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					Periodic Report
as on December 31, 2009




                        SCAILEX CORPORATION LTD.
                                 48 Ben Zion Galis st.
                           Petach Tikva, Israel 49277
                        Telephone: +972-3-9057730
                                Fax: +972-3-9300424
                     Email: contact_us@scailex.com
                    Website: http://www.scailex.com
SCAILEX CORPORATION LTD.
PERIODIC REPORT




PART A

DESCRIPTION OF THE CORPORATION’S BUSINESSES
AS ON DECEMBER 31, 2009




                      A-1
Table of Contents


Chapter 1: General ................................................................................................................ 3
   1.1.     Preface.................................................................................................................... 3
   1.2      Legend .................................................................................................................... 3

Chapter 2: General Development of the Corporation's Businesses ................................ 6
   2.1      Description of the Corporation’s operations and business development .................. 6
   2.2      Operating segments ...............................................................................................16
   2.3      The Corporation’s capital investments and share transactions ...............................17
   2.4      Dividend distributions .............................................................................................21

Chapter 3: Other Information.............................................................................................23
   3.1      Financial information about the Corporation’s operating segments.........................23
   3.2      Additional developments in the Company’s financial data ......................................25
   3.3      General environment and the impact of external factors on the Company ..............25

Chapter 4: Description of the Corporation's businesses by operating segment..........26
   4.1      Discontinued operating segments ..........................................................................26
   4.2      Other sale transactions of Scailex’s holdings .........................................................30
   4.3      HQ and Asset Management Operating Segment – headquarters, financial
             asset management and identification of investments and business opportunities ..33
   4.4      Cellular Operators Operating Segment...................................................................48
   4.5      End-Customer Operating Segment – cellular phone sales and provision of
             services to end-customers.....................................................................................88
   4.6      Partner Operating Segment..................................................................................112

Additional information about the Corporation as a whole ............................................274
   4.7      Human resources – the provisions of the Company’s Articles of Association
             relating to release, indemnification and officeholders’ insurance .........................274
   4.8      Investments ..........................................................................................................276
   4.9      Financing – General .............................................................................................277
   4.10 Financing of the acquisition of the control of Partner ............................................282
   4.11 Taxation ................................................................................................................294
   4.12 Legal proceedings ................................................................................................295




                                                                A-2
                                  Chapter 1: General
1.1. Preface
The Board of Directors of Scailex Corporation Ltd. (“the Company”) is honored to present
herewith a description of the Corporation’s businesses as on December 31, 2009, which
summarizes the description of the Corporation and the development of its businesses during
the period of twelve months ended December 31, 2009 (“the Report Period”). This report
was prepared in conformity with the Securities Regulations (Immediate and Periodic
Reports), 5730 – 1970. Financial data in this report are denominated in NIS.

Pecuniary claims denominated in NIS are included in the financial data, accurate to the date
the claim was lodged, unless otherwise indicated.

Shareholding ratios of companies wholly owned by the holding company are attributed to the
holding company.

Shareholding ratios are rounded up to the next full percentage, unless otherwise indicated.

Data presented in this report as being correct to the date of the report are updated to the
date of its publication, unless otherwise indicated.

The materiality of the information included in this periodic report, including the description of
material transactions, has been evaluated from the perspective of the Company. In some
cases, the description has been expanded to provide a more comprehensive overview of the
subject described.

1.2 Legend
For the readers’ convenience, this periodic report uses the following abbreviations, which are
defined alongside:

HP                               Hewlett Packard Company.

PCH                              Petroleum Capital Holdings Ltd.

SDP                              Scailex Digital Printing Inc.

Xerox                            Xerox Corporation.

Advent                           Advent Investments Pte Ltd.

Excellence                       Excellence Nessuah Brokerage Services Ltd.

ORL                              Oil Refineries Ltd.

Leumi Bank                       Bank Leumi Le-Israel Ltd.


                                              A-3
Mizrahi Bank              Mizrahi Tefahot Bank Ltd.

Jemtex                    Jemtex Ink Jet Printing Ltd.

Financial Statements      The Company's audited financial statements as on
                          December 31, 2009.

USD                       US dollar.

Din Dynamic               Din Dynamic Ltd.

Dynamica                  The Company’s end-customer operating segment.

DIC                       Discount Investment Corporation Ltd.

Hutchison                 Hutchison Telecommunication International Ltd.

The TASE                  The Tel Aviv Stock Exchange Ltd.

Advent Agreement          The agreement dated August 12, 2009, under which Scailex
                          acquired 78,940,104 ordinary shares of NIS 0.01 par value
                          each of Partner Communications Ltd. from Advent.

The Financing Agreement   The agreement consummated on October 28, 2009, under
with Leumi Bank           which Leumi Bank provided credit to the Company at the
                          sum of NIS 480 million for the purpose of financing the
                          Advent Agreement.

The Financing Agreement   The agreement consummated on October 28, 2009, under
with Mizrahi Bank         which Mizrahi Bank provided credit to the Company at the
                          sum of NIS 320 million for the purpose of financing the
                          Advent Agreement.

The Corporation or the    Scailex Corporation Ltd.
Company

The Companies Law         The Companies Law, 5759 – 1999.

The Securities Law        The Securities Law, 5728 – 1968.

Linura                    Linura Holding AG.

Migdal                    Migdal Insurance Company Ltd.

Midroog                   Midroog Ltd.

Maalot                    Maalot the Israeli Securities Rating Company Ltd.

NASDAQ                    The Nasdaq Global Stock Market, in the United States.


                                         A-4
Suny Electronics         Suny Electronics Ltd.

Suny Telecom Ltd.        Suny Telecom (1994) Ltd.

Suny Telecom             The Company’s cellular operators operating segment.

Cellcom                  Cellcom Israel Ltd.

Samsung                  Samsung Electronics Ltd.

Scailex                  Scailex Corporation Ltd.

Scailex Vision           Scailex Vision (Tel Aviv) Ltd.

IPE                      Israel Petrochemical Enterprises Ltd.

Income Tax Ordinance     Income Tax Ordinance (New Version), 5721 – 1961.

Partner                  Partner Communications Ltd.

Vital Interests Order    The Government Companies Order (Declaration of the
                         State’s Vital Interests in Oil Refineries Ltd.), 5767 – 2007.

Suny Group               Suny Electronics, Suny Telecom Ltd. and Din Dynamic Ltd.

Real-Time                Real-Time Image Ltd.

NIS                      New Israeli shekel.

The Report Date          March 28, 2010.

The Balance-Sheet Date   December 31, 2009.

The Report Period        Period of twelve months ended December 31, 2009.




                                      A-5
Chapter 2: General Development of the Corporation's Businesses

 2.1 Description of the Corporation’s operations and business development

     2.1.1   Description of the corporation's businesses - introduction

             (a)   Operating segments: the Company was incorporated in 1971 as a
                   private company, and, for more than three decades, its core business
                   was the development, manufacture and marketing of pre-press and
                   digital printing systems. Between 2004 and 2006, the Company sold all
                   of its operations in the said segment. From 2006 and through the
                   second quarter of 2008, the Company operated solely as a holding
                   company, engaging primarily in the management of the Company’s
                   assets, in identifying business opportunities and in its holding of ORL
                   shares (a holding which was sold at the end of the second quarter of
                   2008).

                   Since the end of the third quarter of 2008, the Company has been
                   engaging in the Cellular Operators Segment and in the Cellular End-
                   Customer Segment, and concurrently, continues to manage its assets
                   and seek business opportunities.

                   During the fourth quarter of 2009, the Company consummated its
                   acquisition of the control of Partner, a leading communications operator
                   in Israel, which supplies communications services (mobile, landline
                   telephony and internet) under the “Orange” brand. Following the
                   consummation of the said transaction, a new operating segment was
                   added to the Company (“the Partner Segment”).

                   In light of the requirement of the Antitrust Commissioner, and as a
                   precondition to the Commissioner’s approval of the transaction for the
                   acquisition of the control of Partner, on January 17, 2010, the Company
                   and Cellcom engaged in an agreement for the sale of the operations of
                   the Company’s End-Customer Segment to Cellcom. Correct to the
                   Report Date, the Company is still managing and operating the End-
                   Customer Segment, with the consummation of the sale thereof, as
                   stated,   expected   to take     place,   according   to   the   Company’s
                   assessments, by April 1, 2010.

                   The information regarding the consummation of the sale of the
                   operations of the Company’s End-Customer Segment is forward-
                                          A-6
                        looking information, as this term is defined in the Securities Law.
                        Since the fulfillment of the suspending conditions and the
                        preconditions to the consummation of the aforesaid sale depends
                        on factors external to the Company, there is no certainty that the
                        aforesaid agreement shall indeed be consummated and executed.

                  (b)   Trading of the Company’s shares on the NASDAQ: in March 1980,
                        the Company became a public company, and its shares began to be
                        traded on the NASDAQ. In 2006, the Company was delisted from the
                        NASDAQ and its shares began to be quoted on the OTC Bulletin Board.
                        On February 11, 2009, the Company submitted a deregistration
                        application to the U.S. Securities Exchange Commission (“the
                        Application”). On May 12, 2009, the Application came into full and
                        permanent effect. Transactions with shares of the Company continue to
                        be quoted on the Pink Quote (“the Pink Sheets”). For additional details,
                        see clause 2.1.4(c) hereunder.

                  (c)   Trading of the Company’s securities on the Tel-Aviv Stock
                        Exchange: since January 2001, the Company's shares have also been
                        traded on the TASE. In September and October of 2009, the Company
                        issued a public offering and listed bonds for trading (Series A, Series B,
                        Series C and Series D), and Series 1 bonds, which are convertible into
                        ordinary shares of the Company. Additionally, in March 2010, bonds of
                        the Company (Series E) were listed for continuous institutional trading.

        2.1.2     Holding structure
                  The following chart presents the structure of the Company’s holdings of
                  investees, correct to the Report Date:

                                       Scailex Corporation Ltd.



          13.2%                   44.80%                       78.62%                  15%

                              Partner                       Scailex Vision
Dor Ventures              Communications Ltd.              (Tel-Aviv) Ltd.**            Jemtex Ink Jet
Israel Ltd.***                                                                          Printing Ltd.***



                                                  SVA                       Scailex Vision
                                             Disbursement**              International Ltd.**


                                                A-7
        * When a holding ratio is not indicated, the ratio is 100%.
        ** Inactive company.
        *** Active company in which the Company has no material influence, and in which the
            book balance of the investment therein is zero.

2.1.3   Year and form of incorporation
        Scailex is a public company, which was incorporated on November 2nd, 1971,
        pursuant to the laws of the State of Israel as a limited company under the
        name of Sci-Tex Corporation Ltd. In January 1981, the Company changed its
        name to Scitex Corporation Ltd. In December 2005, the Company changed its
        name to its current name, Scailex Corporation Ltd.

2.1.4   The stock markets on which the Company’s securities were and are
        listed

        (a)   From 1980 until October 23, 2006, the Company’s shares were listed for
              trading on the NASDAQ. On September 18, 2006, trading of the
              Company’s shares on the NASDAQ was suspended and, on October 23,
              2006, the Company’s shares were delisted from the NASDAQ, after the
              NASDAQ reclassified the Company as a "public shell" (having no
              business activity) due to the sale of its operations and assets.

        (b)   Up until February 11, 2009, the Company’s shares were quoted on the
              Over the Counter (“OTC”) Bulletin Board in the United States.

        (c)   On November 18, 2008, the Company’s Board of Directors resolved to
              take action towards deregistration of the Company’s securities by the
              U.S. Securities Exchange Commission (“the SEC”). On February 11,
              2009, the Company filed a deregistration application (Form 15F) to the
              SEC ("the Deregistration Application").            Under U.S. law, the
              Company's reporting requirements in the United States would be
              suspended as of the filing date of the aforesaid Deregistration
              Application (apart from the obligation of publishing an English translation
              of the Company filings in Israel on the Company's website); accordingly,
              the Company would also no longer be subject to regulations deriving
              from it being a listed company and thus subject to the reporting
              requirements in the United States.

              On May 12, 2009, the Application came into full and permanent effect.
              To the best of the Company’s knowledge, according to U.S. law, and
              correct to the Report Date, the Company is no longer subject to


                                       A-8
                        reporting obligations in the United States, apart from the obligation of
                        publishing an English translation of the Company filings according to
                        Israeli law on the Company's website. Accordingly, the Company is no
                        longer subject to most of the regulations and accompanying obligations
                        applicable to listed companies in the United States, and thus, subject to
                        the reporting requirements in the United States.

                        The completion of the deregistration process as stated above has no
                        implications relative to quoting and/or clearing of the Company’s shares
                        in the United States. Transactions with the Company’s shares continue
                        to be quoted on the Pink Sheets. Accordingly, the DTC1 is continuing to
                        clear the shares in the United States as usual, and the Company’s share
                        continues to be included among the dual-listed companies for which the
                        clearing house of the Tel-Aviv Stock Exchange provides clearing
                        services.

                        We emphasize that, even subsequent to the deregistration of the
                        Company’s securities in the United States, the Company remains a
                        public company whose shares and bonds are traded on the Tel-Aviv
                        Stock Exchange Ltd., and which is subject to all obligations applicable to
                        public companies by virtue of the Securities Law and Israeli law,
                        including the reporting requirements applicable to it by virtue thereof.
                        Furthermore, due to the fact that the Company had formerly listed its
                        securities in the United States, it is still subject to certain provisions of
                        the securities laws in the United States, inter alia, concerning securities
                        fraud and swindling.

                        For additional details, see the Immediate Report dated November 17,
                        2008 (reference no.: 2008-01--320955), the Immediate Report dated
                        February 11, 2009 (reference no.: 2009-01-034929) and the Immediate
                        Report dated May 19, 2009 (reference no.: 2009-01-114711). These
                        references constitute inclusion by way of referral.

                 (d)    The Company's shares have been listed for trading on the Tel Aviv
                        Stock Exchange Ltd. since early 2001.

                 (e)    The Company’s bonds and convertible bonds have been listed for
                        trading on the Tel-Aviv Stock Exchange Ltd. since September and

1
    The Depository Trust Company (DTC) is one of the largest clearing and trust companies in the world. One of
    the DTC’s major shareholders is the New York Stock Exchange.
                                                    A-9
              October 2009. Since March 2010, additional bonds of the Company
              have been listed for continuous institutional trading on the Tel-Aviv Stock
              Exchange Ltd.; i.e., they are tradable to those institutional investors
              listed in the First Addendum to the Securities Law.

2.1.5   Change in the Company’s control structure

        (a)   In July 2006, the Company’s principal shareholders at that time, DIC and
              Clal Industries and Investments Ltd. (“Clal”) sold their entire holdings of
              the Company to IPE, which thus became the controlling shareholder of
              the Company. For additional details, see clause 2.3.1(a) hereunder.

        (b)   In June 2008, the Company’s principal shareholder at that time, IPE,
              sold its entire holding of the Company to Suny Electronics, which thus
              became the controlling shareholder of the Company. For additional
              details, see clause 2.3.1(b) hereunder.

2.1.6   Acquisition, sale or transfer of a material volume of assets other than
        during the ordinary course of business

        (a)   During 2005, the Company completed the sale of the majority of its
              operations and assets in the digital printing systems sector (for details
              about the discontinued operations, see clauses 4.1 – 4.1.4 hereunder).

        (b)   Acquisition and sale of PCH: during 2007, the Company acquired,
              through PCH – a subsidiary under its control – 15.76% of ORL’s share
              capital. In June 2008, upon the sale of the Company’s ownership, the
              subsidiary PCH, and indirectly, its holding of ORL shares, were sold to
              the Company’s former controlling shareholder, IPE. For details, see
              clause 4.2.3(b) hereunder.

        (c)   Acquisition of the cellular operations of the Company’s controlling
              shareholder, Suny Electronics, and accompanying agreements: on
              August 21, 2008, after having obtained the approval of the Company’s
              Audit Committee and Board of Directors, the Company engaged in an
              agreement ("the Cellular Operations Acquisition Agreement") for the
              acquisition of the cellular operations of the cellular operators and end-
              customers ("the Cellular Operations") of Suny Electronics, the
              controlling shareholder of the Company at that time and today,
              operations which, prior to the consummation of the Cellular Operations
              Acquisition Agreement, had been carried out via Suny Electronics'


                                      A - 10
subsidiaries: Suny Telecom Ltd. and Din Dynamic (Suny Electronics,
Suny Telecom Ltd. and Din Dynamic jointly: "Suny Group"). The
Cellular Operations Acquisition Agreement was approved by the
Extraordinary General Meeting of the Company that convened on
September 28, 2008, and was executed and consummated on
September 29, 2008 ("the Closing Date") after all suspending
conditions stipulated therein had been fulfilled.

Pursuant to the Cellular Operations Acquisition Agreement, in
consideration for the acquisition of the entire Cellular Operations,
Scailex paid Suny Telecom and Din Dynamic the inclusive sum of NIS
255.8 million on the Closing Date, of which, NIS 69.3 million were paid to
Din Dynamic and NIS 186.5 million were paid to Suny Telecom Ltd.
Pursuant to the mechanism for adjusting the consideration prescribed in
the agreement, and pursuant to the final calculation performed
subsequent to the consummation of the agreement, the final inclusive
transaction price was adjusted, so that the final inclusive transaction
price, after the adjustment, totalled approximately NIS 243.8 million
(compared with the original transaction price of approximately NIS 255.8
million). Consequently, on December 1, 2008, the Company received a
total of approximately NIS 12 million in cash into its account from the
subsidiaries of Suny Electronics – Suny Telecom and Din Dynamic.

In addition to the above, the Cellular Operations Acquisition Agreement
included, as appendices thereto, service agreements between Suny
Electronics and the Company, as well as a lease agreement ("the
Accompanying Agreements"), which were also approved by the
Company's Audit Committee and Board of Directors (on August 21,
2008) and General Meeting (on September 28, 2008), and which came
into effect on the Closing Date. For additional details about the
Accompanying Agreements, see Regulation 22, clause g in Part D of
this report.

For additional details about the Cellular Operations Acquisition
Agreement, the acquired operations and the consummation of the
transaction, see the Transaction Report published by the Company on
August 21, 2008 (reference no.: 2008-01-242454), the Supplementary
Report to the Transaction Report published by the Company on
September 18, 2008 (reference no.: 2008-01-269910), including
                        A - 11
      references and appendices in both reports, the Immediate Report about
      the Consummation of the Transaction published by the Company on
      October 2, 2008 (reference no.: 2008-01-274815), and the Immediate
      Report regarding the receipt of the consideration differentials, which was
      published by the Company on December 2, 2008 (reference no.: 2008-
      01-341916). These references constitute inclusion by way of referral. For
      additional details about the acquired operations, see clauses 4.4 and 4.5
      of this report.

(d)   Acquisition of the control of Partner: on August 12, 2009, an
      agreement was signed between the Company and Advent, a Singapore
      corporation controlled by Hutchison, for the purchase of 78,940,104
      ordinary shares of NIS 0.01 par value each of Partner (“the Shares
      Being Acquired”), which constituted, correct to the signing date of the
      Advent Agreement, approximately 51.31% of Partner's issued and paid-
      up share capital (approximately 49.35% fully diluted), for the
      consideration of approximately NIS 67.025 (about USD 17.5) per share
      of Partner; i.e., for the inclusive total consideration of approximately NIS
      5.29 billion (about USD 1.38 billion). On October 28, 2009, after all
      suspending conditions in the agreement had been fulfilled, including the
      receipt of the approvals of the Ministry of Communications and the
      Antitrust Commissioner, the Advent Agreement was consummated.

      Simultaneously with the consummation of the Advent Agreement, other
      agreements under which the Company sold Partner shares to third
      parties – Leumi Bank, Migdal and Excellence (“the Sale Agreements”)
      were also consummated in accordance with their conditions, as
      specified in the following table:




                               A - 12
                                                                Additional
                                                               details (these
  Third      Quantity of     Consideration         Total        references
  party        Partner        per Partner     consideration     constitute
 (buyer)     shares sold     share (in NIS)      (in NIS)      inclusion by
                                                                  way of
                                                                 referral)

Leumi         7,677,037            67.069      514,887,507     Immediate
                                                               Report
                                                               published by
                                                               the Company
                                                               on August 23,
                                                               2009 (reference
                                                               no.: 2009-01-
                                                               204756).

Migdal        1,044,387            67.069       70,045,490     Immediate
                                                               Report
                                                               published by
                                                               the Company
                                                               on October 4,
                                                               2009 (reference
                                                               no.: 2009-01-
                                                               247641).

Excellence     980,000             69.10        67,718,000     Immediate
                                                               Report
                                                               published by
                                                               the Company
                                                               on October 13,
                                                               2009 (reference
                                                               no.: 2009-01-
                                                               253761).


For additional details about the Sale Agreements, see clause 4.10.4
hereunder.

Subsequent to the consummation of the Advent Agreement and the Sale
Agreements, and correct to the Balance-sheet Date, the Company held
69,238,680 Partner shares, which constituted approximately 44.83% of
Partner’s issued and paid-up share capital and voting rights, not fully
diluted (and disregarding treasury shares held by Partner itself), and
43.34% of Partner’s issued and paid-up share capital on a fully diluted
basis (disregarding treasury shares held by Partner itself).

Additionally, and according to data furnished to the Company by the
Company’s controlling shareholder, Suny Electronics, correct to the

                          A - 13
      Balance-Sheet Date, Suny Electronics holds approximately 1.41% of
      Partner’s issued and paid-up share capital (not fully diluted and
      disregarding treasury shares held by Partner), and approximately 1.36%
      of Partner’s issued and paid-up share capital on a fully diluted basis
      (disregarding treasury shares held by Partner itself), so that, correct to
      the Balance-Sheet Date, the Company held, together with Suny
      Electronics, approximately 46.24% of Partner’s issued and paid-up
      share capital (not fully diluted and disregarding treasury shares held by
      Partner) and approximately 44.7% on a fully diluted basis (disregarding
      treasury shares held by Partner itself).

      Upon consummating the acquisition of the control of Partner, a new
      operating segment was added to the Company – the Partner segment.
      For additional details about this segment, see clause 4.6 hereunder.

      For additional details, see the Immediate Report published by the
      Company on August 12, 2009 regarding the Partner Share Acquisition
      Agreement     (reference   no.:   2009-01-194286)    and   an   additional
      Immediate Report published by the Company on August 13, 2009, which
      provides a detailed and elaborate description of the Partner Share
      Acquisition Agreement and other matters relating to this agreement
      (reference no.: 2009-01-195681). For additional details regarding the
      consummation of the Advent Agreement and the Sale Agreements, see
      the Immediate Report published by the Company on October 29, 2009
      (reference no.: 2009-01-268353). These references constitute inclusion
      by way of referral.

(e)   In light of the demand by the Antitrust Commissioner, and as the
      Commissioner’s precondition to approving the transaction for the
      acquisition of the control of Partner, on January 17, 2010, the Company
      and Cellcom engaged in an agreement for the sale of the operations of
      the Company’s End-Customer Segment to Cellcom. Correct to the
      Report Date, the Company is still managing and operating the End-
      Customer Segment, with the consummation of the sale thereof as stated
      expected to take place, according to the Company’s assessment¸ by
      April 1, 2010. For additional details, see clause 4.5.16(b) hereunder.

      The information regarding the consummation of the sale of the
      operations of the Company’s End-Customer Segment is forward-


                              A - 14
      looking information, as this term is defined in the Securities Law.
      Since the fulfillment of the suspending condition and the
      preconditions to the consummation of the aforesaid sale depends
      upon factors external to the Company, there is no certainty that the
      aforesaid agreement shall indeed be consummated and executed.

(f)   On February 2, 2010, the Company engaged in an agreement (“the
      Share Swap Agreement”) with third parties unrelated to the Company
      and/or to the Company’s controlling shareholders (“the Sellers”) under
      which the Company shall acquire 869,129 ordinary shares of NIS 0.01
      par value each of Partner Communications Ltd. (“Partner,” “the Shares
      Being Acquired” and “Partner Shares,” respectively) from the Seller,
      which constituted, correct to that date, approximately 0.56% of Partner’s
      issued and paid-up share capital (not fully diluted and after neutralizing
      treasury shares) (“Partner’s Share Capital”). In consideration of the
      Shares Being Acquired, the Company undertook to sell and transfer
      782,216 Partner Shares (“the Shares Being Sold”) to the Sellers, which
      constituted, correct to that date, approximately 0.51% of Partner’s Share
      Capital. Subsequent to the consummation of the transaction, the
      Company’s holding ratio of Partner is expected to increase by
      approximately 0.05%, so that the Company shall hold approximately
      44.88% of Partner’s Share Capital and, together with its parent
      company, Suny Electronics Ltd., approximately 46.28% of Partner’s
      Share Capital. The execution of the transaction is contingent upon the
      fulfillment of a single suspending condition – the receipt of the Ministry of
      Communication’s approval for the sale.

      The Shares Being Acquired constitute a portion of the minimum holdings
      of “Israeli Parties,” as stated in clause 22.A of Partner’s General License
      for the Provision of Mobile Radio Telephone Services (MRT) by the
      Cellular Method, whereby shares may be sold solely to Israeli Parties
      and subject to the approval of the Minister of Communications. The
      Shares Being Sold are not subject to the restrictions applicable to the
      Shares Being Acquired, as it pertains to the possibility of selling them to
      Israeli Parties as stated. The Share Swap Agreement was consummated
      on March 8, 2010.

      Subsequent to the consummation of the Share Swap Agreement, the
      Company holds, correct to the Report Date, 69,325,593 Partner Shares,
                              A - 15
                  which constitute approximately 44.8% of Partner’s issued and paid-up
                  share capital and voting rights, not fully diluted (disregarding treasury
                  shares held by Partner itself), and approximately 43.5% of Partner’s
                  issued and paid-up share capital on a fully diluted basis (disregarding
                  treasury shares held by Partner itself). Together with its parent
                  company, Suny Electronics, the Company holds approximately 46.2% of
                  Partner’s issued and paid-up share capital and voting rights (not fully
                  diluted) and 44.9% of Partner’s issued and paid-up share capital on a
                  fully diluted basis.

    2.1.7   Liquidation proceedings, receiverships, creditor settlements, etc.
            The Company is taking action towards the voluntary liquidation of subsidiaries
            whose operations have been discontinued and/or sold, and which have no
            debts or creditors. For details, see note 7 of the Financial Statements.

2.2 Operating segments
    Correct to the Report Date, the Company operates in four operating segments:

    2.2.1   Operating segment – financial asset management and identification of
            business opportunities: for details, see clause 4.3 hereunder.

    2.2.2   Cellular Operators Segment: in this segment, the Company imports, markets
            and provides maintenance services for cell phones manufactured by the
            Samsung Corporation, primarily to the three major cellular operators –
            Partner, Cellcom and Pelephone Communications Ltd. ("Pelephone"). In
            addition, the Company sells replacement parts and accessories for Samsung
            cell phones. For details, see clause 4.4 hereunder.

    2.2.3   End-Customer Segment – in this segment, the Company markets (by way of
            sales and upgrades) cell phones and accessories, and provides maintenance
            services for cell phones to end customers in the Cellcom network. The
            operations in this segment are carried out via a chain of stores and points-of-
            sale throughout Israel, which the Company operates under the name of
            Dynamica Cellular ("Dynamica Cellular"). As stated, this chain sells cell
            phones and accessories of various manufacturers (Samsung, Nokia, LG, Sony
            Ericsson, Motorola and others). Furthermore, at 21 of the 43 points-of-sale
            operating in the Dynamica Cellular chain (correct to the Report Date),
            maintenance, repair and technical warranty services are provided for most cell
            phone models marketed by the chain, services that are provided pursuant to
            service agreements drawn up between the chain and its customers.
                                          A - 16
            In light of the demand by the Antitrust Commissioner, and as the
            Commissioner’s precondition to approving the transaction for the acquisition of
            the control of Partner, on January 17, 2010, the Company and Cellcom
            engaged in an agreement for the sale of the operations of the Company’s
            End-Customer Segment to Cellcom. Correct to the Report Date, the Company
            is still managing and operating the End-Customer Segment, with the
            consummation of the sale thereof as stated expected to take place, according
            to the Company’s assessment¸ by April 1, 2010. For additional details, see
            clause 4.5.16(b) hereunder.

            The information regarding the consummation of the sale of the
            operations of the Company’s End-Customer Segment is forward-looking
            information, as this term is defined in the Securities Law. Since the
            fulfillment of the suspending condition and the preconditions to the
            consummation of the aforesaid sale depends upon factors external to
            the Company, there is no certainty that the aforesaid agreement shall
            indeed be consummated and executed.

            For additional details about the End-Customer Segment, see clause 4.5
            hereunder.

    2.2.4   Partner Operating Segment: following the acquisition of the control of
            Partner, the Partner Operating Segment was added to the Company. Partner
            is    a     leading    communications     operator   in   Israel,    which   supplies
            communications services (mobile, landline telephony and internet) under the
            “Orange” brand. For details, see clause 4.6 hereunder.

2.3 The Corporation’s capital investments and share transactions

    2.3.1   The Corporation’s capital investments and other material transactions by
            an interested party

            Following are details of the material transactions executed by interested
            parties in the Corporation, to the best of the Company’s knowledge:

            (a)       In May 2006, the principal shareholders of the Company at that time,
                      DIC and Clal, engaged in an agreement for the sale of all of Clal’s
                      holdings    (approximately   24.85%)    and     all   of   DIC’s   holdings
                      (approximately 24.54%) of the Company to IPE, for the consideration of
                      the inclusive sum of approximately NIS 741.3 million (approximately NIS
                      39.4 per share), a price that was subject, inter alia, to a mechanism for

                                             A - 17
      adjusting the consideration in respect of a dividend distribution by
      Scailex Vision and in respect of tax rebates to be received by certain
      subsidiaries of the Company.

      Within the scope of the agreement, IPE undertook to cause Scailex
      Vision to effect distributions to its shareholders by a reasonably early
      date, until all cash held by Scailex Vision would be distributed, and to
      cause the voluntary liquidation of Scailex Vision upon the completion of
      all of the distributions as stated.

      The sale transaction was consummated in July 2006, and, in
      accordance with the consideration adjustment mechanism, the total
      inclusive consideration paid by IPE to DIC and Clal in respect of the said
      shares totalled approximately NIS 752.7 million (approximately NIS 40.0
      per share). This sum, as stated, was subject to the consideration
      adjustment mechanism specified in the agreement.

      In February 2007, two Company officeholders exercised, aggregately,
      112,000 share options (for details, see clause 4.3.2(g) hereunder) and
      sold them to IPE. As a result of the exercise, 112,000 shares were
      added to the Company’s issued share capital. Furthermore, in February
      2007, IPE purchased, through Petrochemical Holdings Ltd. (a wholly
      owned subsidiary of IPE), 200,000 additional ordinary shares of the
      Company on the TASE, at the average price of approximately NIS 36.4
      per share. Consequently, IPE’s shareholding ratio of the Company
      increased to approximately 50.06% of the Company’s issued share
      capital (49.95% fully diluted).

(b)   On June 30, 2008, a transaction was consummated, under which IPE
      sold all of its holdings of the Company (approximately 50.06% of the
      Company's issued share capital correct to that date, which had been
      held by a wholly-owned subsidiary of IPE) to Suny Electronics, which,
      even prior to that date, had been an interested party in the Company, for
      the inclusive consideration of        approximately NIS 735.4 million
      (approximately NIS 38.48 per share) ("the Suny Transaction" and/or
      "the Suny Agreement"). As of that date and as a result of that
      transaction, IPE ceased to be the controlling shareholder of the
      Company, while Suny Electronics, a company controlled by Mr. Ilan Ben
      Dov, became the controlling shareholder of the Company.


                               A - 18
      For additional details about the Scailex share sale transaction by IPE,
      see the Immediate Report as published on April 13, 2008 (reference no.:
      2008-01-107097), the Immediate Report summoning a General Meeting
      in conformity with the Companies Law and the Securities Regulations
      (Transaction between a Company and a Controlling Shareholder
      therein), 5761 – 2000, as published on April 17, 2008 (reference no.:
      2008-01-113823). These references constitute inclusion by way of
      referral. Furthermore, for additional details about the consummation of
      the Suny Transaction, see the Immediate Report published by the
      Company on July 1, 2008 (reference no.: 2008-01-187866). This
      reference constitutes inclusion by way of referral.

      It should be noted that this sale transaction (the Suny Transaction) was
      linked to a transaction under which the Company sold all of its holdings
      of PCH to IPE. For additional details, see clause 4.2.3(b) hereunder.

(c)   On July 17, 2008, the Company’s Board of Directors passed a resolution
      to implement a buy-back plan of up to one million Company shares, at
      the inclusive monetary volume of up to NIS 25 million over a one-year
      period. On November 17, 2008, the Company’s Board of Directors
      passed a resolution to increase the monetary volume of the plan by an
      additional NIS 2 million; i.e., to the aggregate volume of NIS 27 million
      (“the 2008 Buy-Back Plan”). Within the scope of this Buy-Back Plan,
      during the period from July 17, 2008 to May 17, 2009, the Company
      executed buy-backs of 953,884 ordinary shares of the Company at the
      aggregate monetary volume of approximately NIS 25.7 million (at the
      average price of approximately NIS 26.9 per ordinary share). For
      additional details about the Buy-Back Plan, see the Immediate Report
      dated July 17, 2008 (reference no.: 2008-01-206949), and the
      Immediate Report dated November 17, 2008 (reference no.: 2008-01-
      320958). These references constitute inclusion by way of referral.

(d)   On February 5, 2009, an agreement was consummated, under which the
      Company acquired from Tao – a company controlled by the Company’s
      indirect controlling shareholder, Mr. Ilan Ben Dov – all of the Scailex
      shares owned by Tao on the transaction consummation date.
      Specifically, in consideration for the acquisition and transfer of 9,175,896
      ordinary Scailex shares owned by Tao prior to the consummation of the
      said transaction, the Company paid Tao the inclusive sum of
                              A - 19
      approximately NIS 275.3 million in cash (a price that reflects a price of
      NIS 30 per ordinary share of the Company), this, on the basis of the
      Company’s own sources of financing.

      For additional details about the acquisition of all Scailex shares owned
      by Tao, see Regulation 22, clause b. in Part D of this report.

(e)   On May 18, 2009, the Company’s Board of Directors resolved to adopt a
      plan for the buy-back of ordinary shares of the Company, at the volume
      of up to one million ordinary shares (“the Maximum Quantity”), and to
      authorize the Company’s Management to purchase ordinary shares of
      the Company from time to time on the Tel-Aviv Stock Exchange Ltd., or
      off the floor, at the total monetary volume of up to NIS 30 million (“the
      Maximum Sum”), during a period of 12 months as of the date of the
      resolution (“the 2009 Buy-Back Plan”). The 2009 Buy-Back Plan
      replaced the 2008 Buy-Back Plan (as this term is defined in clause
      2.3.1(c) above). As of May 18 and until the Report Date, the Company
      purchased 219,388 ordinary shares of the Company within the scope of
      the 2009 Buy-Back Plan, at the total monetary volume of approximately
      NIS 7 million (at the average price of approximately NIS 31.97 per
      ordinary share).

      For additional details about the 2009 Buy-Back Plan, see Regulation 29,
      clause 1(b) in Part D of this report.

(f)   On October 25, 2009, Suny Electronics, the Company’s controlling
      shareholder, engaged in an agreement with Eurocom Communications
      Ltd. (“Eurocom”), under which Suny Electronics acquired 1,136,700
      ordinary shares of NIS 0.01 par value each of Partner from Eurocom,
      which constitute 0.74% of Partner’s issued and paid-up share capital
      (not fully diluted and after neutralizing treasury shares), for the
      consideration of 1,241,561 ordinary shares of NIS 0.12 par value each of
      the Company, which constitute approximately 4.46% of Scailex’s issued
      and paid-up share capital (not fully diluted and after neutralizing treasury
      shares) (“Scailex Shares Being Sold” and “the Suny-Eurocom
      Agreement,” as the case may be). Within the scope of the Suny-
      Eurocom Agreement, Suny granted a put option to Eurocom to obligate
      Suny Electronics to purchase the Scailex Shares Being Sold from
      Eurocom at the price of NIS 75.88 per share, and Eurocom granted a


                               A - 20
                  call option to Suny Electronics, under which Suny Electronics shall be
                  entitled to obligate Eurocom to sell the Scailex Shares Being Sold to
                  Suny at the price of NIS 75.88 per share. Pursuant to the Suny-Eurocom
                  Agreement, both of the above options shall remain in effect until June
                  30, 2010. On November 29, 2009, after the suspending conditions were
                  fulfilled, including the receipt of the Ministry of Communication’s
                  approval, the Suny-Eurocom transaction was consummated.

            (g)   Undertakings of additional investments in the Corporation
                  Correct to the publication date of this report, the Company is unaware of
                  any additional undertakings of investments in the Company.

2.4 Dividend distributions

    2.4.1   Dividends declared and distributed by the Corporation during the past
            two years

            (a)   On April 10, 2008, the Company’s Board of Directors approved the
                  distribution of a dividend in cash at the sum of NIS 150,040,967, at the
                  sum of NIS 3.93 per share, after having determined that this distribution
                  fulfills the statutory requirements for a distribution in conformity with the
                  Companies Law. The said sum was distributed in cash to the Company’s
                  shareholders on May 22, 2008. For additional details, see the
                  Company's Immediate Report of a dividend distribution in cash, dated
                  April 10, 2008 (reference no.: 2008-01-106338). This reference
                  constitutes inclusion by way of referral.

            (b)   On September 30, 2009, the Company’s Board of Directors approved
                  the distribution of a dividend in cash at the sum of approximately NIS
                  100,165,554, at the sum of NIS 3.6 per share, after having determined
                  that this distribution fulfills the statutory requirements for a distribution in
                  conformity with the Companies Law. The said sum was distributed in
                  cash to the Company’s shareholders on October 25, 2009. For
                  additional details, see the Company’s Immediate Report of a dividend
                  distribution in cash, dated September 30, 2009 (reference no.: 2009-01-
                  244845). This reference constitutes inclusion by way of referral.

            (c)   The balance of the distributable profits on the Balance-Sheet Date is NIS
                  147 million (after deducting treasury shares).



                                           A - 21
        (d)   For details about dividends distributed by Scailex Vision, see clause
              4.1.3 hereunder.

        (e)   For details about the 2008 Buy-Back Plan, see clause 2.3.1(c) above.
              For details about the 2009 Buy-Back Plan, see clause 2.3.1(e) above.
              For details about a buy-back transaction from Tao, see clause 2.3.1(d)
              above.

2.4.2   External restrictions on the Corporation's ability to distribute dividends

        (a)   Pursuant to the Company’s undertaking in the trust deed of the trustee
              for the holders of the Company’s bonds (Series A – D, Series 1), as long
              as the Company’s bonds (Series A – D, Series 1) are in circulation, the
              Company shall distribute dividends solely out of distributable profits that
              accumulated during the four (4) quarters preceding the distribution date
              of the dividend.

        (b)   Pursuant to the Company’s covenant in the Financing Agreement with
              Mizrahi Bank and in the Financing Agreement with Leumi Bank, the
              Company covenanted that, until the full and final clearing of the credit,
              and as long as the Company has not received the consent of Mizrahi
              Bank and Leumi Bank, the Company shall not distribute a dividend to
              interested parties in the Company and/or to relatives thereof, at a
              cumulative sum exceeding NIS 50 million per calendar year, and, in the
              event that the outstanding balance of the credit has been reduced by at
              least 60% compared with the total credit on the Closing Date, up to NIS
              100 million per calendar year. On March 18, 2010, the Company paid
              back the balance of the said credit, and accordingly, this covenant is no
              longer in effect.

2.4.3   Dividend distribution policy
        Correct to the publication date of this report, the Company has made no
        decision regarding a dividend distribution policy.




                                      A - 22
                                 Chapter 3: Other Information

     3.1 Financial information about the Corporation’s operating segments
            Following is financial information relating to the Corporation’s operating segments. The
            data relating to the financial information, as specified hereunder, are identical to the
            data in the Company’s Consolidated Financial Statements as on December 31, 2009,
            subject to that stated hereunder.

                                                              Management
                                        Cellular    End         of the
               2009                                                           Partner Adjustments       Total
                                       operators Customers    Company’s
                                                                assets

            From outside sources           552         140            169      1,052               -    1,913
Income
(in NIS     From other spheres of
millions)     activity                      70            -              -          -          (70)            -

            Total                          622         140            169      1,052           (70)     1,913
            Costs not constituting
             income in another
             operating segment             470         129             48        927               -    1,574
            Costs constituting
             income of other
Total
             operating segments              -          44               -        26           (70)            -
attributed
costs      Total                           470         173             48        953           (70)     1,574
(in NIS
millions)  Fixed costs attributed
             to the operating
             segment                        56          45             48        255
            Variable costs
             attributed to the
             operating segment             414         127               -       698
Profit from ordinary operations
  attributed to the owners of the
  parent company (in NIS millions)          84          12             78        106             (2)         288
Share in profits from ordinary
 operations attributed to rights not
 vesting control (in NIS millions)           -            -              1        27               -         28

Total assets attributed to the
 operating segment
 (in NIS millions)                         304          75            228     14,493           (30)    15,070

Total liabilities attributed to the
 operating segment
 (in NIS millions)                          72          13          3,823      4,032           (30)     7,910
            (1) In 2009, the income from management of the Company’s assets included mainly profits
                from tradable securities. In 2008, this income included mainly profit from the sale of the
                Company’s holdings of PCH.



                                                    A - 23
             (2) The Partner Segment was included in the Company’s operating results as of the fourth
                 quarter of 2009 (the period of two months ended December 31, 2009). In this context, see
                 the Pro Forma Financial Statements accompanying the Financial Statements in Part C of
                 this report.
             (3) Income in respect of intercompany sales to Partner were neutralized for the period of two
                 months ended December 31, 2009.
             (4) As on December 31, 2009, the total attributed assets include the Company’s investment in
                 Partner. The total attributed liabilities include the Company’s liabilities in respect of the
                 sources of financing used to acquire the control core in Partner.
             (5) Adjustments derive from intercompany activities.


                                                                 Management
                                        Cellular    End            of the
                2008                                                             Partner Adjustments        Total
                                       operators Customers       Company’s
                                                                   assets
             From outside sources           153           32             338          –               –      523
 Income
             From other spheres of
  (in NIS
               activity                       9             –               –         –             (9)          –
 millions)
             Total                          162           32             338          –             (9)      523
             Costs not constituting
              income in another
              operating segment             136           32              13          –               –      181
             Costs constituting
              income of other
   Total      operating segments              –             9               –         –             (9)          –
attributed
   costs   Total                            136           41              13          –             (9)      181
  (in NIS
 millions) Fixed costs attributed
             to the operating
             segment                         12           13              13          –
             Variable costs
              attributed to the
              operating segment             124           28                –         –
Profit from ordinary operations
  attributed to the owners of the
  parent company (in NIS millions)           15             1            322          –               –      338
Share in profits from ordinary
 operations attributed to rights not
 vesting control (in NIS millions)            –             –               3         –               –          3

Total assets attributed to the
 operating segment
 (in NIS millions)                          312           81             982          –               –    1,375

Total liabilities attributed to the
 operating segment
 (in NIS millions)                           81           13                6         –               –      100

             (1) The Cellular Operators Segment was included in the Company’s operating results as of the
                 fourth quarter of 2008. In this context, see the Pro Forma Financial Statements
                 accompanying the Financial Statements in Part C of this report.

                                                       A - 24
    (2) The End-Customer Segment was included in the Company’s operating results as of the
        fourth quarter of 2008. In this context, see the Pro Forma Financial Statements
        accompanying the Financial Statements in Part C of this report.
    (3) Adjustments derive from intercompany activities.


3.2 Additional developments in the Company’s financial data
    For additional developments in the Company's financial data, see the explanations in
    clause 1 of the Directors' Report to the Shareholders of the Company (Part B of this
    report).


3.3 General environment and the impact of external factors on the
    Company
    The Company's operating results may be affected by the political/security situation in
    Israel, by global and local financial and economic crises, by regulatory changes and by
    other external changes. For additional details about risks and affects of external factors
    on the Company’s operations, see clauses 4.3.4, 4.4.21, 4.5.19 and 4.6.23.

    Economic stabilization has been felt in the global economy and in the Israeli economy
    since the second half of 2009, inter alia, due to the fact that there has been no further
    exacerbation of the crisis that struck the financial markets and peaked during 2008 and
    2009. Signs of recovery are also evident in some of the economic indicators. Correct
    to the Report Date, this financial crisis has had no material impact on the Company’s
    financial position, including on the composition and value of the Company’s assets, its
    financial soundness and liquidity situation. Nonetheless, it should be kept in mind that it
    is impossible to forecast how long it will take for global and local economies to recover
    from the crisis, and there is no certainty that an exacerbation of the crisis will not recur.
    Accordingly, it is difficult to assess the overall scope of the direct and indirect economic
    repercussions of the said crisis on the Company, on the value of its assets, on its
    results, the position of its businesses, on its equity and on its ability to realize its assets
    in the short, medium and long run.

    The Company’s Management is constantly monitoring the developments and the
    implications of the crisis on the Company’s businesses.

    As stated, the shocks and developments in the markets are liable to have adverse
    effects on the Group’s business results, on its liquidity, the value of its assets, the
    position of its businesses, its credit rating, its ability to distribute dividends, and on its
    ability to recruit financing for its operations, to the extent required, as well as on its
    financing conditions.


                                             A - 25
    Chapter 4: Description of the Corporation's businesses
                    by operating segment
4.1 Discontinued operating segments

    4.1.1   Until January 2004, November 2005 and August 2006, the Company had
            been engaging, through SDP, Scailex Vision and Jemtex, respectively, in a
            number of operations that have since been discontinued. Subsequent to those
            dates, and correct to the publication date of this report, the Company no
            longer engages in the discontinued operations. The Company presented the
            operating results of the three above-mentioned segments in its Financial
            Statements as “discontinued operations,” and also reclassified its operating
            results relating to the previous report periods. For details about the operating
            results of the discontinued operations, see note 5 to the Financial Statements.

            Correct to the Report Date, the covenants of the parties to the agreements for
            the sale of the operations and/or holdings of the Company in subsidiaries (the
            agreements specified hereunder in clauses 4.1.2 – 4.1.4) have been
            completed. In each of the agreements specifying an escrow period, the said
            escrow period has elapsed and no further claims may be filed with the trustee.

            Notwithstanding that stated above, as is customary in agreements of this type,
            the prescription period in respect of certain representations given by the
            Company is longer than the escrow period and has not yet elapsed.
            Nonetheless, in light of the time that has elapsed since the engagement in the
            above-mentioned agreements, and in light of the expiry of the escrow period in
            respect thereof, the Company assesses that the chances that it will be sued in
            the future in respect of these causes are slim. Therefore, the Company
            believes that it has allocated sufficient sums in respect of future claims and in
            respect of claims already filed under these agreements. Correct to the
            Balance-Sheet Date, a few provisions still remain in the books, while the
            majority of the provisions in respect of the discontinued operations were
            closed by the end of 2008.

            The information provided in this clause in relation to the chances of
            future claims in respect of the agreements for the sale of the operations
            constitutes forward-looking information, as this term is defined in the
            Securities Law, the materialization of which depends on factors external
            to the Company. There is no certainty that additional claims will not be


                                          A - 26
        filed against the Company in respect of the aforementioned agreements
        for the sale of the operations, or that the provisions allocated will cover
        all actual liabilities.

        Presented below are details about the discontinued operating segments:

4.1.2   The high-speed digital printing segment
        In January 2004, the Company consummated a transaction for the sale of the
        majority of SDP’s assets, liabilities and activities relating to SDP’s high-speed
        digital printing operations, including most of the distribution channels used by
        SDP, to the Eastman Kodak Company for the consideration of a total of
        approximately NIS 1,102.5 million (USD 250 million) in cash.

4.1.3   The wide-format digital printing segment

        (a)   In November 2005, Scailex Vision consummated a transaction for the
              sale of the majority of its assets and business activity to HP for the
              consideration of a total of approximately NIS 1,067.2 million (USD 230
              million) in cash (subject to certain adjustments in accordance with the
              agreement). Out of this total, the sum of approximately NIS 95.6 million
              (USD 23 million) was held in escrow by a trustee until December 2007 to
              secure representations and covenants in the sale agreement.

        (b)   On February 9, 2006, Scailex Vision distributed a dividend in cash,
              approximately       equivalent     to   the   total   available   for   distribution
              subsequent to the consummation of the transaction for the sale of the
              assets to HP. The net aggregate dividend that was distributed totalled
              approximately NIS 624 million (of which, the Company received NIS 467
              million), by way of the payment of approximately NIS 3.7 per share to
              each of the shareholders and approximately NIS 1.8 for option warrants
              held in Scailex Vision.

        (c)   In December 2006, Scailex Vision filed an application with the Tel-Aviv
              District Court for the approval of a distribution to its shareholders not
              passing the profit test pursuant to section 303 of the Companies Law, at
              the sum of up to USD 20 million. Scailex Vision’s application for a capital
              reduction by approximately USD 20 million was approved by the court
              on January 29, 2007, and the said sum was distributed to the
              shareholders on February 5, 2007 (of which, the Company received
              approximately NIS 60 million).


                                        A - 27
(d)   Up until the said date, claims totalling approximately USD 15.8 million
      were filed with the trustee, as specified below, and therefore, upon the
      expiry of the escrow period, the balance, which exceeds the total claims
      by the inclusive sum of USD 8.8 million (principal and interest, net of
      withholding tax) was released to Scailex Vision.

(e)   On May 5, 2008, Scailex Vision and HP signed a settlement agreement
      which settled all counter claims between the parties relating to the sum
      in escrow ("the Settlement Agreement"). The Settlement Agreement
      regulates the parties' rights with regard to proceedings instituted by HP
      against the tax authority in Mexico, as well as the parties' rights in
      relation to the balance of the funds held in escrow (approximately USD
      0.6 million).

      For additional details about the Settlement Agreement, see the
      Immediate Report published by the Company on May 6, 2008 (reference
      no.: 2008-01-127185; this reference constitutes inclusion by way of
      referral).

(f)   Subsequent to the said transaction, Scailex Vision recorded income
      totalling approximately NIS 426.9 million. In April 2006, an adjustment to
      the transaction price was made, pursuant whereto, Scailex Vision
      received an additional sum of approximately NIS 30 million (USD 6.6
      million). Up until the sale of Scailex Vision’s operations to HP as stated,
      the Company had engaged, through the subsidiary Scailex Vision, in the
      development, design and marketing of wide-format digital printers using
      inkjet technology, via drop on demand to the industrial sector.

(g)   On June 2, 2008, the Tel Aviv District Court authorized Scailex Vision to
      distribute a dividend not passing the profit test, as this term is defined in
      the Companies Law. Accordingly, after obtaining the approval of Scailex
      Vision’s Board of Directors, Scailex Vision distributed a dividend to its
      shareholders at the inclusive sum of approximately NIS 83.1 million, of
      which, the Company received the sum of approximately NIS 59.7 million.

(h)   In May 2008, Scailex Vision and one of its wholly-owned subsidiaries
      signed tax assessment agreements for the years 2006-2007. For
      additional details, see note 17.g to the Financial Statements.




                              A - 28
        (i)   For details about Scailex Vision’s assets and liabilities and the operating
              results in respect of Scailex Vision’s discontinued operations, see note 7
              to the Financial Statements.

4.1.4   The continuous digital inkjet printing segment for industrial applications

        (a)   In August 2006, the Company engaged in a reorganization agreement
              with the senior management of Jemtex (in this clause 4.1.4: "the
              Reorganization Agreement"). As a result of this transaction, the
              Company’s holdings of Jemtex dropped from approximately 75% to
              about 15% (on a fully diluted basis).

              In accordance with the Reorganization Agreement, the Company
              converted the sum of approximately NIS 29.7 million out of the
              aggregate sum of approximately NIS 42.7 million in loans that the
              Company had provided to Jemtex, into shares of Jemtex. As for the
              remaining sum of approximately NIS 12.9 million, it was agreed that this
              sum would be repaid to the Company over a period of five to seven
              years, unless Jemtex pays the Company the sum of USD 1 million by
              January 4, 2007, whereupon the debt will be deemed to have been fully
              extinguished.

              The Reorganization Agreement also prescribed that the Company would
              be protected against dilution (to sustain the Company’s shareholding
              ratio at 15% of Jemtex’s fully diluted share capital), a provision that shall
              remain in effect until the repayment of the outstanding balance of the
              loan, as the case may be. The agreement also prescribed that as long
              as the outstanding loan balance remains at USD 3 million and has not
              been fully repaid, the Company may invest a sum of up to USD 5 million
              in Jemtex, at a company value of USD 20 million.

              On January 4, 2007, Jemtex engaged in an investment agreement with
              a third party, under which the sum of USD 1 million was paid to the
              Company (plus interest); consequently, the Company deemed the
              outstanding balance of the loan it was owed, at the sum of USD 3
              million,   as   having   been     fully   repaid   in   accordance   with   the
              Reorganization Agreement. The said receipt was included under the
              “other income” item in the Company’s Financial Statements for the first
              quarter of 2007, since the investment in Jemtex and the balances of the
              loans provided to it were written off upon the sale of Jemtex’s shares by

                                       A - 29
                  the Company in 2006. A number of conditions in the Reorganization
                  Agreement were amended in order to enable the entry by the investor,
                  inter alia: (i) the Company waived most of the veto rights vested it
                  pursuant to Jemtex’s Articles of Association; (ii) it was stipulated that,
                  after August 2009, the Company's right to receive at least USD 3 million
                  out of the distributable assets in the event of liquidation, or events
                  tantamount to the dissolution of Jemtex, shall be partially retained
                  (events, such as the sale of all or the decisive majority of Jemtex’s
                  shares or assets, etc.) by means of an agreement whereby Jemtex’s
                  senior officeholders would share their portion of the distributable assets
                  with the Company; (iii) it was agreed that the Company shall continue to
                  be entitled to receive 50% of the shares of the senior officeholders in the
                  event of the termination of their employ, under those circumstances
                  agreed upon in the Reorganization Agreement, while the new investor
                  shall receive 50% of such shares (and, in a particular case, a portion
                  shall also be transferred to Mr. Rabi); (iv) the Company received an
                  additional option to invest USD 3 million in Jemtex shares, at the
                  company value (before the money) of          USD 20 million up to and
                  including August 3, 2009. It should be noted in this context that, on
                  August 4, 2009, the Company’s said investment option in Jemtex
                  expired, without the Company having exercised it.

            (b)   Subsequent to the aforesaid sale agreement and the drop in its
                  shareholding ratio in Jemtex, the Company ceased to consolidate
                  Jemtex’s financial results in its Financial Statements and reclassified
                  Jemtex’s operations as discontinued operations. For additional details,
                  see note 7 to the Financial Statements.

4.2 Other sale transactions of Scailex’s holdings

    4.2.1   In July 2005, IDX Information Systems Corporation acquired the operations
            and the majority of the assets of Real-Time and its subsidiary. Real-Time was
            incorporated in Israel in 1997, and had engaged, at the time of the sale of its
            operations, in the development of products enabling uncompressed uploading
            of medical documents to the Internet. Following the sale of Real-Time’s
            operations and assets, the Company, which held approximately 14.9% of Real
            Time’s issued and paid-up share capital at that time, received the sum of
            approximately NIS 14.2 million. In January 2009, the Company received the

                                          A - 30
        sum of approximately NIS 0.3 million (USD 77.6 thousand) as part of the final
        liquidation of Real-Time.

4.2.2   On November 9, 2006, Xerox acquired XMPie Inc. for the sum of
        approximately NIS 230.7 million. XMPie Inc. is a private company incorporated
        in Delaware, USA, in which the Company had been holding a small minority
        interest (2.3%). In December 2006, the Company received the sum of
        approximately NIS 6.4 million in respect of this transaction, in respect whereof
        the Company recognized a capital gain at the sum of approximately NIS 5.6
        million. In May 2008, the Company received a further consideration at the sum
        of approximately NIS 0.4 million, which was entirely recognized as a capital
        gain in 2008.

4.2.3   The Company’s holdings of ORL

        (a)   Acquisition of the full ownership of PCH
              Pursuant to agreements reached in November 2007 regarding Linura’s
              exit from its holdings of PCH, on March 26, 2008, the Company acquired
              all of Linura's holdings of PCH. At that time, PCH had been a subsidiary
              of the Company (the Company held approximately 80.1% of PCH until
              then), which held approximately 15.76% of ORL’s issued share capital.

              As stated, on March 26, 2008, the Company acquired all of Linura's
              holdings of PCH (19.9%) for the consideration of USD 57.2 million, and
              also received, by way of assignment, the capital note issued by PCH to
              Linura. The consideration was paid in a bullet payment. Upon the
              consummation of the acquisition of Linura's shares of PCH, PCH
              became a wholly-owned subsidiary of the Company, and the PCH
              shareholders’ agreement between the Company and Linura became null
              and void.

              For additional details, see the Company’s Immediate Report dated
              November 25, 2007 (reference no.: 2007-01-452869; this reference
              constitutes inclusion by way of referral), as well as the Immediate Report
              dated March 26, 2008 (reference no.: 2008-01-086031; this reference
              constitutes inclusion by way of referral).

        (b)   Sale of the subsidiary, PCH, and realization of the holdings of ORL
              On April 10, 2008, after having received the approvals of the Company’s
              Audit Committee and Board of Directors, the Company engaged in an
              agreement ("the PCH Sale Agreement") with IPE (which, at that time,

                                      A - 31
had been the Company’s parent company and controlling shareholder,
by virtue of its holding of 50.06% of the Company's share capital), for the
sale of all of the issued share capital of the subsidiary, PCH, which had
been wholly owned by the Company at that time. The transaction was
approved by an Extraordinary General Meeting of the Company, which
convened on May 29, 2008.

On June 30, 2008, the PCH Sale Agreement was consummated,
whereby, in consideration for all of PCH’s share capital, the capital notes
issued by PCH in respect of funds injected by its shareholders, the
assignment of the Company's rights pursuant to a lease agreement
under which it leases its offices in Herzliya, as well as the rights of the
Company and of PCH pursuant to a letter of undertaking dated May 10,
2007 from the Israel Corporation Ltd. [concerning the engagement in the
ORL    Joint    Control    Agreement    upon    the    fulfillment   of    certain
preconditions, primarily, the receipt of a control permit pursuant to the
Government Companies Order (Declaration of the State’s Vital Interests
in Oil Refineries Ltd.), 5767 – 2007], the Company received the sum of
approximately     NIS     1,145.3   thousand   in     cash   from    IPE    ("the
Consideration").

The transaction was consummated, after all preconditions and
suspending conditions prescribed in the acquisition agreement had been
fulfilled, which included, inter alia, the fulfillment of the preconditions and
suspending conditions stipulated in the Suny Agreement, as well as the
execution of the Suny Agreement [as this term is defined above in
clause 2.3.1(b)] simultaneously with the execution of the PCH Sale
Agreement.

Upon the consummation of the transaction and the sale of the shares of
PCH (which held approximately 15.76% of ORL's issued share capital
on the transaction consummation date), the Company no longer
indirectly holds ORL shares, which, as stated, it had held through PCH.
As a result of the consummation of this transaction, the Company
recorded a capital gain at the sum of approximately NIS 247.0 million in
the second quarter of 2008.

For additional details about the PCH Sale Agreement, see the
Company’s Immediate Report as published on April 13, 2008 (reference


                          A - 32
                  no.: 2008-01-106473; this reference constitutes inclusion by way of
                  referral), as well as the Immediate Report regarding the summoning of a
                  General Meeting in conformity with the Companies Law and the
                  Securities Regulations (Transaction between a Company and a
                  Controlling Shareholder therein), 5761 – 2000, as published on April 17,
                  2008 (reference no.: 2008-01-113823; this reference constitutes
                  inclusion by way of referral). For additional details about the
                  consummation of the PCH Sale Transaction, see the Company’s
                  Immediate Reports published on July 1, 2008 (reference nos.: 2008-01-
                  188295 and 2008-01-187866; these references constitute inclusion by
                  way of referral).


4.3 HQ and Asset Management Operating Segment – headquarters,
    financial asset management and identification of investments and
    business opportunities
    4.3.1   General

            (a)   At the beginning of 2009, the Company resolved to revise how it invests
                  its liquid assets and to intensify its activity in the capital market and its
                  investments in securities, in an attempt to improve the Company’s return
                  on these assets. This resolution was reached due to the persistent
                  downtrend in interest rates in Israel and globally, which had significantly
                  diminished the Company’s return on its liquid assets, which had been
                  invested, during most of 2008 and before that, in solid, interest-bearing
                  shekel and dollar fixed-term deposits (in line with the Company’s
                  functional currency at that time).

                  The said resolution was passed by the Company’s Investment
                  Committee and was approved by the Company’s Board of Directors,
                  which authorized the recruitment of a full-time investment manager and
                  external consultants specializing in this field in order to facilitate the
                  development of this activity.

            (b)   Furthermore, at the beginning of 2009, the Company’s Investment
                  Committee formulated an investment policy, according to which the
                  Company is managing its investments, which includes, inter alia, and as
                  the case may be, the volumes of distribution to various investment
                  channels, the maximum volume per investment, rating, duration and


                                          A - 33
      more. The Investment Committee issues specific approvals in relation to
      new significant investments, prior to entering the investment.

(c)   Moreover, the Company instituted work procedures, which include the
      daily, weekly and monthly work, oversight and control processes of the
      Investment Management Department.

      During daily trading, the investment activity is carried out by the V.P.,
      Investments and Finances, and the external investment counselors
      (under the supervision of the V.P., Investments and Finances). The V.P.,
      Investments and Finances, oversees and verifies on a daily basis that
      the investment activity is being carried out in compliance with the policy
      prescribed by the Investment Committee.

      Since, up until the acquisition of the control core of Partner, the
      investment activity had been carried out frequently and daily and at a
      significant volume, the Company constructed a model of daily reporting
      of the results of this activity. The Company has been continuing its daily
      reporting of the results of the activity also since its acquisition of
      Partner’s control core. The report is discussed and audited once a week
      by an internal forum, which includes the Chairman of the Board of
      Directors, the C.E.O., the C.F.O. the V.P., Investments and Finances,
      and the external investment counselors. Furthermore, up until the
      acquisition of Partner’s control core, a report had been submitted
      periodically to the Investment Committee, which convened, in addition to
      its periodic meetings (as a rule, quarterly), to the extent necessary
      whenever a need arose to revise and adapt the investment policy to
      developments in the macro and micro-economic data and to changes in
      the capital market. Since the acquisition of Partner’s control core, the
      reporting to the Investment Committee has been mainly during its
      periodic meetings.

(d)   Due to the consummation of the Partner Control Acquisition Transaction,
      for which the Company used, inter alia, approximately NIS 610.5 million
      of its cash balance to finance the transaction, the Company’s cash
      balance has diminished significantly. Accordingly, the volume of the
      liquid assets being managed and invested by the Company’s HQ and
      Asset Management Segment has diminished significantly. Correct to the



                              A - 34
      Report Date, the Company’s cash balance (including liquid assets) is a
      total of approximately NIS 148 million.

