvals. As of the date of this annual report, the timelines
of successful implementation are unclear.



Recent
investment rounds of Insightec



On
December 31, 2015, InSightec and some of its existing and new shareholders signed and executed an amendment to certain Series
D Preferred Share Purchase Agreement, dated June 26, 2014, as amended from time to time (the "Amendment to the Share Purchase
Agreement"), under which Insightec completed an investment of $22 million at a price of $1.94 per share, in consideration
for approximately 7.3% of InSightec's outstanding share capital, on a fully diluted basis. The terms and conditions of the investment
are the same as in the original Series D Preferred Share Purchase Agreement, based on the same pre-money valuation and subject
to certain adjustments.



As
part of the Amendment Share Purchase Agreement and the Sale Transaction, InSightec's articles of association and the GE Technology,
Co-Operation and Distribution Agreement of October 17, 2012 between InSightec and GE, as amended (the "Cooperation Agreement"),
were amended. The aforementioned amendments were approved by the meeting of the shareholders of InSightec on December 28, 2015.
The principal amendments to the articles of association of InSightec were: revocation of certain rights granted to GE in InSightec's
articles of association, including the right to appoint 2 director, so that GE shall have the right to appoint only 1 director;
one of the new Shareholders shall have the right to appoint 1 director; amending the Co-Sale right of a shareholder when a major
shareholder sells its shares. The principal amendments to the Cooperation Agreement which regulates the commercial relationship
between the parties, including, amongst other things, with respect to product exclusivity, cooperation with respect to the development
and sale of the parties' complementary products, distribution, marketing and sales, intellectual property rights and licenses,
sale terms and conditions, and similar items, were: InSightec will be appointed as a non-exclusive distributor for GEHC's MR Scanners
in order for InSightec to sell the scanners as an Integrated Therapy Platform (ITP) together with InSightec's products; revocation
of the right granted to GE to get royalties' payments from InSightec and extension of the term of the Cooperation Agreement to
5 years from the date hereof.



As
discussed under Item 5 “Operating and Financial Review and Prospects” below, on June 26, 2014 InSightec entered into
a Series D Preferred Share Purchase Agreement with York Global Finance II S.à r.l.,
a company owned by York Capital Management Global Advisers LLC and affiliated with York Global Finance Offshore BDH (Luxembourg)
S.à.r.l (for purposes of this item only, “York”), as amended on September 7, 2014, and on December 15,
2014, pursuant to which York and subsequent investors invested a total of $59 million in InSightec (the "Series D Transaction").
As discussed above, the Series D Transaction has since been amended.



In
addition, under the terms of the Series D Transaction, Elbit Medical had a right to invest a total amount of up to $3.5 million
in InSightec, in consideration for 1,804,433 Series D Preferred Shares, upon written notice to be submitted to InSightec not later
than May 31, 2015. York may purchase any Series D Preferred Shares not purchased by Elbit Medical under such right. As of the
date of this report, Elbit Medical did not exercise this right and the additional D shares were purchased by York.



The
Series D Transaction reflected a pre money valuation of InSightec of $200 million (on a fully diluted, as-converted basis). In
the event InSightec's aggregate revenues for 2014 and 2015 as reflected in its annual audited financial statements for such years
are less than $60,000,000, the Series D price per share will be adjusted proportionately and the investors in the InSightec Investment
Agreement shall be issued additional Series D Preferred Shares, provided, however, that the price per share shall not be reduced
by more than 8%. In March 2016, since Insightec had not reached the target revenues for the years 2014 and 2015 the original purchase
price of the Series D shares was reduced to $1.78 per share. Accordingly, InSightec allotted additional Series D shares to the
Series D investors as was agreed in the InSightec Investment Agreement.





37






Transactions
between InSightec's shareholders



As
part of the financing round concluded in December 31, 2015 General Electric company, Healthcare Division ("GE") and
the shareholders signed and executed an agreement for the sale of 20 million Preferred B and Preferred C Shares held by GE, which
constitutes approximately 13% of InSightec's issued and outstanding share capital (on a fully diluted basis after the closing
of the Amendment Share Purchase Agreement), at a price of $1.25 per share ("Sale Transaction"). Furthermore, GE granted
to the shareholders an option to purchase 7.5 million additional Preferred B and B1 Shares from GE, representing approximately
4.8% of InSightec's issued and outstanding share capital (on a fully diluted basis after the closing of the Amendment Share Purchase
Agreement) for the same price (collectively: the "Sold Shares"). The option is exercisable within one to two years following
the closing date of the transaction, subject to the conditions stipulated in the agreement.



On
March 31, 2015 GE signed and executed an agreement with York, other shareholders of InSightec and certain other purchasers (the
"InSightec Purchasers"), for the sale of 6 million Series C Preferred Shares of InSightec held by GE, which constitutes
approx. 4.2% of InSightec's issued and outstanding share capital on a fully diluted basis, at a price of $1.50 per share. Furthermore,
the agreement grants the Purchasers an option to purchase 12 million additional Series C Preferred Shares from GE, which represent
approx. 8.5% of InSightec's issued and outstanding share capital on a fully diluted basis, for the same price ($1.50) within one
year of the closing date of the transaction, subject to the conditions stipulated in the agreement (the " York Sale Transaction"),
and that the York Sale Transaction had been closed and consummated.



Gamida
Cell Ltd.



We
indirectly hold, through Elbit Medical, approximately 25.05% of the outstanding share capital (22.47% on a fully diluted basis)
of Gamida. Other shareholders of Gamida include Novartis Pharma AG (“Novartis”), Clal Biotechnology Industries, Israel
Healthcare Venture, Teva Pharmaceuticals, Amgen, Denali Ventures and Auriga Ventures.



Clinical
Development



Gamida’s
leading product, NiCord®, is in clinical development (Phase I/II) for potential use as a hematopoietic (blood) stem cell (HSC)
transplantation product in patients with hematological malignancies (blood cancer) such as leukemia and lymphoma.. HSC transplantation
from bone marrow (also called bone marrow transplantation) is currently the standard of care treatment for many of these patients,
but we believe there is a significant unmet need for patients who cannot rapidly find a fully matched bone marrow donor. NiCord
is derived from a unit of umbilical cord blood whose HSC have been expanded in culture using our NAM platform technology. Clinical
results obtained to date suggest that NiCord may effectively address this unmet need.



The
following items describe the significant clinical and regulatory events related to NiCord®:



| | ● | On
                                         December 7, 2015, Gamida announced that following the initial data analysis of 16 patients
                                         who were treated with NiCord® in the Phase I/II study for treating patients with
                                         hematological malignancies (leukemia or lymphoma), NiCord® demonstrated absorption
                                         in all patients and in an average timeframe of 10 days. This timeframe is significantly
                                         shorter than absorption timeframes reported in transplanted untreated cord blood, where
                                         reported absorption timeframes averaged 23-27 days. The clinical study demonstrated a
                                         positive drug safety profile, and proper rehabilitation of blood systems post-transplant.
                                         According to Gamida, final clinical results are expected during the second half of 2016.                                                                                                                                                                                                                                                                                                                                                                         
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |   | On
January 8, 2015, the first person was successfully transplanted with cryopreserved (frozen) NiCord® in Gamida's ongoing
Phase I/II clinical study for blood cancer patients. After thaw the cryopreserved product maintained the advantage of NiCord®
in demonstrating very rapid engraftment (white blood cell recovery). Gamida expects that this rapid engraftment will reduce the
risk of opportunistic infections, will lower the morbidity associated with cord blood transplantation and shorten hospitalization.
On January 2014, orphan drug designation has been granted to NiCord® by The US Department of Health and Human Services, The
FDA Office of Orphan Products Development, for treatment of several medical conditions. The Orphan Drug Act of 1983, or Orphan
Drug Act, encourages manufacturers to seek approval of products intended to treat “rare diseases and conditions” with
a prevalence of fewer than 200,000 patients in the U.S. or for which there is no reasonable expectation of recovering the development
costs for the product. For products that receive Orphan Drug designation by the FDA, the Orphan Drug Act provides tax credits
for clinical research, FDA assistance with protocol design, eligibility for FDA grants to fund clinical studies, waiver of the
FDA application fee, and a period of seven years of marketing exclusivity for the product following FDA marketing approval.





38






| | ● | On
                                         February 14, 2013 Gamida announced successful results of NiCord’s Phase I/II study
                                         for treating patients with hematological malignancies. An additional Phase I/II clinical
                                         study with respect to patients suffering of SCD is ongoing. On September 9, 2013 Gamida
                                         announced the successful transplantation of the first patient in Gamida's Phase I/II
                                         study of NiCord using a single unit of cord blood. Additional indications and products
                                         are in development for cancer, genetic l diseases, immune therapy for cancer and refractory
                                         autoimmune diseases.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Gamida's
is also in clinical development (Phase I/II) of Cordin which uses technology based on NAM molecules for treatment through transplantation
of enriched umbilical blood in stem cells for patients with non-cancerous blood diseases such as SCD, thalassemia, and serious
metabolic genetic diseases and serious autoimmune diseases. As of March 31, 2016 Cordin is in a Phase I/II clinical study which
is transplanted along with untreated umbilical blood. Gamida expects, during 2016, to recruit patients for an additional Phase
I/II study with transplantation of Cordin only.



Recent
transactions in Gamida's shares.



On
October 12, 2015 we announced that Gamida entered into agreements with Novartis according to which Novartis will invest in Gamida
an immediate amount of $5 million, in return for approximately 2.5% of Gamida on a fully diluted basis. For further discussion,
see “Item 5. Operating and Financial Review and Prospects – Overview - 2015”.



In
September 2, 2014, Novartis invested $35 million in Gamida in exchange for approximately 15% of Gamida’s share capital and
an option to purchase the holdings of the other shareholders in Gamida, including Elbit Medical's holdings, which Novartis did
not exercise. For further discussion, see “Item 5. Operating and Financial Review and Prospects – Overview - 2015”.



Plots
in India



Joint
Venture with PC in respect of Plots in India



Our
plots in India are partially owned by our subsidiary, Elbit Plaza India Real Estate Holdings Limited, or EPI, and by local Indian
partners. EPI is held 47.5% directly by us and 47.5% by our subsidiary PC.



EPI
holds two plots in India (in Bangalore and Chennai) in conjunction with local Indian partners,



Business
concept and strategy





Our
business concept and strategy in respect of our plots in India is to sell the plots to third parties under the most optimal commercial
conditions. Alternatively, we may want to achieve the minimal development threshold under the respective FDI legislation that
will allow us to dispose of the land.Such sale will be executed depending on market conditions and certain regulatory requirements
under applicable law in the respective countries. During the period until the execution of the sale we intend to hold these plots
in their current state without investment of significant financial and managerial resources.



Additional
information in respect of the Chennai Project



In
December 2007, EPI executed agreements for the establishment of a special purpose vehicle (“Chennai Project SPV”)
together with a local developer in Chennai (“Local Partner”). The Chennai Project SPV acquired 74.3 acres of land
situated in the Sipcot Hi-Tech Park in Siruseri District in Chennai, India in consideration of a total of INR 2,367 million (NIS
138 million) (EPI share). In addition, as of December 31, 2015, EPI paid advances in the amount of INR 564 million (NIS 33 million)
in order to secure acquisition of an additional 8.4 acres. EPI holds 80% of the equity and voting rights in the Chennai Project
SPV, while the Local Partner holds the remaining 20%.



The
Chennai Project was designated at the end of 2014 as project for development. During 2015, due to changes in the Group's activities
and objectives, management has decided not to develop the Chennai project but rather to dispose it in its current situation. In
this respect, on September 16, 2015EPI has obtained a backstop commitment for the purchase of Chennai, India Scheme. EPI which
has been in discussions regarding the sale of Chennai Project SPV, has obtained a commitment that, subject to the fulfilment of
certain conditions precedent, the sale transaction will be completed by 15th of January 2016 (the “Long Stop Date”)
for the consideration of approximately INR 162.7 Crores ($25 million), net of all transaction related costs. If completion does
not take place by the Long Stop Date, then EPI’s stake in the Chennai Project SPV will be increased to 100%. On January
15, 2016 we announced that the local Indian partner (the “Partner”) failed to complete the transaction by the Long
Stop Date, and that EPI shall exercise its right to get the Partner’s 20% holdings in the Channai Project SPV.





39






Additional
information in respect of Bangalore project



In
March, 2008 EPI entered into an amended and reinstated share subscription and framework agreement (the "Amended Framework
Agreement"), with a third party (the "Partner"), and a wholly owned Indian subsidiary of EPI which was designated
for this purpose ("SPV"), to acquire, through the SPV, up to 440 acres of land in Bangalore, India (the "Project")
in certain phases as set forth in the Amended Framework Agreement. As of December 31, 2015, the Partner has surrendered land title
deeds to the SPV for approximately 54 acres for a total aggregate consideration of approximately INR 2,843 million (NIS 167 million).
Upon the actual transfer of title of such 54 acres, the Partner will be entitled to receive 50% of the shareholdings in the SPV.
In addition, the SPV has paid to the Partner advances of approximately INR 2,536 million (NIS 149 million) on account of future
acquisitions by the SPV of a further 51.6 acres.



On
December 2, 2015 EPI has signed an agreement to sell 100% of its interest in the SPV to the Partner. The total consideration for
the sale upon completion of the transaction is INR 3,210 million (approximately NIS188 million) which will be paid at transaction
closing. The transaction is subject to certain conditions precedent, and closing will take place once these conditions are met
and no later than 30 September 2016. The Partner has provided certain security in order to guarantee the aforementioned deadline.



Additional
information in respect of the Kochi project



The
Company has rights under certain share subscription agreement to hold 50% shareholding in Indian SPV ("Project SPV").
The Project SPV has entered into an agreement for the purchase of a land located in Kochi, India according to which it has acquired
13 acres ("Property A") for a total consideration of INR 1,495 million (NIS 84 million) payable subject to fulfillment
of certain obligations and conditions by the seller. Up to the balance sheet date the Project SPV has paid INR718 million (NIS40
million) to the seller in consideration for the transfer of title in Property A to the Project SPV. Our share in such acquisition
amount to approximately NIS 20 million.



On
January 15, 2016, the Company has signed an agreement to waive any of its rights and interest in the Project SPV. The total consideration
for the Company is INR 10 Crores (approximately €1.4 million), which will be paid to the Company upon the closing of the
transaction.



Revenues
classified by geographical markets and by business segments



The
following table sets forth our breakdown of revenues by each geographic market in which we operate, for each of the last three
years (in NIS thousands):



|                           |  | 2015 |         |  | 2014 |  |         | 2013 |  |  | Convenience Translation in U.S. Dollars for 2015 |  
|-------------------------- |  | ---- | ------- |  | ---- |  | ------- | ---- |  |  | ------------------------------------------------ | -
|                           |  |      |         |  |      |  |         |      |  |  |                                                  |  
|Western Europe             |  |      | 27,743  |  |      |  | 72,537  |      |  |  | 90,470                                           |  
|Central and Eastern Europe |  |      | 253,774 |  |      |  | 435,355 |      |  |  | 269,896                                          |  
|India                      |  |      | 150,296 |  |      |  | 4,348   |      |  |  | 3,227                                            |  
|Other and Allocations      |  |      | 6,712   |  |      |  | 11,301  |      |  |  | (22,440                                          | )
|Total Revenues             |  |      | 438,525 |  |      |  | 523,540 |      |  |  | 341,153                                          |  





40






The
following table sets forth our breakdown of revenue by business segments for each of the last three years (in NIS thousands):





|                                     |  | 2015 |         |   | 2014 |  |          | 2013 |  |  | Convenience Translation in U.S. Dollars for 2015 |  
|------------------------------------ |  | ---- | ------- | - | ---- |  | -------- | ---- |  |  | ------------------------------------------------ | -
|                                     |  |      |         |   |      |  |          |      |  |  |                                                  |  
|Commercial and Entertainment Centers |  |      | 309,302 |   |      |  | 341,937  |      |  |  | 162,639                                          |  
|Hotels                               |  |      | 147,886 |   |      |  | 197,007  |      |  |  | 202,791                                          |  
|Medical Companies*                   |  |      | 69,432  |   |      |  | 92,026   |      |  |  | 74,670                                           |  
|Plots in India                       |  |      | -       |   |      |  |          |      |  |  | -                                                |  
|Other and Allocations*               |  |      | (88,095 | ) |      |  | (107,430 | )    |  |  | (98,948                                          | )
|Total                                |  |      | 438,525 |   |      |  | 523,540  |      |  |  | 341,153                                          |  



*Following
our loss of control of InSightec during 2012 revenues were classified to discontinued operations.



**
Other and Allocations includes equity method adjustments to eliminate revenues of our equity method investments that are reviewed
on a full basis. See note 19 to our financial statements.



Seasonality



Radisson
Blu Complex



The
business activities of our Radisson Blu Complex is influenced by several factors that affect our revenues and gross operating
profit. These factors include (i) fluctuations in business activity in certain seasons, which affects the volume of traffic in
the business community, (ii) holiday seasons, such as Christmas and Easter and (iii) weather conditions. These factors generally
cause the first and third quarters to be weaker than the second and fourth quarters.



The
first quarter, which is the period immediately following the Christmas season and the height of the European winter, is traditionally
characterized by lower revenues and gross operating profit resulting from lower occupancy rates and reduced room rates. During
the third quarter, there is generally a decrease in local business activities due to the summer holidays, which, together with
a tendency for local tourist traffic to seek out resort destinations, also generates slower results. This is offset somewhat by
increase in international tourism, but the impact of this increase is, in turn, offset by lower room rates, particularly for groups.



However,
during the second quarter, there is generally a marked increase due to more favorable weather conditions (spring to early summer),
the Easter holiday and the corresponding revival of both business and tourist activity. The fourth quarter is usually the strongest
period due to increased business in October and November, the Christmas and New Year’s holiday season and a significant
year-end increase in business activities.



Commercial
Centers



The
commercial center business is, to some extent, seasonal in nature. Tenants typically achieve their highest levels of sales during
the fourth quarter due to the holiday season, which generally results in a higher percentage rent income for PC in the fourth
quarter. Additionally, shopping and entertainment centers earn most of their ‘‘temporary’’ rental income
(income from short-term tenants) during the same holiday period. As a result, occupancy levels and revenue production are generally
the highest in the fourth quarter of each year. Results of operations realized in any one quarter may not be indicative of the
results likely to be experienced over the course of PC’s fiscal year.



Patents
and Proprietary Rights; Licenses



PC
is the registered owner of a European Community trademark “Plaza Centers + figures.” The trademark is also registered
in India.



Pursuant
to our agreements with Rezidor, our hotel is managed under the name: “Radisson Blu”. We have also registered our CenterVille
operations as a trademark in Romania. In November 2010 we entered into an agreement with Rezidor pursuant to which the CenterVille
apartment hotel, now known as the ApartHotel, which is located next to the Radisson Blu Bucharest Hotel, will be managed by Rezidor
so that both hotels will be operated as one complex, under the “Radisson Blu” brand. We still utilize the trade mark
of CenterVille in connection with the ApartHotel.



InSightec’s
intellectual property includes ownership of 131 patents. In addition, InSightec has submitted 48 patent applications, which remain
pending and in process. InSightec has registered trademarks for “ExAblate,” ExAblate 2000” and “InSightec”
in the United States, European Union, Canada and Israel.



As
of March 15, 2016, Gamida's patent portfolio is comprised of 16 issued U.S. patents, 21 issued non-U.S. patents, 4 pending U.S.
patent applications, 17 pending non-U.S. patent applications, and 0 pending patent applications under the Patent Cooperation Treaty.





41






Competition



Commercial
centers



We
have been active in emerging markets since 1996, when we opened the first western-style commercial center in Hungary and began
to implement our vision of offering western-style retail facilities to a growing middle class and an increasingly affluent consumer
base. Over the past 20 years, we have expanded our operations in Central Europe and eastward into Poland, Greece, the Czech Republic,
Latvia, Serbia, Romania, Bulgaria and India, and have proven our ability to anticipate and adapt to market trends and deliver
innovative large-scale projects.



We
have a number of competitors in CEE countries in which we operate or intend to operate in the commercial centers business, particularly
in the larger capital cities. The following factors, however, should be noted:



| | ● | shopping
                                         centers which are not in close proximity and which do not draw their clientele from the
                                         same population areas are not considered competitive;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                         

| | ● | we
                                         believe that even if large retail centers (known as "power centers") compete
                                         with our centers directly merely by virtue of their proximity to our commercial centers,
                                         are at a disadvantage because they do not offer the entertainment facilities that are
                                         offered at our commercial centers, and which we consider to be a significant element
                                         in the attraction of our patrons. These power centers also lack a wide range of services
                                         and common areas; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

| | ● | in
                                         the regional cities of our targeted countries, competitive activity is more limited.
                                         In these cities, we compete with traditional shopping outlets. These outlets lack the
                                         added benefit of the entertainment activities that our centers offer and, accordingly,
                                         we believe that they have difficulty competing with us.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In
addition to several ad hoc entrepreneurial projects, there are a number of significant groups operating commercial centers in
CEE with whom we compete directly, namely Globe Trade Centre SA, ECE Projekt Management GmbH TriGranit Holding Limited, NEPI and
Atrium European Real Estate. We compete with these chains, and with other developers, in the pre-development stage, in the cost
of acquisition of such sites, in the development stage (in retaining suitably qualified architects, consultants and contractors),
in receiving financing and in the operational stage, if the centers compete for the patronage of the same population. We also
compete for quality “brand name” tenants to occupy rental units. In locations where competing centers are being constructed
simultaneously, the first center to open generally enjoys an advantage over its competitor, which is the reason behind our emphasis
on the expeditious completion of construction operations.



Radisson
Blu Complex



Our
Radisson Blu Bucharest Hotel is rated a five-star luxury hotel and our Park Inn hotel is rated a four-star hotel.

Each
of our hotels competes with other hotels in its geographic area for clientele. We compete with other facilities on various bases,
including room prices, quality, service, location, reservation service, marketing tools and amenities customarily offered to the
traveling public. Levels of demand are dependent upon many factors, including general and local economic conditions and changes
in levels of tourism and business-related travel. Our hotels depend upon both business and tourist travelers for revenues.



We
believe that our hotels nevertheless offer quality and value for competitive prices. In addition, our cooperation with Rezidor,
using the Radisson Blu brand assists us in gaining recognition.



Medical
Companies – InSightec



Competition
to MRgFUS treatments includes traditional surgical modalities, minimally invasive surgery, and competing image guided high intensity
focused ultrasound (HIFU) systems.



Minimally
invasive procedures involving tissue ablation methods include radiofrequency ablation where electromagnetic energy is inserted
into the body with a special needle, microwave ablation, laser, cryoablation which ablates tissue through freezing, embolization
of the blood vessels, and irreversible electroporation, are potential competitors of InSightec. Depending upon the medical indication
treated, these methods may have regulatory approval in various geographies, including CE marking in Europe and FDA approval in
the US.



InSightec
faces competition from both traditional and minimally invasive treatments of uterine fibroids and the other medical conditions
that InSightec has targeted for its future applications. Traditional treatment methods for uterine fibroids and other medical
conditions that InSightec has targeted for product development are more established, accepted and practiced widely among physicians,
and reimbursed by healthcare insurance. Competitive treatments for uterine fibroids, which are approved by the FDA and CE marked
include hysterectomy, myomectomy, radiofrequency ablation, cryotherapy, and uterine artery embolization. Competitive treatments
for bone metastases include external beam radiation therapy, radio frequency, cryoablation and microwave ablation. Similarly for
medical procedures that are under investigation by InSightec there are a number of competitive treatment modalities.





42






In
recent years, GE’s main competitors in magnetic resonance imaging, Philips and Siemens, have developed MRgFUS devices; Philips
has designed and manufactures its own system, Sonalleve, whereas Siemens has partnered with Chongqing Haifu, a Chinese manufacturer
of therapeutic ultrasound systems, a partnership that has since dissolved. In 2010 Philips announced that their MRgHIFU Sonalleve
device for treatment of uterine fibroids received CE Mark and is available commercially in Europe and other countries that recognize
the CE regulation. In 2011 ECR Philips also announced that Sonalleve has been cleared for treating painful bone metastases. Some
sites are participating in an FDA Phase III study for the treatment of uterine fibroids ; the study is currently on hold as Philips
is unable to recruit patients in the US (due to a specific endpoint measurement that the FDA requires) Until now only 20 out of
120 patients were recruited. They are also conducting a clinical trial for CFDA approval in China. This validates the uterine
fibroid application for which InSightec’s ExAblate received FDA approval in 2004. There are several ultrasound-guided HIFU
approved in China, including Chongqing. According to recent publications more than 10,000 UF treatments were performed in China
using these systems. Treatments however are limited to relatively small fibroids, and reports regarding the safety of the procedures
significantly vary between less than 1% and more than 28% serious complications. At present, to our knowledge, the Chinese ULSgFUS
companies have focused their marketing efforts in Asia.



In
2008, YDME (US-guided HIFU system) received FDA IDE to start a phase I pancreatic cancer study in the United States but terminated
that study due to its own financial reasons.



Two
US-guided systems for treatment of prostate cancer, Ablatherm (EDAP TMS) and Sonablate (SonaCare Medical) have registered a CE
Mark. Recently SonaCare succeeded the changing the category of their device into category II, and approved the Sonablate for treatment
of prostate tissue..



In
the area of treating brain disorders (tremor, tumors, CNS, stroke, mediated drug delivery) using MRgFUS, InSightec faces potential
competition from the French company Supersonic Imagine. The company has been developing a product similar in capabilities to InSightec’s
ExAblate Neuro device. The Supersonic Imagine device is still in a pre-clinical development stage.



Medical
Companies – Gamida



NiCord
may face indirect competition from other pharmaceutical and biotechnology companies that develop products for the treatment of
the diseases that we target. If these therapies are successful in curing these diseases, they may reduce the number of patients
undergoing hematopoietic (blood) stem cell transplantation (HSCT) procedures.



HSCT
from cord blood in general may face additional competition from haplo-identical peripheral blood transplantation, another therapeutic
approach currently being studied. This approach uses blood from a non-matched family related donor and is not currently regulated
by the FDA. Companies like MolMed S.p.A. and Kiadis Pharma B.V. are developing technologies aiming to improve the clinical outcomes
of haplo-identical transplantation.



Other
companies are developing clinical-stage technologies that aim to improve the clinical outcomes of HSCT from cord blood by expanding
HSCT from cord blood. These companies include Mesoblast Limited, Fate Therapeutics, Cellerant Therapeutics, and Novartis International
AG.



In
addition, the bio-medical field is characterized by rapid development and massive research and development activities, having
potential for direct or non-direct competition resulting from the discovery or development of more advanced, efficient or cost-effective
treatments or technologies by third parties providing better solutions to the same diseases, while making InSightec’s (or
Gamida's) technologies or solutions inferior, obsolete or irrelevant. Such occurrence could adversely impact InSightec’s
(and Gamida's) future business and financial performance.



Governmental
Regulation



Commercial
centers





The
development, construction and operation of commercial centers are subject to various regulatory controls, which vary according
to the country of activity. Some countries require that a developer provide an environmental report for the land before building
permit applications are considered, while in other countries we usually have direct contact with the local authorities to receive
basic information on environmental issues. In certain European countries, antitrust permits must be obtained before a foreign
investor is allowed to acquire shares of a local entity. In most Eastern European countries, construction work may only begin
after the lapse of the objection period provided for third parties whose interests may be affected by such permits, at which time
the contestation permit becomes final. If restitution claims made by former land owners in respect of project sites are upheld,
these claims can jeopardize the integrity of title to the land and the ability to develop the land. Generally, construction must
commence within a specified period following issuance of the permit, otherwise, the construction permit may expire.





43






Generally,
the approval process for construction projects requires compliance with local zoning plans which state the conditions for construction
and development and the designated permitted uses for the property. After review by the relevant authorities to verify that the
developer complies with the local zoning plan, the developer must apply for a building permit, which includes the building design,
permits, utility plans, surveys, environmental reports and any other documentation required by applicable law. Construction may
commence upon receipt of a final valid building permit. Building permits are usually limited in time, and if construction does
not commence before the expiration of the building permit, a developer will have to obtain a new building permit prior to construction.
After completion, finished buildings are subject to operational inspection by applicable authorities such as environmental, sanitation,
labor, utility and fire authorities. Once all approvals are obtained, an occupancy permit can be obtained for the building.



Some
countries, like Serbia, may regulate or require governmental approval for the repatriation of investment income, capital or the
proceeds of sales of securities by foreign investors. In addition, if there is a deterioration in a country’s balance of
payments or for other reasons, a country may impose temporary restrictions on foreign capital remittances abroad. Any such restrictions
may adversely affect PC’s ability to repatriate investment loans or to remit dividends. Many emerging countries have experienced
substantial, and in some periods extremely high, rates of inflation for many years. Inflation and rapid fluctuations in inflation
rates have had and may continue to have negative effects on the economies and securities markets of certain emerging countries.



There
is an increasing awareness of environmental issues in CEE. This may be of critical importance in areas where soil pollution may
be prevalent. If findings determine that a property that we acquire is polluted, such a finding will adversely affect our ability
to construct, develop and operate a commercial center, a hotel or a residential project on such property.Thismay have a significant impact on development budget and schedules and mayhave a detrimental effect on the
viability or marketability of the development or cause legal liability in connection with a portfolio asset. We may be liable
for the costs of removal, investigation or remedy of hazardous or toxic substances located on or in a site owned or leased by
us, regardless of whether we were responsible for the presence of such hazardous or toxic substances. The costs of any required
removal, investigation or remedy of such substances may be substantial and/or may result in significant budget overruns and critical
delays in construction schedules. The presence of such substances, or the failure to remedy such substances properly, may also
adversely affect our ability to sell or lease such property or to obtain financing using the applicable property as a security.



Plots
in India



FDI
in the construction development sector is subject to certain conditions under the FDI Policy. Under the FDI Policy, FDI is allowed
up to 100% under the automatic route into construction-development projects (which includes development of townships, construction
of residential/ commercial premises, roads or bridges, hotels, resorts, hospitals, educational institutions, recreational facilities,
city and regional level infrastructure), subject to restrictions pertaining, inter alia, to the following matters: (a) the investor
will be permitted to exit on the earlier of (i)
completion of the project, (ii) development of trunk infrastructure, i.e. roads, water
supply, street lighting, drainage and sewerage, or (iii) expiry of 3 years (lock-in period);
(b) project completion schedule; (c) conformance with local laws and applicable standards; (d) obtaining necessary approvals;
(e) supervision by the state government/municipal/local body concerned and (f) ability to sell only developed plots (developed
plots has been defined to mean plots where trunk infrastructure i.e. roads, water supply, street lighting, drainage and sewerage
has been made available. Certain conditions are relaxed to not apply to hotels and tourist resorts, hospitals, special economic
zones, educational institutions, old age homes and investment by NRIs or where the companies commit at least 30% of the total
project cost for low cost affordable housing, (which have also been defined and detailed in the policy).



With
the revised policy norms as above becoming effective, even prior investments will now be governed by the revised norms.



100%
FDI under the automatic route is also permitted in completed projects for operation and management of townships, malls/ shopping
complexes and business centers.



Under
the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000, we cannot acquire
any agricultural land without a prior approval of the Reserve Bank of India (“RBI”) and proposals relating to acquisition
of agricultural land are considered in consultation with the Government of India, and such approval process can be time consuming.



Due
to the urbanization process in India, former agricultural lands and villages were merged into expanding urban areas, and as a
result, those lands and the buildings that were built on them became subject to various municipal regimes, some of which were
legislated by municipal authorities that no longer exist. As a result, in certain locations throughout India, it is very difficult
to initiate rezoning activities and/or obtain building permits from the currently governing municipal authorities, with respect
to lands and buildings that were handled by the former municipal authorities. Those problems are being solved either by specific
legislation or by other solutions, such as municipal tax assessments that define the new land usage. The solutions may vary from
state to state within India. There is no assurance that those solutions will be validated by future legislations or recognized
by the respective authorities, at any time in the future.





44






Certain
commercial center projects, as well as our other projects in India, are being carried out through joint ventures with Indian partners.
The RBI has from time to time, amended certain provisions under the Foreign Exchange Management (Transfer or Issue of Security
by a Person Resident Outside India) Regulations (2000), relating to the pricing norms for issuance of shares by an Indian company
to persons residing outside India. These regulations include provisions stipulating that the shares of an unlisted company have
to be issued at a price not less than the fair valuation of the shares (arrived at by adopting an international pricing methodology),
in case of issuance on preferential allotment, and such issue price cannot be less than the relevant price. Also, in case of transfer
of shares of an unlisted company from resident to non-resident, the relevant price will serve as the minimum price payable by
the non-resident to the resident. In the case of transfer of shares of an unlisted company from a non-resident to a resident,
the relevant price will serve as the maximum price payable by the resident to the non-resident. Furthermore, certain provisions
of the Companies Act, 2013 have also recently been amended, which pertain to compliance by Indian companies in relation to the
issue and allotment of shares on rights or preferential basis. These provisions include a new requirement of obtaining a valuation
report from a registered value agency where shares are to be issued on a preferential basis.



Radisson
Blu complex



The
development, construction and operation of hotels and leisure facilities, including advertising tariffs, health and safety issues,
environmental regulations, activities conducted within the premises of the hotels (such as restaurants, bars, shops, health clubs,
and in particular the sale of alcohol, food and beverage to the public), installations and systems operating within the hotel
(elevators, sprinkler systems, sanitation, fire department etc.), terms of employing personnel, as well as methods of rating the
hotels, are all subject to various regulatory controls.



In
Romania, the operation of hotels requires licenses for the operation of the building as a hotel and the obtaining of local municipal
and police approvals for the means of access to and egress from the hotel for motor vehicles. In addition, we are required to
obtain licenses for the sale of alcohol on the premises and the operation of a restaurant and tourism services. We are also required
to comply with regulations regarding food, hygiene, the operation and maintenance of the swimming pool, casino, elevators, health,
sanitation, electricity and fire hazards prevention.



Hotels
are required to have a fire protection authorization (including the specific technical documentation) to be obtained and maintained
in accordance with applicable law, such as, fire safety scenarios and identification and assessment of fire risks.



In
addition, we are required to comply with various Romanian labor regulations, in particular working hour regulations and overtime.
Romanian labor legislation has a mandated minimum wage. Also, the aggregate obligations companies may incur as a result of the
termination of employees cannot be predicted.



Medical
Companies



InSightec



The
testing, manufacture and sale of InSightec’s products are subject to regulation by numerous governmental authorities, principally
the FDA, the EEC, and corresponding state and foreign regulatory agencies.



The
U.S. Safe Medical Devices Act of 1990 (the “SMDA”) includes various provisions which are applicable to each of the
existing products of InSightec and may result in the pre-market approval process (a process whereby the FDA approves high risk
or a new system that has no predicate devices that have been approved in the past) for such products becoming lengthier and more
costly. Under the SMDA, the FDA can impose new special controls on medical products. These include the promulgation of performance
standards, post-market surveillance requirements, patient registries, and the development and dissemination of guidelines and
other actions as the FDA may deem necessary to provide reasonable assurance and effectiveness.



In
June 1993, directive 93/42/EEC for medical devices was adopted by the EEC. In June 1998, this directive replaced the local regulation
and ensured free transfer of qualified medical equipment among member states. Medical devices that meet the established standards,
receive certification represented by the symbol “CE”. There are two types of certifications that are granted: (1)
general certification of a company and (2) CE certification for a specific product. InSightec decided to comply with Medical Device
Directive 93/42/EEC ("MDD") and with the international standard ISO 13485 entitled “Medical Devices - Quality
management systems - requirements for regulatory purposes”. InSightec obtained a certification of compliance with the standard
in May 2001, and is subject to annual audits by the European Notified Body to renew the certification in accordance with all applicable
updates of the standard and the MDD.





45






The
Japanese MHLW (Ministry of Health, Labor, and Welfare) with JPAL (Japan Pharmaceutical Affairs Law) also requires company registration
and a device license. InSightec obtained a device license in September 2009. In Japan the ExAblate is classified as class 4 (highest
risk category) and as such it is highly regulated.



The
Chinese CFDA requires the ExAblate to be registered as high risk as well under the relevant regulatory orders. ExAblate has been
registered in the Chinese CFDA since July 2013.



Gamida



In
the United States, the FDA regulates biological products under the Federal Food, Drug, and Cosmetic Act, or FDCA, and the Public
Health Service Act, or PHS Act, and related regulations. Biological products are also subject to other U.S. federal, state, and
local statutes and regulations, as well as non-U.S. statutes and regulations. The FDA and comparable regulatory agencies in state
and local jurisdictions and in countries outside the United States impose substantial requirements upon the clinical development,
manufacture and marketing of biological products. These agencies regulate research and development activities and the testing,
manufacture, quality control, safety, effectiveness, packaging, labeling, storage, distribution, record keeping, reporting, approval,
advertising and promotion of our products. These requirements and regulations vary from country to country. Failure to comply
with the applicable regulatory requirements at any time during the product development process, including during clinical testing,
during the approval process, or after approval, in Israel, the United States and any other country in which Gamida conducts its
operations or sells its products may subject us to administrative or judicial sanctions.



Government
regulation may delay or prevent marketing of product candidates for a considerable period of time and impose costly procedures
upon Gamida’s activities. The testing and approval process requires substantial time, effort, and financial resources, and
Gamida cannot be certain that the FDA or any other regulatory agency will grant approvals for NiCord, CordIn, Gamida’s NK
cell product, or any future product candidates on a timely basis, if at all. The FDA’s policies and the policies of comparable
regulatory authorities in other countries may change and additional government regulations may be enacted that could prevent or
delay regulatory approval of Gamida’s current product candidates or any future product candidates or approval of new disease
indications or label changes. We cannot predict the likelihood, nature or extent of adverse governmental regulation that might
arise from future legislative, judicial, or administrative action, either in the United States or elsewhere.



|C. | ORGANIZATIONAL
    STRUCTURE
|-- | ----------------------------



Our
significant subsidiaries and companies in which we have a significant interest as of the date of this annual report are as follows:



|NAME
    OF COMPANY                                |  | COUNTRY
    OF ORGANIZATION       |  | DIRECT/INDIRECT
    OWNERSHIP PERCENTAGE |     
|-------------------------------------------------- |  | --------------------------------- |  | ---------------------------------------- | ----
|Plaza
    Centers N.V.                             |  | The
    Netherlands               |  |                                          | 44.9
|Elscint
    Holdings & Investment N.V.             |  | The
    Netherlands               |  |                                          | 100 
|Elbit
    Medical Technologies Ltd.                |  | Israel                            |  |                                          | 89.9
|Elbit
    Plaza India Real Estate Holdings Limited |  | Cyprus                            |  |                                          | 50  
|Elbit
    Ultrasound (Luxemburg) B.V./S.a r.l.     |  | The
    Netherlands and Luxemburg |  |                                          | 100 










| | (1) | Approximately
                                         42.7% on a fully diluted basis.
| | --- | --------------------------------------------------------------------------------------

| | (2) | Approximately
                                         86.2% on a fully diluted basis.
| | --- | --------------------------------------------------------------------------------------

| | (3) | We
                                         hold 47.5% of the shares in EPI directly, and an additional 47.5% through PC. For additional
                                         information as to the joint venture signed between us and PC regarding EPI, see “Item
                                         4.B Business Overview - Plots in India.”
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | 5%
                                         of the equity in EPI was allotted to Mr. Avraham ( Rami) Goren who served as our former
                                         Executive vice chairman of the Board. The shares allotted are entitled to distribution
                                         only following their return of Investment of Elbit and PC plus agreed expenses.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|D. | PROPERTY,
    PLANTS AND EQUIPMENT
|-- | ----------------------------------



Our
operational portfolio consists of various freeholds, leaseholds and other tangible assets. For details as to such real estate
portfolio, see “Item 4.B Business Overview.” Below we present information regarding certain tangible fixed assets
including leasehold properties that do not form part of our operational portfolio, but rather serve as basis for our and our subsidiaries’
offices and management, as of March 31, 2016.