(e)   Correct to March 24, 2010, the Company’s cash balances are invested
      in the following channels:

      a. Daily and weekly shekel deposits in commercial banks in Israel: a
           total of approximately NIS 33 million. The Company deposits its
           cash balances with major commercial banks in Israel according to
           the interest rate offered by each bank, and while being prudent
           about a proper spread in order to minimize risk. These deposits bore
           average interest in the range of between 1.00-1.15% during the
           Report Period. Currently, the bank interest on these deposits is at
           the average interest rate of approximately 1.06% per annum.

      b. Dollar balances in banks: a total of approximately USD 3 million
           (approximately NIS 11 million). This sum is deposited in the
           Company’s bank accounts in Israel. The majority of this sum is used
           for the Company’s current operations.

      c.   Shekel government bonds: a total of approximately NIS 27 million,
           with an average duration of approximately 2.7 months.

      d. Concern bonds: a total of approximately NIS 5 million in bonds of
           Israeli public companies. Most of these investments are in bonds
           assigned a risk rating in the “A” category. The durations of the bonds
           range between 3.99 to 4.81 years.

      e. Shares traded on the TASE: a total of approximately NIS 70 million
           is invested in shares traded on the TASE; approximately 34% of this
           sum relates to shares on the Tel-Aviv 25 Index. It is emphasized
           that, correct to the Report Date, the Company has almost fully
           hedged its exposure to volatility in the said share rate, through
           activity in Maof derivatives.

      f.   Investment in Maof options to protect the underlying assets, with the
           net liability in respect thereof at NIS 5 million, and additional
           lendings at the sum of approximately NIS 34 million.

      g. Investment in shekel-dollar options to partially protect a dollar loan,
           with the net liability in respect thereof at NIS 4 million.



                                A - 35
              h. Other     investments in negotiable securities at the sum of
                  approximately NIS 1 million.

              Furthermore, correct to the Report Date, within the framework of the
              Company’s      investments     in   securities,   the   Company        purchases
              protection from time to time, as the case may be, for its investments and
              liabilities in foreign currency balances, by activity in derivatives.

        (f)   Since the Company does not consider any of its investments specified
              above as a “strategic” investment, it treats all of the said assets as
              marketable financial assets, which are presented in the Company’s
              Financial Statements according to their fair value, and revaluated
              opposite the statement of operations. The investment decisions and
              position assessments regarding the continued profitability of holding the
              aforesaid assets are being carried out constantly, while examining the
              market conditions and the Company’s needs, and while maintaining
              flexibility in relation to divesting or acquiring additional assets.

4.3.2   Human capital

        (a)   The employed staff
              Correct to the Report Date, 15 employees are employed at the Company
              headquarters, as follows (some of the staff also provide services to the
              Company’s other segments):
                                                                  Number of employees
                                                                  (correct to the Report Date)
              C.E.O.                                                          1
              C.F.O.                                                          1
              V.P., Investments and Finances                                  1
              Finance and investments                                         6
              Computers                                                       2
              Secretaries and others                                          4
              Total employees                                                15

         (b) Material staff changes
              In July 2006, Mr. Yahel Shachar, who, until then, had held office as the
              Company's C.F.O., was appointed the Company's C.E.O. Mr. Shachar
              Rachim, who, until then, had held office as the Company’s comptroller,
              was appointed the Company's C.F.O. As of September 1, 2008, Mr.
              Rachim also held office as the C.F.O. of the parent company, Suny
              Electronics, in accordance with the service agreement specified in
                                       A - 36
      Regulation 22, clause g.(3) in Part D of this report. On November 30,
      2009, Mr. Rachim stepped down from office as the C.F.O. of the
      Company and of the parent company, Suny Electronics. Ms. Galit
      Alkalay David, formerly the C.F.O. of Tao Tsuot Ltd., was appointed the
      Company’s C.F.O. as of December 1, 2009. As of that date, Ms. Alkalay
      also holds office as the C.F.O. of the parent company, Suny Electronics,
      in accordance with the service agreement specified in Regulation 22,
      clause g.(3) in Part D of this report. On March 28, 2010, Mr. Tomer
      Pomerantz, who had held office until then as an investment manager of
      the Company, was appointed the Company’s V.P., Investments and
      Finances.

(c)   Material dependency on particular employees
      Current to the publication date of this report, the Company has no
      material dependency upon any particular employee.

(d)   The Corporation’s investment in training and instruction
      Employees of the HQ and Asset Management Segment participate in
      seminars, conferences and courses in business, legal, accounting and
      tax topics relevant to the Company’s businesses in order to enrich their
      knowledge and keep them abreast of developments and changes in
      these fields. The Company also obtains current updates from
      professional entities on these topics.

(e)   Employee     benefits    and     the     characteristics   of   employment
      agreements
      The employment terms of the staff at the Company HQ, other than
      officeholders and the senior management staff, are regulated in personal
      employment agreements, on a monthly basis. These employment terms
      typically include allocations to directors’ insurance policies or to a
      pension fund, entitlement to an annual vacation, sick pay and vacation
      pay.

      The employment agreements are for an indefinite period, and either
      party may terminate the agreement by prior written notice as specified in
      the agreement.




                              A - 37
(f)   Officeholders and senior management staff in the operating
      segment

      a. The employment agreement of the Company’s C.E.O.
           The employment terms of the Company's C.E.O. are regulated in a
           personal employment agreement that took effect on August 18, 2006
           for an indefinite period, and either party may terminate the
           agreement by three months' prior notice to the other party. For
           additional   details     about   the   employment    agreement     and
           remunerations of the Company’s C.E.O., see Regulation 21, clause
           2, in Part D of this report.

      b. The employment agreement of the Company’s C.F.O.
           The employment terms of the Company's C.F.O., Ms. Galit Alkalay
           David, are regulated in a personal employment agreement that took
           effect on December 1, 2009 for an indefinite period, and either party
           may terminate the agreement by three months' prior notice to the
           other party. The extent of the remuneration to which Ms. Alkalay
           David is entitled pursuant to her employment agreement, including
           salary, social benefits, reimbursement and participation in expenses,
           and an annual bonus (subject to the approval of the Company’s
           Board of Directors) is as is customary for C.F.O.s in companies
           similar to the Company in type, scope and complexity of operations.
           To complete the picture, it should be noted that, in conjunction with
           her job at the Company, the C.F.O. also provides C.F.O. services to
           the Company’s parent company, Suny Electronics, as part of the
           service agreement, as specified in Regulation 22, clause g.(3) in
           Part D of this report. For details about an allotment of options of the
           Company to the Company’s C.F.O., see clause (g)b.4. hereunder.

      c.   The employment agreement of the V.P., Investments and Finances
           On March 28, 2010, Mr. Tomer Pomerantz was appointed the V.P.,
           Investments and Finances, of the Company, subordinate to the
           Company’s C.E.O. From February 1, 2009 until the date of his
           appointment as V.P., Investments and Finances, Mr. Pomerantz had
           been employed by the Company as a financial investments
           manager, subordinate to the Company’s C.F.O.




                                  A - 38
         The employment terms of the Company's V.P., Investments and
         Finances, Mr. Tomer Pomerantz, are regulated in a personal
         employment agreement that took effect on February 1, 2009 for an
         indefinite period, and either party may terminate the agreement by
         prior notice of 30 days to the other party. The extent of the
         remuneration to which Mr. Pomerantz is entitled pursuant to his
         employment     agreement,      including   salary,   social   benefits,
         reimbursement and participation in expenses, and an annual bonus
         deriving from the Company’s financial performance, is as is
         customary for the office of V.P., Investments and Finances in
         companies investing their liquid assets at a volume, frequency,
         degree of risk, and for similar purposes as those of the Company.
         For details about an allotment of options of the Company to the
         Company’s V.P., Investments and Finances, see clause (g)b.2.
         hereunder.

      d. Termination of a management services agreement – former
         Chairman of the Company’s Board of Directors
         Upon the execution of the PCH Sale Agreement and the change in
         control of the Company subsequent to the execution of the Suny
         Agreement [see clause 2.3.1(b) above], the management services
         agreement between the Company and Globecom Investments Ltd.
         ("Globecom"), a private company controlled by Mr. Eran Schwartz,
         was terminated. Under this agreement, Globecom had provided the
         services of Mr. Eran Schwartz as Active Chairman of the Company’s
         Board of Directors.

         Upon Mr. Eran Schwartz stepping down from office as Chairman of
         the Company’s Board of Directors on July 1, 2008, this agreement
         was terminated, in accordance with its terms and conditions.

(g)   Option plan (unlisted options) for officeholders of the Company

      a. 2003 option plan

         1. In November 2003, the Company’s Board of Directors approved
             an option allotment plan for employees, directors, consultants
             and contractors or subsidiaries or companies related to the
             Company for the purchase of ordinary shares of NIS 0.12 par
             value each of the Company (“the 2003 Option Plan”). This

                               A - 39
   Option Plan prescribes that the options shall be allotted
   pursuant to sections 102 and 3(I) of the Income Tax Ordinance
   and the regulations instituted pursuant thereto.

2. In September 2004, in accordance with the said plan, the
   Company’s Board of Directors approved the allocation of
   168,000 unlisted options, for no consideration, which are
   exercisable for 168,000 ordinary shares of the Company. Out of
   the said quantity, 120,000 options exercisable for 120,000
   ordinary shares of the Company were granted at that time to
   Yahel Shachar, who, at that time, was the Company’s C.F.O.
   (correct to the publication date of this report, Mr. Shachar is the
   Company’s C.E.O.), and 48,000 options exercisable for 48,000
   ordinary shares of the Company were granted to Mr. Shachar
   Rachim, who had been the Company’s Comptroller at that time
   (subsequently, Mr. Rachim was appointed the Company’s
   C.F.O.; correct to the Report Date, he no longer holds this office
   or any other position in the Company).

3. The options as stated were allotted, pursuant to the conditions
   of the 2003 Option Plan, in September 2004, at the exercise
   price of USD 3.70 per share, and were exercisable in three
   equal batches, as of January 2005 (until January 2007) in
   relation to the Company’s C.E.O., Mr. Yahel Shachar, and as of
   March 2005 (until March 2007) in relation to the Company’s
   former C.F.O., Mr. Shachar Rachim.

4. In February 2007, the Company’s C.E.O., Mr. Yahel Shachar,
   exercised 80,000 options for Company shares, and the C.F.O.
   at that time, Mr. Shachar Rachim, exercised 32,000 options for
   Company shares at the exercise price of approximately NIS 15.5
   per option. Immediately after exercising the options for ordinary
   shares of the Company, they sold the shares to IPE at a share
   price of NIS 38.29 per share.

5. In June 2009, the C.F.O. of the Company at that time, Mr.
   Shachar Rachim, exercised 16,000 options for Company shares
   at the exercise price of approximately NIS 10.1 per option, and
   sold the shares deriving from the said exercise. As a result, he


                  A - 40
       no longer holds options and/or shares of the Company, correct
       to the Report Date.

   6. Apart from 40,000 options allotted pursuant to the 2003 Option
       Plan and still held by the Company’s C.E.O., which are fully
       exercisable until September 20, 2014, no other options allotted
       pursuant to the 2003 Option Plan exist, correct to the Report
       Date.

b. 2009 option plan

   1. In June 2009, the Company’s Audit Committee and Board of
       Directors approved an option allotment plan for directors,
       officeholders, employees and consultants of the Company, as
       well as for two employees of the parent company, Suny
       Electronics, for the allotment of options exercisable for up to
       1,029,000 ordinary shares of NIS 0.12 par value each of the
       Company (“the 2009 Option Plan”).

       For additional details about the 2009 Option Plan, see the
       Immediate Report of a Private Offer and a Material Private Offer,
       as well as the Amended Outline (“the Amended Outline”),
       published by the Company on June 4, 2009 (reference no.:
       2009-01-133821). This reference constitutes inclusion by way of
       referral. The Amended Outline replaced the original outline for
       the said remuneration plan published on May 19, 2009, so that
       the original outline and the details appearing therein became
       null and void.

   2. On July 6, 2009, 912,000 options were allotted to employees,
       officeholders and consultants of the Company, in accordance
       with the 2009 Option Plan.

       Within the scope of this allotment, 40,000 options exercisable for
       up to 40,000 ordinary shares of the Company were allotted to
       the Company’s C.E.O., Mr. Yahel Shachar (subsequent to this
       allotment, and correct to the Report Date, the Company’s C.E.O.
       holds 80,000 options exercisable for up to 80,000 ordinary
       shares of the Company). Also allotted within the scope of this
       allotment were 60,000 options exercisable for up to 60,000
       ordinary shares of the Company to the manager of the

                        A - 41
   Company’s Cellular Operators Segment, Mr. David Piamenta.
   Furthermore, 18,000 options exercisable for up to 18,000
   ordinary shares of the Company were allotted within the scope
   of the above allotment to the Company’s V.P., Investments and
   Finance, Mr. Tomer Pomerantz.

   For additional details about the said allotment proceeding and
   the approval of the plan, see the Immediate Report published by
   the Company on July 2, 2009 (reference no.: 2009-01-160248).
   This reference constitutes inclusion by way of referral.

3. On August 16, 2009, after having received the approval of the
   Company’s Audit Committee and Board of Directors, an
   Extraordinary General Meeting of the Company approved the
   allotment of 117,000 options, exercisable for up to 117,000
   ordinary shares of the Company to the following officeholders,
   according to the allotment key specified hereunder: to four
   directors of the Company (other than outside directors): Ms. Iris
   Beck, Mr. Shalom Singer, Dr. Arie Ovadia and Mr. Yechiel
   Feingold (18,000 options each); to Mr. Shachar Landau, the
   manager of the Company’s End-Customer Segment, who is the
   C.E.O. of Suny Electronics (40,000 options), and to Ms. Smadar
   Levy, another employee of Suny Electronics (5,000 options), all
   in accordance with the 2009 Option Plan. It should be noted
   that, on August 18, 2009, the 117,000 aforesaid options were
   allotted to the said offerees. The 18,000 options allotted to Ms.
   Iris Beck expired upon her stepping down from office as a
   director of the Company.

   For additional details about the allotment proceeding specified in
   this clause, see sections B through D of the Immediate Report of
   the Summoning of a General Meeting, which was published by
   the Company on July 2, 2009 (reference no.: 2009-01-160248),
   sections B through D of the Amended Immediate Report of the
   Summoning of a General Meeting, which was published by the
   Company on July 12, 2009 (reference no.: 2009-01-167037), as
   well as the Immediate Report of the Results of the General
   Meeting for the Approval of a Transaction with a Controlling
   Shareholder and/or for the Approval of a Private Offering, which
                  A - 42
                      was published by the Company on August 16, 2009 (reference
                      no.: 2009-01-198612). These references constitute inclusion by
                      way of referral.

                  4. On March 28, 2010, after having received the approval of the
                      Company’s Remunerations Committee on March 21, 2010, the
                      Company’s Board of Directors approved the allotment of 24,000
                      options, exercisable for up to 24,000 ordinary shares of the
                      Company to the Company’s C.F.O., Ms. Galit Alkalay David, in
                      accordance with the 2009 Option Plan. Correct to the Report
                      Date, the said options have not yet been allotted.

4.3.3   Material agreements in the HQ and Asset Management Segment
        The Company has no material agreements in this operating segment.

4.3.4   Discussion of risk factors
        The following factors are liable to have a material impact on the Company’s
        activities in this operating segment:

        (a)   Macro risk factors and risks specific to the Company

              a. The Company may fail to identify and evaluate good business
                  opportunities. Correct to the Report Date, approximately NIS 148
                  million of the Company’s assets are financial assets. The
                  Company's action plan is to review and consider strategic
                  investments and other business opportunities. The Company might
                  invest in companies with no significant operating track record, or
                  with other negative qualities, such as limited potential profitability,
                  which might not generate significant financial profits for the
                  Company in the short run. Should the Company enter new
                  investments, it is impossible to guarantee that they will be
                  successful. One of the significant factors affecting the Company's
                  success in investments as stated would be the performance of the
                  target companies and their managements; naturally, under such
                  circumstances, other factors beyond the Company’s control also
                  constitute significant risk factors.

              b. Current to the report date, approximately NIS 137 million of the
                  Company’s assets are shekel-denominated financial assets. A
                  decline in the Bank of Israel interest rates might diminish the
                  Company’s income. Furthermore, the Company is liable to lose a

                                         A - 43
     chunk of the said assets in the event of the failure or collapse of
     Israeli banks in which the Company’s cash is deposited. Due to the
     Company’s investment in short-term deposits in Israel, the Company
     is exposed to risk deriving from a decline in the Bank of Israel
     interest rate (as well as from fluctuations in the Consumer Price
     Index, which affect the rate of the derivative real interest). A decline
     in the said interest is liable to reduce the Company's financial
     income. Furthermore, the Company is exposed to the potential
     instability of Israeli banks in which the Company deposits its cash.
     Should these banks fail or become insolvent due to instability in the
     financial markets or for any other reason, a portion of the Company’s
     assets would be exposed to loss or even total loss.

c.   The Company is exposed to fluctuations in the USD/NIS exchange
     rate in its Financial Asset Management Segment, since the
     Company has dollar balances in banks in Israel. Furthermore, the
     Company has a dollar loan at the sum of USD 300 million, which it
     received to finance its acquisition of the control of Partner, as
     specified below in clause 4.10.2. A material change in the said
     exchange rate could impact the shekel value of these assets and
     liabilities.

d. The Company is exposed to changes in the capital market. Since
     the Company invests some of its financial assets in negotiable
     securities, the Company is exposed to risks deriving from
     fluctuations in the prices of these securities. Any change in the value
     of the shares or bonds, deriving from the Company's operating
     results or from the situation on the capital markets in Israel or
     internationally, might cause a change in the value of these assets,
     which are revaluated in the Financial Statements at their market
     values opposite the statements of operations. In recent years, prices
     of securities of different companies have generally been highly
     volatile, including long periods of price downtrends and weakness in
     the capital markets.

     Shocks in the capital markets are liable to impact the Company's
     operating results. The Company believes, based on all aspects it
     reviewed, that the value of the securities it holds, as presented in the
     balance sheet on the Report Date, is fair and reasonable.
                         A - 44
e. Exposure to changes in the interest rates in Israel and in the value
     of government bonds. The Company invests, inter alia, in Israeli
     government bonds. Consequently, changes in the monetary interest
     rates in Israel and/or in the value of the bonds held by the Company
     would impact the Company's business results. Changes in the
     monetary interest rates in Israel might impact the interest payable in
     respect of shekel loans provided to the Company, since the interest
     on these loans derives from the monetary interest rates in Israel.

f.   The Company is exposed to fluctuations in the Consumer Price
     Index, since the majority of its liabilities are linked to the CPI in
     Israel.

g. Financial and economic crisis in Israel and globally. During 2008
     and 2009, the global financial markets experienced a monumental
     upheaval, including, inter alia, the collapse of some of the most
     major financial institutions in the United States and in other countries
     during September and October 2008.

     The global financial and economic crisis led, inter alia, to a
     staggering meltdown in the capital markets, to plummeting and
     extreme volatility on stock markets globally and in Israel, to
     exacerbation of the credit crunch and to recession.

     Following the aforementioned events, several countries have taken
     steps to stabilize the financial markets and to prevent further
     deterioration, including by way of injecting liquidity into financial
     institutions and lowering interest rates.

     Furthermore, during the second half of 2008, the credit crisis spread
     to additional sectors globally and in Israel, including industry and
     high-tech, and a variety of companies reached the brink of disaster,
     which led to the collapse of some of them and to employee layoffs.
     The ripple effect of the crisis in the global markets and the economic
     slowdown reached Israel too.

     At the beginning of 2009, the said financial crisis caused a real
     economic crisis, and various economies worldwide, including the
     U.S. economy, central economies in Europe and the Israeli economy
     began to sink into a recession, which was expressed, inter alia, by a
     wave of business closures and massive employee layoffs in the

                         A - 45
   various economic branches, including in the industrial, service and
   high-tech sectors.

   Economic stabilization began to be felt in the global economy, as
   well as in the Israeli economy, during the second half of 2009, which
   is expressed, inter alia, by no further exacerbation of the above
   crisis, and signs of recovery are evident in some of the economic
   indicators. Correct to the Report Date, the financial crisis as stated
   has had no material impact on the Company’s financial position,
   including on the composition and value of the Company’s assets, its
   financial soundness and liquidity situation. Nonetheless, it should be
   kept in mind that it is impossible to forecast how long it will take for
   the global and local economies to recover from the crisis, and there
   is no certainty that an exacerbation of the crisis will not recur.
   Accordingly, it is difficult to assess the overall scope of the direct and
   indirect economic repercussions of the said crisis on the Company,
   on the value of its assets, on its results, on the position of its
   businesses, on its equity and on its ability to realize its assets in the
   short, medium and long run.

   The    Company’s      Management       is   constantly    monitoring    the
   developments and the implications of the crisis on the Company’s
   businesses.

   As stated, the shocks and developments in the markets are liable to
   have adverse effects on the Group’s business results, on its liquidity,
   the value of its assets, the position of its businesses, its credit rating,
   its ability to distribute dividends, and on its ability to recruit financing
   for its activities, to the extent required, as well as on its financing
   conditions.

h. Tax assessments. Naturally, not all of the Company's tax
   assessments are final; obviously therefore, they are subject to
   objections and audits by the various tax authorities, which might
   impact the Company's financial position and its financial results.




                        A - 46
                                  Following are the Company’s assessments of the type and degree of
                                  impact of the aforementioned risk factors on the Company:

                                                                                  Degree of impact

                                                                            Major    Moderate    Minor
                                                 Risk factors
                                                                           Impact     Impact    Impact
                Macro risk factors
                                     Changes in interest rates in Israel                 X

                                     Financial and economic crisis in
                                                                              X
                                     Israel and globally

                                     Changes in the Consumer Price
                                                                                         X
                                     Index

                                     Collapse of banks in Israel                         X
           Special risk factors




                                     Identification of new investments                   X

                                     Exposure to changes in the Israeli
                                                                                         X
                                     capital market

                                     Changes in USD/NIS exchange rate                    X

                                     Tax Assessments                                     X

4.3.5   Objectives and business strategy
        The Advent Agreement, under which the control of Partner was acquired, was
        signed on August 12, 2009 and consummated on October 28, 2009. The
        Company intends to lead Partner and to chart its course as Partner’s
        controlling shareholder. It should be noted that the Company intends on
        holding Partner on a long-term basis.

        In the short term, the Company shall take action to fulfill the payment of its
        liabilities. The Company also has cash balances, which are invested in short-
        term bank deposits, government bonds, and in other financial channels, inter
        alia, in shares and concern bonds, with the aim of sustaining their value and,
        to the extent possible, maximizing their value.

        The Company’s long-term objectives relating to the companies under its
        control: to continue to lead Partner and to chart its course as Partner’s
        controlling shareholder and to continue to seek out additional investment
        opportunities in its spheres of activity, to the extent that any are found.



                                                           A - 47
            Furthermore, the Company shall continue to take action to maximize the value
            of the cash balances that it holds in various financial channels.

            This information provided in this clause is forward-looking information,
            as this term is defined in the Securities Law. The Company has yet to
            finalize its decision regarding the investments it is analyzing. The
            Company examines new investments from time to time and might
            examine other investments in the future, but, in any event, there is no
            certainty that suitable investment opportunities shall materialize and be
            realized by the Company.

    4.3.6   Anticipated development during the coming year
            As stated in the previous clause, the Company intends to continue leading
            Partner and charting its course as its controlling shareholder, to continue
            sustaining the value of existing investments, to pay the liabilities that it is
            required to pay during the coming year, and to continue its attempts to
            maximize the value of the Company’s cash balances, which are invested in
            various channels

            This clause includes forward-looking information.               The Company
            examines new investments from time to time, but there is no certainty
            that new investments shall indeed materialize or that the Company shall
            invest in them.

4.4 Cellular Operators Operating Segment

    4.4.1   General information about the operating segment

            (a)   Trends,     events   and   developments       in   the   macro-economic
                  environment
                  The repercussions of the financial crisis are reaching the real markets
                  globally, and the telecom market is also expected to be affected. Correct
                  to the Report Date, the Company is not experiencing the direct impact of
                  the crisis on its sales and demands for its products.

                  A significant event that occurred during the Report Period is Pelephone
                  Communications Ltd.’s ("Pelephone") switch to GSM technology. This
                  event did not cause any significant loss of Samsung’s dominance with
                  this operator, despite the fact that Samsung clearly specialized in CDMA
                  technology. As a result of Pelephone’s switch to GSM technology, Nokia
                  and Sony Ericsson began doing business with Pelephone and so an

                                          A - 48
      averaging of the market share of each importer is possible. The
      Company’s revenues from Pelephone during the Report Period
      decreased by approximately 2.9% compared with the average revenues
      from Pelephone during the corresponding period last year. Nonetheless,
      the Company is continuing to show growth in its overall revenues for
      cellular operators, due to an increase in its market share with other
      operators.

      On December 10, 2009, iPhone devices were launched by the three
      major cellular operators. The Company is aware of the press releases
      issued by the three major cellular operators about their undertakings to
      pre-purchase and distribute a quantity of iPhone units. Correct to the
      Report Date, the Company has increased the quantitative volume of its
      sales and expects, on the one hand, continued quantitative growth in the
      volume of its sales, due to the increase in the market share of its Touch
      phones. On the other hand, the Company anticipates that, compared
      with the first quarter of 2009, its volume of revenues in the first quarter of
      2010 shall decrease by about 30%, due to a reduction in the handset
      prices. The Company assesses that the said decrease shall not have a
      material impact on the results of its Consolidated Financial Statements.

      The information provided in this clause is forward-looking
      information, as this term is defined in the Securities Law. The
      Company examines the said effects on its operating results from
      time to time.

(b)   Structure of the operating segment and changes occurring therein
      In this operating segment, Scailex – as the sole distributor in Israel of the
      Korean corporation, Samsung in the cellular sector – imports, sells and
      provides technical support, repair and maintenance services (tiers 3 and
      4) for cell phones, as well as Samsung replacement parts and
      accessories, to three cellular operators operating in Israel, as well as to
      independent resellers ("the Cellular Operators Segment").

      The majority of the sales in the Cellular Operators Segment are to the
      three cellular operators, with some sales to independent resellers.

      Israel's cellular operators sector consists of four operators of cell phone
      networks, three of which are customers of Scailex in this segment:
      Partner, Pelephone and Cellcom ("the Cellular Operators"). These

                               A - 49
                         three operators, according to Scailex’s assessments, command about a
                         95% market share.

                         Pelephone’s switch to GSM technology has had an immaterial effect on
                         the level of competition in the market. Up until now, the Cellular
                         Operators Segment enjoyed an advantage with Pelephone, which, until
                         recently, had operated with CDMA technology. With the transition to
                         GSM, Pelephone began doing business with additional cell phone
                         vendors, such as Nokia and Sony-Ericsson. In light of the said
                         development, the Company’s revenues from Pelephone declined during
                         the Report Period by approximately 2.9%, compared with the
                         corresponding period last year. Nonetheless, the Company is continuing
                         to show growth in its overall revenues for the Cellular Operators, due to
                         the increase in the Company’s market share with other operators.

                  (c)    Restrictions,       legislation,      standards       and      special   constraints
                         applicable to the operating segment
                         To the best of Scailex’s knowledge, there are no restrictions, legislation,
                         standards or special constraints applicable to the operating segment,
                         other than the need to obtain a trading license and licenses for each new
                         cell phone type imported into Israel, and usually, it is a simple procedure
                         to obtain these licenses. To the best of the Company’s knowledge
                         correct to the Report Date, the Company holds all licenses and permits
                         required by law for its operations.

                  (d)    Changes in the segment’s volume of activity and profitability
                         The average quarterly sales turnover in 2009 in the Cellular Operators
                         Segment was approximately NIS 138 million.2 At this stage, the
                         Company does not anticipate a material decline in its annual sales
                         turnover and/or profitability.

                         During the first quarter of 2010, the Company increased the quantitative
                         volume of its sales, and expects the quantitative growth in the volume of
                         its sales to continue on the one hand, due to the increased market share
                         of its Touch phones. On the other hand, the Company forecasts that,
                         compared with the first quarter of 2009, its volume of revenues shall
                         decrease during the first quarter of 2010, at the rate of approximately
                         30%, due to a reduction in the prices of the handsets. According to the

2
    After neutralizing intercompany sales at the sum of approximately NIS 70 million.
                                                      A - 50
      Company’s assessments, the said decrease shall not have a material
      impact on the results of the Consolidated Financial Statements.

      The information provided in this clause is forward-looking
      information, as this term is defined in the Securities Law. The
      Company examines the said effects on its operating results from
      time to time.

      The major changes in the structure of the Cellular Operators Segment
      during the past two years are as follows:

      a. Number Portability Program: since December 2, 2007, the Ministry
          of Communications has been implementing a program enabling any
          cell-phone network subscriber to retain his/her original telephone
          number, including area code, when switching between cellular
          operators ("the Number Portability Program"). The Number
          Portability Program continues to enable subscribers to distinguish
          between an in-network call and a call with another operator's
          network, emphasizing the simplicity, speed and efficiency of the
          portability process, at no cost to the subscriber and without the
          subscriber having to refer to his/her previous operator. This program
          had no material impact on the operating segment’s results during
          the Report Period or during the corresponding period last year.

      b. Launch of a new cellular network by Pelephone: in early 2009,
          Pelephone launched a new cellular network based on GSM
          technology. The said launch leads to additional competitors entering
          the market for sales, service, repairs and maintenance of cell
          phones using GSM technology and associated accessories.

          Scailex foresaw and expects that the entry of such additional
          competitors shall intensify the competition for the supply of the
          specified goods and services to Pelephone. It should be noted in
          this context that the Company’s revenues from Pelephone declined
          by approximately 2.9% during the Report Period, compared with the
          corresponding period last year.

(e)   Developments in the operating segment’s markets, or changes in
      its customer characteristics
      The cell phone sector is characterized by innovation, frequent changes
      in the products and constant technological evolution, which enable end

                             A - 51
      customers to enjoy a variety of advanced features when using their cell
      phones, such as: color, camera, music, connectivity to computers, the
      internet and TV shows, high-speed data file and/or video transfers, etc.

      The market demands for innovation, including advanced cell-phone
      features, is one of the factors encouraging end customers to periodically
      replace and upgrade their cell phones. According to publicized reports
      (e.g., the Dun and Bradstreet report on the telecom market in Israel of
      November 2007), the volume of cell-phone use in Israel is characterized
      by higher penetration rates compared with other countries.

(f)   Technological changes that could have a material impact on the
      operating segment
      The mobile telecom market is characterized by constant innovation and
      technological evolution. Should Samsung fail to keep up with these
      developments and fail to launch high-quality alternatives for various
      cellular technologies and products being offered by other cell-phone
      manufacturers, the Company is liable to be caused significant damage
      and lose market shares to competitors. Correct to the Report Date,
      Samsung has a range of products at the vanguard of cellular technology.

(g)   Critical success factors in the operating segment
      The factors that, in Scailex’s view, constitute critical success factors in
      the Cellular Operators Segment, and in which Scailex is investing
      considerable efforts striving to achieve, are as follows: (1) having a
      reliable, ongoing source of supply of high-quality, innovative cell phones
      within a relevant time-to-market; (2) identifying the market demands and
      adapting the cell phones accordingly; (3) competitive prices; (4)
      investment    in   the   brand;   (5)   providing   technical   support   and
      maintenance services at high-quality standards; (6) high-quality human
      resources; (7) high capability to generate cash from the current
      operations.

(h)   The operating segment’s main entry barriers
      The main entry barriers to the Cellular Operators Segment, as defined in
      this report, are: (1) obtaining a franchise from a reliable manufacturer for
      the sale of cell phones in Israel; (2) technological know-how; (3)
      capability of providing engineering support and technical support



                               A - 52
              services; (4) material investments for the purpose of building a strong
              brand; (5) logistics infrastructure.

        (i)   Alternatives to the operating segment’s products and changes
              occurring therein
              The main alternative in this segment is the landline phone. Companies
              supplying landline telephony services are trying to attract the public to
              use landline phones, while presenting landline telephony as being
              cheaper and safer (in terms of radiation).

              Cellular companies, as well as internet-service providers and cable
              companies are currently offering a comprehensive solution in order to
              attract customers to purchase a single package of services for internet
              and home phones, while the cable companies are offering a package
              including internet, television and landline phone services. This trend is
              liable to diminish daily use of mobile handsets.

        (j)   Structure of the competition in the operating segment and changes
              occurring therein
              The competition is against all importers of cell phones, the major players
              being: Nokia, Sony Ericsson, LG, Motorola and recently, also Apple
              (iPhone) and Blackberry. The competition revolves mainly around the
              launching and selling of new models to the cellular operators. See
              clause 4.4.8 hereunder.

4.4.2   Goods and services

        (a)   Principal goods and services in the Cellular Operators Segment
              The majority of Scailex’s operations in the Cellular Operators Segment
              involve sales of Samsung cell phones. The cell phones sold by Scailex
              are based on GSM technology, which is used in the cellular networks of
              Partner, Cellcom and Pelephone. Until the end of 2009, Scailex sold cell
              phones based on CDMA technology, used in the Pelephone network.
              However, on December 31, 2009, the validity of the agreement between
              the Company and Samsung for the distribution of cell phones based on
              CDMA technology expired. The agreement was not renewed, and as a
              result, the Company discontinued its sales of CDMA-based cell phones.
              For additional details, see clause 4.4.1(a) and clause 4.4.17(a).

              Additionally, Scailex sells replacement parts and accessories (batteries,
              hands-free kits, etc.) for the cell phones it sells.

                                       A - 53
              Furthermore, Scailex provides technical support and tier 3 & 4 repair
              services to cellular operators, at the Company's main lab, for the
              Samsung cell phones sold by the Company. Tier 3 and 4 repairs are
              complex repairs requiring the replacement of components in the
              electronic card, while tier 1 and 2 repairs are usually handled opposite
              the customer – replacement of plastic parts and detachable accessories.

              Scailex is considering the possibilities of expanding the range of the
              products sold by its Cellular Operators Segment, including sales of
              laptops, cellular modems, tablet PCs and other cellular-oriented devices.

              The information provided in this clause is forward-looking
              information, as this term is defined in the Securities Law; there is
              no certainty that the aforesaid shall materialize.

        (b)   Material changes anticipated in Scailex’s share of the main markets
              for its principal goods and services
              Even considering the recent developments in the market, as described
              above in clause 4.4.1(a), and their anticipated impact on the operations
              of the Cellular Operators Segment, from an overall perspective, the
              Company does not anticipate any material change in its share of the
              main markets for its goods and services, particularly in light of the fact
              that the Company is continuing to constantly launch new products and is
              continuing to establish its leadership position in the touch-phone
              category.

4.4.3   Segmentation of revenues from goods and services
        Following are data showing the segmentation of Scailex’s revenues from the
        Cellular Operators Segment, which constitute 10% or more of Scailex’s total
        income for the twelve-month period ended December 31, 2009 and for the
        twelve-month period ended December 31, 2008. It should be noted that, in
        light of the fact that the Cellular Operators Segment was included for the first
        time in Scailex’s Financial Statements for the fourth quarter of 2008, the data
        for 2008 are based on the Pro Forma Financial Statements, which are
        attached to the Financial Statements in Part C of this report.




                                      A - 54
                                         For the 12-month period    For the 12-month period
                                        ended December 31, 2009 ended December 31, 2008
                                                (pro forma)               (pro forma)
                                                         % of the                    % of the
                                         Revenues
                                                        Company’s    Revenues       Company’s
                                           (in NIS
                                                           total  (in NIS millions)    total
                                          millions)
                                                         income3                     income
                Cellular Operators         5524            8%               457               7%
                Segment

       4.4.4     New products
                 Due to demands of the mobile telecom market for advanced technologies,
                 and, as part of the accelerated evolution of the cell phone sector, Scailex
                 periodically launches new cell phone models in Israel operating on the various
                 technologies. This reality requires Scailex to constantly keep abreast – in
                 terms of engineering and marketing efforts – in line with its goal of ensuring
                 that the cell phone models it sells meet the technological and marketing
                 requirements of both the cellular network operators and the end-customers.

                 Correct to the Report Date, the Company is continuing to position itself as the
                 leader in the Touch-phone category. During the second quarter of 2009, the
                 Company launched three Samsung Touch-phone models, targeting diverse
                 populations (the Ultra Touch handset with an advanced camera, the Beat DJ
                 handset with its advanced audio capabilities, and the Magic Touch, this is
                 addition to the three Samsung Touch models launched last year (Soul, Omnia
                 and Touch Wiz). During the third quarter of 2009, the Company launched the
                 Samsung Galaxy, a full-touch handset, the first in Israel, which is based on
                 Google’s Android operating system. Towards the end of the first quarter of
                 2010, the Company launched the Samsung Spica, a full-touch handset, based
                 on the Android operating system. Most of these handsets were launched at all
                 three Cellular Operators. It should be noted in this context that the Company
                 has also established its position as a market leader in the category of “kosher
                 handsets;” i.e., handsets designed for use by the ultraorthodox Jewish
                 community.

                 A survey conducted by Market Watch in June 2009 for the Company found
                 that 64% of consumers owning Touch phones, own Samsung Touch phones.
                 It should be noted that, correct to the Report Date, the iPhone handset has

3
    Including revenue from the Partner Operating Segment for the period of 12 months ended December 31,
    2009, according to the pro forma financial statements.
4
    Not including intercompany sales.
                                                  A - 55
        gained a market share of approximately 9% of all sales of the Cellular
        Operators. The iPhone’s market share diminished the market shares of each
        of the other cellular manufacturers.

        Samsung is preparing to launch three new Touch models during the second
        and third quarters of 2010. These models are designed, in terms of price,
        operation and availability, for a broad and diverse target population, and are
        characterized by an open operating system for downloading applications.

4.4.5   Customers

        (a)   Scailex’s dependence on its Principal Customers in the Cellular
              Operators Segment
              Correct to the Report Date, Scailex’s three Principal Customers in the
              Cellular Operators Segment are three operators of cell phone networks:
              Partner, Cellcom and Pelephone ("the Principal Customers"). Scailex’s
              Cellular Operators Segment is dependent upon Scailex’s Principal
              Customers. The termination of Scailex’s engagement with one or more
              of its Principal Customers is liable to have a material impact on this
              operating segment, including on Scailex’s sales and operating results.

        (b)   Revenues from the Principal Customers
              Following are details of Scailex’s revenues from its Principal Customers
              in the Cellular Operators Segment during the twelve-month period ended
              December 31, 2009, and for the twelve-month period ended December
              31, 2008. It should be noted that, in light of the fact that the Cellular
              Operators Segment was included for the first time in Scailex’s Financial
              Statements for the fourth quarter of 2008, the data for 2008 are based
              on the pro forma financial statements, which are attached to the
              Financial Statements in Part C of this report.




                                      A - 56
                                                                                 For the 12-month period
                                         For the 12-month period ended
                                                                                  ended December 31,
                                               December 31, 2009
                                                                                     2008 (pro forma)
                                                 % of the    % of the
                                                                                  % of the
                                      Revenues Company’s Company’s Revenues
                                                                                 Company’s
                                       (in NIS      total     total    (in NIS
                                                                                    total
                                       millions)  income    revenues   millions)
                                                                                  income
                                                 (audited) (pro forma)
                       Partner           1305           7%     2%           115     12%
                       Pelephone         232           13%     3%           239     25%
                       Cellcom           182           10%     3%            98     10%
                       Total             544           30%     8%           452     47%

                       It should be noted that selling prices of cell phones to the Cellular
                       Operators, as well as import purchases, are denominated in USD.

                       For details about the characteristics of the Company’s engagement with
                       Partner, see clause 4.4.17(c) hereunder.

                       Recently, the Company has begun selling Samsung cell phones,
                       accessories and replacement parts under separate agreements with
                       Cellcom and Pelephone. The Company believes that the conditions of
                       the agreements with the said companies correspond to the market
                       conditions in similar transactions.

       4.4.6     Marketing and distribution
                 The majority of the Company’s marketing activities involve marketing and
                 advertising campaigns and promotions strengthening the Samsung brand. The
                 objective of the said marketing activities is to sustain and increase the
                 Company's market share vis-à-vis the Cellular Operators and to sustain public
                 awareness of Samsung's variety of innovative handsets.

                 In order to promote, sustain and strengthen the Samsung brand, the
                 Company’s efforts concentrate on two main channels: "above the line"
                 activities – billboard advertising, internet campaigns, TV and newspaper
                 campaigns, as well as sponsorship of conferences and TV shows; and "below
                 the line" activities – cooperation with the operators to promote sales of
                 Samsung products, including by way of target campaigns and joint advertising,




5
    Not including intercompany revenue at the sum of approximately NIS 26 million during the period of two
    months ended December 31, 2009.
                                                  A - 57
        specific promotions at the points-of-sale and image campaigns to leverage the
        brand at the points-of-sale.

        Scailex distributes its products through the three Cellular Operators. During
        2009, Scailex increased its distribution activity in the open market via
        subdistributors.

4.4.7   Order backlog

        (a)   Scailex’s order backlog in the Cellular Operators Segment includes the
              expected receipts and proceeds in respect of binding orders, primarily of
              cell phones, received from its customers in this segment, but not yet
              recognized as revenue in the Company's Financial Statements, correct
              to a particular date ("the Order Backlog").

        (b)   The following table presents the Order Backlog, correct to December 31,
              2009:

                  Recognition period of the expected                 Revenues
                                 revenue                          (in NIS millions)
               First quarter of 2010                                     53
               Total Order Backlog                                       53

        (c)   The following table presents the Order Backlog, correct to March 25,
              2010:

                  Recognition period of the expected                 Revenues
                                 revenue                          (in NIS millions)
               First quarter of 2010                                      9
               Second quarter of 2010                                    37
               Total Order Backlog                                       46

        (d)   The following table presents the Order Backlog, correct to December 31,
              2008:

                  Recognition period of the expected                 Revenues
                                 revenue                          (in NIS millions)
               First quarter of 2009                                     66
               Total Order Backlog                                       66

              Actually, the Company recorded revenues at the volume of NIS 158
              million in the Cellular Operators Segment during the first quarter of 2009.
              The change in the revenues actually recorded in the Cellular Operators
              Segment in the first quarter of 2009, compared with the revenues that
              the Company expected from the Cellular Operators Segment during the
              first quarter of 2009, correct to December 31, 2008, derived from the

                                       A - 58
              marketing of new cell phones, and from the growth in sales due to the
              Company’s extensive marketing efforts.

              The assessments regarding the Order Backlog specified above in clause
              4.4.7 constitute forward-looking information, as this term is defined in the
              Securities Law, the materialization of which depends on factors external
              to Scailex, and which is based on information available to Scailex when
              compiling this report, and on Scailex’s assessments or intentions correct
              to the Report Date. The actual results may materially differ from the
              assessments specified and implied above. Scailex’s Order Backlog
              merely provides an indication of its assessments of its future revenues,
              since the orders received from the Cellular Operators are planned to
              suffice to cover the Cellular Operators’ sales for defined periods of
              between a few weeks and a few months; therefore, the volume of these
              orders may increase or decrease. The changes in the quantitative
              volume of the orders, as stated above, which are made at the discretion
              of and according to the needs of the Cellular Operators, may cause
              fluctuations in Scailex’s Order Backlog relative to the various periods.

4.4.8   Competition
        Competition in this operating segment is among cell phone importers, who sell
        their products to the Cellular Operators.

        (a)   Cell phone sales to operators of cell phone networks
              As stated, Scailex sells Samsung cell phones to the three cell-phone
              network operators using GSM technology – Partner, Cellcom and
              Pelephone, as well as CDMA-based Samsung cell phones to
              Pelephone.

              On December 31, 2009, the validity of the agreement between the
              Company and Samsung for the distribution of cell phones based on
              CDMA technology expired. In light of Pelephone’s switch to GSM
              technology and the fact that Pelephone stopped marketing CDMA-based
              cell phones, the said CDMA agreement was not renewed. Consequently,
              the Company discontinued its sales of CDMA-based cell phones. For
              additional details, see clause 4.4.17(a) hereunder.

              Scailex’s primary competitor in this operating segment is Eurocom
              Cellular Communications Ltd., Nokia’s reseller in Israel.



                                      A - 59
      Additional competition was created with the introduction of the iPhone.
      The Cellular Operators are buying iPhones directly from Apple
      International. Within the scope of the Cellular Operators’ agreement with
      Apple, they are required to commit to the purchase of particular
      quantities of handsets and to a considerable monetary investment in
      marketing and advertising efforts. This fact caused a decline in the
      market shares of each of the cellular manufacturers.

      In addition to the Nokia reseller, Scailex has other competitors who sell
      cell phones of various manufacturers, such as: Sony-Ericsson, LG,
      Motorola, Apple, Blackberry and others ("Additional Competitors").

      Scailex has no precise data about its market share in sales of cell
      phones to cellular network operators, since the Cellular Operators do not
      disclose     such   information.   However,   according    to   Scailex’s
      assessments, which are not based on any official data, its market share
      in sell-outs of cell phones to the Cellular Operators during the Report
      Period was approximately 33%.

(b)   Sales of accessories and replacement parts for Samsung cell
      phones to cellular network operators
      Scailex faces stiff competition from various importers of alternative
      products and/or non-OEM products, which put constant pressure on
      prices of the products sold by Scailex in these categories ("Competing
      Importers").

(c)   Scailex’s main methods of contending with the competition
      (1) Scailex invests marketing and advertising efforts to promote and
      maintain the Samsung brand; (2) Scailex is diligent about preserving
      high professional engineering and development standards; (3) Scailex
      invests in providing high-quality repair and maintenance services to its
      customers.

(d)   Positive factors affecting Scailex’s competitive position
      (1) Scailex is the sole reseller in Israel of cell phones manufactured by
      Samsung, the second largest manufacturer of cell phones in the world.
      Samsung cell phones are considered to be innovative, reliable, and very
      well designed with advanced technological standards; (2) Scailex
      benefits from the synergies between its Cellular Operators Segment and
      its End-Customer Segment, which improves the efficiency of work

                              A - 60
               processes and leads to savings in expenses in the Cellular Operators
               Segment.

         (e)   Negative factors affecting Scailex’s competitive position
               (1) Pelephone’s switch (as of the beginning of 2009) from CDMA
               technology to GSM technology, as specified above in clause 4.4.1(d)b.;
               (2) possible delays in launches of new cell phones and delays in the
               supply schedules; (3) a variety of cell phones that fail to meet the
               Cellular Operators’ demands in terms of required features and/or
               competitive prices; (4) strengthening of manufacturers of non-branded
               cell phones that are offering their products at low prices; (5) changes in
               the competitive landscape in the segment, such as entry by additional
               manufacturers; (6) possible impact of external factors, as specified
               hereunder in clause 4.4.21(a).

4.4.9    Seasonality
         As a rule, Scailex’s revenues and operating results in the Cellular Operators
         Segment are not subject to seasonal influences. Nonetheless, fluctuations in
         Scailex’s revenues from one quarter to another in the Cellular Operators
         Segment are possible, inter alia, due to changes in the frequency of new cell
         phone launches and due to the variable pace of activities of the Cellular
         Operators.

4.4.10   Fixed assets, real estate and facilities

         (a)   Head offices, engineering, support, product development, sales
               and marketing offices
               Scailex sub-leases approximately 1,508 m2 of office space from Suny
               Electronics, the main lessor, in part of the building at 48 Ben Zion Galis
               Street, Petach Tikva, for monthly rent at the rate of NIS 30 per m2
               totalling NIS 45,240 per month. The rent for the sub-lease is linked to the
               Consumer Price Index of August 2008 and is subject to duly required
               VAT.

               Pursuant to the sub-lease agreement, Scailex bears, in addition to the
               rent, the payment of the current expenses and maintenance expenses of
               the rented premises, pro-rata to its share of space in this building. The
               aforementioned total expenses (not including the said rent) reach an
               average aggregate monthly total of approximately NIS 92 thousand.
               During the Report Period, the Company paid the aggregate total of NIS

                                       A - 61
               1,102 thousand in respect of those expenses, of which, the Cellular
               Operators Segment paid NIS 807 thousand, and the HQ and Asset
               Management Operating Segment paid NIS 295 thousand.

               The term of the said sub-lease is five years as of September 29, 2008,
               however, either party may terminate the sublease by giving prior notice
               of 180 days.

               Scailex’s portion of the said building houses Scailex’s headquarters, as
               well as most of its departments in the Cellular Operators Segment,
               including the engineering, support, product development, sales and
               marketing, finance and HR departments.

         (b)   Lab, storage space and staff dining room
               Scailex leases a total of 2,475 m2 of space in a building at 8 Harakevet
               Street, Petach Tikva, from Suny Electronics for rent at the rate of NIS 30
               per m2 totalling NIS 74,250 per month. The rent is linked to the
               Consumer Price Index of August 2008 and is subject to duly required
               VAT. Pursuant to the lease agreement between Scailex and Suny
               Electronics, Scailex bears, in addition to the said rent, the payment of all
               current expenses and maintenance expenses of the rented premises.
               These additional payments reach an average aggregate monthly total of
               NIS 116 thousand. During the Report Period, the Company paid the
               inclusive sum of NIS 1,396 thousand in respect of those expenses, of
               which, the Cellular Operators Segment paid NIS 1,036 thousand and the
               End-Customer Segment paid NIS 360 thousand.

               The term of the lease on the building is five years as of September 29,
               2008.

               The building is used by Scailex, inter alia, for the Cellular Operators
               Segment, particularly, storage space for cell phones, replacement parts
               and accessories, as well as labs [where, inter alia, cell phone repairs
               (tiers 3 and 4) are performed for the Cellular Operators] and a staff
               dining room.

4.4.11   Research and development
         The Company does not engage in independent research and development;
         however, the launching of new, sophisticated cell phone models in the Israeli
         market requires engineering and marketing preparations intended to ensure
         that the Samsung cell phone models marketed by the Company in Israel are

                                       A - 62
         compatible with the nature of the technological and marketing demands of the
         Cellular Operators in Israel and of their end customers. Furthermore, the
         Company assists Samsung in the development of applications relating to use
         of the Hebrew language and to the correct operation of user menus. The costs
         involved are immaterial relative to the overall operations of the Cellular
         Operators Segment.

4.4.12   Intangible assets

         (a)   Within the scope of the Cellular Operations Acquisition Agreement, an
               excess cost was generated in the Cellular Operators Segment, which
               exceeded the total shareholders' equity of the operations being
               transferred by approximately NIS 199.9 million.

         (b)   In accordance with the purchase price allocation (PPA) document
               prepared by Giza-Singer-Even Ltd. in March 2009, the allocation of the
               excess cost to intangible assets in the Cellular Operators Segment* is as
               follows:
               Samsung concession –                NIS 111.7 million (USD 32.7 million)
               Order Backlog –                     NIS 6.9 million (USD 2.0 million)
               Goodwill –                          NIS 1.3 million (USD 0.4 million)

               * The functional currency of this segment is the USD; therefore, its intangible
               assets are also denominated in dollar values. The NIS value provided above is
               a translation of the intangible asset using the USD/NIS exchange rate in effect
               on the acquisition date.

               Correct to December 31, 2009, the balance of the Samsung concession
               and the Order Backlog, as recorded in the Company’s books under
               “intangible assets,” is a total of approximately NIS 108 million, while the
               balance of the goodwill is a total of approximately NIS 1.4 million.

         (c)   Within the scope of the agreement for the acquisition of the Cellular
               Operations from Suny Electronics [as defined above in clause 2.1.6(c)],
               Suny Electronics undertook to discontinue using the name "Suny
               Telecom," which is identified with the operating segment.




                                          A - 63
4.4.13   Human capital
         (a)   Organizational chart of the Company's Cellular Operators Segment

                      David Piamenta – Manager, Cellular Operators Segment


                  Finance Manager                      Engineering and Lab Manager


                 Marketing Manager                           Logistics Manager


           Procurement and Construction                 Sales Managers - Operators
                    Manager

           Strategy and Foreign Relations                        IT Manager
                      Manager

                    HR Manager


         (b)   Staff of the Cellular Operators Segment
               Correct to December 31, 2009, Scailex employs a staff of 139 in its
               Cellular Operators Segment. Scailex’s staff in the Cellular Operators
               Segment is presented hereunder:

                                                            Number of employees
                                                        (correct to December 31, 2009)
                Marketing and sales                                    24
                Engineering and development                            20
                Lab                                                    49
                Logistics                                              25
                Operations                                             21
                Total staff                                           139

               Correct to the Report Date, there have been no significant changes in
               the segment’s employee roster from that presented in Part A of the
               Company’s Periodic Report for 2008.

         (c)   Material dependence on particular employees
               Correct to the Report Date, the Company has no material dependence
               on any particular employee.

         (d)   Scailex’s investment in training and instruction
               Scailex   employees    in    the   Cellular   Operators   Segment     attend
               professional training and workshops on a range of topics relevant to their
               jobs, such as: technological developments in the cellular industry, the

                                      A - 64
      provision of service, inter-personal relations and managerial skills. In
      2009, as in previous years, Company employees in the Cellular
      Operators Segment attended the following training programs: engineers,
      practical engineers and technicians – seminars and training relating to
      product development, as well as project management training; sales and
      marketing staff – seminars for familiarization with the products, as well
      as in marketing skills, sales and marketing support; engineering and
      development staff and the marketing staff – visits to relevant trade
      shows in Israel and abroad; operating segment managers at various
      echelons – management training sessions.

(e)   Employee remuneration plans
      Segment Manager – remuneration for achieving the segment’s revenue
      and operating income targets.

      Sales managers – operators – remuneration for achieving the
      quantitative and monetary sales targets to operators.

      Engineering department – bonus for each launch of a new handset to
      each operator.

      Lab – remuneration relative to the number and monetary volume of
      repairs performed at the lab.

(f)   Benefits and characteristics of the employment agreements
      Employees of the Cellular Operators Segment are employed under
      personal employment contracts. No collective agreements apply to
      Scailex or to the employees in this operating segment, except by virtue
      of Extension Orders that apply to all employers and employees in Israel.

      The majority of the employees of the Cellular Operators Segment are
      paid wages based on their hours of work, with some employees also
      being remunerated based on their achievement of pre-defined targets.

      Some of the Company's employees in the Cellular Operators Segment,
      particularly those in various management echelons, and employees of
      the sales and marketing departments, are entitled to global salaries and
      various benefits (e.g.: the sales staff is entitled to commissions based
      on the volume of their actual sales), each according to his/her personal
      employment contract.



                             A - 65
      The Company’s liabilities to its employees in the Cellular Operators
      Segment in respect of the termination of employment relations
      (retirement and severance pay) are covered by current provisions and
      deposits to senior employees’ insurance and to a reserve for severance
      pay. According to Scailex’s assessment, the current provisions and
      deposits included in its Financial Statements cover the Company's
      liabilities in respect of the termination of employment relations.

      Furthermore, the Company has made preparations for legislative
      amendments relating to social provisions for employees. It should be
      noted in this context that, by virtue of the Extension Order of the General
      Collective Agreement (master agreement) for Comprehensive Pension
      Insurance in the Economy (“the Extension Order for Pension
      Insurance”), which came into effect in January 2008, employers in Israel
      are obligated to allocate employee pension provisions, to the extent that
      employees do not have an “improved pension arrangement,” as this
      term is defined in the Extension Order for Pension Insurance. Scailex is
      complying with these requirements.

(g)   Manager of the Cellular Operators Operating Segment
      Scailex’s Cellular Operators Segment has been managed by Mr. David
      Piamenta since September 29, 2008 (Mr. Piamenta held office as the
      CEO of Suny Telecom from May 1, 2008 through September 28, 2008).

      In September 2009, the Company engaged in an agreement with a
      company wholly owned by Mr. Piamenta for the provision of
      management services for the Cellular Operators Segment, services
      being provided to Scailex since August 1, 2009 by the said company, as
      an independent contract, solely through Mr. Piamenta. The said
      management agreement led to the termination of a personal
      employment agreement dated April 14, 2008, which had regulated the
      format of Mr. Piamenta’s employment at the Company up until July 31,
      2009. For details about these agreements, as well as about additional
      remuneration granted to the manager of the Cellular Operators
      Segment, see Regulation 21, clause 3, in Part D of this report.

      For details regarding a release, indemnification and insurance granted to
      the manager of the Cellular Operators Segment in his capacity as a
      senior officeholder, see clauses 4.7.1 – 4.7.4 hereunder.


                              A - 66
       4.4.14    Raw materials and suppliers

                 (a)    Samsung is Scailex’s sole supplier of cell phones in the Cellular
                        Operators Segment, as well as the principal supplier of accessories and
                        replacement parts for cell phones. Pursuant to distribution agreements
                        between Samsung and Scailex, Samsung supplies cell phones,
                        replacement parts and accessories of its own manufacture to Scailex,
                        and, in relation to all matters pertaining to the supply of these products,
                        Scailex is dependent upon Samsung as a supplier.

                        The products purchased from Samsung are shipped to Scailex for the
                        most part from China or Korea by air freight and are paid for in USD, on
                        supplier credit for an average period of approximately 60 days. It should
                        be noted in this context that, in relation to all matters pertaining to
                        purchases from Samsung, Scailex has no material exposure to
                        fluctuations in the USD/NIS exchange rate, since most of the proceeds
                        received from its customers in the Cellular Operators Segment are paid
                        in USD.

                        For details about cell phone distribution agreements between Samsung
                        and Scailex, see clauses 4.4.17(a) and 4.4.17(b) hereunder.

                 (b)    Assignment agreement between the Company, Suny Telecom and
                        Samsung: on November 24, 2008, the Company, Suny Telecom and
                        Samsung engaged in an agreement ("the Assignment Agreement"),
                        whereby the Company assumed all liabilities and debts of Suny Telecom
                        pursuant to the CDMA agreement6 and the GSM agreement, as these
                        terms are defined in clauses 4.4.17(a) and 4.4.17(b) hereunder ("the
                        Suny – Samsung Agreements") and ratified the actions taken by Suny
                        Telecom in relation to the Suny–Samsung Agreements prior to the
                        signing date of the Assignment Agreement, as if the Company had been
                        an original party to the Suny-Samsung agreements. Samsung declared
                        in the Assignment Agreement that it recognizes the Company as the
                        assignee of the Suny-Samsung Agreements, including the rights and
                        obligations prescribed therein.

                        Furthermore, each of the parties to the Assignment Agreement declared
                        that, prior to the signing the said agreement, it was unaware of any

6
    On December 31, 2009, the validity of the agreement between the Company and Samsung for the distribution
    of cell phones based on CDMA technology expired, as stated in clause 4.4.17(a) hereunder.
                                                   A - 67
               material allegation or claim and/or of any potential material allegations or
               claims against the other parties to the Assignment Agreement, insofar as
               they relate to the Suny-Samsung Agreements.

4.4.15   Working capital

         (a)   General
               Correct to the Balance-Sheet Date, the Company has positive working
               capital in the Cellular Operators Segment.

         (b)   Credit policy vis-à-vis the Cellular Operators
               As a rule, the Company extended customer credit to the Cellular
               Operators during the Report Period at terms of current + 45 – 62 days.
               However, sometimes during special sales campaigns, the Company
               extended the credit to the Cellular Operators, on a one-time basis, for
               longer periods.

               The average credit period (in annual terms) that Scailex extended to the
               Cellular Operators during the Report Period was approximately 85 days,
               compared with approximately 77 days during the three-month period
               ended December 31, 2008.

               The average customer balance in the Cellular Operators Segment
               during the Report Period totalled approximately NIS 134 million,
               compared with the sum of approximately NIS 109 million during the
               three-month period ended December 31, 2008.

               The following table presents the average percentage of receipts paid to
               the Company by the Cellular Operators on account of the credit
               extended to them during the Report Period, segmented by credit
               periods:

                                           Percentage of receipts paid by that date
                      Period
                                                          (during 2009)

               52 to 57 days                                   32%

               More than 62 days                               68%

         (c)   Supplier credit terms in the Cellular Operators Segment
               The Company's principal supplier is Samsung. During the Report Period,
               as during the three-month period ended December 31, 2008, the
               Company placed most of its orders from Samsung using bank

                                       A - 68
      documentary credit for a period of approximately 60 days from the date
      the goods were actually received.

      The average volume of credit that the Company received from Samsung
      during the Report Period reached the sum of approximately NIS 66
      million, similar to the average volume of credit during the three-month
      period ended December 31, 2008.

      For additional details about the credit terms that Scailex receives from
      Samsung, see the above clause 4.4.14(a).

(d)   Inventory maintenance policy in the Cellular Operators Segment

      Cell phones
      Nearly all of Scailex’s purchases from Samsung are backed by customer
      orders that are received in advance.

      During the Report Period, an inventory of Samsung cell phones was
      held by Scailex for an average period of approximately 36 days. By
      comparison, during the three-month period ended December 31, 2008,
      Scailex held an inventory of Samsung cell phones for an average period
      of approximately 19 days. The rise in the average days of inventory
      derives from the Company’s aim to meet the demands of the Cellular
      Operators while considering Samsung’s cell phone supply capability.

      Replacement parts
      During the Report Period, Scailex held an inventory of replacement parts
      for an average period of approximately 29 days. The replacement parts
      served the needs of Scailex’s main lab, which engages in the repair of
      cell phones of the Cellular Operators and were used to supply the
      Cellular Operators’ orders for replacement parts.

      For the sake of comparison, during the three-month period ended
      December 31, 2008, Scailex held an inventory of replacement parts for
      an average period of approximately 72 days. The decrease in the
      average days of inventory derives from changes made to the inventory
      provisions and to inventory management.

      Accessories
      During the Report Period, Scailex held an inventory of accessories for
      an average period of approximately 26 days.



                             A - 69
               For the sake of comparison, during the three-month period ended
               December 31, 2008, Scailex held an inventory of accessories for an
               average period of approximately 40 days. The decrease in the quantity
               of accessories derived from changes made to the inventory provisions
               and to inventory management.

         (e)   Warranty policy for Scailex’s products in the Cellular Operators
               Segment
               Within the scope of Scailex’s engagements with the Cellular Operators,
               Scailex provides a warranty for its products for a period of 12 months as
               of the date the products were sold to the Cellular Operators
               ("Manufacturer’s Warranty").

               Cell phones arriving for repair at Scailex’s lab during the Manufacturer’s
               Warranty Period are repaired at no charge to the Cellular Operators. It
               should be noted that some of the Cellular Operators have waived the
               Manufacturer’s Warranty within the scope of the agreements between
               them and Scailex. Scailex includes a provision for product warranty in its
               Financial Statements.

         (f)   Product returns policy
               The Company does not have a policy for product returns from the
               cellular operators.

4.4.16   Environmental quality
         Scailex accumulates from time to time an immaterial quantity of defective
         and/or obsolete cell phone batteries. Scailex disposes of this quantity at the
         Ramat Hovav landfill, in compliance with the customary procedures at this
         site. With regard to non-ionizing radiation, see clause 4.4.21(b)c. hereunder.

4.4.17   Material contracts

         (a)   Distribution agreement for CDMA cell phones
               In July 1998, Suny Telecom engaged in a distribution agreement with
               Samsung, whereby Suny Telecom was granted exclusive marketing
               rights in Israel for Samsung cell phones operating with CDMA
               technology ("the CDMA Agreement"). In December 2007, the CDMA
               Agreement was renewed for an additional two-year term expiring on
               December 31, 2009. Due to the fact that Pelephone switched to GSM
               technology and discontinued its marketing of cell phones based on
               CDMA technology, the CDMA Agreement was not renewed.

                                       A - 70
      Within the scope of the agreement for the acquisition of the Cellular
      Operations of Suny Electronics by Scailex, Scailex acquired, inter alia,
      the rights and obligations of Suny Telecom by virtue of the CDMA
      Agreement [in this context, see the Assignment Agreement as defined
      above in clause 4.4.14(b)].

      The CDMA Agreement stipulated that Scailex must achieve a number of
      sales targets specified in the agreement during each year of operation,
      including market share, purchases of cell phones at the price levels and
      at the ratio of total purchased quantity as defined in the agreement.

      Scailex’s commitment to comply with the terms of the agreement as
      specified above was made contingent upon Samsung meeting various
      conditions prescribed in the agreement each year, including: the supply
      of a number of new models of CDMA handsets to be approved by
      cellular operators in Israel; the compliance with relevant schedules and
      the creation of a product portfolio at the price levels specified in the
      agreement. Within the scope of the CDMA Agreement, Samsung was
      vested the right to terminate the agreement in any year, should Scailex
      fail to meet the targets prescribed in the agreement, subject to Samsung
      meeting its own obligations as specified in the agreement.

      The CDMA Agreement also prescribed provisions pertaining to Scailex
      and Samsung participating in expenses for advertising and sales
      promotion of Samsung cell phones in Israel, pertaining to Scailex’s
      purchases of accessories from Samsung, and pertaining to principles
      relating to technical support and post-sale service.

(b)   Distribution agreement for GSM cell phones
      In February 2001, Suny Telecom engaged in a distribution agreement
      with Samsung, whereby Suny Telecom was granted exclusive marketing
      rights in Israel for Samsung cell phones operating with GSM technology
      ("the GSM Agreement"). In August 2008, the GSM agreement was
      renewed for a one-year term expiring on August 31, 2009. Within the
      scope of the agreement for the acquisition of the Cellular Operations of
      Suny Electronics by Scailex, Scailex acquired, inter alia, the rights and
      obligations of Suny Telecom by virtue of the GSM Agreement [in this
      context, see the Assignment Agreement as defined above in clause
      4.4.14(b)].


                              A - 71
      On August 10, 2009, an agreement between the Company and
      Samsung to extend the validity of the GSM Agreement for one year,
      through August 31, 2010, came into effect.

      The GSM Agreement stipulates that Scailex must achieve a number of
      sales targets specified in the agreement during each year of operation,
      including market share, purchases of cell phones at the price levels and
      at the ratio of total purchased volume as defined in the agreement.
      Scailex’s commitment to comply with the terms of the agreement as
      specified above was made contingent upon Samsung meeting various
      conditions prescribed in the agreement each year, including the supply
      of a number of new models of GSM handsets to be approved by the
      cellular operators in Israel, the compliance with relevant schedules and
      the creation of a product portfolio at the price levels stipulated in the
      agreement. Samsung has the right to terminate the agreement in any
      year, should Scailex fail to meet the targets prescribed in the agreement,
      subject to Samsung meeting its own obligations as specified in the
      agreement.

      Correct to the publication date of this report, Scailex is achieving the
      targets specified for it in the GSM agreement.

      The GSM Agreement also prescribes provisions regarding Scailex and
      Samsung participating in expenses for advertising and sales promotion
      of Samsung cell phones in Israel, regarding Scailex’s purchases of
      accessories from Samsung, and regarding principles relating to technical
      support and post-sale service.

      As stated, the GSM Agreement is for a pre-defined term and is extended
      by the parties from time to time. Furthermore, the agreement shall be
      terminated by 30-day prior notice should the counter-party be in breach
      of its obligations pursuant to the agreement, and shall be terminated
      immediately upon the issuance of a notice of a receivership or liquidation
      of the counter-party to the agreement.

(c)   Agreement for the sale of Samsung products to Partner
      On December 27, 2009, the Company’s Audit Committee and Board of
      Directors approved and ratified the engagement in a comprehensive
      agreement with Partner, for the sale of Samsung cell phones,
      accessories and replacement parts (“Samsung Devices Agreement”).

                             A - 72
This agreement adopts previously existing agreements between the
parties regarding purchases of the products and repair services for
defective products, and includes conditions and addenda, the main
points of which are specified hereunder:

a.   The Samsung Devices Agreement is in effect for three years as of
     the acquisition date of the control of Partner.

b.   The product prices in each order shall be determined during
     negotiations between the parties, however, the Company’s total
     aggregate annual gross profit from transactions with Partner,
     relative to each of the types of transactions being executed between
     the   parties   (purchases    of   end-equipment,    accessories   or
     replacement parts) shall not exceed the Company’s average gross
     profit from executing similar transactions with all bodies it sells to
     during the same calendar year in which the transactions with
     Partner were executed (“Average Gross Profit”). If the total
     aggregate annual gross profit ratio for each type of transaction shall
     exceed the Average Gross Profit rate of the same type of
     transaction, Scailex shall credit Partner with the differentials
     accordingly, unless the variance is at the rate of up to 10% of the
     Average Gross Profit rate.

c.   The volume of transactions between the Company and Partner shall
     not exceed the sum of NIS 250 million per annum. However,
     pursuant to the agreement, Scailex and Partner may increase the
     annual volume of purchases by an addition sum of up to NIS 50
     million, subject to the approvals of the audit committees and boards
     of directors of both companies.

     On December 27, 2009, Partner's Audit Committee and Board of
     Directors approved the agreement. However, correct to the Report
     Date, the agreement has not yet come into effect since, at the
     moment, approval of the agreement by Partner's General Meeting
     has not yet been received, and this approval is a suspending
     condition to the execution of the agreement. On March 23, 2010,
     Partner announced the summoning of Partner's Annual General
     Meeting, which shall convene on April 28, 2010, the agenda of



                        A - 73
                              which includes, inter alia, approval of the Samsung Devices
                              Agreement.

       4.4.18    Legal proceedings
                 Correct to the Report Date, there are no material legal proceedings being
                 conducted against Scailex relating to the Cellular Operators Segment.

       4.4.19    Objectives and business strategy
                 Scailex's objectives are to continue being among the leading players in sales
                 of cell phones to cellular network operators in Israel, while increasing its
                 market share and transforming the Company into the leading company in this
                 field in the coming years. Scailex strives to increase the volume of cell phones
                 it sells to the Cellular Operators and to increase its market share, inter alia, by
                 expanding the range of cell phones it offers and by continuing to promote the
                 Samsung brand. Scailex bases itself on Samsung's technological advantages,
                 innovation and brand strength, as well as on Samsung's ability to manufacture
                 a wide range of cell phone models operating on different technologies. Scailex
                 believes that the transition to the use of advanced cell phones may help the
                 Company to achieve its aforementioned objectives.

                 Scailex's assessments regarding its achievement of the objectives
                 specified above constitute forward-looking information, as this term is
                 defined in the Securities Law, the materialization of which depends on
                 factors external to Scailex, and which is based on information available
                 to Scailex when compiling this report and on Scailex's estimates or
                 intentions correct to the Report Date. The actual results may materially
                 differ from the above stated and implied assessments, inter alia, should
                 cell phones not be launched of an appropriate range and under relevant
                 timetables, and due to the strengthening of current and potential
                 competitors.

       4.4.20    Anticipated development during the coming year
                 The Company does not anticipate significant changes during the ordinary
                 course of business of the Cellular Operators Segment, notwithstanding the
                 changes      in    ownership      anticipated     in   the   communications         market.7
                 Nonetheless, a change in the Company's current market share of Pelephone
                 customers is possible during 2010, due to Pelephone's transition to GSM
                 technology, and due to the Eurocom Group's acquisition of the control of

7
    Acquisition of the control of Bezeq The Israel Telecommunications Corporation Ltd. by the Eurocom Group.
                                                    A - 74
         Bezeq. The Company cannot assess the degree of impact of such changes on
         its operations at this time. In this context, it should be noted that there was a
         decline of approximately 2.9% in the Company's revenues from Pelephone
         during the Report Period, compared with the revenues from Pelephone in
         2008, due to Pelephone's transition to GSM technology.

         Furthermore, Scailex anticipates another development in the Cellular
         Operators Segment, relating to the introduction of related products, such as
         tablet PCs, laptops and advanced electronic devices.

         Correct to the Report Date, and notwithstanding the introduction of iPhones to
         the market, the Company increased the quantitative volume of its sales. On
         the one hand, the Company anticipates continued quantitative growth in its
         sales volumes, due to the growth in the market share of the Touch handsets.
         On the other hand, the Company anticipates that, compared with the first
         quarter of 2009, the volume of its revenues will decline during the first quarter
         of 2010, at the rate of approximately 30%, due to a reduction of the handset
         prices. According to the Company's assessments, the said decline shall not
         have a material impact on the results of its Consolidated Financial Statements.

         The Company periodically examines the said effects on its operating results.

         This clause includes forward-looking information. The Company is
         aware of Pelephone's transition to GSM technology and is examining it,
         but there is no certainty about these effects on the Cellular Operators
         Segment.

4.4.21   Discussion of risk factors

         (a)   Macro risk factors

               a. Financial risks
                   In the Cellular Operators Segment, Scailex is exposed to changes in
                   exchange rates, since most of its import purchases are transacted in
                   USD. However, this exposure is minor, due to the fact that the said
                   import purchases are usually made back-to-back with customer
                   orders also denominated in USD, and the majority of the proceeds
                   are paid in USD.

                   Furthermore, Scailex is exposed, in the Cellular Operators Segment,
                   to changes in the Consumer Price Index, since part of the credit
                   extended by Scailex to its customers is denominated in NIS, but is

                                       A - 75
           not linked to changes in the CPI. Therefore, Scailex is exposed to a
           decline in the real value of its accounts receivable whenever the CPI
           rises during the relevant period.

      b. General economic conditions in the market
           General economic market conditions, a decline in consumer
           spending or other economic conditions may have a material,
           disproportionate, negative impact on the Company's sales in the
           Cellular Operators Segment. The Company markets products and
           services which are perceived as "comfort expenses" by customers,
           rather than as "essential expenses."

           Furthermore, the Company enjoys a relative advantage over other
           distributors and retailers in relation to sales of high-end cell phones
           with   innovative   applications.   Consequently,     the   Company's
           operating results in the Cellular Operators Segment are more
           sensitive to changes in general economic conditions, which primarily
           and initially affect consumers' "comfort expenses." Future economic
           conditions and other factors, including consumer confidence and the
           availability of consumer credit, might reduce consumer spending or
           change consumer spending habits.

           An economic recession in Israel or in the global economy, or
           uncertainty regarding economic forecasts, might have a material,
           adverse impact on consumer spending habits and therefore, on the
           Company's operating results in the Cellular Operators Segment.

      c.   Customs
           Changes in the various customs tariffs imposed on cell phones,
           accessories and replacement parts imported by the Company might
           impact the Company’s profitability in the Cellular Operators
           Segment.

(b)   Sectoral risk factors

      a. Regulation and regulatory amendments
           The import of cell phones to Israel is subject to the receipt of a trade
           license from the Israeli Ministry of Communications, in accordance
           with the Wireless Telegraph Ordinance [New version], 5732 –1972
           and the regulations instituted pursuant thereto. Moreover, in order to
           import and sell cell phones in Israel, the importer is required to

                               A - 76
     obtain a model permit for each cell phone model that the importer
     wants to import. Obtaining such a model permit is contingent upon
     the cellular network operator’s approval of the model that the
     importer wants to import, or alternatively, is contingent upon an
     international model approval recognized by the Israeli Ministry of
     Communications.

b. Competition
     There is constant competition between manufacturers and importers
     of products in this sector, since each manufacturer / importer desires
     to increase its market share with the various operators, and thus,
     increase its sales and profitability.

     Should Samsung fail to develop innovative products and/or a variety
     of handsets, this could have a material impact on the Company’s
     operating results, since the evolution in this industry is significant
     and high-speed, with each manufacturer striving to develop "the next
     big thing."

c.   Impact of non-ionizing radiation from cell phones
     Health concerns, both real and alleged, related to non-ionizing
     radiation originating in means of cellular communications, including
     cell phones, are liable to have a material, adverse impact on the
     Company’s revenues and profitability in the Cellular Operators
     Segment.

     A number of research studies have been conducted around the
     world that analyzed the effects of mobile phones and network base
     stations on health. Some of these research studies have been
     interpreted as indicating that the radiation from the use of cell
     phones is deleterious to health. Media reports have claimed that the
     radio emission frequency from network base stations, cell phones
     and other wireless communication devices may give rise to various
     medical concerns, and is liable to disrupt and prevent the operation
     of a number of electronic medical devices, including hearing aids
     and pacemakers.

     To the best of the Company's knowledge, the cell phones marketed
     by the Company comply with the statutory requirements concerning
     the acceptable Specific Absorption Rate ("SAR"). The Company

                          A - 77
   relies on the SAR level published by cell-phone manufacturers, and
   does not conduct independent testing of the SAR level of cell
   phones.

   Since manufacturers’ certificates refer to prototypes or to initial
   models of cell phones, the Company has no information about the
   actual SAR levels of cell phones during their lifecycle, including in
   the event of cell-phone repairs.

   A number of claims have been lodged, outside of Israel, against
   cellular operators and other players in the wireless industry, alleging
   deleterious health affects and other allegations relating to radio
   transmission frequencies to and from cell phones and other mobile
   telecommunication devices. The Company is liable to become
   involved in potential future litigation in relation to these health
   concerns.

   Furthermore, should health concerns concerning non-ionizing
   radiation proliferate, should new negative findings be published
   about non-ionizing radiation or should it be found that the level of
   non-ionizing radiation from cell phones exceeds the level stipulated
   by statutory standards for cell phones, then consumers might avoid
   using phones, while the relevant legislators and regulators might
   impose additional restrictions on the use of            cell phones.
   Consequently, the Company is liable lose revenues, due to
   diminished use of cell phones and is liable to become a target of
   claims for significant sums. It is emphasized that the Company has
   not purchased insurance against such claims. Therefore, a negative
   outcome, from the Company’s point of view, or a settlement, of a
   claim relating to the alleged health hazard of cell phones brought
   against the Company or against any other supplier of cellular
   services, is liable to have a material, adverse impact on the
   operating results and financial position of this operating segment.

d. Technological changes
   Changes in technological potential, as well as other changes in the
   telecom industry might have a material, adverse impact on the
   Cellular Operators Segment.



                       A - 78
   All aspects of the mobile telecom market in Israel are highly
   competitive, and the Company expects this competition to continue
   in the future, due to the high penetration rate in this market.
   Moreover, technologies, such as satellite-based personal telecom
   services, broadband wireless access services, such as WiMAX, Wi-
   Fi and other technologies capable of providing cellular calls might
   penetrate this market and compete with the traditional cellular
   providers, and thus intensify the current competition in this market.
   In March 2008, a public committee appointed by the Ministry of
   Communications recommended that a tender be issued for WiMAX
   frequencies for use in cell phones.

   The committee also recommended that the requisite proceedings for
   allowing the entry of new cellular operators into the Israeli telecom
   market as Mobile Virtual Network Operators ("MVNO") be
   accelerated.

   Each of these developments is liable to force the Company to cut
   prices and/or cause a decline in purchases by the Company’s
   customers, thereby adversely affecting the Company's results in the
   Cellular Operators Segment.

e. Dependency on the cell phone market as a whole
   An evident slowdown in the growth of the cell phone market and/or
   in the demand for wireless products in Israel is liable to have an
   adverse impact on the Company's businesses in this operating
   segment.

   The demand for the Company’s products in the Cellular Operators
   Segment is significantly dependent upon the steady growth of the
   cell phone industry. Even though the cell phone market in Israel has
   enjoyed rapid growth in the past, today, it is characterized by a very
   high penetration rate. Currently, the growth rate of the cell phone
   market in Israel as a whole, and the growth rate of the cellular
   providers’ subscriber base are slower than in the past.

   An apparent decline in the growth of the cell phone industry and/or
   in the demand for wireless products in Israel is liable to have an
   adverse impact on the Company's businesses in the Cellular
   Operators Segment.

                      A - 79
         The Company’s revenues from the Cellular Operators Segment are
         significantly dependent upon the ability of the Company's Principal
         Customers in this segment to retain their current customers and to
         attract new customers.

(c)   Risk factors specific to Scailex

      a. Dependency on Samsung
         The loss of Samsung as the exclusive and sole supplier of cell
         phones, replacement parts and accessories, or the loss of the
         Company's exclusive engagement with Samsung is liable to have a
         material, adverse impact on the Company’s businesses in the
         Cellular Operators Segment.

         Samsung, the world's second largest cell-phone manufacturer,
         correct to 2009, is the Company's sole supplier of cell phones,
         replacement parts and accessories in the Cellular Operators
         Segment, pursuant to Samsung's distribution agreements with the
         Company (the CDMA Agreement, which, as stated, expired on
         December 31, 2009, and the GSM Agreement). One of the
         Company's critical success factors in the Cellular Operators
         Segment is the existence of a reliable and readily available source of
         supply of high-quality, innovative cell phones. Samsung’s cell
         phones are perceived as innovative, reliable, of high-quality design
         standards and featuring state-of-the-art technology. The Company
         relies   on   and   trusts   Samsung's    technological   superiority,
         innovativeness and brand power, as well as on Samsung's ability to
         manufacture a variety of cell-phone models operating on the various
         technologies.

         The loss of Samsung as the Company's sole supplier in the Cellular
         Operators Segment, a significant price hike by Samsung, a shortage
         or over-supply of a Samsung product, or a tightening of the credit
         terms that Samsung extends to the Company – are liable to have a
         material adverse impact on the Company's Cellular Operators
         Segment.

         The Company cannot guarantee that the loss of Samsung as its sole
         supplier, a shortage or over-supply of a Samsung product or a


                             A - 80
   tightening of the credit terms that Samsung extends to the Company
   will not occur in the future.

b. Dependency on the Cellular Operators
   The Company is dependent upon its three Principal Customers; i.e.,
   the three Israeli Cellular Operators to whom the Company sells its
   products in this operating segment. The loss of one or more of these
   customers, or decreased orders from the Company by one or more
   of these customers, or a reduction in the prices charged by the
   Company to these customers – all may have a material, negative
   impact on the Company’s businesses in the Cellular Operators
   Segment.

   In view of the Company’s volumes of revenues from its Principal
   Customers in the Cellular Operators Segment and the Company's
   dependency on its Principal Customers (as specified above in
   clauses 4.4.3 and 4.4.5), a severance of the Company's contractual
   relations with one or more of the Cellular Operators, for whatever
   reason, is liable to have a material, adverse impact on the volume of
   sales and on the operating results of the Cellular Operators
   Segment.

   Furthermore, the Company's Principal Customers in the Cellular
   Operators Segment are not contractually obligated to purchase
   products from the Company. There is no guarantee that the Cellular
   Operators will continue to purchase goods or services from the
   Company, or that their purchases from the Company will be under
   the same terms and at the same volumes (or at larger volumes)
   compared with previous periods.

   The loss of any one of the Company's Principal Customers in the
   Cellular Operators Segment, a material adverse change in the
   financial position of the Company's Principal Customers in the
   Cellular Operators Segment, a decrease in orders of goods and/or
   services from the Company by the Company's Principal Customers
   in the Cellular Operators Segment, or the Company’s inability or lack
   of means to preserve the terms (including prices) of its engagements
   with its Principal Customers or with other customers, are liable to



                        A - 81
     have a material adverse impact on the Company's financial position
     and operating results in the Cellular Operators Segment.

c.   Technical failure during manufacturing and/or when adapting cell
     phones to the networks of the Cellular Operators
     A technical failure by Samsung during manufacturing of cell phones
     and/or an inability of the Company to adapt Samsung cell phones to
     the networks of the Cellular Operators are liable to have a material
     adverse impact on the Company’s sales in the Cellular Operators
     Segment.

     The Company sells GSM cell phones to Partner, Cellcom and
     Pelephone, and CDMA cell phones to Pelephone (as stated, as of
     2010, the Company no longer markets CDMA cell phones).
     Samsung regularly launches new cell phone models operating on
     different technologies and sub-technologies, primarily due to the
     accelerated technological evolution in this industry and due to the
     market demand for state-of-the-art technologies. The new cell phone
     models     feature    sophisticated   functionality   and   advanced
     technologies, which enhance their use and render their use faster
     and more efficient, as well as innovative design. The launching of
     new, sophisticated cell phone models in the Israeli market requires
     engineering and marketing preparations for the purpose of ensuring
     that the Samsung cell phone models marketed by the Company in
     Israel are compatible with the nature of the technological and
     marketing demands of the Cellular Operators in Israel and of their
     end customers.

     The Company trusts Samsung in relation to all matters pertaining to
     the manufacture of products to the satisfaction of its customers in
     the Cellular Operators Segment. Should Samsung face technical
     difficulties during the manufacture of cell phones and/or should the
     Company encounter difficulties in adapting, or be unable to adapt,
     the Samsung cell phones to the networks of the Cellular Operators
     in Israel to whom the Company sells Samsung’s products, and
     assuming that no solution is found within a reasonable timeframe,
     the Company's ability to supply products that satisfy its customers'
     requirements is liable to be impaired, and is also liable to be


                          A - 82
   damaging to the Company's reputation. Defects in cell phones
   marketed by the Company or an incompatibility of these cell phones
   with the cellular networks in Israel may only be identified after they
   have been distributed.

   Any resulting customer dissatisfaction might lead to a slowdown in
   the volume of sales, to an adverse impact relating to the reliability of
   the Samsung brand and of the Company, and to a loss of Principal
   Customers and/or of market share.

   Furthermore, the Company assists Samsung in the development of
   applications relating to the use of the Hebrew language and the
   correct operation of user menus, and invests significant sums in this
   assistance process. Should the said applications not meet the needs
   of the Company’s customers, or should they be incompatible with
   the cellular networks of these customers, or should they not be
   widely accepted by these customers, or should they not be
   profitable, the Company will not be able to recoup its entire
   investment in the development of these applications.

d. Failure of the Group to achieve the targets prescribed in the
   agreements with Samsung
   Samsung may terminate its engagement with the Company should
   the Company fail to achieve a number of annual sales targets or due
   to other events, as prescribed in the agreements between the
   parties. The termination of the engagement as stated is liable to
   have a material adverse impact on the Company’s businesses in the
   Cellular Operators Segment.

   The Company is a party to a distribution agreement with Samsung,
   which grants the Company an exclusive right to market cell phones
   in Israel manufactured by Samsung [the GSM Agreement, as
   defined above in clause 4.4.17(b)].

   Pursuant to the GSM Agreement, the Company must achieve a
   number of annual sales targets, subject to Samsung complying with
   a number of conditions as prescribed in the agreement.

   The aforesaid annual sales targets include the achievement of a
   number of commercial targets. Samsung may terminate or decide
   not to renew the aforesaid agreement, on an annual basis, should

                       A - 83
    the Company fail to achieve the annual targets prescribed in the
    agreement, provided that Samsung fulfilled its obligations pursuant
    to the agreement.

    Should Samsung terminate the GSM Agreement, and should the
    Company fail to secure alternative, immediately available sources of
    supply, or should the GSM agreement expire and not be renewed, or
    should the Company lose, for any other reason, its aforesaid
    exclusive engagement with Samsung, the Company foresees that
    there would be a significant decline in the scope of the Cellular
    Operators Segment, as well as a material adverse impact on the
    profitability of the said segment.

e. Failure to meet timetables set for the launch of new cell phones
    The Company's success in this operating segment partially depends
    upon Samsung’s launches of products and technologies at the right
    time. A failure by Samsung to meet timetables set for the launch of
    new cell phone models in Israel is liable to have a material adverse
    impact on the Company’s businesses in the Cellular Operators
    Segment.

    The markets for cell phones and related products are characterized
    by rapidly-changing technologies, frequent launches of new
    products, short product lifespans and by the constant evolution of
    standards. A significant portion of the Company's success in the
    Cellular Operators Segment depends upon Samsung’s successful
    and correctly timed launches of new products and of upgrades to
    current products that meet the standards set by the industry, and
    depends upon Samsung's ability to provide a commensurate or even
    superior response to the technological and product developments
    launched by competing cell-phone manufacturers.

    The cell-phone models currently on the market, the stiff competition
    and the necessary technological innovation all create a reality in
    which any deviation from timetables set for the launching of new cell
    phones may lead to a decline in the sales volumes of those cell
    phones, to a loss of market share and to a loss of the money
    invested in the development of these cell phones.



                        A - 84
     Delays on the part of Samsung in the development or launching of
     new cell-phone models, or an inability on the part of Samsung to
     provide a response to technological developments or to one of its
     competitors' products, could have an adverse impact on the
     revenues and operating results of the Cellular Operators Segment.

f.   Incorrect reading of the demands for cell phones
     A failure to accurately predict the cell-phone models and/or the cell-
     phone features that the market will be demanding might have a
     material adverse impact on the Company’s businesses in the
     Cellular Operators Segment.

     The cell phone sector in Israel is characterized by innovation, by
     frequent product changes and by constant technological evolution,
     which enable end customers to enjoy a variety of the latest
     innovative applications, such as: color, camera, music, connectivity
     to computers, the Internet and TV shows, high-speed data and/or
     video file transfers, etc. Market demands for innovation and
     advanced cell-phone applications are among the factors providing
     incentives and encouraging end customers to replace and upgrade
     their cell phones from time to time.

     Research and development of new, technologically advanced cell
     phones is a complex, uncertain process requiring high levels of
     innovation and investment, as well as accurate forecasting of the
     technological and market trends. Furthermore, the process of
     selecting the Samsung cell phones to be marketed by the Company
     to the Cellular Operators involves an assessment of market
     demands and trends relating to those cell phones, their features and
     attributes. Should the Company or Samsung fail to accurately
     foresee the technological trends and market trends, or should the
     Samsung cell phones marketed by the Company in Israel not
     correspond to the demands of the local market, the revenues of the
     Cellular Operators Segment are liable to be materially affected.

     Furthermore,    the    Company    could   focus    its   resources   on
     technologies being used or developed by Samsung that would not
     be accepted or be commercially viable, and thus cause an increase
     in the Company's expenses in this operating segment.


                           A - 85
g. Pelephone's transition from a CDMA network to a GSM network
   The transition of Pelephone, one of the Company's Principal
   Customers in the operating segment, from a CDMA cellular network
   to a GSM cellular network is liable to have an adverse effect on the
   Company's    businesses     in   the   Cellular   Operators   Segment.
   According to the Company's assessments, the degree of impact of
   this change is immaterial (see clause 4.4.20 above).

   The source of a significant portion of the Company's sales revenues
   in the Cellular Operators Segment is Pelephone, the Company's
   largest customer in this operating segment, which had purchased
   from the Company, inter alia, CDMA cell phones. In early 2009,
   Pelephone launched a cellular network operating with GSM
   technology, which differs from the network that Pelephone had
   operated until 2009, the CDMA network. Parallel to this, and
   following the launch of the GSM network, Pelephone began
   marketing solely GSM cell-phones to its customers, and stopped
   marketing CDMA cell-phones. Consequently, the Company did not
   renew the CDMA Agreement with Samsung, which expired on
   December 31, 2009, and will not be launching any more CDMA cell
   phones. Since Pelephone began operating its new cellular network,
   the competition has intensified among suppliers of cell phones,
   replacement parts and accessories to Pelephone, due to the
   increased number of suppliers importing cell phones adapted for
   operation on Pelephone's new GSM network. Such competition is
   liable to affect the results of the Company's Cellular Operators
   Segment. According to the Company's assessments on the Report
   Date, the degree of impact of Pelephone's switch to the GSM
   cellular network on the operating results in the Cellular Operators
   Segment is immaterial in the long run.

   It should be noted in this context that the Company’s revenues from
   receipts from Pelephone during the Report Period decreased by
   approximately 2.9% compared with the revenues from Pelephone
   during the corresponding period last year. Nonetheless, the
   Company is continuing to show growth in its overall revenues in the
   Cellular Operators Segment, due to an increase in its market share
   with other operators.

                      A - 86
                        It should be noted that Scailex's assessments regarding the
                        impact of Pelephone's launch of the new cellular network on
                        the structure of the operating segment and on its business
                        results constitutes forward-looking information, as this term is
                        defined in the Securities Law, the materialization of which
                        depends on Pelephone and on Scailex's competitors (factors
                        external to Scailex).

      h. Functional currency
                        The functional currency of the Cellular Operators Segment is the
                        U.S. dollar; the functional currency of all of the Company's other
                        operating segments is the new Israeli shekel.

                        In the Cellular Operators Segment, Scailex is exposed to
                        fluctuations in exchange rates (NIS/USD), since most of its import
                        purchases are transacted in dollars. However, this exposure is
                        minor, due to the fact that the major import purchases are usually
                        made back-to-back with customer orders also denominated in
                        dollars, and in light of the fact that the majority of the receipts in
                        respect of these orders are paid in dollars.

(d)   Table summarizing the risks in the Cellular Operators Segment

                                                                        Degree of impact

                                                                    Major    Moderate   Minor
                                          Risk factors              Impact    Impact    Impact

                                Financial risks                                            X
        Macro risks




                                General economic conditions in
                                the market                                      X

                                Customs                                         X

                                Regulations and regulatory
        Sectoral risk factors




                                amendments                                      X

                                Competition                                     X

                                Effects of non-ionizing radiation
                                from cell phones                                X

                                Technological changes                           X




                                                  A - 87
                                                                                        Degree of impact

                                                                                  Major       Moderate   Minor
                                                       Risk factors               Impact       Impact    Impact

                                             Dependency on the cell-phone
                                             market as a whole                      X
                   Special risk
                     factors                 Dependency on Samsung                  X

                                             Dependency on the Cellular
                                             Operators                              X

                                             Technical failure during
                                             manufacturing and/or during
                                             adaptation of cell phones to the
                                             Cellular Operators' networks           X

                                             Failure of the Group to achieve
                      Special risk factors




                                             the targets prescribed in the
                                             agreements with Samsung                             X

                                             Failure to meet timetables set for
                                             the launching of new cell phones                    X

                                             Incorrect reading of the
                                             demands for cell phones                             X

                                             Pelephone's switch from the
                                             CDMA network to the GSM
                                             network                                             X

                                             Functional currency                                           X


4.5 End-Customer Operating Segment – cellular phone sales and provision
    of services to end-customers

    4.5.1   General information about the operating segment

            (a)   Trends,                       events    and    developments      in   the    macro-economic
                  environment

                  This operating segment is liable to be affected by the global financial
                  crisis and by Pelephone's switch to GSM technology, which is expected
                  to affect the level of competition in the market. The Company is unable
                  to assess the impact of these events on its operating results in the End-

                                                              A - 88
      Customer Segment, if any. It should be noted in this context that, correct
      to the Report Date, these events had no material impact on the
      operating results of the Group in this segment.

(b)   Structure of the operating segment and changes that occurred
      therein
      The Cellular Operators’ activities of sales and the provision of services
      (including maintenance) for cell phones to end customers are carried out
      through stores and service centers owned by each of the Cellular
      Operators, as well as by authorized external resellers serving as agents
      of the Cellular Operators ("Authorized Resellers"). Some of the
      Authorized Resellers operate through a chain of points-of-sale, while
      other Authorized Resellers only operate a few such points-of-sale.

      The Authorized Resellers serve as concessionaires of the Cellular
      Operators, in relation to all matters pertaining to sales and upgrades of
      cell phones to end customers. Furthermore, the Resellers provide end-
      customers with maintenance services for cell phones (it should be noted
      that, in addition to the Cellular Operators and the Authorized Resellers,
      there are other parties in Israel providing maintenance services for cell
      phones to end-customers).

      According to Scailex’s assessment, the majority of the cell phone sales
      and services to end-customers, both private and business customers,
      are carried out by the stores and service centers owned by each of the
      Cellular Operators, while the minority is carried out by the Authorized
      Resellers.

      Scailex, as an Authorized Reseller of Cellcom, sells and upgrades cell
      phones to end-customers in the Cellcom network within the framework
      of its End-Customer Segment. The cell phones in this operating segment
      are made by various manufacturers, including: Samsung, Nokia, LG,
      Sony-Ericsson, Motorola and others. Furthermore, as part of its
      operations in this segment, and in accordance with periodic service
      agreements signed between Scailex and the said end-customers,
      Scailex provides technical and warranty services for most of the cell
      phone models sold by the Company to end customers ("the End-
      Customer Segment"). Furthermore, the Company sells cell-phone



                             A - 89
accessories of the various manufacturers and laptops within the
framework of this operating segment.

Correct to the Report Date, Scailex carries out its operations in the End-
Customer Segment through a chain of 43 stores and points-of-sale
under the trade name of “Dynamica Cellular.”

Within the scope of the Antitrust Commissioner’s (“the Commissioner”)
conditional consent for the execution of the Partner Control Acquisition
Transaction, the Commissioner prescribed a precondition, whereby the
Company, and every person directly or indirectly related to the
Company, must completely and absolutely cease to be a party to the
Cellcom Agreement (as this term is defined in clause 4.5.16(a)
hereunder; the agreement under which the Company was appointed
Cellcom’s Authorized Reseller) by no later than July 1, 2010, and shall
cease to provide any services whatsoever to Cellcom, including
marketing services, sales of devices and distribution. In light of the
Commissioner’s demand, the Company and Cellcom engaged in an
agreement on January 17, 2010, for the sale of the operations of the
Company’s End-Customer Segment to Cellcom (“the Sale Transaction
of Dynamica to Cellcom”).

Correct to the Report Date, the Company is still managing and operating
the End-Customer Segment, with the consummation of the said sale
expected to take place, according to the Company’s assessments, by
April 1, 2010.

For details about the Sale Transaction of Dynamica to Cellcom, see
clause 4.5.16(b) hereunder. For details about the Commissioner’s
approval of the Partner Share Acquisition Transaction, see the
Immediate Report published by the Company on September 21, 2009
(reference no.: 2009-01-267972).

The information regarding the consummation of the sale of the
operations of the Company’s End-Customer Segment is forward-
looking information, as this term is defined in the Securities Law.
The fulfillment of the suspending condition and the preconditions
to the consummation of the aforesaid sale depends upon factors
external to the Company, and therefore, the Company has no



                       A - 90
                        assurance        that    the    aforesaid      agreement       shall     indeed     be
                        consummated and executed.

                 (c)    Restrictions,       legislation,     standards       and     special     constraints
                        applicable to the operating segment
                        To the best of Scailex' knowledge, there are no restrictions, legislation,
                        standards or special constraints applicable to this operating segment.
                        However, the segment is indirectly affected by regulations relating to
                        cellular radiation, which could have an impact on consumers’ buying
                        habits.

                 (d)    Changes in the segment’s volume of activity and profitability
                        Correct to the Report Date, Scailex’s End-Customer Segment operates
                        43 points-of-sale across Israel under the trade name "Dynamica
                        Cellular." Scailex assesses that, correct to the Report Date, it is the
                        largest Authorized Reseller of the Cellcom network.

                        Nonetheless, the competition in the End-Customer Segment has been
                        intense in recent years. For additional details about competition, see
                        clause 4.5.8 hereunder.

                        Furthermore, a change has occurred in the structure of the End-
                        Customer Segment during the last two years deriving from the “Number
                        Portability Program” [for more details about this program, see clause
                        4.4.1(d)a. above]. The Number Portability Program had no material
                        impact on the operations during the Report Period.

                        Additionally, the validation of the Ministry of Communication’s decision
                        regarding “severance of the linkage”8 may increase the volume of activity
                        in the segment.

                        This clause includes forward-looking information. There is no
                        certainty regarding the impact of these factors on the End-
                        Customer Segment.




8
    On July 28, 2009, the Ministry of Communication’s decision was promulgated, whereby the Cellular Operators
    must sever the linkage, if any, between sales of end equipment and the provision of benefits relating to the
    Cellular Operators’ services, in a manner enabling subscribers to receive the same benefits even if they
    purchase the end equipment from another supplier. The decision was implemented by way of an amendment
    to the Cellular Operators’ MRT licenses. The said license amendment came into effect on November 1, 2009.
                                                    A - 91
(e)   Developments in the operating segment’s markets, or changes in
      its customers’ characteristics
      The cell phone sector is characterized by innovation, frequent changes
      in the products and constant technological improvements, which enable
      end customers to enjoy a variety of advanced features when using their
      cell phones, such as: color, camera, music, connectivity to computers,
      the internet and TV shows, high-speed data and/or video file transfers,
      etc.

      The market demands for innovation, including advanced cell-phone
      features, is one of the factors encouraging end customers to periodically
      replace and upgrade their cell phones. According to publicized reports
      (e.g., the Dun and Bradstreet report on the telecom market in Israel of
      November 2007), the volume of cell-phone use in Israel is characterized
      by higher penetration rates compared with other countries.

(f)   Critical success factors in the operating segment
      The factors that, in Scailex’s view, constitute critical success factors in
      the End-Customer Segment, and in which Scailex is investing
      considerable efforts striving to achieve, are as follows: (1) nationwide
      spread of stores and points-of-sale in leading malls and other prime
      locations; (2) the provision of prompt and high-quality service and
      technical support; (3) stores and points-of-sale in optimal locations and
      with positioning that offers a successful buying experience; (4) a staff of
      employees trained and skilled in sales and providing customer service;
      (5) the maintaining of advanced logistics infrastructure and IT systems.

(g)   The operating segment’s main entry and exit barriers
      The End-Customer’s main entry barriers, as defined in this report, are:
      (1) engaging with a cellular operator; (2) establishing a nationwide chain
      of stores; (3) establishing IT and logistics infrastructure; (4) accumulating
      relevant technological know-how; (5) establishing a Customer Service
      Division.

      The segment’s main exit barrier is the Company’s agreements with malls
      regarding its stores and points-of-sale that obligate the Company to
      specific lease terms. Defaulting on the said agreements is liable to
      impose significant financial expenses on the Company.



                              A - 92
              It should be noted in this context that the Sale Transaction of Dynamica
              to Cellcom prescribes that all of Scailex’s lease agreements with the
              property owners at the points-of-sale shall be assigned to Cellcom, so
              that Cellcom shall subrogate Scailex in relation to all matters pertaining
              to the said lease agreements.

        (h)   Structure of the competition in the operating segment and changes
              occurring therein
              The competition in the cell-phone resellers sector is primarily with the
              points-of-sale of Cellcom and of other cellular operators, and, to a lesser
              extent, with the points-of-sale of other independent resellers.

4.5.2   Goods and services

        (a)   Principal goods and services in the End-Customer Segment
              In the End-Customer Segment, Scailex serves as a non-exclusive
              Authorized Reseller of Cellcom. This reselling activity, which is carried
              out through the Dynamica Cellular chain, is segmented into four
              activities:

              a. Sales and upgrades of cell phones
                  These are transactions in which a contractual engagement is
                  created between Cellcom and the end-customers, whereby Cellcom
                  charges the end-customer for the cost of the purchased cell phone,
                  for air time and other charges. The said engagement agreements
                  are signed at Dynamica Cellular stores and points-of-sale, which
                  have real-time links to Cellcom’s IT systems (in a manner enabling
                  information to be received and transferred, including updates of the
                  transaction details).

                  In respect of the execution of sales or upgrade transactions, Cellcom
                  pays Dynamica Cellular for the cell phone sold or upgraded, as well
                  as various commissions based on pre-agreed parameters, such as:
                  phone type, customer type (private or business), transaction type
                  (sale or upgrade), etc.

              b. Sales of cell phones operating with pre-paid phone cards
                  This channel is characterized by transactions in which no
                  engagement contract is drawn up and signed between Cellcom and
                  end-customers (even though the purchased phone operates on the
                  Cellcom network), since calls from the purchased phones are made

                                      A - 93
                   using pre-paid phone cards purchased by customers from time to
                   time. In such transactions, the end-customers pay Scailex for the
                   cell phone they purchase, while Cellcom pays Scailex various
                   commissions according to that prescribed in the agreement between
                   the companies.

                   It should be noted that in the sale transactions specified above in
                   subclauses (a) and (b), Scailex sells or upgrades cell phones from a
                   variety of manufacturers, including: Samsung, Nokia, LG, Sony-
                   Ericsson, Motorola and others.

              c.   Repair and warranty services
                   Scailex provides repair and warranty services to end-customers for
                   most cell phone models sold by the Company. For these services,
                   Scailex charges end-customers periodically, and is paid by bank
                   standing order or by credit card. The aforementioned services are
                   provided to end-customers at 21 service centers located in
                   Dynamica Cellular chain stores nationwide. The service locations
                   are staffed by a team of highly qualified, skilled technicians.
                   Furthermore, Dynamica Cellular operates a central lab to provide
                   support to the aforementioned service centers.

              d. Sales of supplementary cellular products
                   Scailex sells various supplementary cellular products to end-
                   customers at Dynamica Cellular’s stores and points-of-sale, such as:
                   cell-phone   accessories,   hands-free   kits,   phone   cards,   etc.
                   ("Supplementary Products").

4.5.3   Segmentation of revenues from goods and services
        Following are data showing the segmentation of Scailex’s revenues in the
        End-Customer Segment constituting 10% or more of Scailex’s total income for
        the period of twelve months ended December 31, 2009 and for the period of
        twelve months ended December 31, 2008. It should be noted that, in light of
        the fact that the End-Customer Segment was included for the first time in
        Scailex’s Financial Statements for the fourth quarter of 2008, the data for 2008
        are based on the Pro Forma Financial Statements, which are attached to the
        Financial Statements in Part C of this report.




                                      A - 94
                            For the 12-month period    For the 12-month period
                           ended December 31, 2009 ended December 31, 2008
                                    (audited)                 (pro forma)
                            Revenues        % of the   Revenues        % of the
                              (in NIS      Company’s     (in NIS      Company’s
                             millions)    total income  millions)    total income
        End-Customer
                                140              8%            167            18%
        Segment

4.5.4   New products
        In this segment, the Company relies on various importers with whom Cellcom
        does business for the supply of cell phones, and on the various subscription
        plans offered by Cellcom. The Company formulates the optimal sales mix for
        itself according to the supply of cell phones and the relevant subscription
        plans, and based on the demand from end-customers.

        For information about new launches and trends relative to Samsung cell
        phones, which are sold in the Dynamica store chain, see clause 4.4.4 above.

4.5.5   At the end of 2009, the iPhone was launched in Israel and also began to be
        marketed by the Dynamica chain. Correct to the Report Date, iPhone sales do
        not constitute a material share of the total cellular sales in the operating
        segment.

4.5.6   Customers

        (a)   Scailex’s dependence on Cellcom in the End-Customer Segment
              Scailex is dependent upon Cellcom in the End-Customer Segment,
              since Scailex resells cell phones solely in the Cellcom network, and
              particularly, in light of the material percentage of revenues from Cellcom
              in this operating segment.

              The termination of Scailex’s engagement with Cellcom is liable to have a
              material adverse impact on this operating segment, including on
              Scailex’s sales turnover and operating results. It should be noted that
              Scailex issues monthly invoices to Cellcom, in respect of sums payable
              to Scailex for cell phone sale and upgrade transactions and for sales of
              cell phones operating on prepaid phone cards [see above clauses
              4.5.2(a)a. and 4.5.2(a)b., respectively].

        (b)   Revenues from Principal Customers
              Following are details of Scailex’s revenues from its Principal Customers
              in the End-Customer Segment for the period of twelve months ended

                                      A - 95
               December 31, 2009 and for the period of twelve months ended
               December 31, 2008. It should be noted that, in light of the fact that the
               End-Customer Segment was included for the first time in Scailex’s
               Financial Statements for the fourth quarter of 2008, the data for 2008 are
               based on the Pro Forma Financial Statements, which are attached to the
               Financial Statements in Part C of this report.

                             For the 12-month period    For the 12-month period
                            ended December 31, 2009 ended December 31, 2008
                                     (audited)                 (pro forma)
                             Revenues        % of the   Revenues        % of the
                               (in NIS      Company’s     (in NIS      Company’s
                              millions)    total income  millions)    total income
        Cellcom                  101             6%             120            13%
               For details about the characteristics of the Company’s engagement with
               Cellcom, in relation to all matters pertaining to the End-Customer
               Segment, see clause 4.5.16(a) hereunder.

4.5.7    Marketing and distribution
         In this segment, the Company has a central warehouse and points-of-sale
         across Israel conducting direct sales to end customers.

4.5.8    Competition

         (a)   Sales and upgrades of cell phones to end-customers
               Scailex’s main competitor in the End-Customer Segment is Cellcom.
               According to Scailex’s assessments, Cellcom itself executed the majority
               of the sales and upgrade transactions of cell phones on the Cellcom
               network during the Report Period. In addition to Cellcom, there are other
               Authorized Resellers competing with Scailex in this operating segment.
               Scailex has no precise data about its market share in cell-phone sales to
               end-customers.

               However, according to Scailex’s assessments, which are not based on
               any official data, Scailex, doing business under the trade name of
               "Dynamica Cellular," is the largest Authorized Reseller of Cellcom in the
               End-Customer Segment, with its market share in cell-phone sales to
               end-customers during the Report Period reaching approximately 15%.

         (b)   Repair and warranty services to end customers
               Scailex contends with competition mainly from the operators itself, and,
               to a lesser degree, from a number of entities providing repair and

                                       A - 96
               warranty services to end customers other than through the Cellular
               Operators. It is not possible to estimate the number of aforesaid
               competing entities. Scailex has no precise data about its market share
               relative to repair and warranty services to end customers.

         (c)   Sales of Supplementary Cellular Products
               Scailex contends with competition mainly from resellers directly selling
               Supplementary Cellular Products to end customers. It is not possible to
               estimate the number of aforesaid competing entities. Scailex has no
               precise data about its market share relative to sales of Supplementary
               Cellular Products to end customers.

         (d)   Scailex’s main methods of contending with the competition
               Providing better and more available service to customers, both at the
               initial sale stage and during the repair or upgrade stage. This is achieved
               by employee training and diligence in providing service at points-of-sale
               and via a customer-service center dedicated to providing answers and
               solutions to customers.

4.5.9    Seasonality
         As a rule, Scailex’s revenues and operating results in the End-Customer
         Segment are not subject to seasonal influences.

4.5.10   Fixed assets, real estate and facilities

         (a)   Stores and points-of-sale
               Dynamica Cellular operates through a chain of 43 stores and points-of-
               sale. Most of these stores and points-of-sale are located in major malls
               throughout Israel. Scailex leases all of the aforementioned stores and
               points-of-sale for terms of several years; in relation to some of the
               stores, Scailex has an option to extend the term of the lease. The size of
               most of the stores ranges between 40 – 60 m2 each, while the size of the
               points-of-sale ranges between 5 –15 m2 each. During the Report Period,
               the total rent paid by Scailex in respect of the aforementioned stores and
               points-of-sale was approximately NIS 7.6 million. It should also be noted
               that, in most of Scailex’s lease agreements relating to the stores and
               points-of-sale through which the activity in the End-Customer Segment
               is carried out, the rent is linked to the Consumer Price Index.

               There are 21 repair labs located in the aforesaid retail stores, providing
               technical repair and maintenance services for cell phones.

                                         A - 97
         (b)   Storage, labs, office space and employee dining room
               As specified in Regulation 22, clause (g)(1) (a) in Part D of this report,
               Scailex leases a building from Suny Electronics at 8 Harakevet Street,
               Petach Tikva. Scailex uses this building, inter alia, for its End-Customer
               Segment, and particularly for the following purposes: storage of cell
               phones, replacement parts and accessories for the End-Customer
               Segment, the operation of labs, offices and an employee dining room.

4.5.11   Intangible assets

         (a)   Within the scope of the Cellular Operations Acquisition Agreement, an
               excess cost was generated in this segment, which exceeded the total
               shareholders'   equity    of      the   operations     being   transferred   by
               approximately NIS 45.8 million.

         (b)   In accordance with the purchase price allocation (PPA) document
               prepared by Giza-Singer-Even Ltd. in March 2009, the allocation of the
               excess cost to intangible assets in the End-Customer Segment is as
               follows:

               Customer base –                    NIS 11.7 million
               Commercial agreement –             NIS 13.5 million
               Goodwill –                         NIS 20.6 million.

               Correct to December 31, 2009, the balance of trade receivables and the
               commercial agreement totalled approximately NIS 22 million, while the
               balance of the goodwill totalled approximately NIS 21 million.

         (c)   Within the scope of the Cellular Operations Acquisition Agreement with
               Suny Electronics [as this term is defined above in clause 2.1.6(c)], Suny
               Electronics undertook to no longer use the name “Din Dynamic” and/or
               “Dynamica,” which are identified with the operating segment.




                                        A - 98
4.5.12   Human capital

         (a)     Organizational structure of the Company's End-Customer Segment

                                         Shachar Landau
                                   Manager, End-Customer Segment


 Customer Service Department Manager                      Sales and Marketing Manager


               Technical Manager                         Operations Department Manager


     Logistics Department Manager                                  HR Manager


         (     Finance Manager


         (b)     Staff of the End-Customer Segment
                 Correct to December 31, 2009, Scailex employs a staff of 303 in the
                 End-Customer Segment. Scailex’s staff in the End-Customer Segment is
                 presented hereunder:

                                                            Number of employees
                                                        (correct to December 31, 2009)
                  Sales staff at stores                               197
                  Technicians (stores + central lab)                   30
                  Customer service and
                  telemarketing                                        35
                  Logistics                                             4
                  Administration and operation                         37
                  Total staff                                         303

                 There was an increase in the number of employees during the Report
                 Period, compared with the corresponding period last year. This increase
                 derived mainly from the openings of new points-of-sale during the year.

         (c)     Material dependence on particular employees
                 Correct to the Report Date, the Company has no material dependence
                 on any particular employee.

         (d)     Scailex’s investment in training and instruction
                 Scailex’s employees in the End-Customer Segment attend professional
                 training and workshops on a range of topics relevant to their jobs, such
                 as: technological developments in the cellular industry, the providing of
                 service, inter-personal relations and managerial skills. Some of the

                                         A - 99
      aforesaid professional training and workshops are run by the Training
      Department that Scailex operates in the End-Customer Segment.

(e)   Employee remuneration plans
      The Company remunerates its employees for achieving quantitative and
      qualitative sales targets in relation to the quality of sales and service.

(f)   Benefits and characteristics of employment agreements
      Employees of the End-Customer Segment are employed under personal
      employment contracts. No collective agreements apply to Scailex and to
      its employees in this operating segment, except by virtue of Extension
      Orders that apply to all employers and employees in Israel. The majority
      of the employees of the End-Customer Segment are paid wages based
      on their hours of work, with some employees also being remunerated
      based on their achievement of pre-defined targets. Some of the
      Company's employees in the End-Customer Segment, particularly those
      in various management echelons, and employees of the sales and
      marketing departments, are entitled to global salaries and various
      benefits (e.g.: the sales staff is entitled to commissions based on the
      volume of their actual sales), each according to his/her personal
      employment contract.

      The Company’s liabilities to its employees in the End-Customer
      Segment in respect of the termination of employment relations
      (retirement and severance pay) are covered by current provisions and
      deposits to senior employees’ insurance and to a reserve for severance
      pay. According to Scailex’s assessment, the current provisions and
      deposits included in its Financial Statements cover the Company's
      liabilities in respect of the termination of employment relations.

      Furthermore, the Company has made preparations for legislative
      amendments relating to the social provisions for employees, including
      amendments by virtue of the Extension Order for Pension Insurance as
      this term is defined above in clause 4.4.13(f).

(g)   Manager of the End-Customer Operating Segment
      Scailex’s End-Customer Segment has been managed by Mr. Shachar
      Landau since January 1, 2009 (from 1995 until May 2009, Mr. Landau
      held office as the joint CEO of the Company’s controlling shareholder,
      Suny Electronics; since May 2009, Mr. Landau has been holding office

                              A - 100
               as Suny Electronics’ C.E.O. – not joint). Mr. Landau holds the office of
               the manager of the Company’s End-Customer Segment under a service
               agreement signed between Scailex and Suny Electronics, and is not a
               Scailex employee. The consideration paid in respect of his services is
               part of the consideration that Scailex pays to Suny Electronics within the
               scope of the said service agreement.

               On March 28, 2010, Mr. Shachar Landau gave notice to the Company’s
               C.E.O. that he is resigning from his office as manager of the Company’s
               End-Customer Segment, effective April 10, 2010.

               For additional details about the aforesaid service agreement, see
               Regulation 22, clause g(2) in Part D of this report. For details about
               options that the Company granted to Mr. Landau during the Report
               Period, see Regulation 22, clause d(1) in Part D of this report.

               For details about the release, indemnification and insurance provided to
               the manager of the End-Customer Segment in his capacity as a senior
               officeholder, see clauses 4.7.1 – 4.7.4 hereunder.

4.5.13   Finished goods and suppliers

         (a)   The majority of Scailex’s purchases in the End-Customer Segment are
               purchases of cell phones from various manufacturers, including
               Samsung, Nokia, Sony-Ericsson, LG, Motorola, iPhone and others.
               Samsung and Cellcom are Scailex’s principal suppliers in the purchase
               of cell phones.

         (b)   The volume of cell-phone purchases from Samsung (within the scope of
               the activity of the Cellular Operators Segment) and from Cellcom (the
               End-Customer      Segment)       during   the   Report   period    reached
               approximately 69% and 26%, respectively, of the total volume of phones
               purchased by Scailex from all manufacturers during this period.
               Therefore, Samsung and Cellcom are principal suppliers of cell phones
               to Scailex in the End-Customer Segment (it should be noted in this
               context that Cellcom, as a matter of policy, requires that it constitute a
               principal supplier of cell phones to all of its Authorized Resellers,
               including Scailex). Scailex is dependent upon both Samsung and
               Cellcom in relation to all matters pertaining to the supply of cell phones
               in the End-Customer Segment.


                                      A - 101
               For details about the distribution agreement between Cellcom and
               Scailex, see clause 4.5.16(a) hereunder. For details about the
               distribution agreements for cell phone handsets between Samsung and
               Scailex, see the above clauses 4.4.17(a) and 4.4.17 (b).

4.5.14   Working capital

         (a)   General
               Correct to the Balance-Sheet Date, the Company has positive working
               capital in the End-Customer Segment.

         (b)   Credit policy to customers in the End-Customer Segment
               Scailex’s end-customers pay for the goods and services purchased from
               the Dynamica Cellular chain, either prior to or concurrently with receiving
               the goods and/or services, in cash and/or by credit card and/or by bank
               standing order. Consequently, Scailex has no exposure in respect of
               credit extended to end-customers.

               Nonetheless, Cellcom has debt balances with Scailex in respect of sums
               it owes to Scailex, as specified in clause 4.5.13(c) hereunder.

               The average credit period (in annual terms) that Scailex extended to its
               customers in the End-Customer Segment during the Report Period was
               approximately 52 days, compared with approximately 54 days during the
               three-month period ended December 31, 2008.

               The average balance of trade receivables in the End-Customer Segment
               during the Report Period was a total of approximately NIS 17,054
               thousand, compared with a total of approximately NIS 15,935 thousand
               during the period of three months ended December 31, 2008.

         (c)   Suppliers credit terms in the End-Customer Segment

               a. Reciprocal credit terms between Cellcom and Scailex are current +
                   45 days.

               b. The credit that Scailex receives from its other suppliers in the End-
                   Customer Segment is an average of current + 45 days or current +
                   75 days.

               The average credit period (in annual terms) that was extended to Scailex
               by its various suppliers in the End-Customer Segment during the Report




                                      A - 102
      Period was approximately 60 days, compared with approximately 60
      days during the three-month period ended December 31, 2008.

      The average volume of credit that the Company received from its
      various suppliers in the End-Customer Segment during the Report
      Period was a total of approximately NIS 7,380 thousand, compared with
      a total of approximately NIS 5,613 thousand during the period of three
      months ended December 31, 2008.

(d)   Inventory policy in the End-Customer Segment

      a. Cell phones
          During the Report Period, Scailex held an inventory of cell phones
          from various manufacturers for an average period of approximately
          41 days. By comparison, during the three-month period ended
          December 31, 2008, Scailex held an inventory of cell phones from
          various manufacturers for an average of approximately 45 days. The
          decline in the average number of inventory days between the
          various periods derived from inventory management according to
          consumer demand without leaving surplus inventory.

      b. Supplementary Products (cell phone accessories, phone cards, etc.)
          During   the   Report   Period,   Scailex   held   an   inventory   of
          Supplementary Products for an average of approximately 58 days.
          By comparison, during the three-month period ended December 31,
          2008, Scailex held an inventory of Supplementary Products for an
          average of approximately 76 days. The decline in inventory days
          derived from inventory management according to needs and sales
          by consignment.

(e)   Product returns policy in the End-Customer Segment
      From time to time, cell phones no longer used on the Cellcom network or
      no longer in demand are returned. The return policy with Cellcom mostly
      relates to cell phones no longer in the range sold, and returns are made
      in accordance with pre-determined rules and according to defined return
      periods.

(f)   Warranty policy for Scailex products in the End-Customer Segment
      The warranty for cell phones sold within the framework of Cellcom’s
      subscription plans is in accordance with the warranty defined by
      Cellcom.

                            A - 103
               Cell phones sold other than within the framework of Cellcom
               subscription plans offer customers a warranty of up to one year.

               Accessories carry a one-month warranty.

         (g)   Environmental Quality
               See above clause 4.4.16.

4.5.15   Restrictions, and supervision of the Corporation’s operations in the End-
         Customer Segment
         Most of the restrictions applicable to the Company in this segment are those
         prescribed in the Consumer Protection Law, 5741 –1981, regarding product
         exchanges, returns etc.

4.5.16   Material agreements

         (a)   Authorized reseller agreement with Cellcom ("the Cellcom
               Agreement")
               In 1995, Suny Electronics engaged in an agreement with Cellcom
               whereby Suny Electronics was appointed an Authorized Reseller of
               Cellcom. The agreement prescribed that Suny Electronics would serve
               as Cellcom’s agent, in the sense that end-customers wishing to
               purchase cell phones at stores and points-of-sale to be operated by
               Suny Electronics would, in effect, be contractually engaging with
               Cellcom in relation to the purchase of the handset, air time costs, etc.
               Pursuant to the Cellcom Agreement, Suny Electronics undertook that its
               marketing activities would be conducted solely in stores approved by
               Cellcom. Suny Electronics further undertook that the marketing activities
               in the said stores would comply, to the extent possible, with the
               marketing procedures customary at Cellcom’s stores. Furthermore, Suny
               Electronics undertook that the products to be offered for sale at its stores
               would be in compliance with standards and model permits, and would be
               compatible for operation on Cellcom’s network. The agreement also
               vested Suny Electronics the right to make use of Cellcom’s trademarks
               in relation to all matters pertaining to products approved by Cellcom.

               The Cellcom Agreement further stipulated that the validity of the
               agreement is contingent upon the control of Suny Electronics being held
               by Mr. Ilan Ben Dov, and that Suny Electronics is obligated to give 30
               days' prior notice to Cellcom of any anticipated or planned change in
               control.

                                      A - 104
      On September 24, 2008, the Cellcom Agreement was extended for a
      period of three additional years commencing January 1, 2009 and
      expiring on December 31, 2011 ("the Extension Period"). The
      extension agreement prescribed that, during the Extension Period, the
      engagement terms and conditions prescribed in the original Cellcom
      Agreement would continue to apply, mutatis mutandis, subject to the
      stipulation that Suny Electronics shall be precluded from terminating the
      engagement between it and Cellcom during the first 18 months of the
      Extension Period.

      Within the scope of the agreement for the acquisition of the Suny
      Electronics’ Cellular Operations by Scailex, Scailex acquired, inter alia,
      the rights and obligations of Suny Electronics by virtue of the Cellcom
      Agreement.

(b)   Agreement for the sale of the operations of the End-Customer
      Segment to Cellcom
      On September 21, 2009, the conditional consent of the Antitrust
      Commissioner was received for the acquisition of the control of Partner
      by the Company. As a precondition to this consent, the Commissioner
      ruled, inter alia, that, by no later than July 1, 2010, the Company and
      any person directly or indirectly related to the Company must completely
      and absolutely cease to be a party to the Cellcom Agreement [as
      defined above in clause 4.5.16(a)] and from providing any services
      whatsoever to Cellcom, including marketing services, device sales and
      distribution. The Commissioner clarified in this context that the Company
      is not being required to stop selling Samsung devices to Cellcom,
      including accessories and repair lab services.

      Consequently, on January 17, 2010, after the Board of Directors issued
      its approval, the Company engaged in an agreement with Cellcom for
      the sale of the operations of the Company’s End-Customer Segment to
      Cellcom. Essentially, the agreement prescribes that the Company shall
      irrevocably transfer and assign to Cellcom on the transaction
      consummation date all of its operations in the field of marketing and
      sales of Cellcom’s telecom packages and end equipment, as well as
      marketing, sales and the provision of warranty services and any other
      activity performed through the Dynamica Cellular chain (in this clause
      “the Operations Being Acquired”), including assets used for the
                             A - 105
purpose of the independent operation of the Operations Being Acquired.
The said agreement further prescribes that the employment relations
between the Company and the employees of the Operations Being
Acquired shall terminate on the transaction consummation date, and that
the Company, in conjunction with Cellcom, shall take action to integrate
and employ the said employees at Cellcom and/or at any party on its
behalf.

In consideration for the Operations Being Acquired, Cellcom shall pay a
total of NIS 108 million to the Company, subject to various adjustments
specified in the Agreement. Correct to the Report Date, the Company
projects that the flow to the Company (the adjusted consideration, plus
receipts from Cellcom in respect of the balance of the equity and the
inventory) upon the closing of the transaction shall reach (if and to the
extent that the transaction shall be consummated) the inclusive total of
approximately NIS 123 million.

A suspending condition to the consummation of the transaction is the
receipt of the Antitrust Commissioner’s approval of the merger notice to
be filed by the parties, if and to the extent that this shall be required.
Furthermore, the consummation of the transaction is subject to the
fulfillment of a number of preconditions as specified in the agreement. It
should be noted in this context that the Antitrust Commissioner’s
approval of the transaction was received on January 27, 2010.

The transaction consummation date has been scheduled for April 15,
2010, or for a date seven days after the fulfillment of the last of the
preconditions specified in the agreement for the consummation of the
transaction, and the suspending condition, whichever is earlier. If and to
the extent that the transaction shall be consummated, the Company
assesses that it shall record accounting profit at the sum of
approximately NIS 57 million in its financial statements for the quarter
during which the transaction is consummated.

Correct to the Report Date, the Company assesses that the transaction
shall be consummated by April 1, 2010.

That stated in this clause concerning the anticipated flow and profit
from the consummation of the transaction is forward-looking
information, as this term is defined in the Securities Law, 5728 –

                       A - 106
               1968. There is no certainty that the flow and/or the profit to be
               actually recorded as a result of the consummation of the
               transaction shall be the said sum.

               For additional details about the Company’s engagement in the
               agreement for the sale of the operations, see the Immediate Report
               dated January 18, 2010 (reference no.: 2010-01-357219). For additional
               details about the Antitrust Commissioner’s approval of the Partner
               Control Acquisition Transaction, see the Company’s Immediate Report
               dated September 21, 2009 (reference no.: 2009-01-267972). These
               references constitute inclusion by way of referral.

4.5.17   Legal proceedings
         Correct to the Report Date, no material legal proceedings are being instituted
         against Scailex relating to the End-Customer Operating Segment.

4.5.18   Anticipated developments during the coming year
         The Company expects that the agreement for the sale of the operations of the
         Company’s End-Customer Segment to Cellcom, as this term is defined above
         in clause 4.5.16(b) shall be consummated and executed by the beginning of
         the second quarter of 2010, so that, as of the consummation date of the
         agreement, the End-Customer Operating Segment shall be eliminated from
         the Company’s operating segments. If and to the extent that the agreement
         shall be consummated, the Company assesses that it shall record accounting
         profit at the sum of approximately NIS 57 million in its financial statements for
         the quarter during which the transaction is consummated.