On
May 13, 2015 we signed a lease agreement for approximately 300 square meters of space, including storage area and parking
spaces, for management and administrative purposes in an office building in Petach Tikva, Israel. The annual aggregate rental
fee (including management fees and index linkage pursuant to the lease agreement, and excluding VAT) to be paid by us will be
approximately NIS 430,000 (approximately $111,000) on an annual basis.





46






PC’s
headquarters are located in an office building located on Andrassy Boulevard, Budapest, Hungary. The building is located on an
800 square meterplot and consists of four floors, an atrium and a basement, with a total built area of approximately
2,000 square meters.



On
June 29, 2015 Elbit Plaza India Management Services Pvt. Ltd. signed a lease agreement for approximately 70 square meters of office
space in Bangalore, Karnataka, India, for its management and administration activities. The term of the lease is until June 14,
2016, thereafter renewable by mutual consent of both parties. The annual lease payments payable by Elbit Plaza India Management
Services Pvt. Ltd. is INR 2,40,000 (approximately $3,582), with an annual increase in the monthly rental fees of 10%.



|ITEM 4A. | UNRESOLVED STAFF COMMENTS.
|-------- | --------------------------



Not
applicable.



|ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS.
|------- | ---------------------------------------------



Overview



We
operate primarily in the following principal fields of business:



| | ● | Commercial
    Centers - Initiation, construction and sale of commercial centers and other mixed-use real property projects, predominantly
    in the retail sector, located in Central and Eastern Europe and in India, primarily through Plaza Centers N.V. ("PC"),
    of which we own approximately 44.9% of its share capital. In certain circumstances and depending on market conditions, we
    operate and manage commercial centers prior to their sale;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Hotels- Operation and management of our Radisson Complex in Bucharest, Romania;
| | - | -------------------------------------------------------------------------------



| | ● | Medical
    Industries - Through our investee entities, we engage in (a) research and development, production and marketing of magnetic
    resonance imaging guided focused ultrasound treatment equipment and (b) development of stem cell population expansion technologies
    and stem cell therapy products for transplantation and regenerative medicine; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Plots
    in India - Sale of plots in India which were initially designated as residential projects.
| | - | ----------------------------------------------------------------------------------------------------



On
January 5, 2015, we completed the sale of all of our fashion apparel operations. Accordingly, this operation is presented in our
annual consolidated financial statements appearing elsewhere in this report as discontinued operations.



Our
revenues from the sale of real estate and trading property are subject to the execution and consummation of sale agreements with
potential purchasers. In periods when we consummate a sale of a real estate asset we record revenues in substantial amounts and
as a result we may experience significant fluctuations in our annual and quarterly results. We believe that period-to-period comparisons
of our historical results of operations may not necessarily be meaningful or indicative and that investors should not rely on
them as a basis for future performance.



Our
functional currency is NIS. Our consolidated financial statements are also presented in NIS. Since our revenues and expenses are
recorded in various currencies, our results of operations are affected by several inter-related factors, including the fluctuations
of the NIS compared to other currencies at the time we prepare our financial statements.



Financial
data included in this discussion were derived from our consolidated financial statements and the analysis herein is based on our
general accounting records and published statistical data. Such financial data have been rounded to the nearest thousand or million.
Unless otherwise indicated, we have translated NIS amounts into U.S. dollars at an exchange rate of NIS 3.902 to $1.00, the representative
exchange rate on December 31, 2015, and we have translated Euro amounts into U.S. Dollars and NIS at the respective exchange rates
of $1.09 to €1.00 and NIS 4.247 to €1.00, the representative exchange rates on December 31, 2015.



The
following activities affected our operational results for 2013, 2014, 2015 and 2016 (to date) and may continue to affect our operational
results and cash flow in the coming years.



2016



| | ● | On
    March 31, 2016 we announced following PC's announcement that it has completed the sale of its subsidiary holding Liberec Plaza,
    a shopping and entertainment center in the Czech Republic, for €9.5 million (approximately $10 million). Following net
    asset value adjustments related to the subsidiary’s balance sheet, Plaza received net €9.37 million (approximately
    $10 million).
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | On
    March 30, 2016 the extraordinary general meeting of our shareholders approved the reverse split of our ordinary shares such
    that each 10 ordinary shares will be replaced to one ordinary share of us. The reverse split is expected to occur in April
    or May 2016 and the total number of ordinary shares following the reverse split will be 2,757,243.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





47






| | ● | On
    March 29, 2016, we announced that PC announced that its board had become aware of certain issues with respect to certain agreements
    that were executed in the past by PC in connection with the Casa Radio Project in Romania. In order to address this matter,
    PC's Board appointed the chairman of PC's Audit Committee to investigate the matters internally. PC's Board also appointed
    independent law firms to perform an independent review of the issues raised. PC has approached and is co-operating fully with
    the relevant Romanian Authorities regarding the matters that have come to its attention in this respect and it has submitted
    its findings to the Romanian Authorities. Following PCs report to us, our audit committee has decided to appoint a special
    committee to examine the matters raised in PC's announcement, including any internal control and reporting issues. As the
    investigation of this matter is ongoing Plaza in unable to comment on any details related to this matter.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | On
    March 22, 2016, we announced that we signed an addendum to the loan agreement with Bank Hapoalim B.M. (the "Bank"
    and "Loan Agreement"), that will cancel and replace the previous loan agreement (the "Amendment" and the
    "Loan"). Under the Amendment, subject to the prepayment of €15.0 million (approximately $16 million) to the
    Bank by March 31, 2016, the following new terms will apply to the loan:
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | The
    repayment schedule of the Loan will be as follows: €7 million (approximately $8 million) will be repaid on November 30,
    2016 and the balance will be repaid on November 30, 2017 instead of one single payment in February 20, 2017 in the existing
    Loan Agreement.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | The
    Company will not have prepayment obligations for the planned notes repurchase program which will be executed by us during
    2016 for an amount up to NIS 50 million (approximately $13 million).
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Any
    net cash flow that will be received by us from the refinancing of the Radisson Blu hotel in Bucharest Romania in an amount
    up to €97 million shall not have repayment obligations, and shall be used by us at our sole discretion.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | On
    March 10, 2016 we announced that our subsidiary Bucuresti Turism S.A. ("BUTU"), as borrower, Raiffeisen Bank International
    A.G and Raiffeisen Bank S.A., leading international European banks, as lenders (the "Lenders") and us as guarantor
    have amended and restated the existing facility agreement for a total aggregate amount of €97 million (approximately
    $106 million) which will be draw down in two trenches. On March 24, 2016 we announced the closing of the first tranche of
    the facility agreement in the total amount of €85 million (approximately $93 million). The total net proceed received
    by the Company as a result of the drawdown of the first Tranch was approximately €24.4 million (approximately $26.6 million)
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | On
    February 1, 2016 we approved a new program to repurchase up to NIS 40 million (approximately $10.1 million) of our Notes,
    which are traded on the Tel Aviv Stock Exchange. Our board of directors has determined that until further notice, we will
    purchase only Series H Notes. The repurchases will be made from time to time in the open market on the Tel Aviv Stock Exchange,
    in privately negotiated transactions or in a combination of the two, commencing the date of this announcement and for a period
    of 12 months. The repurchase program does not require us to acquire any or a specific amount of notes, and it may be modified,
    suspended, extended or discontinued without prior notice. Repurchase of Notes under this program depends on factors such as
    market conditions and legal compliance. Notes repurchased by us will be canceled and removed from trading. Until the date
    of this report, we have bought back 13.7 million par value Series H Notes for a total amount of NIS 12.2 million (approximately
    $3 million).
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | On
    January 15, 2016 we announced that we signed an agreement to waive any of our rights and interest in a special purpose vehicle
    which holds a land plot in Kochi, India. The total consideration for us is INR 10 Crores (approximately €1.4 million),
    which will be paid to us upon the closing of the transaction. The transaction is subject to certain conditions precedent,
    and closing will take place once these conditions are met and no later than October 15, 2016. The local Investor has provided
    certain security in order to guarantee the aforementioned deadline.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



2015



| | ● | On
    December 31, 2015, our subsidiary InSightec Ltd. ("InSightec") and some of its existing and new shareholders signed
    and executed an amendment to certain Series D Preferred Share Purchase Agreement, dated June 26, 2014, as amended from time
    to time (the "Amendment to the Share Purchase Agreement"). For more information see our Form 6-K filed on December
    31, 2015.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | On
    December 15, 2015, we announced, that our 98% holding subsidiary, S.C. Bucuresti Turism S.A. ("Butu") and its indirect
    subsidiary, Plaza Centers N.V. ("PC") have signed a transaction for the sale of the Cina property in Bucharest.
    The expected total consideration is €4 million (approximately $4.3 million), divided to €2.7 million (approximately
    $2.9 million) for Plaza and €1.3 million (approximately $1.4 million) for BUTU. The expected net proceeds, after related
    taxes and transaction costs, is approximately €2.26 million (approximately $2.5 million) for Plaza and approximately
    €1.3 million (approximately $1.4 million) for BUTU.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | On
    December 2, 2015, we announced that EPI signed an agreement to sell 100% of its interest in a special purpose vehicle which
    holds a site in Bangalore, India to a local investor. The total consideration for the sale upon completion of the transaction
    is INR 321 Crores (approximately €45.4 million, $50 million) which will be paid at transaction closing. The Company's
    direct share in the proceeds is 50% (approximately €22.7 million, $25 million). The transaction is subject to certain
    conditions precedent, and closing will take place once these conditions are met and no later than 30 September 2016. The Investor
    has provided certain security in order to guarantee the aforementioned deadline.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------







48








| | ● | On
    November 4, 2015, we announced that we closed a transaction for sell of Elbit Medical Technologies Ltd. ("Elbit Medical")
    shares. At closing, we sold and transferred 41,000,000 Elbit Medical Shares (the "Sold Shares") to a third party
    (the "Purchaser"). The consideration for the Sold Shares will be in an amount that the Purchaser will sell the Sold
    Shares to third parties, after a deduction of a fee to the Purchaser as determined in the agreement. The transaction is irrevocable,
    and therefore, the Sold Shares are solely and exclusively owned by the Purchaser. We did not retain any rights related to
    the Sold Shares, including among others: voting rights, dividends, rights issuing, bonus shares, etc. Simultaneously, we exercised
    1,016,316,297 exercise-free options exercisable into 1,016,316,297 Elbit Medical shares.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

| | ● | On
    October 12, 2015 we approved a program to repurchase up to NIS Fifty (50) million (approximately $13 million) of our Series
    H Notes and Series I Notes, which are traded on the Tel Aviv Stock Exchange. We subsequently announced that only Series H
    Notes will be included in the repurchase program. The repurchases were be made from time to time in the open market on the
    Tel Aviv Stock Exchange, in privately negotiated transactions or in a combination of the two for a period of 12 months. On
    December 17, 2015 we announced that we purchased NIS 55 million par value of Series H Notes for cash consideration of NIS
    50 million (approximately $13 million).
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | ● | In
    September 2015 we announced that our subsidiary EPI obtained a commitment for the purchase of the Chennai, India project which
    was due to be completed by January 15, 2016 (the “Long Stop Date”) for a total net consideration of INR 167 Crores
    (approximately €23 million, $25 million). In line with the sale transaction agreement, since the local Indian partner
    (the “Partner”) failed to complete the transaction by the Long Stop Date, EPI shall exercised its right to get
    the Indian partner’s 20% holdings in the Indian company, Kadavanthara Builders Private Limited. For more information
    see our Forms 6-K filed on September 16, 2015 and January 15, 2016.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | On
    September 29, 2015 we announced that PC won a tender to buy the loan in respect of the Liberec Plaza commercial center in
    the Czech Republic. The €20.4 million (approximately $22.2 million) bank loan was granted by two commercial banks which
    PC has agreed to buy for €8.5 million (approximately $9.3 million), reflecting a discount of 58%.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | On
    June 11, 2015 we announced that we closed the Share Purchase Agreement with Astrid JV Sarl with regards to the sale of our
    entire (100%) holdings in our wholly owned subsidiary which owns and operates our hotels in Antwerp, Belgium. The asset value
    reflected in the transaction was approximately €48 million (approximately $52 million) for both hotels subject to working
    capital and other adjustments as specified in the agreement. The total net consideration paid to the Company's wholly owned
    subsidiary (the "Seller"), following the repayments of the target's banks loan, and the aforementioned adjustments,
    was approximately €27 million (approximately $29 million) out of which €1 million (approximately $1.1 million) was
    deposited in escrow to secure the Seller's indemnification obligations under the Share Purchase Agreement. For more information
    see "Item 4 – Business Overview – Medical Companies – InSightec- Recent Transactions in InSightech's
    shares".
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | On
    May 13, 2015 we announced that PC reached an agreement to sell Koregaon Park Plaza the retail, entertainment and office scheme
    located in Pune, India for approximately €35 million (approximately US$ 39 million, 2,500 million INR), consistent with
    the asset’s last reported book value. The net cash proceeds (after repayment of the related bank loan, other liabilities
    and transaction costs) from the sale was €7.2 million (approximately US$ 8 million, 516.5 million INR).
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | On
    February 18, 2015, the shareholders of our subsidiary Bucuresti Turism S.A., whose shares were traded on the RASDAQ market
    ("BUTU"), resolved, amongst other things, that BUTU will not take the necessary legal actions for the shares issued
    by it to be admitted for trading on a regulated market or to be listed on an alternate trading system. Our subsidiary which
    is the direct owner of the shares in BUTU voted in favor of the above resolution. On June 9, 2015 we announced that shareholders
    holding 21.48% of BUTU exercised their right to withdraw from BUTU. The total amount paid by BUTU for such withdrawal requests
    was approximately €13.9 million (approximately $15 million). An amount of €2 million (approximately $2.2 million)
    was financed by BUTU from its own resources and the remainder in the amount of approximately €11.9 million (approximately
    $13 million) was financed by us through a shareholder loan granted to BUTU. Following the expiration of the withdrawing term
    and following the payment of the aforesaid amount to the withdrawing shareholders, BUTU was delisted from the RASDAQ and all
    the shares acquired by BUTU during the delisting process were cancelled and the share capital of BUTU was decreased accordingly.
    Following the share capital decrease, we hold (indirectly) approximately 98% of BUTU's share capital.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



2014



| | ● | On
    September 29, 2014, we announced that our subsidiary Elbit Fashion Ltd. (“Elbit Fashion”) received from PUNTO
    FA, S.L (“Punto”) written notice of its intention not to extend the term of the franchise rights granted by Punto
    to Elbit Fashion for operation of the "Mango" retail stores in Israel under the franchise agreement entered into
    by the parties on May 3, 2005 (the “Franchise Agreement”) and to terminate the Franchise Agreement. On October
    27, 2014, we announced that Elbit Fashion signed a sale agreement (the "Fox Sale Agreement") with Fox-Wisel Ltd.
    ("Fox") with regards to the sale of the operation and business of "Mango" retail stores in Israel. Under
    the Fox Sale Agreement, which was consummated on January 5, 2015, Elbit Fashion sold and assigned Fox all business activity,
    stores, investments in the leased properties, furniture and equipment, inventory and customer loyalty program and any and
    all rights relating thereto, free and clear of any third party rights, except as explicitly set in the Fox Sale Agreement
    and net of certain liabilities related to the business activities of Mango for consideration of approximately NIS 37.7 million.
    Following the consummation of the transaction, Elbit Fashion ceased to operate the "Mango" retail stores activity,
    and accordingly such activity was classified as discontinued operations in our financial statements.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





49






| | ● | On
    September 28, 2014, we announced that BUTU, as borrower, we as a guarantor, certain other subsidiaries of us, as additional
    obligors, and a leading international European bank, as lender (“Lender”), have entered into an amendment to the
    facilities agreement between the aforementioned parties entered into on September 16, 2011 (the “Facilities Agreement”)
    which facilitates the drawdown of the second facility under the Facilities Agreement and that BUTU has consummated such drawdown
    in the amount of approximately € 9 million.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | On
    September 2, 2014, Elbit Medical announced that Gamida Cell Ltd., ("Gamida Cell"), and the vast majority of Gamida
    Cell’s shareholders (including Elbit Medical), completed the execution of the Option and Investment Agreements (the
    "Agreements") with Novartis Pharma AG (Novartis). Under the Agreements, Novartis invested $35 million in Gamida
    Cell in exchange for approximately 15% of Gamida Cell’s share capital and an option to purchase the holdings of the
    other shareholders in Gamida Cell, including Elbit Medical's holdings the "Novartis Option") upon the completion
    of certain milestones relating to the development of NiCord (the "Prodcut"). On June 3, 2015 Gamida Cell notified
    Elbit Medical that following discussions held between the Novartis representative and the CEO of Gamida Cell, the Novartis
    representative notified Gamida Cell that Novartis did not intend to exercise the Novartis Option.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Effective
    beginning September 2014, PC completed the disposition of its commercial center, Kragujevac Plaza, in Serbia for approximately
    € 38.6 million. Following the repayment of a related bank loan of approximately € 28.2 million, PC received net
    cash from the disposition of approximately € 10.4 million. Restricted cash linked to the bank debt and other working
    capital balances of approximately € 2 million were also released following the transaction.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | On
    August 14, 2014 the annual general meeting of our shareholders approved the reverse split of our ordinary shares such that
    each 20 ordinary shares will be replaced to one ordinary share of us. The reverse split occurred on August 21, 2014 and the
    total number of ordinary shares following the reverse split is 27,572,426.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | In
    June 2014, PC terminated, following a mutual agreement, its joint venture agreement with an Israeli based company (“Aura”).
    The seven asset companies held by the joint venture were spilled between PC’s 50.1% subsidiary (“Plaza Bas”)
    and Aura, where Aura received a full control over three of the asset companies, and Plaza Bas received full control over the
    remaining four asset companies. The carrying amount of the assets received by Plaza Bas valued at € 9 million and Plaza
    Bas assumed two bank facilities with principal of € 9.7 million. In addition, Aura paid € 0.6 million to PC as part
    of the joint venture termination.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | During
    2014, PC completed the sale of two plots in Romania (Targu Mures and Hunedoara) to third party developers for a total consideration
    of € 4.7 million On July 6, 2014, we announced that our wholly owned subsidiary entered into a transaction for the sale
    of 1.7 million shares of PPHE Hotel Group (LSE: PPH) for a net consideration of GBP 6.0 million ($ 9 million, NIS 35 million).
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | On
    June 29, 2014, InSightec entered into the Series D Preferred Share Purchase Agreement with York Global Finance II S.à
    r.l. (an affiliate of York Capital Management, which is a related party of us ) (the “Investor”), pursuant to
    which the Investor and certain other investors invested, in stages during the second half of 2014, an aggregate amount of
    $59 million in InSightec, reflecting a pre-money valuation of InSightec of $ 200 million (on a fully diluted, as-converted
    basis), subject to certain adjustments as specified in the InSightec Investment Agreement. In addition, Elbit Medical had
    the right to invest up to an additional $ 3.5 million in InSightec by the end of May 31, 2015, and the Investor had the option
    to purchase any additional Series D Preferred Shares not purchased by Elbit Medical, up to a total investment in the round
    of $ 62.5 million. Elbit Medical did not exercise its option and the additional $3.5 million was invested by Insightec's other
    shareholders.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | On
    June 26, 2014 PC unsecured financial creditors approved the plan of arrangement (PC's Arrangements), as amended from time
    to time. On July 9, 2014 the Dutch Court approved PC's Arrangement. All conditions precedent of the restructuring plan were
    fulfilled prior to November 30, 2014.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following are the material terms of PC's Arrangement:



| | ● | In
    the event that PC does not succeed in prepaying an aggregate amount of at least NIS 434 million from the principal of the
    notes, excluding linkage differentials before December 1, 2016, then all principal payments under the notes deferred in accordance
    with the above, shall be advanced by one year (i.e., shall become due one year earlier).
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|` | ● | Accrued
    interest on the notes up and until December 31, 2013 was added to the principal of the notes. Accordingly, PC issued additional
    NIS 5.5 million par value notes to series A holders and NIS 13.3 million par value notes to series B holders and PLN 2.8 million
    ($ 0.9 million ,NIS 3.4 million) par value to Polish investors. The accrued interest will be paid together with the principal.
|- | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





50








| | ● | Following
    January 1, 2014 (“Effective Date”), interest payments will be paid on their due dates. PC paid to its note holders
    an amount of € 13.8 million ($ 16.8 million, NIS 65 million) of 2014 interest payments.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | As
    of January 1, 2014, the annual interest rate on the notes was increased by 1.5%.
| | - | ---------------------------------------------------------------------------------------



| | ● | PC,
    its directors and officers and its controlling shareholder are fully released from claims.
| | - | --------------------------------------------------------------------------------------------------



| | ● | The
    net cash flow received by PC following an exit or raising new Financial indebtedness (except if taken for the purpose of purchase,
    investment or development of real estate asset) or refinancing of Real estate Asset's after the full repayment of the asset’s
    related debt that was realized or in respect of a loan paid in case of debt recycling (and in case where the exit occurred
    in the subsidiary – amounts required to repay liabilities to the creditors of that subsidiary) and direct expenses in
    respect of the asset (any sale and tax costs, as incurred), will be used for repayment of the accumulated interest till that
    date in all of the series (in case of an exit which is not one of the four shopping centers only 50% of the interest) and
    75% of the remaining cash (following the interest payment) will be used for an early repayment of the close principal payments
    for each of the series (A, B, Polish) each in accordance with its relative share in the deferred debt. Such prepayment will
    be real repayment and not in bond purchase.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | An
    injection of a € 20 million into PC at a price per-share of € 0.0675, (“Equity Contribution”) was executed
    by PC in the form of Rights Offering to its shareholders. As part of PC's injection, our subsidiary, Elbit Ultrasound (Luxembourg)
    BV/ S. a' r. l ("EUL") enter into a Back Stop Agreement (the “Back Stop Agreement”) with various affiliates
    of Davidson Kempner Capital Management LP (“DK”),( a related party of ours), pursuant to which DK undertook to
    purchase under the Rights Offering, in lieu of EUL, a portion to be determined by EUL, provided that such portion shall not
    be less than the higher of € 3 million ($ 3.6 million, NIS 14 million) and shall not exceed € 10 million or result
    in DK and its affiliates directly or indirectly holding shares representing 30% or more of the total voting rights in PC,
    all subject to the terms and conditions therein. Consequently EUL has purchased 122,847,376 new ordinary shares of PC for
    the total amount of approximately € 8.3 million and DK purchase 163,803,197 new ordinary shares of PC for an additional
    amount of € 11.05 million.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | PC
    issued to the noteholders of 13.21% of PC's shares (post Equity Contribution) for payment of par value of shares. Such issuances
    of shares were distributed among the noteholders pro rata to the relative share of each relevant creditor in the Deferred
    Debt.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Following
    the Rights Offering and associated placing of shares and the issuance of new ordinary shares to PC's noteholders under the
    restructuring plan, EUL hold 44.9% in PC and DK hold approximately 26.3% of the outstanding shares of PC.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | On
    September 18, 2013, our unsecured financial creditors (the holders of our publicly traded Series 1 and Series A to Series
    G notes and Bank Leumi) approved the Debt Restructuring under Section 350 of the Israeli Companies Law, and on January 1,
    2014, the Court approved the Debt Restructuring. On February 20, 2014, following the satisfaction of all conditions required
    to be satisfied prior to the effectiveness of the Debt Restructuring (other than registration of liens in favor of the trustees
    of the new series of notes), the Debt Restructuring was consummated and came into effect. In accordance with the terms of
    the Debt Restructuring, our unsecured financial creditors were issued 508,027,457 ordinary shares, which represented 95% of
    our share upon effectiveness of the Debt Restructuring on a fully diluted basis (except for certain options issued to our
    employees and officers) and before the issuance of our ordinary shares to Bank Hapoalim (as detailed below). According to
    the terms of the Debt Restructuring, the outstanding balance under our unsecured financial debt was extinguished and converted
    into these ordinary shares and new notes issued by us to our unsecured financial creditors. The aggregate principal amount
    of the two series of new notes issued pursuant to the Debt Restructuring was equal to NIS 666 million. The principal amount
    of the first series of new notes("Series H") was equal to NIS 448 million repayable in a single payment by May 31,
    2018. The principal amount of the second series of new notes ("Series I") was equal to NIS 218 million), repayable
    in a single payment by November 30, 2019. Both series of the new notes bear interest at the rate of 6% per annum and are linked
    to the Israeli consumer price index, while interest on Series H notes is payable in cash on a semi-annual basis, and interest
    on the Series I notes will be payable on the final maturity date. In addition, the new notes include mandatory prepayment
    provisions in the event we pay cash, distribute dividends or make any other distribution within four and half years following
    the date of issuance thereof, such that we will be obligated to prepay an amount equal to the amount distributed. In addition,
    the new notes are secured by first ranking and second ranking floating charges that were placed on all of our assets in favor
    of the Series H and Series I trustees, respectively, and first-ranking and second ranking fixed pledges that were placed on
    our various holdings and rights in our subsidiaries Elbit Ultrasound (Luxembourg) B.V./S.ar.l (through which we hold a controlling
    stake in PC) and Elscint Holdings and Investments N.V. (through which we hold our hotels in Belgium and Romania) as well as
    any amounts which we shall be entitled to receive therefrom (including under all and any shareholders loans advanced by us
    to those companies, if any). Furthermore, our Articles of Association were amended such that (i) a decision by us to engage
    in a field of business that is new to us and our subsidiaries and is material to us requires the unanimous approval of all
    of the members of the Board present and lawfully entitled to vote at the relevant meeting and (ii) in certain events, a person
    contemplating a purchase of our shares shall be required to offer to acquire ordinary shares representing at least 10% of
    our voting rights in connection with such purchase. The Series H Notes and the Series I Notes were listed on the TASE, and
    the New Shares were listed on NASDAQ and the TASE. For a discussion of the approval and consummation of the Debt Restructuring,
    please see the Forms 6-K we filed on September 18, 2013, January 2, 2014 and February 20, 2014.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





51






| | ● | On
    January 26, 2014 a holder of the our Series B notes ("the Plaintiff") filed an appeal to the Supreme Court, against
    the ruling of the Tel-Aviv District Court, dated 1 January, 2014 approving the amended plan of arrangement (the "Appeal").
    In the Appeal the Plaintiff is seeking ,inter alia, to cancel the section on the said court ruling which grants release from
    potential liability and claims to our officers and directors, and also the section which determines the class action that
    was filed by the Plaintiff shall be strike; Alternatively, the Plaintiff has requested to cancel the section on the said court
    ruling which determines the class action shall be strike against Mr. Mordechay Zisser, who is not included in the release
    from potential liability and claims provided to our other officers, or that the whole Arrangement shall be canceled. On June
    15, 2015, following recommendation of the Court, the plaintiff withdrew the Appeal.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | In
    connection with the Debt Restructuring, we issued 16,594,036 ordinary shares to Bank Hapoalim pursuant to the terms set forth
    in the Refinancing Agreement. Pursuant to the Refinancing Agreement, the outstanding loan amount (approximately $48 million)
    will be repayable by us on February 20, 2017, and bears interest of LIBOR +3.8% per year, payable quarterly, and an additional
    1.3% per year, payable on the final maturity date. In addition, pursuant to the Refinancing Agreement, first-ranking fixed
    charges were placed on our holdings and other rights in certain of our subsidiaries holding our hotels in Romania and Belgium
    as collateral securing our debt to Bank Hapoalim under the Refinancing Agreement. Such charges were placed in addition to
    the existing securities that Bank Hapoalim held under the loan previously received from Bank Hapoalim, i.e., a first ranking
    pledge over an amount of 86 million shares of PC, representing approximately 13% of PC's outstanding shares. We are subject
    to certain prepayment obligations in the event of prepayment of the aforementioned new notes or a distribution. For further
    details regarding the Refinancing Agreement, please see the Form 6-K we filed on November 14, 2013. As for addendum to this
    loan agreement see 2016 above.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Our
    unsecured debt prior to the entering into effect of the Debt Restructuring included approximately $12.8 million principal
    amount of bank debt held by Bank Leumi. As of the Closing of the Debt Restructuring ,we had outstanding disputes with Bank
    Leumi with respect to the validity of certain pledges over accounts held by us at Bank Leumi and consequently, whether the
    debt we owed to Bank Leumi should be classified as unsecured or secured. As a result of this dispute and in connection with
    the Debt Restructuring, we issued to an escrow agent for the benefit of Bank Leumi approximately NIS 8.0 million in principal
    amount of our Series H Notes, approximately NIS 3.9 million in principal amount of our Series I Notes, and 9,090,122 ordinary
    shares. On July 23, 2014, following the Court’s approval and the closing of the Debt Restructuring, we announced the
    consummation of a settlement of the dispute (the “Settlement”), under which Bank Leumi received ownership of all
    marketable securities held in our accounts at Bank Leumi having a fair value of approximately NIS 8.7 million (based on their
    then-market price). In addition, our net debt (after offset of the aforementioned marketable securities) to Bank Leumi in
    the amount of approximately NIS 38 million was cancelled in exchange for 7,404,119 ordinary shares, NIS 6,507,666 aggregate
    principal amount of our Series H notes and NIS 3,166,678 aggregate principal amount of Series I notes of us. The balance of
    1,686,003 ordinary shares, NIS 1,481,870 aggregate principal amount of Series H notes and NIS 721,089 aggregate principal
    amount of Series I notes of us retained in escrow under the Debt Restructuring was cancelled. The Settlement constituted the
    full settlement of our obligations to Bank Leumi under the Debt Restructuring as well as under the loan agreement entered
    between the parties on May 5, 2011, and Bank Leumi released all liens registered for its benefit on our assets.  The
    Settlement also included a mutual waiver of claims.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | On
    January 13, 2014 PC announced that its subsidiary (in which it holds approximately 70% of its voting power) had reached an
    agreement to sell its 50% equity stake in the Uj Udvar project in Budapest, Hungary. As a result of the transaction, PC received
    cash proceeds of € 2.4 million
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



2013



| | ● | In
    February 2013 we announced that we would temporarily cease making all principal payments due under our Series A and Series
    B notes and all interest payments due under all of our publicly-traded notes; for a discussion of these announcements please
    see the Form 6-Ks we filed on February 5, 2013, and February 19, 2013, respectively. In March 2013 we entered into a letter
    of undertaking (the“Letter of Undertaking”) with the trustees of our Series 1, C, D, E, F and G note
    holders regarding our activities during an interim period, under which, inter alia, it was agreed that we and the entities
    controlled by us (excluding PC) would not make any payments to our respective creditors, other than under certain circumstances,
    we will not dispose and/or undertake to dispose any of our material asset and/or our Controlled Entities, and we will not
    provide any guarantee and/or security of any kind, to secure our or any third party’s debt further more we will not
    make any payments and/or engage in any transactions with the former Controlling Shareholder and/or entities under the control
    of the former Controlling Shareholder and/or Mr. Mordechay Zisser’s relatives either directly or indirectly. For a discussion
    of the Letter of Undertaking, please see the Form 6-K we filed on March 21, 2013. For a discussion of the terms of the Debt
    Restructuring, please see "-2014" above.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | In
    August and November 2012, acting through our wholly owned subsidiary Elbit Imaging Financing Services, Limited Partnership
    (“Elbit Financing”), we entered into two note structured transactions with two leading global financial institutions
    (the “Counterparties”). On February 20, 2013, the Counterparties notified us of the early termination of the transactions
    as a result of the decline in the market price of our outstanding notes and consequent failure to meet the loan-to-value covenants
    under the agreements governing the transactions.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





52








| | ● | In
    March 2013, we received a letter from Bank Leumi demanding repayment within ten days of the outstanding balance of approximately
    $14.1 million due primarily under certain loans made by Bank Leumi to us pursuant to a refinancing agreement dated May 5,
    2011. Bank Leumi stated that it was taking this action in light of our then-financial condition and our having informed Bank
    Leumi that we would not pay the principal and the interest due on March 29, 2013. Bank Leumi also informed us that it had
    placed a freeze on the Leumi Accounts (certain accounts maintained by us with Bank Leumi in which we held cash and trading
    securities in the amount of approximately NIS 8 million) until the outstanding amounts due are repaid. Bank Leumi also notified
    us that should such repayment not be made within ten days Bank Leumi was reserving its rights to take all actions necessary
    in order to protect its rights under the loan agreements including offsetting any amounts in the Leumi accounts against the
    loans. Bank Leumi also claimed that it has certain pledges registered in its favor and therefore it is a secured creditor
    and should not be included in the Debt Restructuring. For a discussion of the settlement agreement with Bank Leumi, please
    see "-2014" above.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | On
    May 29, 2013 PC successfully completed the sale of its 50% interest in an entity which mainly holds interests in an office
    complex project located in Pune, Maharashtra. The transaction valued the entity at €33.4 million and, as a result, PC
    received gross cash proceeds of approximately €16.7 million.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | On
    June 6, 2013, we received a letter from Bank Hapoalim, demanding repayment within seven days of the outstanding balance of
    the loan owed to Bank Hapoalim under the March 31, 2011 Facility Agreement, without prejudicing its right under any other
    loan facility to which we are a party as a guarantor or otherwise. Bank Hapoalim stated that it was taking this action in
    light of our alleged breaches under the loan, including, inter alia, non-payment to Bank Hapoalim on March 31, 2013
    of approximately $14.5 million, failure to satisfy certain financial covenants under the loan and adverse change in our financial
    position. On November 4, 2013, we have announced that we and Bank Hapoalim have reached general terms of agreement between
    the parties, and on November 12, 2013, we had announced certain amendments to the said general terms of agreement. On November
    26, 2013, our unsecured financial creditors voted on the general terms of agreement to be entered into with Bank Hapoalim.
    At the Meeting, unsecured financial creditors holding approximately 70.6% of the aggregate voting power that had participated
    in the meeting voted in favor of the refinancing. On December 29, 2013 we entered into a new facility agreement with Bank
    Hapoalim based on the aforementioned general terms of agreement, and on February 20, 2014, the transactions under the agreement
    were consummated. For further discussion of the terms and the closing of the Refinancing Agreement, please see "-2014"
    above.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | In
    July 2013 PC completed the sale of 100% of its interest in an entity which holds the interest in a plot of land in Prague.
    The transaction values the entity at approximately €1.9 million. The net cash consideration after deducting a liability
    to a third party amounted to €1.3 million
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | A
    subsidiary of PC was party to a loan with a commercial bank, secured by PC’s notes that PC had repurchased, that was
    due to be repaid in September 2013. Due to a rating downgrade that resulted in a loan covenant breach, PC entered into negotiations
    with the bank and the two parties agreed upon an early repayment of the loan that was consummated during the first half of
    2013. The loan balance, including accrued interest, was approximately NIS 77.5 million. To finance the early repayment of
    the loan, PC sold NIS 66 million of the notes it had repurchased that served as the loan’s collateral.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | On
    October 31, 2013 the consortium of shareholders of Dream Island, in which PC holds a 43.5% stake, completed the sale of the
    Dream Island project land to the Hungarian State for approximately €15 million. The proceeds of the transaction were
    used by the consortium to repay a proportion of a secured bank loan.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | On
    November 18, 2013, PC announced that it had filed for reorganization proceedings (preliminary suspension of payments) with
    the Dutch Court and submitted a restructuring plan to the Dutch Court. Further to that announcement, PC announced that the
    Dutch Court had granted its application for preliminary suspension of payment proceedings. PC noted further that in order
    to resolve its liquidity situation it had filed with the Dutch Court a restructuring plan proposed to its creditors. For a
    discussion of PC’s reorganization proceedings, please see the Forms 6-K we filed on November 14, 2013, November 20,
    2013 and November 25, 2013. For a discussion regarding the amendment to the restructuring plan and the consummation of the
    Amended PC Plan, see “- 2014” above.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Critical
judgment in applying accounting policies and use of estimates



General



In
the application of our accounting policies, we are required to make judgments, estimates and assumptions about the carrying amounts
of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based
on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis, and revisions to accounting estimates are recognized
in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future
periods if the revision affects both current and future periods. In addition, in the process of applying our accounting policies,
management makes various judgments, apart from those involving estimations, that can significantly affect the amounts recognized
in the financial statements.



The
following are the critical judgments and key sources of estimation that management has made while applying our accounting policies
and that have the most significant effect on the amounts recognized in our consolidated financial statements.





53






Use
of estimates



Write-down
of trading properties



The
recognition of a write down of our trading properties is subject to a considerable degree of judgment and estimates, the results
of which, when applied under different principles, conditions and assumptions, are likely to result in materially different results
and could have a material adverse effect on our consolidated financial statements.



This
valuation becomes increasingly difficult as it relates to estimates and assumptions for projects in the preliminary stage of development
in addition to current economic uncertainty and the lack of transactions in the real estate market in the CEE and India for same
or similar properties.



We
are responsible for determining the net realizable value of our trading properties. In determining net realizable value of the
vast majority of trading properties, we utilize the services of an independent third party recognized as a specialist in valuation
of properties. Independent valuation reports for our trading properties as of December 31, 2015 and 2014 were prepared by Cushman&
Wakefield.



On
an annual basis, we review the valuation methodologies utilized by the independent third party valuator service for each property.
The main features included in each valuation are:



| | 1. | Operating
    trading properties (mainly commercial centers)
| | -- | ------------------------------------------------------------



The
net realizable value of operating commercial centers includes rental income from current leases and assumptions in respect of
additional rental income from future leases in light of current market conditions. The net realizable value also reflects, on
a similar basis, any cash outflows that could be expected in respect of the property. We use assumptions that are mainly based
on market conditions existing on the reporting date.



The
principal assumptions underlying our estimation of net realizable values for operating commercial centers are those related to
the receipt of contractual rental fees, expected future market rental fees, void periods, maintenance requirements and appropriate
discount rates. These valuations are regularly compared to actual market yield data and actual transactions made by us and those
reported by the market, if available. Expected future rentals are determined on the basis of current market rentals for similar
properties in the same location and condition.



| | 2. | Undeveloped
    trading properties
| | -- | ----------------------------------



The
vast majority of our undeveloped real estate assets are lands which are designated for development of commercial centers. The
net realizable value for an undeveloped project is determined based on our business plans for the specific project as of the balance
sheet date.



Some
of our lands are designated for future development in the foreseeable future. Other undeveloped lands are planned to be sold in
their current state. A considerable degree of judgment is required in order to determine whether a specific real estate project
can be developed in the foreseeable future or not. The most significant factors in such decision are: market conditions in the
surrounding area of the project, availability of bank financing for the development, competition in the area, zoning and building
permits for the project, our liquidity and ability to invest equity into the project, our ability to enforce the joint development
agreement against our partners in a joint venture project (mainly our plots designated for residential project in India), the
scale of the project and our ability to execute it and others. As explained below, the status of the project, as determined by
us in each reporting period also determines the net realizable value which will be used in the preparation of the financial statements.
Therefore a change in each of the factors mentioned below may lead to a change in the status of a project (from project designated
for future development to project in hold) and may cause an additional write down which was not recognized in our financial statement
for the year ended December 31, 2015.



As
for accounting policies in respect of the measurement of the net realizable value for undeveloped trading property – see
note above 2K to our consolidated financial statements included elsewhere in this report.



| | 2.1 | Critical
    assumptions under the residual method
| | --- | --------------------------------------------------



Our
trading properties which are designated by us for development in the foreseeable future are usually measured using the residual
method. Estimations of fair value under the residual method involve in general, critical estimations and take into account special
assumptions in the valuations, many of which are difficult to predict, in respect of the future operational cash flow expected
to be generated from the real-estate asset, yield rate which will be applied for each real estate asset, estimate of developer's
profit and timeline to commencement of the construction of the project. Actual results could be significantly different than the
estimates and could have a material effect on our financial results.



Determination
of the operational cash flow expected to be generated from the real estate asset is based on reasonable and supportable assumptions
as well as on historical results adjusted to reflect our best estimate of future market and economic conditions that we believe
will exist during the remaining useful life of the assets. Such determination is subject to significant uncertainties. In preparing
these projections, we takes assumptions the majority of which relate to market share of the real estate asset, benchmark operating
figures such as occupancy rates, rental and management fees rates (in respect of commercial centers), selling price of apartments
(in respect of residential units), the expected schedule to complete the real estate assets under construction, costs to complete
the establishment of the real estate asset, expected operational expenses and others. In addition the process of construction
is long, and subject to approvals and authorization from local authorities. It may occur that building permits will expire and
will cause us additional preparations and costs, and can cause construction to be delayed or abandoned.