         The information provided in this clause relating to the anticipated
         developments during the coming year constitutes forward-looking
         information, as this term is defined in the Securities Law, the occurrence
         of which depends on factors external to the Company. There is no
         certainty that that stated above shall actually transpire.

4.5.19   Discussion of risk factors

         (a)   Macro risk factors
               In the End-Customer Segment, the Company is exposed to the global
               financial crisis, which might affect consumer behavior and consumption
               habits in Israel. The Company might also be affected by changes in the
               political-security situation in Israel. The Company is unable to assess the
               impact of these factors, if any.

                                       A - 107
(b)   Sectoral risk factors
      A general decline in demands for cell phones (e.g., during a recession)
      and/or a deterioration in the position of manufacturers and importers,
      resulting from a discontinuance/slow-down in operations, due to a
      decrease in the variety of products or a failure to keep abreast with the
      global technological evolution of the global cellular market are liable to
      have an adverse impact on the results of the End-Customer Operating
      Segment.

(c)   Risks specific to Scailex

      a. Dependence on Cellcom
          The End-Customer Operating Segment is significantly dependent on
          Cellcom. The loss of Cellcom as a customer of the Company in this
          operating segment, or a decline in the volume of business with
          Cellcom in relation to this operating segment is liable to have a
          material adverse impact on the operating results of the End-
          Customer Segment.

          The Dynamica Cellular chain markets cell phones solely in the
          Cellcom network; therefore, revenues from Cellcom and from
          Cellcom’s end-customers constitute a significant portion of the
          Company’s revenues in the End-Customer Segment.

          As specified above in clause 4.5.6(b), the Company’s revenues from
          Cellcom during the Report Period constituted approximately 6% of
          the Company’s revenues in the End-Customer Segment during that
          period.

          One of the critical success factors for the End-Customer Segment is
          entering an engagement for an extended period with a cellular
          operator for sales and upgrades of cell phones of the said cellular
          operator. The End-Customer Segment is dependent on the
          continuation of Cellcom's outsourcing strategy relating to a portion of
          its businesses. Correct to the Report Date, the Company assesses
          that Cellcom transacts the majority of its cell-phone sales and
          upgrades through its own chain of stores, and that the Company is
          the leading Authorized Reseller with whom Cellcom is working on
          the   basis   of   outsourcing.   Furthermore,   Cellcom   has   been
          implementing a policy since 2005, whereby Cellcom shall constitute

                              A - 108
     the principal supplier of cell phones to its Authorized Resellers;
     consequently, the Company is dependent on Cellcom as a supplier
     of cell phones not manufactured by Samsung in relation to cell-
     phone sale and upgrade transactions with Cellcom’s customers. The
     Cellcom Agreement, as defined above in section 4.5.16(a), is non-
     exclusive, and has recently been extended through December 2011.
     There is no guarantee that Cellcom shall continue to conduct its
     sales and upgrade activities by way of outsourcing to Authorized
     Resellers, or that Cellcom shall continue to operate by way of
     outsourcing in conjunction with the Company.

     Furthermore, there is no guarantee that Cellcom shall be capable of
     continuing to provide the Company with a suitable supply of cell
     phones not manufactured by Samsung. The loss of the contractual
     relations with Cellcom is liable to have a material adverse impact on
     the Company's operating results in the End-Customer Segment.

b. Dependence on the Cellular Operators Segment
     The Company's End-Customer Segment is dependent on the
     Company’s Cellular Operators Segment. A material portion of the
     cell phones being sold in the End-Customer Segment is being
     purchased from Samsung.
     The termination or expiration of the agreements between the
     Company and Samsung in the Cellular Operators Segment is liable
     to have a material adverse impact on the sales volume and on the
     operating results of the End-Customer Segment.

c.   Technological stagnation at Cellcom
     Cellcom is liable to inadequately respond to the rapid changes in the
     cell-phone industry, which might lead to a loss of customers in the
     Company’s End-Customer Segment. The technology relating to cell
     phones evolves rapidly, in a manner causing products to become
     obsolete quickly, or have shorter lifespans. Competitors in the cell-
     phone market must anticipate future technological evolution and
     identify and constantly purchase and market new products in order
     to keep abreast of the development of the industry and to satisfy
     consumers’ demands. The Company's future revenues in the End-
     Customer Segment significantly depend on Cellcom's ability to retain

                       A - 109
    its customers and to attract customers of other cellular network
    operators. Although historically, Cellcom and the Company have
    sustained the competitiveness of their products in terms of
    technological evolution, there is no guarantee that the Cellcom or
    the Company shall continue to do so.

    Should the Company fail to maintain the competitiveness of its
    products in terms of technological evolution, the Company’s
    revenues from the End-Customer Segment might be adversely
    affected. Should Cellcom fail to maintain the competitiveness of its
    products in terms of technological evolution, it may fail to retain its
    current customers and/or fail to attract new customers from other
    cellular network operators, which, in turn, might have a significant
    adverse impact on the Company’s businesses in the End-Customer
    Segment, since the Company offers its goods and services solely to
    Cellcom’s customers.

d. Failure to provide high-quality services
    The Company provides upgrade, warranty and repair services to
    Cellcom’s end-customers through the chain of stores and points-of-
    sale owned by the Company.

    Should the Company fail to provide high-quality upgrade, warranty
    and repair services to end-customers, the Company is liable to lose
    customers, thus adversely affecting its revenues in the End-
    Customer Segment.

    The Company provides upgrade, warranty and repair services for
    most of the cell phone models it sells to end-customers through
    Dynamica Cellular; the scope of these services is beyond the
    manufacturer warranty provided for the said products. The
    aforementioned services are provided to end-customers at 19
    service centers throughout Israel, located in Dynamica Cellular chain
    stores. Furthermore, the Company operates a main lab to support
    the   aforementioned    service   centers.   The   Company’s     main
    competitor in the End-Customer Segment is Cellcom.

    According to the Company’s assessments, Cellcom itself executes
    the majority of the cell-phone sales and upgrade transactions and
    warranty transactions through its own chain of stores. In addition,

                       A - 110
                                      there are other Authorized Resellers of Cellcom competing with the
                                      Company in relation to sales and upgrades of cell phones in the
                                      Cellcom network, and in relation to the provision of warranty and
                                      repair services to Cellcom’s end-customers.

                                      Should the Company fail to provide high-quality upgrade, warranty
                                      and repair services to Cellcom’s end-customers, the Company may
                                      lose customers to its competitors, thus adversely affecting its
                                      revenues in the End-Customer Segment.

(d)                                Table summarizing the risks in the End-Customer Segment


                                                                                    Degree of impact


                                                                             Major     Moderate    Minor
                                      Risk factors
                                                                             Impact     Impact    Impact
      Sectoral risks Macro risks




                                      Global financial crisis                              X

                                      Political-security changes in Israel                 X

                                      General decline in demands for cell
                                                                               X
                                      phones

                                      Deterioration in the situations of
                                                                               X
                                      manufacturers and/or importers

                                      Dependency on Cellcom                    X

                                      Dependency on the Cellular
                                                                               X
      Special risks




                                      Operators Operating Segment

                                      Technological stagnation at
                                                                                           X
                                      Cellcom

                                      Failure to provide high-quality
                                                                                           X
                                      services




                                                          A - 111
4.6 Partner Operating Segment
    Following the consummation of the Partner Control Acquisition Agreement, a new
    operating segment was added to Scailex – the Partner Operating Segment, as
    described hereunder:

    4.6.1   General information about Partner

            4.6.1.1   General
                      Partner is a company founded and registered in Israel in 1997.
                      Partner is a leading communications operator in Israel, providing
                      communications services (mobile, landline telephony and internet
                      services) under the “Orange” brand. Correct to December 31, 2009,
                      Partner provides mobile telecom services to more than three million
                      subscribers in Israel.

                      Partner’s securities (American depositary shares, each representing
                      one ordinary share of NIS 0.01 par value of Partner) are traded on
                      the NASDAQ Global Select Market in the United States. In July
                      2001, Partner listed all of its issued and paid-up shares for trading
                      on the TASE, pursuant to Part E.3 of the Securities Law, and began
                      reporting in Israel in conformity with the provisions of the said Part
                      E.3.

                      On October 28, 2009, the Partner Control Acquisition Agreement
                      was consummated, under which Scailex acquired the control of
                      Partner.

                      Correct to the Report Date, Scailex holds approximately 44.82% of
                      Partner’s issued share capital and voting rights (not fully diluted and
                      disregarding treasury shares held by Partner), and approximately
                      43.34% of the issued share capital on a fully diluted basis
                      (disregarding treasury shares held by Partner). Furthermore, correct
                      to the Report Date, Scailex’s parent company, Suny Electronics,
                      holds approximately 1.4% of Partner’s issued share capital and
                      voting rights (not fully diluted and disregarding treasury shares held
                      by Partner), and approximately 1.35% of the issued share capital on
                      a fully diluted basis (disregarding treasury shares held by Partner).




                                         A - 112
4.6.1.2   Trends, events and developments in the Corporation’s macro-
          economic environment that have or could have a material
          impact on the business results or on the developments in the
          Corporation

          a.   Regulation: the communications market in Israel is subject to
               licensing   and    regulatory   controls   of   the   Ministry   of
               Communications. In the majority of its spheres of activity,
               Partner is subject to the provisions of the Communications Law
               and the regulations instituted by virtue thereof, as well as to the
               various     communications      licenses   granted    to   various
               corporations in the Partner group. Furthermore, Partner is
               subject to various laws regulating its business activities,
               including the Planning and Building Law, the Consumer
               Protection Law, the Non-Ionizing Radiation Law, the Restrictive
               Trade Practices Law, and other administrative provisions and
               orders.

          b.   Dependence on licenses: Partner operates under licenses
               granted by virtue of the relevant law in Israel. These licenses
               prescribe, inter alia, commercial terms and conditions and
               restrictions on Partner’s business activity. The licenses may be
               amended according to the conditions prescribed therein. A
               material breach of the licensing provisions is liable to lead to
               the imposition of significant pecuniary sanctions on Partner or
               even to the revocation of its license, which would result in a
               material impairment of Partner’s ability to continue to operate in
               its spheres of activity.

          c.   Control of products and services: tariffs and/or costing policy in
               respect of some of the MRT services (such as: interconnect
               fees, size of the minimum time unit that is chargeable, no
               raising of tariffs during the commitment period) are subject to
               the control of the Ministry of Communications and/or are
               subject to the statutory provisions and/or license conditions
               under which Partner operates. Tariff reductions and/or
               interference in the costing policy for products and services that




                              A - 113
                                      Partner sells, including interference in the tariffs of roaming9
                                      services, are liable to have a material adverse impact on
                                      Partner’s business results.

                   4.6.1.3      Structure of the operating segment and changes occurring
                                therein
                                One of the primary characteristics of the mobile communications
                                market in Israel is the high penetration rate of mobile phones, which
                                has skyrocketed since 1994 from a rate of 2.6% at the end of 1994
                                to a penetration rate estimated at approximately 127% correct to
                                December 31, 2009, a rate that represents more than 9 million
                                subscribers, at a time when Israel’s total population was
                                approximately 7.5 million people. It should be noted that the
                                estimated number of subscribers includes ‘dormant’ subscribers, as
                                this term is defined in the MRT License (as this term is defined
                                below in clause 4.6.18.4), as well as subscribers who have
                                subscriptions in more than one network. Furthermore, this figure
                                includes additional subscribers who are not Israeli citizens, such as
                                Palestinians, tourists and foreign workers. The aforesaid estimates
                                are based on data in the public domain published by Israeli mobile
                                communications companies and on data published by the Israeli
                                Central Bureau of Statistics.10

                                The following characteristics are those that differentiate the mobile
                                communications market in Israel from other developed mobile
                                markets:

                                a.    Heightened usage of mobile phones: Israelis use mobile
                                      phones more than Western Europeans do, in terms of average
                                      monthly use per subscriber;

                                b.    The calling party pays: in Israel, only the party that initiates the
                                      telephone call bears the cost in respect of air time. Mobile

9
     Roaming – term from the wireless communications field that relates to a subscriber’s ability to receive service
     at a location that his local network does not cover by connecting to an auxiliary network. The source of the
     term is in GSM technology, which defines “roaming” as a cellular subscriber’s ability to automatically receive
     and respond to telephone calls, to transmit data or to access other services when he is located in a region that
     his local network does not cover, by using another network. See also clause 4.6.2.1.a hereunder regarding
     international roaming services on the GSM network.
10
     See the website of the Central Bureau of Statistics: http://www.cbs.gov.il/yarhon/b1_e.htm.


                                                       A - 114
                                    communications         operators     in     Israel    are   not   charging
                                    subscribers who receive calls, except when roaming. This
                                    contributes to the heightened mobile phone use.

                               c.   The technologies applied in mobile communications: the four
                                    companies       holding    licenses       for   MRT    services    (mobile
                                    communications) in Israel have systems based on different
                                    technologies. Correct to the Report Date, Partner is one of
                                    three companies using systems based on GSM11 and UMTS12
                                    technologies. GSM is a common advanced technology
                                    worldwide and, according to sources in the industry,13 it was in
                                    use by more than 3.2 billion people, correct to December 31,
                                    2009. Other technologies applied by mobile communications
                                    operators in Israel, correct to the Report Date are: N-AMPS
                                    analog, TDMA, CDMA, CDMA1x, RTT, EVDO, D-AMPS,
                                    EDGE, UMTS/HSxPA (HSDPA, HSUPA), iDEN.

                               d.   Favorable geography: Israel extends over an area of
                                    approximately 20,700 square kilometers, with the majority of
                                    the population concentrated in a limited number of densely-
                                    populated regions. Furthermore, the topography in Israel is
                                    relatively flat. These factors facilitate the deployment of mobile
                                    communications networks at improved cost-benefit ratios.

                               e.   Tremendous potential for value-added services: market data
                                    show that Israel’s relatively young population has a penchant
                                    for welcoming advanced innovative technologies and using
                                    them, even before they become prevalent among the general
                                    population.



11
     GSM – (Global System for Mobile) a standard for cellular communications networks that makes use of Time
     Division Multiple Access technology, called TDMA. The voice is transmitted digitally and therefore GSM
     networks are categorized as “2G.” The basic network, which is compatible solely for audio calls, was
     expanded by means of two supplementary technologies for data transfer: GPRS (General Packet Radio
     Service) and EDGE (Enhanced Data Rates for GSM Evolution). These technologies are called “2.5G” and
     “2.75G,” respectively.
12
     UMTS – (Universal Mobile Telecom Systems) one of the 3G technologies of cellular telephony, which is based
     on W-CDMA (Wideband Code Division Multiple Access) technology. UMTS is sometimes marketed as GSM3,
     a name that emphasizes its belonging to 3G and the fact that it was designed to replace the 2G GSM
     standard.
13
     See the website: www.wirelessintelligence.com, which is an arm of the global GSM organization (GSMA).
                                                    A - 115
                  4.6.1.4    Restrictions, legislation, standards and special constraints
                             applicable to the operating segment
                             Partner operates in Israel and is subject to the Communications
                             Law, the Telegraph Ordinance, the regulations instituted pursuant
                             thereto and the provisions of the various licenses granted to Partner
                             by the Ministry of Communications. These licenses allow Partner to
                             establish and operate a mobile communications services network
                             and other communications services in Israel and prescribe the
                             conditions and restrictions under which these services are to be
                             provided. For additional details about the licenses, see clauses
                             4.6.18.4 and 4.6.18.5 hereunder.

                             Partner is also subject to additional laws and regulations, including
                             the Planning and Building Law, the Consumer Protection Law and
                             the Non-Ionizing Radiation Law. Other laws that have an impact on
                             Partner’s operations are, inter alia, the Restrictive Trade Practices
                             Law, the Class Actions Law, as well as other administrative laws,
                             regulations and orders.

                  4.6.1.5    Changes in the segment’s volume of activity and profitability
                             Following are financial and quantitative data about Partner’s volume
                             of activity and profitability for the years 2007, 2008 and 2009:

                                                                       200714     200815    200916
                            Revenue (in NIS millions)                   6,114     6,302         6,079
                            Operating profit (in NIS millions)          1,399     1,826         1,701
                            EBITDA (in NIS millions)                    2,009     2,298         2,304
                            Number of subscribers at the end
                            of the period (in thousands)                2,860     2,898         3,042
                            Churn rate                                 15.0%      17.8%         17.7%
                            Average minutes of use per
                            subscriber (MOU) per month                   336       365           364
                            Average monthly revenue per
                            subscriber (NIS) (ARPU)                      161       161           151




14
     According to US GAAP standards.
15
     According to IFRS.
16
     According to IFRS.
                                                A - 116
4.6.1.6   Technological changes that could have a material impact on
          the operating segment

          The mobile communications sector is a dynamic field with a rapid
          pace of technological changes and fierce competition. All these
          require      commensurate         preparations.      Competing      advanced
          technologies capable of enabling calls via mobile communications
          or by an alternative method could compete with the mobile
          communications operators and intensify the competition in this
          sector.

          Partner might face competition from existing or future technologies,
          including     wireless    and     landline    technologies,    satellite-based
          personal communications services, private and public radio
          networks, broadband wireless access services, VoIP (Voice over
          IP)   services,      Wi-Fi,     WiMAX,      VoBoC,    and     communications
          technologies with technical capabilities of handling mobile, landline,
          and internet network calls.

          The       frequent    introduction     of     new    technologies      in   the
          communications market causes the future in the communications
          sector to be unclear and unpredictable.

          Technologies available to Partner and those about to become
          available to it are liable to become irrelevant and threatened by new
          technologies that could affect Partner’s business capabilities and
          operating results.

          Furthermore, equipment suppliers and internet suppliers have
          expressed their desire to penetrate the mobile phone industry and
          to strengthen their positioning in the value chain. They intend to
          supply direct access to a wide variety of end-user applications,
          features and services. Such a development is liable to have an
          adverse impact on Partner’s positioning in the competition and
          increase      the     dominance      of      these   suppliers    in    mobile
          communications suppliers’ expenses.

          Changes in the structure of the value chain in the communications
          industry are liable to cause Partner’s expenses to rise, and its
          revenues to drop.


                                A - 117
          The information provided in this clause in relation to the
          introduction of new technologies to the communications
          market and penetration of the mobile phone industry by new
          players is forward-looking information, as this term is defined
          in the Securities Law, the occurrence of which depends on
          factors external to Partner. There is no certainty that the
          aforesaid shall actually occur, or that the results thereof shall
          be as assessed by Partner.

4.6.1.7   Critical success factors for the operating segment.
          The following factors are critical success factors in the segments in
          which Partner operates:
          a.   Regulatory decisions positively affecting Partner’s businesses.
          b.   The ability to offer reliable communications systems at
               competitive prices, based on a cost structure adapted to the
               frequent changes in Partner’s business environment.
          c.   The   ability   to     sustain    the   Company’s     originality   and
               technological leadership and to translate these into advanced,
               reliable and valuable applications for customers with rapid
               response rates.
          d.   Technological and marketing primacy.
          e.   Effective   internal      and    external   sales   departments     and
               distribution channels.
          f.   Ability to provide high-quality commercial and technical service
               to Partner’s customers.
          g.   Management of a logical price policy, subject to the regulatory
               restrictions, in light of the intensifying competition and the
               technological changes that are expressed by a general erosion
               of the price levels in the sector.
          h.   Intelligent strategies for attracting customers from competing
               networks.
          i.   Sustaining brand values and adapting them to the variable
               conditions in the competitive environment.




                               A - 118
4.6.1.8   The operating segment’s main entry and exit barriers

          The entry barriers
          The main entry barriers to operating mobile communications
          services in Israel are:
          a.   The need to obtain a General License for the Provision of MRT
               Services from the Ministry of Communications, while fulfilling
               the criteria prescribed in the Communications Law, and
               obtaining a right to use suitable frequencies from the State,
               which involve a considerable financial cost.
          b.   The need for considerable volumes of financial means and a
               great deal of know-how in implementing the major investments
               required in technological infrastructure, the establishment of a
               network and a nationwide deployment of network sites, as well
               as   expansive       operational,   advertising   and    marketing
               departments.
          c.   The mobile communications market in Israel is characterized
               as a market with an extremely high penetration rate.
          d.   The need to establish base stations (also called mobile
               antennas) nationwide, a protracted, complex process, due to
               the difficulty in leasing land for the base stations and the need
               to obtain site licenses. It should be noted that the entry barriers
               relating to the establishment of infrastructure will not constitute
               an entry barrier for virtual operators.
          e.   The main entry barrier in the field of VoB and ISP services is
               the existence of relatively high penetration costs (investment in
               infrastructure, support systems, customer support and service
               departments, marketing, branding and sales). Because of
               these costs, the profitability in the sector depends on the
               existence of a broad customer base. Furthermore, there are
               various regulatory restrictions relating to entering this sector.
          The exit barriers
          a.   The main exit barrier in the mobile communications sector is
               the Minister of Communication’s approval to discontinue the
               provision of service, which might be made contingent upon



                               A - 119
               maintaining the continuity of the service being provided to
               customers of the service operator requesting to exit.
          b.   The   General      License    for   the   Operation     of   Mobile
               Communications Services prescribes restrictions on transfers
               of shares of the licensee, and well as on transfers and pledges
               of the licensed assets.
          c.   Additional exit barriers in this sector derive from long-term
               agreements with the infrastructure and capacity suppliers, and
               from the massive investments, the return on which is spread
               over many years.

4.6.1.9   Alternatives to the operating segment’s products and changes
          occurring therein
          The mobile communications sector is a dynamic field, due to the
          rapid pace of technological changes and fierce competition, which
          require    commensurate        preparations.   Competing      advanced
          technologies capable of enabling calls via mobile communications
          could compete with the technologies in use by the mobile
          communications operators and intensify the competition in this
          sector.

          Furthermore, the internet enables e-mail applications and instant
          messages, which, to a certain extent, constitute alternatives to
          phone calls.

          The main alternative to managed communications services is when
          customers buy each of the services separately: organizational
          switchboard and service, services for domestic calls, services for
          international calls and internet access services.

          In relation to transmission service and data communications, the
          technological developments enable the supply of new services at a
          fast pace and at low prices.

          A possible alternative to roaming is the use of SIM cards of foreign
          operators, call-back systems to switchboards and the use of Wi-Fi
          in smart end devices.

          An alternative to calls using mobile communications being offered
          by operators is Voice over IP over Cellular (VoBoC). With this


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                                 service, subscribers can receive voice services (the sending and
                                 receiving of calls) and can send and receive SMS messages
                                 through a mobile surfing package.

                   4.6.1.10      Structure of the competition in the operating segment and
                                 changes occurring therein
                                 See clause 4.6.4 hereunder.

        4.6.2      Products and services

                   4.6.2.1       Principal goods and services in the Partner operating segment
                                 a.    GSM-based mobile communications network: mobile telephony
                                       services are the most basic and common products that Partner
                                       provides to its existing customers and offers to potential
                                       customers. Correct to the end of 2009, Partner’s GSM/UMTS
                                       network reaches more than 98% of Israel’s population. Correct
                                       to the Report Date, Partner’s GSM network operates at
                                       frequencies of 900 MHz and 1800 MHz, while its UMTS
                                       network operates at the frequency of 2100 MHz. Partner’s
                                       GSM services include regular and improved GSM services, as
                                       well as value-added services and products, such as roaming
                                       services (see below), voice mail, voice messages, the sending
                                       of multimedia messages (between handsets and the internet),
                                       the downloading of ringtones and games, information services
                                       and GPRS services enabling the transfer of information
                                       packets. Partner’s 3G network offers a wide variety of services,
                                       such as video calls, a new content portal service, which
                                       includes a rich variety of video content under the Orange Time
                                       brand, as well as information transfer services.

                                       Since March 2006, Partner has been providing services based
                                       on HSDPA (High-Speed Downlink Packet Access) technology,
                                       an improved technology for the 3G network, which allows
                                       customers faster access to 3G services. Correct to the Report
                                       Date, the HSDPA technology supports fast downloads of up to
                                       7.2 Mbps17 and fast uploads of up to 1.2 Mbps.


17
     Mbps – an IT and computer-communications term meaning “Millions of Bytes Per Second (total information
     flow over a given time). An example of this process could be data compression or data transfer over a telecom
     medium. For the most part, the data flow rate is measured in units of bit/s or bps, which is typical in serial data
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                                       During 2008, Partner branded all of its content services
                                       (including in its 2G and 2.5G networks) under the Orange Time
                                       brand, in a portal enabling 2G customers direct use
                                       (streaming)18 and to download applications and content, as well
                                       as to surf using WAP19 technology, and enabling 3G customers
                                       to also watch and download high-quality audio and video
                                       content.

                                       Partner is constantly striving to develop additional innovative
                                       services to respond to its customers’ changing needs, and to
                                       keep abreast with the trends in the communications market in
                                       Israel and globally.

                                       International roaming services
                                       Roaming        service     is   a    service      enabling      mobile-phone
                                       subscribers in one network to initiate and receive calls (as well
                                       as enjoy additional services) when they are outside the
                                       geographical coverage of their subscribed local mobile telecom
                                       network, while the charge in respect of the service is issued by
                                       their subscribed network. This roaming service is one of the
                                       outstanding features of the GSM network, and, thanks to this
                                       service, the network’s subscribes can, in principle, enjoy the
                                       same services and capabilities that Partner provides them,
                                       even when they are outside their home country and their local
                                       network. The roaming service constitutes one of Partner’s main
                                       sources of revenue. Correct to December 31, 2009, Partner
                                       has trade agreements with 396 operators in 176 countries.
                                       Partner also has a number of agreements with satellite
                                       operators providing global service, requiring the use of special
                                       devices. Correct to December 31, 2009, Partner has 124
                                       roaming agreements with 3G network operators throughout the
                                       world. These agreements enable 3G customers to initiate video


     transfer, or Byte/s per second or Bps., equal to bps8, during parallel transfers of data or file transfers. Usually,
     these units are indicated in combination with letter prefixes indicating the size/multiples using the international
     units system, such as kilo (Kbps), mega (Mbps), etc.
18
     Streaming – real-time transmission of digital information – ability to consume and watch content on a cell
     phone without having to download the entire digital file to the customer’s personal cellular device.
19
     WAP – (Wireless Application Protocol) is a technology enabling surfing to special websites from cell phones.
     The technology is known amongst users also as “cellular internet.”
                                                        A - 122
calls and to consume high-quality video and audio content. The
wide variety of agreements with operators worldwide gives
Partner’s customers more extensive freedom of choice when
they are outside of Israel.

Partner’s GSM network operates at a frequency of 900 MHz,
which is the most prevalent frequency in GSM networks
throughout the world, as well as 1800 MHz. This enables
Partner’s customers to roam, in most cases, with their personal
mobile phone. For customers whose cell phones do not
support the frequency at which some networks operate in
certain countries (850MHz / 1900MHz), or using some other
mobile system, Partner lends them an alternate cell phone, at
no charge, for the period of their stay abroad (and which is
compatible for inserting the subscriber’s SIM card), or the
possibility of renting an alternate cell phone in the target
country.

Valued-added services with the mobile phone
In addition to the regular value-added services on the GSM
network, such as voice mail, text messages, voice messages,
call waiting, fax-mail, follow me, caller identification and
conference calls, Partner offers a wide variety of additional
value-added services, which are strategically important, in light
of the fact that they create differentiation and enhance
subscriber consumption and customer satisfaction. Partner
frequently monitors the progress and new developments in the
field of value-added services and offers those services to its
customers that it believes will be popular among its customers
and create value for it. Some of the value-added services that
Partner offers are available only to customers who have
particular cell phone models.

The main value-added services that Partner offers are:

1.   Blackberry: this service offers customers one of the most
     advanced e-mail solutions. For this service, Partner offers
     a Blackberry cell phone in conjunction with associated
     services that support, inter alia, the receipt of e-mail and


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     text messages in Hebrew. During 2009, Partner noted an
     increase in sales of Blackberry phones, which derived,
     inter alia, from the fact that it became possible to sell the
     handset and the service also to customers who do not
     have an organizational e-mail server. Correct to the Report
     Date, the Blackberry phone is designed mainly for
     business customers both large and small.

2.   Call back: this service allows subscribers, who are outside
     of Israel and using the roaming service, to make discount
     calls to Israel at reduced prices, from most countries. This
     service is intended for all of Partner’s customers who take
     their mobile phones with them on their overseas trips.

3.   Content downloads: this service allows customers (whose
     phones are compatible), to download an abundance of
     applications and content, including games, screen savers
     and ringtones. Additionally, 3G customers can download
     special video clips, MP3 songs and ringtones and other
     content (some of this additional content is also available to
     2.5G customers).

4.   Personalized call waiting ringtone (“funtone”): this service
     enables customers to choose which melody their callers
     will hear when waiting for them to answer, out of a wide
     variety of melodies and tones. During 2009, this service
     was expanded and is also being offered to customers who
     subscribe to the landline telephony services – VoB.

5.   Multimedia    messages     (MMS):    this   service   allows
     customers (whose phones are compatible) to send
     pictures, animations and multimedia content from one cell
     phone to another or to the internet (to an e-mail address or
     internet photo album).

6.   Instant messages (MIM): this service allows customers
     (who are registered for message services through
     Windows Live Messenger or ICG IM) to access their
     accounts with those services from their mobile phones and



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     send and receive instant messages from their contacts (as
     well as to see the latest news on their contacts).

7.   Orange GPS service: this service allows customers to
     access navigation software, including voice navigation,
     using their mobile phones. This service is offered to all of
     Partner’s customers having a compatible phone or who
     purchased a supporting receiver.

8.   E-mail: mobile e-mail services allowing customers to
     access their accounts/e-mail boxes (personal or business).

9.   Orange    Media:     a   new    media    service     enabling
     maximization of advertising on the Orange website and on
     the cellular website Orange Forever, as well as advanced
     definitions of the target audience.

10. Orange Online: a website offering existing and new
     customers on-line shopping for handsets and subscription
     plans.

11. Organizational voice identification: voice identification
     services for names appearing in the subscriber’s list of
     contacts. With this service, subscribers can dial a number
     and speak the name of the person they want to call; the
     system identifies the person’s name and dials that person.
     This service is designed mainly for major business
     customers with a large number of employees.

12. Orange Forever service: this service enables customers to
     manage, synchronize and backup the personal information
     and content contained in their mobile phones and SIM
     cards and to upload it to a personal safe on the Orange
     website, through a mobile telecom network. This service
     enables the backup and synchronization of contacts,
     telephone books, pictures, SMS messages and more. In
     the event that a subscriber’s phone is lost or stolen, this
     service enables the customer to retrieve and restore the
     backed-up content. This service is offered to all of
     Partner’s customers with a compatible phone.


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13. Speed trap detectors: this service enables subscribers to
    receive messages about speed trips in their vicinity.

14. Fleet management: with this service, customers are
    offered a system for managing their company’s fleet of
    cars. The system enables users to pinpoint the locations of
    their cars, and the speed and direction of travel,
    information that assists in increasing efficiency, shortening
    delivery times, cutting costs and improving the customer
    service of the subscriber’s business. The service also
    enables users to assess, in real time, the location of the
    driver and to plan his next assignment. The service also
    enables    communications     with   the   driver   via   text
    messages.

15. Audio transmission and streaming: Partner provides its 3G
    customers with the possibility of watching video clips and
    listening to music clips without having to download them to
    their mobile phones. The service also enables them to
    watch live television broadcasts.

16. Video calls: this service enables 3G customers (who have
    3G handsets and are located in the coverage zones of the
    3G network) to call each other and enjoy video calls.

17. Video mail: this service enables 3G customers to send and
    receive video messages when the person being called is
    unavailable.

18. Private virtual network: this service, which is used mainly
    by Partner’s business customers, enables them to create a
    database enabling one user to dial another user using
    short numerical codes (such as the user’s extension
    number plus one digit).

19. WAP services: Partner offers its customers the WAP
    platform, enabling them to use services based on this
    technology.

20. My Orange: this service enables customers to manage
    and update their usage data and to perform various


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    operations independently via their mobile phones (such
    as: receiving an update on their accounts, opening
    roaming services, and more).

21. Orange Media: a new and innovative advertising medium
    offering     collaborative   advertising    to   advertisers   on
    Orange’s website, as well as on Partner’s mobile telecom
    portal, Orange Time. This medium enables segmented
    and interactive campaigns with sophisticated definitions of
    target audiences, as well as optimization of advertising
    campaigns by providing capabilities of initiating unique
    operations to the mobile medium with a single click: initiate
    a phone call, send a video clip, and more.

Handset sales

Occasionally,     Partner    subsidizes   its   customers’    mobile
handsets when they join the Partner network for the first time,
or when they upgrade their mobile phones. The offered
discount depends on the tariff package being offered to that
customer and on Partner’s various special offers from time to
time.

Correct to the Report Date, Partner offers mobile handsets
manufactured by a number of manufacturers, which support
frequencies 900 / 1800 / 1900 / 2100 MHz and enable
Partner’s customers to activate roaming with their handsets
when they are abroad (not all handsets support all frequencies
and operate in all countries with whom Partner has signed
roaming agreements). After completing an examination and
assessment process, leading to Partner’s decision whether to
market that particular handset, Partner applies to the Ministry
of Communications to obtain a permit for that handset model.
Once the model permit has been obtained, Partner trains and
instructs its sales and support representatives on the handset’s
features and capabilities.

All handsets offered by Partner to its customers conform to the
EFR (“Enhanced Full Rate”) Standard, which guarantees high
voice quality and supports the Hebrew language. Among the

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     handsets   being   offered,   Partner   also   offers   innovative
     handsets, which feature, inter alia: large high-resolution
     screens, high-quality still-shot and video cameras, touch
     screens, large internal memory, built-in GPS components,
     open-code operating systems with advanced applications,
     music and video libraries, back-up functions, message and
     internet services, as well as access to content services on
     Partner’s portal and on the internet. Subsequent to Partner’s
     launch of its HSDPA network, Partner began marketing
     handsets enabling use of content services and high-speed file
     transfers, data cards (mobile modems), and began marketing
     laptops with a built-in mobile HSDPA card. Partner is confident
     in its ability to deepen its penetration of the data card market,
     which constitutes a key source for Partner’s growth in the
     content segment.

     During 2009, Partner identified a significant increase (deriving
     partially from a global trend) in purchases of data cards, which
     enable access and consumption of data through laptops via a
     mobile telecom network. This uptrend is expected to continue
     and intensify during the coming year.
b.   Since the beginning of 2009, Partner has been offering three
     new services that are not mobile services, as part of its
     strategic plan to evolve from a mobile telecom operator to a
     company offering comprehensive affordable communications
     and media services based on state-of-the-art technologies.
     These services are available and offered to Israel’s entire
     population and not just to Partner’s mobile phone customers. In
     light of this, Partner is able to reach additional customers and
     broaden its overall customer base:

     1.   VoB services (Voice over Broadband): since January
          2009, Partner has been offering telephony services based
          on VoB technology, which competes with regular landline
          telephony services. This service enables customers to
          initiate and receive telephone calls transmitted over the
          broadband infrastructure of an appropriate licensee of the
          Ministry of Communications (general Domestic Operator’s

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License) (today, only Bezeq and Hot). The service
provided     by      Partner   guarantees   high-quality    voice
transmission, independent of the data traffic load on the
internet connection, and includes a home access gateway,
which is unique in the Israeli market in terms of its
technological capabilities, and which includes, inter alia,
the option of transferring the call between the customer’s
mobile phone and his landline phone.

Correct to the end of 2009, the number of subscribers in
Israel to VoIP/VoB services totals approximately 750
thousand. This assessment is based on the reports of the
two major operators of these services – Hot and 012 Smile
Communications Ltd. (“012 Smile”) – for the third quarter
of 2009, and on unofficial estimates and publicity about the
number of subscribers to the other operators of this
service. During 2009, Bezeq International Ltd. (“Bezeq
International”) and Netvision Ltd. (“Netvision”) launched
VoB services. The number of landlines in the PSTN
(Public Switched Telephone Network) in Israel (not
including VoB lines) correct to the end of 2008 totalled 2.6
million lines (according to the latest publications of the IDC
Research Institute).

Correct to the Report Date, Partner’s revenues from its
VoB services are immaterial.

The VoB services are being provided by the Partnership,
in which the general partner is one of Partner’s wholly
owned subsidiaries – Partner Future Communications,
while the limited partner is Partner itself.

According to Partner’s assessment, no material changes
in supply and demand in this field are expected beyond
that specified hereunder in clause 4.6.23 in relation to risk
factors.

Landline services

Partner is offering services to businesses through its
Partnership,      which    include   telephony   services    and

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     transmission         services,        high-quality     point-to-point
     designated interconnect services to business customers
     and   to    other         communications     suppliers,    and   the
     establishment of communications networks for customers
     with multiple branches. The services are being provided
     on the basis of a fiber-optic communications network
     having a nationwide spread of approximately 1.400 km in
     most of the key business centers in Israel. The fiber-optics
     communications network, together with the operations
     involved therein, were acquired from Med 1 IC-1 (1999)
     Ltd. (“Med 1”) in 2006. This network was improved and
     expanded by hundreds of kilometers of fiber optics.

     The landline communications services are being provided
     by the Partnership.

2.   Internet Service Provider (ISP): Partner, as an internet
     service-provider, created a link to the main internet line out
     of Israel. Partner offers its customers access to the
     internet    and      to    internet   services   via   a   separate
     communications network. Within this scope, Partner offers
     customers improved e-mail boxes (based on Google’s e-
     mail service – Gmail), a home wireless network service
     (Wi-Fi), antivirus services, website filtering services
     (according to customers’ definitions), as well as other
     value-added services. Partner trained a skilled team of
     support and installation personnel to provide these
     services.

     Correct to the beginning of 2009, the three principal
     operators offering internet connection services (Bezeq
     International, Netvision and 012 Smile) commanded more
     than 95% of the market. Partner believes that the special
     services that it offers in this field, as well as its high
     standards of customer service and performance, will
     enable it to penetrate this market in the coming years.

     Correct to the Report Date, Partner’s revenues from its
     ISP services are immaterial.


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In 2008, the broadband market in Israel was assessed by
the IDC Research Institute as including 1.5 million
customers via private connection and 180 thousand
customers with a business connection. According to data
from the Israel Central Bureau of Statistics, at the end of
2007, there were approximately 2 million households in
Israel. Based on these data, the estimated penetration rate
of broadband in Israel reaches approximately 75%.

During 2009, Bezeq launched an NGN infrastructure (Next
Generation Network) for files of up to 50 Mbps. A few
months later,       Hot   launched   a   high-speed internet
infrastructure, UFI (Ultra Fast Internet), for files of up to
100 Mbps.

The intense competition in the market and the entry by
Partner as an internet service-provider increased the
average speed and the average commitment period being
offered to customers. Beyond this, according to Partner’s
assessments, no material changes are anticipated in the
market in the near future.

To complete the picture, it should be noted that, on March
25, 2010, Partner announced that Partner’s Management
has been authorized to initiate initial contacts to examine
the possibility of acquiring the operations of Tapuz People
Ltd., a public company controlled by the Company’s
controlling shareholder. At this early stage, there is no
certainty that these contacts will mature to any agreement,
and, in any case, such an agreement shall be subject to
the approval of Partner’s competent organs, as required
by law.

The information provided in this clause in relation to
the anticipated trends in the communications market,
in relation to Partner’s market penetration in the
coming years, in relation to the acquisition of the
operations of Tapuz People Ltd. and in relation to no
changes being anticipated in the market in the near


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          future is forward-looking information, as this term is
          defined in the Securities Law, the occurrence of which
          depends, inter alia, on factors external to Partner.
          There is no certainty that that stated above will
          actually occur, or that the results thereof shall be as
          assessed by Partner.

     3.   Web video-on-demand services (Web VOD): within the
          scope of this new service, Partner provides video-on-
          demand services (to internet customers, even if they are
          customers of other internet providers), as well as music
          clips and games. This service enables users to access
          Partner’s media store and to watch video content on their
          PCs or mobile phones via internet transmission. Under the
          Orange Time brand, Partner offers internet media,
          including video-on-demand content (mainly, full-length
          movies and episodes of television series), music clips and
          games for computers and mobile phones. Within this
          framework, Partner engaged in agreements with various
          content creators and suppliers in the Israeli and
          international television and entertainment market.

          Orange Time offers a variety of programs and content to
          customers of all companies for a fee, including customers
          who are not customers of Partner.

     During 2009, during the initial period, approximately 63,000
     people subscribed to Partner’s landline telephony and internet
     services.
c.   Service Division: Partner offers a high-quality customer service
     department for the supply and provision of its services, as well
     as repair and replacement services for end-equipment that
     Partner sells to its customers. Within this framework, Partner
     offers a number of service channels:

     1.   Call-in service center: Partner’s call-in service center is
          divided into a number of sections – customer service
          centers (private customers and a service center for
          business customers), as well as support and service

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                                        centers for financial, roaming, information, content and
                                        related matters. The service center provides services in
                                        four languages: Hebrew, Arabic, English and Russian.

                                   2.   Walk-in sales and service centers: correct to December
                                        31, 2009, Partner operates 33 walk-in sales and service
                                        centers throughout Israel, as well as 33 points-of-sale and
                                        eight stores. At these centers, customers receive a variety
                                        of services personally from service representatives: sales,
                                        upgrades, drop-off and pick-up of handsets for repairs, as
                                        well as additional services, such as inquiries about
                                        financial matters, payment plans and registration for new
                                        services. Some of the centers are dedicated to providing
                                        sales services to business customers. These centers are
                                        in central locations, such as in shopping malls in Tel-Aviv
                                        and environs, in Jerusalem, Haifa and Be’er Sheva.

                                   3.   Self-service channels: Partner provides its customers a
                                        wide variety of self-service channels, such as IVR (Internet
                                        Voice Reply), services via the internet, text messages, and
                                        WAP. Through these channels, customers can find
                                        general and specific information for customers, including
                                        tariff plans, the status of their accounts and related issues,
                                        handset operation and troubleshooting, the activation or
                                        deactivation of particular services, and more.

                                   Partner constantly monitors and analyzes the standards of
                                   service being provided in all of the various service channels in
                                   order to ensure that they are maintained at high quality and to
                                   constantly improve service.

                  4.6.2.2     Material changes anticipated in Partner’s share of the principal
                              markets for its additional products and services

                              Mobile Broadband (“the MBB Segment”)20: Partner expects to
                              continue significant growth in its sales of data cards and laptops
                              with built-in modems. Partner also expects continued growth in data
                              consumption. The MBB Segment is generally in a growth trend

20
     Mobile Broadband – high-speed wireless internet access via mobile phones, such as: cell phones, laptop
     data cards, and more.
                                                  A - 133
                                globally, and Partner intends to accelerate this trend that began this
                                year, the aim being to encourage growth in its MBB Segment, both
                                among its customers and among potential customers.

                                The information provided in this clause about the continued
                                increase in data consumption is forward-looking information,
                                as this term is defined in the Securities Law, the occurrence of
                                which depends, inter alia, on factors external to Partner. There
                                is no certainty that that stated above will actually occur, or that
                                the results thereof shall be as assessed by Partner.

        4.6.3      Segmentation of revenue and profitability of products and services

                                Partner’s revenues
                                Following are data about Partner’s revenues for 2008 and 2009:

                                                               For the 12-month   For the 12-month
                                                                 period ended       period ended
                                                              December 31, 2009 December 31, 2008
                                                                   Revenues           Revenues
                                                                (in NIS millions)  (in NIS millions)
                               Revenues from
                                                                       5,424                        5,546
                               services21
                               Revenues from
                                                                         655                         756
                               equipment22
                               Total                                   6,079                        6,302

        4.6.4      New products
                   During 2009, Partner signed an agreement with Apple Sales International
                   (“Apple”) for the purchase and distribution of iPhone mobile phones
                   (“iPhone”) in Israel. Pursuant to the agreement, Partner undertook to
                   purchase a minimum quantity of handsets each year for a period of three
                   years, at prices that shall be in effect at Apple on the actual purchase dates.
                   Partner assesses that this quantity shall constitute a significant portion of the
                   forecasted handset purchases that Partner will be making over the aforesaid
                   period.

                   The information provided in this clause relating to Partner’s assessment
                   of the significant portion of mobile phone purchases that iPhone
                   handsets shall constitute out of Partner’s total purchases of mobile

21
     Services – including cell phone services, internet services and landline telephony services.
22
     Equipment – including handsets, accessories, and accessories for ISP and VoB services.
                                                       A - 134
        handsets and in relation to the ratio of Partner’s total cost of sales is
        forward-looking information, as this term is defined in the Securities
        Law, the occurrence of which depends, inter alia, on factors external to
        Partner. There is no certainty that the quantity that shall be purchased
        shall be significant, which depends, inter alia, on the demand, and on the
        success of the handset models competing with iPhone.

4.6.5   Customers
        Partner has no dependence on particular customers and there are no
        customers whose revenue to Partner constitutes a significant share of its total
        revenues. For the purpose of this clause, “significant share” means 10% or
        more of Partner’s total revenue in its Consolidated Financial Statements.

        Segmentation of sales by customer types – correct to December 31, 2009,
        approximately 73.3% of Partner’s customers (approximately 2,231,000
        subscribers) subscribed to post-paid plans, while 26.7% of Partner’s
        customers (approximately 811,000) subscribed to tariff plans paying on a pre-
        paid basis. Additionally, correct to December 31, 2009, Partner had 1,279,000
        3G customers.

4.6.6   Marketing and distribution

        4.6.6.1   Marketing strategies

                  a.    Partner’s marketing strategy is based on the international
                        Orange brand, and emphasizes Partner’s brand values –
                        globalism, fairness, simplicity, the personal touch and the latest
                        technology. Partner’s strategy also emphasizes customer
                        service and customer retention.

                        For the purpose of realizing this strategy, Partner invested
                        substantial resources in promoting the Orange brand in Israel
                        as a tool for differentiating Partner’s brand and services from
                        those of its competitors.

                  b.    Partner’s marketing strategy is based on the concept of
                        presenting advanced, high-quality services to its customers.
                        For this purpose, Partner offers its customers competitive
                        tariffs, advanced technologies and services, including 3G
                        services and GPRS services. During 2009, Partner achieved
                        the main objectives of its marketing strategy – expanding


                                      A - 135
               Partner’s 3G customer base and deepening its long-term
               relationships with its customers.

          c.   For the purpose of promoting Partner’s advanced services and
               increasing the public’s awareness of these services, Partner
               employs a large number of marketers, conducts numerous
               marketing activities and uses a wide variety of media. During
               2009, Partner continued to take action to increase its marketing
               presence in the various media in order to increase the
               exposure to Partner’s brand and technologies. Partner’s main
               marketing activities during 2009 focused on marketing 3G and
               HSPA services to customers, promoting applications relating to
               mobile telecommunications, such as the synchronization of
               laptops and broadband-based mobile communications using
               data cards, and strengthening customer loyalty to Partner.
               Partner’s marketing strategy focuses on marketing its various
               services to diverse communities in the Israeli population,
               including in relation to 3G services. Furthermore, during 2009,
               Partner included its internet and landline telephony services in
               this strategy. Partner advertises its services in a variety of
               languages. In addition to traditional media, Partner advertises
               its services by initiating and financing community programs.
               Partner makes use of the Orange brand in all of its advertising
               and marketing means.

4.6.6.2   Sales and distribution

          a.   Partner distributes its products and services mainly through: (a)
               direct sales channels – at points-of-sale owned by Partner and
               by sales representatives employed by Partner (or by any agent
               on its behalf); (b) indirect sales channels – through distributors,
               retailers, leased points-of-sale and stores.

          b.   Direct sales channels

               1.   Partner’s sales and service centers: all of Partner’s
                    centers constitute points-of-sale. Partner’s direct contact
                    with   its     customers     enables      customers    to   become
                    acquainted, see and obtain a direct impression of the
                    devices       and      services   being    sold   by    the   sales

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          representatives. This approach, of personal and direct
          contact with customers, also enables Partner to promote
          its sales of 3G devices and services.

     2.   Direct sales force via sales and service representatives

          (a) Team of regional representatives and regional
               managers stationed in four regions, who support
               services being provided to small to moderate-sized
               business customers.

          (b) Team of regional representatives and regional
               managers, who support services being provided to
               large corporate customers.

          (c) Door-to-door sales to recruit individual customers and
               small business customers.

          (d) Telemarketing department dedicated to transacting
               direct sales via the telephone (to business customers
               and individuals), by initiating contact with potential
               customers and scheduling meetings with service
               representative.

     3.   Partner’s sales teams undergo training to improve their
          sales skills in offering value-added mobile telecom
          solutions, such as mobile and other content, that appeal to
          corporate customers.

     4.   Correct to December 31, 2009, Partner has 33 points-of-
          sale at shopping malls in Israel, in addition to Partner’s
          eight stores.

c.   Indirect sales channels

     1.   Traditional marketing chains: correct to December 31,
          2009, Partner had agreements with 28 resellers operating
          46 points-of-sale of a variety of products. The aforesaid
          private marketing chains are an important channel in
          Partner’s marketing strategy in light of their ability to attract
          existing mobile telecom users to Partner’s network.
          Partner’s resellers focus mainly on sales to individual
          customers and, to a lesser extent, to small businesses.

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                    The majority of Partner’s resellers specialize in sales to
                    existing customers, while some specialize in sales and
                    distribution of devices to subdistributors. Additionally,
                    Partner has special distributors dedicated to specific
                    segments of the population, including in relation to their
                    geographical location. Partner provides ongoing training to
                    employees of Partner’s resellers, in order to update them
                    about Partner’s new products and services. Managers of
                    Partner’s marketing department regularly meet with
                    Partner’s resellers in order to provide them            with
                    information about Partner, to update them about Partner’s
                    products and services, to train the resellers, and to resolve
                    problems, if any. Partner pays competitive commissions to
                    its resellers, and provides them with subsidized devices.
                    Nonetheless, the resellers are not entitled to commissions
                    relative   to   any   customer   who    terminates   his/her
                    engagement with Partner within 60 days of the effective
                    date of the engagement.

               2.   All of the indirect marketing channels are supported by a
                    special call-in center established especially for this
                    channel, which provides information and support and
                    coordinates installations of products in vehicles.

4.6.6.3   Call tariffs

          a.   Since the beginning of Partner’s operations in 1999, Partner
               has been offering tariff plans whose aim is to bring innovation
               to the Israeli mobile telecom market. Correct to December 31,
               2009, approximately 73.3% of Partner’s customers were
               subscribers on tariff plans payable on a post-paid basis, while
               approximately 26.7% of its customers were subscribers on tariff
               plans payable on a pre-paid basis.

          b.   Partner’s corporate tariff plans offer attractive packages of
               services, such as usage fees based on actual air-time use, with
               no extra charges for interconnect tariffs payable to other mobile
               telecom operators and landline service-providers for calls made
               by Partner subscribers to subscribers to other networks, as well


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               as a discount for subscribers’ calls to specific predefined
               numbers. In addition, Partner often offers to subsidize handsets
               for customers who join these tariff plans. Most of the aforesaid
               tariff plans include 36-month commitments by business
               customers.

          c.   The elements of Partner’s tariff plans to private customers are
               integrated with packages and are marketed in a variety of ways
               in order to create an affordable tariff plan attractive to
               customers, including families, soldiers, young people, students
               and other sectors. Some of Partner’s tariff plans grant free
               minutes for calls between family members or friends. Partner’s
               tariff plans also offer a partial subsidy of handsets. According to
               the amendment to Partner’s license, which came into effect in
               April 2008, as of January 2009, Partner may offer commitment
               plans to private customers for a maximum period of 18 months.

          d.   With Partner’s pre-paid tariff plans, customers can, parallel to
               purchasing a SIM card, consume services (calls, SMSs, etc.)
               by depositing the payment to their pre-paid accounts.
               Customers may deposit to their accounts in the following ways:
               by buying a scratch card, by credit card, by electronic deposit
               and in cash. Customers can make use of Partner’s networks,
               including some of Partner’s value-added services, without
               having to register or sign any agreement with Partner. The
               aforesaid tariff plans enable Partner to compete in the pre-paid
               segment.

4.6.6.4   Information technology

          a.   Partner depends on a wide variety of information technologies
               for supporting the administration of its networks, registering
               and charging its customers, providing service to its customers,
               for marketing and for various management functions. These
               systems fill a critical role in Partner’s businesses, from rating
               and charging for calls, through overseeing its points-of-sale
               and Partner’s network base stations, to managing marketing
               campaigns. The more that Partner’s customer base grew, the
               more substantial were the resources that Partner had to invest


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                       in expanding and developing its IT systems, including by way
                       of adopting new systems and systems for managing customer
                       service centers, all of which contributed to the satisfaction of
                       Partner’s customers with the services provided by Partner, as
                       well as systems that improved and upgraded Partner’s financial
                       management systems. Partner believes that these systems
                       have constituted a critical factor in Partner’s success since it
                       began operating.

                  b.   While the majority of Partner’s systems were developed by
                       third parties, all of Partner’s systems have been customized for
                       its specific needs. In certain instances, Partner itself developed
                       IT systems tailored to Partner’s specific needs. For example,
                       important components in Partner’s customer service center
                       systems and Partner’s business information installations were
                       developed by Partner and designed to integrate Partner’s
                       customer service with all of its sales and marketing efforts. In
                       other instances, Partner commissioned third parties to develop
                       IT systems that it needed. Partner is in the process of replacing
                       systems handling customer management centers with new
                       systems, based on Oracle’s Siebel software. The switch to this
                       software has not yet been completed.

4.6.7   Competition

        4.6.7.1   Competitive conditions in the Partner Operating Segment, its
                  competitors and market segmentation

                  a.   Correct to the Report Date, four mobile telecom network
                       operators are operating in Israel: Partner, Cellcom, Pelephone
                       and Mirs. Partner’s competition with these operators is mainly
                       in relation to the quality of the services, branding, variety of
                       devices, tariffs, value-added services and the quality of the
                       customer services.

                  b.   The table below shows the assessed market share of each
                       mobile telecom operator in the Israeli market in 2007, 2008 and
                       2009:




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      Market share           2007             2008            2009
     Partner                  32%              32%              32%
     Cellcom                  34%              35%              35%
     Pelephone                29%              29%              29%
     Mirs                      5%               4%               4%

     The data in this table are based on information in the public
     domain published in public reports by Pelephone and Cellcom
     or their shareholders, and, relative to Partner, based on its
     database. The data given in relation to Mirs are based on
     Partner’s assessment.

c.   Cellcom is an Israeli company whose principal shareholder is
     Discount Investments Ltd. (“Discount Investments”). Discount
     Investments is a subsidiary controlled by I.D.B. Development
     Ltd., which is a subsidiary controlled by I.D.B. Holdings Ltd.
     (“I.D.B.”). The I.D.B. group is one of the largest holding
     consortia in Israel, whose indirect subsidiaries are active in the
     Israeli mobile telecom market. Cellcom operates international
     mobile telecom networks on the basis of UMTS/HSDPA,
     HSUPA, D-AMPS, GPRS/1800 MHz and GSM technologies.

d.   Pelephone is an Israeli company wholly controlled by Bezeq,
     the principal Israeli communications group in Israel, which is
     controlled by the S.C.G. group (Haim Saban), Apex Funds, and
     Arkin Communications (Maury Arkin). According to articles in
     the media and press releases, an agreement was recently
     signed for the sale of the control core of Bezeq to 012 Smile, a
     company indirectly controlled by Mr. Shaul Elovitz, the
     controlling shareholder of the Eurocom group, which serves,
     inter alia, as the official representative and distributor of the
     Nokia group in Israel, one of the world’s largest mobile phone
     manufacturers. At the beginning of 2009, Pelephone began
     operating a new network based on UMTS/HSPA technology.
     This technology is expected to strengthen Pelephone’s ability
     to compete in roaming services, as well as to improve its
     positioning in the mobile telecom market in general.



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     The information provided in this clause relating to the
     technological impact of Pelephone’s new network on its
     competitive position is forward-looking information, as
     this term is defined in the Securities Law, the occurrence
     of which depends on factors external to Partner. There is
     no certainty that that stated will actually occur.

e.   Mirs holds a general MRT operator’s license. Mirs is an Israeli
     company wholly owned by Motorola Communications (Israel)
     Ltd. (“Motorola”). Mirs’ operations are based on an advanced
     technology of mobile radio telephone services, or a “trunking”
     iDEN network. Mirs has announced its intention of launching a
     WiMAX network, subject to the receipt of a suitable license. In
     June 2009, Motorola announced that it intends to sell its shares
     of Mirs. According to media reports and press releases, a
     company controlled by Mr. Patrick Drahi recently engaged in
     an agreement to acquire all of Motorola's holdings of Mirs,
     which would enable the buyer to assign all of its rights and
     obligations pursuant to the agreement to Hot. Hot's two main
     operating   segments     are    multi-channel    cable   television
     broadcasting and domestic landline communications services.
     This transaction contributes to the creation of another
     telecommunications group in Israel, which increases the
     potential competition in the market.

f.   In addition, the Palestine Telecommunication Co. Ltd. (“Paltel”)
     operates a GSM network under the name “Jawwal” in the
     territories of the Palestinian Authority, as well as a landline
     telephony network. Paltel’s GSM network competes with
     Partner’s network in certain overlapping borderline areas. In
     addition,   an   additional    Palestinian   operator,   Wataniya,
     launched its GSM network during 2009.

g.   A number of service-providers offer competitive roaming
     solutions. The service is offered, inter alia, by international
     operators as well as by specialized enterprises.

h.   Regarding landline telephony services, Partner competes with
     Bezeq, Hot, and other communications service-providers that


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                                     have entered the landline telephony services segment. Bezeq
                                     holds 100% of the shares of Pelephone and of Bezeq
                                     International, which could enable Pelephone and Bezeq, as
                                     well as affiliates of Bezeq, to offer bundled services of landline
                                     telephony, mobile phone service and international telecom
                                     services, subject to regulatory approval. In the future, additional
                                     operators offering landline telephony services might enter the
                                     mobile telecom market via MVNO23 and heighten the
                                     competition. For additional details, see clause 4.6.18.3.k.
                                     hereunder.

                                     The information provided in this clause relating to the
                                     entry of additional operators into the mobile telecom
                                     market is forward-looking information, as this term is
                                     defined in the Securities Law, the occurrence of which
                                     depends on factors external to Partner. There is no
                                     certainty that that stated will actually occur or that the
                                     results thereof shall be as assessed by Partner.

                               i.    Regarding Partner’s supplementary services beyond the
                                     services relating to the mobile telecom market, correct to the
                                     Report Date, there are three major internet service-providers
                                     competing with Partner in this market: Bezeq International, 012
                                     Smile and Netvision, which together, hold approximately 95%
                                     of the ISP market in Israel. In relation to video services (VoD),
                                     Partner is the first operator in the mobile telecom sector in
                                     Israel operating Web VoD services. This service is considered
                                     to be innovative, and a number of media and telecom
                                     companies have expressed an interest in entering this
                                     market. In the landline telephony service market, which
                                     includes both Legacy and VoB transmission, there are a
                                     number of suppliers. Bezeq is the principal supplier of Time
                                     Division Multiplexing (“TDM”), while HOT and 012 Smile began
                                     providing VoB/VoIP services a few years ago.



23
     MVNO (Mobile Virtual Network Operators) – virtual operators are mobile radio telephone operators that do not
     have a spectrum of frequencies and usually, also do not own a physical cellular network. For additional
     details, see clause 4.6.18.3.k. hereunder.
                                                     A - 143
          j.   The Ministry of Communications has granted licenses to a
               number of entities for a trial of telephony via VoBoC (telephony
               via Voice over Broadband over Cellular).

4.6.7.2   Positive factors affecting Partner’s competitive position –
          competitive advantages

          a.   Trademark: Partner markets its products under the Orange
               brand pursuant to a trademark license. Since Partner began
               operating under the Orange brand, it has invested heavily in
               promoting the Orange brand in Israel as a brand representing
               quality, innovation and customer service. Partner’s activities in
               the mobile telecom market have earned broad recognition of
               the Orange brand in Israel.

          b.   3G services: correct to December 31, 2009, Partner offers
               services based on UMTS technology, which includes high-
               speed information services, advanced video content, and video
               telephony, and, in most populated regions, HSPA technology
               as well. Partner believes that it is positioned as a leader in 3G
               services in Israel, in terms of the quality of its networks and
               content availability.

          c.   Customer service: Partner’s customer service is prompt and
               reliable, and provides solutions to all of its customers’ needs.
               Partner has invested considerable resources in developing its
               technologies and in training its customer service staff to be
               highly skilled.

          d.   High-quality networks and technological primacy: Partner
               believes that it sets high standards in the quality of its
               sophisticated networks. The tools that Partner uses, its
               techniques and investments in building mobile telecom base
               stations to improve coverage, have set a high bar for quality
               networks. Furthermore, Partner is of the opinion that it leads in
               the development and provision of mobile telecom services in
               Israel.

          e.   Wide variety of communications products: Partner believes that
               its new initiatives in providing VoB, ISP and VoD services shall
               strengthen its position in the mobile telecom market. Partner

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               offers a wide variety of bundled products and services in the
               landline telephony and mobile phone segments, which enable it
               to compete more effectively with other players in the market
               offering bundled services, to enhance its reliability among its
               customers and to generate additional sources of revenue.

          f.   Economic strength: Partner’s net operating profit, after
               deducting cash earmarked for Partner’s investments, was NIS
               1,401 million and NIS 1,021 million for the years ended
               December 31, 2008 and 2009, respectively.

          g.   Strong, motivated management: Partner has been successful
               in recruiting executives from the telecom, high-tech and
               consumer industries to the ranks of its management. Partner’s
               management team is highly experienced and has earned public
               esteem. Partner believes that the members of its management
               possess commensurate credentials to lead and manage
               Partner.

4.6.7.3   Negative factors affecting Partner’s competitive position

          a.   Partner is subject to various regulatory restrictions that prevent
               it, inter alia, from entering new operating segments (e.g., the
               international call market), and that dictate how it operates
               opposite customers (e.g., the amendment to the Consumer
               Protection Law, also known as the “Fixed Tariff Law,” whereby
               the billing units are set by the Ministry of Communications,
               etc.).

          b.   Unlike the other major operators in the mobile telecom sector in
               Israel, Partner is not part of a communications consortium
               having     other   strengths   in   companies    offering   other
               communications services. Accordingly, Partner’s ability to
               compete in the future by offering bundled services is limited.

          c.   The recession in the global markets and in Israel affects the
               business sector and particularly its use of roaming services.
               The deterioration in the economic situation has led to a
               downsizing    of   business    operations,   company    closures,
               cutbacks in organizations’ mobile telecom expenditures,
               cutbacks or bans on expenses abroad (particularly roaming

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                                     services), and to consumers seeking cheaper communications
                                     solutions.

        4.6.8     Seasonality
                  Notwithstanding the fact that Partner’s revenues and profit indicate certain
                  affects of seasonality, the general affect of seasonality is immaterial. As a rule,
                  and without Partner being able to project whether this will continue in the
                  future as well, the number of call minutes (and, as a result, the revenue from
                  air time) is affected by the number of daylight hours in a day, which varies
                  during the year. Furthermore, the revenues from air time are affected by the
                  number of workdays in a month, and are lower in February (a short month), as
                  well as during Jewish holidays. On the other hand, during the summertime, the
                  revenues from air time are considerable, mainly as a result of the increased
                  revenues from roaming services – due to the increased number of subscribers
                  vacationing abroad during these months, and due to the increase in incoming
                  tourism (tourists who avail themselves of Partner’s network services as a host
                  network).

        4.6.9     Fixed assets and facilities

                  4.6.9.1      Location and general characteristics of Partner’s material fixed
                               assets

                               a.    Mobile telecom network infrastructure
                                     Correct to December 31, 2009, Partner’s mobile GSM network
                                     consisted of 1,882 macrobase transceiver stations,24 203
                                     microbase transceiver stations25 and 414 indoor transceiver
                                     stations, all linked to 30 base-station controllers. The base
                                     stations are controlled by 11 central mobile switching stations.

                                     Correct to December 31, 2009, Partner’s UMTS network
                                     consisted of 1,834 macrobase transceiver stations, 50
                                     microbase transceiver stations and 291 indoor transceiver
                                     stations, all linked to 13 radio network controllers. The base



24
     Macrobase Transceiver Station – a low-output transceiver of 10 – 20 watts (covering a radius of hundreds of
     meters), which is less than the transceiver power of a military two-way radio device antenna (VRC) installed
     on a jeep and transceiving at a power of about 50 watts
25
     Microbase Transceiver Station – a mini low-output transceiver not exceeding 2 watts (covering a radius of
     tens of meters), similar to the transceiver power of a hands-free antenna in a car, and less than 10% of the
     transceiver power of a taxi’s two-way radio.
                                                     A - 146
     stations are controlled by four switching stations and six media
     gateways.

     In addition, Partner’s mobile network is connected to two
     landline communications operators, Bezeq and Hot, in several
     sites across Israel, and is also directly connected to the three
     other mobile telecom operators in Israel and to the six
     international call operators in Israel. Additionally, Partner’s
     network is directly connected to the landline and mobile
     network of Paltel.

     Correct to December 31, 2009, Partner’s GSM and UMTS
     networks covered the residential area of more than 98% of the
     population of Israel. Partner is constantly expanding and
     improving the coverage, capacity and quality of its UMTS
     network.

     Partner’s transmission network is comprised of lines leased
     from Bezeq and other operators (the majority of the
     transmission network), and of microwave lines and fiber optic
     infrastructure owned by Partner itself. Partner’s fiber-optic
     transmission infrastructure enables it to reduce transmission
     costs and to provide its business customers with bundled
     services for transfer and transmission of data, voice and
     landline services.

b.   Characteristics of the mobile telecom network
     Partner is taking action to further improve the capabilities of its
     mobile telecom network to respond to its customer’s needs.
     The two main parameters used to analyze mobile telecom
     network performance (in terms of voice and data transfer) are
     the success rate in connecting calls and the disconnected calls
     rate. Partner also examines the network’s capabilities in terms
     of information transfer rates and voice quality, and is striving to
     achieve a high coverage rate, particularly in densely populated
     areas or in areas of particular commercial interest. Partner
     uses, inter alia, sophisticated computerized control and
     monitoring equipment to monitor the quality of its network.



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     In light of the quality targets specified above, Partner launched
     its UMTS/HSPA network in 2004 (located in the same
     infrastructure sites as those of its GSM network). Since the end
     of 2007, Partner has been replacing the 3G network’s radio
     infrastructure with infrastructure equipment manufactured by
     LM Ericsson Israel Ltd. (“Ericsson”), so that Ericsson is
     currently Partner’s main supplier for Partner’s 3G network.

     The structure and characteristics of Partner’s transmission
     network offer the following advantages: (1) sufficient bandwidth
     for the provision of GSM and UMTS/HSPA services; (2)
     reliability; (3) use of high-speed back-bone routes, based on
     the SDH Standard; (4) the ability to utilize new sophisticated
     technologies to optimize the system and increase its capacity
     when necessary.

c.   Infrastructure for the supplementary services
     The ISP services that Partner has been providing since the end
     of 2009 are provided on the existing third-party network
     infrastructure to which customers have subscriptions. The
     landline call services using VoB technology (provided using the
     broadband access network of Bezeq or Hot) are based on
     technology and switches of Nokia Siemens’ NGN (Next
     Generation Network). In order to provide these services,
     Partner developed a home wireless gateway box (Smartbox),
     enabling customers to set up wireless home networks using
     Wi-Fi technology based on the 802.11n protocol. The Smartbox
     supports FXS and DECT phones, and includes a built-in
     firewall.

     Additionally, the Partnership owns data communications and
     overland transmission lines.

d.   Spectrum allotment and capacity
     The available frequency spectrum is limited and is allotted by
     the Ministry of Communications through a licensing process.
     Pursuant to the license issued to Partner, it was allotted 2 x
     10.4 MHz in the 900 MHz frequency band, of which 2 x 2.4
     MHz are shared by Partner and Jawwal, which operates in the


                  A - 148
               West Bank and in the Gaza Strip. Partner also has an
               agreement with Jawwal enabling it to use an additional 2 x 2.4
               MHz in the 900 MHz frequency band on a shared basis with
               Jawwal. Pursuant to this agreement, which was authorized by
               the Ministry of Communications, Partner is permitted to use this
               additional spectrum in Israel as long as it does not cause
               interference in areas where Jawwal operates. Partner was also
               allotted spectrum in two additional frequency bands: 2 x 10
               MHz in the 1800 MHz frequency band and 2 x 10 MHz and 1 x
               5 MHz in the UMTS/HSDPA frequency band in the 3G network.
               Partner operates transceiver stations at 1800 MHz, which
               enhance the capacity of the GSM network at 900 MHz, and
               improve its quality.

          e.   Acquisition and establishment of new base stations
               Once a new coverage area has been identified, Partner’s
               technical staff determines the optimal location for the site and
               the coverage requirements and characteristics, and ascertains
               the best means of connecting the site to the network (using
               Partner’s   infrastructure   or   leased   infrastructure   through
               wireless or landline links). Then, a survey of the area is
               performed, and potential sites are examined: in urban areas,
               some of the sites are situated on rooftops, while in open areas,
               for the most part, poles are erected, atop which the equipment
               is installed. Upon choosing the location and characterizing the
               site, Partner begins the process of obtaining suitable approvals
               for establishing the site: building permits from local or district
               committees (approvals required in the majority of instances), as
               well as additional permits, such as from the Ministry of
               Environment Protection, from the Civil Aviation Authority (in
               some instances) and from the Israel Defense Forces.

4.6.9.2   Material property not owned by Partner, or that is being held
          under a material restriction

          a.   Partner’s headquarters building and the call-in service centers
               Partner leases its headquarters in Rosh Ha’Ayin from Industrial
               Buildings Ltd. (“Industrial Buildings”), which is comprised of
               three sites at the inclusive area of 37,886 m2 and another two
                             A - 149
parking garages at the inclusive area of 11,750 m2. There is a
separate lease agreement for each of the three sites. The rent
is linked to the Consumer Price Index.

On December 27, 2009, Partner’s Audit Committee and Board
of Directors resolved to approve the engagement in an
addendum      to    the     aforesaid   lease   agreements     (“the
Addendum”), under which the terms and conditions of the
existing lease agreements between the parties shall be
updated. These updates include, inter alia, an extension of the
inclusive term of the lease until December 31, 2016, with an
option to extend by three or five additional years. In
consideration for the extension of the lease agreement for the
said period, Partner was given a discount of 5% on the rent.
The updated rent for 2010 will total approximately NIS 24
million. Partner is entitled to shorten the term of the lease
relative to each rented premises or portion thereof, and to
terminate it on December 31, 2014.

Mr. Ilan Ben Dov, who is the controlling shareholder of Scailex,
is also the controlling shareholder of Tao, which, correct to the
Report Date, holds approximately 4.9% of Industrial Buildings’
issued share capital. In addition, Tao holds approximately 13%
of the issued share capital of Durban Investments Ltd.
(“Durban”), which is an affiliate of Industrial Buildings, and Tao
has the right to appoint two directors to Durban’s Board of
Directors. Therefore, and for the sake of prudence, Partner
considered the Addendum as an exceptional transaction in
which an interested party has a personal interest. Partner’s
Audit Committee and Board of Directors approved the
Addendum in conformity with the conditions of Regulation 1(5)
of the Companies Regulations (Relief in Transactions with
Interested Parties).

Partner believes that the current headquarters will be sufficient
for its needs in the foreseeable future, and that it will be able to
extend the terms of the lease or find additional and/or
alternative   facilities,   if   needed,   at   market   conditions.
Additionally, Partner operates call-in service centers in Haifa (3
              A - 150
     centers), in Jerusalem, in Be’er Sheva, in Rehovot and in other
     locations. The inclusive area of all of its call-in service centers
     is 6,941 m2. The lease agreement for each building prescribes
     various provisions, including the term of the lease, however,
     Partner believes that the premises of the call-in service centers
     will be sufficient for its needs for the foreseeable future, and
     that it will be able to extend the terms of the lease or find
     additional and/or alternative facilities, if needed, at market
     conditions.

     The information provided in this clause relating to future
     lease     terms   and     conditions    and/or     the     finding   of
     alternative sites and their lease terms and conditions is
     forward-looking information, as this term is defined in the
     Securities Law, the occurrence of which depends, inter
     alia, on factors external to Partner. There is no certainty
     that that stated will actually occur.

b.   Network
     Partner    leases   the    majority    of    the   sites   where     its
     communications      base    stations   are    located.     Correct   to
     December 31, 2009, Partner had 2,502 network base stations.
     As a rule, the lease agreements for the network base station
     sites are for terms of two to three years, and Partner has an
     option to extend the terms of the lease for up to ten years
     (including the original term of the lease). The rent is linked, in
     part, to the exchange rate of the U.S. dollar, and, in part, to the
     Consumer Price Index; some of the agreements contain
     stipulations whereby an extension of the lease agreement by
     Partner is subject to a rent hike of 2% to 10%.

     Furthermore, Partner leases overland communications lines
     from other communications companies.

c.   Service centers and points-of-sale
     The lease agreements for Partner’s walk-in sales and service
     centers are for terms of two to five years. Partner has an option
     to extend the lease agreements for various terms, up to the
     inclusive term of 16 years (including the original term of the

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                          lease). The rent in the lease agreements is linked, in part, to
                          the Consumer Price Index and, in part, to the exchange rate of
                          the U.S. dollar; some of the agreements contain stipulations
                          whereby an extension of the lease agreement by Partner is
                          subject to a rent hike of 2% to 10%. The average size of a
                          sales and service center is approximately 350 m2.

                          Correct to December 31, 2009, Partner operated 33 walk-in
                          sales and service centers, 33 points-of-sale and 8 branded
                          stores.

4.6.10   Research and development
         As a rule, Partners uses technologies and does not develop technologies.
         Therefore, Partner has no significant technological research and development
         activity.

4.6.11   Intangible assets

         4.6.11.1    The balance of the intangible assets on the Balance-Sheet date
                     was NIS 1,260 million, of which, approximately NIS 1 million are
                     licenses.

         4.6.11.2    Partner is the registered owner of the “Partner” trademark in Israel
                     (relative to devices and services relating to telecommunications),
                     and of additional trade marks. Partner has also registered a number
                     of    website     names,     including    www.partner.co.il       and
                     www.orange.co.il, among others. These trademarks are extremely
                     important to Partner’s operations – Partner operates its websites
                     with these internet addresses, inter alia, by virtue of licenses
                     granted to it, and they must be identified with Partner’s name and
                     with the brand that Partner uses.

         4.6.11.3    Partner has a trademark license agreement (“the License
                     Agreement”) with Orange International Developments Limited
                     (“Orange International”), a subsidiary of Orange Limited, formerly
                     Orange plc. Under this agreement, Orange International appointed
                     Partner a licensee with the exclusive right to use its trademarks in
                     Israel, under which Partner has the exclusive right to use the
                     Orange trademark in advertising and sales promotions in Israel.




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           The term of the License Agreement began on July 1, 1998, with
           Partner exempted from paying royalties for the first 15 years of its
           use of the trademark. In 2012, the parties are to discuss the
           royalties to be paid for a five-year term beginning July 1, 2013. In
           2017, the parties are to review the royalties to be paid for an
           additional five-year term beginning July 1, 2018. If the parties do not
           agree on the height of the royalties to be paid by Partner, an
           independent expert arbitrator will decide the rate of the royalties.

           Within the scope of the License Agreement, Partner is obligated to
           comply with the Orange brand-use guidelines set by Orange
           International.

           Partner has the right to use the Orange brand as long as it is
           capable and permitted under the laws of Israel to offer
           communications services to the public in Israel. However, the
           License Agreement can be terminated in one of the following ways:
           (1) by mutual agreement; (2) at Partner’s discretion; (3) at the
           demand of Orange International, provided that a court has ruled that
           Partner is breaching the License Agreement and Partner persists in
           doing so even after this ruling.

           The Orange trademark and the Orange brand are of critical
           importance to Partner – Partner has been identified with the Orange
           brand since day one, and the brand has earned an esteemed
           reputation in Israel over the years.

4.6.11.4   In addition, Partner entered a brand support/technology transfer
           agreement with Orange Personal Communications Services Limited
           (“Orange Personal”) for an undefined term. Pursuant to the
           agreement, Partner has an annual exit option with a deadline of
           November 30 of each year. Pursuant to this agreement, Orange
           Personal shall provide Partner with information and expertise in
           support of the Orange brand in Israel at an agreed cost.

           The information provided in this clause regarding the
           consequences of a termination of a License Agreement with
           Partner is forward-looking information, as this term is defined
           in the Securities Law, the occurrence of which depends on



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                                         factors external to Partner. There is no certainty that the
                                         aforesaid will actually occur.

                              4.6.11.5   Partner is a member of the GSM Association, which provides
                                         assistance to member companies in the operation of the GSM
                                         network. Furthermore, Partner has the right to use the intellectual
                                         property relevant to it, such as: the GSM trademark and logo,
                                         security algorithms, roaming agreement templates, and billing
                                         transfer      information   file   formats.     Partner     can     continue   its
                                         membership in the GSM Association for as long as it is licensed to
                                         provide GSM service.
              4.6.12 Human capital
                              4.6.12.1   Partner’s organizational structure

                                                                C.E.O.
                                                            David Avner

                                                                                          V.P.
                                                                                      Eli Glickman
                                  Spokesperson,
                                   Publicity and
                                  Public Relations
                                     Amalia Glaser




                                                                                    Corporate
                                         Marketing,                               Development,                           Legal and
                Information             Content and                                 Strategy,    Human        Finance
Technologies                Operations               Business        Private       Regulations Resources
                                                                                                                         Corporate
 Avi Berger
                  Systems   Chaim Beker
                                          Growth
                                                    Gil Rosenfeld    Erez Paz
                                                                                                              Emanuel
                Ronit Rubin             Generators                                and Investor Michal Dana     Avner     Secretary
                                         Jacob Kedmi                                Relations                           Roly Klinger
                                                                                  Oded Degany



                              4.6.12.2   Staff employed by Partner
                                    No. of             No. of          No. of
                                  employees          employees       employees         Reason for changes in the
                                    as on              as on           as on           number of employees
                                  12.31.2007         12.31.2008      12.31.2009
                 Customer             2,635             2,902             3,750         Establishment of the Internet
                 Service                                                               and Landline Communications
                                                                                       Division.
                                                                                         Termination of the
                                                                                       distribution agreement with
                                                                                       SuperPharm and the
                                                                                       establishment of a distribution
                                                                                       network at malls.

                                                                A - 154
                  No. of          No. of          No. of
                employees       employees       employees     Reason for changes in the
                  as on           as on           as on       number of employees
                12.31.2007      12.31.2008      12.31.2009
                                                               Manpower adjustments and
                                                              entry into new content worlds.
                                                                Expansion of services
                                                              commensurate with the growth
                                                              in customers.
                                                               Regulatory requirements.
Engineering            312          306              322
Sales and              479          569              517      Adapting of sales staff to the
sales                                                         market needs.
support
IT                     136          165              249      Absorption of contracted
                                                              employees.
Finance                81           114              119      Manpower adjustments and
                                                              entry into new content worlds.
Marketing              109          127              135      Manpower adjustments and
and content                                                   entry into new content worlds.
HR                     97           124              125      Manpower adjustments and
                                                              entry into new content worlds.
Other                  282          364              456      Increase deriving from the
functions                                                     absorption of contracted
                                                              employees in the Operations
                                                              Division.
Total              4130             4671             5670
employees

            4.6.12.3    Partner’s investment in training and instruction
                        Partner invests thousands of hours in the training of its thousands of
                        employees each year, using a variety of methods of classroom,
                        personalized and online instruction. Partner also invests in the
                        development of teams, utilizing its in-house resources and
                        assistance from external experts.
                        In 2008, Partner invested approximately NIS 8 million in instruction,
                        training and organizational development. In 2009, approximately
                        NIS 7 million were invested in these areas.




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4.6.12.4   Remuneration      plan      for   employees,    officeholders    and
           consultants

           a.   Employee option plan from 2004
                Within the scope of the employee option plan from 2004 (“2004
                Plan”), 5,775,000 ordinary shares of Partner were reserved for
                allotment, for the exercise of 5,775,000 options allotted under
                this plan, for no consideration, to employees, directors,
                officeholders and consultants. The granting of the options as
                stated shall be according to a capital track, in conformity with
                Section 102 of the Income Tax Ordinance. The options vest in
                equal batches, once a year, over four years, unless Partner’s
                Board of Directors shall decide on different vesting dates. An
                option holder may exercise all or a portion of his/her vested
                options, but cannot exercise them after their expiration date – a
                date to be determined by the Board’s Option Plans Committee,
                and which shall not exceed ten years after the option grant
                date.

                Upon the occurrence of an organizational change, such as a
                merger, reorganization, or refinancing, Partner is obligated to
                effect changes and adjustments to the number of shares to
                which the holders of unexercised options are entitled, in order
                to prevent a dilution or an increase in the rights of option
                holders as stated.

                The Board’s Option Plans Committee is authorized, subject to
                the provisions of the Companies Law, to operate any power
                vested it expressly within the scope of the 2004 Plan, or
                required for the purpose of managing the Plan.

                In the event of the termination of the engagement between
                Partner and an employee, due to an employee’s persistent and
                intentional failure to perform his/her assignments and duties for
                Partner, or due to the commission of an act or failure to
                perform an act, as a result of which employers are entitled to
                deny the payment of severance pay in accordance with the
                Severance Pay Law, 5723 – 1963, options owned by that
                employee shall expire upon the termination of the engagement


                             A - 156
between the employee and Partner. In the event of termination
of the engagement between Partner and an employee, for any
other reason, the employee shall be allowed to exercise the
vested options in his/her possession, at any time before they
expire. In the event that an employee initiates the termination
of his/her engagement with Partner, the employee shall be
allowed to exercise the vested options in his/her possession
within 90 days of his/her last day of employment at Partner, or
of the day on which the shares allotted by virtue of those
options shall be freely sellable, whichever is later. In the event
of termination of the engagement between Partner and an
employee due to retirement, death or disability, all of the option
warrants granted to the employee that have vested, and any
relative portion of the options that were due to vest during the
year in which the engagement was terminated, shall be
exercisable until their expiration date.

Partner’s Board of Directors may, at any time, terminate the
2004 Plan, subject to the receipt of appropriate approvals that
might be required by law, regulations or agreements, and
provided that such termination shall not adversely affect the
conditions of the options already offered.

On March 26, 2008, the 2004 Option Plan was amended by
Partner’s Board of Directors to include the following material
amendments for new grants: to increase the total number of
Partner shares reserved for issuance upon the exercise of all
options granted under the 2004 Option Plan by 8,142,000
shares; to accelerate the vesting period and exercise of the
options in the event of a change of control or voluntary winding
up of Partner’s businesses; and to implement, under certain
circumstances, a “cashless” net exercise mechanism, whereby,
when an option holder exercises a particular quantity of
options, the option holder shall be entitled to receive from
Partner, without paying the exercise price, only that quantity of
shares whose economic value on the date of exercise equals
the economic gain that the option holder would have realized



              A - 157
had he/she sold the shares purchased at their market price, net
of the option exercise price (“Net Exercise Mechanism”).

On February 23, 2009, the 2004 Option Plan was further
amended (“the Plan Amendments”) to include two material
amendments:

1.   In relation to options granted on or after February 23, 2009
     (the approval date of the Plan Amendments by Partner’s
     Board of Directors), a dividend-adjustment mechanism
     shall be implemented, which reduces the exercise price of
     these options after the execution of each dividend
     distribution during the ordinary course of business that is
     at a rate exceeding 40% (or any other rate as determined
     by Partner’s Board of Directors) of Partner’s net profit for
     the relevant period (“the Excess Dividend”), whereby the
     exercise price for these options shall be reduced by the
     sum equivalent to the gross sum of the Excess Dividend
     per ordinary share.

2.   In relation to all options granted under the 2004 Option
     Plan, an exercise-price adjustment mechanism shall be
     implemented, which reduces the exercise price of these
     options after each dividend distribution that is other than
     during the ordinary course of business, at the sum that, in
     the opinion of Partner’s Board of Directors, reflects the
     impact that such a dividend distribution shall have or is
     likely to have on the exercise price of ordinary shares.
     Also adopted were provisions that authorized Partner’s
     Board: (i) in relation to options granted on or after
     February 23, 2009: to enable the option holders to
     exercise their vested options during a fixed period, but
     solely by activating the Net Exercise Mechanism; and (ii)
     in relation to options granted prior to February 23, 2009
     under the 2004 Option Plan: to enable the option holders
     to exercise their vested options during a fixed period also
     by activating the Net Exercise Mechanism.




              A - 158
The said Plan Amendments were approved by Partner’s
shareholders, and by the shareholders of Hutchison and HWL,
which, at that time, were the indirect controlling shareholders of
Partner.

On February 9, 2010, Partner’s Board of Directors adopted a
Net Exercise Mechanism in relation to all of the options granted
under the amended 2004 Option Plan. Therefore, offerees who
received options after February 23, 2009, shall be obligated to
exercise in this manner, while offerees who received options
prior to that date shall have the right, as of the date this
resolution was passed, to choose whether or not to exercise
options by way of the Net Exercise Mechanism.

On December 27, 2009, subsequent to a resolution to
distribute a special dividend at the sum of NIS 1.4 billion (as a
result of a capital reduction), Partner’s Board of Directors
approved a reduction in the exercise price at the sum
equivalent to 50% of the sum of the special dividend per share.

During 2009, Partner’s Board of Directors approved the
granting of 4,185,500 options to senior managers and
employees of Partner. These options were granted pursuant to
the Plan Amendments; i.e., the exercise-price adjustment
mechanism applies to them, due to the dividend distribution, as
well as the Net Exercise Mechanism, as described above. The
exercise price of options granted during 2009 is equal to the
average of the share prices at the close of trading of ordinary
shares during the 30 trading days before the final approval date
of the allotments by Partner’s Board of Directors.

Correct to December 31, 2009, options were exercised for the
purchase of 4,459,041 shares under the 2004 Option Plan.
Furthermore, options for the purchase of 5,086,387 shares
have not yet been exercised, and options for the purchase of
4,178,514 shares have not yet been granted under the Plan.
The exercise increment of the options is based on the fair
market value of the shares at the time of granting. For the
purpose of this clause, the “fair market value” of a share on any


              A - 159
     given date is the average closing prices of the share during the
     30 days preceding that date, as published by the TASE. The
     exercise increment of the unexercised options, correct to
     December 31, 2009, ranges between NIS 26.74 and NIS
     66.25. Forfeited, expired and unexercised options may be
     subsequently granted.

     The table below summarizes the quantity of options granted
     under the 2004 Option Plan that are still valid (i.e., options that
     have not yet expired or been exercised), correct to February
     28, 2010:
               Options
             granted to       Options
Exercise
                senior       granted to                    Expiration
   Price                                       Total
             managers          other                         date
 (in NIS)
                 and         employees
            officeholders
 26.74                         164,275        164,275       11/2014
 30.73                -         22,375         22,375       2/2015
 32.73           56,250         28,750         85,000       7/2016
 33.58           31,250              -         31,250       5/2016
 34.63           21,250              -         21,250       9/2016
 42.10          250,000              -        250,000       1/2017
 57.96          152,500         88,750        241,250       6/2017
 64.90           65,000              -         65,000       12/2017
 66.05           42,770              -         42,770       2/2018
 57.97        2,110,000         60,000      2,170,000       3/2019
 64.10                -      1,559,000      1,559,000       5/2019
 67.25                -         30,000         30,000       8/2019
 Total        2,729,020      1,953,150      4,682,170

     In addition, on March 16, 2010, 1,100,000 options were allotted
     to senior officeholders in Partner, with an expiration date of
     February 28, 2020.

     It should be noted that, in addition to the options listed in the
     above table, there are 26,380 options for shares of Partner that
     were allotted pursuant to plans preceding the 2004 Option
     Plan, with an exercise price of between NIS 17.25 and NIS
     21.72, all of which shall expire by April 2011.




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4.6.12.5   Benefits and characteristics of the employment agreements
           The vast majority of Partner’s employees are employed under
           employment agreements enabling the termination of their employ at
           the will of either of the parties to the agreement. Furthermore, there
           is no special collective agreement applicable to Partner’s
           employees. Partner complies with the provisions of the labor laws
           and extension orders applicable to it, and the provisions of the
           National Insurance Law, 5755 – 1995.

           Since January 1, 2008, the Extension Order for Comprehensive
           Pension Insurance in the Economy (“the Pension Extension
           Order”) has been in effect. Pursuant to the Pension Extension
           Order,   the   employees’     contributions   and     the   employers’
           contributions are graduated, and increase each year until 2013. In
           2008, the rate of an employee’s contribution was 0.833% of his/her
           salary, while the rate of the employer’s payment was 0.833% of the
           employee’s salary, plus the rate of 0.834% of the employee’s salary
           paid by the employer towards severance pay. In 2013, the rate of
           the employee’s contribution shall be 5% of his/her salary, while the
           rate of the employer’s payment shall be 5% of the employee’s
           salary, plus the rate of 5% of the employee’s salary to be paid
           towards severance pay.

           Some of Partner’s employees are entitled to an improved pension
           plan, the conditions of which include contributions at the rate of 5%,
           both from the employer and the employee. Higher echelon
           employees are entitled to full pension insurance, under which
           Partner contributes at the rate of between 13.33% and 15.83% of
           the employee’s salary (the conditions vary depending upon the
           choice of pension fund or managers’ insurance), while the
           employee contributes 5% of his/her salary.

           In addition, Partner offers some of its employees the option of
           joining a continuing education fund, which also operates as a
           savings plan. Any employee who joins a continuing education fund
           contributes 2.5% of his/her salary, while Partner concurrently
           contributes at the rate of 5% – 7.5% of the salary.




                             A - 161
           There has never been a strike or work stoppage at Partner, and
           there are no material pending claims relating to employment
           relations. Partner believes that it has good relations with its
           employees.

           Since October 2001, the majority of Partner’s employees participate
           in a health insurance plan, which provides them with benefits and
           expanded insurance coverage exceeding those provided by the
           public health system. The participation in this plan does not depend
           on seniority or standing at Partner.

4.6.12.6   Description of structural changes
           Since the last quarter of 2008 and during 2009, the following
           changes have occurred:

           a.   Following Partner’s entry into new spheres of activity in the
                communications sector, Partner established a new division, the
                Internet and Landline Communications Division.

           b.   Following the conclusion of the cooperation with SuperPharm
                as a reseller, Partner established an independent nationwide
                sales network (Orange stores).

           c.   A central lab for repairs of mobile end-equipment was
                established to which handsets are sent from the sales and
                service centers across Israel, which replaced the activities of
                repair labs that, until then, had operated at service centers
                across Israel.

                During 2009, Partner reorganized its businesses into two
                segments, which include the cellular business segment,
                representing 99% of Partner’s revenues, and the landline
                communications segment.

                On February 18, 2010, Partner announced that it effected a
                comprehensive reorganization of its operations, designed to
                facilitate Partner’s transition from a purely cellular operator to a
                comprehensive communications provider, as well as to
                strengthen Partner’s customer-centric approach. The change
                derives   mainly      from   the   process   of   convergence     in
                communications services and from the increasing complexity of


                                 A - 162
               products and customers' needs. The new structure includes
               three main modifications to Partner’s existing organizational
               structure:

                    the establishment of a Private Customers Division and a
                    Business Customers Division, each of which incorporates
                    all aspects of customer care, including sales of a variety of
                    landline and mobile products, customer service, technical
                    support and retention activities;

                    the assimilation of the landline communications operations
                    into the new structure in order to maximize the synergy
                    between the landline and mobile operations, and to utilize
                    the existing sales channels in the sales efforts of the new
                    landline communications segment.

4.6.12.7   Information relevant to the group of officeholders and senior
           management staff at Partner
           The members of Partner’s senior management are employed under
           personal agreements that include, inter alia, pension covers, the
           payment of target-based bonuses and advance-notice months,
           acclimation period and a retention plan upon retirement.

           The total remunerations and benefits granted and accumulated in
           favor of Partner’s directors and senior management members in
           respect of their work at Partner and/or in its subsidiaries during
           2009 reached approximately NIS 33.26 million. Additionally, the
           option amortization expenses in respect of the senior management
           members totalled approximately NIS 16 million.

           The height of the bonus payments to members of the senior
           management is determined in relation to a particular year, based on
           quantitative and qualitative targets set both for Partner as a whole
           and for individual employees. The individual targets for the C.E.O.
           are decided by the Remunerations Committee and Board of
           Directors. The individual targets for senior management members
           subordinate to the C.E.O. are set by the C.E.O., according to
           Partner’s targets. When the results of the operating year become
           known, and according to the success in meeting Partner’s targets
           and the individual targets, bonus payments are determined at the

                             A - 163
discretion of the Remunerations Committee, the Board of Directors,
and, to the extent that it concerns members of the senior
management     who    are subordinate to the C.E.O.,          at   the
recommendations of Partner’s C.E.O.

In 2009, in relation to Advent’s sale of Partner’s control core, some
members of the senior management were remunerated with two
additional forms of remuneration:

    Based on information that Partner received from Advent,
    Advent distributed a one-time cash bonus to particular
    employees of Partner, shortly after the sale of Partner’s control
    core, in recognition of those employees’ contribution to the
    value of the company. The aggregate total distributed to those
    senior management members was NIS 18,432,550. Since this
    sum was not paid by Partner, it had no impact on the
    Company’s expenses or on any other aspect of the financial
    statements.

    In order to encourage the retention of senior management
    employees subsequent to Advent’s sale of Partner’s control
    core, Partner’s Board of Directors resolved, after having
    received the approvals and recommendations of the Audit
    Committee and Remunerations Committee, to adopt a bi-
    annual retention plan, under which retention payments shall be
    paid to each of the senior management employees at the end of
    the first and second year after the retention plan was adopted,
    provided that the senior employee did not resign, but rather,
    was leaving for a justified reason, as this term is defined in the
    retention plan, before two years elapse since the transfer of
    Partner’s control core. Pursuant to the retention plan, if an
    officeholder shall receive notice of the termination of his/her
    employ before two years elapse since the transfer of Partner’s
    control, that officeholder shall be entitled to receive the
    retention payments within 10 days of receiving the termination
    notice. The aggregate sum of all of the payments is USD 6.5
    million.




                  A - 164
                    Correct to the Report Date, Mr. David Avner is holding office as
                    Partner’s C.E.O. On March 16, 2010, Partner’s Board of Directors
                    announced the end of Mr. Avner’s incumbency as Partner’s C.E.O.
                    as of October 1, 2010. Mr. Avner is entitled to certain benefits in
                    relation to his leaving office, including: (1) as of October 1, 2010
                    and for a period of 12 months, which include an advance notice
                    period and an acclimation period, Mr. Avner is entitled to all of his
                    employment benefits; (2) retention grants, which are included in Mr.
                    Avner’s employment contract; (3) a special bonus at 1.5 times Mr.
                    Avner’s basic monthly wage multiplied by the number of years he
                    was employed by Partner; (4) accelerated vesting of all options held
                    by Mr. Avner that were not yet exercisable under Partner’s 2004
                    Option Plan, from the notice date of the end of his incumbency.

                    Partner’s Board of Directors announced that it intends to appoint
                    Mr. Avner to Partner’s Board of Directors, as an active deputy
                    chairman of Partner’s Board of Directors; Mr. Avner will be
                    responsible for developing Partner’s strategy, including mergers
                    and acquisitions, noncellular activities, and other future activities,
                    the network and IT system strategy, and regulatory matters; Mr. Eli
                    Glickman, Partner’s V.P. correct to the Report Date, is expected to
                    be appointed Partner’s C.E.O., replacing Mr. Avner.

4.6.13   Raw materials, procurement and principal suppliers

         4.6.13.1   The main systems required for Partner’s operations, which Partner
                    procures and maintains are the engineering and switching systems
                    of the mobile telecom network and the internet and landline
                    communications network, the billing system and the pre-paid
                    system.   Partner    procures   these      systems from      Israeli   and
                    international    suppliers    affiliated    with     manufacturers      of
                    communications equipment around the world. The support for these
                    systems    can   only be      given   by the       supplier/manufacturer.
                    Furthermore, Partner procures transmission lines from Bezeq and
                    from other communications companies, which are needed to
                    interconnect the switches and Partner’s mobile base stations.
                    Partner also uses infrastructure of Bezeq and other companies to
                    connect communications at customers’ homes.


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4.6.13.2   The table below presents Partner’s procurement ratios in 2009 from
           those principal suppliers upon which Partner is dependent, out of all
           procurement at Partner:
                                                              Ratio of purchases
            Principal products          Principal supplier     out of Partner’s
                                                               total purchases
           Mobile network
           infrastructure and
                                            Ericsson                   5.6%
           maintenance of the
           billing system
           Transmission lines                Bezeq                     2.6%
                                       Juniper Networks
                                      Ireland (“Juniper”)
           ISP communications        via Bynet Computer
                                                                       0.7%
           infrastructure              Communications
                                          Ltd. (“Bynet
                                     Communications”)
           2G mobile telecom
           network infrastructure      Nokia-Siemens
           and the landline          Networks Israel Ltd.              0.6%
           communications            (“Nokia-Siemens”)
           infrastructure
                                     Alcatel-Lucent Israel
           Prepaid system                                              0.3%
                                        Ltd. (“Alcatel”)

4.6.13.3   In Partner’s opinion, it is dependent on the following suppliers:

           a.   Bezeq: in relation to transmission and infrastructure for
                connection to the mobile base stations and to Partner’s
                switches;

           b.   Ericsson: in relation to the engineering switching of the cellular
                telecom network and in relation to licensing and maintenance
                of the LHS billing system used by Partner. LHS is owned by
                Ericsson;

           c.   Juniper,    which    is    represented   in   Israel    by     Bynet
                Communications: in relation to the internet and landline
                communications infrastructure;

           d.   Nokia-Siemens: in relation to the landline communications
                switches and infrastructure (the NGN);

           e.   Alcatel: in relation to Partner’s prepaid system.


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4.6.13.4   Details about principal suppliers
           Partner’s network uses standard equipment obtainable from a
           limited number of suppliers. Following are details about Partner’s
           principal suppliers:

           a.   Ericsson: Ericsson, together with its subsidiaries and/or
                affiliates, is a principal supplier of GSM equipment, with cellular
                switching centers, base station controllers, base transceiver
                stations, transit transmission centers, operational support
                systems and transmission systems equipment. Ericsson is also
                Partner’s principal supplier of GPRS network equipment,
                including GPRS support nodes and gateway GPRS support
                nodes, as a main supplier of UMTS infrastructure equipment.
                On December 20, 2007, Partner engaged in an agreement with
                Ericsson for the supply of 3G radio equipment to replace
                Partner’s existing Alcatel-Lucent 3G equipment and to expand
                its existing 3G network, as well as to provide support and
                maintenance for the Ericsson components in its network. As a
                result, Ericsson became Partner’s sole supplier for its 3G
                network. The existing agreements are for an unlimited term.
                Partner has the right to terminate them at its discretion (at will)
                and/or due to a breach by Ericsson or in instances of
                insolvency, liquidation, etc. Ericsson may terminate the
                agreements in instances of payment default or liquidation,
                under the conditions prescribed in the agreement. Partner has
                the right to purchase support and maintenance services from
                time to time on an annual basis.

           b.   Nokia-Siemens: Nokia-Siemens, together with its subsidiaries
                and/or affiliates,    is    Partner’s    supplier     of   base    station
                controllers,      base     transceiver     stations        and    network
                administration systems equipment, as well as equipment for
                Partner’s NGN landline network, including the core switching
                network. Nokia-Siemens is also Partner’s supplier of switches
                for its IP-based landline telephony services (the class 4 & 5
                switches and media gateway). Additionally, Nokia-Siemens
                supplies Partner with equipment-related services, such as
                technical      support,    modifications   and      development.     The

                                 A - 167
     agreement is in effect until December 31, 2015. Partner has
     two options to extend the agreement for two years each (in
     total, until 2019).

c. Alcatel: Alcatel supplies Partner with infrastructure and
     systems for its intelligent network system, a pre-paid system
     and ATM, SDH transmission systems. The agreements
     between Partner and Alcatel are unlimited in time. Partner may
     terminate them at will and/or due to a breach. Ericsson may
     terminate the agreements only in two instances: liquidation of
     Partner or if Partner is in arrears in payment for a period
     exceeding 60 days after the payment due date (in the absence
     of a right not to pay).

d.   Juniper: Juniper is represented in Israel, for the purposes of an
     agreement signed with Partner, by Bynet Communications. The
     Juniper equipment supplied to Partner relates to internet and
     landline communications infrastructure, including routing and
     switching    equipment       and     information-security    systems.
     Additionally, Juniper and Bynet Communications supply
     equipment-related        services,   such   as   technical   support,
     modifications and development. The term of the agreement is
     unlimited in time. Partner may terminate it at will and/or due to
     a breach. Juniper may terminate the agreement only in one
     instance: if Partner is in arrears in an undisputed payment for a
     period exceeding 90 days after the payment due date.

e.   Cisco Systems Inc. (“Cisco”): Cisco is represented in Israel for
     the purposes of the agreement signed with Partner, by Bynet
     Communications. Cisco’s equipment is used for the landline
     communications and internet infrastructure and is mainly
     switches, communications load balancing equipment and
     designated security systems. Additionally, Cisco and Bynet
     Communications supply equipment-related services, such as
     technical support, modifications and development. The term of
     the agreement is unlimited in time. Partner may terminate the
     agreement at will and/or due to a breach. Cisco may terminate
     the agreement only in one instance: if Partner is in arrears in


                    A - 168
     an undisputed payment for a period exceeding 90 days after
     the payment due date.

     Also installed at Partner is Cisco core switching equipment,
     which is critical to Partner for operating its mobile telecom
     network. Support and maintenance services for this system are
     currently provided through Netcom Ltd. Support services are
     also procured from time to time on an annual basis through a
     local integrator.

f.   Bezeq: Bezeq supplies Partner with transmission services
     required to connect traffic between Partner’s base sites and
     switches, through the leasing of transmission lines. The
     agreement between the parties is in effect until December
     2012. Partner has an option to extend the term of this
     agreement for two more periods of one year each.

g.   Eurocom: in 2009, a substantial portion of Partner’s purchases
     of Nokia handsets were purchased from Eurocom. Until
     recently, Eurocom was one of the Israeli founding shareholders
     of Partner. On November 19, 2009, Eurocom sold its shares of
     Partner to Suny Electronics. Partner believes that its
     purchasing transactions of mobile handsets from Eurocom
     were transacted at commercial standards and at market
     conditions. When needed, Nokia handsets may be purchased
     from Israeli and international suppliers, thereby reducing
     Partner’s   dependence    upon   Eurocom,    however,    these
     purchase prices might be higher than Eurocom’s purchase
     prices. While it was still part of the Hutchison group, Partner
     had benefited from the Nokia end-equipment purchase prices
     and terms as agreed upon between Hutchison and Nokia. Now,
     since Partner has been acquired by Scailex and has ceased to
     be part of the Hutchison group, Eurocom might revise its
     purchasing terms and conditions in relation to Partner. As
     stated, when needed, Nokia handsets may be purchased from
     Israeli and international suppliers, thereby reducing Partner’s
     dependence upon Eurocom. The agreements between Partner
     and Eurocom were made from time to time orally and in writing.


                   A - 169
                   h.   Apple: during 2009, Partner signed an agreement for the
                        purchase of iPhones and marketing thereof in Israel. For
                        details, see clause 4.6.4 above.

                   i.   Scailex: during the Report Period, Partner signed an
                        agreement with Scailex relating to the purchase of Samsung
                        products. See clause 4.6.19.8 hereunder.

4.6.14   Corporate policy relating to working capital items

         Inventory maintenance policy for raw materials and finished goods
         Partner’s inventory includes mainly mobile end-equipment, equipment for
         supply operations of internet services and a variety of accessories (such as:
         batteries, hands-free sets, earphones, etc.). Partner also maintains an
         inventory of replacement parts.

         The inventory maintenance period derives from Partner’s service policy and
         retailing needs. These needs require inventory to be stocked for a period of
         one to three inventory months depending upon the types of inventory. Correct
         to December 31, 2009, the inventory level reaches a total of approximately
         NIS 158 million.

         Product returns policy
         The product returns policy for private customers is subject to and in
         compliance with the Consumer Protection Law.

         Suppliers’ credit
         Partner receives credit from its suppliers for periods ranging between 30 and
         90 days. During the Report Period, the average credit from suppliers and
         service-providers totalled approximately NIS 819 million, representing
         approximately two supplier months.

         Customer credit policy
         Credit in handset sales transactions: Partner offers the option of paying for
         cellular handset purchases in installments of up to 36 equal payments to the
         majority of its customers. Since 2008, Partner has customarily been deducting
         some of the transactions being paid in installments by credit cards at discount
         companies.

         Credit in monthly charges in respect of MRT services: Partner’s customers are
         charged monthly, in billing cycles of varying dates over the month, in respect
         of their consumption of MRT services during the preceding month.

                                     A - 170
         Correct to December 31, 2009, the average customer credit, less doubtful
         debts, totalled approximately NIS 1,628 million, representing approximately
         three customer months.

4.6.15   Financing

         4.6.15.1   Restrictions on Partner in the receipt of credit
                    Correct to December 31, 2009, and to the Report Date in March
                    2010, Partner is complying with all restrictions applicable to it
                    relating to the receipt of credit.

         4.6.15.2   Bonds

                    a.   Bonds (Series A) payable in 2012

                         1.   In March 2005, Partner offered unsecured bonds at the
                              inclusive sum of approximately NIS 2,000 million, which
                              are payable in 2012, and offered according to nominal
                              shekels (“2012 Bonds”). Out of the 2012 Bonds, bonds at
                              the inclusive total of approximately NIS 36.5 million were
                              purchased by Partner Future Communications, one of
                              Partner’s    wholly    owned   subsidiaries.   Subsequently,
                              Partner offered additional bonds to Partner Future
                              Communications at the inclusive value of approximately
                              NIS 500 million. The additional bonds offered to Partner
                              Future Communications as stated do not confer any vest
                              Partner Future Communications any right to receive
                              payments on account of principal or interest until after they
                              are sold to a third party. Correct to the Report Date, none
                              of the aforesaid bonds have been sold by Partner Future
                              Communications to third parties.

                         2.   The 2012 Bonds are listed on the TASE, and some of the
                              members of Partner’s Board of Directors and management
                              members have purchased a portion of the aforesaid Bonds
                              during trading on the TASE.

                         3.   The net proceeds received in respect of the 2012 Bond
                              offering, after deducting the bonds purchased by Partner
                              Future Communications, commissions and expenses, is
                              approximately NIS 1,929 million.


                                        A - 171
                                     4.     Payments of principal and interest on account of the 2012
                                            Bonds are linked to the Consumer Price Index and bear
                                            interest at the rate of 4.25% per annum linked to the CPI.
                                            Correct to December 31, 2009, the effective interest rate
                                            on the 2012 Bonds is 4.65%. The 2012 Bonds are payable
                                            in 12 equal quarterly payments of principal and interest,
                                            payable on the last day of each quarter from June 2009
                                            until March 2012. Correct to the Report Date, the 2012
                                            Bonds are rated by Maalot and Midroog Ltd.: an AA–
                                            rating with a stable outlook (rating of October 5, 2009) and
                                            an Aa2 rating with a negative outlook (rating of September
                                            13, 2009), respectively. Correct to December 31, 2009, the
                                            closing price of the 2012 Bonds was 119.86 points par
                                            value. The fair value of the 2012 Bonds, correct to
                                            December 31, 2009 and 2008, was NIS 1,765 million and
                                            NIS 2,169 million, respectively.

                                     5.     The following table presents the minimum payments of
                                            principal payable for the 2012 Bonds, based on the
                                            Consumer Price Index known on December 31, 2009:

                                                                                     Total in NIS millions
                                     For the year        Total in NIS millions
                                                                                      updated to the CPI
                                           ended          updated to the CPI
                                                                               26   known when the report
                                    December 31:        known on 31.12.2009                            27
                                                                                       was published
                                           2010                  750                         745
                                           2011                  750                         745
                                           2012                  187                         186
                                           Total                1,687                       1,676

                                            Partner intends on financing the balance of the payments
                                            of principal and interest through one or more of the
                                            following sources: banks loans, the securitization of
                                            accounts receivable, the offering and sale of bonds,
                                            available cash or from operational cash flow.

                                     6.     On December 31, 2009, Partner filed an application with
                                            the District Court for approval of the distribution of a


26
     The CPI in respect of November 2009.
27
     The CPI in respect of January 2010.
                                                     A - 172
         dividend at the inclusive sum of NIS 1.4 billion, which does
         not pass the profit test prescribed in the Companies Law.
         Various oppositions and objections filed with the court on
         behalf of the holders of the Series A bonds concerning the
         said distribution were withdrawn after Partner and the
         holders of the Series A bonds reached an agreement
         whereby the annual interest rate on the Series A bonds
         shall be increased in the event of a downgrade in the
         rating of the Series A bonds by the rating company Maalot.
         For additional details, see clause 4.6.15.5.d. hereunder.

b.   Bonds payable in 2016
     On November 29, 2009, Partner announced that it had reached
     an agreement with institutional investors in Israel regarding the
     recruitment of NIS 448 million by way of a private offering (“the
     Offering”) of unsecured Series B bonds not convertible into
     Partner shares (“Series B Bonds”).

     The Series B Bonds are linked (principal and interest) to rises
     in the Consumer Price Index in respect of October 2009. The
     principal of the Series B Bonds shall be paid in four equal
     annual payments in 2013 through 2016, and shall bear interest
     at the rate of 3.4% per annum. As specified hereunder, the
     interest rate that the Series B Bonds bear shall be 0.6% higher
     per annum, until the publication of a listing prospectus or shelf
     offering report under which the Series B Bonds shall be listed
     for trading on the TASE. Correct to December 31, 2009, the
     effective interest rate on the 2016 Bonds is 3.54%.

     The Series B Bonds were assigned an AA- rating with a stable
     outlook by Maalot on November 19, 2009.

     The Series B Bonds were listed for trading on the TASE Tel-
     Aviv Continuous Trading system for institutional investors
     (“TACT-Institutional”). Partner undertook to exert maximum
     efforts to list the Series B Bonds for trading on the TASE by
     June 30, 2010. Notwithstanding that stated, in the event that
     the Bonds are not listed as stated, the Series B Bonds shall
     continue to bear the annual interest rate applicable prior to their


                   A - 173
being listed, as specified above, until they are listed for trading
on the TASE (to the extent that they shall be listed).

As long as the Series B Bonds are not listed for trading on the
TASE, Partner undertook the following:

1.   To pay an interest increment at the rate of 0.6% per
     annum until the publication date of a listing prospectus for
     the Series B Bonds on the TASE or a shelf offering report
     under which the Series B Bonds shall be listed for trading
     on the TASE;

2.   To pay a one-time interest increment at the rate of 0.25%
     per annum in the event of a downgrade of the rating of the
     Series B Bonds, as of the date of the rating company’s
     announcement and until the publication date of the listing
     prospectus of the Series B Bonds or a shelf offering report
     under which the Series B bonds shall be listed for trading
     on the TASE. No additional interest increment shall be
     paid in respect of additional downgrades in the rating,
     should there be any subsequently;

3.   Partner undertook not to pledge assets without the
     consent of the bondholders (subject to a number of
     exceptions);

4.   Undertaking for additional causes for calling for the
     immediate payment of the Series B Bonds, as specified
     hereunder:

     (a) if the rating of the Bonds in Israel shall drop below
         BBB (by Maalot or corresponding rating by another
         rating company);




              A - 174
                                            (b) if Partner shall not meet the financial criteria to which
                                                  it is currently obligated: the financial debt28 to
                                                  EBITDA29 ratio, less capital expenses, shall not
                                                  exceed 6.5,30 and the financial debt to EBITDA ratio
                                                  shall not exceed 4.31

                                      All of the aforesaid undertakings shall be cancelled upon the
                                      listing of the Series B Bonds for trading on the TASE; however,
                                      they shall be reinstated [except for subclause 2. above] if the
                                      Bonds shall be delisted (except if the delisting is a result of a
                                      merger or debt arrangement).

                                      The Bonds were not listed and shall not be listed, pursuant to
                                      the U.S. Securities Act of 1933, as amended, and shall not be
                                      offered or sold in the United States or to residents of the United
                                      States without registration or receipt of an exemption from the
                                      registration requirements.

                                      Partner intends to use the proceeds of the Offering to replace
                                      an existing debt and/or as a substitute for bank loans for the


28
     “Financial Debt” means: the balance of Partner’s debts from time to time pursuant to its financial statements
     in relation to all of the following: (a) loans and debit balances to banks and other financial institutions; (b)
     bonds or other securities under which Partner has a debt towards the holders thereof, including, and without
     derogating from that stated above, any bank guarantee issued in favor of a third party at Partner’s request; (c)
     assigned or deducted receipts (apart from those irrevocably assigned or deducted), provided that a claim has
     been alleged against Partner in relation to the said receipts; (d) the purchase price of any asset, if the
     payment for it is to be rendered more than 365 days after the purchase or receipt of the assets, when the
     deferment of the payment is mainly due to the need to recruit funds or financing for the purchase of the asset;
     and (e) any sum recruited in a transaction, apart from the transactions listed in the above subclauses (a)
     through (d), whose commercial outcome is the same as obtaining credit or recruiting funds, provided that any
     sum pursuant to subclause (e) shall be deemed a financial debt only if, according to the generally accepted
     accounting principles under which Partner operates, this sum must be included in its financial statements. Any
     securitization transaction of Partner that is recognized in its financial statements as a true sale shall not be
     deemed a financial debt.
29
     “EBITDA” means: in any examination period, the cumulative sum of the following components as appearing in
     Partner’s financial statements for the relevant examination period: (a) Partner’s net profit before one-time
     expenses or income (extraordinary items); (b) sums of taxes in respect of Partner’s net profit according to its
     financial statements and provisions made by Partner for taxes (when sums appearing in more than one item
     being taken into account only once for the purpose of the calculation of the EBITDA; (c) depreciation and
     amortization according to the financial statements; and (d) net capital expenditures according to the financial
     statements. Capital expenditures are any expense classified as “fixed assets and intangible assets” in
     Partner’s financial statements.
30
     Correct to December 31, 2009, this ratio is 1.6.
31
     Correct to December 31, 2009, this ratio is 1.1.
                                                        A - 175
                                     purpose of payment of a dividend that shall derive from a
                                     capital reduction [see clause 4.6.15.5.d. hereunder].

                                     The following table presents the minimum payments of
                                     principal payable for the 2016 Bonds, based on the known
                                     Consumer Price Index:
                                                            Sum in NIS millions       Sum in NIS millions
                                         For the year
                                                                updated to the CPI     updated to the CPI
                                              ended
                                                                    known on         known when the report
                                        December 31                             32                      33
                                                                   31.12.2009           was published
                                              2013                   112.25                 112.32
                                              2014                   112.25                 112.32
                                              2015                   112.25                 112.32
                                              2016                   112.25                 112.32
                                              Total                   449                   449.28

                                     Partner intends on financing the balance of the payments of
                                     principal and interest through one or more of the following
                                     sources: banks loans, the securitization of accounts receivable,
                                     the offering and/or sale of bonds, available cash or from
                                     operational cash flow.

                                     The information included in this clause relating to
                                     Partner’s future plans regarding use of the proceeds of the
                                     Offering is forward-looking information, as this term is
                                     defined in the Securities Law, the occurrence of which
                                     depends, inter alia, on final resolutions passed by Partner
                                     and on factors still unknown to Partner.

                  4.6.15.3     Partner’s economic undertakings
                               Correct to December 31, 2009, Partner’s economic undertakings
                               (including current maturities of long-term liabilities) totalled NIS
                               2,433 million, compared with NIS 2,186 million on December 31,
                               2008. The increase in Partner’s indebtedness as on December 31,
                               2009 compared with the corresponding period last year reflects
                               mainly the Series B Bond recruitment in November 2009 and the
                               loan obtained at the sum of NIS 300 million34 in December 2009. On


32
     The CPI in respect of November 2009.
33
     The CPI in respect of January 2010.
34
     See also clause 4.6.15.6.b. hereunder.
                                                      A - 176
           the other hand, the increase was offset by payment of the 2012
           Bonds during 2009.

4.6.15.4   Capital expenditures

           a.   The mobile communications market is a market characterized
                by high demands for capital expenditures, which are needed in
                order to obtain a license to operate a mobile communications
                network, and in order to establish infrastructure for this
                network. The volume of capital expenditures required to
                establish and operate Partner’s mobile telecom networks
                derives from the scope of the coverage, the call tariffs and the
                quality and variety of services that Partner strives to provide to
                its customers. Capital expenditures relating to Partner’s
                networks relate mainly to the quantity of cells in a service
                region, the spectrum of radio frequencies in the cells and the
                requisite conversion equipment.

           b.   During 2008 and 2009, Partner’s capital expenditures reached
                the inclusive total of approximately NIS 589 million and NIS
                522 million, respectively, which were channeled mainly to
                Partner’s networks. Furthermore, Partner invested material
                sums during 2009 in bundling of landline telephony services
                and ISP services. Partner finances its capital expenditures from
                cash flows from current operations.

4.6.15.5   Dividend payments and buy-backs of shares by Partner

           a.   Dividends were declared in respect of 2009 at the inclusive
                sum of approximately NIS 1,059 million (approximately USD
                281 million), or NIS 6.86 per share. This sum represents
                approximately 93% of Partner’s net profit for 2009. In 2009,
                dividends were paid in respect of the fourth quarter of 2008 and
                until the third quarter of 2009 at the inclusive sum of
                approximately NIS 982 million. A dividend in respect of the
                fourth quarter of 2009 was declared on March 16, 2010.
                Dividend payments are distributed by Partner in shekels.

           b.   Partner’s dividend distribution policy in 2009 was a distribution
                of 80% of the annual net profit, the same policy as instituted in
                2008. The total dividend distributions by Partner during 2009

                              A - 177
     reflect a dividend payment ratio of approximately 93% of
     Partner’s annual net profit.

     On March 16, 2010, Partner’s Board of Directors approved a
     dividend policy aimed at paying dividends at a ratio of not less
     than 80% of the net profit for 2010. For details about the
     distribution of a dividend at the sum of NIS 1.4 billion, which
     Partner paid on March 18, 2010, which does not pass the profit
     test prescribed in the Companies Law, and which was
     approved by the District Court, see clause 4.6.15.5.d.
     hereunder.

c.   In February 2008, Partner’s Board of Directors approved a plan
     for the buyback of Partner shares during 2008, at the sum of up
     to NIS 600 million, subject to market conditions. Up until
     September 30, 2008, Partner bought back approximately 4.5
     million of its shares at the average price per share of NIS
     78.44, for the inclusive consideration of approximately NIS 351
     million. Due to the market instability during 2008, Partner’s
     Board of Directors froze Partner’s buyback plan.

d.   On December 27, 2009, Partner’s Board of Directors approved
     the distribution of a dividend at the inclusive sum of NIS 1.4
     billion, or NIS 9.04 per share, in a distribution that does not
     pass the profit test prescribed in the Companies Law (“the
     Planned Distribution”). On December 31, 2009, Partner filed an
     application to the District Court for its approval of the Planned
     Distribution. As part of the Planned Distribution process,
     Partner engaged with leading banks in Israel for the purpose of
     obtaining    a    binding   credit   framework   at   the   sum   of
     approximately NIS 1.5 billion, at variable interest, for a period
     of three to five years (see also clause 4.6.15.6.c. hereunder).

     Various oppositions and objections were filed with the court on
     behalf of Series A bondholders concerning the capital reduction
     and the dividend distribution in Partner. On February 8, 2010,
     Partner reported that a notice regarding the withdrawal of the
     Series A bondholders’ objections and the agreement with the
     Series A bondholders was submitted to the court. Pursuant to


                      A - 178
               the agreement, the Series A bondholders shall withdraw their
               objection to the dividend distribution and the court shall
               approval the distribution in exchange for the covenant that, in
               the event of a downgrade of the current rating of the Series A
               bonds by Maalot, the bondholders shall receive an increase of
               1% in the annual interest rate on the Series A bonds for each
               downgrade in a rating category, from the publication date of the
               downgrade of the credit rating and for as long as the new rating
               is in effect. Similarly, the rise in the interest rate shall be
               cancelled if the rating of the Series A bonds shall be upgraded.
               The interest rate shall be updated accordingly at the rate of 1%
               for each rating category, or at the end of 2010, whichever
               occurs earlier, provided that the increased interest rate applies
               for at least three months. On February 18, 2010, Partner
               reported that it had improved the agreement reached with the
               Series A bondholders, whereby, in the event of a downgrade of
               the current rating of the Series A bonds during 2011, the
               interest on the bonds shall increase by 0.5% for each rating
               downgrade, as long as the conditions prescribed in the
               agreement shall be fulfilled and as of the fulfillment date. The
               rest of the conditions and stipulations in the agreement
               remained without change, including the fact that the agreement
               is subject to the court’s approval of the dividend distribution.
               Partner advised the court about the updated agreement. On
               February 22, 2010, Partner reported that the court had
               approved the distribution of a dividend at the sum of NIS 1.4
               billion to Partner’s shareholders.

               On March 18, 2010, the said dividend was paid. Scailex’s
               share of the dividend totalled approximately NIS 626 million, in
               respect of its holding of 69,238,680 Partner shares.

               Scailex’s Management used the above dividend sum to repay
               debts to banks.

4.6.15.6   Partner’s sources of liquidity
           During the period September – December 2009, Partner engaged in
           four financing agreements with three banks, among the five major


                             A - 179
banks in Israel, which shall be called hereinafter: “Bank A,” “Bank
B” and “Bank C.”

Correct to the Report Date, Partner’s sources of liquidity are as
follows:

a.   Financing agreements with Bank A and Bank B

     1.    Partner signed two credit framework agreements with
           Bank A and a credit framework agreement with Bank B: a
           credit framework agreement dated October 1, 2009 with
           Bank A for the receipt of a shekel credit framework at the
           inclusive principal sum of NIS 250,000,000 (“October
           Agreement”), a credit framework agreement dated
           November 24, 2009 with Bank B for the receipt of a shekel
           credit framework at the inclusive principal sum of NIS
           700,000,000 (“November Agreement”) and a credit
           framework agreement with Bank A dated December 2,
           2009 for the receipt of a shekel credit framework at the
           inclusive principal sum of NIS 250,000,000 (“December
           Agreement”). The main conditions of the agreements are
           the same, apart from particular changes to be specified
           hereunder.

     2.    The types of loans: within the scope of the credit
           framework agreements, Partner can draw short-term loans
           (i.e., for a period not exceeding one year) or on-call loans.
           The minimum withdrawal of loans under the October
           Agreement and the December Agreement is NIS 100,000.
           The minimum loan sum in the November Agreement is
           NIS 100,000 in short-term loans and NIS 600,000 in on-
           call loans. The credit framework in the October Agreement
           is for a period of five years commencing October 1, 2009
           and ending September 30, 2014; the credit framework in
           the November Agreement is for a period of three years
           commencing January 1, 2010 and ending December 31,
           2012; and the credit framework in the December
           Agreement is in effect as of January 1, 2010 until
           December 31, 2012;


                    A - 180
                                 3.   Interest: the interest rate applicable to the loans pursuant
                                      to the October Agreement and the December Agreement
                                      is the interest rate that Bank A charges all of its clientele
                                      for loans of similar type and term as the loans that are the
                                      subject of the agreements (before the addition of a
                                      margin), plus interest at the rate of 0.85% per annum,
                                      which is, correct to December 31, 2009, 1.95%. The
                                      interest rate applicable to the loans pursuant to the
                                      November Agreement is the interest rate that Bank B
                                      charges all of its clientele for loans of similar type and term
                                      as the loans that are the subject of the agreement (before
                                      the addition of a margin), plus interest at the rate of 0.85%
                                      per annum, which is, correct to December 31, 2009, 2.0%.

                                 4.   Non-utilization fee: Partner shall pay a non-utilization fee
                                      at the rate of 0.4% per annum on the average of sums not
                                      utilized out of the credit frameworks. The payment is to be
                                      rendered on a quarterly basis.

                                 5.   Collateral: the loans are not secured by any liens.

                                 6.   Covenants: the principal covenants prescribed in the
                                      agreements are as follows:

                                      (a) Partner is required to comply with financial criteria,
                                           the principal criteria being: (a) the ratio of financial
                                           debt to EBITDA, less capital expenses, must not
                                           exceed 6.5;35 the ratio of financial debt to EBITDA
                                           must not exceed 4.36

                                      (b) an undertaking not to create liens on Partner’s assets,
                                           apart from the following exceptions: (a) liens created
                                           by virtue of provisions of law; (b) liens on goods and
                                           deeds of ownership relating to goods, which were
                                           created during the ordinary course of business and on
                                           letters of credit issued during the ordinary course of


35
     This ratio is calculated in the following manner: financial debt divided by EBITDA, less capital
     expenses. On December 31, 2009, according to the said calculation, the ratio was 1.6.
36
     This ratio is calculated in the following manner: financial debt divided by EBITDA. On December
     31, 2009, according to the said calculation, the ratio was 1.1
                                               A - 181
         business; (c) fixed liens on assets and rights which,
         upon being acquired, had been pledged under a fixed
         lien, provided that the acquisition had been executed
         during the ordinary course of business by way of a
         transaction between a willing seller and a willing
         buyer and the liens were not created in relation to the
         acquisition; (d) liens deriving from capital or operating
         lease agreements; (e) liens deriving from the
         offsetting of balances in bank accounts; (f)         liens
         deriving from a preservation of assets covenant
         effected during the ordinary course of business; (g) a
         specific lien for the acquisition of an asset in favor of
         the party financing the acquisition of the asset; and
         (h) liens in favor of third parties at an aggregate sum
         not exceeding NIS 100 million [this in addition to the
         liens referred to above in subclauses (a) through (g)].

     (c) a ban on mergers, in which Partner shall not be the
         surviving company.

7.   Reduction of credit framework: Partner may choose to
     reduce a credit framework, subject to the payment of a fee
     as prescribed in the loan documents.

8.   Events of default: customary events of default constituting
     cause for immediate repayment were prescribed, such as
     a breach of undertakings or representations pursuant to
     the agreements, winding up, receivership, the appointment
     of a liquidator or other events of insolvency of Partner,
     legal proceedings and attachments of defined material
     sums,   discontinuation    of   Partner’s   businesses     or
     operations for particular periods, particular cross defaults
     of other of Partner’s undertakings at defined material
     sums, an adverse impact on Partner’s license, etc.