54






The
yield rate reflects economic environment risks, current market assessments regarding the time value of money, industry risks as
a whole and risks specific to each asset, and it also reflects the return that investors would require if they were to choose
an investment that would generate cash flows of amounts, timing and risk profile equivalent to those that we expect to derive
from the assets. Such rate is generally estimated from the rate implied in current market transactions for similar assets, or
where such transactions do not exist, based on external appraisers.



| | 2.2 | Critical
    assumptions under the comparable method
| | --- | ----------------------------------------------------



Our
trading property which is not designated by us for development in the foreseeable future is usually measured using the comparable
method or the residual method (for details regarding the residual method see 2.1 above). Valuation by comparison is essentially
objective, in that it is based on an analysis of the price achieved for sites with broadly similar development characteristics.
Valuation by comparison is generally used if evidence of actual sales can be found and analyzed on a common unit basis, such as
site area, developable area or habitable room.



Where
comparable development cannot be identified in the immediate area of the subject site or when sale information is not clearly
available through common channels of information (internet, newspapers, trade journals, periodic, market research, etc.) it is
necessary to look further out for suitable comparable development and to make necessary adjustments to the price in order to account
for dissimilarities between the comparable development and the subject site. Such adjustments include, but are not limited to:



| | ● | Adjustment
    in respect of the time of the transaction. Market conditions at the time of the sale transaction of a comparable property
    may differ from those on the valuation date of the property being valued. Factors that impact market conditions include rapidly
    appreciating or depreciating property values, changes in tax laws, building restrictions or moratoriums, fluctuations in supply
    and demand, or any combination or forces working in concert to alter market conditions from one date to another.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Adjustment
    in respect of asking price and condition of payment. The special motivations of the parties to the transaction in many situations
    can affect the prices paid and even render some transactions as non-market. Examples of special conditions of sale include
    a higher price paid by a buyer because the parcel has synergistic or marriage value; a lower price paid because a seller was
    in a hurry to finalize the sale; a financial, business, or family relationship between the parties involved in the transaction,
    unusual tax considerations; lack of exposure of the property in the (open) market; or the prospect of lengthy litigation proceedings.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Adjustment
    in respect of size, shape and surface area. Where the physical characteristics of a comparable property vary from those of
    the subject property, each of the differences is considered, and the adjustment is made for the impact of each of these differences
    on value.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Adjustment
    in respect of location. The locations of the comparable sale properties and the subject property are compared to ascertain
    whether location and the immediate environs influence the prices paid. The more attractive location a property is located
    in the more it is worth per square meter; and conversely the less attractive location a property is in the less it is worth
    per square meter. An adjustment is made to reflect such differences based on the valuator's professional experience. Extreme
    location differences may indicate that a transaction is not truly comparable and are disqualified.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Litigation
and other contingent liabilities



We
are involved in litigation, tax assessments and other contingent liabilities in substantial amounts including class actions. See
note 14B to our annual consolidated financial statements included elsewhere in this report. We recognize a provision for such
litigation when it is probable that we will be required to settle the obligation, and the amount of the obligation can be reliably
estimated. We evaluate the probability and outcome of such litigation based on, among other factors, legal opinions, consultation,
and past experience. The outcome of such contingent liabilities may differ materially from management's estimation. We periodically
evaluate these estimations and makes appropriate adjustments to the provisions recorded in the consolidated financial statements.
In addition, as facts concerning contingencies become known, we reassess our position and make appropriate adjustments to the
consolidated financial statements. In rare circumstances, mainly with respect to class actions, when the case is unique, complicated
and involves prolong and uncommon proceedings, we cannot reliably estimate the outcome of said case.





55






Accounting
for income taxes



The
calculation of our tax liabilities involves uncertainties in the application and/or interpretation of complex tax laws, tax regulations
and tax treaties, in respect of various jurisdictions in which we operate and which vary from time to time. In addition, tax authorities
may interpret certain tax issues in a different manner other than that which we adopted. Should such contrary interpretive principles
be adopted upon adjudication of such cases, our tax burden may be significantly increased. In calculating deferred taxes, we are
required to evaluate (i) the probability of the realization of our deferred income tax assets against future taxable income and
(ii) the anticipated tax rates under which our deferred taxes would be utilized.



Potential
penalties, guarantees issued and expired building permits



Penalties
and guaranties are part of the ongoing construction activities, and result from obligations we have towards third parties such
as banks and municipalities. Our management is required to provide estimations regarding risks evolving from penalties that we
may have to settle. In addition, our operations in the construction area are subject to valid authorizations and building permits
from local authorities. Under certain circumstances we are required to determine whether the building permits we obtain have not
yet expired. It may occur that building permits have expired which might impose on us additional costs and expenses, or delays,
and may even cause us to abandon projects under construction.



Fair
value of hotels



As
of December 31, 2015, our fair value of the Radisson Complex is determined based upon the discounted cash flows ("DCF")
approach. The assumptions underlying this model, as well as the ability to support them by means of objective and reasonable market
benchmarks so they can be viewed as assumptions that market participants may have used, are significant in determining the fair
value of the Radisson Complex. The predominant assumptions that may cause substantial changes in the fair value are: the capitalization
rate, exit yield rate, the expected net operating income of the hotel (which is mainly affected by the expected average room rate
and the occupancy rate as well as the level of operational expenses of the hotels) the level of refurbishments reserve and the
capital expenditures that need to be invested in the Radisson Complex. Our fair value of the Radisson Complex is performed by
an independent appraiser with knowledgeable in the local hotel business.



Critical
judgment in applying accounting policies



Classification
of trading property as current/non-current asset



We
classify our assets and liabilities as current or non-current based on the operating cycle of each of our operations (generally
12 months). Careful consideration is required with respect to assets and liabilities associated with our operations of commercial
centers and trading property, where by their nature the operating cycle is more than 12 months. These assets and liabilities are
classified as current only if their operating cycle is clearly identifiable. In accordance with guidance set out in IAS 1 if we
cannot clearly identify the actual operating cycle of a specific operation, then the assets and liabilities of that operation
are classified as non-current. Our determination of our inability to clearly identify the actual operating cycle is a matter of
judgment. A different conclusion can materially affect the classification of current assets and current liabilities. See also
note 2 E to our financial statements included elsewhere in this report



Classification
of operating commercial centers as trading property rather than investment property



We
classified operating commercial centers as trading property rather than investment property even though we are currently earning
rental income from these properties. Our business model is to dispose of the shopping centers in the ordinary course of our business.



During
2015 we sold one operating center and have conducted several negotiations in respects of our other operating commercial centers.
During 2016 we expect to continue negotiating with third parties in order to sell additional commercial centers.



De
facto Control



As
for December 31, 2015 and 2014, we held approximately 44.9% of PC's share capital; DK held approximately 26.3% of PC's share capital
and the rest is widely spread in the public. We are of the opinion that based on the absolute size of our holdings, the relative
size of the other shareholdings and due to the fact that PC's directors are appointed by a regular majority of PC's general meeting
of shareholders, we have a sufficiently dominant voting interest to meet the power criterion, therefore we have de facto control
over PC.



New
accounting standards and interpretation issued that are not yet effective



For
information on recently issued accounting standards under IFRS, see note 2X to our annual consolidated financial statements included
elsewhere in this report.





56








|A. | Operating
    Results
|-- | ---------------------



Presentation
method of financial statements



We
are involved in investments in a wide range of different activities. Accordingly, management believes that its income statements
should be presented in the “single-step form.” According to this form, all costs and expenses (including general and
administrative and financial expenses) should be considered as continuously contributing to the generation of overall income and
gains. We also believe that our operating expenses should be classified by a function of: (i) those directly related to each revenue
source (including general and administrative expenses and selling and marketing expenses relating directly to each operation);
and (ii) overhead expenses which serve the business as a whole and are to be determined as general and administrative expenses.



Our
strategy in respect of PC's commercial centers is to dispose of the commercial centers upon completion, subject to certain exceptions.
In response to the lingering real estate and financing crisis in CEE, and following discussion with the SEC, our management determined
that PC no longer retains sufficient consistent historical experience of trading property realizations in order to clearly identify
the actual operating cycle of selling its trading property. Under such circumstances, we decided to utilize for accounting reporting
purposes an assumed operating cycle of 12 months. Revenues from these commercial centers are mainly derived from their disposal
to third parties, while until a disposal occurs we collect rental income from our completed commercial centers. Therefore, rental
income from commercial centers (from the first day of their operations until the sale thereof) may not be sustainable in the future
upon PC selling the commercial centers as part of its business cycle.



Our
revenues from the sale of commercial centers and other real estate properties are subject to the execution and consummation of
sale agreements with potential purchasers. In periods when we consummate a sale of a real estate asset we record revenues in substantial
amounts and as a result we may experience significant fluctuations in our annual and quarterly results. We believe that period-to-period
comparisons of our historical results of operations may not necessarily be meaningful or indicative and that investors should
not rely on them as a basis for future performance.



Our
policy in respect of the hotels segment is to designate the hotels to be managed and operated by Rezidor. Consequently, the Radisson
Complex is presented as part of our property, plant and equipment in the financial statements.



Translation
of statements of income of foreign operations



The
majority of our businesses, which operate in various countries, report their operational results in their respective functional
currency which differs from the NIS (our reporting and functional currency). We translate our subsidiaries’ results of operations
into NIS based on the average exchange rate of the functional currency against the NIS. Therefore, a devaluation of the NIS against
each functional currency would cause an increase in our reported revenues and the costs related to such revenues in NIS while
an increase in the valuation of the NIS against each functional currency would cause a decrease in our revenues and costs related
to such revenues in NIS.





57






Statements
of income



The
following table presents our statements of income for each of the three years ended December 31, 2015, 2014 and 2013:



|                                                                                             |  | Year ended December 31      |         
|-------------------------------------------------------------------------------------------- |  | --------------------------- | --------
|                                                                                             |  | 2 0 1 5                     |         
|                                                                                             |  |                             |         
|                                                                                             |  | (in thousand NIS)           |         
|                                                                                             |  | (Except for per-share data) |         
|                                                                                             |  |                             |         
|Revenues and gains                                                                           |  |                             |         
|                                                                                             |  |                             |         
|Revenues                                                                                     |  |                             |         
|Revenues from sale of commercial centers                                                     |  |                             | 200,078 
|Revenues from Hotels operations and management                                               |  |                             | 147,886 
|Total revenues                                                                               |  |                             | 347,964 
|                                                                                             |  |                             |         
|Gains and other                                                                              |  |                             |         
|Rental income from Commercial centers                                                        |  |                             | 83,849  
|Gain from sale of investees                                                                  |  |                             | 6,712   
|Total gains                                                                                  |  |                             | 90,561  
|                                                                                             |  |                             |         
|Total revenues and gains                                                                     |  |                             | 438,525 
|                                                                                             |  |                             |         
|Expenses and losses                                                                          |  |                             |         
|Commercial centers                                                                           |  |                             | 290,360 
|Hotels operations and management                                                             |  |                             | 126,849 
|General and administrative expenses                                                          |  |                             | 16,678  
|Share in losses of associates, net                                                           |  |                             | 42,925  
|Financial expenses                                                                           |  |                             | 236,288 
|Financial income                                                                             |  |                             | (2,154  
|Change in fair value of financial instruments measured at fair value through profit and loss |  |                             | 5,446   
|Financial gain from debt restructuring                                                       |  |                             | -       
|Write-down, charges and other expenses, net                                                  |  |                             | 38,298  
|                                                                                             |  |                             | 754,690 
|                                                                                             |  |                             |         
|Profit (loss) before income taxes                                                            |  |                             | (316,165
|                                                                                             |  |                             |         
|Income taxes expenses (tax benefits)                                                         |  |                             | 5,631   
|                                                                                             |  |                             |         
|Profit (loss) from continuing operations                                                     |  |                             | (321,796
|                                                                                             |  |                             |         
|Profit (loss) from discontinued operations, net                                              |  |                             | 6,874   
|                                                                                             |  |                             |         
|Profit (loss) for the year                                                                   |  |                             | (314,922





58






|                                                   |  | Year
    ended December 31      |         
|-------------------------------------------------- |  | ------------------------------- | --------
|                                                   |  | 2
    0 1 5                     |         
|                                                   |  |                                 |         
|                                                   |  | (in
    thousand NIS)           |         
|                                                   |  | (Except
    for per-share data) |         
|                                                   |  |                                 |         
|Attributable to:                                   |  |                                 |         
|Equity holders of the Company                      |  |                                 | (186,150
|Non-controlling
    interest                       |  |                                 | (128,772
|                                                   |  |                                 | (314,922
|                                                   |  |                                 |         
|Profit (loss) from continuing operations           |  |                                 |         
|Equity holders of the Company                      |  |                                 | (193,024
|Non-controlling
    interest                       |  |                                 | (128,772
|                                                   |  |                                 | (321,796
|                                                   |  |                                 |         
|Profit (loss) from discontinued operation,
    net |  |                                 |         
|Equity holders of the Company                      |  |                                 | 6,874   
|Non-controlling
    interest                       |  |                                 | -       
|                                                   |  |                                 | 6,874   
|                                                   |  |                                 |         
|Earnings (loss) per share - (in NIS)               |  |                                 |         
|Basic earnings (loss) per share:                   |  |                                 |         
|                                                   |  |                                 |         
|From continuing operation                          |  |                                 | (7      
|From discontinued
    operations                   |  |                                 | 0.25    
|                                                   |  |                                 | (6.75   
|Diluted earnings (loss) per share:                 |  |                                 |         
|From continuing operation                          |  |                                 | (7      
|From discontinued
    operations                   |  |                                 | 0.25    
|                                                   |  |                                 | (6.75   



2015
compared to 2014



Income
- Revenues and Gains



Total
income (revenues and gains) in 2015 amounted to NIS 438 million ($112 million), compared to NIS 524 million in 2014.



Total
revenues in 2015 amounted to NIS 348 million ($89 million), compared to NIS 399 million in 2014. The decrease is mainly attributable
to:



| | (i) | Revenues from the
    sale of commercial centers amounted to NIS 200 million ($51 million), in 2015 compared to NIS 201 million in 2014. Our revenues
    in 2015 were attributable to consummations of transaction for the sale of the Koregon commercial center in India and plots
    in Romania and Poland. In 2014 such revenues were attributable to sale of Kragujevac Plaza commercial center in Serbia and
    plots in Romania.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | Revenues from hotel
    operations and management decreased to NIS 148 million ($34 million) in 2015 compared to NIS 197 million in 2014. The decrease
    was mainly attributable to the sale of our hotels in Antwerp, Belgium in June 2015 which caused a decrease in hotel operations
    and management revenues. The average occupancy rate increase from 76% in 2014 to 77% in 2015 and the average room rate increase
    from € 92 in 2014 to € 94 in 2015.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | Total gains and
    other in 2015 amounted to NIS 91 million ($23 million), compared to NIS 125 million in 2014. Set forth below is an analysis
    of our gains and other:
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. | Rental income from
    commercial centers decreased to NIS 83 million ($21 million), in 2015 compared to NIS 114 million in 2014, mainly as a result
    of: (i) selling the Kragujevac Plaza commercial center during 2014 and the Koregaon Park commercial center in May 2015 , (ii)
    decrease in revenues from the entertainment parks within the commercial centers which were closed during 2014; and (iii) depreciation
    of the Euro (the functional currency of our commercial center operation) against the NIS. The average occupancy rate in our
    commercial centers was 84%-97% in 2015, compared to 84%-99% in 2014.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





59






| | b. | Gain from a sale
    of investee companies decreased to NIS 7 million ($3 million) in 2015, compared to NIS 11 million in 2014 attributable to
    the closing of Gamida's investment rounds with Novartis, as described above.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Expenses
and losses



Our
expenses and losses in 2015 amounted to NIS 755 million ($193 million), compared to income NIS 260 million in 2014. Set forth
below is an analysis of our expenses and losses:



| | (i) | Expenses of commercial
    centers amounted to NIS 290 million ($75 million) in 2015, compared to NIS 292 million in 2014. Such decrease was mainly attributable
    to the operational expenses of commercial centers in the amount of NIS 24 million mainly due to the sale Kragujevac Plaza
    commercial center during 2014 and the Koregaon Park commercial center in May 2015, offset by an increase in the cost of trading
    property sold in the amount of NIS 22 million.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | Cost of hotel operations
    and management decreased to NIS 127 million ($33 million) in 2015, compared to NIS 174 million in 2014. The decrease was mainly
    attributable to the sale of our hotels in Antwerp, Belgium in June 2015.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | General and administrative
    expenses decreased to NIS 17 million ($4 million) in 2015, compared to NIS 40 million in 2014. The decrease was mainly attributable
    to the efficiency measures taken to reduce the general and administrative costs in our headquarters during 2014 and 2015.
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iv) | Share in losses
    of associates, net increased to NIS 43 million ($11 million) in 2015, compared to NIS 17 million in 2014. The increase is
    mainly attributable to the losses of our medical activities as a results of a reduction in Insightec's revenues in 2015 comparing
    to 2014, as well an increase in the research and development cost of our Medical investees offset by the operations of PC's
    commercial center in Riga, Latvia.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (v) | Financial expenses
    decreased to NIS 236 million ($61 million) in 2015, compared to NIS 238 million in 2014. Such decrease of approximately NIS
    2 million is explained as follows:
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. | Gain from a buyback
    of debentures and a bank loan (as mention above) in 2015 in the amount of NIS 56 compared to no comparable gain in 2014;
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | Decrease in interest
    and CPI-linked expenses in our headquarters of NIS 13 million as a result of the decrease in the level of our corporate debts
    following the consummation of our debt restructuring at the beginning of 2014.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Offset
by:



| | a. | Increase in the
    interest and CPI-linked expenses of PC in the amount of NIS 26 million which was mainly attributable to an increase in interest
    expenses on PC's notes due to highly effective interest rates and an acceleration of amortizing of discounts offset by a decrease
    in PC's interest on bank loans due to the sale of commercial centers during 2014 and 2015;
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | Increase in loss
    from foreign currency translation exchange and other in the amount of NIS 41 million. The exchange rate losses are mainly
    attributable to the effect of the variation in the exchange rate between the Euro and NIS on PCs' notes, which are recorded
    in NIS and are measured in Euro, and to our bank loan which in 2014 was recorded in $ and measured in NIS.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (vi) | Financial income
    decreased to NIS 2 million ($0.5 million) in 2015, compared to NIS 6 million in 2014.
| | ---- | ----------------------------------------------------------------------------------------------------------



| | (vii) | Losses from changes
    in fair value of financial instruments (including derivatives, embedded derivatives and marketable securities) amounted to
    NIS 5 million ($1 million) in 2015 compared to NIS 71 in 2014. The change in fair value of financial instruments was mainly
    attributable to the following:
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. | We had no losses
    from changes in fair value attributable to PC's notes in 2015 compared to losses of NIS 60 million in 2014 mainly due to the
    fact that following the consummation of PC's debt restructuring (at the end of 2014) PC's notes were no longer measured at
    fair value through profit and loss and therefore changes in their fair value in 2015 did not affect our profit and loss account.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | Loss from change
    in fair value of derivatives, embedded derivatives and marketable securities amounted to NIS 5 million ($1 million) in 2015,
    compared to NIS 11 million in 2014.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (viii) | Financial gain from
    the debt restructuring in 2014 amounted to approximately NIS 1,616 million. The gain from our restructuring amounted to NIS
    1,610 million, and PC's net gain from its restructuring amounted to NIS 6 million. Such gain reflects the difference between
    our carrying amount and PC's unsecured financial debts as of the closing of their respective restructuring plans and the fair
    value of the shares and notes issued by us and PC based on their respective quoted closing prices on the first day thereafter.
| | ------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





60






| | (ix) | Write-down, charges
    and other expenses, net, decreased to NIS 38 million ($10 million) in 2015, compared to NIS 531 million in 2014. The write
    down was mainly attributable to the write-down in PC's trading property in Eastern Europe and India in the amount of NIS 87
    million ($22 million) in 2015 compared to NIS 528 million in 2014.The following table provides information
    in respect of the write down of the trading property in each of the years ended on December 31, 2015 and 2014:
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





|                                                     |  | Year ended December 31 |        
|---------------------------------------------------- |  | ---------------------- | -------
|                                                     |  | 2 0 1 5                |        
|                                                     |  | (In thousand NIS)      |        
|Project name (City, Country)                         |  |                        |        
|                                                     |  |                        |        
|Operational:                                         |  |                        |        
|Kragujevac (Kragujevac, Serbia)                      |  |                        | -      
|Koregaon Park (Pune, India)  (See description below) |  |                        | 6,547  
|Zgorzelec (Zgorzelec, Poland)                        |  |                        | 6,233  
|Liberec (Liberec, Czech Republic)                    |  |                        | 26,466 
|                                                     |  |                        | 39,246 
|Non-Operational:                                     |  |                        |        
|Iasi (Iasi, Romania)                                 |  |                        | -      
|Chennai (Kadavantara, India)                         |  |                        | -      
|Belgrade Plaza (Belgrade, Serbia)                    |  |                        | -      
|Helios Plaza (Athens, Greece)                        |  |                        | 1,913  
|Sportstar Plaza Visnjicka (Belgrade, Serbia)         |  |                        | (23,814
|Lodz Plaza (Lodz, Poland)                            |  |                        | 9,460  
|Krusevac (Krusevac, Serbia)                          |  |                        | 3,401  
|Casa radio (Bucharest, Romania)                      |  |                        | 36,139 
|Constanta (Constanta, Romania)                       |  |                        | 1,701  
|Ciuc (Ciuc, Romania)                                 |  |                        | -      
|Timisoara (Timisoara, Romania)                       |  |                        | 1,110  
|Lodz residential (Lodz, Poland)                      |  |                        | 9,070  
|Kielce (Kielce, Poland)                              |  |                        | 723    
|BAS (S Romania)                                      |  |                        | -      
|Arena Plaza extention                                |  |                        | 5,323  
|Others                                               |  |                        | 2,716  
|                                                     |  |                        | 47,742 
|                                                     |  |                        |        
|                                                     |  |                        | 86,988 



The
above write down of expenses for 2015 were offset by income of NIS 56 million ($16 million) which was attributable to realization
of foreign currency translation reserves to profit and loss mainly due to realization of the Euro activity in our Hotel segment.



As
a result of the foregoing factors, we recognized a loss before income tax in the total amount of NIS 316 million ($81 million)
in 2015, compared to profit of NIS 784 million in 2014.





Income
tax amounted to 6 million ($1.5 million) in 2015 compared to tax benefits of NIS 2 million in 2014. The increase in tax expenses
was attributable mainly to deferred taxes due to timing differences related to PC's notes.



The
above resulted in a loss from continuing operations in the amount of NIS 322 million ($82 million) in 2015, compared to profit
in the amount of NIS 786 million in 2014.





Profit
from discontinued net operation amounted to NIS 7 million ($2 million) comparing to loss amounted to NIS 1 million in 2014. The
discontinued operations is attributable to our former Mango operation.



The
above resulted in a loss of NIS 315 million ($81 million) in 2015, of which a loss of NIS 186 million ($48 million) was attributable
to our equity holders and a loss in the amount of NIS 129 million ($33 million) was attributable to the non-controlling interest.
Profit in 2014 included NIS 1,009 million attributable to our equity holders and a loss in the amount of NIS 225 million attributable
to the non-controlling interest.



Our
shareholders' equity as of December 31, 2015 amounted to NIS 304 million ($78 million) of which an amount of NIS 19 million ($5
million) is attributable to our equity holders.





61






The
following table provides supplemental information of our results of operations per segment, for the year ended December 31, 2015
(in NIS million):





|Segment                                                          |  | Hotels |     |   | Commercial Centers |  |     | Medical Industries |  |  | India plots |   |  | Other and Allocations |     |   | Total | 
|---------------------------------------------------------------- |  | ------ | --- | - | ------------------ |  | --- | ------------------ |  |  | ----------- | - |  | --------------------- | --- | - | ----- | 
|Revenues                                                         |  |        | 148 |   |                    |  | 200 |                    |  |  | 63          |   |  |                       | -   |   |       | 
|Rental income from commercial centers                            |  |        | -   |   |                    |  | 109 |                    |  |  | -           |   |  |                       | -   |   |       | 
|Gain from changes of shareholding in investees entities          |  |        | -   |   |                    |  | -   |                    |  |  | -           |   |  |                       | -   |   |       | 
|Total revenues and gains                                         |  |        | 148 |   |                    |  | 309 |                    |  |  | 63          |   |  |                       | -   |   |       | 
|Costs and expenses                                               |  |        | 127 |   |                    |  | 300 |                    |  |  | 107         |   |  |                       | 6   |   |       | 
|Research and development expenses                                |  |        | -   |   |                    |  | -   |                    |  |  | 59          |   |  |                       | -   |   |       | 
|Other expenses (income), net                                     |  |        | -   |   |                    |  | 84  |                    |  |  | -           |   |  |                       | 6   |   |       | 
|Segment profit (loss)                                            |  |        | 21  |   |                    |  | (74 | )                  |  |  | (103        | ) |  |                       | (12 | ) |       | 
|Financial (expenses) income, net                                 |  |        | (31 | ) |                    |  | 30  |                    |  |  | 1           |   |  |                       | -   |   |       | 
|Share in losses of associates, net                               |  |        | -   |   |                    |  | -   |                    |  |  | (13         | ) |  |                       | -   |   |       | 
|Unallocated general and administrative expenses                  |  |        |     |   |                    |  |     |                    |  |  |             |   |  |                       |     |   |       | 
|Unallocated other expenses                                       |  |        |     |   |                    |  |     |                    |  |  |             |   |  |                       |     |   |       | 
|Unallocated financial expenses                                   |  |        |     |   |                    |  |     |                    |  |  |             |   |  |                       |     |   |       | 
|Financial income                                                 |  |        |     |   |                    |  |     |                    |  |  |             |   |  |                       |     |   |       | 
|Changes in fair value of financial instruments measured at FVTPL |  |        |     |   |                    |  |     |                    |  |  |             |   |  |                       |     |   |       | 
|Loss before income taxes                                         |  |        |     |   |                    |  |     |                    |  |  |             |   |  |                       |     |   |       | 
|Income taxes                                                     |  |        |     |   |                    |  |     |                    |  |  |             |   |  |                       |     |   |       | 
|Loss from continuing operations                                  |  |        |     |   |                    |  |     |                    |  |  |             |   |  |                       |     |   |       | 
|Income from discontinued operation                               |  |        |     |   |                    |  |     |                    |  |  |             |   |  |                       |     |   |       | 
|Loss for the year                                                |  |        |     |   |                    |  |     |                    |  |  |             |   |  |                       |     |   |       | 



2014
compared to 2013



Income
- Revenues and Gains



Total
income (revenues and gains) in 2014 amounted to NIS 524 million, compared to NIS 341 million in 2013.



Total
revenues in 2014 amounted to NIS 399 million, compared to NIS 211 million in 2013. The increase is mainly attributable to:



| | (i) | Revenues from the
    sale of commercial centers, which increased to NIS 201 million in 2014 compared to NIS 9 million in 2013. In 2014, PC consummated
    the sale of the Kragujevac Plaza commercial center in Serbia and a few plots in Romania. In 2013 the revenues were attributable
    to sale of a plot by PC in the Czech Republic.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | Revenues from hotel
    operations and management decreased to NIS 197 million in 2014 compared to NIS 203 million in 2013. The decrease was mainly
    attributable to a decrease in revenues from our hotel in Romania . The average occupancy rate increase from 74% in 2013 to
    76% in 2014 and the average room rate decreased from € 94 in 2013 to € 92 in 2014.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | Total gains and
    other in 2014 amounted to NIS 125 million, compared to NIS 130 million in 2013. Set forth below is an analysis of our gains
    and other:
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. | Rental income from
    commercial centers decreased to NIS 114 million in 2014 compared to NIS 130 million in 2013, mainly as a result of selling
    the Kragujevac Plaza commercial center and the decrease in revenues from the entertainment parks within the commercial centers
    which were closed during 2013 and 2014. The average occupancy rates in our commercial centers were 84%-99% in 2014, compared
    to 86%-100% in 2013.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | Gain from a sale
    of investees increased to NIS 11 million in 2014, compared to NIS nil in 2013, attributable to the closing of Gamida's investment
    round with Novartis, as described above.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





62






Expenses
and losses



Our
expenses and losses (net of financial gain from debt restructuring) in 2014 amounted to income of NIS 260 million compared to
expenses of NIS 1,942 million in 2013. Set forth below is an analysis of our expenses and losses:



| | (iv) | Expenses of commercial
    centers increased to NIS 292 million in 2014, compared to NIS 125 million in 2013. The increase is mainly attributable to
    the sale of Kragujevac Plaza commercial center and plots in Romania in the aggregate amount of NIS 206 million ($53 million),
    offset by a decrease in PC's general and administrative expenses as a result of efficiency measures taken by PC during 2014.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (v) | Cost of hotel operations
    and management decreased to NIS 174 million in 2014, compared to NIS 179 million in 2013. The decrease was mainly attributable
    to a decrease in revenue from hotel operations.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (vi) | General and administrative
    expenses decreased to NIS 40 million in 2014, compared to NIS 61 million in 2013. The decrease was mainly attributable to
    our arrangement costs incurred mainly during 2013, as well as efficiency measures taken to reduce the general and administrative
    costs in our headquarters during 2014.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (vii) | Share in losses
    of associates, net decreased to NIS 17 million in 2014, compared to NIS 339 million in 2013. The share in losses in 2014 is
    mainly attributable to the operation of our medical activity and to operations of PC's commercial center in Riga, Latvia.
    The losses in 2013 in attributable mainly to write-down of trading properties by our joint-venture entities in India, in addition
    to the operational losses attributable to the operation of our medical activity offset by the income from PC's commercial
    centers in Riga.
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





63






| | (viii) | Financial expenses
    decreased to NIS 238 million in 2014, compared to NIS 334 million in 2013. Such decrease of NIS 96 million explained as follow
    :
| | ------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. | interest and CPI-linked
    borrowings in the amount of NIS 202 million in 2014, compared to NIS 338 million in 2013. The decrease in interest and CPI-linked
    borrowings in the amount of approximately NIS 136 million was mainly attributable to (i) decrease in the level of our corporate
    debts following the consummation of our debt restructuring from NIS 2.4 billion in 2013 to NIS 664 million in 2014 ; and (ii)
    a decrease in the Israeli consumer price index to which we and several of PC’s notes are linked (-0.1% in 2014, compared
    to 1.92% in 2013), offset by financial expenses capitalized to qualified assets in the amount of nil in 2014, compared to
    NIS 31 million in 2013 as a result of n, we temporarily suspension of capitalization of borrowing costs starting July 1, 2013.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | The decrease in
    financial expenses was offset by a loss from foreign currency translation differences and other in the amount of NIS 36 million
    ($9 million) in 2014, compared to a gain in the amount of NIS 4 million in 2013. The exchange rate differences gains (losses)
    are mainly attributable to non-cash expenses attributed to the effect of the change in the exchange rate between the €
    and NIS on PC's' notes, which are recorded in NIS and are measured in Euro, and to our bank loan which is recorded in $ and
    measured in NIS.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ix) | Financial income
    increased to NIS 6 million ($2 million) in 2014, compared to NIS 4 million in 2013.
| | ---- | --------------------------------------------------------------------------------------------------------



| | (x) | Losses from changes
    in fair value of financial instruments amounted to NIS 71 million in 2014 compared to NIS 68 in 2013. The change in fair value
    of financial instruments was mainly attributable to the following:
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. | Loss from changes
    in fair value of financial instruments (measured at fair value through profit and loss (mainly PC's notes)) amounted to NIS
    60 million in 2014 and in 2013; and
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | Loss from change
    in fair value of derivatives, embedded derivative and marketable securities amounted to NIS 11 million in 2014, compared to
    NIS 4 million in 2013.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (xi) | Financial gain from
    debt restructuring in 2014 amounted to approximately NIS 1,616 million ($416 million). The gain from our restructuring amounted
    to NIS 1,610 million ($414 million), while PC's net gain from its restructuring amounted to NIS 6 million ($2 million). Such
    gain reflects the difference between our carrying amount and PC's unsecured financial debts as of the closing of their respective
    restructuring plans and the fair value of the shares and notes issued by us and PC based on their respective quoted closing
    prices on the first day thereafter.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (xii) | Write-down, charges
    and other expenses, net, decreased to NIS 531 million ($137 million) in 2014, compared to NIS 840 million in 2013. The write
    down in 2014 was mainly attributable to the write-down in PC's trading property in Eastern Europe and India in the amount
    of NIS 527 million as described above.
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As
a result of the foregoing factors, we recognized profit before income tax in the total amount of NIS 784 million in 2014, compared
to loss of NIS 1,601 million in 2013.



Tax
benefits amounted to NIS 2 million in 2014 compared to NIS 31 million in 2013. The decrease in tax expenses was attributable mainly
to deferred taxes due timing differences related to PC's notes.



The
above resulted in profit from continuing operations in the amount of NIS 786 million in 2014, compared to loss in the amount of
NIS 1,570 million in 2013.



Loss
from discontinued operations, net, amounted to NIS 1 million in 2014, compared to profit in the amount of NIS 5 million in 2013.
The discontinued operations is attributable to our former Mango operation.



The
above resulted in profit of NIS 784 million in 2014, of which a profit of NIS 1,009 million was attributable to our equity holders
and loss in the amount of NIS 225 million was attributable to the non-controlling interest. The loss in 2013 included NIS 1,156
million attributable to our equity holders and NIS 410 million attributable to the non-controlling interest.





64






Our
shareholders' equity as of December 31, 2014 amounted to NIS 713 million out of which a an amount of NIS 232 million is attributable
to our equity holders.



The
following table provides supplemental information of our results of operations per segment, for the year ended December 31, 2014
(in NIS million):





|Segment                                                          |  | Hotels |     |   | Commercial Centers |  |      | Medical Industries |  |  | Residential |   |  | Other and Allocations |     |   | Total | 
|---------------------------------------------------------------- |  | ------ | --- | - | ------------------ |  | ---- | ------------------ |  |  | ----------- | - |  | --------------------- | --- | - | ----- | 
|Revenues                                                         |  |        | 197 |   |                    |  | 201  |                    |  |  | 81          |   |  |                       | -   |   |       | 
|Rental income from commercial centers                            |  |        | -   |   |                    |  | 141  |                    |  |  | -           |   |  |                       | -   |   |       | 
|Gain from loss of control over a subsidiary                      |  |        | -   |   |                    |  | -    |                    |  |  | -           |   |  |                       | -   |   |       | 
|Total revenues and gains                                         |  |        | 197 |   |                    |  | 342  |                    |  |  | 81          |   |  |                       | -   |   |       | 
|Costs and expenses                                               |  |        | 174 |   |                    |  | 298  |                    |  |  | 124         |   |  |                       | (6  | ) |       | 
|Research and development expenses                                |  |        | -   |   |                    |  | -    |                    |  |  | 58          |   |  |                       | -   |   |       | 
|Other expenses (income), net                                     |  |        | (13 | ) |                    |  | 447  |                    |  |  | -           |   |  |                       | 58  |   |       | 
|Segment profit (loss)                                            |  |        | 36  |   |                    |  | (403 | )                  |  |  | (101        | ) |  |                       | (52 | ) |       | 
|Financial expenses (income), net                                 |  |        | 30  |   |                    |  | 43   |                    |  |  | (2          | ) |  |                       | -   |   |       | 
|Share in losses of associates, net                               |  |        | -   |   |                    |  | -    |                    |  |  | (6          | ) |  |                       | -   |   |       | 
|Unallocated general and administrative expenses                  |  |        |     |   |                    |  |      |                    |  |  |             |   |  |                       |     |   |       | 
|Unallocated financial expenses                                   |  |        |     |   |                    |  |      |                    |  |  |             |   |  |                       |     |   |       | 
|Financial income                                                 |  |        |     |   |                    |  |      |                    |  |  |             |   |  |                       |     |   |       | 
|Financial gain from debt restructuring                           |  |        |     |   |                    |  |      |                    |  |  |             |   |  |                       |     |   |       | 
|Changes in fair value of financial instruments measured at FVTPL |  |        |     |   |                    |  |      |                    |  |  |             |   |  |                       |     |   |       | 
|Profit before income taxes                                       |  |        |     |   |                    |  |      |                    |  |  |             |   |  |                       |     |   |       | 
|Income taxes                                                     |  |        |     |   |                    |  |      |                    |  |  |             |   |  |                       |     |   |       | 
|Profit from continuing operations                                |  |        |     |   |                    |  |      |                    |  |  |             |   |  |                       |     |   |       | 
|Loss from discontinued operation                                 |  |        |     |   |                    |  |      |                    |  |  |             |   |  |                       |     |   |       | 
|Loss for the year                                                |  |        |     |   |                    |  |      |                    |  |  |             |   |  |                       |     |   |       | 





|B. | Liquidity and Capital Resources
|-- | -------------------------------



General



As
discussed above in "Item 4. History and Development of the Company – Recent Events", on February 20, 2014, the
consummation of our Debt Restructuring took place resulting, inter alia, in the following:



| | ● | 508,027,457 ordinary
    shares were issued to our unsecured financial creditors;
| | - | ---------------------------------------------------------------------------------



| | ● | We issued NIS 448
    million aggregate principal amount of Series H notes and NIS 218 million aggregate principal amount of Series I notes;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------



| | ● | We refinanced our
    loan to Bank Hapoalim in the amount of $48 million; and
| | - | -----------------------------------------------------------------------------



As
a result our corporate debts (i.e., the outstanding series A-G and 1 notes, the secured debts to Bank Hapoalim and the
outstanding debt to Bank Leumi) were reduced from approximately NIS 2.8 billion (approximately $0.8 billion) to NIS 0.8 billon
(approximately $ 0.2 billion).



As
discussed above in "Item 4. History and Development of the Company – Recent Events", during December, 2014 the
consummation of the PC Debt Restructuring took place resulting, inter alia, in the following:



| | ● | Each principal
    payment under the notes due in the years 2013, 2014 and 2015 pursuant to the original terms of the notes shall be deferred
    by exactly four and a half years and each principal payment due pursuant to the original terms of the notes in subsequent
    years (i.e., 2016 and 2017) will be deferred by exactly one year.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





65






| | ● | As from January 1, 2014, the annual interest rate of
the unsecured debt was increased by 1.5%.
| | - | ----------------------------------------------------------------------------------------------



| | ● | The net cash flow received by PC following an exit or
raising new financial indebtedness (except if taken for the purpose of purchase, investment or development of real estate asset)
or refinancing of real estate asset's after the full repayment of the asset’s related debt that was realized or in respect
of a loan paid in case of debt recycling (and in case where the exit occurred in the subsidiary – amounts required to repay
liabilities to the creditors of that subsidiary) and direct expenses in respect of the asset (any sale and tax costs, as incurred),
will be used for repayment of the accumulated interest till that date in all of the series (in case of an exit which is not one
of certain four shopping centers held by PC, only 50% of the interest) and 75% of the remaining cash (following the interest payment)
will be used for an early repayment of the close principal payments for each of the series (A, B, Polish) each in accordance with
its relative share in the deferred debt. Such prepayment will be real repayment and not in bond purchase.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | An
    injection of EUR 20 million into PC at a price per-share of EUR 0.0675 was executed by PC in the form of Rights Offering to
    its shareholders out of which we participated to the extent of EUR 8.3 million.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our
capital resources include the following: (a) proceeds from sales of commercial centers and other real estate properties (hotel
and plots in India) subject to market conditions; (b) proceeds from sale of our holdings in the medical business subject to market
conditions (c) lines of credit obtained from banks and others as well as refinancing of our existing real estate project while
increasing their leverage; and (d) available cash and cash equivalents.



See
“ - Overview” above for information on the major transactions and events carried out by us in 2013, 2014 and 2015,
which resulted in material changes in our liquidity and capital resources.