9.   Correct to the balance-sheet date, Partner had not utilized
     the credit framework available to it. Correct to March 22,
     2010, Partner had utilized NIS 921 million out of the credit
     framework.


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                             b.   Loan agreement dated December 27, 2009 with Bank C

                                  1.   Type of loan: unlinked shekel, bullet loan,37 at the principal
                                       sum of NIS 300,000,000. The loan was provided to
                                       Partner on December 28, 2009 and is repayable in a bullet
                                       payment on December 27, 2013.

                                  2.   Interest: interest at the annual rate equivalent to prime less
                                       0.35%. The interest payments shall be paid at the end of
                                       every three months after the date the loan was provided.

                                  3.   Collateral: the loan is not secured by any liens.

                                  4.   Partner’s    principal   covenants:     delivery    of   financial
                                       statements; not to grant loans and guarantees other than
                                       during the ordinary course of business and at market
                                       conditions; not to execute any merger if Partner is not the
                                       surviving    company;      not   to   execute      any   split   or
                                       arrangement.38      Furthermore,      Partner   covenanted       to
                                       comply with financial criteria, the principal criteria being:
                                       (a) the ratio of financial debt to EBITDA, less capital
                                       expenses, must not exceed 6.5; the ratio of financial debt
                                       to EBITDA must not exceed 4; (c) the loan principal shall
                                       not at any time exceed 20% of all of Partner’s liabilities
                                       towards the Banks; and (d) not to create liens on Partner’s
                                       assets, apart from exceptions similar to the exceptions
                                       prescribed in the credit framework agreements with Bank
                                       A and Bank B, as specified above.

                                  5.   Early repayment: early repayment is possible at Partner’s
                                       discretion, subject to the payment of an early-repayment
                                       fee, except in particular instances as prescribed in the loan
                                       documents.



37
     Bullet – loan whereby the principal is repaid at the end of the loan term, and only interest is paid
     during the term.
38
     Merger means a merger pursuant to Part Eight or Part Nine of the Companies Law, or any action
     resulting in the acquisition of the company’s assets by an individual or corporation; Split – as
     defined in Part E(2) of the Income Tax Ordinance (New Version) or any provision of law that might
     replace it; Arrangement – as defined in sections 350 and 351 of the Companies Law, or any
     provision of law that might replace them.
                                                 A - 183
                6.    Events of default: the agreement includes customary
                      events of default constituting cause for immediate
                      repayment, similar to the events of default prescribed in
                      the agreements with Bank A and Bank B.

           c.   Additional loans
                Additionally, Partner’s Board of Directors approved the
                obtaining of short-term loans from other banks at a sum of up
                to NIS 200 million, without a framework agreement.

           Partner believes that its sources of liquidity – i.e., cash available for
           immediate use, a cash flow from current operations and Partner’s
           loans, including its abilities to recruit additional funds and notes –
           provide it with sufficient sources of liquidity in order to finance its
           capital requirements, and Partner’s liabilities pursuant to the loan
           agreements, its licenses and its other material liabilities, for a period
           of at least 12 months. Notwithstanding that stated, the precise sums
           that Partner might actually need and the times they might be
           needed could, in the final analysis, be materially different from
           Partner’s assessments.

           The information provided in this clause in relation to the
           capacity of Partner’s cash flow from current operations and
           loans to finance its capital requirements constitutes forward-
           looking information, as this term is defined in the Securities
           Law, the occurrence of which depends, inter alia, on factors
           external to Partner, as well as on factors as yet unknown to
           Partner.

4.6.15.7   International rating
           Partner has an international rating assigned it by Moody’s Investors
           Services (“Moody’s”). On March 15, 2010, Moody’s downgraded
           Partner’s international rating to Ba1 (one category) from Baa3;
           stable outlook. According to Moody’s line of reasoning, the above
           downgrade reflected mainly the change in Partner’s financial profile
           following its acquisition by Scailex, coupled with a liquidity profile
           relying on external financing to finance a short-term liability.




                              A - 184
4.6.16   Taxation

         4.6.16.1   Concise description of the relevant tax laws and the main
                    benefits pursuant thereto

                    a.   General
                         The summary hereunder is of the relevant Israeli tax laws
                         applicable to Partner. To the extent that the discussion relates
                         to legislation still being interpreted by the courts in Israel,
                         Scailex cannot guarantee that the opinions presented here
                         shall correspond with the interpretation given to such legislation
                         in the future. This discussion does not purport to be and should
                         not be interpreted as offering any legal or tax advice, or as
                         encompassing all tax implications applicable to Partner.

                    b.   Reform of the tax laws in Israel

                         1.   On July 24, 2002, a reform of the tax laws was legislated
                              in the Knesset, known as the 2003 Tax Reform. The 2003
                              Tax Reform made material and substantial changes in the
                              Israeli tax laws. Most of the changes under the 2003 Tax
                              Reform came into effect as of January 1, 2003. The 2003
                              Tax Reform presented a transition from a territorial tax
                              method to a personal tax method relative to Israeli
                              citizens. The 2003 Tax Reform also made extensive
                              changes in the international tax stipulations, as well as
                              new tax stipulations relating to taxation of the capital
                              markets, including the revoking of existing tax exemptions.
                              Pursuant to the 2003 Tax Reform, Partner's shares are no
                              longer   considered     foreign-traded    securities,    and
                              accordingly, certain aspects of the Israeli tax laws were
                              amended.

                         2.   On July 25, 2005, shortly after the 2003 Tax Reform, the
                              Knesset approved another tax reform, which was called
                              the 2006 Tax Reform, this, at the recommendation of a
                              committee appointed by the Minister of Finance. Pursuant
                              to the 2006 Tax Reform, a number of additional
                              amendments were made in the Israeli tax laws. The 2006
                              Tax Reform includes a gradual reduction of the tax rates to

                                       A - 185
          individuals and corporations until the year 2010, and
          paved the way for consolidating the imposition of tax on
          interest, dividends and capital gains deriving from shares.
          The majority of the amendments to the Israeli tax laws
          enacted in the wake of the 2006 Tax Reform came into
          effect as of January 1, 2006, subject to a few exceptions.
          Furthermore, a number of transitional orders were issued
          in relation to the amendments to the 2006 Tax Reform.

     3.   Particular issues pertaining to the 2003 Tax Reform and
          the 2006 Tax Reform have remained unclear and open to
          interpretation, due to the wording of the legislative
          amendments and the absence of a binding interpretation
          of the amended legislation by the competent authorities.
          The following analysis is based, therefore, on Partner's
          interpretation     and   understanding   of   the   amended
          legislation.

c.   Structure of general corporate tax
     On July 25, 2005, a law amending the Income Tax Ordinance
     was enacted by the Knesset, which prescribed, inter alia, a
     gradual reduction of the corporate tax rate to 25% by the 2010
     tax year and thereafter.

     On July 14, 2009, the Economic Efficiency Law (Legislative
     Amendments for the Implementation of the Economic Plan for
     2009 and 2010), 5769 – 2009 was passed by the Knesset,
     which prescribed, inter alia, an additional gradual reduction of
     the corporate tax rate to 18% by the year 2016 and thereafter.
     Pursuant to the said amendments, the corporate tax rates
     applicable in the 2009 tax year and thereafter are as follows:

     In the 2009 tax year – 26%; in the 2010 tax year – 25%; in the
     2011 tax year – 24%; in the 2012 tax year – 23%; in the 2013
     tax year – 22%; in the 2014 tax year – 21%; in the 2015 tax
     year – 20%; and as of the 2016 tax year, the corporate tax rate
     of 18% shall apply.




                   A - 186
           d.   Specific stipulations concerning taxation under inflationary
                conditions

                1.   Up until December 31, 2007, taxation of Partner's income
                     was determined according to the Income Tax Law
                     (Adjustments           for   Inflation),   5745   –   1985   ("the
                     Adjustments Law"), whose intention was to try to resolve
                     some of the problems caused to the tax system due to
                     inflation.

                2.   Pursuant to the Income Tax Law (Adjustments for
                     Inflation) (Amendment no. 20), 5768 – 2008 ("the
                     Amendment"), which was passed by the Knesset on
                     February 26, 2008, the provisions of the Adjustments Law
                     shall no longer apply to Partner as of the 2008 tax year.
                     Pursuant to the provisions of the Amendment, transitional
                     orders were prescribed regarding discontinuance of the
                     application of the provisions of the Adjustments Law that
                     had applied to Partner up until the end of the 2007 tax
                     year.

4.6.16.2   Year until which tax assessments have been closed
           Partner has final tax assessments up to and including the year
           ended December 31, 2006.

4.6.16.3   Reasons for the material difference between the tax rates
           applicable to Partner and the effective tax rates
           During the third quarter of 2009, following the amendment to the tax
           rates as stated above in clause 4.6.16.1.c., a net increase of
           approximately NIS 18 million was recorded in the deferred tax
           balance, and, as a result, a corresponding decrease in its deferred
           tax expenses. This reduction in the tax rates constitutes the main
           reason for the material difference between the statutory tax rates
           and the effective tax rates applicable to Partner.

4.6.16.4   Details of the balance of the accrued losses for tax purposes
           and the sums of deferred taxes recognized in respect thereof
           in the financial statements
           The total accrued capital losses of this operating segment as on
           December 31, 2008: approximately NIS 4 million.

                                  A - 187
                    The total carry-forward business losses in a subsidiary of Partner's:
                    approximately NIS 15 million.

                    Deferred tax assets in respect of unutilized carry-forward losses
                    were not recognized, since no future taxable income is anticipated,
                    against which the losses may be utilized.

4.6.17   Environment quality

         4.6.17.1   Environmental quality statutes having material implications on
                    Partner

                    a.   Partner's transmission stations have been established and are
                         operating in conformity with the Non-ionizing Radiation Law,
                         the Building and Planning Law and National Outline Plan no.
                         36. The end equipment being marketed by Partner has been
                         approved by the Ministry of Communications and complies with
                         all requisite standards, including the SAR (specific absorption
                         rate). Partner relies on the disclosures of the manufacturers of
                         the end equipment and does not perform its own independent
                         measurements of the SAR.

                    b.   In 2008, Partner was certified as complying with international
                         standard ISO 14001:2004 for environmental management
                         systems and manages its environmental effects in conformity
                         with this standard.

         4.6.17.2   Expenses relating to environmental quality
                    Partner conducts periodic radiation testing in order to ensure its
                    compliance with the permitted operating standards and the
                    standards of the International Radiation Protection Agency. These
                    tests are conducted through outsourcing by companies authorized
                    by the Ministry of Environmental Protection. During the Report
                    Period, Partner invested approximately NIS 4.2 million in respect of
                    this activity (this sum includes payment in respect of the issuance
                    and renewal of the requisite permits pursuant to the Radiation
                    Regulations).




                                       A - 188
4.6.18   Restrictions and supervision of Partner’s operations

         4.6.18.1   Regulations – general
                    The principal regulations controlling Partner’s operations are the
                    Communications Law, the Telegraph Ordinance, regulations
                    instituted by the Minister of Communications, and the licenses
                    issued to Partner and to corporations under its control.

                    Other regulations applicable to Partner include the Planning and
                    Building Law, the Consumer Protection Law and the Non-Ionizing
                    Radiation Law. Other laws that are likely to be relevant to Partner’s
                    operations are the Restrictive Trade Practices Law, the Class
                    Actions Law, as well as other administrative provisions and orders.

         4.6.18.2   The Communications Law

                    a.   The primary law regulating the telecommunications services
                         sector in Israel is the Communications Law and the regulations
                         instituted by virtue thereof. The Communications Law prohibits
                         any person or entity (apart from the State of Israel itself) from
                         supplying public telecommunications services without receiving
                         a license or permit from the Minister of Communications, and
                         empowers     the   Minister   of   Communications      to   impose
                         substantial pecuniary sanctions on licensees that breach
                         provisions of the license they hold or that cause material
                         damage to the public or to a competitor.

                    b.   General licenses for the provision of telecommunications
                         services on the basis of public telecommunications networks or
                         for the provision of national or international services have been
                         issued up until now to Bezeq, Hot and to three other mobile
                         telecom operators besides Partner, as well as to a number of
                         international operators. The Minister of Communications, can,
                         of course, grant additional licenses in the future (including
                         licenses to other mobile telecom operators).

                    c.   Royalties: pursuant to the Communications Law and the
                         Royalties Regulations, Partner and the Partnership are
                         required to pay royalties to the State of Israel on a quarterly
                         basis as a ratio of its revenues liable for royalties, as defined in
                         the Royalties Regulations. The Royalties Regulations set the

                                       A - 189
                rate of royalties at 4% of the total liable revenue (excluding
                V.A.T.) in 2003, a rate of 3.5% in 2004 and 2005, a rate of
                2.5% in 2007, 2% in 2008, 1.5% in 2009 and a rate of 1% as of
                2010. The royalty payments are quarterly (payable at the end
                of each quarter). In March 2008, a public committee appointed
                by   the    Minister    of   Communications      published    its
                recommendations, including a recommendation to rescind the
                compulsory payment of royalties to the State by telecom
                operators by the year 2012 (subject to a reduction of taxes
                during the years 2008 – 2012). This recommendation has not
                yet been implemented.

           d.   Competition: the communications sector is characterized by
                considerable competitiveness, inter alia, due to the Ministry of
                Communication’s policy of encouraging competition and
                relaxing the preconditions for receiving communications
                licenses. Stipulations protecting Partner from noncompetitive
                conduct are prescribed in licenses issued to Partner and to
                corporations under its control and in licenses issued to other
                operators, in various regulations and in the Restrictive Trade
                Practices Law. The Communications Law also includes a
                number of protective stipulations against discrimination in the
                provision of telecom services.

4.6.18.3   Regulatory developments

           a.   Correct to the Report Date, the regulations pertaining to
                procedures and conditions for receiving a general license for
                the provision of international telecom services prohibit MRT
                operators from applying for a license to operate in this market.
                Subsequent to the recommendation of the public committee
                appointed by the Minister of Communications in March 2008 to
                examine a number of issues in the communications market
                (“Grunau Committee”), the Minister of Communications
                decreed that he shall permit MRT operators to offer
                international telecom services, subject to a change in the tariff
                method, so that the tariff of an international call being
                connected through an MRT device shall be determined by the
                international operator, which shall pay the MRT company
                             A - 190
     according to the tariff specified in the Interconnection
     Regulations for connecting a call in a mobile network, provided
     that the new players, including the international operators, shall
     operate in the MRT sector also as Mobile Virtual Network
     Operators, or that it will be possible for them to do so. For
     additional details about the introduction of a mobile virtual
     network operator (MVNO), see clause 4.6.18.3.k. hereunder.

b.   Licenses for telecom services: in 2004, the Ministry of
     Communications began granting licenses for the provision of
     landline domestic telecom services, for the purpose of opening
     competition with Bezeq and Hot, on a nonuniversal basis.
     Services to be provided pursuant to such licenses (special -
     general licenses) shall be defined explicitly by the licensee, and
     can be provided to customers in a particular region or regions
     and/or to a particular type of customer. Pursuant to the
     conditions of    such licenses, the operator must prove
     cumulative revenues of not less than NIS 50 million during
     three years from the operating date of the service. The term of
     the license is for 20 years. In January 2007, the Partnership
     was granted such a license. The license may be extended by
     the Ministry of Communications for additional periods of ten
     years.

c.   In September 2009, the Ministry of Communications began a
     new proceeding to examine the interconnect tariffs for
     completing a call or for transferring an SMS message in a MRT
     network.

d.   In January 2007, the Minister of Communications declared its
     policy concerning VoB services. This policy permits holders of
     special – general domestic licenses to offer Voice over
     Broadband (VoB) service using a broadband network of
     another domestic operator to access customers, without having
     to pay any connection or interconnect fees in respect thereof to
     the domestic operator whose installations are being used. In
     February 2007, the Partnership’s special – general domestic
     license was amended in order to permit it to provide VoB
     services to the public.
                   A - 191
e.   In August 2008, the Minister of Communications adopted the
     majority of the recommendations of the Grunau Committee,
     including: accelerating the requisite procedures for introducing
     the MVNO operators and other operators with infrastructure
     into the MRT market; issuing a WiMAX spectrum tender for
     MRT use; reviewing the interconnect tariffs and amending them
     accordingly during 2009; conducting negotiations with the
     European Union and/or with member countries of the European
     Union and/or with countries frequently visited by Israelis in
     order to reduce the inbound and outbound roaming charges;
     amending the tariff method when making an international call
     using a MRT device; restricting operators from linking the
     provision of MRT services and associated benefits to the
     purchase of handsets. Another recommendation relates to the
     unbundling of a telecom network in exchange for reducing a
     portion of the restrictions imposed on Bezeq when marketing
     joint service bundles, which, correct to the Report Date, apply
     to Bezeq and its subsidiaries. Furthermore, in August 2008, the
     Israeli government adopted a number of resolutions according
     to the recommendations of the Grunau Committee concerning
     the   following        issues:     mobile   virtual    network      operators
     (MVNOs), roaming charges and interconnect tariffs, as well as
     a resolution instructing the Ministry of Communications to
     examine ways to encourage other MRT operators to enter the
     MRT market, including through the granting of regulatory relief
     and incentives. For additional details about the entry of mobile
     virtual network operators (MVNO), see clause 4.6.18.3.k.
     hereunder.

f.   In April 2008, an amendment to the MRT operators' license
     came    into   effect,      which      prohibits      them   from     offering
     agreements        to     private     customers        with   an     obligatory
     commitment period exceeding 18 months. Furthermore, the
     Ministry of Communications obligated the MRT operators to
     offer their private customers at all times an alternative tariff
     plan having no obligatory commitment period. In January 2009,



                    A - 192
     a number of regulations came into effect that affect Partner's
     operations, as follows:

     1.   During 2008, the Consumer Protection Law was amended,
          so that, as of January 2009, Partner is required to
          discontinue   providing   services   (except   for   air-time
          services), being supplied for a pre-affixed period to
          customers at the end of such period, unless the price for
          these services is pre-affixed for the period subsequent to
          the expiration of that period, or the customer's consent has
          been received to continue providing the services.

     2.   As of January 2009, Partner, as well as all of the rest of
          the MRT operators, is required to set a fixed tariff for
          private customers who are in a commitment period, while
          limiting Partner's ability to raise the tariffs to these
          customers during this period.

     3.   As of January 2009, the air-time unit of a call was
          amended and affixed at one second (instead of 12
          seconds), for the purpose of setting a per-unit charge,
          including the need to charge in respect of interconnect
          fees. The MRT operators are prohibited from offering tariff
          plans to their subscribers that are based on a different air-
          time unit.

g.   In November 2009, an amendment to the MRT operators'
     licenses came into effect, which obligates them to provide the
     same benefits in respect of MRT services to subscribers who
     did not purchase end-equipment from them as the benefits
     received by subscribers who did purchase end-equipment from
     them.

h.   Subsequent to the hearing of the Ministry of Communications,
     as of July 2010, cellular customers, as well as landline
     customers, shall be charged tariffs for international calls to be
     affixed by the international operators, and the international
     operators shall forward the charges for cellular-network-linkage
     fees to the cellular operators. Customers shall no longer be
     charged for air-time by cellular operators.

                   A - 193
i.   The Knesset approved, during the first reading, a draft bill that
     would enable cellular customers to limit in advance the monthly
     sum that they will pay for the subscription.

j.   The Ministry of Communications is conducting hearings and
     examinations in relation to particular issues relating to Partner's
     businesses, such as:

     1.   The Minister of Communications is examining the cost of
          roaming services and might institute new regulations in
          this regard, which might restrict the tariffs that an MRT
          operator can collect for roaming services being provided to
          customers other than its own customers and who use its
          network while visiting Israel, as well as for calls made by
          customers of the MRT operator while abroad. Recently,
          the Minister of Communications asked for detailed data
          relating to roaming from the MRT operators. Due to the
          fact that Partner deems the roaming service charges a
          material source of revenue, such a restriction might have a
          material adverse impact on Partner's revenues.

     2.   The Ministry of Communications and the Cable and
          Satellite Broadcasting Council called for a public hearing in
          order to ascertain whether there is a need to oversee the
          provision of video services via the internet, which can
          compete with the multi-channel television broadcasts.

     3.   The Ministry of Communications is conducting a hearing to
          examine methods for regulating the supply of internet
          access services via the mobile telecom network, and is
          considering, inter alia, applying a similar regulatory format
          as the one applied to the landline market –engagement
          with a broad-band infrastructure provider on the one hand,
          and engagement with an internet service-provider on the
          other hand.

     4.   The Ministry of Communications began a new hearing in
          order to examine various consumer matters and to
          enhance transparency and consumers' ability to make
          choices when consuming communications services.

                   A - 194
     5.   The Ministry of Communications publicized a hearing
          enabling special – general licensees, MRT licensees and
          domestic operator licensees to provide VoB service to
          subscribers who are abroad through telephone numbers
          allotted to them by the licensees. The licensees must
          forward their remarks to the Ministry of Communications
          by April 11, 2010.

     The information provided in this clause in relation to the
     results of hearings and the possible institution of new
     regulations    governing     roaming      services   constitutes
     forward-looking information, as this term is defined in the
     Securities Law, the occurrence of which depends on
     factors external to the Company. There is no certainty that
     that stated above shall actually occur, or that the results
     thereof shall be as assessed by Partner.

k.   Entry by mobile virtual network operators (MVNOs)

     1.   Mobile virtual network operators (MVNOs) are MRT
          operators that do not own a spectrum of frequencies, and
          usually, also do not own a physical mobile telecom
          network. MVNOs engage in contractual agreements with
          existing MRT operators in order to obtain authorization to
          use their existing network infrastructure in order to provide
          service to their customers. The opening of the MRT
          market to MVNOs is likely to increase the competition in
          the market in a way that is liable to adversely affect
          Partner’s business and its financial results.

     2.   During August 2007 and August 2008, the Israeli
          government ordered the Ministry of Communications to
          take all measures needed in order to enable MVNOs
          wanting to enter the Israeli market to do so. To the best of
          Partner’s knowledge, up until the Report Date, 012 Smile,
          Xphone Inc. (“Xphone”), Hot and Netvision announced
          their intent to apply for an MVNO license.

     3.   In July 2009, the Communications Law was amended in
          relation to the opening of the MRT market to MVNOs. This

                   A - 195
          amendment enables the Minister of Communications to
          grant licenses to MVNOs, and prescribes the conditions
          under which the licenses shall be granted as stated up
          until October 1, 2009. Pursuant to the amendment, if any
          given MVNO fails to reach a commercial agreement with
          any MRT operator within six months of the start of the
          negotiations, and to the extent that the Minister of
          Communications and the Minister of Finance believe that
          the commercial terms being imposed on the MVNO by the
          MRT    operator    are   unreasonable,   the   Minister   of
          Communications shall order the MRT operator to permit
          the MVNO to make use of its networks and shall prescribe
          accordingly the conditions and tariffs to be paid in respect
          of such usage.

     4.   In January 2010, the Minister of Communications issued a
          decision regarding the MVNOs, as well as regulations in
          this regard. The regulations enable communications
          companies, subject to particular conditions, to apply for
          MVNO licenses, and, upon reaching agreements on the
          commercial terms with cellular companies, to begin
          providing cellular services. The regulations also prescribe
          particular conditions regarding related companies of
          cellular operators that apply for MVNO licenses.

l.   Number Portability Program
     In March 2005, the Communications Law was amended in a
     manner obligating the Minister of Communication to implement
     a Mobile Number Portability Program, and distinct from this, a
     Landline Number Portability Program, by September 2006. The
     Number Portability Program enables customers in Israel to
     switch from one service-provider to another while retaining their
     mobile/landline telephone number.

     The Number Portability Program was implemented by all of the
     MRT operators on December 1, 2007. The Minister of
     Communications notified Partner and the other MRT operators
     that he is considering the imposition of pecuniary sanctions on
     the MRT operators in respect of the delay. Partner submitted
                   A - 196
     its position in this regard to the Minister of Communications,
     whereby the delay in implementation of the Number Portability
     Program is the result of the Minister’s failure in adequately
     planning and designing the Number Portability Program. As a
     result   of   this      disagreement   with   the   Minister   of
     Communications, Partner is liable to be exposed to pecuniary
     sanctions and additional legal actions.

m. WiMAX frequency spectrum
     In February 2009, the Ministry of Communications announced
     its policy regarding the allotment of frequencies in the WiMAX
     spectrum by way of holding a tender and establishing a
     wireless broadband access network using WiMAX technology.
     WiMAX is a technology enabling long-distance data and voice
     transfers using a wireless technology in a variety of methods.
     The Ministry of Communication’s policy reflects its decision that
     existing MRT operators shall not be allowed to participate in
     the tender offering the WiMAX 2.5 GHz spectrum, which will be
     open mainly to new players in the telecom market. To the
     extent that such frequencies shall be available only to new
     players in the telecom market, Partner’s ability to compete in
     this market will be impaired. If and to the extent that these
     frequencies shall not be available to Partner in the future, this
     is liable to impair Partner’s ability to proceed to the next
     generation of GSM technologies, such as the LTE.

     The information provided in this clause in relation to the
     allotment of the new spectrum constitutes forward-looking
     information, as this term is defined in the Securities Law,
     the occurrence of which depends on factors external to
     the Company. There is no certainty that that stated above
     shall actually occur, or that the results thereof shall be as
     assessed by Partner.

n.   Change in the spectrum allocation in the West Bank
     The Civil Administration in Judea and Samaria, in conjunction
     with the Ministry of Communications, notified Partner that it
     intends on changing the distribution of the spectrum allocated
     to Partner for the operation of MRT services in Judea and
                   A - 197
     Samaria. This change is liable to have a material impact on the
     quality and coverage of Partner’s networks within the borders
     of the State of Israel and on its operating results. At this stage,
     the impact cannot be assessed.

o.   Allocation of UMTS spectrum to other MRT operators
     In May 2009, the Ministry of Communications appointed a
     tender committee for the purpose of allotting 3G (UMTS)
     spectrum at 2.1 GHz, in order to issue a license to a new
     mobile telecom operator and to expand the MRT License of an
     existing mobile telecom operator.

p.   The Minister of Communication’s directives regarding “Network
     Neutrality”
     The Minister of Communications announced a directive to MRT
     operators and to internet service-providers in Israel to maintain
     the neutrality of their networks, in order to avoid any limitation
     of internet use or any other actions that are liable to be
     considered    discriminatory    against   content    providers   or
     prejudicial to subscribers. Partner is currently reviewing the
     implications of this directive on its businesses, if any.

q.   Accessibility for the handicapped
     Partner has been notified that the Knesset Labour, Welfare and
     Health Committee is conducting deliberations regarding service
     regulations for the handicapped, by virtue of the Equal Rights
     for Persons with Disabilities Law. These regulations are to
     address a number of issues, including physical access to
     Partner’s customer-service centers, as well as information
     provided by way of forms, pamphlets, and by the call-in
     customer-service centers. The regulations could open the door
     to claims by virtue of the regulations at the sum of NIS 50,000
     without having to prove damages and could serve as grounds
     for actions pursuant to the Class Actions Law.




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r.   Amendment of the license provisions to restrict operators from
     linking the provision of services to subscribers to the purchase
     of handsets
     Following a protracted hearing process, the Minister of
     Communications amended the MRT operators’ licenses in such
     manner that, as of November 1, 2009, the operators shall be
     restricted from making the provision of various benefits related
     to MRT services, including air-time, contingent upon the
     purchase of MRT end equipment. This amendment will enable
     customers who purchased handsets from other providers to
     enjoy the same benefits as those being provided to operators’
     customers who did purchase handsets from them. Partner is
     currently examining the implications of these amendments on
     its businesses.

s.   Permit for the sale of joint service bundles to companies in the
     Bezeq group and to corporations in the Hot group
     The Ministry of Communications is conducting a hearing
     process, which might result in the Bezeq group receiving a
     permit for the sale of joint service bundles to all companies of
     the group. Such a sale of bundles, would enable Bezeq to offer
     customers a complete package of telecom services in a single
     transaction: landline phone, mobile phone, international call
     services, broadband infrastructure, broadband internet access
     and multi-channel television – an offer that Partner is unable to
     match, including the ability of offering its customers multi-
     channel television services competing with the satellite
     television services offered by Yes. This offer might be attractive
     to Partner’s existing and potential customers, in a way that is
     liable to reduce Partner’s ability to attract new customers for its
     various product lines or might increase the churn rate of
     Partner’s existing customers.

     The information provided in this clause in relation to a
     permit being issued to Bezeq and the implications thereof
     constitutes forward-looking information, as this term is
     defined in the Securities Law, the materialization of which
     depends on factors external to the Company. There is no

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     certainty that that stated above shall actually occur, or that
     the results thereof shall be as assessed by Partner.

t.   Hot Net’s application for an ISP license
     Hot Net Limited Partnership (“Hot Net”), a partnership wholly
     controlled         by     Hot,   has     applied   to    the   Ministry   of
     Communications for an ISP license. Subsequent to the
     application, the Ministry of Communications announced a
     hearing to enable corporations in the Hot group to offer
     customers bundled communications services in a single
     transaction: landline telephony, broadband infrastructure,
     broadband internet access and multi-channel television – an
     offer that Partner is unable to match, including the possibility of
     offering     its        customers      multi-channel    television   service
     competitive to Hot’s services. Such an offer might be attractive
     to Partner’s existing and potential customers, in a way that is
     liable to reduce Partner’s ability to attract new customers to its
     various product lines or might increase the churn rate of
     Partner’s existing customers.

     In a press release dated December 23, 2009, the Ministry of
     Communications presented various mechanisms to be included
     in Hot Net’s license to prevent harm to competition. These
     mechanisms include, inter alia: the stipulation that Hot shall
     market service bundles in a way that does not give preferential
     treatment to Hot Net; the imposition of restrictions on
     information transfer between Hot’s various subsidiaries and Hot
     Net; and the requirement that, under certain circumstances, the
     marketing of service bundles shall be subject to the receipt of
     approval from the Ministry of Communications. The proceeding
     for issuing the license to Hot Net has not yet been completed,
     and changes to the conditions presented above are possible,
     including due to the responses by Hot and its subsidiaries
     and/or due to the responses of the other competitors in the
     market to these conditions, as they shall be received by the
     Ministry of Communications.




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                On March 24, 2010, the Ministry of Communications rejected
                Hot Net’s application for an ISP license, since Hot Net failed to
                submit a business plan as required.

                The information provided in this clause in relation to the
                bundle of communications services of corporations in the
                Hot group and the implications thereof constitutes
                forward-looking information, as this term is defined in the
                Securities Law, the occurrence of which depends on
                factors external to Partner. There is no certainty that that
                stated above shall actually occur, or that the results
                thereof shall be as assessed by Partner.

4.6.18.4   General License for the Provision of MRT Services (“the MRT
           License”)

           a.   On April 7, 1998, the previous Minister of Communications
                granted Partner a general license for the establishment,
                maintenance and operation of an MRT network, and for the
                provision of MRT services to the public in Israel using that
                network.

           b.   In exchange for the MRT License, and pursuant to its
                conditions, Partner undertook to pay royalties, pursuant to the
                provisions prescribed in the Royalties Regulations or other
                regulations might replace them.

           c.   Term of the license
                The validity of this license was extended by an amendment up
                until the year 2022, after which, it may be extended for
                additional six-year terms each, beyond the original or additional
                license term as aforesaid, subject to Partner’s timely
                submission of a license renewal application and subject to the
                Minister of Communication’s certification that Partner had
                complied with the provisions of law and the license and had
                provided MRT services in compliance with that stated in its
                license.

                If a term of the MRT License, the additional term of the license,
                or the term of the license subsequent to its renewal has ended
                and the license was not extended and/or renewed, the Minister

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     of Communications may instruct Partner to continue to operate
     the MRT network for such term as the Minister shall so order,
     until an MRT License is duly issued to another party, and the
     network transfer proceedings pursuant thereto are completed,
     or until a license is duly issued to another party for alternative
     services. The end-of-service term as stated above shall not
     exceed, in any event, two years after the expiration of the MRT
     License. During the end-of-service term, and no later than 10
     months after the issuance of an MRT License to an alternate
     licensee, Partner and the alternate licensee shall conduct
     negotiations regarding the purchase of the MRT network,
     according to its economic value and for the assignment of the
     rights and obligations of the subscribers to the alternate
     licensee; should Partner and the alternate licensee not reach
     an agreement within the said 10 months, the price shall be
     determined by an arbitrator to be appointed by the Institute of
     Certified Public Accountants in Israel, and the arbitrator’s
     decision shall be final.

d.   Pursuant    to     the     MRT   License,   Partner’s   engagement
     agreements with its customers must be approved by the
     Minister of Communications. Furthermore, should the Minister
     of Communications find that any of Partner’s tariffs or a
     demand for payment to Partner or through it is contrary to the
     provisions of its MRT License or is unreasonable or is liable to
     adversely affect competition or consumers, the Minister shall
     so notify Partner, specifying the required correction and the
     sanctions to be imposed if the corrective action is not taken.

e.   Territory of the license
     The MRT License permits Partner to provide mobile telephony
     services within the borders of the State of Israel, as well as to
     offer roaming services abroad and within the territories of the
     civil governance of the Palestinian Authority.

f.   Conditions of the license

     1.   Partner’s MRT License imposes many restrictions on its
          operations. Pursuant to the MRT License, Partner must, at


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     all times, be a company registered in Israel. The MRT
     License is not transferrable, and cannot be pledged or
     attached without the Minister of Communication’s prior
     approval. Furthermore, Partner cannot sell, lease or
     pledge any of its assets being used to carry out the license
     without the Minister of Communication’s prior approval.

2.   Regulatory restrictions on holdings of Israeli and Founding
     Shareholders

     (a) The total holdings of “Founding Shareholders or their
         Alternates” – as this term is defined hereunder
         (including any party being an “Israeli Party,” as
         defined hereunder, who acquired a Means of Control
         from    Partner   and    received    the    Minister   of
         Communications’ approval to be deemed a Founding
         Shareholder or Alternate thereof as of the date so
         prescribed by the Minister), who engaged in an
         agreement inter se for the fulfillment of the provisions
         of clause 22.a of the MRT License – shall not diminish
         from 26% of each of the Means of Control of Partner.
         A shareholding other than as stated above constitutes
         a breach of the MRT License. The Founding
         Shareholders or their Alternates engaged in a
         shareholders’ agreement inter se (Restatement of the
         Relationship Agreement) on April 20, 2005, for the
         purpose of fulfilling the provisions of clause 22.a of
         the MRT License as stated above. For details, see
         clause 4.6.18.5.f. hereunder.

         In this regard:

         “Founding Shareholders or           their   Alternates”:
         Scailex and other parties recognized by the Ministry
         of Communications as Founding Shareholders or their
         Alternates, or any other body to which one of these
         Transferred a Means of Control of Partner, with the
         approval of the Minister of Communications (each of
         the aforesaid bodies – “Founding Shareholder”),


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    provided that the Minister approved in writing that the
    transferee shall be deemed, in this regard, as the
    Alternate of the Founding Shareholder as of the date
    prescribed by the Minister, and including any party
    that is an “Israeli Party,” as defined hereunder.

    “Israeli Party”: in relation to an individual – any Israeli
    citizen and resident of Israel; in relation to a
    corporation – a corporation incorporated in Israel that
    is directly or indirectly controlled by an Israeli citizen
    residing in Israel, provided that indirect Control is
    solely through one or more corporations incorporated
    in Israel. However, in relation to an indirect Holding,
    the     Prime    Minister    and     the    Minister    of
    Communications may approve a Holding through a
    corporation not incorporated in Israel provided that
    that corporation does not directly hold shares of
    Partner, all if they have been convinced that this
    would in no way derogate from the objectives
    specified in clause 22.a of the MRT License. In this
    regard, “an Israeli Citizen” is as defined in the
    Citizenship Law, 5712 – 1952; “Resident” is as
    defined in the Population Registry Law, 5725 – 1965.

(b) The aggregate total Holdings of one or more “Israeli
    Parties,” as defined above, counted among the
    Founding Shareholders or their Alternates, out of the
    total Holdings of the Founding Shareholders or their
    Alternates as stated above, shall not, at any time,
    drop below 5% of the total issued share capital and of
    each of the Means of Control of Partner, after
    neutralizing treasury shares. The Israeli Parties
    engaged in a shareholders’ agreement inter se in
    April 2005 for the purpose of complying with the
    relevant provisions of the MRT License, which was
    amended in August and in October 2005. For details,
    see clause 4.6.18.5.f. hereunder.



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3.   Regulatory restrictions on the composition of the Board of
     Directors and Board committees

     (a) At least ten percent (10%) of the members of
         Partner’s Board of Directors are to be appointed by
         the Israeli Parties, as defined above. Notwithstanding
         that stated above, if Partner’s Board of Directors is
         comprised of up to 14 members, at least one director
         must be appointed by the Israeli Parties, and if the
         Board of Directors consists of between 15 and 24
         members, at least two directors must be appointed by
         the Israeli Parties, and so forth.

     (b) Partner’s Board of Directors shall appoint a Security
         Affairs Committee comprised of directors having the
         required security clearance and deemed suitable by
         the     General       Securities   Service    (“Classified
         Directors”), whose resolutions shall be tantamount to
         resolutions passed by Partner’s Board of Directors,
         and such resolutions shall be deliberated by the
         Board of Directors only if required pursuant to the
         provisions of clause 22.5.a. of the MRT License.

     (c) The Minister of Communications shall appoint an
         observer to Partner’s Board and Board committee
         meetings, who has the required security clearance
         and is deemed suitable by the General Securities
         Service, subject to a number of conditions and
         restrictions    and     an    undertaking    to   maintain
         confidentiality, as prescribed in the MRT License.

4.   Transfer of a Means of Control

     (a) The MRT License prescribes that a direct or indirect
         Holding of any Means of Control of Partner, at a ratio
         exceeding 10% of the same Means of Control,
         whether in a single transaction or in multiple
         transactions, shall not be Transferred without the prior
         written consent of the Minister of Communications.



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                                      (b) The license further prescribes that no Means of
                                           Control whatsoever of Partner, or any portion of such
                                           Means of Control, shall be Transferred in a manner
                                           that would result in Control over the licensee being
                                           Transferred from one person to another, without the
                                           prior   written    consent     of        the    Minister   of
                                           Communications.

                                      (c) The license further prescribes that direct or indirect
                                           Control of Partner shall not be acquired, and that 10%
                                           or more of any Means of Control of Partner shall not
                                           be directly or indirectly acquired by a person himself
                                           or jointly with one of his relatives or with any other
                                           person regularly working with him, whether in a single
                                           transaction or in multiple transactions without the prior
                                           written consent of the Minister of Communications.

                                      (d) Moreover, a shareholder of Partner, or a shareholder
                                           of an Interested Party in Partner, cannot pledge its
                                           shares in such manner that exercise of the lien would
                                           cause a change in ownership of 10% or more of any
                                           Means of Control of Partner, unless the pledge
                                           agreement includes the stipulation that the lien cannot
                                           be exercised without the prior written consent of the
                                           Minister of Communications.39

                                      (e) Notwithstanding that stated above, the MRT License
                                           prescribes that, if a Tradable Means of Control of
                                           Partner were Transferred or acquired at a ratio
                                           requiring approval as stated above (excluding a
                                           Transfer or acquisition resulting in a Transfer of
                                           Control), without the approval of the Minister of
                                           Communications being requested, Partner shall send
                                           a   written   report   of   this    to    the   Minister   of
                                           Communications and shall submit an application to
                                           the Minister for approval of that Transfer or acquisition


39
     In this context, see also clause 4.6.18.5.e. hereunder regarding the Ministry of Communication’s
     approval for the transfer of the Means of Control of Partner to Scailex.
                                               A - 206
           of the Means of Control of Partner as stated, all within
           21 days of the date this became known to Partner.

     (f)   The MRT License prescribes that Holdings without
           approval as required by the license (“Nonconforming
           Holdings”) are to be registered in Partner’s register of
           shareholders and recorded as being nonconforming
           immediately upon this becoming known to Partner;
           Partner must deliver notice of this recording to the
           holder of the Nonconforming Holdings and to the
           Minister of Communications. Nonconforming Holdings
           that shall be so recorded shall not vest the holder
           thereof any rights (apart from the matter of receipt of
           a dividend or other distribution to the shareholders)
           and shall constitute “treasury” shares, as this term is
           defined in section 308 of the Companies Law.

     (g) As long as Partner’s Articles of Association anchor
           the    sanctions    on   Nonconforming   Holdings    as
           specified above, and Partner shall act in compliance
           with that stated above, and as long as the Holdings of
           the Founding Shareholders or their Alternates shall
           not drop below 26% of each of the Means of Control
           of Partner, and as long as Partner’s Articles of
           Association prescribe that the majority of the voting
           power during Partner’s General Meeting is entitled to
           appoint all members of Partner’s Board of Directors,
           (apart from outside directors as required by law
           and/or     the   applicable   TASE   regulations),   the
           Nonconforming Holdings, per se, shall not constitute a
           cause for revoking the license.

     (h) The provisions of subclauses (d) – (f) above
           (inclusively) do not apply to Founding Shareholders or
           their Alternates.

5.   Prohibition of a conflict of interests
     Pursuant to the MRT License, Partner, any body in which
     Partner is an Interested Party, any Officeholder in Partner,


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     Interested Parties in Partner and Officeholders in an
     Interested Party in Partner, cannot be a party to any
     agreement,    arrangement       or        understanding    with   a
     competing    MRT     operator        or     Interested    Party   or
     Officeholder of an Interested Party therein or an
     Officeholder in an Interested Party in a competing MRT
     operator or any other body in which a competing MRT
     operator is an Interested Party, the objective of which is to
     reduce or harm competition, or that is liable to do so, in
     relation to any matters pertaining to MRT services, MRT
     end equipment or other telecom services whatsoever.

6.   Prohibition of cross ownership
     Pursuant to the MRT License:

     (a) Partner, an Officeholder in Partner or an Interested
         Party in Partner, and an Officeholder in an Interested
         Party in Partner, shall not directly or indirectly hold 5%
         or more of any Means of Control of a competing MRT
         operator and shall not serve as an Officeholder in a
         competing MRT operator or in an Interested Party in a
         competing MRT operator. In this context, “Holding” –
         includes holding as an agent.

     (b) An Interested Party in Partner that is a mutual fund,
         insurance company, investment company or pension
         fund, may hold up to 10% of the Means of Control of a
         competing MRT operator, and a mutual fund,
         insurance company, investment company or pension
         fund that is an Interested Party in a competing MRT
         operator may hold up to 10% of the Means of Control
         of Partner, provided that it has no representative or
         officer on its behalf serving as one of the officeholders
         in a competing MRT operator or of the licensee, as
         the case may be, unless required to do so by law.

     (c) Partner, an Officeholder or Interested Party in
         Partner, as well as an Officeholder in an Interested
         Party in Partner, shall not Control a competing MRT


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    operator, and shall not cause, by any act or omission,
    itself/himself to be controlled by a competing MRT
    operator or by an Officeholder or Interested Party in a
    competing MRT operator, or by an Officeholder in an
    Interested Party in a competing MRT operator, or by a
    person or corporation controlling a competing MRT
    operator.

(d) The indirect holding ratio in a corporation shall be the
    product of the holding ratio at each level in the
    concatenation of ownership as specified in and
    subject to that prescribed in the MRT License.

(e) The Minister may, upon written request, permit an
    Interested Party in Partner to directly or indirectly hold
    5% or more of any Means of Control of a competing
    MRT operator, if the Minister has been convinced that
    competition in the MRT sector shall not be prejudiced
    as a result.

    In this context:

    (1)    “Means of control”: of a corporation – any one
           of the following: (a) voting right during a
           company’s general meeting or parallel body in
           another corporation; (b) the right to appoint a
           director or general manager; (c) the right to
           participate in the corporation’s profits; (d) the
           right to a portion of the balance of the
           corporation’s assets after clearance of its debts
           upon liquidation.

    (2)    “Interested party”: whoever directly or indirectly
           holds 5% or more of a particular type of Means
           of Control. In the context of this definition,
           “Holding” includes holding as an agent.

    (3)    “Holding”: in the context of a Means of Control –
           whether directly or indirectly, whether alone or
           Together with Others, including through another,
           including a trustee or agent, or through a right

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       contractually vested, including an option for a
       Holding not deriving from convertible securities,
       or in any other manner.

(4)    “Transfer”: in the context of a Means of Control
       – whether directly or indirectly, whether for a
       consideration or for no consideration, whether
       permanently or for a period, whether in a single
       transaction or in multiple transactions.

(5)    “Together with Others”: cooperation on a
       regular basis; collaborators on a regular basis
       shall be deemed – in relation to an individual,
       himself, one of his relatives, any corporation
       controlled by one of them, while, in relation to a
       corporation – the corporation itself, whoever
       controls it, and whomever that one of them
       controls.

(6)    “Officeholder”: whoever serves as a director,
       general manager, chief business manager,
       deputy general manager, vice president, anyone
       filling such a role in a company even if under a
       different title, and any other manager directly
       subordinate to the company’s general manager.

(7)    “Control”: the ability to direct the activity of a
       corporation, whether alone or Together with
       Others, whether directly or indirectly, including
       an ability deriving from the corporation’s Articles
       of Association, by virtue of a written or oral
       agreement, by virtue of a Holding of a Means of
       Control of that corporation or in another
       corporation or deriving from any other source
       (excluding an ability deriving solely from fulfilling
       of the role of a director or other position in the
       company); whoever Controls a subsidiary or
       other directly held corporation, is deemed as
       controlling   that   other   corporation    that   is


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                controlled by that directly held corporation as
                stated; a person or corporation is presumed to
                Control a corporation if one of the following
                exists: (a) it directly or indirectly Holds 50% or
                more of any Means of Control of a corporation;
                (b) it directly or indirectly Holds any ratio of any
                Means of Control of a corporation that is the
                largest ratio relative to the Holdings of the other
                Interested Parties in that corporation; (c) it has
                the ability to prevent business decisions from
                being made in a corporation, excluding decisions
                regarding an offering of a Means of Control of a
                corporation or decisions concerning the sale or
                liquidation of the majority of the corporation’s
                businesses or a material change therein.

7.   Revocation or restriction of the license, or amendment to
     the license conditions

     (a) Amendment to the license conditions
         The Minister of Communications may amend the MRT
         License conditions, add or subtract from them,
         pursuant to the provisions of section 4 of the
         Communications Law, and, inter alia, should he learn
         that one of the following has transpired, after having
         given Partner a reasonable opportunity to voice its
         arguments:

         (1)    a change has occurred in the extent of Partner’s
                suitability to perform the operations and provide
                the services that are the subject of the license;

         (2)    an amendment to the license is necessary in
                order to ensure fair and efficient competition in
                the telecom sector;

         (3)    an amendment to the license is necessary in
                order to ensure the standards of service being
                provided pursuant thereto;



               A - 211
    (4)    changes that occurred in the telecom sector’s
           technology justify an amendment to the license;

    (5)    a change has occurred in the electromagnetic
           spectrum requirements, which justify, in the
           opinion of the Minister of Communications,
           amendments to the license;

    (6)    considerations of the public benefit justify an
           amendment to the license;

    (7)    a change in the government’s policy in the
           telecom sector justify an amendment to the
           license;

    (8)    an amendment to the license is necessary as a
           result of a breach thereof.

(b) Revoking of the license
    The Minister of Communications may revoke the
    license prior to its expiration date, if one or more of
    the    causes     specified    in        section   6    of    the
    Communications Law has transpired, or in any one of
    the following instances:

    (1)    Partner failed to disclose information to the
           tender committee that it had been required to
           disclose, or disclosed incorrect information;

    (2)    Partner had been required to deliver information
           in   its   possession        to     the     Minister    of
           Communications or to any delegate on the
           Minister’s behalf, which it had been obligated to
           disclose by virtue of the provisions of the MRT
           License or by law, and refused to do so; or
           Partner    delivered false information to the
           Minister of Communications or to any delegate
           on its behalf;

    (3)    Partner failed to comply with provisions of the
           Communications Law, the Telegraph Ordinance
           or regulations pursuant thereto;

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(4)    Partner committed a material breach of the
       license conditions, and, without derogating from
       that stated, including the following:

       a.   Partner is not complying with the coverage
            requirements or the quality requirements
            prescribed in the MRT License;

       b.   Partner failed to pay all royalties and
            frequency fees, or any one of these, by the
            deadline stipulated in the license.

(5)    Partner failed to commence providing services
       pursuant to that prescribed in the license, or
       discontinued, limited or delayed any of its
       services unlawfully; in this context, limiting of a
       service due to technological circumstances,
       which is being limited after having issued a prior
       written detailed notice in this regard to the
       director of the Ministry of Communications, and
       after it has been approved by the director, shall
       not be deemed an unlawful limitation of a
       service;

(6)    Partner failed to invest the sums required for the
       construction and operation of the MRT system at
       the standards of coverage and quality prescribed
       by   the   Ministry   of   Communications,     and
       pursuant to the letter of undertaking, Appendix I
       to the MRT License;

(7)    Partner ceased to possess one or more of the
       attributes that qualified Partner to participate in
       the tender for MRT services or to be a licensee,
       including the following:

       a.   Partner ceased to be a company registered
            in Israel;

       b.   the majority of Partner’s directors are not
            citizens and residents of Israel;


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       c.   Partner’s C.E.O. or one of its directors has
            been convicted of an offense of moral
            turpitude and continues to hold office.

(8)    One of the following has transpired at Partner:

       a.   Partner, an Officeholder or Interested Party
            therein or Officeholder in an Interested
            Party therein, is an Interested Party in a
            competing MRT operator without having
            received a permit for this from the Minister
            of Communications, or failed to fulfill one of
            the conditions stipulated in the permit that it
            received from the Minister as stated;

       b.   an   Officeholder,    Interested     Party   or
            Officeholder in an Interested Party in
            Partner is an Officeholder in a competing
            MRT operator or in an Interested Party in a
            competing MRT operator, without having
            received a permit for this from the Minister
            or failed to fulfill one of the conditions
            stipulated in the permit that it received from
            the Minister as stated;

(9)    One of the following has transpired at an
       Interested Party in Partner, which is a mutual
       fund, insurance company, investment company
       or pension fund:

       a.   it directly or indirectly holds more than 5%
            of any Means of Control of a competing
            MRT operator without having received a
            permit for this from the Minister;

       b.   it directly or indirectly holds more than 5%
            of any Means of Control of a competing
            MRT operator pursuant to a permit from the
            Minister, but also has a representative or
            officer on its behalf among the officeholders


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         in a competing MRT operator, unless it is
         required to do so by law;

    c.   it directly or indirectly holds more than 10%
         of any Means of Control of a competing
         MRT operator, even if it received a permit to
         hold up to 10% of such Means of Control.

(10) One of the following has transpired at an
    Interested Party in a competing MRT operator,
    which is a mutual fund, insurance company,
    investment company or pension fund:

    a.   it directly or indirectly holds more than 5%
         of any Means of Control of Partner without
         having received a permit for this from the
         Minister;

    b.   it directly or indirectly holds more than 5%
         of any Means of Control of Partner pursuant
         to a permit from the Minister, but also has a
         representative or officer on its behalf among
         Partner’s officeholders, unless it is required
         to do so by law;

    c.   it directly or indirectly holds more than 10%
         of any Means of Control of Partner, even if it
         received a permit to hold up to 10% of such
         Means of Control.

(11) Partner, an Officeholder or Interested Party
    therein, or Officeholder in an Interested Party
    therein, Controls a competing MRT operator, is
    Controlled by a competing MRT operator, by an
    Officeholder or Interested Party in a competing
    MRT      operator,   by an Officeholder     in an
    Interested Party in a competing MRT operator or
    by a person or corporation Controlling a
    competing MRT operator.




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(12) Means of Control of Partner or Control of Partner
     were Transferred, in violation of that prescribed
     in clause 21 of the license; notwithstanding that
     stated, a Transfer or acquisition of a Means of
     Control of Partner, directly or indirectly, at a ratio
     requiring approval pursuant to clauses 21.1 or
     21.3 of the license (other than a Transfer or
     acquisition resulting in a Transfer of Control),
     without receiving the prior written consent
     thereto by the Minister as required pursuant to
     these clauses, shall not constitute a cause for
     revoking the license if the prior written consent
     of the Minister was issued for the execution of a
     public offering of a Traded Means of Control or
     for listing of a Traded Means of Control on a
     stock exchange in Israel or abroad, within the
     scope of which, a Means of Control of the
     licensee might be Transferred at a ratio requiring
     approval pursuant to clauses 21.1 or 21.3 of the
     license (other than a Transfer or acquisition
     resulting in a Transfer of Control), all being
     subject to the conditions to be prescribed by the
     Minister of Communications within the scope of
     such consent as stated. A “Traded Means of
     Control” is as defined above.

(13) Partner’s activity contained an act or omission
     that harmed or restrained competition in the
     MRT sector.

(14) A receiver or temporary liquidator was appointed
     to Partner, a liquidation order was issued or
     Partner resolved to voluntarily liquidate.

(15) Partner asked to terminate the license.

(16) Partner breached any of the provisions of clause
     11.A of the license.



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               8.   In times of emergency, the competent authorities may
                    seize control of Partner’s systems and spectrum vested it,
                    for the purpose of defending national security of the State
                    of Israel and to ensure the supply of Partner’s service to
                    Israel’s citizens. Furthermore, the MRT License obligates
                    Partner to provide certain services to Israel’s security
                    forces. Moreover, a portion of Partner’s senior managers
                    are required to receive security clearance from Israeli
                    authorities.

4.6.18.5   Other licenses

           a. Special general license for the provision of domestic landline
               telecom services (“Domestic Operator’s License”)

               1.   A Domestic Operator’s License was issued to the
                    Partnership on January 15, 2007, which enables the
                    construction, establishment, maintenance and operation of
                    a landline telecom network and the performance of
                    telecom operations and the provision of domestic landline
                    telecom services through it.

                    The original term of the license is 20 years, commencing
                    on the license issue date and expiring on January 14,
                    2027. The Minister of Communications may, at the request
                    of the Partnership, extend the validity of the license for
                    additional terms of 10 years each.

               2.   Pursuant to the Domestic Operator’s License:

                    (a) no person shall hold a “Material Holding,” as this term
                         is   defined   hereunder,   unless    the   Minister   of
                         Communications has issued his approval thereof;

                    (b) no person shall Transfer a Means of Control of the
                         Partnership if, as a result thereof, the transferee shall
                         hold a “Material Holding,” unless the Minister of
                         Communications has issued his approval thereof;

                    (c) any party Holding a Means of Control of the
                         Partnership or in an Interested Party therein, is not
                         permitted to pledge them in a manner whereby

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      exercise of the pledge would cause the creditor to
      gain a Material Holding, unless the pledge agreement
      included the stipulation that the pledge cannot be
      exercised without the prior written approval of the
      Minister of Communications. In the context of this
      subclause and in relation to a pledge to a banking
      corporation, “Material Holding” means – a Holding of
      a Means of Control of the Partnership, as a result of
      which, a person gains Significant Influence over or
      gains Control of the Partnership;

(d) notwithstanding      that   stated    above,   a Transfer,
      acquisition or pledge of a Traded Means of Control of
      the limited partner of the Partnership, which does not
      constitute a cause for revoking the MRT License
      issued to the limited partner in the licensee, pursuant
      to that prescribed in clause 14(h) of the MRT License,
      shall not constitute a cause for revoking the Domestic
      Operator’s License. A “Traded Means of Control” is as
      defined above under the MRT License;

(e) no change shall be made in the structure of the
      Partnership, including any change in the identity of
      the partners, any addition of a limited partner or
      general partner, or a general partner becoming a
      limited partner or vice versa, unless the Minister of
      Communications has issued his approval thereof;

(f)   Partner must Hold 100% of the Means of Control of
      the general partner Holding the Partnership, unless
      the Minister of Communications has issued Partner
      prior written approval to Hold of a Means of Control at
      a lesser percentage.

(g) In this context:

      (1)    “Means of Control”: as defined above under the
             MRT License.




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(2)    “Interested Party”: means whoever Holds five
       percent or more of a particular type of Means of
       Control.

(3)    “Holding”: including acquisition, as well as
       “Together with Others,” as these terms are
       defined in the Securities Law, including a
       Transfer or pledge, all without derogating from
       the above definition of “Holding” under the MRT
       License.

(4)    “Material Holding”: Holding of a Means of
       Control of the Partnership, as a result of which, a
       person becomes an Interested Party, as gaining
       Significant    Influence   or   Control   of   the
       Partnership.

(5)    “Transfer”: as this term is defined above under
       the MRT License.

(6)    “Significant Influence”: the ability to exert
       substantive influence over the activity of a
       corporation, whether alone or Together with
       Others or through others, whether directly or
       indirectly, which derives from the Holding of a
       Means of Control of that corporation or of
       another corporation, including an ability driving
       from the corporation’s Articles of Association, by
       virtue of a written or oral or other manner of
       contract, or an ability deriving from any other
       source, but excluding an ability deriving solely
       from fulfilling the role of an Officeholder in that
       corporation; without derogating from that stated,
       a person shall be deemed to have Significant
       Influence over a corporation if he Holds 25% of a
       Means of Control of that corporation.

(7)    “Together with Others” – as this term is defined
       above under the MRT License.



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     3.   The rest of the general conditions of the MRT License
          apply to the Domestic Operator’s License, subject to a
          number of adjustments.

     4.   Pursuant to an amendment to the license in February
          2007, the Partnership was vested the right to offer Voice
          over Broadband (“VoB”) telephony service; i.e., basic
          telephony service provided through the use of a
          broadband access network of another domestic operator
          (currently, the infrastructure of Bezeq and Hot). Another
          amendment to the license in July 2007 vested the
          Partnership the right to provide digital transmission service
          (provision of transmission services with a digital interface
          and in various files), video call service (telephony service
          offering visual capabilities), and “Apple Fiber” service
          (Apple Fiber connection between sites).

     5.   In March 2009, the Partnership was granted a license to
          provide landline telephony services to regions populated
          by Israeli residents in the West Bank. This license is in
          effect until March 2019.

b.   Special license as an internet service-provider (ISP) (“ISP
     License”)

     1.   On April 8, 2008, an ISP License was issued to Partner,
          which is valid until April 7, 2013. Partner may submit an
          application to renew this license no later than 90 days prior
          to the expiration of the License, pursuant to the regulations
          for the special license application. It should be noted that
          on January 4, 2010, clause 11.5 of the ISP License was
          amended so that not every Transfer of a Means of Control
          of the licensee requires the approval of the Minister of
          Communications, but only a change in the Holding of a
          Means of Control of the licensee at a rate of 10% or more
          (in one transaction or in multiple transactions).

     2.   The ISP License enables Partner to perform telecom
          operations and to provide telecom service to recipients of
          the service, including, inter alia, the following services:

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          (a) connection of the recipient of the service to the
                internet, including connection of a content/application
                supplier to the internet;

          (b) allotment of an electronic address in the system for
                the purpose of receiving a text message for the
                recipient of the service;

          (c) establishment and maintenance of an electronic data
                interchange (“EDI”) for data, message and electronic
                document transfers;

          (d) performance        of   the   operations    of   message
                processing, administration and channeling;

          (e) the provision of exclusive analogue and digital lines –
                and “Isranet” network lines to recipients of the service
                for the purpose of data transfers inside system lines
                that a domestic operator shall allot to Partner for its
                use and for the use of recipients of the service.

          (f)   links with other ISP licensees;

          (g) internet connection of content/applications of a
                content/application supplier;

          (h) The ISP License is personal; no right or obligation
                pursuant thereto may be Transferred (directly or
                indirectly) to any other party without the prior approval
                of the Ministry of Communications; however, special
                provisions are included in the license for the Transfer
                of a Means of Control of Partner that do not reach the
                point of a Transfer of Control.

     3.   Partner began supplying commercial ISP services in
          December 2008.

c.   Special license for the provision of Network Terminal Point
     services (“NTP License”)

     1.   On February 4, 2007, an NTP License was issued to the
          subsidiary partnership of Partner – Partner Business
          Communications Solutions, which is valid until February


                    A - 221
     29, 2012. Partner Business Communications Solutions
     may submit an application to renew the license no later
     than 90 days prior to the expiration of the License,
     pursuant to the regulations for the special license
     application. It should be noted that on January 4, 2010,
     clause 11.5 of the NTP License was amended so that not
     every Transfer of a Means of Control of the licensee
     requires the approval of the Minister of Communications,
     but only a change in the Holding of a Means of Control of
     the licensee at a rate of 10% or more (in one transaction
     or in multiple transactions).

2.   Partner Business Communications Solutions may perform
     telecom operations and provide its customers with NTP
     services according to that specified hereunder:

     (a) installation, connection, operation and maintenance of
         end equipment, telecom cabling, distribution cabinets
         and other communications means at the customer’s
         premises;

     (b) preparation and connection of telecom pipes, telecom
         cabling and end equipment at the customer’s
         premises to the telecom network of the domestic
         operator;

     (c) ordering and receipt of telecom lines from a domestic
         operator under the name of Partner Business
         Communications        Solutions,   which   are   to   be
         connected to the customers’ premises and made
         available for the customers’ use;

     (d) representation of customers vis-à-vis a domestic
         operator for the purpose of ordering lines for the
         customers’ use in order to receive the service,
         ordering of changes, the coordination of performance
         of operations, notification of disruptions, payment of
         installation fees and subscription fees; however,
         customers may order lines directly from a domestic
         operator;

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          (e) purchase of end equipment of telecom infrastructure,
                including from a domestic operator;

          (f)   construction and operation of the control means
                required to guarantee the proper working order of the
                system.

     3.   The NTP license is personal; no right or obligation
          pursuant thereto may be transferred (directly or indirectly)
          without    the      prior     approval   of   the   Ministry   of
          Communications.

     4.   Correct    to    the        Report   Date,    Partner   Business
          Communications Solution is inactive and is not providing
          NTP services.

d.   Additional licenses
     The Minister of Communications granted Partner a trade
     license pursuant to the Wireless Telegraph Ordinance. This
     license enables trading in wireless telegraph devices, the
     categories of which have been approved in Israel, which are
     used as MRT end units. Partner also received a number of
     encryption licenses that enable it to engage in encryption
     means within the scope of providing MRT services to the
     public.

e.   The Minister of Communication’s approval

     1.   On October 28, 2009, the Partner Control Acquisition
          Agreement was consummated, under which Scailex
          acquired from Advent all of its holdings of Partner, being
          78,940,104 Partner shares of NIS 0.01 par value each,
          which constituted, correct to the consummation date of the
          Control Acquisition Agreement, approximately 51.22% of
          Partner’s issued and paid-up share capital (not fully diluted
          and disregarding treasury shares held by Partner) (“the
          Means of Control being Acquired”).

     2.   The consummation of the Control Acquisition Agreement
          had been subject, inter alia, to receiving the Ministry of
          Communication’s approval pursuant to the conditions of


                    A - 223
     Partner’s licenses. The application for the Ministry of
     Communication’s approval included an application for
     approval on behalf of Partner, the Partnership and Partner
     Business Communications Solutions for the transfer of the
     Means of Control being Acquired to Scailex pursuant to
     the conditions of the MRT License, the Domestic
     Operator’s License, the ISP License and the NTP License,
     and approval that Scailex shall be deemed the Alternate of
     a “Founding Shareholder” in relation to clauses 21.8 and
     22.1.A of the MRT License, subrogating for Advent, as of
     the consummation date of the Control Acquisition
     Agreement. The Ministry of Communication’s approval of
     the Control Acquisition Agreement was received on
     October 28, 2009 (in this clause – “the Ministry of
     Communication’s Approval”).

3.   Concurrent with the consummation of the Control
     Acquisition Agreement, Scailex sold a portion of the
     Means of Control being Acquired to various parties, in
     such manner that Scailex retained Holdings of Partner
     shares that constituted, at that time, approximately 44.92%
     of Partner’s issued and paid-up share capital and voting
     rights, not on a fully diluted basis (and disregarding
     treasury shares held by Partner) and 43.34% of Partner’s
     issued and paid-up share capital on a fully diluted basis
     (disregarding     treasury   shares   held   by   Partner).
     Additionally, Suny Electronics, the controlling shareholder
     of Scailex, Holds approximately 1.41% of Partner’s issued
     and paid-up share capital (not on a fully diluted basis and
     disregarding treasury shares held by Partner).

4.   Out of the Means of Control of Partner retained under
     Scailex’s ownership subsequent to the consummation of
     the Control Acquisition Agreement as stated above,
     33,551,560 shares, which constituted 21% of Partner’s
     issued share capital on a fully diluted basis, are shares
     registered in Partner’s register of shareholders under the
     ownership of Founding Shareholders or their Alternates,

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                                        as this term is defined in clause 21.8 of the MRT License
                                        (“the Founders’ Shares”), and therefore, are subject to
                                        the transfer restrictions prescribed in the license.40 Out of
                                        the Founders’ Shares, a quantity of 22,934,238 shares
                                        were pledged by Scailex in favor of the trustees of the
                                        Scailex’s bondholders (series A – D), but remained
                                        registered in Partner’s register of shareholders under
                                        Scailex’s name as shares of Founding Shareholders or
                                        their Alternates. The balance of the Founders’ Shares –
                                        i.e., 10,617,322 shares, was deposited in securities
                                        deposits in bank accounts under Scailex’s name at Bank
                                        Leumi Le-Israel Ltd. and at Mizrahi Tefahot Bank Ltd. (at
                                        the ratio of 60% at Leumi Bank and 40% at Mizrahi Bank).

                             f.   Restatement of the Relationship Agreement

                                  1.    The parties to this agreement on the signing date thereof
                                        (in April 2005) were: Advent, Hutchison, Matav Cable
                                        Communications Systems Ltd., Matav Investments Ltd.
                                        (the last two jointly – “Matav”), Elbit Ltd. (“Elbit”),
                                        Eurocom, Polar Communications Ltd. (“Polar”) and Tapuz
                                        Cellular Systems Ltd.

                                  2.    Definitions relevant to the agreement

                                        (a) “Bank of Israel Event”: operation or event that is liable
                                             to cause Partner to become obligated to pay sums or
                                             amend conditions of Partner’s existing or future loan
                                             agreements, pursuant to Bank of Israel directives
                                             restricting loans to related parties.

                                        (b) “Israeli Party”: in relation to an individual – any Israeli
                                             citizen and resident of Israel; in relation to a
                                             corporation – a corporation incorporated in Israel that
                                             is directly or indirectly controlled by an Israeli citizen

40
     Additional shares, constituting approximately 5% of Partner’s issued share capital on a fully diluted
     basis, are owned by Israeli shareholders deemed to be Founding Shareholders or their Alternates,
     who are not Scailex, and, thus fulfills the requirement of the MRT license that 26% of all Means of
     Control of Partner must be held by Founding Shareholders or their Alternates. Pursuant to the MRT
     license, a sale and/or Transfer of the Founders’ Shares (including those shares owned by the
     Founding Shareholders or their Alternates, who are not Scailex) is contingent upon the receipt of
     the Ministry of Communication’s Approval.
                                                  A - 225
    residing in Israel, provided that the indirect control is
    solely through one or more corporations incorporated
    in Israel. However, in relation to an indirect holding,
    the     Prime   Minister    and     the    Minister    of
    Communications may approve a holding through a
    corporation not incorporated in Israel provided that
    that corporation does not directly hold shares of
    Partner, all if they have been convinced that this
    would in no way derogate from the objectives
    specified in clause 22.a of the MRT License. In this
    regard, “an Israeli Citizen” is as defined in the
    Citizenship Law, 5712       – 1952; “Resident” is as
    defined in the Population Registry Law, 5725 – 1965.

(c) “Israeli Shareholders”: Matav, Elbit, Eurocom, Polar
    and any authorized transferee pursuant to the
    agreement.

(d) “Parent Company”: a person holding at least 40% of
    the equity/voting rights in the company, or who may
    appoint at least 40% of the directors of the company,
    or who may appoint the company’s C.E.O., or who
    holds, either personally or pursuant to an agreement
    with other shareholders, 40% or more of the voting
    rights in the company, or who is a parent company of
    any parent company; in relation to the Partnership – a
    person holding at least 40% of the Partnership’s
    equity or who is a partner and is holding, either
    personally or pursuant to an agreement with other
    partners, 40% or more of the voting power in the
    Partnership, or is a parent company of such parent
    company.

(e) “Requisite Minimum Holding Ratio by Israeli
    Parties”: the requisite holding ratio of Partner by
    Israeli Parties pursuant to the MRT License and
    Partner’s Articles of Association (correct to the Report
    Date – 5%).


          A - 226
                                     (f)   “Requisite         Minimum   Holding   Ratio    by   the
                                           Founders”: the requisite holding ratio of Partner by
                                           Founding Shareholders or their Alternates, as defined
                                           under the MRT License (correct to the Report Date) –
                                           26%).

                                3.   Minimum holdings of Partner shares

                                     (a) Each of the Israeli Parties individually undertook to
                                           hold such number of Partner shares at all times so
                                           that, aggregately, the Israeli Parties shall retain the
                                           Requisite Minimum Holding Ratio by Israeli Parties,
                                           which, correct to the Report Date, is 5%. The Israeli
                                           Parties further undertook to hold Partner shares
                                           according     to the proportion    prescribed    in the
                                                         41
                                           agreement.

                                     (b) It was agreed that, subject to a permit from the
                                           Ministry of Communications, and pursuant to the
                                           proportion prescribed in the agreement, each Israeli
                                           Party may sell its holdings to a third party who
                                           complies with the definition of an “Israeli Party” and
                                           who shall assume the seller’s obligations as an
                                           “Israeli Party” in the agreement. Moreover, each
                                           Israeli Party may sell its Partner shares that are not
                                           needed in order to comply with the Requisite
                                           Minimum Holding Ratio by Israeli Parties and any
                                           Partner share purchased after the signing date of the
                                           agreement.

                                     (c) It was determined that Hutchison shall hold a number
                                           of Partner shares constituting the difference between
                                           the Requisite Minimum Holding Ratio by the Founders
                                           and the Requisite Minimum Holding Ratio by Israeli
                                           Parties.

                                4.   Appointment of directors
                                     If the law (including the MRT License and Partner’s
                                     Articles of Association) shall obligate the Israeli Parties to

41
     Elbit (38.313%); Eurocom (28.093%); Polar (10.233%); Matav (23.361%).
                                               A - 227
     appoint a particular number of civilian/Israeli resident
     directors to Partner, the Israeli Parties shall take action to
     comply with such appointment.

5.   Permitted transfers
     A party to the agreement may not transfer its shares if
     such transfer is liable to lead, in the short or long run, to a
     breach of the MRT License or to a breach of an agreement
     between Partner, a lender and such transferor. Subject to
     the provisions of the agreement, any party to the
     agreement may transfer its shares of Partner, provided
     that it obtained all governmental or regulatory approvals
     for such transfer.

6.   Forced transfer

     (a) A party to the agreement that shall commit an Event
         of Default, as this term is defined in the agreement, is
         liable to be required, according to a resolution by
         Partner’s Board of Directors (which shall be passed
         during a meeting excluding directors appointed by
         that same party) to offer its Partner shares to the
         other parties to the agreement.

         In this context, an “Event of Default” means: (a)
         breach of the agreement that has a material adverse
         impact on Partner or that may be rectified but was not
         rectified within 30 days of the date that the breaching
         party received notice of its breach; (b) breach of an
         undertaking       prescribed   in   each    of   Partner’s
         agreements with its lenders (provided that the party to
         the agreement is also a party to such agreements),
         which has a material adverse impact on Partner or
         that can be rectified but was not rectified within the
         period so prescribed in the loan agreement.

     (b) In the event of an Event of Default pursuant to the
         above subclause (a), a sale of Partner shares shall be
         held at a price reflecting a 17.5% discount off the
         market price of a Partner share (as this term is

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         defined in the agreement); in any other instance of a
         breach, such sale shall be held at the market price of
         a Partner share.

7.   Bank of Israel Event
     Under circumstances of a Bank of Israel Event, all of the
     parties shall discuss and cooperate with each other, with
     bona fides with the aim of resolving such an event.

8.   Incidence and termination

     (a) The agreement is in effect until the liquidation of
         Partner or until Partner ceases to exist as a separate
         entity or according to the agreement among all parties
         to the agreement.

     (b) Furthermore, the agreement shall be terminated in
         relation to one of the parties thereto if that party
         ceased to directly or indirectly hold Partner shares
         that it had held in compliance with the Partner holding
         requirements in relation to Israeli Parties or Founding
         Shareholders and their Alternates, as the case may
         be, provided that it ceased to hold such shares
         without breaching provisions of the agreement, the
         MRT License or Partner’s Articles of Association.

     (c) The termination of the agreement as stated above in
         relation to a party to the agreement, shall not release
         that party from any liability (originating in the
         amendment) that arose prior to the agreement being
         terminated in relation to it.

9.   Assignment
     A party to the agreement may assign its rights and
     obligations pursuant to the agreement solely with the
     consent of all of the other parties to the agreement.
     Without derogating from the general purport of that stated,
     and subject to the provisions of the MRT License and the
     provisions of any other law, each party may, by way of
     notice to all of the other parties to the agreement, appoint
     a related party (being an entity directly or indirectly

              A - 229
                     controlled by that same party, or that is an entity directly or
                     indirectly controlled by another entity that is the sole owner
                     of that party) to fulfill the rights and obligations of that party
                     pursuant to the agreement (in whole or in part), without
                     that party being released from its obligations pursuant to
                     the agreement.

                10. Law applicable to the agreement
                     The laws of the State of Israel apply to the agreement. The
                     courts of Tel-Aviv – Jaffa have jurisdiction to settle
                     disputes deriving from the agreement.

                11. Scailex joins the agreement
                     On the consummation date of the Control Acquisition
                     Agreement, Scailex signed a letter of undertaking, under
                     which Scailex affirmed that it shall be obligated pursuant to
                     the agreement and that it shall comply with the
                     requirements prescribed in the agreement and in the MRT
                     License pertaining to the Requisite Minimum Holding Ratio
                     by the Founders. At the same time, the obligations of
                     Advent and Hutchison pursuant to the agreement ended.

4.6.18.6   Permits for the establishment of network sites

           a.   Permits from the Ministry of Environmental Protection

                1.   Adoption of international standards for protecting against
                     radiation: the Minister of Environmental Protection adopted
                     the standards of the International Commission on Non-
                     Ionizing Radiation Protection as a basis for examining
                     whether to grant construction and operation permits for
                     network sites. This standard is an international standard
                     based on many years of research.

                2.   The    Non-Ionizing     Radiation    Law:    the   Non-Ionizing
                     Radiation Law, which, for the most part, came into effect
                     on    January      1,   2007,   replaced     the   Pharmacists’
                     Regulations     (Radioactive      Elements      and    Products
                     Thereof), 5740 – 1980, in relation to subjects pertaining to
                     radiation from mobile network sites. Provisions were
                     prescribe in this law relating to various aspects of non-

                              A - 230
     ionizing radiation, including definition of the powers of the
     Minister of Environmental Protection to grant permits to
     network sites, to set standards for permitted levels of non-
     ionizing radiation and emission, and reporting obligations.
     The law prescribes criminal sanctions in respect of
     violations of provisions of this law.

     Pursuant to this law, the construction and operation of
     network sites is contingent upon the receipt of building and
     operating permits from the radiation commissioner (in this
     clause – “the Commissioner”). In October 2007, the
     Commissioner announced that he will not grant or renew
     permits to operate network sites without the consent of the
     engineer of the local planning and building committee.
     This is liable to cause Partner difficulties in obtaining
     permits for its network sites. The operation of a network
     site without having received a permit from the Minister of
     Environmental Protection could subject              Partner,    its
     officeholders and directors to criminal or civil liability.

3.   Draft of the Non-Ionizing Radiation Regulations: in July
     2008, a number of environmental quality organizations
     filed petitions for remedies against the Minister of
     Communications, the Minister of Environmental Protection
     and mobile telecom companies in light of the delay in
     instituting the Non-Ionizing Radiation Regulations. The
     petition is pending, and the decision of the court has not
     yet been issued in this regard. In December 2008, the
     Minister    of   Environmental     Protection    signed       these
     regulations, without including the restrictions contained in
     the last draft regarding the operation of base stations and
     other facilities (including maximum levels of exposure to
     non-ionizing radiation). If the regulations shall be amended
     to include these restrictions, this is liable to impede
     Partner’s ability to build new sites and to renew operating
     permits for a portion of its existing sites.

The information provided in this clause in relation to a
change in the policy for granting permits and the
                A - 231
     possibility of an amendment to the Non-Ionizing Radiation
     Regulations is forward-looking information, as this term is
     defined in the Securities Law, the occurrence of which
     depends on factors external to Partner. There is no
     certainty that the aforesaid shall actually occur, or that the
     results of its occurrence shall be as assessed by Partner.

b.   Building permits

     1.   Pursuant to the Planning and Building Law, Partner is
          obligated to obtain building permits from various planning
          authorities for the purpose of erecting the majority of its
          base stations. The local planning and building committees
          in each region in Israel may grant building permits as
          stated, provided that these permits comply with the
          conditions prescribed in National Outline Plan 36 [see
          clause 4.6.18.6.c. hereunder]. A local planning and
          building committee is comprised of members of the local
          council of the relevant region.

     2.   The local committee examines the compatibility of the
          application for a building permit to the plans applying to
          the relevant region, as well as the permit’s compliance
          with the conditions prescribed in the Planning and Building
          Law and in National Outline Plan 36, and it may retain
          consultants to assist it with decision-making. The local
          committee is authorized to approve an application for a
          building permit provided that the construction of the facility
          has been inspected and found to be stable and that the
          facility complies with the requirements of aviation safety,
          the requirements of the Israel Defense Forces and
          environmental quality requirements. The local committee
          is also authorized to examine the facility’s integration in
          the landscape. A local committee’s decision not to grant a
          building permit may be appealed to the District Appeals
          Committee for Planning and Building. A person harmed by
          the appeals committee’s decision can appeal its decision
          within the scope of an administrative appeal filed with the
          district court sitting as an administrative court.
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     3.   The decision of the National Council for Planning and
          Building of January 3, 2006 prescribed that a precondition
          for granting a building permit for base stations is that an
          applicant must deposit a letter of indemnity with the local
          committee in respect of all payments of compensation that
          the local committee might be adjudged to pay pursuant to
          claims by virtue of section 197 of the Planning and
          Building Law (mainly claims from plaintiffs concerning
          property devaluation due to the granting of the permit by
          the local committee). The decision also states that this
          interim decision shall remain in effect until directives
          concerning National Outline Plan 36 have been finalized.

          In February 2007, the Minister of the Interior issued his
          decision extending the deadline for filing claims for
          compensation pursuant to section 197 of the Planning and
          Building Law in respect of National Outline Plan 36 by a
          period of one year after the granting of a building permit
          for a facility pursuant to National Outline Plan 36, or six
          months after the actual establishment of the facility
          (whichever is later), without derogating from his power to
          extend the deadline for longer periods in specific cases.

c.   National Outline Plan 36

     1.   National Outline Plan 36, which came into effect on June
          15, 2002, regulates the dispersion of network sites, the
          requisite approvals and how network sites are to be
          erected. Inter alia, provisions are prescribed in the plan
          regarding aviation safety and provisions regarding the
          levels of electromagnetic radiation as it concerns base
          stations. National Outline Plan 36 adopts the standards of
          the International Commission on Non-Ionizing Radiation
          Protection relative to radiation and emission, which had
          already been adopted by the Ministry of Environmental
          Protection. Partner believes that, correct to the Report
          Date, it is complying with the said standards.




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2.   Within the scope of an amendment to the Non-Ionizing
     Radiation Law, in January 2006, an amendment to the
     Planning and Building Law came into effect, under which,
     the National Council for Planning and Building ruled that
     until otherwise decided within the scope of National
     Outline Plan 36, mobile telecom companies shall be
     required to deposit a letter of undertaking to indemnify the
     local planning and building committees in respect of 100%
     of the compensation payments that committees shall be
     adjudged to pay within the scope of claims in respect of
     land devaluation due to a permit issued by the committee.
     Accordingly, correct to the Report Date, in order for
     Partner to receive a building permit for one of its existing
     network sites or for a new network site, Partner must issue
     a letter of undertaking of full indemnification to the local
     committee along with its building permit application, as
     stated above.

     Up until the Report Date, Partner has deposited
     approximately 348 letters of indemnity with local planning
     and building committees as preconditions for receiving
     building permits.

     Partner cannot predict when and if National Outline Plan
     36 shall be amended in relation to the matter of the
     deposit of the letters of indemnity. These recent
     developments are liable to have substantive adverse
     implications on Partner’s financial position and on its
     operating results, as well as on its plans to expand the
     scope of its network coverage.

     The information provided in this clause in relation to
     the possible ramifications of the recent developments
     specified above is forward-looking information, as this
     term is defined in the Securities Law, the occurrence
     of which depends on factors external to Partner. There
     is no certainty that the aforesaid shall actually occur.




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d.   Additional approvals

     1.   The construction of base stations by Partner may also be
          subject to the receipt of approval from the Civil Aviation
          Administration, which is the competent body to ensure that
          the erection of antennas does not hinder air traffic, all
          subject to and depending upon the height and location of
          the antenna. Furthermore, in order to construct a network
          site, Partner is required to obtain the approval of the
          security    forces   relative   to   the   sites’   transmission
          frequencies, an approval that ensures that transmissions
          shall not cause interference in communications among the
          security forces.

     2.   Partner, as well as other mobile telecom operators in
          Israel, installs bi-directional amplifiers for subscribers
          seeking an interim solution to weak signal reception in
          defined indoor locations by amplifying the signal. In light of
          the lack of a definitive policy from planning and building
          authorities, and in light of the practice of other mobile
          telecom operators, Partner did not apply for permits
          pursuant to the Planning and Building Law for such
          amplifiers. Nonetheless, Partner did receive approval from
          the Minister of Communications to connect the amplifiers
          to Partner’s mobile telecom network, and received the
          requisite approvals for operating them from the Ministry of
          Environmental Protection.

     3.   Additionally, Partner constructs and operates microbase
          transceiver stations as part of its transmission networks.
          The various types of microbase transceiver stations
          received a permit from the Minister of Environmental
          Protection in relation to all matters pertaining to their
          radiation levels. Based on an exemption prescribed in the
          Communications Law in that regard, Partner believes that
          building permits are not required for the installation of most
          of these microbase transceiver stations on rooftops;
          however, if, in the future, it shall be ruled that building
          permits are required in order to install these systems, this
                     A - 235
     could impair Partner’s ability to obtain such permits, and
     could adversely impact the quality and coverage of
     Partner’s transmission networks and its ability to continue
     to market its transmission services effectively.

     The information provided in this clause in relation to
     the   need     for    building   permits       for    microbase
     transceiver stations is forward-looking information, as
     this term is defined in the Securities Law, the
     occurrence of which depends on factors external to
     Partner. There is no certainty that the aforesaid shall
     actually occur or that the results thereof shall be as
     assessed by Partner.

4.   Partner    received    a    permit   from     the    Minister    of
     Communications for sales and distribution of all of the
     MRT devices and various end equipment that Partner
     sells. The Minister of Environmental Protection also has
     the power to regulate sales of MRT devices in Israel.
     Pursuant to the Non-Ionizing Radiation Law, a portion of
     the aforesaid devices (including mobile phones), which are
     a source of radiation, have been exempted from having to
     obtain the approval of the Minister of Environmental
     Protection, as long as their Specific Absorption Rate does
     not exceed the rate prescribed in the Non-Ionizing
     Radiation Law. Since June 15, 2002, Partner has been
     required to provide information to customers purchasing
     mobile phones about the Specific Absorption Rate (“SAR”)
     of handsets being sold, as well as information about its
     compliance     with   the   conditions      prescribed    in    the
     Consumer Protection Law in relation to sales of these
     products. The SAR is a measurement of the non-ionizing
     radiation emitted from a cellular handset and absorbed by
     living tissue. To the best of Scailex’s knowledge, Partner’s
     products comply with the conditions and standards in
     relation to all matters pertaining to the SAR; however,
     Partner relies on the SAR data published by the original
     manufacturers of these products and does not conduct

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     independent testing of the SAR of these products and
     handsets. Since the manufacturers' certificates refer to a
     type of device and to prototypes and not to each handset,
     Partner has no information about the actual SAR of each
     handset for the duration of its lifespan.

5.   Pursuant to the amendment of December 2005 to the
     Ministry of Communication’s directive, if the SAR of a
     handset is not measured after being repaired, the repairing
     entity is required to inform the customer of this, by affixing
     a label to the repaired handset stating that the SAR may
     have changed following the repair. The Minister of
     Communications retained a consultant to formulate a
     recommendation regarding the appropriate manner to
     implement the aforesaid directive relating to handset
     repairs, however, up until the Report Date, the Ministry of
     Communications has still not issued any directives, and,
     as a result of this protracted delay, Partner is informing its
     subscribers that changes in the SAR are possible.

6.   In November 2005, the Ministry of Communications
     adopted a new directive pertaining to the import, marketing
     and approval of 2G and 2.5G handsets. Prior to this
     directive, suppliers of 2G and 2.5G handsets in Israel were
     required to obtain an interim, non-binding approval of the
     handset type from the mobile telecom companies prior to
     receiving    final   approval    from       the   Minister   of
     Communications for the supply of these handsets to such
     operators. Pursuant to the directive adopted in November
     2005 as stated, handsets that already received approval
     from the Global Certification Forum prior to their import
     into Israel are exempt from the requirement of receiving an
     interim, non-binding permit from the mobile telecom
     companies. This directive is liable to expose Partner to the
     risk that handsets not inspected and approved by Partner,
     which were distributed by handset suppliers to customers
     and/or to mobile telecom companies, may interfere with
     the proper functioning of Partner’s telecom networks. The

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                             new directive described above does not apply to 3G
                             handsets, which still require approval from mobile telecom
                             operators before the Minister of Communications grants its
                             final approval in respect thereof. Furthermore, this
                             directive requires that all handsets repaired by Partner
                             must comply with all requisite standards in order to obtain
                             approval of the handset type, including standards relating
                             to the safety of the electromagnetic emission levels and
                             the SAR.

                             The information provided in this clause in relation to
                             the inherent risk posed by handsets not being
                             inspected due to the aforesaid directive is forward-
                             looking information, as this term is defined in the
                             Securities Law, the occurrence of which depends on
                             factors external to Partner. There is no certainty that
                             the aforesaid shall actually occur or that the results
                             thereof shall be as assessed by Partner.

                        7.   In June 2007, the Minister of Communications granted the
                             Partnership authorities to enter public land for the purpose
                             of laying and maintaining its transmission network, subject
                             to the consent of the relevant planning committee to
                             approve the Partnership’s plan for the laying of the
                             transmission network. As a result, the Partnership is
                             exempt from having to apply for a building permit pursuant
                             to the Planning and Building Law in relation to the
                             distribution and maintenance of its transmission network,
                             which is located on public land.

4.6.19   Material agreements

         4.6.19.1   Agreement with 012 Golden Lines Ltd. (“Golden Lines”) for the
                    receipt of international telephony services
                    In January 2007, Partner signed a two-year contract, which was
                    extended for another year, and, in November 2009, was extended
                    until March 31, 2011, with the supplier of international call services,
                    Golden Lines, which relates to the execution of any movement
                    relating to Partner’s roaming. The agreement prescribes that


                                      A - 238
           Partner shall channel its customers’ calls while they are abroad, and
           international calls made from foreign handsets using Partner’s
           network in Israel via Golden Lines. Furthermore, pursuant to the
           agreement, all international signaling traffic relating to Partner’s
           customers abroad and foreign customers using Partner’s network
           when visiting in Israel shall be channeled through Golden Lines.

4.6.19.2   Agreement with Ericsson relating to 3G mobile telecom
           equipment
           In December 2007, Partner signed an agreement with Ericsson for
           the replacement of the existing 3G radio equipment in Partner’s
           network, which had been supplied by a third party, and for an
           investment in the 3G network (which is to be added to an
           investment in network support and maintenance). During 2008, the
           parties agreed to add equipment at the value of USD 4 million to the
           above agreement (the value of which is calculated after deducting
           commercial discounts, some of which are subject to future
           negotiations relating to additional purchases of services that Partner
           is assuming will take place). Even though the majority of the
           equipment was replaced during 2008, the process is expected to be
           completed no later than June 2011.

4.6.19.3   Agreement with Bezeq in relation to landline communications
           services
           In July 2008, Partner signed an agreement with Bezeq for the
           supply of transmission services of landline communications. The
           agreement replaced an earlier transmission agreement between the
           two from 2003, and applies retroactively for five years as of
           December 2007. Partner has an option to extend the term of the
           agreement for two more one-year terms. This agreement includes a
           basic package for a fixed number of lines, and offers additional
           transmission services that Partner can purchase at its discretion.
           Partner assesses that the costs relating to services provided by
           Bezeq shall total approximately NIS 60 million per annum.

4.6.19.4   Agreement with Apple
           See clause 4.6.4 above.




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4.6.19.5   Agreement with Eurocom
           During 2009, Partner purchased a material quantity of Nokia
           handsets from Eurocom Communications Ltd. See clause 4.6.12.4
           above.

4.6.19.6   Agreement with Orange International
           See clause 4.6.11.3 above.

4.6.19.7   Agreement with Industrial Buildings Ltd.
           On December 27, 2009, Partner’s Audit Committee and Board of
           Directors approved an extension of the lease agreement with
           Industrial Buildings Ltd. for Partner’s head offices.

4.6.19.8   Agreement with Scailex for the purchase of Samsung products
           On December 27, 2009, Partner’s Audit Committee and Board of
           Directors approved and ratified a master agreement with Scailex.
           The agreement adopts previous agreements that had existed
           between the parties in relation to purchases of Samsung mobile
           phones, accessories and replacement parts, which Scailex imports
           and distributes in Israel. The agreement is in effect for three years
           as of the date Scailex acquired control of Partner (October 28,
           2009). The volume of transactions to be transacted with the scope
           of the agreement shall not exceed NIS 250 million per annum (this
           sum may be increased to an aggregate total of up to NIS 300 million
           per annum, subject to the receipt of approvals as prescribed in the
           agreement). Pursuant to the agreement, the prices of the products
           to be purchased by Partner will be affixed during negotiations
           between the parties, subject to the stipulation that Scailex’s gross
           profit rate from these transactions shall not exceed its average
           gross profit rate from similar transactions with all parties it sells to
           during the same calendar year in which the transactions were
           executed. If Scailex’s profit rate from these transactions shall
           exceed its average annual profit rate from similar transactions by
           more than 10%, Scailex shall credit Partner with the difference
           accordingly. The validation of the master agreement is subject to
           approval by Partner’s General Meeting.




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4.6.20   Legal proceedings
         During its ordinary course of business, Partner is a party to a number of civil
         and criminal proceedings, the outcome of which is liable to include, inter alia,
         the imposition of liabilities or criminal penalties against officeholders and
         directors of Partner. In some of the said proceedings, plaintiffs have petitioned
         for recognition of their action as a class action.

         Partner recognizes provisions for legal claims in its financial statements that it
         is liable to incur as a result of these proceedings only when the assessment of
         the risk of a liability in respect of past events exceeds 50%, and provided that
         the total liability may be reasonably quantified or assessed. The sum of the
         provisions recorded by Partner in respect of these proceedings is based on a
         case-by-case assessment of the risk level, and events arising during the
         course of legal proceedings may require a reassessment of this risk. Partner’s
         assessment of risk is based both on the advice of legal counsel and on
         Partner’s estimate of the anticipated reasonable total liability, including in the
         event of a settlement, if achieved, between the parties.

         The provisions allocated by Partner in its financial statements in respect of
         legal and regulatory proceedings totalled an immaterial sum.

         Following is a description of the most material proceedings to which Partner is
         a party, and which are liable to have a material adverse impact on Partner’s
         financial position. Apart from particular cases otherwise indicated, the
         applications in the proceedings described below have not yet been approved
         by the court as a class action:

         4.6.20.1   On August 9, 2007, a statement of claim and a petition to recognize
                    the action as a class action were lodged at the Tel-Aviv – Jaffa
                    District Court against Partner. The claim and petition allege that
                    Partner   discontinues    the   provision   of   services   to   prepaid
                    subscribers who have not used their lines for a period of thirteen
                    months and transfers the numbers of their lines to other
                    subscribers. The claimants allege, inter alia, that this breaches the
                    conditions of Partner’s license, as well as provisions of the
                    Consumer Protection Law relating to disclosure requirements and
                    the prohibition of deception. If the claim is recognized as a class
                    action, the claimants estimate their total claim at the sum of
                    approximately NIS 161.7 million.


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4.6.20.2   On December 16, 2007, a statement of claim and a petition to
           recognize the action as a class action were lodged at the Tel-Aviv –
           Jaffa District Court against Partner and against two other mobile
           telecom companies. The claim and petition allege that mobile
           network sites were unlawfully erected close to the claimants’
           properties, creating an environmental hazard. The claimants are
           seeking various remedies, including removal of alleged unlawful
           installations, and the sum of NIS 1 billion (NIS 1,000 per person
           multiplied by one million people allegedly exposed) to be deposited
           in a fund that shall be administered by experts in mobile
           telecommunications and environmental quality.

4.6.20.3   On April 22, 2009, a statement of claim and a petition to recognize
           the action as a class action were lodged at the Tel-Aviv – Jaffa
           District Court against Partner. The claim and petition allege that
           Partner charges particular subscribers for particular calls other than
           in accordance with their tariff plan. If the claim is recognized as a
           class action, the total claim against Partner is estimated by the
           claimants to be approximately NIS 187 million.

4.6.20.4   On August 17, 2009, a statement of claim and a petition to
           recognize the action as a class action were lodged at the Central
           District Court against Partner, against another mobile telecom
           operator and against two companies providing content and
           integration. The claim and petition allege that Partner charged
           subscribers for particular content services without their consent. If
           the claim is recognized as a class action, the total claim against
           Partner is estimated by the claimants at approximately NIS 228
           million.

4.6.20.5   On November 17, 2009, a statement of claim and a petition to
           recognize the action as a class action were lodged at the Jerusalem
           District Court against Partner, against two other mobile telecom
           companies and against the Minister of Communications. The claim
           alleges that Partner and the two other companies discriminate
           against secular subscribers by not offering them tariffs and terms
           identical to those offered to the religious sector. If the claim is
           recognized as a class action, the total claim against all of the
           defendants together is estimated by the claimants at approximately
                             A - 242
           NIS 900 million. On February 11, 2010, the claim was dismissed.
           Correct to the Report Date, the period of appeal against the said
           dismissal has not yet elapsed.

4.6.20.6   On March 18, 2010, a statement of claim and a petition to recognize
           the action as a class action were lodged at the Central District Court
           against Partner. This claim alleges that Partner charges its
           subscribers in respect of particular content service packages
           without their consent. Should this claim be recognized as a class
           action, the total claim has been estimated by the claimant at
           approximately NIS 175 million.

4.6.20.7   Additional statements of claim have been lodged against Partner in
           relation to a number of issues, coupled with petitions for recognition
           thereof as class actions, one of which, at an immaterial sum, was
           recognized as a class action. The aggregate of these claims against
           Partner has been estimated by the claimants at approximately NIS
           524 million.

4.6.20.8   Section 197 of the Planning and Building Law prescribes that a
           property owner has the right to sue the local planning and building
           committee for compensation in respect of property devaluation
           caused to the property of the property owner as a result of approval
           of a new building plan under the jurisdiction of that local committee.

           In January 2006, the Non-Ionizing Radiation Law was promulgated,
           which indirectly amended the Planning and Building Law and
           obligates local planning and building committees to require letters of
           indemnity from the mobile telecom companies applying for building
           permits for mobile network sites in respect of property devaluation.
           The amendment prescribed that the National Council for Planning
           and Building shall affix the volume of indemnification to be imposed
           on mobile telecom companies.

           Pursuant to the said amendment, on January 3, 2006, the National
           Council for Planning and Building issued an interim decision,
           making the issuance of building permits to mobile network sites by
           local planning and building councils contingent upon mobile telecom
           companies providing letters of indemnify covering the full extent of



                             A - 243
           the property devaluation. This decision shall remain in effect until an
           amendment to National Outline Plan 36 is approved.

4.6.20.9   Between January 3, 2006 and December 31, 2009, Partner issued
           348 letters of indemnity unlimited in sum to local authorities as a
           pre-condition for obtaining building permits.

           In light of the fact that no claims in respect of devaluation resulting
           from the installation of a telecom facility have been received against
           mobile telecom companies, the extent of Partner’s exposure due to
           the issuance of the letters of indemnity cannot be assessed.

           If Partner shall be adjudged to pay material payments under the
           letters of indemnity, this could have an adverse impact on Partner’s
           financial results.

           Partner assesses that the requirement of issuing letters of indemnity
           might give rise to a need to relocate mobile network sites to less
           suitable locations, and, in some instances, to dismantle sites. The
           said change in the distribution of the sites is liable to have an
           adverse impact on the scope, quality and capacity of the mobile
           telecom network coverage.

           During 2009, two criminal proceedings were lodged against Partner
           concerning the erection of mobile network sites. Correct to
           December 31, 2009, nine criminal proceedings against Partner are
           pending in courts in Israel in relation to the erection of mobile
           network sites. One of the said charges was also lodged against
           officeholders in Partner. Partner is conducting contacts with the
           relevant authorities in an attempt to reach arrangements for
           relocating the sites that are the subject of the proceedings, or to
           obtain building permits for them. The aggregate sum that Partner
           paid in respect of penalties during the first nine months of 2009
           reached approximately NIS 103 thousand. The outcome of previous
           proceedings lodged against Partner (but not against officeholders or
           directors of Partner) was Partner’s admission of guilt and the
           payment of a penalty, as well as the issuance of demolition orders
           for sites that were the subject of the proceeding. The actual
           execution of the said demolition orders was postponed in order to



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                    give Partner an opportunity to obtain building permits for them, or to
                    take action to relocate them.

                    The information included in this clause in relation to the
                    possibility that Partner might be forced to relocate mobile
                    network sites and/or to dismantle them is forward-looking
                    information, as this term is defined in the Securities Law, the
                    occurrence of which depends, inter alia, on factors external to
                    Partner. There is no certainty that the aforesaid shall actually
                    occur or that the results thereof shall be as assessed by
                    Partner.

         4.6.20.10 In addition to that stated above, Partner is a party to various
                    proceedings being lodged against it during its ordinary course of
                    business.

4.6.21   Objectives and business strategy
         Partner plans to continue increasing revenues and profitability, and to continue
         to create value for Partner’s shareholders, customers and employees. In order
         to accomplish this objective, Partner intends to operate on a number of
         planes:

         4.6.21.1   Expand the use of 3G services and increase the subscriber
                    base
                    Notwithstanding the tremendous speed at which Partner’s products
                    have penetrated the market in Israel, Partner believes that it can
                    increase revenues from its existing customers and add new
                    customers as subscribers to Partner. Partner believes that the
                    revenues from 3G and data card customers, who consume more
                    information and content services, constitute a main source of
                    growth for Partner. Partner leverages its superb reputation for
                    quality, innovation and customer service for the purpose of
                    developing 3G business services that will enhance Partner’s profits.
                    Partner is constantly launching new 3G products, the aim being to
                    attract customers and increase consumption of data services.
                    Furthermore, Partner strives to offer desirable content and make its
                    3G services widely accessible and affordable.




                                      A - 245
4.6.21.2   Expand and diversify its portfolio of products and services,
           and maximize the synergies between the new operating
           segments and the mobile telecom operating segment
           Partner believes that there is an opportunity to increase and
           diversify its portfolio of products and services beyond its core
           business of mobile telecom services to become a comprehensive
           communications provider of landline telephone, transmission
           services, ISP and associated communications fields. For the
           purpose of expanding into these new fields, Partner is using its
           wireless network and optic fiber network, as well as leased
           transmission   lines.   Furthermore,   in relation to     Voice   over
           Broadband services, Partner is using the existing infrastructure of
           the general domestic operator licensees – Bezeq and Hot.
           Moreover, Partner plans to enrich the media and content services
           that it offers in order to attract new customers and raise the level of
           satisfaction and loyalty of its existing customers. Partner’s licenses
           to operate in various communications areas enable it to provide a
           wide range of services that could be used to create a bundle of
           communications services that Partner believes will favorably affect
           its ability to curb churn rates, increase customer loyalty, maximize
           the synergy between Partner’s various lines of business and
           generate new revenue channels. In the foreseeable future,
           however, Partner does not believe that revenues from its new
           services will be significant compared with its revenues from its
           mobile telecom segment.
           The information provided in this clause in relation to the
           desired results of its business strategy presented above is
           forward-looking information, as this term is defined in the
           Securities Law, the occurrence of which depends, inter alia, on
           factors external to Partner. There is no certainty about what the
           actual results shall be.

4.6.21.3   Preservation of brand power
           Partner believes that a focused marketing strategy based on the
           leading international Orange brand is important to increase
           Partner’s customer base and to sustain customer loyalty. Partner
           intends to continue promoting the brand, including in relation to its


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                        3G services. Partner also intends to support the brand by continuing
                        to focus on customer service, innovation and the quality of its
                        network.

4.6.22   Forecasted development in the coming year

         Partner retained the services of McKenzy for the purpose of preparing an
         efficiency plan for it in the following areas:
         a. procurement, including procurement of end equipment;
         b. customer service call-in centers;
         c.   sales channels and the new activity in the landline telephony and internet
              fields;
         d. organizational restructuring.

         McKenzy’s recommendations are currently being implemented by Partner’s
         Management. These recommendations engage, inter alia, in streamlining of
         processes and in adapting Partner’s resources to its objectives and changing
         needs.

         During 2010, Partner intends to invest in fixed assets at a sum similar to its
         investments in 2009.

4.6.23   Discussion of risk factors

         The information provided in this clause hereunder in relation to the
         possibility of events occurring in the future that might affect Partner’s
         businesses and financial position is forward-looking information, as this
         term is defined in the Securities Law, the occurrence of which depends
         on factors external to Partner. There is no certainty that the aforesaid
         shall actually occur or that the results thereof shall be as assessed by
         Partner.

         4.6.23.1       Regulatory risks

                        a.   General

                             1.    Partner operates in a highly regulated telecommunications
                                   market, which limits Partner’s management flexibility and
                                   might have a material adverse impact on its operating
                                   results.   The       regulatory   supervision   over   Partner’s
                                   operations oversees a broad range of issues, such as:
                                   roaming charges, interconnect tariffs and other billing and
                                   customer service matters; construction and licensing in

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     relation to antennas and other facilities and networks; the
     supply of access to existing or new telecom service-
     providers;    spectrum   allocations;    the   imposition   of
     restrictions on the products and services that Partner sells;
     prescribing conditions in agreements with subscribers and
     restrictions in Partner’s general license. In addition, the
     Minister of Communications has declared his intent to
     increase the competition in the mobile telecom market,
     inter alia, by granting licenses to Mobile Virtual Network
     Operators     (MVNOs),    Microwave      Access     (“WiMAX”)
     licenses and other licenses as of 2009, for use on
     Partner’s mobile telecom networks by other telecom
     operators using technologies that compete with or are
     supplementary to those that Partner uses, such as Voice
     over Broadband over Cellular (“VoBoC”). Furthermore, the
     Minister of Communications, in conjunction with the
     Minister of Finance, has established a committee for the
     allocation of UMTS spectrum to one or more mobile
     telecom operators in Israel.

2.   The strict regulatory supervision of Partner’s operations
     impose material constraints on Partner’s flexibility in
     managing its businesses, and it may hinder Partner’s
     competitive capabilities, inter alia, by limiting Partner’s
     ability to develop its networks; by preferring new or small
     competitors     when     allocating     spectrum,    including
     frequencies designated for the next generation of mobile
     telecom services; by increasing Partner’s expenses,
     reducing its revenues and constraining Partner’s ability to
     develop its businesses. Moreover, the enactment of new
     legislation, the adoption of new regulatory directives,
     amendments to existing laws, revised interpretations of
     existing laws and regulatory directives and changes in
     regulatory policies are liable to have material adverse
     effects on Partner’s businesses and operating results.

3.   In addition to that stated above, Partner invests substantial
     financial and management resources in its defense

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          against allegations raised by the state and by subscribers
          relating to alleged breaches of regulatory directives by
          Partner. There is a risk that Partner’s defense against
          these allegations may not be successful, and that
          accordingly,      Partner,        its   incumbent    managers    and
          directors may be charged civil penalties or even criminal
          penalties, including the loss of Partner’s operating license.

     4.   New and future regulations and new agreements on
          roaming tariffs, both within Israel and abroad, are liable to
          increase Partner’s roaming expenses, restrict Partner in
          raising its tariffs, detract from Partner’s attractiveness to its
          subscribers, both in terms of price and quality, and thus,
          adversely        impact        Partner’s   roaming    revenue    and
          profitability.

b.   Difficulties in obtaining some of the building and environmental
     permits required by Partner in order to erect and operate its
     network sites are liable to have an adverse impact on the
     quality, coverage        and capacity of Partner’s network. The
     operation of Partner’s network sites without building permits
     and other requisite permits is liable to subject Partner, its
     managers and directors to civil or criminal liability.

     1.   National Outline Plan 36: in a number of instances,
          authorities have refused to grant building permits to
          Partner for network sites operating on 3G frequencies,
          alleging that 3G frequencies are not included in National
          Outline Plan 36 of June 2002, which regulates the
          licensing procedures for network sites. There has been no
          judicial ruling on this issue to date. Nonetheless, a class
          action has been lodged against Partner and other mobile
          telecom network operators seeking to revoke building
          permits     issued        in    relation   to   3G   network    sites.
          Furthermore, the proposed amendments to National
          Outline Plan 36 impose additional restrictions and
          requirements on the construction and operation of network
          sites, which could, if passed, impair Partner’s ability to
          construct new network sites, cause the site construction
                    A - 249
     process to become more prolonged and costly, and delay
     the future development of Partner’s networks.

2.   Legality of the exemptions for wireless access devices –
     Partner has established a few hundred wireless telecom
     access devices (“Access Devices”), in conformity with the
     Communications Law, which exempts these devices from
     the requirement of a building permit. There have been
     allegations and claims with conflicting decisions relating to
     the applicability of the said exemption.

     The recommendations of an interministerial committee
     deliberating this issue have been submitted to the State
     Attorney-General, following which, the Attorney-General
     instructed the Ministry of the Interior to institute regulations
     prescribing conditions that would limit the use of the
     exemption solely to extraordinary cases.

     On March 7, 2010, the Minister of the Interior submitted
     regulations for the approval of the Economic Committee of
     the Knesset. If these regulations are approved, they could
     have an adverse impact on Partner’s existing network and
     on future expansion of the network.

     Following two petitions lodged with the High Court of
     Justice opposing the Attorney General’s opinion that the
     exemption should apply under certain conditions, on
     March 12, 2010, one of the petitioners filed an application
     for   an    interim   injunction   that   would   prohibit   the
     construction of wireless Access Devices based on the
     exemption. The court rejected the application and decided
     that, at this stage, the issuance of an interim order is not
     warranted, and the matter shall be re-examined on July 1,
     2010, at which time, the government is supposed to
     update the court about the progress in developing a
     proceeding for instituting regulations in this regard. If a
     judicial ruling is handed down whereby the exemption shall
     not apply to Access Devices, Partner might be forced to
     remove existing Access Devices and will be unable to


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     install new Access Devices on the basis of that exemption.
     As a result, Partner’s telecom network shall be adversely
     affected, which is liable to have an adverse impact on
     Partner’s revenues and operating results.

     In February 2009, the Non-Ionizing Radiation Regulations
     were instituted pursuant to the Non-Ionizing Radiation
     Law, which do not address protection against sources of
     radiation and degrees of exposure to radio frequencies.
     Nonetheless, the Minister of Environmental Protection
     recently submitted a proposed chapter of regulations to
     the Minister of Communications regarding protection
     against sources of radiation and levels of exposure to
     radio frequencies. This chapter includes a restriction on
     positioning telecom devices on balconies and in apartment
     interiors. Partner believes that such regulations were
     proposed in order to prevent mobile telecom operators
     from installing Access Devices based on the existing
     exemption. If the proposed regulations are approved with
     the aforesaid chapter, Partner and other mobile telecom
     operators would no longer be able to install Access
     Devices on rooftop balconies.

3.   Repeater devices (bi-directional amplifiers) and other
     small devices

     (a) Partner, like other mobile telecom operators in Israel,
         provides repeaters, also known as bidirectional
         amplifiers (“Amplifiers”) to its customers. These
         amplifiers are used as an interim solution to weak
         signal reception within specific indoor locations by
         amplifying the signal reception. In light of the fact that
         planning and building authorities have no defined
         policy in relation to the Amplifiers, and based on the
         practice of other mobile telecom operators in Israel,
         Partner did not apply for licenses pursuant to the
         Planning and Building Law for installation of the
         Amplifiers.   Notwithstanding      that    stated,   Partner
         received      approval      from     the     Minister     of
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          Communications to connect the Amplifiers to its
          telecom network and received approval from the
          Minister of Environmental Protection for all types of
          Amplifiers.

     (b) Should the planning and building authorities decide
          that permits are necessary in order to install
          Amplifiers or to install other devices that Partner
          believes do not require permits, this could have a
          negative impact on Partner’s ability to obtain the
          aforesaid permits.

4.   In addition, Partner constructs and operates micro telecom
     sites as part of its transmission network. The erection of
     the micro telecom sites is subject to the receipt of licenses
     from the Ministry of Environmental Protection in respect of
     their radiation level. Based on an existing exemption from
     a building permit in the Communications Law, Partner
     believes that building permits are not required in order to
     install most of the micro telecom sites on rooftops.
     However, to the best of Partner’s knowledge, there is still
     no binding adjudication in this regard by courts in Israel.
     Should a ruling be handed down in the future that building
     permits are necessary in order to install these sites, this
     might impair Partner’s ability to obtain such permits, in a
     manner that is liable to adversely impact the quality of
     coverage of Partner’s telecom network and Partner’s
     ability to continue marketing its transmission services
     effectively.

5.   Difficulties in obtaining environmental quality permits. The
     Non-Ionizing Radiation Law, which, for the most part,
     came into effect on January 1, 2007, vests authorities to
     the Minister of Environmental Protection to grant permits
     for network sites. Pursuant to the aforesaid law, the
     Minister of Environmental Protection shall grant such a
     permit for a network site requiring a building permit only if
     a building permit has been issued that is suitable for that
     site. In October 2007, the Commissioner of Environmental
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         Protection decided that he will not grant or renew permits
         for Access Devices if the local planning and building
         committee’s engineer submitted an objection stating that
         the Access Device requires a building permit. Operating a
         network site without a suitable permit from the Ministry of
         Environmental       Protection   could   place    Partner,   its
         managers and directors at risk of civil and criminal liability.

c.   Partner is liable to be exposed to claims for indemnification in
     respect of a number of building permits issued to network sites,
     and it is liable to be required to indemnify planning and building
     committees in respect of claims filed against them in relation to
     devaluations of real-estate assets resulting from the granting of
     permits pursuant to letters of indemnify that were or shall be
     issued to such committees as a precondition to receiving the
     permits.

     This requirement of letters of indemnify is also liable to cause
     Partner to prefer to situate its network sites in locations that are
     inferior and less convenient for Partner, which is liable to have
     an adverse impact on the coverage quality of Partner’s telecom
     network.

d.   Partner is liable to be required in the future to enable other
     operators to make use of Partner’s network infrastructure,
     which is liable to enable new competitors of Partner, such as
     MVNOs, to penetrate the market and affect Partner’s ability to
     provide quality service to its customers, and thus, would have
     an adverse impact on Partner’s operating results.

     In August 2008, the Minister of Communications adopted the
     majority of the recommendations of the Grunau Committee,
     and, in January 2009, hearings began concerning the granting
     of licenses that regulate the activities of MVNOs and a draft
     MVNO license was published. According to the last draft of the
     license, which was published in November 2009, the existing
     MRT companies are prohibited from operating as MVNOs. The
     Arrangements Law of 2009 significantly removes the entry
     barriers against competitors and increases the likelihood that


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     new competitors will enter the mobile telecom market in Israel.
     Partner’s ability is limited in this regard, and to the extent that
     Partner shall be forced to give other competitors access to its
     infrastructure, this shall adversely impact the services that
     Partner provides to its customers, and will also force Partner to
     invest additional capital in order to enable access to its
     infrastructure by others. To the extent that Partner is unable to
     reach an agreement with other operators in relation to the
     conditions for granting access to its infrastructure, the Minister
     of Communications is liable to himself decide the conditions
     and the tariffs for the aforesaid use, which could be low tariffs,
     which would adversely affect Partner’s economic position.
     Furthermore, other operators, such as MVNOs, are liable to
     offer services to Partner’s customers at tariffs that are lower
     than the tariffs offered by Partner, and thus reduce Partner’s
     market share and its operating results. In January 2010, the
     Ministry of Communications published its decision in this
     regard and instituted regulations on this subject. The
     regulations allow telecom companies, subject to certain
     conditions, to apply for an MVNO license and, after agreeing
     on commercial terms with the cellular companies, they can
     begin providing cellular services. The regulations prescribe
     particular conditions in relation to related companies of cellular
     companies that apply for MVNO licenses.

e.   Partner is liable to be required to stop using some of the
     frequencies for which usage rights were granted to it, or to
     share with another operator a portion of the frequencies that it
     is using exclusively at this stage, or to pay an additional
     payment in respect of its use of frequencies. These
     requirements are liable to adversely impact the quality and
     capacity of Partner’s network and its operating results.

f.   Partner’s operations are contingent upon its license from the
     Ministry of Communications (see clause 4.6.18.4 above), which
     is valid until February 2022. Partner cannot guarantee that the
     license granted to it will not be revoked, will be renewed or



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     extended or that it will become contingent upon even more
     stringent conditions.

     Furthermore, the Minister of Communications has the authority
     to impose significant penalties on Partner in respect of
     breaches of its license, which is liable to adversely impact
     Partner’s operating results and position.

g.   Partner’s businesses and operating results were adversely
     effected from the reduction in the interconnect tariffs for calls
     and SMS messages which were forced upon it by the Ministry
     of Communications, and it is possible that they will continue to
     be adversely affected by future regulatory developments in
     relation to these matters.

h.   Partner’s MRT License includes a number of conditions and
     restrictions pertaining to Partner’s shareholders and their
     identities. Partner cannot guarantee the compliance of
     Partner’s shareholders with these conditions and restrictions,
     and is exposed to a risk of its license being revoked if these
     conditions and restrictions are not fulfilled. For details, see
     clause 4.6.18.4 above.

i.   The Minister of Communications recently amended the license
     of all Israeli mobile telecom companies, including Partner’s
     license. Partner has not yet formulated its final position
     regarding the implications of this amendment on Partner.

     Following a protracted hearing proceeding, the Minister of
     Communications amended the license conditions of all mobile
     telecom operators in Israel in such manner that, as of
     November 1, 2009, mobile telecom operators are prevented
     from linking the granting of benefits to their customers,
     including the provision of air time rebates, to the purchase of
     handsets from them. This amendment to the license also
     enables customers who purchased handsets from another
     mobile telecom operator or from any other party, to enjoy the
     same benefits as those granted to customers who purchased
     handsets from the mobile telecom operator. Partner is currently
     examining the implications of this amendment to its license on

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                its businesses, and therefore, cannot guarantee that it will not
                affect its profitability and operating results.

4.6.23.2   Risks relating to Partner’s businesses

           a.   Allegations regarding alleged and substantive health hazards
                relating to Partner’s network sites and the use of mobile
                phones, including handsets, are liable to have a material
                adverse impact on Partner’s businesses and on its operations
                and financial position.

                1.   Partner’s network sites comply with the mandatory
                     standards in relation to non-ionizing radiation prescribed
                     by the International Radiation Protection Agency, which
                     have been adopted by the Israeli Ministry of Environmental
                     Protection.

                2.   A number of claims have been lodged against mobile
                     telecom operators and other entities in the industry,
                     alleging exposure to health injuries being caused as a
                     result of the use of network sites and mobile phones,
                     including one lawsuit lodged against Partner and against
                     two other mobile telecom companies in relation to alleged
                     damages caused to the environment by network sites.
                     Partner is liable to be exposed to additional claims in the
                     future pertaining to such health injuries.

                3.   In February 2009, the Magistrate’s Court ruled, within the
                     scope of a judgment issued against one of Partner’s
                     competitors, that, in relation to all matters pertaining to
                     prima facie damages caused due to mobile telecom
                     network sites, the standard burden of proof does not apply
                     and that it suffices to prove a reasonable possibility of the
                     existence of such injury in order to shift the burden of proof
                     that such allegations are unfounded to mobile telecom
                     companies. To the extent known to Partner, the defendant
                     lodged an appeal of the judgment, and, within the scope of
                     a settlement, the judgment was set aside. Even though
                     Partner is not a party to the aforesaid proceeding, the
                     adjudication in the aforesaid proceeding is liable to have

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          significant implications on Partner’s ability to conduct
          proceedings, should any be instituted against it, in respect
          of health injuries due to the use of mobile telecom network
          sites.

     4.   In   July   2008,    the      Minister   of   Health   issued
          recommendations concerning precautionary measures
          that should be taken when using mobile phones. The
          Minister of Health indicated that, although the international
          research study examining whether there is a connection
          between the use of mobile phones and malignant tumors
          has not reached its final findings, other research studies
          have published final findings and, according to some of
          these studies, a certain connection was found between
          such use and the development of illness. These latest
          studies, along with the publication of the Minister of
          Health’s recommendations have created concern among
          cell-phone users in Israel.

     5.   The perception that the use of mobile telecom network
          sites and cell phones are connected with the development
          of health problems is liable to cause Partner significant
          difficulties in obtaining new leases for Partner’s network
          sites. Should it be determined in the future that there is a
          proven connection between the use of mobile telecom
          network sites/mobile phones and health problems, this
          could have a material adverse impact on Partner’s liability,
          its volume of end customers, its ability to insure its
          operations and on its operating results.

b.   Partner is exposed to competition from other telecom operators
     and to potential changes in the competitive environment and in
     communications technologies, which are liable to cause an
     increase in subscriber acquisition and retention costs or a
     decrease in tariffs, a decrease in Partner’s market share and
     an increase in the churn rate.




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1.   Competition with other mobile telecom operators

     (a) Partner’s principal competitors are other mobile
           telecom operators in Israel – Cellcom, Pelephone and
           Mirs.

     (b) Cellcom, which is a member of the IDB group,
           launched its High-Speed Uplink Packet Access
           service (“HSUPA”) in 2008, which is liable to intensify
           the competition in the market in this field.

     (c) Pelephone, which initially had not operated GSM
           systems,      began    using    a   CDMA-1x    real-time
           technology (“RTT”) system and an Evolution Data
           Optimized (“EVDO”) operator on an HSxPA/UMTS
           network in 2009. Pelephone’s new network is liable to
           strengthen its position among the UMTS operators, in
           that Pelephone is also offering roaming services and
           popular devices.

     (d) The acquisition of Mirs by related companies of Hot
           contributes to the creation of another telecom
           conglomerate in Israel, which increases the potential
           competition in the market.

     (e) The       introduction    of     additional   HSPA/UMTS
           technologies is liable to intensify the competition in
           the mobile telecom market and to affect Partner’s
           churn rates, customer retention costs and roaming
           revenues.

     (f)   Due to the ease in switching between the various
           mobile telecom operators, particularly since the
           adoption of the Number Portability Plan, Partner
           experienced an increase in its churn rate, and expects
           this trend to continue. Accordingly, Partner also
           expects that it will have to increase its expenses for
           customer retention.




               A - 258
     (g) Partner is also subject to competition from other
         service providers, which are providing alternative
         solutions to roaming services.

2.   Means to enhance competition

     (a) The Minister of Communications began a hearing
         proceeding in relation to a draft of the MVNO license
         and regulations, and, in January, 2010, MVNO
         regulations were published. For additional details, see
         clause 4.6.18.3.k. of this report. Additionally, the
         Minister of Communications declared his intent to
         enhance the competition in the mobile telecom market
         by granting WiMAX licenses and/or other licenses as
         of 2009 for use on mobile telecom networks by other
         mobile    telecom   operators,    using    competing     or
         supplementary technologies, such as VoBoC.

     (b) In March 2008, the Grunau Committee published its
         recommendations, which included: acceleration of the
         procedures necessary to enable entry by MVNOs and
         others to the mobile telecom market; publication of
         WiMAX      frequencies   for     mobile    telecom     use;
         examination of the interconnect fees and adjustment
         thereof   as   needed    during    2009;    control   over
         international call charges originating from mobile
         phones and, subject to control, granting permits to
         mobile telecom operators to enter the international
         calls market; and prohibition of linking the receipt of
         benefits in mobile telecom services to the purchase of
         mobile phones. The Minister of Communications also
         recommended removing a portion of the restrictions
         imposed on Bezeq and its subsidiaries in relation to
         the supply of bundled services. In August 2008, the
         Minister of Communications adopted the majority of
         the recommendations of the Grunau Committee. In
         addition, the Minister of Communications conducted
         hearings in order to enable Bezeq’s subsidiaries to
         market, together with Bezeq, bundled services that
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         include both Bezeq’s services and the subsidiaries’
         services, in a manner that shall enable Bezeq and its
         subsidiaries to offer a wide variety of services, such
         as landline telephony, mobile telephone, internet and
         multi-channel       television,     and       shall       enable     end
         customers to purchase all services in one package
         from a single supplier. Furthermore, the Minister of
         Communications            appointed           an      interministerial
         committee, in conjunction with the Minister of Finance
         in order to allot UMTS spectrum to additional mobile
         telecom suppliers in Israel.

         The       actual         adoption        of         the       aforesaid
         recommendations is likely to intensify the competition,
         which     is    liable    to   adversely       impact         Partner’s
         businesses and operating results.

3.   WiMAX license

     (a) In February 2009, the Minister of Communications
         published its policy regarding spectrum allocation and
         the establishment of a broadband wireless access
         network using WiMAX technology. The Minister of
         Communications also declared his intent to enhance
         the competition in the telecom market by granting
         preferences to existing telecom service providers.
         According to the Minister’s policy, the Ministry of
         Communications decided that existing mobile telecom
         operators shall not be allowed to participate in the
         offer of the WiMAX 2.5 GHz spectrum, which would
         be open mainly to new players in the telecom market.
         WiMAX technology is a competitive technology to
         HSDPA and LTE, which are the next generation after
         GSM technology. The granting of WiMAX licenses to
         new operators or to any of Partner’s competitors, but
         not to Partner, would give the aforesaid operators a
         competitive advantage and adversely affect Partner’s
         businesses.        Moreover,        if        the         Minister    of
         Communications shall allocate spectrum to new
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         WiMAX operators that Partner needs for its next
         generation of GSM technology, this might impair
         Partner’s ability to compete effectively against its
         competitors. Some of these spectrum have already
         been allotted to third parties. If these spectrum will not
         be available to Partner in the future, this could impair
         Partner’s ability to develop its next generation of GSM
         technology, such as LTE.

     (b) The Minister of Communications granted a special
         license to some of the landline telephony operators
         for the purpose of a marketing trial of the operation of
         domestic telephony using VoBoC technology.

4.   Competition on landline telephony

     (a) In the landline telephony sector, Partner is also
         competing with Bezeq, Hot and other landline
         telephony operators. Bezeq holds 100% of the shares
         of Pelephone and Bezeq International, which could
         enable Bezeq and Pelephone to offer bundled
         communications      services,     subject   to   regulatory
         approval.

     (b) Other operators, such as 012 Smile, Netvision and
         Xphone, entered the landline telephony market in
         2007 and 2008 based on VoB services using
         networks of Bezeq and Hot. Other VoB operators can
         enter the mobile telephony market in the future and
         intensify the competition that Partner is already
         facing. As a result of these developments in the
         competitive market, Partner is liable to have to absorb
         increased expenses that will be necessary to retain its
         customers, and revise its tariffs again.

5.   New business initiatives
     Partner has been operating three new business segments
     since the beginning of 2009: Voice over Broadband (VoB)
     telephony   services,      Internet   Service-Provider   (ISP)
     services and Web Video on Demand (VOD) services. As

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          can be expected in new markets, Partner is contending
          with new competitors and new competitive patterns.
          Partner is liable to be at a competitive disadvantage
          compared with operators that can offer bundled services of
          landline telephony, mobile phone, television and other
          communications services. As a result of these market
          conditions, Partner is liable to face stiff competition in
          these segments and its business results are liable to suffer
          as a result.

     6.   Integrated bundled services in the communications sector
          The communications market is liable to have to contend
          with players that will integrate their operations and jointly
          market bundled communications services, which could
          erode Partner’s competitive edge. Various groups in the
          Israeli communications market are liable to acquire or
          establish      new   businesses     to    supply     various
          communications services through integrated bundles.
          There are two principal groups in the Israeli market that
          are already supplying bundled communications services,
          which include mobile phone services, mobile phones,
          content and internet services. One of the aforesaid groups
          also provides multi-channel television services for a fee,
          and thus, dominates all communications segments. The
          aforesaid group could offer bundled communications
          services in the future that encompass all of the said
          services in a single package, subject to the receipt of
          regulatory permits. Other communications groups could
          develop their range of services by acquiring additional
          operations, in such manner that would enable them to
          offer a variety of bundled services. Should these
          developments materialize, this could have a material
          adverse impact on Partner and on its operating results.

c.   The growth rate in Partner’s subscribers, and consequently, the
     growth rate in its revenues, is decelerating, due to Israel’s
     highly penetrated mobile telephony services market, which



                   A - 262
     makes it difficult for Partner to attract new customers and retain
     its existing customers.

     Although Israel’s mobile telecom market has experienced
     significant growth in recent years, and although Partner’s
     market share has increased substantially since its founding in
     1999, the Israeli mobile telecom market today is characterized
     by an extremely high penetration rate, and decelerated growth
     of Partner’s subscriber base. Partner’s future revenues will
     depend, to a great extent, on its ability to retain existing
     customers,    to   generate     higher   revenues   from   existing
     subscribers and to attract subscribers from other operators.

d.   If critical components in Partner’s mobile telecom network
     become damaged or fail, Partner may not be able to replace
     them or return them to service promptly and, as a result,
     Partner may not be able to provide its services to a material
     portion of its subscribers for an indeterminate period.