Such
resources are generally used for the following purposes:



| | (i) | Equity
    investments in our commercial centers and our hotels which are constructed by our wholly owned and jointly-controlled subsidiaries
    or joint ventures (special purpose entities that are formed for the construction of our real estate projects (a “Project
    Company”)). We generally finance approximately 35%-50% of such projects through equity investments in the Project Companies,
    while the remaining amounts are generally financed through a credit facility secured by a mortgage on the project constructed
    by the respective Project Company, registered in favor of the financial institution that provides such financing. The equity
    investments in the Project Companies are typically provided by us (and our partners, if any) through shareholder loans that
    are subordinated to the credit facilities provided to the Project Company;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | Interest
    and principal payments on our notes and loans (including purchase of our debts);
| | ---- | ---------------------------------------------------------------------------------------------



| | (iii) | Payment
    of general and administrative expenses.
| | ----- | ---------------------------------------------------



Liquidity



The
sectors in which we compete are capital intensive. We require substantial up-front expenditures for, development and construction
costs in our plots designated for development and investment by us in our investees to the extent such financing would be required
by our medical companies. Accordingly, we require substantial amounts of cash and financing for our operations. We cannot be certain
that such external financing will be available on favorable terms, on a timely basis or at all, or that the amounts we earn from
our projects will be as we planned.



Also,
during recent years the world markets experienced a financial crisis from which they have not fully recovered that resulted in
lower liquidity in the capital markets and lower liquidity in bank financing for real property projects. The financial crisis
also affected our ability to obtain financing in CEE for our commercial centers and real estate plots in those countries, especially
for projects under developments. Lower liquidity may result in difficulties to raise additional debt or less favorable interest
rates for such debt. In addition, construction loan agreements generally permit the drawdown of the loan funds against the achievement
of pre-determined construction and space leasing or selling milestones. If we fail to achieve these milestones (including as a
result of the global financial crisis and the significant decrease in the number and volume of transactions in general), the availability
of the loan funds may be delayed, thereby causing a further delay in the construction schedule.



If
we are not successful in obtaining financing to fund our planned projects and other expenditures, our ability to develop existing
projects and to undertake additional development projects may be limited and our future profits and results of operations could
be materially adversely affected.



Lack
of financing increases our dependence on realization of assets as the main source of cash flow. However, if we shall be unable
to synchronize the realization cycle with our maturities or fail to implement our business plan, we might have insufficient cash
reserve to repay our loans and notes when due.





66






The
followings list describes major transactions and events in 2015, 2014 and 2013, which resulted in material changes in our liquidity:



Sources
of Cash from Major Transactions and Events:



2015
to date





| | ● | On
    March 31, 2016 we announced following PC's announcement that it has completed the sale of its subsidiary holding Liberec Plaza,
    a shopping and entertainment center in the Czech Republic, for €9.5 million (approximately $10 million). Following net
    asset value adjustments related to the subsidiary’s balance sheet, Plaza received net €9.37 million (approximately
    $10 million).
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | On
    March 10, 2016 we announced that our subsidiary Bucuresti Turism S.A. ("BUTU"), as borrower, Raiffeisen Bank International
    A.G and Raiffeisen Bank S.A., leading international European banks, as lenders (the "Lenders") and us as guarantor
    have amended and restated the existing facility agreement for a total aggregate amount of €97 million (approximately
    $106 million) which will be draw down in two trenches. On March 24, 2016 we announced the closing of the first tranche of
    the facility agreement in the total amount of €85 million (approximately $93 million).
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | On
    December 31, 2015, InSightec and some of its existing and new shareholders signed and executed an amendment to certain Series
    D Preferred Share Purchase Agreement, dated June 26, 2014, as amended from time to time, under which Insightec completed an
    investment of $22 million at a price of $1.94 per share, in consideration for approximately 7.3% of InSightec's outstanding
    share capital, on a fully diluted basis.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | On
    December 2, 2015, we announced that EPI signed an agreement to sell 100% of its interest in a special purpose vehicle which
    holds a site in Bangalore, India to a local investor. The total consideration for the sale upon completion of the transaction
    is INR 321 Crores (approximately €45.4 million, $50 million) which will be paid at transaction closing. The Company's
    direct share in the proceed is 50% (approximately €22.7 million, $25 million). The transaction is subject to certain
    conditions precedent, and closing will take place once these conditions are met and no later than 30 September 2016. The Investor
    has provided certain security in order to guarantee the aforementioned deadline.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | On
    October 12, 2015 we announced that Gamida our indirect subsidiary, entered into agreements with Novartis according to which
    Novartis invested in Gamida an immediate amount of $5 million, in return for approximately 2.5% of Gamida on a fully diluted
    basis.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | On
    June 11, 2015 we announced that we closed the Share Purchase Agreement with Astrid JV Sarl with regards to the sale of our
    entire (100%) holdings in our wholly owned subsidiary which owns and operates our hotels in Antwerp, Belgium. The asset value
    reflected in the transaction was approximately €48 million (approximately $52 million) for both hotels subject to working
    capital and other adjustments as specified in the agreement. The total net consideration paid to the Company's wholly owned
    subsidiary (the "Seller"), following the repayments of the target's banks loan, and the aforementioned adjustments,
    was approximately €27 million (approximately $29 million) out of which €1 million (approximately $1.1 million) was
    deposited in escrow to secure the Seller's indemnification obligations under the Share Purchase Agreement. For more information
    see our Forms 6-K filed on May 10, 2015 and June 11, 2015.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | On
    May 13, 2015 we announced that PC reached an agreement to sell Koregaon Park Plaza the retail, entertainment and office scheme
    located in Pune, India for approximately €35 million (approximately US$ 39 million, 2,500 million INR), consistent with
    the asset’s last reported book value. The net cash proceeds (after repayment of the related bank loan, other liabilities
    and transaction costs) from the sale was €7.2 million (approximately US$ 8 million, 516.5 million INR).
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



2014



| | ● | On
    October 27, 2014 Elbit Fashion signed a sale agreement (the "Sale Agreement") with Fox-Wisel Ltd. ("Fox")
    with regards to the sale of the operation and business of "Mango" retail stores in Israel. Under the Sale Agreement,
    Elbit Fashion sold and assigned Fox all business activity, stores, investments in the leased properties, furniture and equipment,
    inventory and customer loyalty program and any and all rights relating thereto, free and clear of any third party rights,
    except as explicitly set in the Sale Agreement and net of certain liabilities related to the business activities of Mango.
    On January 5, 2015 Elbit Fashion have completed the sale of the operation and business of "Mango" retail stores
    in Israel from Elbit Fashion to Fox (the “Closing”), for consideration of approximately NIS 37.7 million, Following
    the Closing and consummation of the transaction, Elbit Fashion has ceased to operate the "Mango" retail stores activity.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





67






| | ● | Effective
    beginning September 2014, PC completed the disposal of its commercial center, Kragujevac Plaza in Serbia for approximately
    € 38.6 million. Following the repayment of related bank loan of approximately € 28.2 million PC received net cash
    from the disposal of approximately € 10.4 million (Restricted cash linked to the bank debt and other working capital
    balances of approximately € 2 million (approximately NIS 9.4 million) were also released following the transaction.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | During
    2014 PC completed the selling of two plots in Romania (Targu Mures and Hunedoara) to a third party developers for a total
    consideration of EUR 4.7 million (approximately NIS 22 million).
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | In
    September 2, 2014, Novartis invested $35 million in Gamida in exchange for approximately 15% of Gamida’s share capital
    and an option to purchase the holdings of the other shareholders in Gamida, including Elbit Medical's holdings.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | In
    September 2014 Bucuresti as borrower, we as a guarantor, certain other subsidiaries of us as additional obligors and a leading
    international European bank, as lender (“Lender”), have entered into an amendment to the facilities agreement
    for a second drawdown of approximately € 9 million (“Tranche B Facility”). The proceeds of the Tranche B
    Facility were used in their entirety to repay shareholders loans of BUTU to us.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | In
    July 2014 we sold 1.7 million shares of Park Plaza Hotels Limited for a net consideration of GBP 6.0 million.
| | - | --------------------------------------------------------------------------------------------------------------------



| | ● | On
    June 26, 2014 InSightec entered into a Series D Preferred Share Purchase Agreement with York
    Global Finance II S.à r.l., a company owned by York Capital Management Global Advisers LLC and affiliated with York
    Global Finance Offshore BDH (Luxembourg) S.à.r.l (for purposes of this item only, “York”),
    as amended on September 7, 2014, and on December 15, 2014, pursuant to which York and subsequent investors invested a total
    of $59 million in InSightec.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



2013



| | ● | In
    December 2013 the consortium of shareholders of Uj Udvar, in which PC indirectly holds a 35% stake, completed the sale of
    the Uj Udvar project to a private investor for consideration of EUR 2.4 million.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | On
    October 31, 2013 the consortium of shareholders of Dream Island, in which PC holds a 43.5% stake, has completed the sale of
    the Dream Island project land to the Hungarian State for approximately EUR 17 million. The proceeds of the transaction were
    used by the consortium to repay a proportion of the secured bank loan.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | In
    July 2013 PC completed the sale of 100% of its interest in a vehicle which holds the interest in the Prague 3 project (“Prague
    3”), a logistics and commercial center in the third district of Prague. The transaction values the asset at approximately
    EUR 11 million and, as a result, further to related bank financing and other adjustments to the statement of financial position,
    PC has received cash proceeds of net EUR 7.6 million.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | In
    July 2013 PC completed the sale of 100% of its interest in an entity which holds the interest in plot of land in Prague. The
    transaction values the asset at approximately EUR 1.9 million.The net cash consideration after deducting a liability to third
    party amounted to EUR 1.3 million.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | On
    May 29, 2013 PC completed the sale of its 50% interest in an Investee which mainly holds interests in an office complex project
    located in Pune, India. The total transaction value was EUR 33.4 million and, PC has received gross cash proceeds of approximately
    EUR 16.7 million in line with its holding.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | In
    June 2012, a fire event occurred at the Koregaon Plaza shopping center in Pune, India, which resulted in a temporary close-down
    of the shopping center. PC's subsidiary maintains comprehensive general liability and property insurance, including business
    interruption insurance. During 2013 PC received an amount of NIS 32 million from the insurance company.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





68






The
following table sets forth the components of our cash flows statements for the periods indicated:





|                                                    |  | Year ended December 31,                |         
|--------------------------------------------------- |  | -------------------------------------- | --------
|                                                    |  | 2015                                   |         
|                                                    |  | Convenience translation in $ thousands |         
|Net cash provided by (used in) operating activities |  |                                        | 49,038  
|Net cash provided by investing activities           |  |                                        | 60,428  
|Net cash used in financing activities               |  |                                        | (148,528
|Increase (decrease) in cash and cash equivalents    |  |                                        | (39,062 



Cash
flow in or from operating activities



Our
cash flow from operating activities is affected by our policy in respect of PC's commercial centers which are classified as trading
property since it is PC's management goal to sell these commercial centers following their development. Accordingly, our cash
flow from operating activities includes all the costs of acquisition and construction of a trading property and also the proceeds
from sale of trading properties after their disposition. Therefore, in periods in which our investments in construction and/or
acquisition of trading properties are higher than the proceeds from the sale of trading properties, we will have a negative cash
flow from operating activities.



Net
cash provided by operating activities was NIS 191 million (approximately $49 million) in 2015 compared to net cash used in operating
activities of NIS 281 million in 2014 and net cash used in operating activities of NIS 17 million in 2013.



Our
cash flow from operating activities in 2015, 2014 and 2013 was influenced by the following significant factors:



| | (i) | Cash
    flow from operating activities in 2015 included positive cash flow attributable to proceeds from sale of trading properties
    in an amount of NIS 182 million ($47 million) mostly from the sale of Koregaon park shopping center in India.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | Cash
    flow from operating activities in 2014 included positive cash flow attributable to sale of trading properties in an amount
    of NIS 214 million mostly from the sale of Kragujevac Plaza in Serbia
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | Cash
    flow from operating activities in 2013 included negative cash flow resulting from the cost of purchase of trading properties
    in an amount of NIS 11 million, mostly with respect to the development of the Koregaon park shopping center in India.
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iv) | Cash
    flows from operating activities in 2015, 2014 and 2013 also included the proceeds from operations of our commercial centers,
    hotels and retail (which is included as cash flow from discontinued operation) less operating expenses of those segments (including
    sales and marketing and general and administrative expenses attributable directly to those segments) as well as general and
    administrative expenses of our headquarters.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Cash
used in or from investing activities



Cash
flow provided by investing activities in 2015, 2014 and 2013 amounted to NIS 236 million ($60 million), NIS 39 million and NIS
355 million, respectively.



Our
cash flow provided by investing activities in 2015 was influenced by the following factors:



| | (i) | Proceeds
    from realization of investments in subsidiaries (our hotel in Belgium) in an amount of NIS 192 million ($49 million).
| | --- | ----------------------------------------------------------------------------------------------------------------------------------



| | (ii) | Proceeds
    from sale of property, plant and equipment, mainly sell of Cina and and Plaza Offices in Rompania e amounted to NIS 13 million
    ($3 million).
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | Purchase
    of property, plant and equipment and other assets in the amount of NIS 24 million ($6 million) mainly attributable to the
    renovation which was executed in the Radssion complex during 2015 .
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iv) | Proceed
    from realization of long-term deposits and long term loans in the amount of NIS 10 million ($3 million).
| | ---- | --------------------------------------------------------------------------------------------------------------------



69








| | (v) | Disposition
    of short-term deposits and marketable securities, net, in the amount of NIS 5 million ($1 million).
| | --- | -------------------------------------------------------------------------------------------------------------------



Our
cash flow provided by investing activities in 2014 was influenced by the following factors:



| | (i) | Proceeds
    from sale of property, plant and equipment, mainly PC’s aircraft amounted to NIS 7 million.
| | --- | --------------------------------------------------------------------------------------------------------



| | (ii) | Purchase
    of property, plant and equipment and other assets in the amount of NIS 5 million mainly investment and improvement of our
    hotels.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | Disposition
    of short-term deposits and marketable securities, net, in the amount of NIS 47 million.
| | ----- | -------------------------------------------------------------------------------------------------------



Our
cash flow provided by investing activities in 2013 was influenced by the following factors:



| | (i) | Proceeds
    from sale of investment property in the Czech Republic in an amount of NIS 37.6 million.
| | --- | -----------------------------------------------------------------------------------------------------



| | (ii) | Proceeds
    from realization of joint ventures entities (Kharadi in India, Dream Island and Uj Udvar in Hungary) in an amount of NIS 96
    million.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | Proceeds
    from realization of long term deposits and loans in an amount of NIS 45 million, mainly attributable to PC's operations.
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------



| | (iv) | Proceeds
    from sale of available for sale marketable securities net of purchase of available for sale marketable securities amounted
    to NIS 51 million.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (v) | Purchase
    of property, plant and equipment, investment property and other assets in the amount of NIS 15 million mainly attributable
    to our hotel segment.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (vi) | Disposition
    of short-term deposits and marketable securities, net, in the amount of NIS 140 million
| | ---- | -------------------------------------------------------------------------------------------------------



Cash
flow from financing activities



Cash
flow used in financing activities in 2015, 2014 and 2013 amounted to NIS 580 million ($149 million), NIS 295 million and NIS 545
million, respectively.



Our
cash flow used in financing activities in 2015 was influenced by the following factors:



| | (i) | Purchase
    of non-controlling interests in an amount of NIS 62 million ($16 million) which is attributed to shares acquired by BUTU during
    delisting process.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | Interest
    paid in cash by us in the amount of NIS 123 million ($33 million) on our borrowings (mainly notes issued by us and by PC and
    loans provided to our hotels and commercial centers).
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | Repayment
    of borrowings, net, of proceeds from loans in the amount of NIS 377 million ($97 million), mainly attributable repayment of
    PC notes and repayments of loans provided to our operating commercial centers and our hotels.
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iv) | Repayment
    of short-term credit in the amount of NIS 7 million ($2 million).
| | ---- | -------------------------------------------------------------------------------



Our
cash flow used in financing activities in 2014 was influenced by the following factors:



| | (i) | Proceeds
    from transaction with non-controlling interests, net in an amount of NIS 55 million ($14 million) which is attributed to a
    rights issuance by PC as part of Amended PC Plan.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | Interest
    paid in cash by us in the amount of NIS 154 million ($39 million) on our borrowings (mainly notes issued by us and by PC and
    loans provided to our hotels and commercial centers).
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | Repayment
    of borrowings, net, of proceeds from loans in the amount of NIS 205 million ($53 million), mainly attributable repayment of
    PC notes and repayments of loans provided to our operating commercial centers and our hotels.
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iv) | Proceeds
    from short-term credit in the amount of NIS 7 million ($2 million).
| | ---- | --------------------------------------------------------------------------------





70






Our
cash flow used in financing activities in 2013 was influenced by the following factors:



| | (i) | Proceeds
    from re-issuance of our notes in an amount of NIS 76 million.
| | --- | --------------------------------------------------------------------------



| | (ii) | Interest
    paid in cash by us in the amount of NIS 98 million on our borrowings (mainly notes issued by PC and loans provided to our
    hotels and commercial centers).
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | Repayment
    of borrowings, net, of proceeds from loans in the amount of NIS 420 million, mainly attributable repayment of PC notes and
    repayments of loans provided to our operating commercial centers and our hotels.
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iv) | Purchase
    of a derivative in the amount of NIS 8 million.
| | ---- | ------------------------------------------------------------



| | (v) | Repayment
    of short-term credit in the amount of NIS 86 million.
| | --- | -------------------------------------------------------------------



Major
balance sheet changes



The
following table discloses the balance sheet balances in NIS million and major balance sheet items as a percentage of total assets
as of December 31, 2015, 2014 and 2013:





|                                   |  | 2015        |       |  | 2014 |  |    | 2013        | 
|---------------------------------- |  | ----------- | ----- |  | ---- |  | -- | ----------- | 
|                                   |  | NIS million |       |  | %    |  |    | NIS million | 
|Current assets                     |  |             | 218   |  |      |  | 8  | %           | 
|Current liabilities                |  |             | 806   |  |      |  | 30 | %           | 
|Non-current assets                 |  |             | 2,486 |  |      |  | 92 | %           | 
|Non-current liabilities            |  |             | 1,593 |  |      |  | 59 | %           | 
|Shareholders’ equity (Deficiency): |  |             |       |  |      |  |    |             | 
|Attributable to our equity holders |  |             | 19    |  |      |  | 1  | %           | 
|Non-controlling interest           |  |             | 285   |  |      |  | 10 | %           | 



2015
compared to 2014



The
decrease in current assets in the amount of NIS 271 million ($69 million) in 2015 was mainly attributable to a decrease in each
of: (i) cash and cash equivalents in an amount of NIS 165 million ($42 million) mainly due to buyback of notes and loans, payment
of interest on notes and loans, investments made by us during the year (mainly the renovation of part of Radisson Blu Complex
and the purchase of the minority) and general and administrative expenses; and (ii) assets related to discontinued operation in
the amount of NIS 63 million ($16 million), due to the sale of our Mango operation



The
increase in current liabilities in the amount of NIS 447 million ($115 million) in 2015 was mainly attributable to: (i) classification
of our hotel’s loans in an amount of NIS 245 million ($65 million) from non-current liabilities to current liabilities as
the loan is due in June 2016 (as for refinancing of this loan see note 22 (4) to our financial reporting); (ii) PC's notes in
the total amount of NIS 338 million ($87 million) were classified from non-current liabilities to current liabilities as PC is
planning to generate sufficient cash flow which will enable it to repay this amount by December 1, 2016 (refer to note 8 B (1)
to our financial reporting), offset by (A) a decrease in current maturities of PC project company loans in the amount of NIS 54
million ($14 million); (B) decrease in payable and other payable in the amount of NIS 35 million ($9 million) mainly due to advances
received in 2014; (C) decrease in liabilities related discontinued operation in the amount of NIS 30 million ($8 million) due
to the sale of Mango operation.



The
decrease in non-current assets in the total amount of NIS 651 million ($167 million) in 2015 was mainly attributable to (i) write-down
of PC trading properties in an amount of NIS 87 million ($22 million); (ii) sale of Koreagon Park shopping centre and other plots
of PC in the total amount of NIS 200 million ($51 million); (iii) foreign currency in translation adjustments in the amount of
NIS 247 million ($63 million); (iv) sale of our hotel in Belgium in the amount of NIS 211 million ($54 million) offset by the
revaluation of hotels during the year in the total amount of NIS 102 million ($ 26 million).



The
decrease in non-current liabilities of NIS 996 million ($255 million) in 2015 was mainly attributable to (i) classification of
PC notes in an amount of NIS 338 million ($87 million) from non-current liabilities to current liabilities (refer to note 8 B
(1) and 12 E to our financial statements); (ii) classification of our hotel’s loans from current liabilities to non-current
liability in an amount of NIS 245 million ($65 million) as the loan is due in June 2016 (as for refinancing agreement see note
22 (4) to our financial statements); and (iv) repayment of PCs notes and loans and the hotels loans in an amount of NIS 377 million
($97 million) mainly due to the sale of Koreagon Park shopping centre our hotel in Belgium and buyback of Liberec loan (see note
12 C (2) to our financial statements).





71






2014
compared to 2013



The
decrease in current assets in the amount of NIS 205 million ($53 million) in 2014 was mainly attributable to a decrease in each
of: (i) short-term deposits and investment in the amount of NIS 34 million ($9 million), mainly due to the sale of Park Plaza
shares; and (ii) classification of Koregaon Park trading property from current assets to non-current assets due to the delay in
its sale procedure in an amount of NIS 193 million ($50 million).



This
decrease was offset by: (i) increase in cash and cash equivalents due to net proceeds from the sale of trading property.



The
decrease in current liabilities in the amount of NIS 4,435 million ($1,140 million) in 2014 was mainly attributable to: (i) a
decrease in our unsecured corporate debt due to our Debt Restructuring according to which unsecured financial debt in an amount
of NIS 2.6 billion ($669 million) was extinguished and new notes in a total amount of NIS 666 million ($171 million) were issued,
causing a decrease of NIS 1.8 billion ($463 million) in our debts. Following our Debt Restructuring, these notes and a bank loan
in an amount of NIS 180 million ($46 million) were classified to non-current liabilities. (ii) a decrease due to the classification
of PCs notes and loans from current liabilities to non-current liabilities in an amount of NIS 1,440 million ($370 million) due
to the Amended PC Plan (iii) a decrease in interest payable (mainly interest accrued on our notes which was not paid during 2013,
but paid or included in the Debt Restructuring in 2014); and (iv) our hotels’ loans in an amount of NIS 390 million ($100
million) were classified from current liabilities to non-current liabilities due to the closing of our Debt Restructuring.



The
decrease in non-current assets in the total amount of NIS 697 million ($179 million) in 2014 was mainly attributable to (i) write-down
of PC trading properties in an amount of NIS 528 million ($136 million); which was set off by a classification of the trading
property (Koregaon Park project) in the amount of NIS 193 million ($50 million), due to delay in its sale procedure; (ii) a decrease
in long term deposits in an amount of NIS 21 million ($5.4 million); (iii) reversal of impairment of investments in joint ventures
in an amount of NIS 16 million ($4 million); and (iv) a decrease in property, plant and equipment in an amount of NIS 189 million
($49 million) due to impairment of our hotels. The rest of the decrease is attributable to changes between the NIS and the foreign
currency in which our subsidiaries operate.



The
increase in non-current liabilities of NIS 2,410 million ($620 million) in 2014 was mainly attributable to an increase in (i)
classification of our notes and loans in an amount of NIS 730 million ($188 million) from current liabilities to non-current liabilities
due to our Debt Restructuring; (ii) classification of PCs notes and loans to non-current liabilities in an amount of NIS 1,440
million ($370 million) due to the Amended PC Plan; (iii) classification of our hotel’s loans from current liabilities due
to our Debt Restructuring in an amount of NIS 390 million ($100 million); and (iv) repayment of PCs notes and loans and the hotels
loans in an amount of NIS 248 million ($64 million).



Concentration
of Credit Risk



We
hold cash and cash equivalents, short term investments and long-term deposits at banks and financial institutions in various reputable
banks and financial institutions. Our maximum credit risk exposure is equal to the financial assets presented in the balance sheet.



Due
to the nature of their activity, our subsidiaries operating in the hotel, medical and fashion merchandise segments, are not materially
exposed to credit risks stemming from dependence on a given customer. Our subsidiaries examine the credit amounts extended to
their customers on an ongoing basis and, accordingly, record a provision for doubtful debts based on factors they believe to have
an effect on specific customers. As of December 31, 2015 and 2014 our trade receivables do not include any significant amounts
due from buyers of trading property.



Derivative
Instruments



For
information on financial instruments used, profile of debt, currencies and interest rate structure, see “Item 11. Quantitative
and Qualitative Disclosure about Market Risks” below.



Other
Loans



We
have entered into or assumed liability for various financing agreements, either directly or indirectly through our subsidiaries,
to provide capital for the purchase, construction, and renovation and operation of commercial and entertainment centers and hotels
as well as for various investments in our other operations. Set forth below is certain material information with respect to material
loans extended to us, our subsidiaries and our jointly controlled companies as of December 31, 2015.



72








The loans granted to our
jointly controlled companies are presented in the following table at their 100% amount, unless otherwise specified.



|Borrower                             | Lender                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | Original
    Amount                              | Amount
    Outstanding on Dec. 31, 2015             | Interest                                     | Payment
    Terms                                                                                                                                    
|------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------ | --------------------------------------------------- | -------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------
|EI                                   | Series
    H Notes issued to the public as part of the debt Arrangement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | NIS
    448 million (approximately $115 million) | NIS
    390 million (approximately $100 million)(*) | 6%
    per annum, linked to the Israeli CPI. | ●    One
        installment on May 31, 2018.
        
        ●    Interest
        payable by semi-annual installments commencing December 1, 2013.
|Principal
    Security and Covenants | ●     First
        ranking floating charge granted by the Company, over all the Company's assets
        
        ●First
ranking fixed pledges granted by each of the Company and our wholly owned subsidiary Elscint Holding and Investment NV ("EH"),
which is holding, indirectly, our Raddison Complex), over the current and future shares of EH and all rights associated therewith.
        
        ●First
ranking fixed pledges granted by each of the Company and EH over all intercompany receivables and shareholders loans provided
or that will be provided by us to EH.
        
        ●First
ranking fixed pledges granted by each of the Company and our wholly owned subsidiary EUL, which is holding our shares at PC, over
the current and future shares of EUL and all rights associated therewith.
        
        ●First
ranking fixed pledges granted by each of the Company and EUL over all intercompany receivables and shareholders loans that may
be provided by us to EUL.
        
        ●Negative
Pledge by each of the Company, EH and EUL, while with respect to EH the Negative Pledge shall apply to all its current and future
assets and with respect to EUL the Negative Pledge applies to EUL's share in PC that have not already been pledged to Bank Hapoalim
B.M. ("Bank Hapoalim"), including all rights associated therewith.
        
        ●Corporate
guaranty by each of EH and EUL, by which each of them guarantees the Company's obligations to the Series H and Series I Trustees.
        
        It
        should be noted that the collaterals securing the Series I Notes are subordinated to the collaterals securing the Series
        H Notes and that all the Noteholders’ pledges are subordinated to the pledges granted to Bank Hapoalim or any successor
        thereof. It should be noted, further, that those pledges are recorded in Israel, the Netherlands and Luxemburg, where
        applicable. The pledges include exemptions allowing the disposition of the pledged assets so long as the Company is not
        in default under the Notes nor Material Adverse Event (as defined under the Notes) shall have been occurred.
|Other
        Information            | The
        notes are registered for trade on the TASE.
        
        The
        notes are not registered under the Securities Act.
        
        Events
        of default include, among other things, the occurrence of event of default under the Notes or an event that would entitle
        the Trustees under the Notes or the Noteholders to accelerate and redeem the Notes, as well as cross default with the
        other series of notes and delisting from both the TASE and NASDAQ Global Select Market.
        
        (*)
        We approved on October 12, 2015 a Notes Buy-Back Plan for our series H and I Notes in the total amount of NIS 50 million.
        In December 2015 we reached the Buy-Back Plan goal by purchasing approximately NIS 55 par value of series H notes for
        a total consideration of approximately NIS 50 million.
        
        (**)
        On February 1, 2016 we approved a new program to repurchase up to NIS forty (40) million (approximately $10.1 million)
        of our Series H Notes, which are traded on the TASE. Until the date of this report, we have bought back 13.7 million par
        value Series H Notes for a total amount of NIS 12.2 million (approximately $3 million).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             





73










|Borrower                             | Lender                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | Original
    Amount                       | Amount
    Outstanding on Dec. 31, 2015  | Interest                                     | Payment
    Terms                                                                     
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------- | ---------------------------------------- | -------------------------------------------- | --------------------------------------------------------------------------------------
|EI                                   | Series
    I public notes issued to the Public as part of the debt Arrangement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | NIS
    218 million (approx. $56 million) | NIS
    145 million (approx. $63million) | 6%
    per annum, linked to the Israeli CPI. | Principal
        and accrued interest is paid in one installment on December 1, 2019.
|Principal
    Security and Covenants | Second
        ranking floating charge over all the Company's assets
        
        ●     Second
        ranking fixed pledges granted by each of the Company and EH over the current and future shares of EH and all rights associated
        therewith.
        
        ●     Second
        ranking fixed pledges granted by each of the Company and EH over all intercompany receivables and shareholders loans provided
        or that will be provided by us to EH.
        
        ●     Second
        ranking fixed pledges granted by each of the Company and EUL over the current and future shares of EUL and all rights
        associated therewith.
        
        ●     Second
        ranking fixed pledges granted by each of the Company and EUL over all intercompany receivables and shareholders loans
        that may be provided by us to EUL.
        
        ●     Negative
        Pledge by each of the Company, EH and EUL, while with respect to EH the Negative Pledge shall apply to all its current
        and future assets and with respect to EUL the Negative Pledge applies to EUL's share in PC that have not already been
        pledged to Bank Hapoalim B.M. ("Bank Hapoalim"), including all rights associated therewith.
        
        ●     Corporate
        guaranty by each of EH and EUL, by which each of them guarantees the Company's obligations to the Series H and Series
        I Trustees.
        
        It
        should be noted that the collaterals securing the Series I Notes are subordinated to the collaterals securing the Series
        H Notes and that all the Noteholders’ pledges are subordinated to the pledges granted to Bank Hapoalim or any successor
        thereof. It should be noted, further, that those pledges are recorded in Israel, the Netherlands and Luxemburg, where
        applicable. The pledges include exemptions allowing the disposition of the pledged assets so long as the Company is not
        in default under the Notes nor Material Adverse Event (as defined under the Notes) shall have been occurred.
|Other
        Information            | The
        notes are registered for trade on the TASE.
        
        The
        notes are not registered under the Securities Act.
        
        Events
        of default include, among other things, the occurrence of an event of default under the Notes or an event that would entitle
        the Trustees under the Notes or the Noteholders to accelerate and redeem the Notes, as well as cross default with other
        series of notes and delisting from both the TASE and NASDAQ Global Select Market.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             





74






|Borrower                                                     | Lender                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Original
    Amount                            | Amount
    Outstanding on Dec. 31, 2015      | Interest                                                                                                                                                                                                                                                                     | Payment
    Terms                                                                                             
|------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------------- | -------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------
|EI                                                           | Bank
    Hapoalim B.M.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | €
    44 million(*)(approximately $48 million) | €
    37 million (approximately $40 million) | The
    total interest rate on the loan is Euro Libor+ 4.5 payable as follow: interest of LIBOR + 3.2% is to be paid on a quarterly
    basis and  and additional 1.3% which shall accrue and be paid in a single installment on the maturity date of the
    loan principal | One
        installment on February 20, 2017 subject to certain early mandatory prepayment as described below.
|Principal
    Security and Covenants                         | ●     a
        first ranking pledge over 86 million shares of Plaza Centers which represent approximately 13% of Plaza's share capital.
        
        ●     a
        pledge that has been granted by BEA Hotels over 99% of the issued and outstanding share capital of our wholly owned indirect
        subsidiary, Bea Hotels Eastern Europe B.V. ("BHEE", indirectly holds the Radisson Blu Bucharest hotel in Bucharest,
        Romania), and a pledge over any proceeds that my become due to it under shareholders loans provided by it to BHEE.
        
        In
        addition, BEA Hotels and BHEE had executed certain direct undertakings in favor of Bank Hapoalim, inter alia, not
        to engage in any other business or to incur any further indebtedness not in the ordinary course of their business or as
        allowed under such undertakings, not to change the holdings structure, to assume certain reporting obligations etc., all
        as set forth in such undertakings.
        
        The
        loan agreement contains a covenant that the ratio between the outstanding amount of the loan to the value of the pledges
        assets ("LTV") will not exceed 85% (or 75% following the sale of the Belgium and Romanian hotels).
        
        On
        March 22, 2016, we announced that we signed an addendum to the loan agreement with Bank Hapoalim B.M., that will cancel
        and replace the previous loan agreement. Under the Addendum, subject to the prepayment of €15.0 million (approximately
        $16 million) to the Bank by March 31, 2016. For more information see "Item 4 – Information on the Company –
        History and Development of the Company – Recent Events - Addendum to Loan Agreement with Bank Hapoalim"                                                                                                                                                         
|Additional
    information in respect of Mandatory provision | ●     In
        the case of the sale of all of the rights or the sale of the control of BHEE or Bucaresti Turism SA ("BUTU")
        or BUTU's rights in the Radisson Blu hotel in Bucharest, the Company will undertake to prepay the Bank an amount of €
        27 million; in the case of the sale of part of those rights, after which the Company retains control over the asset –
        a proportionate share of such amount. The balance of the net cash flow from the sale (if any) will be used by the Company
        for their on-going operations.
        
        ●     In
        the case of a sale of Plaza Centers' shares which are held by the Company – the Company will undertake that the
        full net cash flow attributed to the shares held by the Company and pledged to the Bank will be used to prepay the loan
        to the Bank.
        
        ●     If
        and in the event that the Company shall prepay its debt to the Noteholders, in whole or any part thereof, from the Company's
        internal sources (i.e., other than from a raising of capital and/or alternative debt), then the Company shall prepay the
        Bank an amount equal to the amount paid to the Noteholders on such date multiplied by the ratio between the Company's
        debt to the Bank and the Company's total debt to the Bank and to the Noteholders as of such date.
        
        ●     In
        the case of a distribution as defined in the Israeli Companies Law, including payment of a dividend in any manner to the
        Company's shareholders, the Company shall prepay the Bank an amount equal to the amount paid to the shareholders on such
        date multiplied by the ratio between the Company's debt to the Bank and the total debt of the Company to the Bank and
        to the Noteholders as of such date.
        
        (*)  The
        loan was converted from USD into Euro in 2015.





75








|Borrower                         | Lender                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Adjusted Original Amount following debt restructuring                                                                                                                                           | Amount Outstanding on Dec. 31, 2015                                                                               | Interest                                    | Payment Terms                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------- | ------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|PC                               | Series A Notes issued to the public                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | NIS 302 million (approximately $77.65 million)
        
        Interest payments accrued and not paid until the end
        of 2013 were added to the principal and are paid together with it. | NIS 235.1 million* (approximately $64.7 million)
        
        **Adjusted par value of Notes NIS 280.7 million | ●  6% per annum, linked to the Israeli CPI. | ●  The Principal Balance
        of the Notes shall be called for repayment in five (5) equal payments to be paid as follows: on December 31, 2017, on July 1, and
        December 31, 2018 and on July 1, 2019 and 2020
        
        ●  Notwithstanding
        the above, in the event that PC did not repay the Notes by December 1, 2016 the Principal amount of the Notes for the three Series
        of Notes in a total amount of at least NIS 434,000,000 excluding linkage differentials, and including repayment of the Principal
        of the Notes (Series A) in a total of at least NIS 92,032,137 (excluding linkage differentials) then the repayment dates of the
        Unpaid Principal Balance of the Notes (Series A) shall be automatically advanced by one year in relation to the repayment dates.
        
        ●  The interest shall
        be paid in semi-annual payments on July 1st and December 31st of each of the years between 2015 and 2019
        and on July 1, 2020, each payment for the interest accrued in the six months ending on the date preceding each payment date as
        stated and subject to prepayment and deferral of payments.
|Principal Security and Covenants | Negative pledge on all of the real estate assets of the
        Company and its subsidiaries.
        
        "Net
        asset value" coverage ratio - In case the up-to-date and adjusted "net asset value" coverage ratio against debt
        is lower than 118% ("Minimal Coverage Ratio") in two consecutive examination dates after the first examination date (in
        which a decline under the minimal coverage ratio was created) then cause for immediate prepayment will be created.
        
        The "net asset value" coverage ratio is the
        ratio between: (a) the value of all assets including balances of cash and cash equivalents deducting preceding / specific bank
        debts, and (b) the Group’s debts that are not preceding / specific and/or debts subordinate to the debts included in the
        restructuring.
        
        In the event that the Coverage Ratio
        is lower than the Minimum Coverage Ratio, then commencing on the first Examination Date in which a breach of the Coverage Ratio
        covenant has been established and for as long as the breach is continuing, the Company shall not perform any of the following:
        (a) a sale, directly or indirectly, of a Real Estate Asset owned by the Company or a Subsidiary, with the exception that it shall
        be permitted to transfer Real Estate Assets in performance of an obligation to do so that was entered into prior to the said Examination
        Date, (b) investments in new Real Estate Assets; or (c) an investments that regards an existing project of the Company or of a
        Subsidiary, unless it does not exceed a level of 20% of the construction cost of such project (as approved by the lending bank
        of these projects) and the LTC Ratio of the project remains equal to or greater than the Minimum LTC Ratio.
|Other Information                | The Notes have been registered for
        trade on the TASE.
        
        Prepayments – PC is allowed
        at any time to prepay any debt balance at the adjusted par value of the note, but it will have to execute prepayment upon disposal,
        raising new financial debt or refinancing of assets (see Item 5 - "Operating and Financial Review and Prospects").
        
        The Notes are not registered under
        the Securities Act.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   





76






|Borrower                         | Lender                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Adjusted Original Amount
        Following debt restructuring                                                                                                                                         | Amount Outstanding on Dec. 31, 2015                                                                                | Interest                                  | Payment Terms                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------ | ----------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|PC                               | Series B Notes issued to the public                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | NIS 610.1 million (approximately $156.9 million)
        
        Interest payments accrued and not paid until the end
        of 2013 were added to the principal and will be paid together with it. | NIS 468.7 million* (approximately $117.1 million)
        
        **Adjusted par value of Notes NIS 542.8 million | 6.9% per annum, linked to the Israeli CPI | The Unpaid Principal Balance of the
        Notes shall be called for repayment in two (2) equal payments to be paid on July 1, 2018 and July 1, 2019 (with the first payment
        being performed on July 1, 2018 and the final payment being performed on July 1, 2019).
        
        Notwithstanding the above, in the
        event where the Company did not pay, by December 1, 2016 the Principal of the Notes for the Three Series’ in a total amount
        of at least NIS 434,000,000 excluding linkage differentials and including repayment of principal of Notes (Series B) in a total
        amount of at least NIS 305,000,000 (excluding linkage differentials), then the repayment dates of the Unpaid Principal Balance
        of the Notes (Series B) shall be automatically advanced by one year in relation with the repayment dates.
        
        The interest shall be paid for
        the Unpaid Principal Balance in biannual payments on July 1st and December 31st of each of the years between
        2015 and 2018 and on July 1, 2019, each payment for the interest accrued in the six months ending on the date preceding each payment
        date as stated, and subject to prepayment and deferral of payments.
|Principal Security and Covenants | Negative pledge on all of the real estate assets of the
        Company and its subsidiaries.
        
        "Net
        asset value" coverage ratio - In case the up-to-date and adjusted "net asset value" coverage ratio against debt
        is lower than 118% ("Minimal Coverage Ratio") in two consecutive examination dates after the first examination date (in
        which a decline under the minimal coverage ratio was created) then cause for immediate prepayment will be created. The "net
        asset value" coverage ratio is the ratio between: (a) the value of all assets including balances of cash and cash equivalents
        deducting preceding / specific bank debts, and (b) the Group’s debts that are not preceding / specific and/or debts subordinate
        to the debts included in the restructuring.
        
        In the event that the Coverage Ratio
        is lower than the Minimum Coverage Ratio, then as from the first Examination Date on which a breach of the Coverage Ratio covenant
        has been established and for as long as the breach is continuing, the Company shall not perform any of the following: (a) a sale,
        directly or indirectly, of a Real Estate Asset owned by the Company or a Subsidiary, with the exception that it shall be permitted
        to transfer Real Estate Assets in performance of an obligation to do so that was entered into prior to the said Examination Date,
        (b) investments in new Real Estate Assets; or (c) an investments that regards an existing project of the Company or of a Subsidiary,
        unless it does not exceed a level of 20% of the construction cost of such project (as approved by the lending bank of these projects)
        and the LTC Ratio of the project remains equal to or greater than the Minimum LTC Ratio.
|Other Information                | The Notes have been registered for
        trade on the TASE.
        
        Prepayments – PC is allowed
        at any time to prepay any debt balance at the adjusted par value of the note, but it will have to execute prepayment upon disposal,
        raising new financial debt or refinancing of assets (see Item 5 - "Operating and Financial Review and Prospects").
        
        The Notes are not registered under
        the Securities Act.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            









77






|Borrower | Lender                                                      | Adjusted
        Original Amount
        Following
        debt restructuring                                                                                              | Amount
    
    Outstanding 
    on 
    Dec. 31, 2015 | Interest               | Payment
    Terms                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-------- | ----------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------ | ---------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|PC       | Private
    note issuance to Polish institutional investors | PLN
        62.76 million
        
        Interest
        payments accrued and not paid until the end of 2013 were added to the principal and are paid together with it. | PLN
    55.9 million                                   | 6
    Month WIBOR + 6% | “Redemption
        Date” shall mean the day falling seven and a half years after the Issue Date (16 May 2018), subject to moving such
        day forward in the event that prior to December 1, 2016 PC does not manage to repay (through redemption or otherwise)
        the Plan Debt Securities in the principal amount of NIS 434,000,000 (or equivalent of such amount in other currencies
        as of the repayment date), the Redemption Date of all the outstanding notes shall be moved forward to May 16, 2017. Interest
        is payable in semi-annual installments.





78






|Principal
    Security and Covenants | ●     Certain
        circumstances shall be deemed events of default by giving the note holders the right to demand early redemption, which
        include, inter alia, the following covenants (in addition to the abovementioned covenant under debt restructuring):
        
        ●     Breach
        of the Cash Position as a result of the payment of dividends or the buy-back program falling below €50 million. “Cash
        Position” means the sum of cash and cash equivalent of: cash, short and long interest bearing deposits with banks
        or other financial institutions, available for the sale of marketable securities, and restricted cash, calculated based
        on the consolidated financial statements.
        
        ●     Breach
        of financial ratios – the Net Capitalization Ratio exceeds 70%; "Net Capitalization Ratio" is the Net
        Debt divided by the Equity plus the Net Debt, as calculated by PC's auditor; “Net Debt” mean PC's total debt
        under: loans and borrowings, lease agreements, notes, other debt securities and other interest bearing or discounted financial
        instruments in issue, less related hedge derivatives, cash and cash equivalents, short and long-term interest bearing
        deposits with banks or other financial institutions, available for sale marketable securities and restricted cash, calculated
        based on the consolidated financial statements.
        
        ●     Breach
        of Minimum Coverage Ratio – a breach of the Minimum Coverage Ratio has occurred and continued throughout a period
        comprising two (2) consecutives Examination Dates following the first Examination Date on which such breach has been established;
        
        ●     Incurrence
        of Financial Indebtedness by PC - PC incurred new Financial Indebtedness, unless certain conditions are met;
        
        ●     Breach
        of PC’s negative pledge;
        
        ●     Establishment
        of encumbrances by Subsidiaries – a Subsidiary created any Encumbrance on any of its assets, unless the relevant
        Encumbrance meets one of the conditions detailed under restructuring plan;
        
        ●     Occurrence
        of Non-Permitted Disposal - the Issuer:
        
        (a)
        procured or permitted the occurrence of an Exercise Event with respect to any Real Estate Asset of the Group where the
        Net Cash Flow resulting from such Disposal was not used for Mandatory Prepayment upon Exercise Event in accordance with
        Clause 8 above; or
        
        (b)
        performed or permitted a Disposition, directly or indirectly, or a refinancing of the Shopping Malls, where the cumulative
        Net Cash Flow resulting from such Disposition or refinancing amounted to less than EUR 70 million. If the Disposition
        or the refinancing occurs only with respect to some but not all of the Shopping Malls, then such Disposition or refinancing
        shall constitute an Event of Default unless the Net Asset Value of the Unsold Shopping Malls plus the aggregate Net Cash
        Flows received from the intended Disposition or refinancing and from any previous Disposition or refinancing of a Shopping
        Mall amounts to at least EUR 70 million;
        
        ●     Occurrence
        of Non-Permitted Investment - PC made an investment in new or existing Real Estate Assets of the Group where following
        such investment the Cash Reserve was less than the Minimum Cash Reserve or the Coverage Ratio was less than the Minimum
        Coverage Ratio;
        
        ●     Exclusion
        from trading or listing of PC’s shares;
        
        ●     Failure
        to repay material debt – PC fails to repay any matured and undisputable debt in the amount of at least €100
        million within 30 days of its maturity;
        
        ●     Distributions
        to the shareholders by PC – PC made a Distribution, despite the fact that (i) less than 75% of the outstanding balance
        of the nominal value of the Plan Debt Securities as per the Plan Amendment Date has been repaid or the Coverage Ratio
        on the last Examination Date prior to such Distribution was less than 150% following such Distribution, or (ii) no Majority
        consented to the proposed Distribution. Notwithstanding the aforesaid, in the event an Additional Capital Injection occurs,
        then after one year following the date of the Additional Capital Injection, no restrictions other than those under the
        applicable law shall apply to dividend distributions in an aggregate amount up to 50% of such Additional Capital Injection.
|------------------------------------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        



79








|Borrower                         | Lender                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | Facility Amount | Amount Outstanding on Dec. 31, 2015 | Interest                | Payment Terms                                                                                                              
|-------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------- | ----------------------------------- | ----------------------- | ---------------------------------------------------------------------------------------------------------------------------
|SIA DIKSNA ("Riga Plaza“)        | AS SEB Banka, Swedbank AS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | €29.7 million * | €28.3million *                      | 3 months Euribor + 2.9% | Expires on 2017 October 31. Quarterly annuity payments calculated according to 20 years amortization, with balloon payment.
|Principal Security and Covenants | Registered first
        ranking mortgage on Riga Plaza commercial center;
        
        Assignment of
        all rights under relevant valid insurance policies;
        
        Charges over each
        quota owned by PC in the borrower or share pledge agreement;
        
        First ranking
        pledges on the borrowers’ accounts;
        
        Prompt collection
        right to debit any of the bank accounts of the borrower;
        
        Maintain a Debt
        Service Cover Ratio of 1.2;
        
        Loan to Value
        ratio of 70%;
|Other Information                | * Represents 50% of the loan, which
        is PC's shareholding in Riga Plaza.
        
        * SIA Diksna is an equity accounted
        investee of PC.                                                                                                                                                                                                                                                                                                                                                                                                                          



|Borrower                                                   | Lender                                             | Original Amount *                                | Amount Outstanding on Dec. 31, 2015              | Interest                                                    | Payment Terms                                                                                                                                                                                                             
|---------------------------------------------------------- | -------------------------------------------------- | ------------------------------------------------ | ------------------------------------------------ | ----------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|A: Valley View
        
        B: Primavera
        Tower | A: OTP Bank Nyrt.
        
        B: MKB Bank Zrt | A: €8.2 million
        
        B: €1.5 million | A: €8.2 million
        
        B: €1.5 million | A:Euribor + 6% p.a.
        
        B: Euribor + 4.5% p.a. | A: Expired. Only interest payments. Negotiations ongoing.
        
        B: Expired March 31, 2012. Only interest payments. Approval to sell
        project for EUR 240k and the rest will be written down by the bank.
|Principal Security and Covenants                           | First ranking mortgage on the properties.         
|Other Information                                          |                                                   





80






|Borrower                         | Lender                                                                                                                                                                                                                                                                                                                                                | Original Amount | Amount Outstanding on Dec. 31, 2015 | Interest                           | Payment Terms                                                                                                     
|-------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------- | ----------------------------------- | ---------------------------------- | ------------------------------------------------------------------------------------------------------------------
|Suwalki Plaza                    | ING Bank Slaski S.A                                                                                                                                                                                                                                                                                                                                   | €33.5 million   | €27.7 million                       | 3 months Euribor + 1.65% per annum | Expires December 29, 2020. Quarterly payments with fixed principal
        amounts and balloon payment at the end.
|Principal Security and Covenants | First ranking
        mortgage on the property.
        
        Pledge on shares
        of borrower and pledge on bank accounts.
        
        Assignment of
        rights from insurance, guaranties and agreements.
        
        Maintain a debt
        service cover ratio of 1.2.
        
        Loan to value
        ratio of 0.7.
|Other Information                |                                                                                                                                                                                                                                                                                                                                                      



|Borrower                         | Lender                                                                                                                                                                                                                                                                                                                                             | Original Amount | Amount Outstanding on Dec. 31, 2015 | Interest                               | Payment Terms                                                                                                                    
|-------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------- | ----------------------------------- | -------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------
|Zgorzelec Plaza                  | Bank Zachodni WBK S.A.                                                                                                                                                                                                                                                                                                                             | €22.3 million   | €21.2 million                       | 3 months Euribor + 2.75% per annum for | Expired June 30, 2014. Negotiations
        about prolongation ongoing. With default interest outstanding amount is€22.7 million.
|Principal Security and Covenants | A first ranking mortgage on the property.
        
        Pledge on shares
        of borrower and pledge on bank accounts.
        
        Assignment of
        rights from insurances, guaranties and agreements.
        
        Maintain a debt
        service cover ratio of 1.15.
        
        Loan to value
        ratio of 0.75.
|Other Information                |                                                                                                                                                                                                                                                                                                                                                   



|Borrower                         | Lender                                                                                                                                                                                                                                                                                                                                  | Original Amount | Amount Outstanding on Dec. 31, 2015 | Interest                        | Payment Terms                                                                                             
|-------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------- | ----------------------------------- | ------------------------------- | ----------------------------------------------------------------------------------------------------------
|Torun Plaza                      | Bank PEKAO S.A                                                                                                                                                                                                                                                                                                                          | €50.1 million   | €45.7 million                       | 3 months Euribor + 3% per annum | Expires December 31, 2017. Quarterly payments with fixed
principal amounts and balloon payment at the end.
|Principal Security and Covenants | First ranking mortgage on the property.
        
        Pledge on shares of borrower and pledge
        on bank accounts.
        
        Assignment of rights from insurances,
        guaranties and agreements.
        
        Maintain a debt service cover ratio
        of 1.25.
        
        Loan to value ratio of 0.7.





81








|Borrower                         | Lender                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Original Amount | Amount Outstanding on Dec. 31, 2015 | Interest       | Payment Terms                                                                                                                                                                   
|-------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | --------------- | ----------------------------------- | -------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Bucuresti Turism SA              | Raiffeisen Bank International (“RBI”)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | €71.5 million   | €59.8
    million                   | Euribor + 4.6% | The principal is repayable in 20 quarterly installments of €0.65 million each, commencing September 2011, with a balloon payment of €58.5 million to be repaid on June 30, 2016.
|Principal Security and Covenants | First rank mortgage
        on the Complex which include the Radisson Blu Bucharest Hotel and the Park Inn Hotel
        
        Future and existing
        cash flow through the bank accounts opened at Raiffeisen Bank.
        
        Pledge over the
        shares of Bucuresti Turism SA and its subsidiary held by the majority shareholder (BEA Hotels Eastern Europe BV).
        
        Pledge of receivables
        arising from lease agreements and insurance policies concluded by the borrower.
        
        Guarantee of the
        yearly debt service from us.
        
        Title insurance
        over the mortgage asset.                                                         
|Other Information                | On April 3, 2012, we concluded an agreement
        with RBI fixing the Euribor at 1.40% from January 1, 2013, until the end of the loan.
        
        On March 10, 2016
        we announced that BUTU, as borrower, Raiffeisen Bank International A.G and Raiffeisen Bank S.A., leading international European
        banks, as lenders and us as guarantor have amended and restated the existing facility agreement for a total aggregate amount of
        €97 million (approximately $106 million) which will be draw down in two trenches. On March 24, 2016 we announced the closing
        of the first tranche of the facility agreement in the total amount of €85 million (approximately $93 million).



Financial Instruments



For information on financial
instruments used, profile of debt, currencies and interest rate structure, see “Item 11. Quantitative and Qualitative Disclosure
about Market Risks” below.



Material Commitments for Capital Expenditure



See “Tabular Disclosure
of Contractual Obligations” below.



|C. | RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
|-- | ----------------------------------------------------



The Israeli government
encourages industrial companies by funding their research and development activities through grants by the Office of the Chief
Scientist (the "OCS").



Each of InSightec’s
and Gamida's research and development efforts has been financed, in part, through OCS grants. InSightec and Gamida (only for Gamida’s
NiCord development) have received or were entitled to receive grants totaling $28 million and $17.1 million, respectively, from
the OCS since their respective inception and each of them is required to repay such grants through payment of royalties to the
OCS from its respective revenues until the entire amount is repaid.



Each of InSightec’s
and Gamida's technology developed with OCS funding is subject to transfer restrictions, which may impair its ability to sell its
technology assets or to outsource manufacturing. The restrictions continue to apply even after InSightec or Gamida has paid the
full amount of royalties’ payable for the grants. In addition, the restriction may impair InSightec’s or Gamida's ability
to consummate a merger or similar transactions in which the surviving entity is not an Israeli company.





82






The total OCS grants received
by InSightec during 2015, 2014 and 2013 were $2.6 million, $1.8 million and $1.3 million, respectively, and the total OCS grants
received by Gamida during 2015, 2014 and 2013 were $3.2 million, $2.5 million and $1.2 million, respectively.



|D. | TREND INFORMATION
|-- | -----------------



Commercial Centers



Our commercial centers
business is affected by trends in each of the geographic areas in which we operate.



The CEE region experienced
some growth in the course of 2015, and this pace of growth is expected to accelerate further in the coming years. However, prospects
remain slightly uncertain as a result of the ongoing Ukrainian crisis which has hit investor sentiment and consumer confidence,
and could have a ripple effect far beyond the region.



As in previous years, economic
growth in the CEE is broad ranging. The GDP growth in 2015 is expected to be in Poland (3.3%), Hungary (2.4%), Romania (2.7%),
Czech Republic (2.5%), Latvia (2.9%), and in Serbia (0.75%).



Until 2014/15, the geopolitical
environment in Europe had not weakened investment activity within the CEE region, with the exception of Russia, compared to 2013.
The continued development and growth of CEE investment relies heavily on favorable occupancy trends across the different sectors
in all countries. Recent forecasts show that this positive trend should also continue in 2015, with no signs of a slow-down. Investor
demand proved to be strong during 2015 and investment volume reached close to EUR 9 billion, which is approximately 23% higher
than 2014.



During 2015, Poland led
the region in terms of real estate investment volumes with €4.1 billion, a market share of 46%. The Czech Republic came next
(30%, a total of €2.65 billion) followed by Hungary (9%, a total of €790 million), Romania (7.5 percent, a total of €650
million), Slovakia (4.5 percent, a total of €412 million), and the SEE (other CEE) markets (3 percent, a total of €300
million).



As confidence returned to the retail sector,
it triggered a rise in new developments across the region. Overall there is a positive outlook for prime retail rents across the
region, both for high street and traditional shopping centers, due to the continued increase in turnover. Despite the geopolitical
tension in the region, retail investment sentiment has also been improving.



Poland - 2015 was a stable and moderate
period for the Polish economy. According to expert forecasts, GDP growth in 2015 varied around 3-3.6% throughout the year and settled
at an average of 3.5%. Contrary to expert forecasts, in 2015 there was an easing of monetary policy, as the Monetary Policy Council,
which lowered the reference rate from 2% to 1.5%. According to the Central Statistical Office, inflation is slowly increasing.
At the end of December 2015, the inflation rate reached approximately 0.5% year over year while the average rate stood at approximately
0.9%. Labor markets improved showing that unemployment at the end of December 2015 decreased to 9.8%, which is the lowest since
2008. 2015 was also the time of large fluctuations in the Polish currency. In the first months of the year, the zloty gained against
the euro, reaching PLN 4.0 in April, and finishing the year at PLN 4.5.



The total volume of investment was almost €41.
Billion across 70 transactions (€3.18 billion in 2014). Retail yields are around 5% for Warsaw and major regional cities for
modern 3rd generation dominant assets and up approximately 8 to 8.5% for smaller secondary cities. At the end of 2015, total inventory
of modern retail space in Poland reached approximately 10.9 million square metets. Among retail formats, traditional shopping centers
still dominate. Nevertheless, a new factory outlet centre in Białystok was delivered to the market and two other existing
schemes in Warsaw and Szczecin were extended.



The retail space density ratio increased in
Poland and approximately 623,000 square meters of new retail space was delivered to the market, which is close to the record breaking
2013 numbers. Extensions of existing schemes constituted 25% of new supply. The largest changes were observed in Aleja Bielany
in Wrocław and the Ogrody shopping centre in Elbląg. Over a dozen shopping centres were modernised and extended, including
Morena in Gdańsk.



Most newly opened retail space (38.5%) was
delivered in the eight largest agglomerations, which are considered to have great potential for development. Interest in the potential
of smaller towns (below 100,000 inhabitants) is still high and last year ten new shopping centres were built in such towns. Most
projects which were opened in 2015 are medium-sized shopping centres smaller than 20,000 m2 GLA.



In 2015, approximately 25 new international
brands, such as à Tab, Superdry, Kiabi, Sportisimo, Gate, Origins and Decimas, the gastronomy chains Dairy Queen, Dunkin
Donuts and Fuddruckers, as well as Fitness 24 Seven debuted in Poland. On the other hand, GAP, Bata and Centro decided to withdraw
from the market. Polish retail chains including LPP, CCC, 4F, Sizeer, Kazar and Smyk increased their level of expansion abroad
– not only in the CEE region but also in the Middle East and Western Europe. An increasing number of retail chains have supplemented
their traditional distribution chains with e-commerce. The opening of online stores by H&M and Rossmann was considered a significant
event last year.





83






In 2015, vacancy rates in major Polish cities
was below 4%. The highest level of prime rents for retail space located in the best shopping centres was observed in Warsaw (EUR
105-110/square meter/month). In the remaining markets, prime rents were in the range EUR 37-47/square meters/month.



It is estimated that in 2016 a decrease in
annual supply may be experienced with approximately, 400,000 square meters of GLA expected to be delivered to the market.



At the end of 2015, approximately 600,000 square
meters of retail space remained under construction in Poland, 12% of which is made up of extensions of existing schemes. Vacancy
rates will probably remain stable and will not exceed 5% across the eight major Polish retail markets. The stable position of structural
vacancy will be observed in secondary projects. Rental rates will remain stable. A slight downward trend may be experienced in
cities with a high density ratio and in particular old schemes.



Romania – The Romanian
economy maintained one of the highest growth rates in Europe in 2015, for the fourth consecutive year (+3.7%) year over year according
to the flash GDP release. Growth was driven mainly by the ample private consumption, similar to the trends emerging in Europe
where the low oil price boosted disposable income. In Romania, besides the lower oil price there were several factors which contributed
to higher private consumption, namely: repeated hikes to the minimum wage, wage increases for several categories of public sector
employees, higher social benefits, a VAT cut for food products from 24% to 9%, revitalized consumer confidence and surging new
RON-denominated lending (totaling RON 25.1billion in 2015; 44% year over year). We expect growth to continue to be driven by consumption
this year. Despite a strong boost in consumption, the wave of optimism has yet to reach companies, which postpone expansion plans
and are not increasing their exposure to bank loans, in spite of borrowing costs being at all-time lows. According to an NBR survey
published at year-end, the most pressing issues for companies are the level of taxation, the competition and finding customers.



The new Fiscal Code enforced
since the beginning of 2016 focuses strongly on consumers, while most of the measures which were to benefit companies were postponed
or eliminated. The other two issues are exacerbated by a slowdown in global demand triggered by worries concerning the Chinese
lower growth and by an underperformance in exports in comparison to the region due to a lack of large new investment projects and
the RON’s real appreciation in comparison to central European peers. In 2015, Romania went through an episode of political
turmoil which ended when a new technocratic government was sworn in, ran by the Prime Minister Dacian Cioloș. The new government
will lead Romania until the parliamentary elections in December 2016. The Romanian economy is growing strongly and is in a better
fiscal position than its peers, maintaining a favorable investor sentiment towards the country. However, the new Fiscal Code poses
risks to medium-term fiscal sustainability, as highlighted by rating agencies and international lenders.



This year’s cut to
the general VAT from 24% to 20% delivered a new downward shock to inflation, after the cut in June 2015 sent it to negative territory.
We estimate that annual inflation will remain negative until June 2016 when the effect of the first VAT cut will exit base and
will stay below 1.5% throughout 2016. On top, the renewed downward pressure on the oil price led to a downward revision of global
inflationary expectations and increased prospects of further easing by central banks in Europe. However, the negative inflation
conceals a booming demand, as reflected by the average growth in total retail sales (9% year over year in 2015), supported by salaries
which increased by 8.4% in real terms.



The shopping centers inventory
in Romania reached 3.3 million square meters GLA at the end of 2015. Romania registered a significant growth in household consumption
in 2015 (of 5.7% compared to 2014). This had an uneven impact on retail sales: while the food & beverage segment registered
a 16.3% increase, supported by VAT cut for food products from 24% to 9%, the non-food segment posted only a 1.1% increase, but
has positive future perspectives. International retailers reported an increase in sales in 2015 compared to 2014 with the well
established experiencing growth rates between 10% and 20% in turnover for most of the existing shops. Overall retailers were actively
looking to expand in 2015. While most of the already established fashion brands added 1 to 2 additional stores to their networks,
H&M remained the most active of them, with a number of 4 stores opened in 2015. Still, we believe that the number of openings
was influenced by the limited deliveries, while the appetite of the retailers is higher. The market also recorded demand coming
from new international brands such as Louis Purple, Sportisimo, Sport Vision, Michael Kors, PUPA, Marmot, Tally Weijl, Bobbi Brown,
Chanel, Nespresso Boutique, Liu Jo. The recent players on the market opened from 1-2 units up to 40 units, as in case of Pepco,
which was by far the most active retailer during 2015. Average rents vary between 55-65 €/month/square meter in Bucharest
prime locations, 30-40 in cities bigger than 250,000 inhabitants and 15-20 €/month/square meters in smaller cities. The later
rent shows big variance depending on the local competition.



The shopping centers inventory
is expected to increase by 500,000 square meters by 2020, 95,000 of which are planned to be delivered in Bucharest by the end of
2016, with ParkLake Plaza (70,000 square meters GLA), being the largest future scheme announced. The Romanian economy has all the
premises to continue on the ascending trend in 2016. With a 5% estimated increase in household consumption for this year, we expect
to see a further strengthening in the retailers’ sales. Most likely, the non-food sector will register an additional boost
in sales due to VAT compression.



Serbia –In
January 2014, Serbia started membership talks with the European Union (EU) after making significant progress in negotiations with
Pristina, Kosovo.





84






The Systematic
Country Diagnostic, a comprehensive assessment carried out by the World Bank, identified six fundamental priorities as
having the greatest potential impact on growth and poverty reduction in Serbia and for achieving greater shared prosperity across
the society. These six priorities are: (i) restore fiscal sustainability, and maintain macroeconomic and financial stability; (ii)
improve governance and institutional capacity to implement and monitor reforms; (iii) make the public sector more efficient by
privatizing commercially oriented enterprises, restructuring large public utilities, and rightsizing the public sector; (iv) improve
the business climate by creating an environment conductive to private sector-led investment, growth, and job creation; (v) enhance
the quality of public infrastructure to better support international, regional and domestic connectivity; (vi) strengthen the labor
market institutions to facilitate formal employment and create earnings opportunities for the less well-off.



Growth in Serbia for 2015
is projected at 0.5%, a small but important recovery after a severe impact of floods in 2014 which led to a decline of economy
of 1.8% in 2014. More robust growth rates of around 2-3% are forecasted over the medium term. Serbia’s per-capita Gross Domestic
Product (GDP) was approximately $6,181 in 2014. Poverty went up after the crisis and during the recessions of 2012 and 2014, mainly
due to losses in employment and labor income. Growing unemployment led to a record high unemployment rate of 25.5% in April 2012,
which gradually decreased over the recent years to reach 17.9 percent in June 2015.



During 2015, Serbian retail
market entered the phase of stronger development with the construction of various retail schemes across the country. In terms of
the planned projects, two shopping centres are currently under construction in Belgrade, both being set for completion in 2017.



Latvia – Despite
Russian economic sanctions, GDP increased 2.4% in 2015, well above the 1.6% GDP growth in the Eurozone in 2015. Forecasts are for
GDP growth of 2.7% in 2016. GDP growth in 2014 was 2.4%, while in 2013 it was 4.2%. Inflation in Latvia still remains low; it stood
at 0.4% in 2015, while it was 0.6% in 2014. Forecasts are for inflation growth of 1.7% in 2016. The minimum wage will increase
€10 on January 1, 2016 and will be €370. The minimum wage was increased for the third year in the row, and the total
growth over the past three years is €85. In its 2016 budget, the government supported the implementation of a differentiated
non-taxable minimum. At the end of 2014, the government approved a bankruptcy law that should have entered into force on March
1, 2015. The law stipulated the return of mortgaged property to a bank, thus ending credit obligations.



There were no new shopping
centers (counting those over 5,000 square meter of GLA with over 10 tenants) opened in Riga in 2015. At the end of 2015, there
was 649,000 square meters of total leasable space in shopping centers in Riga. Ober-Haus expects leading shopping center operators
will increase supply in 2017-2018, since several new shopping centers are planned and the expansion of existing ones is anticipated.



The Old Town has lost its
consumers from Russia, who were the largest clients for the shops in this district. Serviced guests from Russia decreased 24.8%
in Q3 2015 compared to Q3 2014. This worsens the fragile situation and has led to a decrease in retail turnover in the central
parts of Riga. But regardless of the situation, the city center still has only 2.5% of vacant space, and tenants frequently change.
Riga city center and Old Town traditionally remain entertainment areas within the city and demand for space suitable for bars,
clubs and restaurants remains high, although availability is limited. The first KFC, a popular player in the international market,
was opened in the Old Town in summer 2015. Max Burgers and other small eateries opened next to Subway and Coffee Inn. The opening
of an H&M store and the first H&M Home Department strongly increased availability of children’s merchandise. In 2015
Calzendonia Group opened a Calzedonia clothing store and Intimissimi underwear store, as well as other stores: Lakstos, Ecco, Aleksandra,
Aldo, Adidas, KidZone & Toys Planet, Milani, Subway, Drogas, Levi’s, Kuoshi. In 2015 there have been no substantial changes
in rents in stores in the center of the city, and rental fees vary from €15.00 to €35.00 per square meter.



The real estate market
became more active in 2015. Investors from Scandinavia and the Baltic States showed the most interest in the market and investors
from the USA entered the market. The target properties of investors in 2015 were shopping centers and office buildings. In the
next three years, McDonalds will invest approximately €5 million in Latvia and continue to expand its network to include self-service
kiosks.



India



Despite the global economic
slowdown, the Indian economy remained relatively strong and was among the fastest growing economies of the world with an average
GDP growth rate of 5 % in 2015. The services sector grew by 7%, and its share in the Indian GDP was 60%. The government has reiterated
its commitment to adhering to its fiscal deficit target. This factor has significantly reduced the momentum of inflation, and both
near-term and longer-term inflation expectations have eased to single digit for the first time since September 2009. On current
policy settings, inflation is likely to be below 6 per cent by January 2017. The recent wave of reforms by the Government of India
to incentivize FDI in various sectors is bringing a new energy to the investment climate in India. In the construction development
sector the Government has liberalized the FDI Policy by removing the requirements of minimum built up area of 20,000 sq meters
and the need for minimum capital requirement for such projects.





85






Radisson Blu Complex



Supported by positive advances
shaped in 2014, the Bucharest, Romania hotel market registered a postitve track record for all indicators in 2015, revealing realistic
perspectives for future growth. With sustained national economic performance, the hospitality industry in Bucharest showed elevated
volumes of both supply and demand. In addition, positive macroeconomic influences affected both occupancy and average daily rate
indicators which are slowly correcting their previous crisis hikes. We expect the hospitality sector to expand mainly due to the
interest of large tourist groups in new markets and the general development of tourism in the area.



|E. | OFF-BALANCE SHEET ARRANGEMENTS
|-- | ------------------------------



The following are our off-balance
sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes
in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that
we believe are material to investors:



| | ● | In the framework of the transactions for the sale of our holdings in certain
subsidiaries or projects, or the realization and sale of certain business activities, we have undertaken to indemnify the respective
purchasers for any losses and costs incurred in connection with the sale transactions. The indemnifications usually include: (i)
Indemnifications in respect of integrity of title on the assets and/or the shares sold (i.e.: that the assets and/or the shares
sold are owned by us and are free from any encumbrances and/or mortgage and the like). Such indemnifications generally survived
indefinitely and are capped to the purchase price in each respective transaction. (ii) Indemnifications in respect of other representations
and warranties included in the sales agreements (such as: development of the project, responsibility to defects in the development
project, tax matters, employees and others). Such indemnifications are limited in time and are generally caped to certain percentages
of the purchase price.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



To the best of our knowledge
as of the approval date of our financial statements for 2015, other than the described below, no claim of any kind was received
by us with respect to these indemnifications. The Hungarian tax authorities have challenged the applied tax treatment in two of
the entities previously sold in Hungary by PC to Klepierre in the course of the Framework Agreement dated 30 July, 2004 (“Framework
Agreement”). In respect of two of the former subsidiaries of PC, the tax authorities decision of reducing the tax base by
and imposed a penalty in the sum of HUF 428.5 million (approximately NIS 6 million), was challenged by the previously held entities
at the competent courts. Klepierre has submitted an indemnification request claiming that the tax assessed in the described procedures
falls into the scope of the Framework Agreement tax indemnification provisions and PC in its response rejected such claims. Subsequently
Klepierre has submitted a claim to the International Chamber of Commerce in Brussels for arbitration procedure is still undergoing,
the last hearing was held on February 29, 2016, while the decision of the arbitrary court is expected in the third quarter of 2016.
PC's management estimates that no significant costs will be borne thereby, in respect of these indemnifications.



| | ● | As part of a lease agreement executed in July 2007 between us and the Israel
Land Administration for a long-term lease of land in Tiberius, Israel, we had undertaken to finalize the construction until July
2013. We have provided the Israel Land Administration with two bank guarantees in the aggregate amount of NIS 13 million linked
to the increase in the Israeli consumer price index in order to secure our undertakings included in the lease agreement. As a security
for the guarantees, we pledged deposits in the same amount. In accordance with the terms of the lease agreement, in the event either
of the parties does not comply with the terms of the agreement, the agreement can be terminated by the other party.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | A former subsidiary of PC incorporated in Prague ("Bestes"), which
was sold in June 2006 is a party to an agreement with a third party ("Lessee"), for the lease of commercial areas in
a center constructed on property owned by it, for a period of 30 years, with an option to extend the lease period by an additional
30 years, in consideration for €6.9 million (approximately $8.7 million), which has been fully paid. According to the lease
agreement, the Lessee has the right to terminate the lease, subject to fulfillment of certain conditions set forth in the agreement.
As part of the agreement for the sale of Bestes to Klepierre in June 2006, it was agreed that PC will remain liable to Klepierre
in case the Lessee terminates its contract. PC’s management is of the opinion that this commitment will not result in any
material amount due to be paid by it.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | We and our subsidiaries have entered into indemnification agreements with
our respective directors and officers. For more information, see Note 14C to our consolidated financial statements for the year
ended December 31, 2015 filed on Form 8-K on March 31, 2016.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | We and PC become aware of certain issues with respect to certain agreements
that were executed in the past in connection with the Casa Radio Project in Bucharest, Romania that may contain potential violation
of the requirements of the U.S. Foreign Corrupt Practices Act (FCPA), including the books and records provisions of the FCPA. As
a result the abovementioned, our audit committee has decided to appoint a special committee to examine these matters, including
any internal control and reporting issues. For more information, see Note 14C (13) to our consolidated financial statements for
the year ended December 31, 2015 filed on Form 8-K on March 31, 2016.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





86






| | ● | As required under the lease agreement for our new and previous executive
offices we provided bank guarantees to secure our compliance with the terms of the agreement in the total amount of approximately
NIS 0.6 million.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | We have guaranteed certain of our Project Companies’ obligations under
the loans agreements with third parties up to an aggregate amount of NIS 254 million. In addition, PC is a guarantor to obligations
under loan agreements of its project companies with third parties up to an aggregate amount of NIS 5 million.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | We have provided bank guarantees in the total amount of NIS 0.7 million and
corporate guarantees for the benefit of the Israeli Customs Authority in the framework of a dispute between our subsidiary and
the Israeli Customs Authority which was engaged in the Retail business regarding customs duties charged with respect to the importation
of the Mango and GAP brands to Israel. The Customs Authority had agreed that the collection of the disputed customs charges will
be put on hold until the resolution of our motion.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | PC is retaining a 100% holding in all its projects in Serbia after it was
decided to discontinue the negotiations with a Serbian developer. PC has a contingent obligation to pay the developer in any case
there is major progress in the projects. The total remaining potential obligation is € 0.8 million ($ 0.9 million).
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | PC has contractual commitments in respect of its project in Serbia (Visnjicka)
in a total amount of € 2 million ($ 2 million) in respect of construction activities, to be paid during 2016 and 2017.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Within the framework of PC's derivative transactions executed between PC
and commercial banks (the "Banks"), PC agreed to provide the Banks with collaterals or cash deposits. Accordingly, and
with respect of Torun IRS, the project company also established a bail mortgage up to € 5.4 million ($6 million) encumbering
the real estate project.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | PC has contractual commitments in respect of lease agreement in Poland in
a total amount of € 8.7 million ($ 9.5 million).
| | - | --------------------------------------------------------------------------------------------------------------------------



| | F. | TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
| | -- | ---------------------------------------------



Our contractual obligations
consist mainly of: (i) long-term borrowings (mainly loans from banks and financial institutions and non convertible notes); (ii)
commitments towards suppliers, subcontractors and other third parties in respect of land acquisitions and operational lease; and
(iii) other long term liabilities reflected in the balance sheet. Our contractual obligations are generally linked to foreign
currencies (mainly Euro and U.S. dollar) and/or other indexes (such as the Israeli consumer price index). Below is a summary of
our significant contractual obligations as of December 31, 2015 in NIS, based upon the representative exchange rate of the NIS
as of the balance sheet date, against the currency in which the obligation is originally denominated or based on the respective
index of the Israeli consumer price index as of December 31, 2015. Actual payments of these amounts (as are presented in our financial
statements) are significantly dependent upon such exchange rates or indexes prevailing as at the date of execution of such obligation,
and therefore may significantly differ from the amounts presented herein below.





|                                                         |  | Payments
    due by Period(in NIS thousands) |            
|-------------------------------------------------------- |  | -------------------------------------------- | -----------
|Contractual
    Obligations 
    as of December 31, 2015 |  | Total                                        |            
|Long-Term Debt (1)                                       |  |                                              | 2,659,204  
|Operating Leases (2)                                     |  |                                              | 38,449,036 
|Purchase Obligations and Commitments (3)                 |  |                                              | 11,892     
|Total                                                    |  |                                              | 41,120,1325












| | (1) | Long term debt includes interest that we will pay from January 1, 2015 through
the loan maturity dates. Part of our loans bear variable interest rates and the interest presented in this table is based on the
LIBOR rates known as of December 31, 2015. Actual payments of such interest (as presented in our financial statements) are significantly
dependent upon the LIBOR rate prevailing as of the date of payment of such interest. For additional information in respect of the
long term debt, see “Item 5.B. Liquidity and Capital Resources - Other Loans."
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Our operating lease obligations are subject to periodic adjustment of the
lease payments as stipulated in the agreements. This table includes the lease obligation based on the most recent available information.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Includes mainly commitments for construction suppliers and subcontractors.
Such obligations were not recorded as liabilities in the balance sheet, since, as of the balance sheet date, the construction services
were not yet provided and/or certain conditions precedent have not yet been fulfilled.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





87






|ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|------- | ------------------------------------------



|A. | DIRECTORS AND SENIOR MANAGEMENT
|-- | -------------------------------



The following table sets
forth information regarding our directors, executive officers and other key employees as of the date of this annual report except
as otherwise noted below:



|NAME                        |  | AGE |  | POSITION                                           
|--------------------------- |  | --- |  | ---------------------------------------------------
|Ron Hadassi                 |  | 51  |  | Chairman of the Board of Directors and Director    
|Alon Bachar (1)             |  | 46  |  | Director                                           
|Zvi Tropp (1) (2)           |  | 76  |  | External Director                                  
|Elina Frenkel Ronen (1) (2) |  | 42  |  | External Director                                  
|Boaz Lifschitz (2)          |  | 47  |  | Director                                           
|Nadav Livni (1)             |  | 42  |  | Director                                           
|Doron Moshe                 |  | 45  |  | Chief Executive Officer and Chief Financial Officer
|Dori Keren                  |  | 45  |  | Acting Chief Executive Officer of PC               










|(1) | Member of the audit committee
|--- | -----------------------------



|(2) | Member of the compensation committee
|--- | ------------------------------------



|(3) | Mr. Keren appointment has been entered into effect April 1, 2016
|--- | ----------------------------------------------------------------



RON HADASSI. Mr.
Hadassihas served as the Chairman of our Board of Directors since March 2014.  Mr. Hadassi has served as Senior Manager
of the Bronfman-Fisher Group since 2002, as well as the Vice Chairman of Super-Sol Ltd., Isralom Properties Ltd., and Shefa Success
Logistic (B.P) Ltd. (former name - Palace Industries Ltd.). Mr. Hadassi also served until the summer of 2015 as Executive Chairman
and until March 2014 as acting Chief Executive Officer of Nanette Real Estate Group N.V. From 2005 until 2012, Mr. Hadassi served
as Chairman of the board of directors of Northern Birch Ltd. (IKEA Israel), where he continues to serve on the board and as Chairman
of a subsidiary. Mr. Hadassi serves as a director of the Carmel Winery. Mr. Hadassi has served on the boards of public companies,
including Blue Square Israel Ltd., Blue Square Real Estate Ltd., Bet Shemesh Engines Holdings Ltd., Naaman Group N.V. Ltd. and
Olimpia Real Estate Holdings (as well as its subsidiaries). Mr. Hadassi is a banking and finance professor at Hebrew University,
Jerusalem, the Interdisciplinary Centre, Herzeliya, and the College of Management, Rishon LeZiyon, holds a B.A in Economics and
Political Science, an LL.B and a MBA, all from Tel Aviv University, and is a member of the Israeli Bar.



ALON BACHAR. Mr.
Bachar, has served as a member of our Board of Directors since March 2014.  Mr. Bachar has served as the Chief Financial
Officer of the Bronfman-Fisher Group since 2006, as the Chief Executive Officer of Isralom Properties Ltd. since 2012, and in addition
currently serves as a director of Shefa Success Logistic (B.P) Ltd. and Palace Industries (P.I.) Ltd. Mr. Bachar served in the
past as a director of various private and public companies, such as Sufersal Ltd. From 2003 until 2006, Mr. Bachar served as the
Deputy Chief of the corporate division of Bank of Jerusalem Ltd. From 1999 until 2003, Mr. Bachar served as Credit Officer of the
corporate division in the Industrial Development Bank of Israel Ltd. From 1996 until 1999, Mr. Bachar served as an Analyst and
Credit Officer in the corporate division of Bank Leumi L’Israel B.M. Mr. Bachar holds a B.A in Economics from Tel Aviv University,
as well as an MBA from Ben-Gurion University.



ZVI TROPP.
Mr. Tropp has served as one of our external directors since September 2004. Since 2003, Mr. Tropp has been a senior consultant
at Zenovar Consultant Ltd. From February 2006 until June 2007, Mr. Tropp served as the chairman of the board of Rafael Advanced
Defense Systems Ltd. From 2000 until 2003, Mr. Tropp served as the Chief Financial Officer of Enavis Networks Ltd. Mr. Tropp has
served as a board member of various companies, including Rafael (Armament Development Authority) Ltd., Beit Shemesh Engines Ltd.,
Rada - Electronic Industries Ltd. and has also served as the Chairman of the investment committee of Bank Leumi Le’Israel
Trust Company Ltd. Mr. Tropp holds a B.Sc. in agriculture and an M.Sc. in agricultural economics and business administration from
the Hebrew University in Jerusalem.





88






ELINA
FRENKEL RONEN.Ms. Frenkel Ronen has served as one of our external
directors since December 2008. Ms. Frenkel Ronen currently serves as a member of the board of the Institute of CPAs in
Israel as the Chair of the CEOs, CFOs and Controllers Committee of the Institute of CPAs in Israel(since 1997), and as an external
director of Tempo Beverages Ltd (since 2012) and as an external director of IDB Development Ltd. Ms. Frenkel Ronen has served
as the Chairperson of the Board of Directors of Haifa Port Ltd (2008-2011), and an External Director Tao Tsuot Ltd (2008-2011).
Ms. Frenkel Ronen served as an External Director of Micromedic Technologies Ltd (2011-2014). Ms. Frenkel Ronen served as the Public
Representative for the Public Utility Authority – Electricity (2004-2007). Ms. Frenkel Ronen has headed her family’s
real estate business (2005-2013). Ms. Frenkel Ronen professional experience includes financial management (CFO) in Tnuva Industries
and its 97 subsidiaries (1993-1999), and Orek Paper (2008-2012) and Sherutey Hashomrim group (security, cleaning, and information
technology (IT) systems security) (1999-2002). Ms. Frenkel Ronen also managed the financial aspects of Chapter 11 procedures -
nomination received from the trustee appointed by the Court of law. Ms. Frenkel Ronen holds a B.A. in accounting and economics
and an Executive M.B.A., both from Tel-Aviv University. Ms. Frenkel Ronen is a Certified Public Accountant.



BOAZ LIFSCHITZ. Mr.
Lifschitzhas served as a member of our Board of Directors since March 2014.  Mr. Lifschitz is a co-founder and General
Partner of Peregrine Ventures, a venture capital fund founded in 2001. Mr. Lifschitz previously served as Chief Operating Officer
and Chief Financial Officer of VisionCare Opthalmic Technologies. Mr. Lifschitz currently serves as Chairman of Cartiheal Ltd.
and is a board member of other privately held companies. He previously served on the board of Neovasc Inc. (NVCN). Mr. Lifschitz
holds a B.Sc. from Bar-Ilan University as well as a M.Sc. from Boston University jointly with Ben Gurion University.



NADAV LIVNI.  Mr.
Livnihas served as a member of our Board of Directors since March 2014.  Mr. Livni is the founder and Managing Director
of The Hillview Group, an independent Merchant Bank based in London. Since 2006, The Hillview Group has expertly managed over $3
billion of strategic capital market transactions and principal investments across Central and Eastern Europe, Russia, Africa and
the U.S. During his 20 year career, Nadav has advised governments, controlling shareholders and entrepreneurs on all aspects of
capital markets transactions. In previous roles at Deutsche Bank, Goldman Sachs and KPMG, Nadav participated in over $100 billion
of transactions in the real estate, financial services, healthcare and consumer sectors, specializing in mergers and acquisitions,
structuring innovative funds and all aspects of capital raising in the public and private markets. Nadav is a qualified Chartered
Accountant, holds a Bachelor of Commerce from the University of the Witwatersrand, a MSc. in Finance from City University Business
School and is a guest speaker at London Business School on the topics of private equity and real estate investment.



DORON MOSHE.On
April 2, 2015, Mr. Moshe was appointed as our Acting Chief Executive Officer. On March 31, 2016 Mr. Moshe has been appointed as
our Chief Executive Officer. In addition, Mr. Moshe is serving as our CFO from January 1, 2010. From January 2006 until January
2010, Mr. Moshe served as our Chief Controller. From 2001 until 2005, Mr. Moshe served as the Controller of our subsidiaries. Mr.
Moshe also serves as Chief Finance Officer of Elbit Medical. From 2000 until 2001, he served as the Controller for a group of public
companies in the fields of contracting, real estate, and technology, and from 1999 until 2000, he was a senior accountant at KPMG
Israel. Mr. Moshe holds a B.A. in Accounting and Economics from the University of Haifa and is a Certified Public Accountant.



DORI KEREN.On
April 1, 2016, Mr. Keren was appointed as PC Acting Chief Executive Officer. Mr. Dori Keren joined PC in 2006 as financial director
of Poland and Latvia and was appointed Poland country director in 2013. Prior thereto, he worked in Israel for 10 years in variety
of financial jobs in positions which accompany business activity as economist, financial controller and CFO.



|B. | COMPENSATION OF DIRECTORS AND OFFICERS
|-- | --------------------------------------



Aggregate 2015 Compensation
of Directors and Officers



The aggregate
compensation paid to or accrued on behalf of all persons as a group (12 persons – who served in the capacity of
director or executive officer in the year ended December 31, 2015 was approximately NIS 9.0 million (approximately $2.3
million). Such aggregate amount includes management fees, director's fees salaries and certain fringe benefits and accrued
amounts in respect of pensions and retirement benefits, but does not include stock-based compensation expenses relating to
options granted to our directors and officers.



In addition, our officers
participate in share or option allocations pursuant to various plans adopted by us, our subsidiaries and our associates. For information
regarding the terms of grant and exercise under all plans, see “Item 6.E. Share Ownership.”



The table below
reflects the compensation granted (including accrued compensation) during the year ended December 31, 2015 to office holders
(including former office holders) in the Company and its controlled companies in connection with their service in the Company
or in its controlled subsidiaries . We refer to the five individuals for whom disclosure is provided herein as our
“Covered Executives.”





89






For purposes of the table
below, “compensation” includes salary cost, consultancy fees, bonuses, equity-based compensation, retirement or termination
payments, benefits and perquisites such as car and social benefits and any undertaking to provide such compensation. All amounts
reported in the table are in terms of cost to the Company, as recognized in our financial statements for the year ended December
31, 2015 plus compensation paid to such Covered Executive following the end of the year in respect of services provided during
the year. Each of the Covered Employees was covered by the respective D&O liability insurance policy and was entitled to indemnification
and exculpation in accordance with applicable law.





|Name
    and PrincipalPosition (1)                                                  |  | SalaryCost (2)       |       |  | Consultancy
    Fees |  |       | Bonus
    (3) |  |  | Equity-BasedCompensation (4) |  |  | Termination
    cost(5) |       |  | Total
    (NIS Thousands) | 
|----------------------------------------------------------------------------------- |  | -------------------- | ----- |  | -------------------- |  | ----- | ------------- |  |  | ---------------------------- |  |  | ----------------------- | ----- |  | ------------------------- | 
|                                                                                    |  | (NIS
    Thousands ) |      
|Maurice
    R. FerreInSightec's Chairman
    of the Board and CEO                   |  |                      | -     |  |                      |  | 1,220 |               |  |  | -                            |  |  |                         | 7,995 |  |                           | 
|Kobi
    VortmanInSightec's vice chairman
    of the Board                          |  |                      | 1,648 |  |                      |  | -     |               |  |  | -                            |  |  |                         | 2,071 |  |                           | 
|Ran
    ShtrakmanPlaza's Former CEO                                                 |  |                      | 149   |  |                      |  | 1,177 |               |  |  | -                            |  |  |                         | 22    |  |                           | 
|Ron
    Hadassi(6)Chairman of the Board
    of the Company, Plaza and Elbit Medical |  |                      | 505   |  |                      |  | 764   |               |  |  | 152                          |  |  |                         | 845   |  |                           | 
|Robert
Segal InSighte's President CCO and director                                  |  |                      | 1,075 |  |                      |  | -     |               |  |  | -                            |  |  |                         | 1,100 |  |                           | 












|(1) | Unless
                                         otherwise indicated herein, all Covered Executives are employed on a full-time (100%)
                                         basis. The positions of the Covered Executives in this table represent their position
                                         as of the date of this filling.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Salary
                                         cost includes the Covered Executive's gross salary plus payment of social benefits made
                                         by the Company on behalf of such Covered Executive. Such benefits may include, to the
                                         extent applicable to the Covered Executive, payments, contributions and/or allocations
                                         for savings funds (e.g., Managers' Life Insurance Policy), education funds (referred
                                         to in Hebrew as “keren hishtalmut”), pension, severance, risk insurances
                                         (e.g., life, or work disability insurance), payments for social security and tax
                                         gross-up payments, vacation, car, medical insurances and benefits, convalescence or recreation
                                         pay and other benefits and perquisites consistent with the Company’s policies.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Represents
                                         annual bonuses granted to the Covered Executives based on formulas set forth in their
                                         respective employment agreements.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Represents
                                         the equity-based compensation expenses recorded in the Company's financial statements
                                         for the year ended December 31, 2015 based on the options’ grant date fair value
                                         in accordance with accounting guidance for equity-based compensation. For a discussion
                                         of the assumptions used in reaching this valuation, see Note 2Q to our consolidated financial
                                         statements included in this annual report on Form 20-F for the year ended December 31,
                                         2015.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Termination
                                         costs include payment made to retired employees during the year ended December 31, 2015
                                         and/or accrued provision recorded in the Company's consolidated financial statements
                                         for the retirement of the Covered Executive.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Mr.
                                         Hadassi devoted 90% of his business hours to the affairs of the Company during 2015
|--- | --------------------------------------------------------------------------------------------------------------------------------



Independent Director Compensation



The compensation
of our external directors is governed by regulations promulgated under the Companies Law (the "Compensation
Regulations"). According to the Compensation Regulations, we pay our external directors, Mr. Zvi Tropp and Ms. Elina
Frenkel Ronen, both of whom have been designated as experts by our Board of Directors, the maximum annual fee set forth in
the Compensation Regulations for non-experts and the maximum meeting attendance fee set forth in the Compensation Regulations
for experts. The amounts payable by a company to external directors under the Compensation Regulations are based on the
amount of the company's shareholders' equity as of the end of the previous year. According to our Compensation policy, our
board members' compensation is linked to our external director's compensation. Accordingly, in 2015, we paid our directors
(both external and others) NIS 62,640 (approximately $16,570) per year and NIS 4,390(approximately $1,160) per meeting(or
a smaller amount in case they did not physically attend the meeting). The fees payable to our directors in 2016 under
the Compensation Regulations will be NIS 37,115 (approximately $9,820) per year and NIS 3,300 (approximately $875) per
meeting, subject to adjustment for CPI changes pursuant to the Compensation Regulations.





90






Adoption
of Compensation Policy



In August
2014, following our shareholders’ approval, we adopted a compensation policy for our officers and directors
(the “Compensation Policy”), in accordance with Amendment No. 20 to the
Israeli Companies Law, pursuant to which we are required to determine the compensation of our officers and directors in
accordance with a compensation policy.In March 2016, following our shareholders’ approval, we adopted an
amended compensation policy (the "Amendment").TheCompensation Policy
and the Amendment was previous approved by our board of directors, upon recommendation of our Compensation
Committee. An English translation of the Compensation Policy and the Amendment were filed with the Securities and
Exchange Commission. For further discussion regarding the Compensation Policy and the Amendment, please see Item 10B
“Memorandum and Articles of Association” below and our Reports on Form 6-K filed on July 10, 2014, August 14,
2014 and February 24, 2016 (as exhibit to the proxy statement of the 3.31.2016 extraordinary shareholders meeting) which are
incorporated herein by reference.



Services of our Chairman,
Mr. Ron Hadassi



In August 2014, our shareholders
approved a compensation plan for Mr. Hadassi for his services as the Chairman of our Board of Directors. The terms of the consideration
for such services are as follows:



| | ● | A fixed cash fee of NIS 80,000 per month (the “Fixed Compensation”), reflecting a scope
of 90% of Mr. Hadassi’s business hours (based on a rate of NIS 89,000 per a full-time position). Additional payments, benefits
and expenses, including a company car and related expenses, income tax and VAT in the total amount of 50% of the Fixed Compensation,
including any applicable taxes deriving from the Fixed Compensation and benefits. Notwithstanding the foregoing, any amounts of
VAT refundable to (or subject to offset by) the Company shall be in addition to the Fixed Compensation and such 50% addition. Accordingly,
the total fixed cost of Mr. Hadassi to the Company was NIS 1,440,000 per annum until April 1 2015. In December 2015 the Company's
compensation committee drafted, by mutual consent with Mr. Hadassi, an amended compensation offer for Mr. Hadassi which was approved
by the Board. Therefore the total fixed cost of Mr. Hadassi to the Company was reduced retroactively from April 2015 and the total
fix cost of Mr. Hadassi for 2015 was NIS 1,269,000 and will be NIS 1,212,000 in 2016 (excluding bonuses and equity based compensation
expenses).
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

| | ● | An annual cash bonus, to be determined by the Compensation Committee and Board of Directors in
accordance with the Company’s Compensation Policy, which shall in no event exceed an amount equal to the Fixed Compensation
payable for 3.5 months of continued service. Mr. Hadassi shall not be entitled to a bonus or other variable compensation due to
his success in meeting personal targets or discretionary bonuses.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                             

| | ● | Options exercisable in to 285,165 ordinary shares, no par value, of the Company, constituting approximately
1.0% of the Company's issued and outstanding share capital on a fully diluted basis with a vesting period of 3 years, subject to
Mr. Hadassi’s continued service with the Company. In November 2015, Mr. Hadassi has notified the Company that he is waiving
his rights to receive the aforementioned options.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                           

| | ● | These compensation terms shall be in effect until March 21, 2017, and shall be subject to annual
review by the Compensation Committee, which shall determine if such terms require updating pursuant to the Company’s requirements
and business. Any modification or extension of such terms shall be made pursuant to the requisite corporate approvals and subject
to Mr. Hadassi’s annual re-election as a Director and continued appointment as Chairman.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                              

| | ● | Mr. Hadassi shall be entitled to a period of notice prior to termination of his rights to receive
the aforementioned compensation, calculated as follows: If notice of such termination is delivered during Mr. Hadassi’s first
year of service – one month’s notice; during Mr. Hadassi’s second year of service – one and a half months’
notice; during Mr. Hadassi’s third year of service and thereafter – two months’ notice.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                   

| | ● | Mr. Hadassi may be entitled to receive a retirement bonus up to an amount equal to the Fixed Compensation
payable for 4 months of continued service, calculated as follows: If notice of termination of Mr. Hadassi’s right to receive
the aforementioned compensation is delivered during Mr. Hadassi’s first year of service – an amount equal to the Fixed
Compensation payable for 2 months of continued service; If notice of termination is delivered during Mr. Hadassi’s second
year of service – an amount equal to the Fixed Compensation payable for 3 months of continued service; If notice of termination
is delivered during Mr. Hadassi’s third year of service and thereafter – an amount equal to the Fixed Compensation
payable for 4 months of continued service.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





91






| | ● | Mr. Hadassi shall be covered under the Company's Directors and Officers Liability insurance policies
and the Company's indemnification undertaking shall remain valid and binding and shall not be changed, cancelled or nullified by
virtue of the aforementioned engagement.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 
| |  | 

| | ● | It was clarified that Mr. Ron Hadassi shall be entitled to no further compensation for his services
as our Acting Chief Executive Officer, between March 2014 and March 2015.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Services of our Director,
Mr. Boaz Lifschitz



In August 2014, our shareholders
approved our entering into a consultancy agreement with Mr. Lifschitz for consultancy services relating to the life sciences field
(the “Services”) to the Company and its subsidiaries (and other related companies). In consideration for such services,
the Company shall pay Mr. Lifschitz an annual fee of NIS 100,000 plus VAT, payable in quarterly installments in arrears as well
as reimbursement for expenses incurred within the providing of the Services, in accordance with the Company’s policy regarding
reimbursement of expenses. Such fees shall be made in addition to the fees Mr. Lifschitz is entitled to in his capacity as a member
of our Board. The Company will have the option to terminate this arrangement upon 30 days’ notice. The consultancy agreement
terminated in August 2015 and has not since been renewed.



Services of our CEO, Mr.
Doron Moshe



In March 2016, our shareholders
approved the terms of office and employment for Mr. Moshe for his services as the chief executive officer of our Company. The terms
of office and employment for his service are as follows:



| | ● | A fixed cash fee of NIS 70,000 per month (the “Fixed Compensation”), which will be
linked to the Israeli consumer price index. In addition Mr. Moshe shall be entitled to certain customary benefits, such as, use
of a car, phone and cell phone and other work related expenses in accordance with the Company's practices, managers insurance and/or
pension funds, vacation days and sick leave, as well as other benefits consistent with employee social welfare benefits, such as
contributions to pension funds and a study fund and recuperation pay (dmei havraa). In addition, Mr. Moshe will be entitled to
company car, personal laptop, communication expenses reimbursement and cell phone. The tax cost of the company car, certain contribution
by the Company to the pension fund and study funds that are higher than maximum amount under the Israeli tax regulations, and communication
expenses shall be grossed up as part of Mr. Moshe salary.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

| | ● | Target-based Bonus, for each calendar year during the Term, which will be based on pre-defined
objectives determined by the Company's compensation committee and approved by the Company's Board of Directors, up to an amount
not exceeding 5 Monthly gross salaries.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                       

| | ● | Special Bonus based on the realization of two main assets of the Company. Bonuses (target based
Bonus plus Special Bonus) for the year 2016 shall not exceed the aggregated amount equal to eight monthly gross Salaries (NIS 560,000
for 2016).
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                 



| | ● | Equity Incentive: Mr. Moshe holds the following - 19,851,000 Elbit Medical's options exercisable
in to 9,925,500 ordinary shares; 16,666 PC's options exercisable in to 16,666 ordinary shares; 17,500 InSightec's options exercisable
in to 17,500 ordinary shares
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                    

| | ● | Mr. Moshe shall be entitled to a period of three months' notice prior to termination of his rights
to receive the aforementioned compensation. In addition, Mr. Moshe Shall be entitled to an adjustment period of nine additional
months, during which he shall be entitled to payment of Salary and all applicable social benefits contributions, as well as to
continue the use of the company car and cell phone.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                      

| | ● | Mr. Moshe shall be covered under the Company's Directors and Officers Liability insurance policies
and the Company's indemnification undertaking shall remain valid and binding and shall not be changed, cancelled or nullified by
virtue of the aforementioned engagement.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





92






|C. | BOARD PRACTICES
|-- | ---------------



Corporate Governance
Practices



We are incorporated in Israel
and therefore are subject to various corporate governance practices under the Companies Law, relating to such matters as external
directors, the audit committee, the internal auditor and approvals of interested-party transactions. These matters are in addition
to the ongoing listing conditions of the Nasdaq Global Select Market and other relevant provisions of U.S. securities laws. Under
the Nasdaq rules, a foreign private issuer may generally follow its home country rules of corporate governance in lieu of the comparable
Nasdaq requirements, except for certain matters such as composition and responsibilities of the audit committee and the independence
of its members. For further information, see “Item 16G. Corporate Governance.”



Under the Companies Law,
our board of directors must determine the minimum number of directors having financial and accounting expertise, as defined in
the regulations promulgated under the Companies Law that our board of directors should have. In determining the number of directors
required to have such expertise, the board of directors must consider, among other things, the type and size of the company and
the scope and complexity of its operations. Our board of directors has determined that we require at least two directors with the
requisite financial and accounting expertise and that two of our directors fulfill the requirements promulgated under the Companies
Law.



Election of Directors



Pursuant
to ourAmended and Restated Articles of Association, the size of our board of directors
shall be no less than 4 persons but no more than 7, excluding at least two external directors. Our directors are generally
elected by our shareholders at the annual meeting of the shareholders by a simple majority. The directors hold office until the
next annual meeting of our shareholders. Our board of directors may appoint additional directors to our board of directors in the
event of a vacancy on or an enlargement of the board of directors up to the maximum number
provided in our articles of association. Any director so appointed will hold office until the next annual meeting of the
shareholders. Our board of directors currently consists of six members.



In addition, the Companies
Law provides that a person will not be elected and will not serve as a director in a public company if he or she does not have
the required qualifications and the ability to dedicate an appropriate amount of time for the performance of his or her director
position in the company, taking into consideration, among other factors, the special needs and size of the company. A general shareholders
meeting of a company whose shares are publicly traded, at which the election of a director is to be considered, will not be held
unless the nominee has declared to the company that he or she complies with the above-mentioned requirements, and the details of
his or her applicable qualifications are provided, and in case such nominee is an "independent director" as defined in
the Companies Law (see below), that such nominee has also declared that he or she complies with the independence criteria under
the Companies Law. Each of our elected directors has declared to our board of directorsthat
he or she complies with the required qualifications under the Companies Law for appointment as a member of our board
of directors, detailing his or her applicable qualifications, and that he or she is capable of dedicating the appropriate
amount of time for the performance of his or her role as a member of our board of directors.



Alternate Directors



Our Amended and Restated
Articles of Association provide that any director, other than the external directors, may, by written notice to us, appoint another
person, who is not a director, to serve as an alternate director, subject to the approval of the chairman of the board. In the
case of an appointment made by the chairman, such appointment shall be valid unless objected to by the majority of other directors.
The term of appointment of an alternate director is unlimited in time and scope unless otherwise specified in the appointment notice,
or until notice is given of the termination of the appointment. No director currently has appointed any other person as an alternate
director. The Companies Law stipulates that a person who serves as a director may not serve as an alternate director and that external
director may not appoint alternate director, except under very limited circumstances. An alternate director has the same responsibility
as a director, and shall possess all the required qualificationsto serve as a director.



External Directors;
Independent Directors



The Companies Law requires
Israeli public companies (such as us) to appoint at least two external directors. At least one External Director must have “financial
and accounting expertise”, and the other External Director(s) must have “professional competence”. However, in
“dual listed” companies (such as our company) if one or more other directors who meet the independence criteria applicable
to members of the audit committee under the foreign applicable law (including stock exchange rules) have been determined by the
board of directors to have “financial and accounting expertise” then it is permissible for any or all of the External
Directors to have only “professional competence” as described below. Under the relevant regulations of the Companies
Law, a director has “financial and accounting expertise” if he or she, based on his or her education, experience and
qualifications, is highly skilled in respect of, and understands, business and accounting matters and financial statements, in
a manner that enables him or her to have an in-depth understanding of the company’s financial statements and to stimulate
discussion with respect to the manner in which the financial data is presented. A director has “professional competence”
if he or she (1) has an academic degree in either economics, business administration, accounting, law or public administration
or an academic degree in an area relevant to the company’s business, or (2) has at least five years experience in a senior
position in the business management of any corporate entity with a substantial scope of business, in a senior position in public
service or in the field of the applicable company’s business.





93






The Companies Law provides
for certain qualifications that a candidate for external directorship must comply with. Among such requirements, a person may not
be appointed as an external director if: (i) such person or person’s relative or affiliate has, at the date of appointment,
or had at any time during the two years preceding such date, any affiliation with the company, a controlling shareholder thereof
or their respective affiliates; or (ii) in a company that does not have a 25% shareholder, if such person has an affiliation with
any person who, at the time of appointment, is the chairman, the chief executive officer, the chief financial officer or a 5% shareholder
of the company. The term “affiliation” is broadly defined in the Companies Law, including an employment relationship,
a business or professional relationship maintained on a regular basis, control or
service as a director or officer.



In addition, no person may
serve as an external director if such person’s position or other business creates, or may create, conflict of interest with
the person’s position as an external director, or if such position or other business may impair such person’s ability
to serve as an external director. Until the lapse of two years from termination of office, a company or its controlling shareholder
may not give any direct or indirect benefit to the former external director.



In addition, person may
serve as an external director if that person was not appointed as a director in a company in the same time when a director of the
Company was appointed as an external director; and if that person is not an employee of the Securities Authority or an employee
of a stock exchange in Israel.



External directors are to
be elected by a majority vote at a general meeting of shareholders, provided that (i) such majority vote at the general meeting
includes at least a majority of the total votes of non-controlling shareholders voted at such general meeting or (ii) the total
number of votes of non-controlling shareholders that voted against such election does not exceed 2% of the total voting rights
in the company.



The initial term of an external
director is three years, and such term may be extended for up to two additional three-year terms. In addition, for a dual listed
companies (such as our company) the service of an external director may be extended for additional terms of up to three years each,
if both the audit committee and the board of directors confirm that, in light of the expertise and contribution of the external
director, the extension of such external director's term would be in the interest of the company. Reelection of an external director
may be effected through one of the following mechanisms: (1) the board of directors proposed the reelection of the nominee and
the election was approved by the shareholders by the majority required to appoint external directors for their initial term; or
(2) a shareholder holding 1% or more of the voting rights proposed the reelection of the nominee, or the nominee proposed themselves
for reelection, and the reelection is approved by a majority of the votes cast by the shareholders of the company, excluding the
votes of controlling shareholders and those who have a personal interest in the matter as a result of their relations with the
controlling shareholders, provided that the aggregate votes cast in favor of the reelection by such non-excluded shareholders constitute
more than 2% of the voting rights in the company. External directors may be removed only in a general meeting, by the same percentage
of shareholders as is required for their election, or by a court, and in both cases only if the external directors cease to meet
the statutory qualifications for their appointment or if they violate their duty of loyalty to us. Each committee of a company’s
board of directors that is authorized to exercise powers of the board of directors is required to include at least one external
director, and all external directors must be members of the company’s audit committee and compensation committee.



An external director is
entitled to reimbursement of expenses and to monetary and other compensation as provided in regulations promulgated under the Companies
Law, but is otherwise prohibited from receiving any other compensation, directly or indirectly, for his serving as a director of
the company.



Mr. Zvi Tropp’s fourth
three-year term as an external director commenced on September 30, 2013, and Ms. Elina Frenkel Ronen’s third three-year term
as an external director commenced on January 8, 2015.



Under the Nasdaq rules,
a majority of our directors are required to be “independent directors” as defined in Nasdaq’s rules. Under the
Companies Law and regulations thereunder, a director in a company such as Elbit Imaging, who qualifies as an independent director
under the relevant non-Israeli rules relating to independence standards, such as the Nasdaq director independence criteria, may
be considered an independent director pursuant to the Companies Law if such director meets certain conditions (as described below),
and provided such director has been designated as such by the audit committee. The current composition of our board of directors
consists of a majority of independent directors, who have been designated as such by the audit committee. Two of our independent
directors also qualify as external directors as defined by the Companies Law.



Board Committees



Our board of directors has
established an audit committee and a compensation committee, as described below:



Audit committee



The Companies Law requires
public companies to appoint an audit committee. An audit committee must consist of at least three members, and include all of the
company’s external directors. The members of the audit committee must be “independent”
(as such term is defined below), and the chairman of the audit committee is required to be an external director.





94






The responsibilities of
the audit committee include identifying and examining flaws in the business management of the company and suggesting appropriate
course of actions, recommending approval of interested party transactions, assessing the company's internal audit system and the
performance of its internal auditor.



Our audit committee is comprised
of four members, all of whom meet all requisite independence and other professional requirements. Our audit committee operates
in accordance with a charter and written procedures governing approval of any proposed transactions with our external auditors.
Within the framework of such governing documents, the audit committee oversees the appointment, compensation, and oversight of
the public accounting firm engaged to prepare or issue an audit report on our financial statements. The audit committee's specific
responsibilities in carrying out its oversight role include the approval of all audits and permitted non-audit services to be provided
by the external auditor.



Our audit committee is also
authorized to act as our “qualified legal compliance committee”. As such, our audit committee will be responsible for
investigating reports, made by attorneys appearing and practicing before the SEC in representing us, of perceived material violations
of U.S. federal or state securities laws, breaches of fiduciary duty or similar material violations of U.S. law by us or any of
our agents. Under Nasdaq rules, the approval of the audit committee is also required to effect related-party transactions that
would be required to be disclosed in our annual report.



Nasdaq rules require that
director nominees be selected or recommended for the board’s selection either by a committee comprised solely of independent
directors or by a majority of independent directors. For a foreign private issuer, such as our company, Nasdaq rules allow foreign
private issuers to follow "home country practice". On September 3, 2015 the board approved the exemption from the requirement
to select board nominees by the nomination committee. The compensation of a company’s chief executive officer and other executive
officers is required to be approved either by a majority of the independent directors on the board or a committee comprised solely
of independent directors.



An
“independent director” is defined as an external director or a director who meets the following conditions: (i) satisfies
certain conditions for appointment as an external director (as described above) and the audit committee has determined that such
conditions have been met and (ii) has not served as a director of the company for more than nine consecutive years, with any interruption
of up to two years in service not being deemed a disruption in the continuity of such service.



Our audit committee has
the authority to retain independent legal, accounting or other consultants as advisors, for which we will provide funding, and
handle complaints relating to accounting, internal accounting controls or auditing matters.



The members of our audit
committee are Zvi Tropp, Elina Frenkel Ronen, Nadav Livni and Alon Bachar.



Compensation Committee



Under the Companies Law,
the board of directors of a public company must establish a compensation committee. The compensation committee must consist of
at least three directors who satisfy certain independence qualifications, include all of the external directors who must maintain
a majority of the committee members, and the chairman of which is required to be an external director. Under the Companies Law,
the role of the compensation committee is to recommend to the board of directors, for ultimate shareholder approval by a special
majority, a policy governing the compensation of office holders based on specified criteria, to review modifications to the compensation
policy from time to time, to review its implementation and to approve the actual compensation terms of office holders prior to
approval by the board of directors, and to resolve whether to exempt the compensation terms of a candidate for chief executive
officer from shareholder approval.The members of our compensation committee are Zvi Tropp, Boaz Lifschitz and Elina Frenkel
Ronen.



Financial Statements
Review Committee



Pursuant to the Israeli
Companies Regulations the financial reports of a public company such as our company may be brought for discussion and approval
of the board only after such committee has discussed and formulated recommendations to the board in connection with: (1) the valuations
and estimates used in connection with the financial statements; (2) the internal controls related to financial reporting; (3) the
completeness and appropriateness of disclosure in the financial statements; (4) the accounting policy adopted and accounting treatment
applied in the material matters of the company; and (5) valuations, including the assumptions and estimates underlying them, on
which data in the financial statements is provided. The Financial Statements Review Committee must consist of at least three members,
the chairperson of the committee must be an External Director, and the majority of its members must be directors who meet certain
independence requirements of the Companies Law, and, among other criteria, all of its members must be able to read and understand
financial statements, with at least one of the members having “financial and accounting expertise” (as defined above).



Pursuant to the Companies
Regulations, the audit committee may serve as the Financial Statements Review Committee subject to fulfillment of the aforementioned
conditions.





95






Internal Auditor



Under the Companies Law,
our board of directors is required to appoint an internal auditor proposed by the audit committee. The role of the internal auditor
is to examine, among other things, whether our actions comply with the law and proper business procedure. The internal auditor
may not be an interested party, an office holder, or a relative of any of the foregoing, nor may the internal auditor be our independent
accountant or its representative. The Companies Law defines the term “interested party” to include a person who holds
5% or more of our outstanding share capital or voting rights, has the right to appoint one or more directors or the general manager
or who serves as a director or as the general manager. Our internal auditor is Mr. Daniel Spira, a Certified Public Accountant
in Israel.



For information on the duties
of directors, officers and shareholders and requirements for the approval of related-party transactions, please see Item 10.B -
“Memorandum and Articles of Association and General Provisions of Israeli Law.”



|D. | EMPLOYEES
|-- | ---------



As of March 31, 2016, we
employed or contracted 9 persons as employees or consultants in investment, administration and managerial services, all of whom
work out of our headquarters in Israel. As of March 31, 2016, PC had 83 employees, consultants and part time employees in the Netherlands,
CEE, Greece and India. As of March 31, 2016, our Hotel division had 420 employees.



As of March 31, 2015, we
employed or contracted 26 persons as employees or consultants in investment, administration and managerial services, all of whom
work out of our headquarters in Israel. As of March 31, 2015, PC had 120 employees, consultants and part time employees in the
Netherlands, CEE, Greece and India. As of March 31, 2015, our Hotel division had 509 employees.



As of March 31, 2014, we
employed or contracted 41 persons as employees or consultants in investment, administration and managerial services, all of whom
work out of our headquarters in Israel. As of March 31, 2014, PC had 116 employees, consultants and part time employees in the
Netherlands, CEE, Greece and India. As of March 31, 2014, our Hotel division had 509 employees. As of March 31, 2014, Elbit Fashion
employed 548 employees.



We are not party to any collective
bargaining agreement with our employees or with any labor organization.



|E. | SHARE OWNERSHIP
|-- | ---------------



Incentive Plan for
the Chairman of our Board, Mr. Ron Hadassi



As part of the compensation
plan for the Chairman of our Board, Mr. Ron Hadassi, approved at our General Meeting held on August 14, 2014 (the “Chairman’s
Incentive Plan”), Mr. Hadassi was granted options exercisable in to 285,190 ordinary shares, no par value, of the Company,
constituting approximately 1.0% of our issued and outstanding share capital on a fully diluted basis.



On January 31, 2016, in
accordance with the compensation committee's recommendation, the Board approved Mr. Hadassi offer to reduce his compensation. Among
other reductions, Mr. Hadassi waived his rights to the aforementioned granted options on a unilateral basis.



2010 Incentive Plan
for InSightec Shares



Our 2010 Incentive Plan
(the “2010 Incentive Plan for InSightec Shares”) provides for the grant of options exercisable into up to 500,000 shares
of InSightec to employees, directors and officers of us and of affiliate companies, at an exercise price per option to be determined
by our board of directors.



Under the 2010 Incentive
Plan for InSightec Shares, options vest gradually over a period of three years. The options expire seven years from the date of
grant. Options are exercisable by payment of the exercise price in cash.



Prior to an IPO, the underlying
shares are subject to certain "drag along" rights.



Prior to or after the consummation
of a listing of securities of any parent company of InSightec, our board of directors may approve an exchange of options or underlying
shares under the 2010 Incentive Plan for InSightec Shares with options or shares of such parent company, according to a formula
set forth in the 2010 Incentive Plan for InSightec Shares.



As of March 31, 2016, options
to purchase 430,000 shares were outstanding under the 2010 Incentive Plan for InSightec Shares all of which are fully vested.





96






2011 Employees and
Officers Incentive Plan for Elbit Medical Technologies Ltd.’s Shares



In April 2011, our board
of directors adopted the Elbit Employees and Officers Incentive Plan for Elbit Medical Technologies Ltd.’s shares (the "2011
Plan") for the grant of up to 158,637,000 options exercisable into 79,443,500 ordinary shares of Elbit Medical for an exercise
price of NIS 0.40. The exercise price of each option will be reduced upon distribution of dividends, stock dividends etc. The exercise
mechanism of the options into Elbit Medical's shares will be as follows: at the exercise date the Company shall transfer to each
exercising option holder shares of Elbit Medical (owned by the Company) equal to the difference between (A) the price of Elbit
Medical's shares on the TASE on the exercise date, provided that if such price exceeds 100% of the exercise price, the opening
price shall be set as 100% of the exercise price (the "Capped Exercise Price"); less (B) the exercise price of the options;
and the result (A minus B) will be divided by the Capped Exercise Price. In November 2012, our board of directors adopted an amendment
to the 2011 Plan increasing the number of options issuable from 158,637,000 to 187,708,000 and resolved to amend the exercise price
per share to NIS 0.133 and extend the expiration date of such options to November 29, 2017 in respect of employees and officers
who served at Elbit Group at that time.



In addition, in September
2014, we granted an additional 14,400,000 options to past and present officers of Elbit Medical with an exercise price of NIS 0.115
per share to the 2011.



In addition, in March 2016,
we granted an additional 10,000,000 options to the new appointed chief financial officer of Elbit Medical at a price of NIS 0.10
per share.



As of March 31, 2016, 184,704,500
options were granted to our employees and officers. As of March 31, 2016, 150,035,500 options were outstanding under the 2011 Plan
of which 138,702,602 were vested.



PC Share Option Scheme,
as amended



PC’s Option Plan,
as amended in August 2007, November 2008 and November 2011 ( “PC's First Option Plan”) provides for the grant of up
to 33,,834,586 options to employees, directors, officers and other persons who provide services to PC, including our employees
for no consideration. In November 2012 the number of options to be granted was increased by 14,000,000 additional options.("PC's
Second Option Plan"). The exercise price per option is the average closing price of PC's shares traded on the London Stock
Exchange (“LSE”) during the fifteen-day period prior to the date of grant.



Under the terms of both
of PC's Option Plans, options vest over a period of three years, such that 33.33% of the options granted become exercisable on
each of the first, second and third anniversaries of the date of grant.



Upon the occurrence of an
event of change of control in PC (as defined in PC's Option Plan), the vesting of all the outstanding options granted by PC that
were not exercised or did not expire by such date, shall be fully accelerated.



As of March 31, 2016, 23,797,373
options to purchase ordinary shares were outstanding under PC's Option Plan of which 23,469,040,706 options were vested.



|ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|------- | -------------------------------------------------



|A. | MAJOR SHAREHOLDERS
|-- | ------------------



We had 27,572,426 ordinary
shares outstanding as of April 1, 2016. The voting rights of all shareholders are the same. The following table sets forth certain
information as of April 1, 2016, unless stated otherwise, concerning (i) persons or entities who, to our knowledge, beneficially
own more than 5% of our outstanding ordinary shares and (ii) the number of our ordinary shares beneficially owned by all of our
directors and officers as a group:



|Name
    and Address                                                                                                                                                                              |  | Number of Shares Beneficially Owned |           |  | Approximate
    Percentage of Shares | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------- | --------- |  | ------------------------------------ | 
|York
Capital Management Global Advisers LLC and/or certain funds and/or accounts managed by it or its affiliates (1)                                                                              |  |                                     | 5,447,850 |  |                                      | 
|Davidson
                                         Kempner Capital Management LP and/or certain funds and/or accounts managed by it or its
                                         affiliates (2) |  |                                     | 3,943,584 |  |                                      | 












|(1) | Based on information received from the shareholders on January
19, 2016.
|--- | ------------------------------------------------------------------------

|(2) | Based on information received from the shareholders on February 18, 2016.
|--- | -------------------------------------------------------------------------





97






York
Capital Management Global Advisers LLC and Davidson Kempner Capital Management LLC, together with their respective affiliates,
are holders of our and PC's notes. For further detail, see note 18D to our annual consolidated financial statements incorporated
herein by reference.



|B. | RELATED PARTY TRANSACTIONS
|-- | --------------------------



InSightec Amendment
to Series D Investment Agreement



In June 2014, InSightec
has entered into a Series D Preferred Share Purchase agreement with York Global Finance II S.à r.l. (an affiliate of York
Capital Management which is a related party of the Company) (“York”) and other investors for an investment of up to
USD 62.5 M in series D preferred shares of InSightec which than constitutes approx. 25% of InSightec's issued and outstanding share
capital on a fully diluted basis. By the end of May 2015 the entire amount was invested.("Series D Preferred Share Purchase
Agreement ").On December 31, 2015, InSightec and some of its existing and new shareholders signed and executed an amendment
to the Series D Preferred Share Purchase Agreement, as amended from time to time (the "Amendment to the Share Purchase Agreement"),
under which Insightec completed an investment of $22 million in consideration for approximately 7.3% of InSightec's outstanding
share capital, on a fully diluted basis. The terms and conditions of the investment are the same as in the original Series D Preferred
Share Purchase Agreement, based on the same pre-money valuation and subject to certain adjustments. For more information See "Item
4A – History and Development of the Company – Recent Events – InSightec Series D Share Purchase Agreement".



PC Debt Restructuring



As detailed in Item 5 “Operating
and Financial Review and Prospects”,on June 23, 2014, subject
to the application of certain conditions precedent, we undertook to exercise (or procure that other persons will exercise) all
of our rights in PC’s offering of shares and to procure subscriptions for any unexercised portion of such offering. In relation
to the above, we entered into a back-stop agreement with BLML (an affiliate of our
shareholder Davidson Kempner Capital Management LP), pursuant to which BLML agreed to purchase under the offering up to €10
million of shares of PC, subject to similar conditions precedent. On December 19, 2014, PC announced that it had successfully
completed the Rights Offering, and we announced that our wholly owned subsidiary had purchased 122,847,376 new ordinary shares
of PC under the Rights Offering for an aggregate amount of approximately €8.3 million and procured that BLML will purchase
163,803,197 new ordinary shares of PC for an additional amount of €11.05 million.



Joint venture agreement
with PC



As detailed in Item 4B.
“Business Overview”, in August 2008 we entered into the EPI Agreement with PC, under which, amongst other things, PC
was allotted 47.5% of the EPI. EPI is holding two plots in India (in Bangalore and Chennai) in conjunction with local Indian partners
and has engaged with certain third parties with respect of the Kochi Island project. As of the date of the execution of the EPI
Agreement through the date of this annual report, the Kochi Island project was held through a special purchase vehicle other than
EPI. We agreed that 50% of our rights in the Kochi Island project will be held in favor of PC, and we undertook and guaranteed
to transfer the holdings in the Kochi project to EPI or 50% to PC within 12 months following the execution of the EPI Agreement,
or alternatively to repay the consideration paid by PC for the rights in the project. This undertaking and guarantee have since
been extended until August 25, 2013. On November 11, 2013, PC notified us of its demand that we repay the amount paid by PC for
the Kochi Island project together with the interest accumulated thereupon, amounting to approximately €4.3 million(US$ 5.2 million) due to alleged failure to timely meet certain conditions set forth in the EPI Agreement. Following the
approval of the Audit committee of PC and us we agreed that we will have the full rights in the Kochi Project and the amount outstanding
from the Company to PC will be repaid in installments as scheduled in the agreement. As of the filing of this annual report the
total amount outstanding under this loan is approximately €2.7million.



Relationship
Agreement with PC



On
October 27, 2006, we entered into an agreement with PC pursuant to which we undertook, as long as we hold at least 30% of the issued
share capital of PC, that neither we nor any person connected with us will compete with the business of PC related to the development
of commercial and entertainment centers in Central and Eastern Europe or India or the development of the Dream Island or Casa Radio
projects. The Relationship Agreement terminates in the event that PC’s issued share
capital ceases to be admitted to the main market of the London Stock Exchange. In the framework of the Amended PC Plan we were
required by the UK Listing Authority to enter into an amended and restated relationship agreement on basically the same terms,
with minor adjustments due to regulatory changes not affecting the essence of the agreement.





98






Guarantee
Agreement with PC



On October 27, 2006, PC
agreed, with effect from January 1, 2006, to pay a commission to us in respect of any and all outstanding corporate and first demand
guarantees which have been issued by us in favor of PC and which remain valid and outstanding ("EI Guarantees"). The
amount of the commissions to be paid will be agreed upon between us and PC at the beginning of each fiscal year, and will apply
to all EI Guarantees which remain outstanding during the course of that relevant fiscal year, subject to a cap of 0.5% of the amount
or value of the relevant EI Guarantee, per annum. During 2013 no guarantees were provided by us to PC.



Indemnification, Insurance
and Exemption



For information regarding
the grant of insurance, exemption and indemnification to our directors and officers, by us or our subsidiaries, see “Item
10.B. Memorandum and Articles of Association and General Provisions of Israeli Law - Insurance, Indemnification and Exemption”
below.



Inter-company Loans
and Guarantees



From time to time we invest
in our subsidiaries and jointly controlled companies, by way of equity or capital investments, or otherwise provide loans or guarantees
to such companies, in order to finance their operations and businesses. All such investments are eliminated in our consolidated
financial statements. Details as to material guarantees are provided in “Item 5.B. Liquidity and Capital Resources - Loans”
above.



For amounts paid under our
related party transactions, see note 27C to our annual consolidated financial statementsincorporated herein by reference.



|ITEM 8. | FINANCIAL INFORMATION
|------- | ---------------------



|A. | CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
|-- | -------------------------------------------------------



See
our annual consolidated financial statements on our current report on Form 6-K filed with the SEC on March 31, 2016, which is incorporated
by reference herein.



Legal Proceedings



For
information regarding the legal proceeding we are involved in, see "Item 4.A History and Development of the Company –
Recent Events" and note 18B to our annual consolidated financial statements.



Since
the date of filing of our annual consolidated financial statements the Company and some other defendants (i.e, the Company's and
Elscint's former directors and officers) entered into a settlement agreement with the plaintiffs in class action #1318/99 (Gadish
v. Elscint et. al.) (the "Settlement"). The Settlement generally provides that in consideration of a total payment of
NIS 46 million (approximately $11.9 million) (a) the Hotels & Marina Transactions cause of action (as well as any other cause
of action that is – or may be – directed against us and our former directors and officers and to Elscint and its former
directors and officers) shall be exhausted with respect to all of the defendants; and (b) all other causes of action shall be exhausted
with respect to us and our former directors and officers as well as with respect to Elscint and its former directors and officers.



Our
share in the aforementioned compensation is NIS 4 million (approximately $1 million) and the rest will be financed by the our D&O
Insurance. The Settlement is subject to the court's approval and additional preconditions fulfillment as determined in the agreement,
including, but not limited to the right of the insurer to terminate the Settlement under certain circumstances.



Dividend Distribution
Policy



To date, we do not have
a dividend distribution policy. Consequentially, our Board may issue dividends at its sole discretion.



It should be noted that
under Bank Hapoalim refinancing agreement and the terms of the Series H and Series I notes certain limitations were imposed on
the distribution of dividends prior to the redemption of such debt.



|B. | SIGNIFICANT CHANGES
|-- | -------------------



There are no significant
changes that have occurred since December 31, 2015, except as otherwise disclosed in this annual report and in our annual consolidated
financial statements.





99






|ITEM 9. | THE OFFER AND LISTING
|------- | ---------------------



|A. | OFFER AND LISTING DETAILS
|-- | -------------------------



Our ordinary shares
are listed on the NASDAQ Global Select Market under the symbol “EMITF” and on the TASE under the symbol "EMIT."
As stated in the Special Explanatory Note to this Annual Report, share and share price information have been adjusted to reflect
the 1-for-20 reverse share split effected by us on August 21, 2014.



Information regarding
the price history of the stock listed



The annual high and low
sale prices for our ordinary shares for the five most recent full financial years are:





|                        |  | NASDAQ   |       |  | TASE    | 
|----------------------- |  | -------- | ----- |  | ------- | 
|Year Ended December 31, |  | High ($) |       |  | Low ($) | 
|2015                    |  |          | 2.14  |  |         | 
|2014                    |  |          | 26.4  |  |         | 
|2013                    |  |          | 70    |  |         | 
|2012                    |  |          | 66.4  |  |         | 
|2011                    |  |          | 279.4 |  |         | 





The
quarterly high and low sale prices for our ordinary shares for the two most recent full financial years and any subsequent period
are:





|                            |  | NASDAQ   |       |  | TASE    | 
|--------------------------- |  | -------- | ----- |  | ------- | 
|Financial Quarter           |  | High ($) |       |  | Low ($) | 
|2016                        |  |          |       |  |         | 
|Q1                          |  |          | 1.00  |  |         | 
|Q2 (through April 19, 2016) |  |          | 0.88  |  |         | 
|                            |  |          |       |  |         | 
|2015                        |  |          |       |  |         | 
|Q1                          |  |          | 2.14  |  |         | 
|Q2                          |  |          | 1.90  |  |         | 
|Q3                          |  |          | 1.40  |  |         | 
|Q4                          |  |          | 1.36  |  |         | 
|                            |  |          |       |  |         | 
|2014                        |  |          |       |  |         | 
|Q1                          |  |          | 26.40 |  |         | 
|Q2                          |  |          | 4.69  |  |         | 
|Q3                          |  |          | 4.40  |  |         | 
|Q4                          |  |          | 3.00  |  |         | 





The monthly high and
low sale prices for our ordinary shares during the past six months were:





|                              |  | NASDAQ   |      |  | TASE    | 
|----------------------------- |  | -------- | ---- |  | ------- | 
|Month                         |  | High ($) |      |  | Low ($) | 
|April 2016 (through April 19) |  |          | 0.88 |  |         | 
|March 2016                    |  |          | 1.00 |  |         | 
|February 2016                 |  |          | 0.73 |  |         | 
|January 2016                  |  |          | 0.74 |  |         | 
|December 2015                 |  |          | 1.00 |  |         | 
|November 2015                 |  |          | 1.16 |  |         | 
|October 2015                  |  |          | 1.36 |  |         | 





The closing prices of our
ordinary shares listed on the TASE for each of the periods referred to in the tables above were originally denominated in NIS and
were converted to U.S. dollars using the representative exchange rate between the U.S. dollar and the NIS published by the Bank
of Israel for each applicable day in the presented period.





100






|B. | PLAN OF DISTRIBUTION
|-- | --------------------



Not applicable.



|C. | MARKETS
|-- | -------



Since our initial public
offering in November 1996, our ordinary shares have been listed on the NASDAQ Global Select Market (then known as the NASDAQ National
Market) under the symbol “EMITF” and on the TASE under the symbol "EMIT."



|D. | SELLING SHAREHOLDERS
|-- | --------------------



Not applicable.



|E. | DILUTION
|-- | --------



Not applicable.



|F. | EXPENSES OF THE ISSUE
|-- | ---------------------



Not applicable.



|ITEM 10. | ADDITIONAL INFORMATION
|-------- | ----------------------



|A. | SHARE CAPITAL
|-- | -------------



Not applicable.



|B. | MEMORANDUM AND ARTICLES OF ASSOCIATION
|-- | --------------------------------------



Purposes and Objects of the Company



We are a public company
registered under the Companies Law as Elbit Imaging Ltd., registration number 52-004303-5.



Pursuant to Section 2 of
our Amended and Restated Memorandum of Association, we are authorized to operate in any business or matter for profit purposes
as shall be determined or defined by our board of directors from time to time. In addition, our Amended and Restated Articles of
Association authorize usto donate reasonable amounts to any cause we deem worthy.



Approval
of Certain Transactions



A recent amendment to the
Companies Law imposes new approval requirements for the compensation of office holders. Every Israeli public company was required
to adopt a compensation policy, recommended by the compensation committee, and approved by the board of directors and the shareholders,
in that order, no later than January 12, 2014. The shareholder approval requires a majority of the votes cast by shareholders,
excluding any controlling shareholder and those who have a personal interest in the matter (similar to the threshold described
in the following paragraph regarding transactions with a controlling shareholder). In general, all office holders’ terms
of compensation – including fixed remuneration, bonuses, equity compensation, retirement or termination payments, indemnification,
liability insurance and the grant of an exemption from liability – must comply with the company's compensation policy. In
addition, the compensation terms of directors, the chief executive officer, and any employee or service provider who is considered
a controlling shareholder must be approved separately by the compensation committee, the board of directors and the shareholders
of the company (by the same majority noted above), in that order. The compensation terms of other officers require the approval
of the compensation committee and the board of directors. In addition, under the Companies Law and our Amended and Restated Articles
of Association, transactions with our officers or directors or a transaction with another person in which such officer or director
has a personal interest must be approved by our audit committee, board of directors or authorized non-interested signatories, and
if such transaction is considered an extraordinary transaction (as defined below) or involves the engagement terms of officers,
the transaction must be approved by the audit committee and board of directors. Our Compensation Committee and Board adopted a
compensation policy, which our shareholders subsequently approved at the annual general meeting of our shareholders held on August
14, 2014, and amended compensation policy at the extraordinary general meeting of our shareholders held on March 31, 2016.





101






The compensation policy
must serve as the basis for decisions concerning the financial terms of employment or engagement of office holders, including compensation,
benefits, exculpation, insurance and indemnification. The compensation policy must take into account certain factors, including
advancement of the company’s objectives, the company’s business plan and its long-term strategy, and creation of appropriate
incentives. It must also consider, among other things, the company’s risk management, size and the nature of its operations.
The compensation policy must include certain principles, such as: a link between variable compensation and long-term performance
and measurable criteria; the relationship between variable and fixed compensation; and the minimum holding or vesting period for
variable, equity-based compensation. We believe that our Amended Compensation Policy satisfies these requirements.



The Companies Law also requires
that any extraordinary transaction with a controlling shareholder or an extraordinary transaction with another person in which
a controlling shareholder has a personal interest must be approved by the audit committee, the board of directors and the shareholders
of the company, in that order. The shareholder approval must be by a simple majority, provided that (i) such majority vote includes
at least a simple majority of the total votes of shareholders having no personal interest in the transaction or (ii) the total
number of votes of shareholders mentioned in clause (i) above who voted against such transaction does not exceed 2% of the total
voting rights in the company. In addition, any such extraordinary transaction whose term is longer than three years requires further
shareholder approval every three years, unless (with respect to transactions not involving management fees or employment terms)
the audit committee approves that a longer term is reasonable under the circumstances.



The Companies Law prohibits
any person who has a personal interest in a matter from participating in the discussion (and voting pertaining to such matter in
the company’s board of directors or audit committee except for in circumstances where the majority of the board of directors
has a personal interest in the matter, in which case such matter must be approved by the company’s shareholders.



An “extraordinary
transaction” is defined in the Companies Law as any of the following: (i) a transaction not in the ordinary course of business;
(ii) a transaction that is not on market terms; or (iii) a transaction that is likely to have a material impact on the company’s
profitability, assets or liability.



Under the Companies Law,
a private placement of securities requires approval by the board of directors and the shareholders of the company if it will cause
a person to become a controlling shareholder or if:



| | ● | the securities issued amount to 20% or more of the company’s outstanding voting rights before
the issuance;
| | - | -----------------------------------------------------------------------------------------------------------
| |   |                                                                                                            

| | ● | some or all of the consideration is other than cash or listed securities or the transaction is
not on market terms; and
| | - | -----------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                        

| | ● | the transaction will increase the relative holdings of a shareholder that holds 5% or more of the
company’s outstanding share capital or voting rights or that will cause any person to become, as a result of the issuance,
a holder of more than 5% of the company’s outstanding share capital or voting rights.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Fiduciary
Duties of Directors and Officers



The Companies Law imposes
a duty of care and a duty of loyalty on the directors and officers of a company. The duty of care requires a director or office
holder to act with the level of care with which a reasonable director or officer in the same position would have acted under the
same circumstances. It includes a duty to use reasonable means to obtain information on the advisability of a given action brought
for his approval or performed by him by virtue of his position and all other important information pertaining to these actions.



The duty of loyalty of a
director or officer includes a general duty to act in good faith for the benefit of the company, and particularly to:



| | ● | refrain from any conflict of interest between the performance of his duties for the company and
the performance of his other duties or his personal affairs
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                            

| | ● | refrain from any activity that is competitive with the company;
| | - | ---------------------------------------------------------------
| |   |                                                                

| | ● | refrain from exploiting any business opportunity of the company to receive a personal gain for
himself or others; and
| | - | ---------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                      

| | ● | disclose to the company any information or documents relating to a company’s affairs which
the director or officer has received due to his position as such.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------





102






The Companies Law requires
that directors, officers or a controlling shareholder of a public company disclose to the company any personal interest that he
or she may have, including all related material facts or documents in connection with any existing or proposed transaction by the
company. The disclosure must be made without delay and no later than the first board of directors meeting at which the transaction
is first discussed.



Duties
of a Shareholder



Under the Companies Law,
a shareholder, in exercising his rights and fulfilling his obligations to the company and the other shareholders, must act in good
faith and in a customary manner and refrain from improperly exploiting his power in the company, including when voting at general
or class meetings of shareholders on: (a) any amendment to the articles of association; (b) an increase of the company’s
authorized share capital; (c) a merger; or (d) the approval of related party transactions. In addition, a shareholder must refrain
from prejudicing the rights of other shareholders. Furthermore, any controlling shareholder, any shareholder who knows that he
possesses power to determine the outcome of the shareholders’ vote at a general or a class meeting, and any shareholder that,
pursuant to the provisions of the articles of association, has the power to appoint or prevent the appointment of an officer in
the company or possesses any other power towards the company, is subject to a duty to act in fairness towards the company. The
Companies Law does not detail the substance of this duty.



Board of Directors



In accordance with our Amended
and Restated Articles of Association, the board of directors may, from time to time, in its discretion, cause us to borrow or secure
the payment of any sum or sums of money for the purposes of the Company and may cause us to secure or
provide forthe repayment of such sum or sums in such manner, at such times
and upon such terms and conditions in all respects as it deems fit, and in particular by the issuance of notes,
perpetual or redeemable notes, debenture stock, or any mortgages, charges, or other securities on the undertaking or the wholeor any part of our property (both present and future), including its uncalled or called
but unpaid sharecapital for the time being.



Neither our Amended and
Restated Memorandum of Association nor our Amended and Restated Articles of Association, nor the laws of the State of Israel require
retirement of directors at a certain age or share ownership for director qualification, nor do any of them contain any restriction
on the board of directors’ borrowing powers.



Insurance, Indemnification
and Exemption



General - our Amended
and Restated Articles of Association set forth the following provisions regarding the grant of exemption, insurance and indemnification
to any of our directors or officers, all subject to the provisions of the Companies Law. In accordance with such provisions and
pursuant to the requisite approvals of our audit committee, board of directors and shareholders, we have obtained liability insurance
covering our directors and officers, have granted indemnification undertakings to our directors and officers and have agreed to
exempt our directors and officers (other than our Executive Chairman) from liability for breach of the duty of care. PC, InSightec
and Gamida have also granted indemnification undertakings to their respective directors and officers.



Insurance - we may
insure the liability of any director or officer to the fullest extent permitted by law. Without derogating from the aforesaid,
we may enter into a contract to insure the liability of a director or officer for an obligation imposed on him in consequence of
an act done in his capacity as such, in any of the following cases:



| | (i) | A
    breach of the duty of care vis-a-vis us or vis-a-vis another person;
| | --- | --------------------------------------------------------------------------



| | (ii) | A
                                         breach of the duty of loyalty vis-a-vis us, provided that the director or officer
                                         acted in good faith and had reasonable basis to believe that the act would not harm us;
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | A
    monetary obligation imposed on him in favor of another person;
| | ----- | --------------------------------------------------------------------



| | (iv) | Reasonable
                                         litigation expenses, including attorney fees, incurred by the director or officer as
                                         a result of an administrative enforcement proceeding instituted against him. Without
                                         derogating from the generality of the foregoing, such expenses will include a payment
                                         imposed on the director or officer in favor of an injured party as set forth in Section
                                         52(54)(a)(1)(a) of the Israeli Securities Law, 1968, as amended (the "Securities
                                         Law") and expenses that the director or officer incurred in connection with a proceeding
                                         under Chapters H'3, H'4 or I'1 of the Securities Law, including reasonable legal expenses,
                                         which term includes attorney fees; or
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (v) | Any
                                         other matter in respect of which it is permitted or will be permitted under applicable
                                         law to insure the liability of our directors or officers.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





103






Indemnification



We may indemnify a director
or officer to the fullest extent permitted by law, either retroactively or pursuant to an undertaking given in advance. Without
derogating from the aforesaid, we may indemnify our directors or officers for liability or expense imposed on him in consequence
of an action taken by him in his capacity as such, as follows:



| | (i) | Any financial liability he incurs or imposed on him in favor of another person in accordance with
a judgment, including a judgment given in a settlement or a judgment of an arbitrator, approved by a court, provided that any undertaking
to indemnify be restricted to events that, in the opinion of the board of directors, are anticipated in light of our actual activity
at the time of granting the undertaking to indemnify and be limited to a sum or measurement determined by the board of directors
to be reasonable under the circumstances;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | Reasonable litigation expenses, including legal fees, incurred by the director or officer or which
he was ordered to pay by a court, within the framework of proceedings filed against him by or on behalf of us, or by a third party,
or in a criminal proceeding in which he was acquitted, or in a criminal proceeding in which he was convicted of a felony which
does not require a criminal intent; and
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | Reasonable litigation expenses, including legal fees he incurs due to an investigation or proceeding
conducted against him by an authority authorized to conduct such an investigation or proceeding, and which was ended without filing
an indictment against him and without being subject to a financial obligation as a substitute for a criminal proceeding, or that
was ended without filing an indictment against him, but with the imposition of a financial obligation, as a substitute for a criminal
proceeding relating to an offense which does not require criminal intent, within the meaning of the relevant terms in the Companies
Law or in connection with an administrative enforcement proceeding or a financial sanction. Without derogating from the generality
of the foregoing, such expenses will include a payment imposed on the director or officer in favor of an injured party as set forth
in Section 52(54)(a)(1)(a) of the Securities Law, and expenses that the director or officer incurred in connection with a proceeding
under Chapters H'3, H'4 or I'1 of the Securities Law, including reasonable legal expenses, which term includes attorney fees.
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The aggregate indemnification
amount payable by us pursuant to indemnification undertakings may not exceed the lower of (i) 25% of our shareholders’ equity
as of the date of actual payment by us of the indemnification amount (as set forth in our most recent consolidated financial statements
prior to such payment) and (ii) $40 million, in excess of any amounts paid (if paid) by insurance companies pursuant to insurance
policies maintained by us, with respect to matters covered by such indemnification.



Exemption - we may
exempt a director or officer in advance or retroactively for all or any of his liability for damage in consequence of a breach
of the duty of care vis-a-vis us, to the fullest extent permitted by law.



Prohibition on the grant
of exemption, insurance and indemnification - The Companies Law provides that a company may not give insurance, indemnification
nor exempt its directors or officers from liability in the following events:



| | (i) | a breach of the duty of loyalty to the company, unless, with respect to insurance coverage or indemnification,
the director or officer acted in good faith and had a reasonable basis to believe that the act would not harm us;
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                 

| | (ii) | an intentional or reckless breach of the duty of care;
| | ---- | ------------------------------------------------------
| |      |                                                       

| | (iii) | an act done with the intention of unduly deriving a personal profit; or
| | ----- | -----------------------------------------------------------------------
| |       |                                                                        

| | (iv) | a fine imposed on the officer or director.
| | ---- | ------------------------------------------



Rights Attached to Shares



Our registered share capital
consists of a single class of 35,000,000 ordinary shares, of no par value, of which 27,572,426 ordinary shares were issued and
outstanding as of April 1, 2016.



Dividend and Liquidation Rights



Our board of directors may
declare a dividend to be paid to the holders of ordinary shares on a pro rata basis. Dividends may only be paid out of our profits
and other surplus funds, as defined in the Companies Law, as of our most recent financial statement or as accrued over the past
two years, whichever is higher, or, in the absence of such profits or surplus, with court approval. In any event, a dividend is
permitted only if there is no reasonable concern that the payment of the dividend will prevent us from satisfying our existing
and foreseeable obligations as they become due. In the event of our liquidation, after satisfaction of liabilities to creditors,
our assets will be distributed to the holders of ordinary shares on a pro rata basis. This right may be affected by the grant of
preferential dividend or distribution rights to the holders of a class of shares with preferential rights that may be authorized
in the future, subject to applicable law. For information on our dividend policy, see “Item 8.A. Financial Information –
Consolidated Statements and Other Financial Information - Dividend Distribution Policy.”





104






Voting Rights



Holders of ordinary shares
have one vote for each ordinary share held by them on all matters submitted to a vote of the shareholders. Such voting rights may
be affected by the creation of any special rights to the holders of a class of shares with preferential rights that may be authorized
in the future in the manner provided for under the Companies Law and our Amended and Restated Articles of Association. The quorum
required for an ordinary meeting of shareholders consists of at least two shareholders present in person or by proxy who hold or
represent, in the aggregate, at least 33-1/3% of the issued voting share capital. In the event that a quorum is not present within
half an hour of the scheduled time, the meeting shall be adjourned to the same day of the following week, at the same time and
place, or to such other day, time and place as the board of directors shall determine by notice to the shareholders. If at such
adjourned meeting a quorum is not present within half an hour of the scheduled time, the two members present in person or by proxy
will constitute a quorum.



Modification of Class Rights Attached
to Shares



The rights attached to any
class, such as voting, liquidation and dividend rights, may be amended by written consent of holders of a majority of the issued
shares of that class, or by adoption of a resolution by a simple majority of the shares of that class represented at a separate
class meeting.



Annual and Special Meetings



In accordance with the Companies
Law, the board of directors must convene an annual meeting of shareholders at least once every calendar year and no later than
within 15 months from the last annual meeting. Notice of at least 14 days prior to the date of the meeting is required, subject
to applicable law, which often requires notice of at least 21 or 35 days. An extraordinary meeting may be convened by the board
of directors, either at its discretion or upon a demand of (i) any two directors or 25% of the serving directors; or (ii) one shareholder
or more holding in the aggregate at least 5% of our issued capital and at least 1% of the voting rights in the Company or one shareholder
or more holding at least 5% of the voting rights in the Company.



Limitations on the Rights to own Securities



Our Amended and Restated
Memorandum of Association and Amended and Restated Articles of Association do not restrict in any way the ownership of our shares
by non-residents of Israel and neither the Amended and Restated Memorandum of Association, the Amended and Restated Articles of
Association or Israeli law restricts the voting rights of non-residents of Israel except that under Israeli law any transfer or
issue of our shares to a resident of an enemy state of Israel is prohibited and shall have no effect.



Changes to our Capital



Changes to our capital are
subject to the approval of our shareholders by a simple majority.



Anti-Takeover Provisions



The Companies Law prohibits
the purchase of our shares if the purchaser’s holding following such purchase increases above certain percentages without
conducting a tender offer or obtaining shareholder approval. Our Amended and Restated Articles of Association increased the required
amount of such tender offerto at least 10% of our outstanding ordinary shares See “Item 3.D. Risk Factors
- Risks Relating to Israel - Provisions of Israeli law may delay, prevent or make more difficult a merger or other business combination,
which may depress our share price.” above.



Amendment of Articles
of Association



Any amendment to our articles
of association requires the approval of our shareholders by a simple majority.



Transfer Agent



Our
transfer agent in the United States is American Stock Transfer and Trust Company whose address is 6201 15th Avenue,
Brooklyn, New York 11219.



|C. | MATERIAL CONTRACTS
|-- | ------------------



The following is a list
of material contracts entered into by us or any of our subsidiaries during the two years prior to the filing of this annual report.





105






Sale of Belgian Hotels



On June 11, 2015 we completed
the transaction contemplated in the Share Purchase Agreement with Astrid JV S.à.r.l., an affiliate of Kohlberg Kravis Roberts
& Co. L.P., with regard to the sale of its entire (100%) holdings in its wholly owned subsidiary which owns and operates the
Radisson Blu Hotel and the Park Inn Hotel in Antwerp, Belgium. The asset value reflected in the transaction was approximately €
48 million (approximately $52 million) for both Hotels subject to working capital and other adjustments as specified in the agreement.
The total net consideration paid to our wholly owned subsidiary, was approximately € 27 million (approximately $30 million).



Refinance of Bucharesti
Turism



On March 10, 2016 we announced
that our subsidiary Bucuresti Turism S.A. ("BUTU"), as borrower, Raiffeisen Bank International A.G and Raiffeisen Bank
S.A., leading international European banks, as lenders (the "Lenders") and us as guarantor have amended and restated
the existing facility agreement for a total aggregate amount of €97 million (approximately $106 million) which will be draw
down in two trenches. For more information see the Forms 6-K we filed on October 28, 2015, March 10, 2016 and March 24, 2016. On
March 24, 2016 we announced the closing of the first tranche of the facility agreement in the total amount of €85 million
(approximately $93 million).



Acquisition of Liberec
Plaza



For a discussion regarding
our acquisition of Liberec Plaza, see "Item 4A – History and Development of the Company – Recent Events –
Acquisition of Loan to Control Liberec Plaza in the Czech Republic and Sale of the Commercial Center".



Sale of plot in Bangalore,
India



For a discussion regarding
our transaction in Bangalore, Indai, see "Item 4A – History and Development of the Company – Recent Events –Agreement
to Sell a plot in Bangalore, India".



The Debt Restructuring



For a discussion of the
Debt Restructuring, see above Item 4A, under “Our Debt Restructuring”.



The Refinancing Agreement



For a discussion of the
Refinancing Agreement entered with Bank Hapoalim see “Item 5. Operating and Financial Review and Prospects – Overview
- 2014”.



The PC Debt
Restructuring



For a discussion of the
Amended PC Plan, see above Item 4A, under “PC Debt Restructuring”.



Medical



For information regarding
the investment in InSightec by York Global Finance II S.à r.l., see “Item 5. Operating and Financial Review and Prospects
– Overview - 2015)



For information regarding
investment in InSightec by some of its existing shareholders, see "Item 4A – History and Development of the Company
– Recent Events – InSightec Series D Share Purchase Agreement".



|D. | EXCHANGE CONTROLS
|-- | -----------------



In 1998, the government
of Israel promulgated a general permit under the Israeli Currency Control Law, 5738 - 1978. Pursuant to such permit, substantially
all transactions in foreign currency are permitted.



Our Amended and Restated
Memorandum of Association and Articles of Association do not restrict in any way the ownership of our shares by non-residents,
and neither our Amended and Restated Memorandum of Association nor Israeli law restricts the voting rights of non-residents.



|E. | TAXATION
|-- | --------



The following is a discussion
of certain tax laws that may be material to our shareholders, all as in effect as of the date of this report and all of which are
subject to changes, possibly on a retroactive basis, to the extent that such laws are still subject to judicial or administrative
interpretation in the future. This discussion is not intended, and should not be construed, as legal or professional tax advice
and does not cover all possible tax considerations. For further information as to taxes that apply to us and our subsidiaries,
see note 22 to our annual consolidated financial statements.





106






WE ENCOURAGE EACH INVESTOR
TO CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO SUCH INVESTOR OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF OUR ORDINARY SHARES, INCLUDING THE EFFECTS OF APPLICABLE ISRAELI, U.S. FEDERAL, STATE, AND LOCAL TAXES.



Taxation in Israel



The following is a summary
of the material Israeli tax consequences to purchasers of our ordinary shares. This summary does not discuss all the aspects of
Israeli tax law that may be relevant to a particular investor in light of his or her personal investment circumstances or to some
types of investors subject to special treatment under Israeli law. To the extent that the discussion is based on new tax legislation
which has not been subject to judicial or administrative interpretation, we cannot assure you that the views expressed in the discussion
will be accepted by the appropriate tax authorities or the courts. The discussion is not intended, and should not be construed,
as legal or professional tax advice and is not exhaustive of all possible tax considerations.



Capital Gains Tax
on Sales of Our Ordinary Shares



Israeli law generally imposes
a capital gains tax on the sale of capital assets by residents of Israel, and by non-residents of Israel if those assets either
(i) are located in Israel; (ii) are shares or a right to a share in an Israeli resident company; or (iii) represent, directly or
indirectly, rights to assets located in Israel, unless a specific exemption is available or unless a double tax convention concluded
between Israel and the shareholder's country of residence provides otherwise. The law distinguishes between real gain and inflationary
surplus. The inflationary surplus is equal to the increase in the purchase price of the relevant asset attributable solely to the
increase in the Israeli CPI, or a foreign currency exchange rate, between the date of purchase and the date of sale. The real gain
is the excess of the total capital gain over the inflationary surplus.



As of January 1, 2012, capital
gains derived by Israeli individuals from the sale of shares purchased on or after January 1, 2003, will be taxed at the rate of
25%. However, if the individual shareholder is a "Significant Shareholder" (i.e., a person who holds, directly
or indirectly, alone or jointly with others, 10% or more of one of the Israeli resident company's means of control) at the time
of sale or at any time during the preceding 12 month period, such gains will be taxed at the rate of 30%. In addition, capital
gains derived by an individual claiming a deduction of financing expenses in respect of such gains will be taxed at the rate of
30%. However, different tax rates may apply to dealers in securities and shareholders who acquired their shares prior to an initial
public offering. Israeli companies are subject to the corporate tax rate (26.5% for the 2015 tax year and 25% for the 2016 tax
year and thereafter) on capital gains derived from the sale of shares.



The tax basis of our shares
acquired prior to January 1, 2003, will generally be determined in accordance with the average closing share price in the three
trading days preceding January 1, 2003. However, a request may be made to the Israeli tax authorities to consider the actual adjusted
cost of the shares as the tax basis if it is higher than such average price.



Capital gains derived from
the sale of our shares by a non-Israeli shareholder may be exempt under the Israeli Income Tax Ordinance from Israeli taxation
provided the following cumulative conditions are met: (i) the shares were purchased upon or after the registration of our shares
on the stock exchange, (ii) the seller doesn't have a permanent establishment in Israel to which the derived capital gains are
attributed, and (iii) if the seller is a corporation, (a) 25% or less of its means of control or (b) less than 25% of the beneficial
rights to the revenues or profits of such corporation, whether directly or indirectly, are held by Israeli resident shareholders.
In addition, the sale of our shares by a non-Israeli shareholder may be exempt from Israeli capital gain tax under an applicable
tax treaty.



Pursuant to the Convention
between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income, as amended,
or the U.S.- Israel Tax Treaty, the sale, exchange or disposition of ordinary shares by a person who (i) holds the ordinary shares
as a capital asset, (ii) qualifies as a resident of the United States within the meaning of the U.S.-Israel Tax Treaty and (iii)
is entitled to claim the benefits afforded to such resident by the U.S.-Israel Tax Treaty generally will not be subject to Israeli
capital gains tax unless (i) either such resident holds, directly or indirectly, shares representing 10% or more of the voting
power in the company during any part of the 12-month period preceding such sale, exchange or disposition, subject to certain conditions,
or (ii) the capital gains from such sale, exchange or disposition can be allocated to a permanent establishment of the shareholder
in Israel. If the above conditions are not met, the sale, exchange or disposition of ordinary shares would be subject to such Israeli
capital gains tax to the extent applicable; however, under the U.S.-Israel Tax Treaty, such residents should be permitted to claim
a credit for such taxes against U.S. federal income tax imposed with respect to such sale, exchange or disposition, subject to
the limitations in U.S. laws applicable to foreign tax credits. The U.S.-Israel Tax Treaty does not relate to state or local taxes.



In some instances where
our shareholders may be liable to Israeli tax on the sale of their ordinary shares, the payment of the consideration may be subject
to the withholding of Israeli tax at the source.



At the sale of securities
traded on a stock exchange a detailed return, including a computation of the tax due, must be filed and an advanced payment must
be paid on January 31 and June 30 of every tax year in respect of sales of securities made within the previous six months. However,
if all tax due was withheld at source according to applicable provisions of the Ordinance and regulations promulgated thereunder
the aforementioned return need not be filed and no advance payment must be paid. Capital gain is also reportable on the annual
income tax return.





107






Taxation of Dividends
Distribution



A
distribution of dividends to an Israeli resident individual will generally be subject to income tax at a rate of 25%. However,
a 30% tax rate will apply if the dividend recipient is a Significant Shareholder at the time of distribution or at any time during
the preceding 12 month period. If the recipient of the dividend is an Israeli resident company, such dividend will be exempt from
income tax provided that the income from which such dividend is distributed was derived or accrued within Israel. As of January
1, 2014, any distribution of dividends from income attributed to a Preferred Enterprise under the Law for the Encouragement of
Capital Investments, 1959 ("Investment Law") is generally subject to a tax at a rate of 20%. However, if such dividends
are distributed to an Israeli company, no tax is imposed. As of January 1, 2014, dividends distributed from income attributed to
an Approved Enterprise and/or a Benefited Enterprise under the Investment Law, are subject to a tax rate of 20%. Notwithstanding
the above, a reduced 15% tax rate will be applicable if the dividend was distributed out of income of: (i) Approved Enterprise
activated prior to 2014;or (ii) Benefited Enterprise with a "Year of Election" prior to 2014.



Under the Israeli Income
Tax Ordinance, a non-Israeli resident (either individual or company) is generally subject to Israeli income tax on the receipt
of dividends at the rate of 25% (30% if the dividends recipient is a Significant Shareholder), unless a different rate is provided
in a treaty between Israel and the shareholder’s country of residence. Under the U.S.- Israel Tax Treaty, the following rates
will apply in respect of dividends distributed by an Israeli resident company to a U.S. resident: (i) if the U.S. resident is a
corporation which holds during that portion of the tax year which precedes the date of payment of the dividend and during the whole
of its prior tax year (if any), at least 10% of the outstanding shares of the voting stock of the Israeli resident paying company,
and not more than 25% of the gross income of the Israeli resident paying company for such prior taxable year (if any) consists
of certain type of interest or dividends - the tax rate is 12.5%, (ii) if both the conditions mentioned in section (i) above are
met and the dividend is paid from an Israeli resident company's income generated by an "Approved Enterprise", which was
entitled to a reduced tax rate under the Israeli Law for the Encouragement of Capital Investments, 5719-1959 - the tax rate is
15%, and (iii) in all other cases, the tax rate is 25%. The aforementioned rates under the U.S. - Israel Tax Treaty will not apply
if the dividend income was derived through a permanent establishment of the U.S. resident in Israel.



We are generally obligated
to withhold Israeli tax at the source upon the distribution of a dividend, at the aforementioned rates.



A non-resident of Israel
who has dividend income derived from or accrued in Israel, from which tax was withheld at source, is generally exempt from the
duty to file tax returns in Israel in respect of such income, provided such income was not derived from a business conducted in
Israel by the shareholder.



Excess Tax



Individuals who are subject
to tax in Israel are also subject to an additional tax at a rate of 2% on annual income exceeding a certain threshold (approximately
NIS 811,000 for 2016, which amount is linked to the annual change in the Israeli consumer price index), including, but not limited
to income derived from , dividends, interest and capital gains.



U.S. Federal Income Tax Considerations



Subject to the limitations
described herein, this discussion summarizes certain U.S. federal income tax consequences of the purchase, ownership and disposition
of our ordinary shares to a U.S. holder. A U.S. holder is a holder of our ordinary shares who is:



| | ● | an individual citizen or resident of the United States for U.S. federal income
tax purposes;
| | - | --------------------------------------------------------------------------------------------
| |   |                                                                                             

| | ● | a corporation (or another entity taxable as a corporation for U.S. federal
income tax purposes) created or organized under the laws of the United States, any political subdivision thereof or the District
of Columbia;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                         

| | ● | an estate, the income of which may be included in the gross income for U.S.
federal income tax purposes regardless of its source; or
| | - | ------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                     

| | ● | a trust if, in general, (i) a U.S. court is able to exercise primary supervision
over its administration and one or more U.S. persons have the authority to control all of its substantial decisions, or (ii) that
has in effect a valid election under applicable U.S. Treasury Regulations to be treated as a U.S. person.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





108






Unless otherwise specifically
indicated, this discussion does not consider the U.S. tax consequences to a person that is not a U.S. holder (a “non-U.S.
holder”) and considers only U.S. holders that will own the ordinary shares as capital assets (generally, for investment).



This discussion is based
on current provisions of the Internal Revenue Code of 1986, as amended (the “Code”), current and proposed Treasury
Regulations promulgated under the Code and administrative and judicial interpretations of the Code, all as currently in effect
and all of which are subject to change, possibly with retroactive effect. This discussion does not address all aspects of U.S.
federal income taxation that may be relevant to any particular U.S. holder based on the U.S. holder’s particular circumstances.
In particular, this discussion does not address the U.S. federal income tax consequences to U.S. holders who are broker-dealers;
who have elected mark-to-market accounting; who own, directly, indirectly or constructively, 10% or more of our outstanding voting
shares; U.S. holders that received ordinary shares as a result of exercising employee stock options or otherwise as compensation;
U.S. holders holding our ordinary shares as part of a hedging, straddle or conversion transaction; U.S. holders whose functional
currency is not the U.S. dollar, real estate investments trusts, regulated investment companies, insurance companies, tax-exempt
organizations, qualified retirement plan or individual retirement account; financial institutions, grantor trusts, S corporations;
certain former citizens or long term residents of the United States; and persons subject to the alternative minimum tax, who may
be subject to special rules not discussed below. Additionally, the possible application of U.S. federal estate, or gift taxes or
any aspect of state, local or non-U.S. tax laws is not discussed.



If an entity treated as
a partnership for U.S. Federal income tax purposes holds our ordinary shares, the tax treatment of the entity and an equity owner
in such entity will generally depend on the status of the equity owner and the activities of the entity. Such an equity owner or
entity should consult its tax advisor as to its consequences.



Each holder of our ordinary
shares is advised to consult his or her tax advisor with respect to the specific U.S. federal, state, local and foreign tax consequences
to him or her of purchasing, holding or disposing of our ordinary shares.



Distributions



Subject to the discussion
below under “Tax Consequences if We are a Passive Foreign Investment Company,” a distribution paid by us with respect
to our ordinary shares to a U.S. holder will be treated as dividend income to the extent that the distribution does not exceed
our current and accumulated earnings and profits, as determined for U.S. federal income tax purposes. The amount of a distribution
with respect to our ordinary shares will equal the amount of cash and the fair market value of any property distributed and will
also include the amount of any non-U.S. taxes withheld from such distribution. Dividends that are received by U.S. holders that
are individuals, estates or trusts will be taxed at the rate applicable to long-term capital gains (current maximum rate of 20%),
provided that such dividends meet the requirements of “qualified dividend income.” For this purpose, qualified dividend
income generally includes dividends paid by a non-U.S. corporation if certain holding period and other requirements are met and
either (a) the stock of the non-U.S. corporation with respect to which the dividends are paid is “readily tradable”
on an established securities market in the U.S. (e.g., the NASDAQ Global Select Market) or (b) the non-U.S. corporation is eligible
for benefits of a comprehensive income tax treaty with the U.S. which includes an information exchange program and is determined
to be satisfactory by the U.S. Secretary of the Treasury. The United States Internal Revenue Service (“IRS”) has determined
that the U.S.-Israel income tax treaty is satisfactory for this purpose. Dividends that fail to meet such requirements, and dividends
received by corporate U.S. holders are taxed at ordinary income rates. No dividend received by a U.S. holder will be a qualified
dividend (1) if the U.S. holder held the ordinary share with respect to which the dividend was paid for less than 61 days
during the 121-day period beginning on the date that is 60 days before the ex-dividend date with respect to such dividend, excluding
for this purpose, under the rules of Code Section 246(c), any period during which the U.S. holder has an option to sell, is under
a contractual obligation to sell, has made and not closed a short sale of, is the grantor of a deep-in-the-money or otherwise nonqualified
option to buy, or has otherwise diminished its risk of loss by holding other positions with respect to, such ordinary share (or
substantially identical securities); or (2) to the extent that the U.S. holder is under an obligation (pursuant to a short
sale or otherwise) to make related payments with respect to positions in property substantially similar or related to the ordinary
share with respect to which the dividend is paid. If we were to be a “passive foreign investment company” (as such
term is defined in the Code) for any taxable year, dividends paid on our ordinary shares in such year and in the following taxable
year would not be qualified dividends. See discussion below regarding our PFIC status at “Tax Consequences If We Are a Passive
Foreign Income Company.” In addition, a non-corporate U.S. holder will be able to take a qualified dividend into account
in determining its deductible investment interest (which is generally limited to its net investment income) only if it elects to
do so; in such case, the dividend will be taxed at ordinary income rates.



The amount of any distribution
which exceeds the amount treated as a dividend will be treated first as a non-taxable return of capital, reducing the U.S. holder’s
tax basis in its ordinary shares to the extent thereof, and then as capital gain from the deemed disposition of the ordinary shares.
Corporate holders will not be allowed a deduction for dividends received in respect of the ordinary shares.



Dividends paid by us in
NIS will be generally included in the income of U.S. holders at the dollar amount of the dividend (including any non-U.S. taxes
withheld therefrom), based upon the exchange rate in effect on the date the distribution. U.S. holders will have a tax basis in
the NIS for U.S. federal income tax purposes equal to that dollar value. Any subsequent gain or loss in respect of the NIS arising
from exchange rate fluctuations will generally be taxable as U.S. source ordinary income or loss.





109






Subject to certain conditions
and limitations set forth in the Code and the Treasury Regulations thereunder, including certain holding period requirements, U.S.
holders may elect to claim as a foreign tax credit against their U.S. federal income tax liability the non-U.S. income taxes withheld
from dividends received in respect of our ordinary shares. The limitations on claiming a foreign tax credit include, among others,
computation rules under which foreign tax credits allowable with respect to specific classes of income cannot exceed the U.S. federal
income taxes otherwise payable with respect to each such class of income. In this regard, dividends paid by us generally will be
foreign source “passive income” for U.S. foreign tax credit purposes. U.S. holders that do not elect to claim a foreign
tax credit may instead claim a deduction for the non-U.S. income taxes withheld if they itemize deductions for U.S. federal income
tax purposes. The rules relating to foreign tax credits are complex, and U.S. holders should consult their tax advisors to determine
whether and to what extent they would be entitled to this credit.



Disposition of Ordinary Shares



Subject to the discussion
below under “Tax Consequences If We Are a Passive Foreign Investment Company,” upon the sale, exchange or other disposition
of our ordinary shares (other than in certain nonrecognition transactions), a U.S. holder will recognize capital gain or loss in
an amount equal to the difference between the amount realized on the disposition and the U.S. holder’s tax basis in our ordinary
shares. The gain or loss recognized on the disposition of the ordinary shares will be long-term capital gain or loss if the U.S.
holder held our ordinary shares for more than one year at the time of the disposition. Under current law, long-term capital gains
are subject to a maximum rate of 20%. Capital gain from the sale, exchange or other disposition of our ordinary shares held for
one year or less is short-term capital gain and taxed at ordinary income tax rates. Gain or loss recognized by a U.S. holder on
a sale, exchange or other disposition of our ordinary shares generally will be treated as U.S. source income or loss for U.S. foreign
tax credit purposes. A U.S. holder that receives foreign currency upon the disposition of our ordinary shares and converts the
foreign currency into dollars after the settlement date (in the case of a cash method taxpayer or an accrual method taxpayer that
elects to use the settlement date) or trade date (in the case of an accrual method taxpayer) may have foreign exchange gain or
loss based on any appreciation or depreciation in the value of the foreign currency against the dollar, which will generally be
U.S. source ordinary income or loss.



Net Investment Income



Subject to certain limitations
and exceptions, certain non-corporate U.S. holders may be subject to an additional 3.8% surtax on all or a portion of their “net
investment income,” which may include dividends on, or capital gains recognized from the disposition of, our ordinary shares.
U.S. holders are urged to consult their own tax advisors regarding the implications of the additional net investment income tax
on their investment in our ordinary shares.



Tax Consequences if we are a Passive Foreign
Investment Company



We will be a passive foreign
investment company, or PFIC, if either (1) 75% or more of our gross income in a taxable year is passive income or (2) 50% or more
of the value, determined on the basis of a quarterly average, of our assets in a taxable year produce or are held for the production
of passive income. If we own (directly or indirectly) at least 25% by value of the stock of another corporation, we will be treated
for purposes of the foregoing tests as owning our proportionate share of that other corporation’s assets and as directly
earning our proportionate share of that other corporation’s income. If we are a PFIC, a U.S. holder must determine under
which of three alternative taxing regimes it wishes to be taxed.



The “QEF” regime
applies if the U.S. holder elects to treat us as a “qualified electing fund” (“QEF”) for the first taxable
year in which the U.S. holder owns our ordinary shares or in which we are a PFIC, whichever is later, and if we comply with certain
reporting requirements. If a QEF election is made after the first taxable year in which a U.S. holder holds our ordinary shares
and we are a PFIC, then special rules would apply. If the QEF regime applies, then for each taxable year that we are a PFIC, such
U.S. holder will include in its gross income a proportionate share of our ordinary earnings (which is taxed as ordinary income)
and net capital gain (which is taxed as long-term capital gain), subject to a separate election to defer payment of taxes, which
deferral is subject to an interest charge. These amounts would be included in income by an electing U.S. holder for its taxable
year in which our taxable year ends, whether or not such amounts are actually distributed to the U.S. holder. A U.S. holder’s
basis in our ordinary shares for which a QEF election has been made would be increased to reflect the amount of any taxed but undistributed
income. Generally, a QEF election allows an electing U.S. holder to treat any gain realized on the disposition of its ordinary
shares as capital gain. Once made, the QEF election applies to all subsequent taxable years of the U.S. holder in which it holds
our ordinary shares and for which we are a PFIC, and the QEF election can be revoked only with the consent of the IRS.





110






A second regime, the “mark-to-market”
regime, may be elected so long as our ordinary shares are "marketable stock" (e.g., “regularly traded”
on the NASDAQ Global Select Market). If the mark-to-market election is made after the first taxable year in which a U.S. holder
holds our ordinary shares and we are a PFIC, then special rules would apply. Pursuant to this regime, an electing U.S. holder’s
ordinary shares are marked-to-market each taxable year that we are a PFIC, and the U.S. holder recognizes as ordinary income or
loss the amount equal to the difference as of the close of the taxable year between the fair market value of our ordinary shares
and the U.S. holder’s adjusted tax basis in our ordinary shares. Losses are allowed only to the extent of net mark-to-market
gain previously included by the U.S. holder under the election for prior taxable years. An electing U.S. holder’s adjusted
basis in our ordinary shares is increased by income recognized under the mark-to-market election and decreased by the deductions
allowed under the election. Under the mark-to-market election, in a taxable year that we are a PFIC, gain on the sale of our ordinary
shares is treated as ordinary income, and loss on the sale of our ordinary shares, to the extent the amount of loss does not exceed
the net mark-to-market gain previously included, is treated as ordinary loss. Any loss on the sale of our ordinary shares in excess
of net mark-to-market gain previously included is generally treated as a capital loss. The mark-to-market election applies to the
taxable year for which the election is made and all later taxable years, unless the ordinary shares cease to be marketable stock
or the IRS consents to the revocation of the election.



A U.S. holder making neither
the QEF election nor the mark-to-market election is subject to the “excess distribution” regime. Under this regime,
“excess distributions” are subject to special tax rules. An excess distribution is either (1) a distribution with respect
to our ordinary shares that is greater than 125% of the average distributions received by the U.S. holder from us over the shorter
of either the preceding three taxable years or such U.S. holder’s holding period for our ordinary shares prior to the distribution
year, or (2) gain from the disposition of our ordinary shares (including gain deemed recognized if the ordinary shares are used
as security for a loan).



Excess distributions must
be allocated ratably to each day that a U.S. holder has held our ordinary shares. A U.S. holder must include amounts allocated
to the current taxable year, as well as amounts allocated to taxable years prior to the first taxable year in which we were a PFIC,
in its gross income as ordinary income for that year. All amounts allocated to other taxable years would be taxed at the highest
tax rate for each such prior taxable year applicable to ordinary income and the U.S. holder also would be liable for interest on
the deferred tax liability for each such taxable year calculated as if such liability had been due with respect to each such taxable
year. A U.S. holder who inherits shares in a non-U.S. corporation that was a PFIC in the hands of the decedent generally is denied
the otherwise available step-up in the tax basis of such shares to fair market value at the date of death. Instead, such us holder
would generally have a tax basis equal to the lesser of the decedent's basis or the fair market value of the ordinary shares on
the date of the decedent's death.



We believe that we were
not a PFIC in 2015. However, since the determination of whether we are a PFIC is based upon such factual matters as our market
capitalization, the valuation of our assets, the assets of companies held by us in certain cases and certain assumptions and methodologies
in which we have based our analysis, there can be no assurance that the IRS will agree with our position. In addition, there can
be no assurance that we will not become a PFIC for the current taxable year ending December 31, 2016 or in any future taxable year.
We will notify U.S. holders in the event we conclude that we will be treated as a PFIC for any taxable year to enable U.S. holders
to consider whether or not to elect to treat us as a QEF for U.S. federal income tax purposes, or to “mark-to-market”
the ordinary shares or to become subject to the “excess distribution” regime. If we are a PFIC, U.S. holders will generally
be required to file an annual report with the IRS.



U.S. holders are urged to
consult their tax advisors regarding the application of the PFIC rules, including eligibility for and the manner and advisability
of making, the QEF election or the mark-to-market election.



Non-U.S. Holders



Subject to the discussion
below under “Information Reporting and Back-up Withholding,” a non-U.S. holder of our ordinary shares generally will
not be subject to U.S. federal income or withholding tax on the receipt of dividends on, and the proceeds from the disposition
of, our ordinary shares, unless, in the case of U.S. federal income taxes (i) the item is effectively connected with the conduct
by the non-U.S. holder of a trade or business in the United States and in the case of a resident of a country which has a treaty
with the United States, the item is attributable to a permanent establishment, or in the case of an individual, the item is attributable
to a fixed place of business in the United States, or (ii) the non-U.S. holder is an individual who holds the ordinary shares as
a capital asset, is present in the United States for 183 days or more in the taxable year of the disposition and certain other
conditions are met.



Information Reporting
and Backup Withholding



U.S. holders (other than
certain exempt recipients such as corporations) generally are subject to information reporting requirements with respect to dividends
paid on our ordinary shares in the United States or by a U.S. payor or U.S. middleman or the gross proceeds from disposing of our
ordinary shares. U.S. holders generally are also subject to backup withholding (currently 28%) on dividends paid in the United
States or by a U.S. payor or U.S. middleman on our ordinary shares and on the gross proceeds from disposing of our ordinary shares,
unless the U.S. holder provides an IRS Form W-9 or is otherwise exempt from backup withholding.



Certain U.S. holders (and
to the extent provided in IRS guidance, certain non-U.S. holders) who hold interests in “specified foreign financial assets”
(as defined in Section 6038D of the Code) are generally required to file an IRS Form 8938 as part of their U.S. federal income
tax returns to report their ownership of such specified foreign financial assets, which may include our ordinary shares, if the
total value of those assets exceed certain thresholds. Substantial penalties may apply to any failure to timely file IRS Form 8938.
In addition, in the event a holder that is required to file IRS Form 8938 does not file such form, the statute of limitations on
the assessment and collection of U.S. federal income taxes of such holder for the related tax year may not close until three years
after the date that the required information is filed. Holders should consult their own tax advisors regarding their tax reporting
obligations.





111






Non-U.S. holders generally
are not subject to information reporting or backup withholding with respect to dividends paid on our ordinary shares in the United
States or by a U.S. payor or U.S. middleman or the gross proceeds from the disposition of our ordinary shares, provided that such
non-U.S. holder certifies to its foreign status, or is otherwise exempt from backup withholding or information reporting.



The amount of any backup
withholding may be allowed as a credit against a holder’s U.S. federal income tax liability and may entitle such holder to
a refund provided that certain required information is timely furnished to the IRS.



|F. | DIVIDENDS AND PAYING AGENTS
|-- | ---------------------------



Not applicable.



|G. | STATEMENT BY EXPERTS
|-- | --------------------



Not applicable.



|H. | DOCUMENTS ON DISPLAY
|-- | --------------------



We are subject to the informational
requirements of the Exchange Act that are applicable to a foreign private issuer. As a foreign private issuer, we are exempt from
the rules under the Exchange Act prescribing the furnishing and content of proxy statements, and our officers, directors and principal
shareholders are exempt from the reporting and “short-swing” profit recovery provisions contained in Section 16 of
the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial statements with
the SEC as frequently or as promptly as United States companies whose securities are registered under the Exchange Act.



However, we file annual
reports with, and furnish other information to, the SEC. These materials, including this annual report and the exhibits hereto,
may be inspected and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington D.C. 20549. Copies
of the materials may be obtained from the Public Reference Room of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The public may obtain information on the operation of the SEC’s Public Reference Room by calling the SEC
in the United States at 1-800-SEC-0330. Additionally, copies of the materials may be obtained from the SEC’s website at http://www.sec.gov.



|I. | SUBSIDIARY INFORMATION
|-- | ----------------------



Not applicable.



|ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|-------- | ----------------------------------------------------------



Management of financial risks



Our operations expose us
to risks that relate to various financial instruments, such as market risks (including currency risk, cash flow risk with respect
to interest rates and other price risk), credit risk and liquidity risk.



Market risk is the
risk that the fair value of future cash flow of financial instruments will fluctuate because of changes in market prices.



Credit risk is the
risk of financial loss to us if counterparty to a financial instrument fails to meet its contractual obligations.



Liquidity risk is
the risk that we will not be able to meet our financial obligations as they become due.



Our comprehensive risk management
program focuses on actions to minimize the possible negative effects on our financial performance. In certain cases we use derivatives
financial instruments in order to mitigate certain risk exposures.



Our board of directors has
overall responsibility for the establishment and oversight of our risk management framework. Our board of directors is managing
the risks faced by us, and confirms that all appropriate actions have been or are being taken to address any weaknesses.



As of December 31, 2015,
we had exposure to the following risks that are related to financial instruments:





112






Foreign currency risk



We have international activities
in many countries and, therefore, we are exposed to foreign currency risks as a result of fluctuations in the different exchange
rates. Foreign currency risks are derived from transactions executed and/or financial assets and liabilities held in a currency
which is different than the functional currency of our entity which executed the transaction or holds these financial assets and
liabilities. In order to minimize such exposure, our policy is to hold financial assets and liabilities in a currency which is
the functional currency of that entity.



In addition a significant
part of our business/investments are denominated in foreign currencies (Euro for the hotel and the commercial center business ,
US dollar for the Medical business and INR for the plots in India) while the corporate obligations of us and PC (mainly notes)
are linked to the Israeli NIS. Our main source to serve these corporate debts will arrive mainly from the sale of these assets/investments.
Therefore a devaluation of each of these currencies against the NIS until the date of the execution of the relevant sale transaction
may significantly affect us and PC cash flow and our ability to repay our debts in a timely manner. As of the filling of this annual
report we do not actively hedge this risk.



The following table details
sensitivity analysis to a change of 10% in our main foreign currencies, as of December 31, 2015, against the relevant functional
currency and their effect on the statements of income and the shareholder’s equity (before tax and before capitalizing any
exchange results to qualified assets):





|                            |  | Functional
    currency |  | Linkage
    currency |  | Change
    in the
    exchange rate (%) |  | Profit
    (loss) |         
|--------------------------- |  | ----------------------- |  | -------------------- |  | --------------------------------------- |  | ----------------- | --------
|                            |  | (in
    NIS thousands) 
|Financial
    assets        |  |                         |  |                      |  |                                         |  |                   |         
|Cash
    and deposits       |  | NIS                     |  | Euro                 |  | +10%                                    |  |                   | 1,637   
|Cash
    and deposits       |  | Euro                    |  | NIS                  |  | +10%                                    |  |                   | 857     
|Cash
    and deposits       |  | Euro                    |  | PLN                  |  | +10%                                    |  |                   | 883     
|Cash
    and deposits       |  | Euro                    |  | RON                  |  | +10%                                    |  |                   | 1,163   
|Cash
    and deposits       |  | Euro                    |  | U.S.
    dollar      |  | +10%                                    |  |                   | 1,005   
|Total                       |  |                         |  |                      |  |                                         |  |                   | 5,545   
|                            |  |                         |  |                      |  |                                         |  |                   |         
|Financial
    Liabilities   |  |                         |  |                      |  |                                         |  |                   |         
|Loans
    at amortized cost |  | NIS                     |  | Euro                 |  | +10%                                    |  |                   | (15,746 
|Loans
    at amortized cost |  | Euro                    |  | PLN                  |  | +10%                                    |  |                   | (5,503  
|Notes
    at amortized cost |  | Euro                    |  | NIS                  |  | +10%                                    |  |                   | (71,615 
|Loans
    at amortized cost |  | RON                     |  | Euro                 |  | +10%                                    |  |                   | (25,344 
|Total                       |  |                         |  |                      |  |                                         |  |                   | (118,208





Credit risk



We hold cash and cash equivalents,
short-term investments and other long-term investments in financial instruments in various reputable banks and financial institutions.
These banks and financial institutions are located in different geographical regions, and it is our policy to disperse our investments
among different banks and financial institutions. Our maximum credit risk exposure is approximately the financial assets presented
in the balance sheet in our annual consolidated financial statements.



Due to the nature of its
activity, our Radisson Blu hotels and our commercial centers business do not materially exposed to credit risks stemming from dependence
on a given customer. Our company examined on an ongoing basis the credit amounts extended to its customers and, accordingly, records
a provision for doubtful debts based on those factors it considers having an effect on specific customers.



Interest rate risk



Fair value risk



A significant portion
of our long-term loans and notes bear a fixed interest rate and are therefore, exposed to change in their fair value as a result
of changes in the market interest rate. The vast majority of these loans and notes are measured at amortized cost and therefore
changes in the fair value will not have any effect on the statement of income.





113






Cash flow risk



Part of our long-term borrowings
are bearing variable interest rates. Cash and cash equivalents, short-term deposits and short-term bank credits are mainly deposited
in or obtained at variable interest rates. Changes in the market interest rate will affect our finance income and expenses and
our cash flow.



In certain cases we use
interest rate swap transaction in order to swap loans with a variable interest rate to fixed interest rate or alternatively entering
into loans with a fixed interest rate.



The following table presents
the effect of an increase of 2% in the LIBOR rate with respect to financial assets and liabilities as of December 31, 2015, which
are exposed to cash flow risk (before tax and before capitalization to qualifying assets):





|                         |  | Profit (loss) |              
|------------------------ |  | ------------- | -------------
|                         |  |               | NIS thousands
|Loans linked to the Euro |  |               | (5,928       
|Notes linked to the PLN  |  |               | (550         
|                         |  |               | (6,478       



The following table presents
our long-term financial liabilities classified according to their interest rate and their contractual maturity date: (*)





|Functional |  | Linkage             |  | Interest |                    |  | Average Interest |  |       | Repayment Years | 
|---------- |  | ------------------- |  | -------- | ------------------ |  | ---------------- |  | ----- | --------------- | 
|Currency   |  | Currency            |  | Rate %   |                    |  | Rate %           |  |       | 1               | 
|           |  |                     |  |          |                    |  |                  |  |       |                 | 
|€          |  | PLN                 |  |          | 8.48               |  |                  |  | 7.8   |                 | 
|           |  |                     |  |          |                    |  |                  |  |       |                 | 
|€          |  | €                   |  |          | Euribor + 1.65-5.5 |  |                  |  | 3     |                 | 
|           |  |                     |  |          |                    |  |                  |  |       |                 | 
|€          |  | NIS (linked to CPI) |  |          | 6-6.9              |  |                  |  | 6-6.9 |                 | 
|           |  |                     |  |          |                    |  |                  |  |       |                 | 
|NIS        |  | €                   |  |          | Libor+4.5          |  |                  |  | 4.5   |                 | 
|           |  |                     |  |          |                    |  |                  |  |       |                 | 
|NIS        |  | NIS (linked to CPI) |  |          | 6                  |  |                  |  | 6     |                 | 
|           |  |                     |  |          |                    |  |                  |  |       |                 | 
|RON        |  | €                   |  |          | Euribor + 4.6      |  |                  |  | 4.6   |                 | 
|           |  |                     |  |          |                    |  |                  |  |       |                 | 
|           |  |                     |  |          |                    |  |                  |  |       |                 | 





*As PC’s primary objective is to obtain the Deferral (refer to note 8 B (1) to our financial reporting), this liquidity
risk note is taking into account PC repayment in 2016 of the minimum net amount, as mentioned in note 12 E to our financial reporting



Israeli consumer price index risk



A significant part of our
borrowings consists of notes raised by us on the TASE and which are linked to the increase in the Israeli consumer price index
above the base index at the date of the notes issuance. An increase of 2% in the Israeli consumer price index will cause an increase
in our finance expenses for the year ended December 31, 2015 (before tax) in the amount of NIS 25 million (approximately $6.5 million).



Fair value of financial
instruments



Our financial instruments
primarily include cash and cash equivalents, short and long-term deposits, marketable securities, trade receivables, short and
long-term other receivables, short- term banks credit, other current liabilities and long-term monetary liabilities.





114






The fair value of traded
financial instruments (such as marketable securities and notes) is generally calculated according to quoted closing prices as of
the balance sheet date, multiplied by the issued quantity of the traded financial instrument as of that date. The fair value of
financial instruments that are not traded is estimated by means of accepted pricing models, such as present value of future cash
flows discounted at a rate that, in our assessment, reflects the level of risk that is incorporated in the financial instrument.
We rely, in part, on market interest which is quoted in an active market, as well as on various techniques of approximation. Therefore,
for most of the financial instruments, the estimation of fair value presented below is not necessarily an indication of the realization
value of the financial instrument as of December 31, 2015. The estimation of fair value is carried out, as mentioned above, according
to the discount rates in proximity to such date and does not take into account the variability of the interest rates from the date
of the computation through the date of issuance of the financial statements. Under an assumption of other discount rates, different
fair value assessments would be received which could be materially different from those estimated by us, mainly with respect to
financial instruments at a fixed interest rate. Moreover, in determining the assessments of fair value, the commissions that could
be payable at the time of repayment of the instrument have not been taken into account and they also do not include any tax effect.
The difference between the balances of the financial instruments as of the balance sheet date and their fair value as estimated
by us may not necessarily be realizable, in particular in respect of a financial instrument which will be held until redemption
date.



Following are the principal methods and assumptions
which served to compute the estimated fair value of the financial instruments:



| | a) | Financial instruments included in current and non-current assets and current liabilities -(cash
and cash equivalents, deposits and marketable securities, trade receivables, other current assets and assets related to discontinued
operations,.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



loans and
deposits which bear variable interest rate,



| |  | short-term credit, suppliers, other current liabilities and liabilities related to discontinued
operations due to their nature, their fair values approximate to those presented in the balance sheet.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) | Financial instruments included in long-term liabilities- the fair value of the traded liabilities
(notes) is determined according to closing prices as of December 31, 2015 quoted on the Tel Aviv and Warsaw Stock Exchanges, multiplied
by the quantity of the marketable financial instrument issued as of that date. The fair value of non-traded liabilities at a fixed
interest rate is determined according to the present value of future cash flows, discounted at a rate which reflects, in our estimation,
the level of risk embedded in the financial instrument. The fair value of liabilities which carried variable interest rate is approximate
to those amounts presented in the balance sheet.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following table presents
the book value and fair value of our financial assets (liabilities), which are presented in the financial statements at other than
their fair value:





|                                        |  | As of December 31, 2015 |           
|--------------------------------------- |  | ----------------------- | ----------
|                                        |  | Book Value              |           
|Long- term loans at fixed interest rate |  |                         | (254,010  
|Notes                                   |  |                         | (1,324,437
|                                        |  |                         | (1,578,447





|ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
|-------- | ------------------------------------------------------



Not applicable.





115






PART II



|ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
|-------- | -----------------------------------------------



PC Debt Restructuring



On November 18, 2013 our
subsidiary PC announced that it had filed for reorganization proceedings and submitted a restructuring plan to the Dutch Court
proposed to its creditors, which was further amended. For more information, see "Item 4A – History and Development of
the Company – Recent Events – PC Debt Restructuring".



Our Debt Restructuring



During 2013, our Board resolved
to suspend all payments to its unsecured creditors and to negotiate with its unsecured creditors on a restructuring plan for the
unsecured financial debts. On October 17, 2013 our unsecured financial creditors approved a Plan of Arrangement and on January
1, 2014, the Israeli District Court approved the Arrangement. For more information, see "Item 4A – History and Development
of the Company – Recent Events – Our Debt Restructuring".



|ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
|-------- | ----------------------------------------------------------------------------



None.



|ITEM 15. | CONTROLS AND PROCEDURES
|-------- | -----------------------



Disclosure Controls and
Procedures.



Our management, with the
participation of our principal executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of December 31, 2015.



There can be no assurance
that our disclosure controls and procedures will detect or uncover all failures of persons within our company to disclose information
otherwise required to be set forth in our reports. Nevertheless, our disclosure controls and procedures are designed to provide
reasonable assurance of achieving the desired control objectives.Based
on this evaluation, our principal executive officer and chief financial officer concluded that, as of December 31, 2015, our disclosure
controls and procedures were effective, in that they provide reasonable assurance that information required to be disclosed by
us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms.



Management’s
Annual Report on Internal Control Over Financial Reporting



Our management is responsible
for establishing and maintaining adequate internal control over our financial reporting, as such term is defined in Rule 13a-15(f)
under the Exchange Act. Internal control over financial reporting is designed to provide reasonable assurance to our management
and the board of directors regarding the reliability of financial reporting and the preparation and fair presentation of published
financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined
to be effective can provide only reasonable assurances with respect to financial statement preparation and presentation. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may decline.



Our management evaluated
the effectiveness of our internal control over financial reporting established in Internal Control - Integrated Frameworkissued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)(2013). Based on the above, our management has assessed
and concluded that, as of December 31, 2015, our internal control over financial reporting is effective.



Attestation
Report of the Registered Public Accounting Firm



This Annual Report does
not include an attestation report of our independent registered public accounting firm regarding effectiveness of our internal
control over financial reporting. Management’s report was not subject to attestation by our independent registered public
accounting firm pursuant to the rules of the Securities and Exchange Commission that permit us to provide only management's report
in this Annual Report as we are a non-accelerated filer.



Changes in Internal
Control over Financial Reporting



There were no changes
in our internal control over financial reporting that occurred during the year ended December 31, 2015 that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.



Our subsidiary, Plaza
Centers N.V., or PC, and we have become aware of certain issues with respect to certain agreements that were executed in the past
by PC in connection with the Casa Radio Project in Romania that may contain violations of the requirements of the U.S. Foreign
Corrupt Practices Act (FCPA), including the books and records provisions of the FCPA. As a result of the aforementioned, our audit
committee decided to appoint a special committee to examine these matters, including any internal control and reporting issues.
The Company intends to fully cooperate with the relevant governmental agencies in this matter.





116






PC's board of directors
appointed the chairman of its audit committee to investigate the matters internally and appointed independent law firms to perform
an independent review of the issues raised. PC has approached and is co-operating fully with the relevant Romanian authorities
regarding the matters that have come to its attention and it has submitted its findings to the Romanian authorities.



Any adjustments to our
internal controls that may be adopted as a result of recommendations by our special committee may be implemented by our management
accordingly. None of the future adjustments are expected to have a materially affect our [internal control over financial reporting
or] financial statements.



|ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT
|--------- | --------------------------------



In accordance with Nasdaq
Corporate Governance Rules, our board of directors has determined that both Mr. Zvi Tropp and Ms. Elina Frenkel Ronen are “audit
committee financial experts” as defined in the instructions to Item 16A. of Form 20-F and are independent in accordance with
the Nasdaq listing standards for audit committees applicable to us.



|ITEM 16B. | CODE OF ETHICS
|--------- | --------------



Our principal executive
officer, principal financial officer as well as all other directors, officers and employees are bound by a Code of Ethics and
Business Conduct. Our Code of Ethics and Business Conduct is posted on and can be accessed via our web-site at www.elbitimaging.com.
We will provide any person, without charge, upon request, a copy of our Code of Ethics. Such request should be submitted to our
Corporate Secretary at5 Kinneret St., Bnei-Brak 5126237, Israel and should include a return mailing address.



|ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|--------- | --------------------------------------



Fees billed by Brightman
Almagor Zohar & Co., a firm of certified public accountants in Israel and a member firm of Deloitte Touche Tohmatsu, and other
Deloitte member firms ("Deloitte") for professional services for each of the last two fiscal years were as follows:



|Services Rendered  |  | 2014 Fees |         |  | 2015 Fees |  
|------------------ |  | --------- | ------- |  | --------- | -
|Audit (a)          |  | $         | 547,088 |  |           | $
|Audit-related (b)  |  |           | -       |  |           | $
|Tax (c)            |  | $         | 79,571  |  |           | $
|All other fees (d) |  |           | -       |  |           |  
|Total              |  | $         | 626,659 |  |           | $



| | (a) | Audit Fees
| | --- | ----------



“Audit Fees”
are the aggregate fees billed for the audit of our annual financial statements; audit in accordance with section 404 of the Sarbanes-Oxley
Act of 2002, statutory audits and services that are normally provided in connection with statutory and regulatory filings or engagements.



| | (b) | Audit-Related Fees
| | --- | ------------------



“Audit-Related Fees”
are the aggregate fees billed for assurance and related services that are reasonably related to the performance of the audit or
review of our financial statements and are not reported under Audit Fees.



In 2015, Audit-Related Fees
included mainly work related to conversion of our Registration Statement on Form F-1 to a Registration Statement on Form F-3. There
were no such fees in 2014.



| | (c) | Tax Fees
| | --- | --------



“Tax Fees” are
the aggregate fees billed for professional services rendered for tax compliance, tax advice on actual or contemplated transactions
and tax consultations regarding tax audits, tax opinions and tax pre-rulings.





117






| | (d) | All Other Fees
| | --- | --------------



“All Other Fees”
are the aggregate fees billed for products and services provided by Deloitte other than as described above. There were no such
fees in 2015 and 2014.



| | (e) | Pre-Approval Policies and Procedures
| | --- | ------------------------------------



Our audit committee oversees
the appointment, compensation, and oversight of the registered public accounting firm engaged to prepare and issue an audit report
on our financial statements. The audit committee's specific responsibilities in carrying out its oversight role include the approval
of all audit and non-audit services to be provided by our registered public accounting firm and quarterly review of its non-audit
services and related fees. These services may include audit services, audit-related services, permitted tax services and other
services, as described above. The audit committee approves in advance the particular services or categories of services to be provided
to us during the following yearly period and also sets forth a specific budget for such audit and non-audit services. Additional
services may be pre-approved by the audit committee on an individual basis throughout the year.



None of the Audit-Related
Fees, Tax Fees or Other Fees paid by us for services provided by Deloitte were approved by the audit committee pursuant to the
de minimis exception to the pre-approval requirement provided by Section 10A of the Exchange Act.



|ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
|--------- | ----------------------------------------------------------



Not applicable.



|ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE COMPANY AND AFFILIATED PURCHASERS
|--------- | -----------------------------------------------------------------------



Purchases of equity securities
by the Company



No purchases of any of our
equity securities (either pursuant to or not pursuant to any publicly announced plans or programs) were made by or on behalf of
us during 2015.



|ITEM 16F. | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
|--------- | --------------------------------------------



None.



|ITEM 16G. | CORPORATE GOVERNANCE
|--------- | --------------------



We follow the Companies
Law, the relevant provisions of which are summarized in this annual report, rather than comply with the NASDAQ requirements relating
to: (i) the quorum for adjourned shareholder meetings, as described in “Item 10.B. Memorandum and Articles of Association
- Voting Rights”; (ii) executive sessions of independent directors, which are not required under the Companies Law; (iii)
that director nominees either be selected, or recommended for the board's selection, either by independent directors constituting
a majority of the board's independent directors or by a nominations committee comprised solely of independent directors, and (iv)
shareholder approval with respect to issuance of securities under equity based compensation plans. NASDAQ rules generally require
shareholder approval when an equity based compensation plan is established or materially amended, but we follow the Companies Law,
which requires approval of the board of directors or a duly authorized committee thereof, unless such arrangements are for the
compensation of directors, in which case they also require compensation committee and shareholder approval.



|ITEM 16H. | MINE SAFETY DISCLOSURE
|--------- | ----------------------



Not applicable.



|ITEM 17. | FINANCIAL STATEMENTS
|-------- | --------------------



In lieu of responding to
this item, we have responded to Item 18 of this annual report.



|ITEM 18. | FINANCIAL STATEMENTS
|-------- | --------------------



Our consolidated financial
statements for the period ending December 31, 2015 are set forth in our current report on Form 6-K filed with the SEC on March
31, 2016, and are incorporated by reference herein.





118






The following financial statements and related auditors’ report
are filed as Exhibit 15.2 to this annual report:



|                                                        | Page
|------------------------------------------------------- | ----
|                                                        |     
|Report of independent registered public accounting firm | 2   
|                                                        |     
|Condensed Financial Statements:                         |     
|Balance sheets                                          | 3-4 
|Statements of income                                    | 5   
|Statements of cash flows                                | 6-7 
|Notes to the condensed financial statements             | 8-11





119






PART III



|ITEM 19. | EXHIBITS
|-------- | --------





|1.1  |  | Amended and Restated Memorandum of Association (incorporated by reference to Exhibit 3.1 of our Registration Statement on Form F-1 filed on March 13, 2014).                                                                                                                                                                                   
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.2  |  | Amended and Restated Articles of Association (incorporated by reference to Exhibit 3.2 of our Registration Statement on Form F-1 filed on March 13, 2014).                                                                                                                                                                                     
|2.1  |  | Form of ordinary share certificate(incorporated by reference to Exhibit 3.3 of our Registration Statement on Form F-1 filed on March 13, 2014).                                                                                                                                                                                                
|4.1  |  | English translation of the Plan of Arrangement as approved by the Tel-Aviv Jaffa District Court on January 1, 2014 (incorporated by reference to Exhibit 4.10 of our Annual Report on Form 20-F filed on April 30, 2014).                                                                                                                      
|4.2  |  | English translation of the Company’s compensation policy for officers and directors, adopted on August 14, 2014, as amended on March 31, 2016 (incorporated by reference to our Report on Form 6-K filed on February 24, 2015).                                                                                                                
|4.3  |  | Restructuring Plan of Plaza Centers N.V as approved by the District Court
    of Amsterdam in the Netherlands on July 10, 2014 (incorporated by reference to Exhibit 4.12 to our annual report on Form 20-F filed on April 30, 2015).                                                                                                          
|4.4  |  | Terms of Consultancy Agreement with our director Boaz Lifschitz (incorporated by reference to Exhibit 99.2 of our Report on Form 6-K filed on July 11, 2014).                                                                                                                                                                                  
|4.5  |  | Series D Preferred Share Purchase Agreement, dated as of June 26, 2014, among certain purchasers and InSightec, as amended on September 7, 2014, December 15, 2014, June 10, 2015 and on December 30, 2015 (incorporated by reference to Exhibit 4.13 of our Annual Report on Form 20-F dated April 30, 2015).                                 
|4.6  |  | Fourth Supplement and Amendment dated June 10, 2015 to the Series D Preferred Share Purchase Agreement among certain purchasers and InSightec dated June 26, 2014.                                                                                                                                                                             
|4.7  |  | Fifth Supplement and Amendment dated December 30, 2015 to the Series D Preferred Share Purchase Agreement among certain purchasers and InSightec dated June 26, 2014.                                                                                                                                                                          
|4.8  |  | Share Purchase Agreement, dated May 7, 2015, Astrid Hotel Holdings B.V and Astrid JV S.A.R.L                                                                                                                                                                                                                                                   
|4.9  |  | Fifth Amendment Agreement to Facilities Agreement, dated March 10, 2016,
between Raiffeisen Bank International Ag, Raiffeisen Bank S.A., and Bucuresti Turism S.A, and the Company and Term Facility Agreement,
dated March 10, 2016 between Raiffeisen Bank International Ag, Raiffeisen Bank S.A., and Bucuresti Turism S.A, and the Company.
|4.10 |  | Securities Purchase Agreement and Supplemental Agreement, dated December 2, 2015 between AAYAS Trade Services Private Limited, Elbit Plaza India Real Estate Holdings Limited, Koyenco Limited, Minerva Infratech Private Limited, and Mantri Developers Private Limited.                                                                      
|4.11 |  | Consensual Terms of Loan Transfer, dated September 29, 2015 between MKB Bank Zrt. and Plaza Centers Enterprises B.V.                                                                                                                                                                                                                           
|8.1  |  | List of subsidiaries (incorporated by reference to Exhibit 8.1 of our Annual Report on Form 20-F filed on April 30, 2014).                                                                                                                                                                                                                     
|12.1 |  | Certification of the principal executive officer and principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                    
|13.1 |  | Certification of the principal executive officer and principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                    
|15.1 |  | Annual Consolidated Financial Statements as of December 31, 2015 for the years ended December 31, 2015, 2014 and 2013 (incorporated by reference to Exhibit 99.1 of our Report on Form 8-K filed on March 30, 2016).                                                                                                                           
|15.2 |  | Annual Condensed Financial Statements as of December 31, 2015 for the years ended December 31, 2015, 2014 and 2013.                                                                                                                                                                                                                            







120






SIGNATURES



The Registrant hereby certifies
that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to hereby
sign this annual report on its behalf.





|                         | Elbit
    Imaging Ltd.
|------------------------ | ----------------------
|                         |                       
|                         | By:                   
|                         | Name:                 
|                         | Title:                
|                         |                       
|Date:
    April 21, 2016 |                       





121