     Some of the components of Partner’s mobile telecom networks
     are critical to Partner’s operations. Should these critical
     components be damaged due to various causes, such as fire,
     water, earthquake or some other natural or man-made cause, a
     material section of Partner’s network may be rendered
     inoperative, causing Partner to be unable to supply its services
     to a material portion of its customers, in a manner that is liable
     to adversely impact Partner’s businesses and its operating
     results in the long and short run.

e.   Partner’s    purchasing    commitments      in   accordance    with
     Partner’s non-exclusive agreement with Apple for the purchase
     and sale of iPhones in Israel (see clause 4.6.4 above) are
     liable to increase Partner’s operating capital and adversely
     impact its financial results.

f.   Partner is liable to be sued due to an inability of Partner’s
     information systems to fully support the call tariff plans that
     Partner markets.

g.   Partner is a party and expects to become a party to a variety of
     legal proceedings, including potential class actions, mainly

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     concerning its network infrastructure, as well as customer
     lawsuits, the outcome of which could be the imposition of civil
     liability or criminal penalty against Partner, its managers or
     directors. Claimants in some of these proceedings have lodged
     petitions for recognition of their claims as class actions. For
     additional details about legal proceedings, see also clause
     4.6.20 above.

     Furthermore, Partner is liable to find itself at risk in relation to
     allegations and claims pertaining to intellectual property rights,
     including in relation to inventions and innovations that Partner
     itself develops, as well as in relation to the right to use content,
     including music content, which Partner acquired from third
     parties that presented themselves as the owners of the
     intellectual property rights inherent in the aforesaid content.

h.   The communications industry is characterized by rapid and
     significant technological evolution and by frequent significant
     restructuring of the sector, which is liable to cause a decline in
     the demand for Partner’s services.

i.   Due to an unexpected rise in subscribers’ demands for cellular
     data, Partner may be forced to modify or discontinue providing
     particular products or services, and might have to make
     unplanned investments. As part of Partner’s strategy to evolve
     into a diversified multi-service communications and media
     service provider, Partner has developed services and has
     successfully motivated subscribers to increase their demands
     for Internet access and content and data consumption using
     3G cell phones, data cards and ISP. However, in the event that
     subscribers’ demands increase more rapidly than expected,
     Partner may need to develop strategies to avoid data traffic
     overloading the capacity of the network. These strategies might
     include modification or discontinuance of particular products or
     services, or material investments that were not foreseen.
     Furthermore, regulatory developments seeking to ensure “fair
     usage” of the Internet for everyone may impose changes in the
     terms and conditions of a portion of Partner’s current or future
     services. In the event of material, rapid growth in data
                   A - 264
     consumption by Partner’s subscribers and the public at large,
     Partner may have to revise the supply of its products or
     undertake unplanned investments, both of which could have a
     material adverse impact on Partner’s financial position or
     operating results.

j.   The operation of a mobile telecom network involves an inherent
     risk of fraudulent activities and abuse of Partner’s services
     without paying, which could cause loss of revenues and non-
     recoverable, out-of-pocket expenses.

k.   Partner depends on its ability to interconnect with other
     communications suppliers. Furthermore, Partner is dependent
     upon Bezeq and other suppliers for landline transmission
     services. A failure on the part of these suppliers to continuously
     supply these services could have a material adverse impact on
     Partner.

l.   Partner’s right to use the Orange brand is royalty free only until
     2013. Subsequently, the use of the brand is liable to be subject
     to an obligatory payment of royalties, which could be at
     significant sums.

     Should Partner decide not to continue to use the Orange
     brand, there is no certainty that Partner will be able to build a
     new brand within a reasonable timeframe with the same
     degree of success.

m. Partner is dependent upon a limited number of suppliers for its
     network equipment. The lack of an adequate supply of network
     equipment or timely support on the part of Partner’s suppliers is
     liable to adversely affect Partner.

n.   Partner’s businesses are liable to be affected by fluctuations in
     the NIS exchange rate and by inflation.

     1.   The majority of Partner’s operating income and expenses
          are received and paid in NIS. Nonetheless, in recent
          years, about one quarter of Partner’s operating expenses
          (excluding depreciation and impairment), including a
          material portion of Partner’s capital expenditures, were


                   A - 265
          linked to foreign currency, mainly the USD. Material
          fluctuations in the exchange rates are liable to cause
          required sums of investment on the part of Partner to rise
          significantly in shekel terms.

     2.   Partner hedges only a portion of its foreign-currency-linked
          liabilities.

     3.   Partner’s monetary liabilities towards banks holding bonds
          that are repayable in 2012 and in 2016 are in shekels and
          most are linked to the CPI. According to Partner’s license,
          Partner is not allowed to raise its tariffs to an extent that
          would compensate Partner for the rise in the CPI.
          Accordingly, a rise in inflation is liable to have a material
          adverse impact on Partner in a manner that would
          increase       Partner’s   economic    expenses      with    no
          corresponding rise in revenues. Partner engaged in
          derivative transactions in order to protect itself against a
          rise in the CPI. If Partner is unsuccessful in integrating
          new businesses and new technologies in its businesses,
          this could adversely impact Partner’s businesses, its brand
          and its operating results.

          If Partner is unsuccessful in integrating new business
          initiatives and new technologies effectively and rapidly in
          its existing lines of business, Partner’s businesses,
          economic position and profitability are liable to suffer.

o.   If Partner fails to implement effective internal controls as
     required pursuant to section 404 of the Sarbanes-Oxley Law of
     2002, this is liable to have a material adverse impact on
     Partner’s operating results and on its share price, and is liable
     to cause the opening of an investigation against Partner or
     other regulatory sanctions, which could cause a material
     adverse impact on Partner’s operating results and on its share
     price.

p.   The political and military situation in Israel is liable to adversely
     impact Partner’s financial position and operating results.



                     A - 266
q.   The volume of Partner’s liabilities, including current maturities,
     is liable to adversely impact its businesses and liquidity.

     1.   Correct to December 31, 2009, Partner’s long-term
          liabilities (including current maturities and liabilities for
          capital leases, net of deferred expenses in respect of
          bonds) totalled approximately NIS 2,433 million. Loan
          agreements that Partner has with the banks and the bonds
          that are repayable in installments until 2012 enable
          Partner to accumulate additional liabilities, subject to a
          number of restrictions.

     2.   Partner’s material liabilities are liable to adversely impact
          its economic position, inter alia, by: (a) increasing
          Partner’s vulnerability to economic changes, industrial or
          business conditions or a rise in the CPI, particular in light
          of the fact that a material portion of Partner’s debts is
          linked to the CPI; (b) limiting Partner’s flexibility in planning
          for, and reacting to, changes in the industry and in the
          economy; (c) forcing Partner to dedicate a substantial
          portion of its cash balance to servicing its debts, which
          reduces the funds available for dividend distributions and
          future business development; and (d) restricting Partner’s
          ability to obtain the additional financing needed to operate,
          develop and expand its businesses.

     3.   The outstanding balance of the principal on the Series A
          bonds as on December 31, 2009 is payable in nine equal
          payments of NIS 187 million (linked to the CPI known on
          December 31, 2009) commencing December 31, 2009.
          The outstanding balance of the principal on the Series B
          bonds as on December 31, 2009 is payable in four equal
          payments of NIS 112.25 million (linked to the CPI known
          on December 31, 2009). If Partner’s future cash balance is
          insufficient to enable it to pay all of the payments of
          principal and interest of its debs, including the Series A
          bonds, which are payable until 2012, the Series B Bonds,
          which were issued on November 25, 2009 and are
          repayable until 2016, and Partner’s bank debt, Partner is
                   A - 267
          liable to find itself in default on its liabilities and might be
          forced to refinance its existing debts by debt restructuring,
          by additional capital allotments or by providing additional
          collateral. Partner cannot assess with certainty whether it
          will be able to refinance as stated at reasonable
          commercial terms, if at all.

     4.   If Partner implements its current dividend distribution
          policy at its current level or higher, and then experiences a
          decline in profitability or in revenue, this is liable to
          significantly reduce Partner’s cash balances, and impair
          Partner’s ability to finance unforeseen capital expenditures
          and to fulfill its liabilities for payments of principal and
          interest to all of its creditors. As a result, Partner might be
          forced to increase the sums of the loans it obtained, under
          commercial     terms    that   might   not    necessarily    be
          reasonable and convenient from its perspective, if at all.
          On December 27, 2009, Partner’s Board of Directors
          approved the distribution of a dividend to its shareholders
          at the sum of NIS 1.4 billion. The planned distribution does
          not meet the profit test prescribed in the Companies Law.
          On February 22, 2010, the court approved the aforesaid
          distribution. This distribution increases the risk described
          above.

     5.   If Partner will be unable to implement its dividend
          distribution policy, in the manner expected by its investors,
          Partner’s share price is liable to be adversely affected and
          the value of its investors’ investments is liable to diminish.

r.   Partner’s operating results are liable to be affected by a
     prolonged recession in the global market.

     1.   The majority of Partner’s revenues are usage dependent.
          If the global recession continues, this is liable to cause a
          decline in consumers’ use of Partner’s services, which
          would adversely affect Partner’s economic results. The
          recession could also affect the ability of Partner’s
          customers to pay their bills to Partner, which could


                   A - 268
                    increase the volume of Partner’s bad debts and adversely
                    affect its economic position. Moreover, the global crisis is
                    liable to also adversely impact third parties upon whom
                    Partner relies for the purpose of providing its services,
                    such as interconnect service-providers, roaming partners
                    and equipment providers, which is liable to impair
                    Partner’s ability to provide its services to its customers
                    until it finds alternative suppliers. This situation is liable to
                    cause Partner to be in default on conditions of the license
                    granted to it. The efforts in finding an alternative supplier
                    or solution is liable to cause Partner to incur expenses
                    and/or      investments,   under   conditions that are not
                    necessarily favorable or convenient to Partner, and might
                    adversely impact Partner’s profitability.

               2.   In light of the economic conditions resulting from the last
                    economic crisis, Partner cannot guarantee that it will be
                    able to obtain bank loans, issue bonds or give sureties as
                    stated, under reasonable commercial terms or at all, which
                    could adversely impact Partner’s cash flow and economic
                    position.

4.6.23.3   Risks concerning Partner’s controlling shareholders
           Partner is controlled by a single shareholder. Up until October 28,
           2009, the consummation date of the Control Acquisition Agreement,
           under which Scailex acquired all of Advent’s holdings of Partner,
           Advent had been the controlling shareholder of Partner, by virtue of
           its holdings of approximately 51.33% of Partner’s issue share
           capital and voting rights. As stated above in clause 4.6.1.1, correct
           to the Report Date, the group, through Scailex and Suny
           Electronics, holds approximately 46.2% of Partner’s issued share
           capital and voting rights (not fully diluted and disregarding treasury
           shares being held by Partner), and approximately 44.9% of
           Partner’s issued share capital on a fully diluted basis (disregarding
           treasury shares being held by Partner).

           Partner does not expect that it will continue to enjoy all the benefits
           and support deriving from its relations with Hutchison Group,


                                A - 269
                         subsequent to the consummation of the sale proceeding by Advent
                         of all its holdings of Partner to Scailex.




                                                                            Degree of impact

                                                                      Major    Moderate   Minor
                                     Risk factors
                                                                      Impact    Impact    Impact

                        Changes in the NIS exchange rate
                                                                                   X
                        and in inflation
Macro risk factors




                        Changes and deterioration in the
                        political and military situation in             X
                        Israel

                        Continuing regression in the global
                                                                                   X
                        market

                        Tight regulatory control over activity
                                                                        X
                        in the market relevant to Partner

                        Latest and potential updates to
                        roaming charges in Israel and                              X
                        elsewhere

                        Difficulties in obtaining building
Sectoral risk factors




                        permits and environmental quality
                                                                                   X
                        permits required for Partner’s
                        operations

                        Exposure to claims for
                        indemnification from local planning
                        and building committees that
                                                                                               X
                        granted building permits, in a
                        manner that led to property
                        devaluations

                        Possibility that Partner might be
                        required to grant access to its                 X
                        infrastructure

                                             A - 270
                                                                          Degree of impact

                                                                    Major    Moderate   Minor
                                    Risk factors
                                                                    Impact    Impact    Impact

Sectoral risk factors
                        Exposure to cancellation or sharing
                        of a portion of the spectrum that had
                                                                      X
                        been granted to Partner with other
                        operators

                        The      operation     of      Partner’s
                        businesses is subject to licensing            X
                        from the Ministry of Communications

                        Exposure to an adverse impact on
                        Partner’s profits subsequent to a             X
                        reduction in call and SMS tariffs

                        Exposure to a breach of the license
                                                                                 X
                        conditions by Partner’s shareholders

                        Amendment to licenses granted to
                        Partner and to other mobile telecom
                                                                      X
                        companies     by     the    Minister   of
                        Communications

                        Exposure to regulatory amendments
                                                                                             X
                        relating to Number Portability

                        Exposure of users to health injuries
                        due to the use of Partner’s network           X
                        sites

                        Exposure to competition with other
Sectoral risk factors




                        mobile telecom operators and to
                        potential changes in the competitive
                        and technological environment, as             X
                        well as a deceleration in the growth
                        rate of Partner’s customers as a
                        result




                                             A - 271
                                                                      Degree of impact

                                                                Major    Moderate   Minor
                                    Risk factors
                                                                Impact    Impact    Impact

                       Difficulty replacing critical
                       components in Partner’s networks           X
                       should they fail or be damaged

                       The communications industry is
                       subject to significant technological
                                                                             X
                       changes and frequent restructuring
                       of the sector

                       Risk of fraudulent actions and abuse
                                                                                         X
                       of Partner’s services by customers

                       Liquidity risk due to commitments to
Special risk factors




                       Apple in a nonexclusive agreement                                 X
                       for the purchase of iPhones

                       Expectation of lawsuits should
                       Partner’s information systems fail to
                                                                                         X
                       fully support Partner’s call tariff
                       plans

                       Partner is a party to legal
                       proceedings and expects that it will
                       become a party to other additional
                       legal proceedings, including class                    X
Special risk factors




                       actions, relating to the use of its
                       networks, and lawsuits from
                       customers

                       Dependence on other telecom
                                                                                         X
                       suppliers

                       Risk relating to the obligation to pay
                       royalties in respect of the use of the                X
                       Orange brand




                                            A - 272
                                          Degree of impact

                                      Major    Moderate   Minor
             Risk factors
                                      Impact    Impact    Impact

Dependence upon suppliers for the
                                                             X
supply of network equipment

Partner’s failure to integrate new
business and technological                                   X
initiatives in its businesses

Risk of a failure to implement
effective internal controls, as
                                                  X
required pursuant to section 404 of
the Sarbanes Oxley Law

Impact of the volume of financial
liabilities on Partner’s businesses               X
and liquidity

Forecast that Partner will fail to
                                                  X
implement its dividend policy

Partner is controlled by a single
                                                  X
shareholder




                    A - 273
Additional information about the Corporation as a whole
4.7 Human resources – the provisions of the Company’s Articles of
    Association relating to release, indemnification and officeholders’
    insurance

    4.7.1   Release
            Subject to the provisions of the Companies Law, the Company may release an
            officeholder in advance from liability, in whole or in part, in his/her capacity as
            an officeholder, for damages deriving from a breach of the officeholder’s duty
            of care vis-à-vis the Company.

            For details about the letters of release issued to officeholders in the Company,
            see Regulation 29.a. in Part D of this report.

    4.7.2   Indemnification
            Subject to the provisions of the Companies Law, the Company may indemnify
            officeholders in relation to the liabilities and expenses specified hereunder,
            which might be imposed on officeholders in respect of an action taken in
            his/her capacity as an officeholder in the Company:

            (a)   any monetary liability imposed on the officeholder in favor of another
                  individual by court decision, including a judgment issued in a settlement
                  or arbitration award approved by a court;

            (b)   reasonable litigation expenses, including lawyers' fees, incurred by an
                  officeholder in respect of an investigation or proceeding instituted
                  against him/her by a competent authority, provided that such
                  investigation or proceeding ended without the filing of an indictment
                  against that officeholder, and provided that: (i) such investigation or
                  proceeding ended without imposing pecuniary liability in lieu of a criminal
                  proceeding; or (ii) such investigation or proceeding as stated ended with
                  the imposition of a pecuniary liability in lieu of the criminal proceeding,
                  but under circumstances whereby the liability relates to an offense not
                  requiring the proof of criminal intent;

            (c)   reasonable litigation expenses, including lawyers' fees, incurred by an
                  officeholder, or which were adjudicated against the officeholder by the
                  court, during proceedings instituted against an officeholder by the
                  Company or on behalf of the Company or by another individual, or in


                                          A - 274
              respect of a criminal indictment for which the officeholder was acquitted,
              or in respect of a criminal proceeding in which the officeholder was
              convicted of an offense not requiring proof of criminal intent.

        The Company may: (i) issue an undertaking in advance to indemnify
        officeholders, provided that, in relation to the liability specified above in
        subclause (a), the Company’s advance undertaking shall be limited to events
        that the Company’s Board of Directors determined to be anticipated, in light of
        the Company's actual activities at the time that the indemnity undertaking was
        issued, and shall be limited to a sum or by a criterion that the Company’s
        Board of Directors determined to be reasonable under the circumstances,
        provided that the event, sum or type of criterion shall be specified in the
        Company’s letter of undertaking. The Company also may (ii) indemnify an
        officeholder pursuant to that stated above retroactively; i.e., after an event has
        transpired in relation to which the Company deems it fit to indemnify the
        officeholder, and after a suitable resolution of the Company has been passed
        in that regard.

        For details about letters of indemnity issued to officeholders in the Company,
        see Regulation 29.a in Part D of this report.

4.7.3   Insurance
        Subject to the provisions of the Companies Law, the Company may engage in
        a contract to insure the liability of officeholders in the Company, in whole or in
        part, in respect of an action to be performed in their capacities as officeholders
        in the Company, in relation to each of the following:

        (a)   breach of a duty of care vis-à-vis the Company or other person;

        (b)   breach of a fiduciary duty vis-à-vis the Company, provided that the
              officeholder had acted with bona fides and had reasonable cause to
              assume that such action would not harm the Company;

        (c)   a pecuniary liability imposed on an officeholder in favor of another
              person.

        For details about the insurance policies that the Company purchased for
        officeholders in the Company, see Regulation 29.a. in Part D of this report.

4.7.4   Release, indemnification and insurance – general
        The provisions of the Company’s Articles of Association regarding release,
        indemnification and insurance are not restrictive and cannot be interpreted as

                                      A - 275
            restricting the Company in any way in relation to the purchase of insurance
            and/or in relation to indemnification and/or in relation to a release from liability
            of those specified hereunder:

            (a)   persons other than officeholders in the Company, including, and without
                  prejudice to the general purport of that stated, employees, agents,
                  consultants or contractors of the Company;

            (b)   officeholders, to the extent that the insurance and/or indemnity and/or
                  release are not expressly prohibited by law, and provided that the
                  purchase of insurance and/or the terms and conditions of the
                  indemnification and/or the release from liability have been approved by
                  the Company’s Audit Committee.

4.8 Investments

    4.8.1   Due to the sale of PCH in June 2008 [see clause 4.2.3(b) above], correct to
            the Report Date, the Company has only one material investment – its
            investment in Partner (see clause 4.8.3 hereunder).

    4.8.2   On September 28, 2008, the Company completed the execution of a
            transaction under which it acquired the cellular operations of Suny Electronics.
            Following the consummation of this transaction, two new operating segments
            were added to the Company: the Cellular Operators Segment and the End-
            Customer Segment. For additional details about this transaction and the
            operations acquired within the scope of the transaction, see clause 2.1.6(c)
            above, as well as clauses 4.4 and 4.5 above, which describe the Cellular
            Operators Segment and the End-Customer Segment, respectively.

            In light of the requirement of the Antitrust Commissioner, and as a
            precondition to the Commissioner’s approval of the transaction for the
            acquisition of the control of Partner, on January 17, 2010, the Company and
            Cellcom engaged in an agreement for the sale of the operations of the
            Company’s End-Customer Segment to Cellcom. Correct to the date of this
            report, the Company is still managing and operating the End-Customer
            Operating Segment, with the consummation of the sale thereof, as stated,
            expected to transpire, according to the Company’s assessment, by April 1,
            2010. For additional details about the agreement for the sale of the operations
            of the Company’s End-Customer Segment to Cellcom, see clause 4.5.16(b)
            above.


                                          A - 276
    4.8.3   On October 28, 2009, the Company consummated its acquisition of the control
            of Partner, a leading telecom operator in Israel, providing telecom services
            (mobile, landline telephony and internet services) under the Orange brand.
            Following the consummation of the said transaction, a new operating segment
            was added to the Company. For additional details about the consummation of
            the Partner Control Acquisition Transaction, see clause 2.1.6(d) above. For
            additional details about the Partner Operating Segment, see clause 4.6 above.

4.9 Financing – General

    4.9.1   Credit recruited by the Company during the Report Period

            The following table presents the balance of the sums of credit recruited by the
            Company during the Report Period, correct to the Balance-Sheet Date:

                                     USD-linked              CPI-linked                 Unlinked
                                      balances               balances                   balances
                                            Weighted          Weighted                      Weighted
                                   NIS      interest   NIS    interest            NIS       interest
                                 millions      %     millions    %              millions       %
            Short-term
            liabilities
              To banking
              corporations (*)       -           -          -           -          891        4.35
            Long-term
            liabilities
              Negotiable
            bonds                    -           -       1,004        4.96         913        5.51
              To a third
              party(**)           1,137       2.027         -           -           -              -

            (*)   The sum of approximately NIS 722 million out of the total short-term liabilities to
                  banking corporations is unlinked shekel credit for a period of one month, which
                  is renewed at the end of each month for an additional month, bearing interest at
                  Prime + 1.8%. The Company used this credit to finance its acquisition of the
                  control of Partner. A portion of the Company’s holdings of Partner shares were
                  pledged to secure this credit, at the value of the purchase price paid by the
                  Company for Partner shares.

                  The sum of approximately NIS 169 million out of the total short-term liabilities to
                  banking corporations is an unlinked shekel credit framework, bearing interest at
                  Prime + 0.75%. The balances of customers and inventories were pledged in
                  favor of this credit framework at the height of the utilized credit framework.




                                            A - 277
        (**)   Dollar credit for a period of four and one half years, bearing interest at 2.027%
               per annum, which was granted to the Company by Advent as a vendor’s loan
               within the scope of the Partner Control Acquisition Agreement.

        The following table presents the balance of the Company’s credit, correct to
        the Report Date:

                                 USD-linked             CPI-linked                  Unlinked
                                  balances              balances                    balances
                                         %                 %                               %
                               NIS    weighted   NIS    weighted             NIS        weighted
                             millions interest millions interest           millions     interest
        Short-term
        liabilities
          To banking
          corporations (*)       -          -          -           -         175          3.5
        Long-term
        liabilities
          Negotiable
        bonds                    -          -        1,016       4.96        924          5.51
          To a third
          party(**)           1,125      2.0278        -           -            -          -

4.9.2   Restrictions on obtaining credit

        (a)    Financial criteria: the bank financing agreements include financial
               criteria that the Company covenanted to comply with, including:

               (a) the ratio between Partner’s net financial debt and Partner’s EBITDA
                   must not exceed 3;

               (b) the ratio between: (a) Partner’s total net financial debt, plus the
                   quotient obtained from dividing Scailex’s total net financial debt by
                   Scailex’s holding ratio of Partner on the date of the examination; and
                   (b) Partner’s EBITDA, must not exceed: (1) by the end of the first
                   quarter of 2011 – 6; (2) as of the end of the first quarter of 2011 and
                   thereafter – 5;

               (c) the ratio between: (a) Scailex’s holding ratio of Partner on the date
                   of the examination multiplied by Partner’s net profit; and (b) total
                   maturities (principal, interest and linkage differentials in respect
                   thereof, less cash balances of the borrower, and less the sum of NIS
                   630 million) in respect of the borrower’s net financial debt during the
                   four quarters after the date of the examination (including the quarter
                   during which the examination is performed), must not diminish from

                                        A - 278
         (1) in 2010 and during the first quarter of 2011 – 1.15; as of the
         second quarter of 2011 and thereafter – 1.

(b)   Restrictions on dividend distributions – see clause 2.4.2 above.

(c)   Need for the consent of the credit providers in order to perform
      particular operations in the Company:

      (a) As is customary in agreements of this type, the Company undertook
         within the scope of the financing agreement with Leumi Bank and
         the financing agreement with Mizrahi Bank, not to perform particular
         operations in the Company until after having received the consent of
         Leumi Bank and Mizrahi Bank. Such operations include: the creation
         and registration of an additional lien in relation to collateral provided
         to each of the banks within the scope of the financing agreement
         with it; the granting and receipt of new credit by the Company;
         amendment or termination of the financing agreements in which the
         Company is engaged; the execution of an early redemption and/or
         early repayment of the Company’s bonds or any other credit that the
         Company obtained; buy-backs of the Company’s bonds; a sale of
         Partner shares held by the Company; amendment to the Company’s
         incorporation documents; the granting of a release, insurance and
         indemnity to officeholders in the Company; merger or split or sale or
         acquisition of principal assets of the Company; all subject to and in
         accordance with the conditions prescribed in the financing
         agreement with Leumi Bank and in the financing agreement with
         Mizrahi Bank.

      (b) Within the scope of the financing agreement between the Company
         and Advent, Advent provided a “vendor’s loan” to the Company as
         part of the Advent Agreement, and the Company undertook towards
         Advent not to perform particular operations in the Company until
         after having received Advent’s consent, including: the creation and
         registration of an additional lien in relation to collateral provided to
         Advent within the scope of the financing agreement with it; a merger;
         the receipt of credit by the Company; engagements in agreements
         that are liable to have a material adverse impact on Advent’s rights
         or that impair the Company’s ability to fulfill its obligations pursuant
         to the aforesaid financing agreement; all subject to and in


                            A - 279
                  accordance with the conditions prescribed in the financing
                  agreement between the Company and Advent.

                  It should be noted that, on March 18, 2010, the Company repaid the
                  balance of the bank financing at the sum of approximately NIS 720
                  million. Accordingly, on March 21, 2010, Partner shares that had
                  been pledged in favor of the banks were released from the pledge.

        (d)   Liens:

              (a) Correct to the Report Date, there are no liens (or guarantees) on
                  deposits in favor of the Company’s current operations in its various
                  operating segments.

              (b) For details about the sureties for Scailex’s liability towards the
                  Company’s bondholders (Series A – D), see clauses 4.10.1(b) –
                  4.10.1(f) hereunder.

              (c) For details about the sureties for Scailex’s liability towards Advent,
                  see clause 4.10.2 (e) hereunder.

              (d) For details about the sureties for Scailex’s liabilities towards Leumi
                  Bank and Mizrahi Bank, see clauses 4.10.3(b) and 4.10.3(c)
                  hereunder.

        (e)   Compliance with credit restrictions: correct to the Report Date, and
              throughout the entire Report Period, the Company has complied with all
              restrictions applicable to it in relation to the credit it obtained. On March
              18, 2010, the Company repaid the balance of the bank financing at the
              sum of approximately NIS 720 million. Accordingly, on March 21, 2010,
              Partner shares that had been pledged in favor of the banks were
              released from pledge.

4.9.3   Credit framework
        Within the scope of the financing agreement with Mizrahi Bank, a credit
        framework was provided to the Company to finance activity in foreign trade
        and derivatives at the inclusive sum of up to NIS 200 million. For details about
        the sureties provided to Mizrahi Bank in respect of this credit, see clause
        4.10.3(a).c. hereunder.

        The credit utilized on account of the said credit framework, correct to the
        Balance-Sheet Date, is approximately NIS 161 million. Correct to the Report


                                      A - 280
        Date, the credit utilized on account of the said credit framework is
        approximately NIS 177 million.

4.9.4   Credit rating
                                Initial     Rating         Date of initial      Rating
             Series            rating      company            rating           changes
                              A3/stable
        Bonds (Series A)                       Midroog    October 4, 2009          –
                               outlook
                              A–/stable
                                               Maalot     October 5, 2009          –
                               outlook
                              A3/stable
        Bonds (Series B)                       Midroog    October 4, 2009          –
                               outlook
                              A–/stable
                                               Maalot     October 5, 2009          –
                               outlook
                              A3/stable
        Bonds (Series C)                       Midroog    October 4, 2009          –
                               outlook
                              A–/stable
                                               Maalot     October 5, 2009          –
                               outlook
                              A3/stable
        Bonds (Series D)                       Midroog   November 16, 2009         –
                               outlook
                              A–/stable
                                               Maalot     October 8, 2009          –
                               outlook
                              A3/stable
        Bonds (Series 1)                       Midroog    October 4, 2009          –
                               outlook
                              A–/stable
                                               Maalot     October 5, 2009          –
                               outlook

        On March 9, 2010, Maalot announced that Partner’s rating and rating outlook
        (ilAA–/stable) and of the Company (ilA–/stable) remained without change,
        even after the approval of the capital reduction in Partner at the volume of NIS
        1.4 billion. For additional details about the said capital reduction in Partner,
        see clause 4.6.15.5.d. above.

4.9.5   Assessments about future credit recruitments
        As a rule, when examining additional investments and existing investments
        from time to time, the Company aspires to finance investments from its own
        equity, in conjunction with other sources of financing, if and to the extent
        possible (as the case may be). Nonetheless, from time to time the Company’s
        Board of Directors considers whether there is a need to recruit credit or capital
        for the Company or to diversify the Company’s investment sources.




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4.10 Financing of the acquisition of the control of Partner

    Within the scope of financing the Partner Share Acquisition Transaction, Scailex
    received loans from various sources, under the conditions specified hereunder:

    4.10.1   Offering of negotiable bonds to the public

             (a)   The sum of approximately NIS 1,875,946 thousand, which was financed
                   from a total of approximately NIS 1,790,018 thousand, which were
                   recruited by the Company in two public offerings of bonds and a total of
                   NIS 102,705.27 thousand, which were recruited by the Company
                   through a private allotment by way of an expansion of the series of
                   bonds (Series 1), plus accrued interest, and net of issue expenses. The
                   public offerings included nonconvertible bonds (Series A, Series B,
                   Series C and Series D), which are secured by Partner shares held by
                   Scailex (“Series A – D Bonds”) and an offering of Series 1 bonds, which
                   are not secured, and are convertible into shares of Scailex, as specified
                   in the Company’s Immediate Reports of the execution of the said
                   offerings, dated October 15, 2009 (reference no.: 2009-01-256965) and
                   September 8, 2009 (reference no.: 2009-01-225960). The private
                   allotment was executed by way of an expansion of Series 1 Bonds to
                   Leumi Partners Ltd., a wholly owned subsidiary of Leumi Bank Le-Israel
                   Ltd., as specified in the Company’s Immediate Report dated October 19,
                   2009 (reference no.: 2009-01-258492).

             (b)   To secure Scailex’s liabilities to the holders of the Series A – D Bonds,
                   and in accordance with the provisions of the trust deeds of August 18,
                   2009, as amended on September 6, 2009, on October 14, 2009 and on
                   October 28, 2009 (“Trust Deeds of the Series A – D Bonds”), Scailex
                   pledged 22,934,238 ordinary shares of Partner of NIS 0.01 par value
                   each to the bondholders, as well as all rights attached to these shares,
                   including the right to a dividend in cash or in kind, and any other
                   distribution, as well as rights that might be issued by Partner in respect
                   of and/or in relation to the aforesaid shares, bonus shares, a preemptive
                   right or rights to receive other securities in respect thereof of any class
                   whatsoever, this out of all Partner shares acquired by Scailex and
                   transferred to it on the transaction consummation date, according to the
                   following breakdown. Regarding the last amendment to the Trust Deeds



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      of the Series A – D Bonds, see the Company’s Immediate Report of
      October 28, 2009 (reference no.: 2009-01-267387).

      1. 4,714,449 Partner shares were pledged in favor of the Series A
          bondholders;

      2. 4,767,939 Partner shares were pledged in favor of the Series B
          bondholders;

      3. 9,647,100 Partner shares were pledged in favor of the Series C
          bondholders;

      4. 3,804,750 Partner shares were pledged in favor of the Series D
          bondholders.

(c)   Due to Partner’s distribution of a dividend at the sum of NIS 1.4 billion on
      March 18, 2010, and pursuant to the Trust Deeds of the Series A – D
      Bonds, in March 2010, the Company pledged 2,489,390 ordinary shares
      of Partner of NIS 0.01 par value each in favor of the bondholders. This
      additional pledge was provided according to the following breakdown:

      1. 511,728 Partner shares were pledged in favor of the Series A
          bondholders;

      2. 517,535 Partner shares were pledged in favor of the Series B
          bondholders;

      3. 1,047,142 Partner shares were pledged in favor of the Series C
          bondholders;

      4. 412,985 Partner shares were pledged in favor of the Series D
          bondholders.

(d)   The shares pledged to the holders of the Series A – D Bonds constitute,
      correct to date, approximately 15.97% of all of Partner’s issued share
      capital (fully diluted and after neutralizing treasury shares). The pledged
      shares are registered in Partner’s register of shareholders under the
      Company’s name as shares of “Founding Shareholders or their
      Alternates,” as this term is defined in clause 21.8 of the General License
      to Partner Communications Ltd. for the Provision of Mobile Radio
      Telephone Services via the Cellular Method (MRT) of July 28, 2009
      (“the Control Core Shares of Partner”) and the share certificates in




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      respect thereof were deposited with Clal Finance Trust 2007 Ltd., the
      trustee for the Series A – D Bonds (“Clal Trust”).

(e)   Pursuant to the provisions of the Trust Deeds of the Series A – D Bonds,
      an exercise of the lien on the shares pledged to the bondholders,
      including the identity of the receiver or any other functionary appointed
      by the court at the request of the trustee in relation to exercise of the
      pledged shares, including any transfer of the pledged shares, in whole or
      in part, to any third party, any change in the identity of the trustee
      pursuant to the trust deed, and the exercise of any other rights deriving
      from the pledged shares, shall be subject to the prior written consent of
      the Minister of Communications, as well as to any other approval to the
      extent required by law.

(f)   It was further agreed in the pledge agreements concerning the shares
      pledged to the holders of the Series A – D bonds, that until the
      occurrence of an event conferring the right to Clal Trust and/or to the
      bondholders to call for the immediate repayment of the bonds, pursuant
      to the conditions prescribed in that regard in the trust deeds, the
      Company shall benefit from all rights, funds and assets due in respect of
      and/or in relation to the Control Core Shares of Partner pledged to the
      bondholders, and, inter alia, accordingly: (1) the Company shall be
      entitled to directly receive all dividends and other distributions that might
      be distributed in respect of and/or in relation to the Control Core Shares
      of Partner pledged to the bondholders; (2) the Company shall be allowed
      to participate and vote in respect of the Control Core Shares of Partner
      pledged to the bondholders at all General and Extraordinary Meetings of
      Partner’s Shareholders as the owners of the Control Core Shares of
      Partner pledged to the bondholders, for all intents and purposes; and (3)
      the Company shall be allowed to pass a resolution, at its sole discretion,
      regarding exercise or nonexercise of rights that Partner might issue in
      respect of the Control Core Shares of Partner pledged to the
      bondholders and/or the sale thereof, and the shares that shall be
      purchased as a result of an exercise of rights shall belong solely to the
      Company and any proceeds received as a result of a sale of the rights
      shall be transferred to the Company.

      Accordingly, the Company gave irrevocable instructions for the transfer
      of all dividends and other distributions in respect of the Control Core
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     Shares of Partner pledged to the holders of the Series A – D Bonds to
     the banks financing the Company, Leumi Bank and Mizrahi Bank,
     divided 60% to Leumi Bank and 40% to Mizrahi Bank, and it was agreed
     that the irrevocable instructions shall automatically expire upon the
     issuance of a notice from Clal Trust to Partner of the expiration thereof
     at the sole discretion of Clal Trust, and, in such instance, all sums of the
     aforesaid dividends and distributions shall be transferred to bank
     accounts opened under the name of the Company and pledged in a first-
     ranking fixed lien in favor of Clal Trust.

(g) The bonds (Series A, B, C, D and 1) of the Company have been assigned
     an A3 rating by Midroog and an ilA– rating by Maalot. Midroog’s rating
     depends upon the maintaining of financial ratios for the duration of the
     above bonds as follows:

     1. The ratio of Partner’s net financial debt to Partner’s EBITDA must
         not exceed 2.5;

     2. The ratio between: Partner’s total net financial debt, plus the
         quotient obtained by dividing the Company’s total net financial debt
         by the Company’s holding ratio of Partner and Partner’s EBITDA
         must not exceed 6. As of 2011, it must not exceed 5.

     3. The ratio between: (a) the Company’s holding ratio of Partner
         multiplied by Partner’s net profit; and (b) total maturities (principal,
         interest and linkage differentials in respect thereof, less the
         Company’s cash balances, and less the sum expected to be
         received as a dividend in respect of a capital reduction in Partner,
         after the court’s approval is received) in respect of the Company’s
         net financial debt during the next four quarters, including the fourth
         quarter of 2009, must not diminish from (1) in 2010 – 1.15; as of
         2011 and thereafter – 1.3. In 2013, the ratio shall be calculated
         without the principal of the vendor loan from the seller of the control
         of Partner.

     Correct to the Balance-Sheet Date and correct to the Report Date, the
     Company is complying with the said financial ratios.




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4.10.2   Vendor’s loan through the issue of bonds to be traded in continuous
         institutional trading

         (a)   Pursuant to agreements reached between Advent and the Company
               within the scope of the Advent Agreement, the financing agreements
               were signed between the Company and Advent (“the Financing
               Agreements”), by virtue of which Advent granted a loan to Scailex on
               the transaction consummation date at the sum of USD 300 million (“the
               Vendor’s Loan”), which is secured by a first-ranking lien on 17,142,858
               ordinary shares of Partner of NIS 0.01 par value each.

               The Vendor’s Loan was provided to the Company by offsetting the total
               Vendor’s Loan from the total inclusive consideration, which was
               converted at the agreed conversion rate of NIS 3.83 per USD 1; i.e., the
               sum of NIS 1,149,000,000.

         (b)   Pursuant to the Financing Agreements, the principal shall be repaid at its
               dollar value in a bullet payment at the end of 4.5 years, on April 27,
               2014, and shall bear interest at the rate of 2.0278% per annum, which
               shall be paid in biannual payments, the first payment on April 28, 2010
               and the last payment on April 27, 2014.

         (c)   The financing transaction of the Vendor’s Loan was executed by way of
               an offering of negotiable bonds of Scailex (“the Negotiable Bonds”) to
               purchasers of the Negotiable Bonds at the inclusive total principal
               equivalent to the total financing (“Holders of the Negotiable Bonds”).
               On the transaction consummation date, the sole buyer of the Negotiable
               Bonds was Advent. Pursuant to the Financing Agreements, the
               Company undertook to register the Negotiable Bonds for continuous
               institutional trading on the Tel-Aviv Stock Exchange Ltd. within 30 days
               of the transaction consummation date, and they shall be tradable solely
               to the institutional investors listed in the First Addendum to the Securities
               Law, 5728 – 1968. On March 23, 2010, the Negotiable Bonds were
               listed on the TASE for continuous institution trading as Series E Bonds
               of the Company.

         (d)   The trustee in favor of the Holders of the Negotiable Bonds, Hermetic
               Trust (1975) Ltd. (“Hermetic”) shall administer, inter alia, the register of
               the Holders of the Negotiable Bonds, Bondholders’ Meetings, and the
               delivery of notices pertaining to the bonds, as is customary according to

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      the terms and conditions of the trust deed signed between Scailex and
      Hermetic.

(e)   To secure Scailex’s liabilities pursuant to the Financing Agreements,
      Scailex pledged 17,142,858 ordinary shares of Partner of NIS 0.01 par
      value each in favor of Hermetic (as the trustee for the Holders of the
      Negotiable Bonds, including Advent) (“the Shares Pledged in the
      Financing Transaction of the Vendor’s Loan”), which, correct to the
      signing date of the Advent Agreement, constituted approximately
      11.12% of all issued Partner shares (disregarding treasury shares of
      Partner) and approximately 10.73% on a fully diluted basis, disregarding
      treasury shares, as well as all dividends and other distributions, as well
      as shares that shall become due and/or issued in respect of or in lieu of
      the Shares Pledged in the Financing Transaction of the Vendor’s Loan,
      as well as all other rights and profits pertaining to the Shares Pledged in
      the Financing Transaction of the Vendor’s Loan, all under a first-ranking
      fixed lien and assignment by way of pledge.

      Within the scope of the pledge of the Shares Pledged in the Financing
      Transaction of the Vendor’s Loan, the share certificates in respect of the
      Shares Pledged in the Financing Transaction of the Vendor’s Loan were
      deposited with Hermetic in trust. It was further agreed that if and to the
      extent that approval shall be received in the future from the Ministry of
      Communications, then the Shares Pledged in the Financing Transaction
      of the Vendor’s Loan shall be transferred under the name of a collateral
      trustee for the Holders of the Negotiable Bonds and the Company.

      The Company gave irrevocable instructions for the transfer of all
      dividends and other distributions in respect of the Shares Pledged in the
      Financing Transaction of the Vendor’s Loan to the financing banks,
      divided 60% to Leumi Bank and 40% to Mizrahi Bank, and it was agreed
      that the irrevocable instructions shall automatically expire upon the
      issuance of a notice from Hermetic to the Company and, in such
      instance, all sums of the aforesaid dividends and distributions shall be
      transferred to a bank account opened under the name of the Company
      and pledged in a first-ranking floating and fixed lien in favor of Hermetic
      for the Holders of the Negotiable Bonds.




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               Due to Partner’s distribution of a dividend at the sum of NIS 1.4 billion on
               March 18, 2010, and pursuant to the Trust Deeds of the Negotiable
               Bonds, in March 2010, the Company pledged another 1,913,862
               ordinary shares of Partner of NIS 0.01 par value each in favor of the
               Holders of the Negotiable Bonds.

4.10.3   Bank financing
         On the transaction consummation date, Scailex engaged in a bank financing
         agreement with Leumi Bank and in a bank financing agreement with Mizrahi
         Bank (hereinafter jointly: “the Banks”) for the purpose of providing financing
         for the acquisition of Partner shares in the Advent Agreement (hereinafter
         jointly: “the Bank Financing Agreements”).

         (a)   Conditions of the Bank Financing Agreements with the Banks

               (a) Leumi Bank provided credit to the Company for the acquisition of a
                   portion of the shares at the sum of NIS 480 million on the
                   transaction consummation date. Mizrahi Bank provided credit to the
                   Company for the acquisition of a portion of the shares at the sum of
                   NIS 320 million on the transaction consummation date. The sums of
                   the   credit   provided   to   the   Company     on   the   transaction
                   consummation date were provided by way of a shekel loan for a
                   term of one to three months, at the Company’s discretion, bearing
                   interest on a prime basis. Pursuant to the Bank Financing
                   Agreements, at the end of this loan term and at the end of every
                   subsequent loan term, the Company shall be allowed to obtain
                   unlinked shekel loans from each bank from time to time for a term of
                   one to three months, bearing interest on a prime basis. Each loan
                   shall be used to repay the previous balance of the loan principal,
                   less sums paid by this date. The last loan to be provided as stated
                   shall be for a term ending on May 31, 2011, and on this date, the
                   entire outstanding balance of the credit principal shall be paid.

               (b) Each loan that shall be provided as stated above shall bear interest
                   at the annual rate equivalent to prime interest plus a 1.8% margin, or
                   plus another annual rate as specified in the Bank Financing
                   Agreements. The interest shall be paid on the last day of each term
                   of the relevant loan (one to three months) and on the last payment
                   date on account of the credit principal, this in respect of the


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         outstanding balance of the credit principal on every interest payment
         date, for the relevant loan term.

      (c) Within the scope of Scailex’s agreement with Mizrahi Bank, Mizrahi
         Bank provided Scailex with credit for financing current operations at
         the sum of approximately NIS 200 million. Each loan shall be an
         unlinked shekel loan bearing interest on a prime basis and shall be
         provided for a term of one month. Each loan that shall be provided
         as stated above shall bear interest at an annual rate equivalent to
         prime interest plus a margin rate equivalent to 0.75%. Within the
         scope of the agreement, Mizrahi Bank also provided the Company
         with a credit framework for the financing of activity in foreign trade
         and derivatives at the inclusive sum of up to NIS 200 million. The
         current credit and the credit for foreign trading activity shall also be
         secured by the pledges described in these clauses, as well as by
         other collateral. That same other collateral shall also secure Mizrahi
         Bank’s share in the financing of the acquisition of the Partner
         shares. Correct to the Report Date, the current credit frameworks
         and the credit for the foreign trading activity are in effect, but have
         not been completely utilized.

(b)   Pledge of Partner shares in favor of the Banks

      (a) Pursuant to each of the Bank Financing Agreements, a portion of
         the Partner shares owned by Scailex were pledged in favor of the
         Banks on the closing date of the Bank Financing Agreements under
         first-ranking and second-ranking fixed liens as specified hereunder.
         Furthermore, pursuant to each of the Bank Financing Agreements,
         upon the occurrence of particular circumstances, including a decline
         in the market value of Partner’s shares, Scailex has undertaken to
         pledge additional Partner shares in favor of the Banks under first-
         ranking and second-ranking fixed liens.

      (b) The quantity of Partner shares that were pledged in favor of the
         Banks as stated on the transaction consummation date is as follows:

         7,161,507 shares, which constituted approximately 4.48% of
         Partner’s issued and paid-up share capital (fully diluted and
         disregarding treasury shares), were pledged in favor of Leumi Bank
         under a first-ranking fixed lien and to Mizrahi Bank under a second-

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    ranking fixed lien. These shares were transferred under the name of
    the Nominee Company of Bank Leumi le-Israel Ltd. (“the Nominee
    Company”) and were deposited in a securities deposit in a bank
    account under the Company’s name, which was pledged in favor of
    Leumi Bank under a first-ranking fixed lien and in favor of Mizrahi
    Bank under a second-ranking fixed lien.

    4,774,338 shares, which constituted approximately 2.99% of
    Partner’s issued and paid-up share capital (fully diluted and
    disregarding treasury shares), were pledged in favor of Mizrahi Bank
    under a first-ranking fixed lien and to Leumi Bank under a second-
    ranking lien. These shares were transferred under the name of the
    Nominee Company and were deposited in a securities deposit in a
    bank account under the Company’s name, which was pledged in
    favor of Mizrahi Bank under a first-ranking fixed lien and in favor of
    Leumi Bank under a second-ranking fixed lien.

    It was agreed that if and to the extent that approval shall be received
    in the future from the Ministry of Communications, then the shares
    pledged in favor of the Banks as stated shall be transferred under
    the name of a collateral trustee for the Banks and the Company.

(c) In light of the said undertakings towards the Banks for the pledge of
    additional shares of Partner, the maximum quantity of Partner
    shares that might be pledged within the scope of those fixed liens to
    be created on the transaction consummation date and subsequently
    (upon the fulfillment of the conditions for the fulfillment of the
    undertaking to create them), is as follows:

    1. In favor of Leumi Bank – a fixed lien on Partner shares
        constituting 10.95% of Partner’s issued and paid-up share
        capital (fully diluted and disregarding treasury shares); and

    2. In favor of Mizrahi Bank – a fixed lien on Partner shares
        constituting 7.30% of Partner’s issued and paid-up share capital
        (fully diluted and disregarding treasury shares).

(d) The second-ranking liens shall not be exercisable except when the
    pledge is exercised by the holder of the first-ranking lien on those
    same shares.


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      Due to Partner’s distribution of a dividend at the sum of NIS 1.4 billion on
      March 18, 2010, on March 18, 2010, the Company paid the balance of
      its liabilities to the Banks, which derived from the Bank Financing
      provided to the Company for the purpose of acquiring the control of
      Partner (the original sum of the bank credit was a total of NIS 800
      million). Consequently, on March 21, 2010, all of the pledges of Partner
      shares to the Banks were removed.

(c)   Pledge of rights to a dividend in respect of Partner shares in favor
      of the Banks

      (a) In addition to the pledge of the shares as stated above, within the
          scope of the Financing Agreements of each of the Banks, the
          Company pledged in favor of the Banks in separate first-ranking
          fixed liens and in separate first-ranking assignments by way of
          pledge, also the rights to receive dividends and payments in respect
          of 6,608,417 ordinary shares of Partner of NIS 0.01 par value each,
          which are owned by Scailex, and which shall be free from liens, from
          time to time, in favor of any party, and which were not included
          within the scope of the Control Core Shares of Partner (“the
          Additional Shares”). Within this scope, the Additional Shares were
          transferred under the name of the Nominee Company, with 60% of
          the Additional Shares being deposited in a securities deposit in a
          bank account under the Company’s name, which was pledged under
          a first-ranking fixed lien in favor of Leumi Bank, while 40% of the
          Additional Shares were deposited in a securities deposit in a bank
          account under the Company’s name, which was pledged under a
          first-ranking fixed lien in favor of Mizrahi Bank.

      (b) Furthermore, the Control Core Shares of Partner, which were not
          pledged in favor of the holders of the Series A – D Bonds of the
          Company, totalling 10,617,322 ordinary shares of Partner of NIS
          0.01 par value each, which constituted 6.65% of Partner’s share
          capital on a fully diluted basis, on the date of the pledge, were
          deposited in securities deposits in bank accounts under the
          Company’s name at Leumi Bank and at Mizrahi Bank (divided 60%
          to Leumi Bank and 40% to Mizrahi Bank).




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(c) The maximum volume of rights to be pledged under first-ranking
   fixed liens and assigned in first-ranking assignments by way of
   pledge on the transaction consummation date and subsequently
   (upon the fulfillment of the conditions for the fulfillment of the
   undertaking to create them), is as follows:

   1. In favor of Leumi Bank – a first-ranking fixed lien and first-
       ranking assignment by way of pledge on the rights to receive
       dividends in respect of Partner shares that constituted 6.47% of
       Partner’s issued and paid-up share capital (fully diluted and
       disregarding treasury shares); and

   2. In favor of Mizrahi Bank – a first-ranking fixed lien and first-
       ranking assignment by way of pledge on the rights to receive
       dividends in respect of Partner shares that constituted 4.31% of
       Partner’s issued and paid-up share capital (fully diluted and
       disregarding treasury shares).

(d) The Bank Financing Agreements include customary stipulations as
   causes for immediate repayment, such as: a change in control,
   merger, split and/or sale or acquisition of a material asset, liquidation
   proceedings, default on a payment pursuant to the credit agreement,
   breach of the borrower’s undertakings, a material change in the
   businesses of the Company and/or Partner, material events that are
   liable to adversely impact the position of the Company and/or
   Partner, and more.

(e) The Bank Financing Agreements include financial criteria that the
   Company covenanted to comply with, including:

   1. the ratio of Partner’s net financial debt to Partner’s EBITDA must
       not exceed 3;

   2. the ratio between: (a) Partner’s total net financial debt, plus the
       quotient obtained from dividing the borrower’s total net financial
       debt by the borrower’s holding ratio of Partner on the date of the
       examination; and (b) Partner’s EBITDA, must not exceed: (1) by
       the end of the first quarter of 2011 – 6; (2) as of the end of the
       first quarter of 2011 and thereafter –5;




                       A - 292
                   3. the ratio between: (a) the borrower’s holding ratio of Partner on
                       the date of the examination multiplied by Partner’s net profit; and
                       (b) total maturities (principal, interest and linkage differentials in
                       respect thereof, less cash balances of the borrower, and less
                       the sum of NIS 630 million) in respect of the borrower’s net
                       financial debt during the four quarters after the date of the
                       examination (including the quarter during which the examination
                       is performed), must not diminish from (1) in 2010 and during the
                       first quarter of 2011 – 1.15; as of the second quarter of 2011
                       and thereafter – 1.

               As stated above, due to Partner’s distribution of a dividend at the sum of
               NIS 1.4 billion on March 18, 2010, on March 18, 2010, the Company
               paid the balance of its liabilities to the Banks, which derived from the
               Bank Financing provided to the Company for the purpose of acquiring
               the control of Partner (the original sum of the bank credit was a total of
               NIS 800 million). Consequently, on March 21, 2010, all of the pledges of
               Partner shares to the Banks, as well as pledges of the right to receive
               dividends in respect of Partner shares specified above, were removed.

4.10.4   Financing through the sale of Partner shares to third parties

         Concurrently with the consummation of the Partner Control Acquisition
         Transaction, the agreements under which the Company sold 9,201,424
         Partner shares to third parties were also consummated, pursuant to the
         conditions thereof, for the consideration of an aggregate total of NIS
         652,651,034, as specified hereunder:

         (a)   Sale to Leumi Bank
               Within the scope of the consummation of this agreement, the Company
               received a total of NIS 514,887,507 in consideration of 7,677,037
               ordinary shares of Partner (reflecting a price of approximately NIS
               67.069 per share), which were transferred to Leumi Partners Ltd., a
               wholly owned subsidiary of Bank Leumi le-Israel Ltd. For additional
               details about the Leumi Agreement, see the Immediate Report dated
               August 23, 2009 (reference no.: 2009-01-204756).

         (b)   Sale to Migdal
               Within the scope of the consummation of this agreement, the Company
               received a total of NIS 70,045,490 in consideration of 1,044,387 ordinary

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                   shares of Partner (reflecting a price of approximately NIS 67.069 per
                   share), which were transferred to Migdal Insurance Co. Ltd. For
                   additional details about the Migdal Agreement, see the Immediate
                   Report dated October 4, 2009 (reference no.: 2009-01-247641).

             (c)   Sale to Excellence
                   Within the scope of the consummation of this agreement, the Company
                   received a total of NIS 67,718,000 in consideration of 980,000 ordinary
                   shares of Partner (reflecting a price of NIS 69.1 per share), which were
                   transferred to Excellence Nessuah Brokerage Services Ltd. For
                   additional details about the Excellence Agreement, see the Immediate
                   Report dated October 13, 2009 (reference no.: 2009-01-253761).

4.11 Taxation

    4.11.1   The tax laws applicable to the Corporation
             The Company and most of its subsidiaries are Israeli companies, and thus are
             taxed in Israel and are subject to Israeli tax laws. The Company has several
             foreign companies undergoing liquidation proceedings, which are subject to
             the tax laws in their country of incorporation.

    4.11.2   Status of the Corporation’s tax assessments
             The Company has final tax assessments through 2004.

             Scailex Vision and a wholly owned subsidiary of Scailex Vision have final tax
             assessments through 2007.

             The effective tax rate of the Company is lower than the statutory tax rate,
             mainly due to the existence of accumulated losses for tax purposes

    4.11.3   Accumulated losses for tax purposes
             Correct to the Balance-Sheet Date, the Company has accumulated losses for
             tax purposes not yet utilized, at the sum of approximately NIS 1.7 billion, and a
             tax credit not yet utilized at the sum of approximately NIS 1.4 million. In
             respect of these losses and tax credits, the Company recognized deferred tax
             in its financial statements at the sum of approximately NIS 45 million. The
             table below presents details of the accumulated losses, which have been
             estimated for tax purposes to the end of 2009 (NIS millions).




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                                                                       Total to be
                                      Business losses      Capital      carried
                                      for tax purposes     losses       forward
            The Company                    1,105            504          1,609
            Consolidated Company               118            –            118
            Total                          1,223            504          1,727


4.12 Legal proceedings
    For details about legal proceedings involving the Company, see note 18.c of the
    financial statements.




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                      SCAILEX CORPORATION LTD.
 DIRECTORS’ REPORT ON THE CORPORATION’S STATE OF AFFAIRS
      FOR THE PERIOD OF TWELVE MONTHS ENDED ON DECEMBER 31, 2009
     AND FOR THE PERIOD OF THREE MONTHS ENDED ON DECEMBER 31, 2009


1.    THE BOARD OF DIRECTORS’ EXPLANATIONS FOR THE COMPANY’S BUSINESS
      POSITION, RESULTS OF OPERATIONS, EQUITY AND CASH FLOWS

      1.1   CONCISE DESCRIPTION OF THE CORPORATION AND ITS ENVIRONMENT

            1.1.1   Scailex Corporation Ltd. (“the Company”) is a public company whose
                    shares are listed for trading on the Tel-Aviv Stock Exchange and quoted
                    in the Pink Quote (known also as the “Pink Sheets”) in the United States.

            1.1.2   Correct to the date of this report, the Company operates in four principal
                    operating segments, the Partner segment, the segment of financial asset
                    management and identification of business opportunities, the cellular
                    operators segment and the end-customer segment.

            1.1.3   The controlling shareholder of the Company, correct to the date of this
                    report, is Suny Electronics, which holds approximately 78.03% of the
                    Company’s issued and paid-up share capital (after neutralizing treasury
                    shares, and not on a fully diluted basis). The controlling shareholder of
                    Suny Electronics is the chairman of the Company’s Board of Directors,
                    Mr. Ilan Ben Dov, who directly holds, in addition to his indirect holding of
                    the Company through Suny Electronics, approximately 0.95% of the
                    Company’s issued and paid-up share capital (after neutralizing treasury
                    shares, and not on a fully diluted basis).

            1.1.4   The acquisition of the control of Partner, a course of action that added a
                    new operating segment to the Company, the Partner segment, was
                    consummated on October 28, 2009. As a result, the Company holds,
                    correct to the balance-sheet date, approximately 44.8% of Partner’s
                    issued and paid-up share capital, and, together with Suny Electronics,
                    approximately 46.2% of Partner’s issued and paid-up share capital.
                    Correct to the date of this report, the Company holds approximately
                    44.8% of Partner’s issued and paid-up share capital, and, together with
                    Suny Electronics, approximately 46.2% of Partner’s issued and paid-up
                    share capital. For additional details about the Partner operating segment,


                                                1
              see clause 4.6 in Part A of this report. It should be noted that, for the
              purpose of the purchase price allocation (“PPA”) to Partner’s tangible and
              intangible assets, and liabilities and contingent liabilities, the Company
              engaged with Ernst & Young (Israel) Ltd. The PPA document is attached
              to the Company’s Periodic Report for 2009.

      1.1.5   In light of the requirement of the Antitrust Commissioner, and as a
              precondition to the Commissioner’s approval of the transaction for the
              acquisition of the control of Partner, on January 17, 2010, the Company
              and Cellcom engaged in an agreement for the sale of the operations of
              the Company’s end-customer segment to Cellcom. Correct to the date of
              this report, the Company is still managing and operating the end-
              customer operating segment, with the consummation of the sale thereof,
              as stated, expected to transpire, at the very latest, during the second
              quarter of 2010. According to the Company’s assessment, the
              consummation of the sale shall transpire on April 1, 2010.

1.2   METHOD OF PREPARATION OF THE FINANCIAL STATEMENTS

      The accompanying Financial Statements have been prepared in conformity with
      the provisions of the Securities Regulations and pursuant to the International
      Financial Reporting Standards (“IFRS”).

      Correct to the date of this report, the Company’s functional currency is the new
      Israeli shekel. The functional currency of the cellular operators segment only is
      the U.S. dollar; however, the presentation currency of this segment is the new
      Israeli shekel. For additional details, see note 2.F. of the Company’s Financial
      Statements as on December 31, 2009, regarding the accounting policies relating
      to the functional currency and the method of presentation in the Financial
      Statements.

1.3   RESULTS OF THE OPERATIONS

      1.3.1   Revenue from ordinary operations
              During the report period, the Company’s revenue from sales and from the
              provision of services totalled approximately NIS 1,744 million. This
              revenue included revenue from sales of cellular telephones and
              accessories at the sum of approximately NIS 514 million and revenue in
              respect of the provision of services at the sum of approximately NIS 38
              million in the cellular operators segment; revenue from sales at the sum
              of approximately NIS 109 million and revenue in respect of the provision


                                        2
        of services at the sum of approximately NIS 31 million in the end-
        customer segment; and revenue from sales at the sum of approximately
        NIS 136 million and revenue in respect of the provision of services at the
        sum of approximately NIS 916 million in the Partner segment. The
        revenue from sales in the Partner segment is for the period of two months
        ended on December 31, 2009. During the corresponding period last year,
        the Company’s revenue from sales and from the provision of services
        totalled approximately NIS 184 million. This revenue derived from
        revenue from sales at the sum of approximately NIS 141 million and from
        revenue in respect of services at the sum of approximately NIS 12 million
        in the cellular operators segment, and from revenue from sales at the
        sum of approximately NIS 24 million and from revenue in respect of
        services at the sum of approximately NIS 7 million in the end-customer
        segment. It is emphasized that the revenue during this period is attributed
        solely to the fourth quarter of 2008, the quarter as of which the Company
        has been operating and including the cellular operators segment and the
        end-customer segment in its Financial Statements.

1.3.2   Financing income
        During the report period, the financing income totalled approximately NIS
        194 million, compared with financing income of approximately NIS 30
        million during the corresponding period last year.

        Financing income of the Company during the report period at the sum of
        approximately NIS 175 million derived mainly from profits in respect of the
        Company’s holdings of marketable securities, from dividend income and
        from interest income generated from the Company’s cash balances. In
        addition, the financing income during the report period included the sum
        of NIS 19 million in respect of the amortization of the excess cost
        attributed to bonds of Partner, in accordance with the PPA document.

        The increase in the Company’s financing income during the report period
        compared with the corresponding period last year derived from a
        significant increase in investments in the capital market up until the
        acquisition date of the control of Partner. Subsequent to the acquisition
        date, the volume of the Company’s investments in the capital market
        diminished significantly, in light of the decline in the volume of the
        Company’s cash as a result of the acquisition.




                                   3
1.3.3   Other income, net
        The Company’s other income, net, during the report period totalled
        approximately NIS 6 million, which derived from interest income in
        respect of Partner’s balances of trade receivables at the sum of NIS 9
        million, in respect of long-term transactions. Opposite this, the Company
        recorded other expenses at the sum of NIS 3 million, which derived from
        an expansion of a series of bonds (Series 1) in a private offering to Leumi
        Partners.

        The Company’s other income during the corresponding period last year
        totalled approximately NIS 309 million, which derived mainly from the
        capital gain from the sale of PCH at the sum of approximately NIS 248
        million, from dividend income received from ORL at the sum of
        approximately NIS 38 million, and a gain of approximately NIS 23 million,
        which derived from the purchase of the minority interest in PCH during
        the first quarter of 2008.

1.3.4   Cost of sales and the provision of services
        The cost of sales and the provision of services during the report period
        totalled approximately NIS 1,325 million. During the report period, the
        expenses of the cost of sales and the provision of services were split
        among the Company’s operating segments as follows: the cellular
        operators segment – approximately NIS 493 million; the end-customer
        segment – approximately NIS 44 million and the Partner segment –
        approximately NIS 788 million. The cost of sales and the provision of
        services from the Partner segment is for the period of two months ended
        December 31, 2009.

        The cost of sales and the provision of services derived mainly from
        purchases and changes in inventory at the sum of approximately NIS 594
        million, from the cost in respect of transmission, communications and
        content suppliers at the sum of approximately NIS 207 million, from
        depreciation and amortizations at the sum of approximately NIS 266
        million, and from wage and wage-related expenses at the sum of
        approximately NIS 105 million. The depreciation and amortization
        expenses include the sum of NIS 131 million in respect of the
        amortization of the excess cost attributed to customer relations and the
        right to use the “Orange” brand in respect of Partner’s intangible assets in
        accordance with the PPA document, as well as amortizations of intangible


                                     4
        assets at the sum of approximately NIS 17 million created due to the
        operational purchases of the cellular operators segment and the end-
        customer segment.

        The cost of sales and the provision of services during the corresponding
        period last year totalled approximately NIS 147 million. This cost, which
        relates to cumulative expenses during the fourth quarter of 2008 only, the
        quarter as of which the Company has been operating and including the
        cellular operators segment and the end-customer segment in its Financial
        Statements, included purchases less changes in inventory at the sum of
        approximately NIS 128 million, depreciation and amortization expenses,
        including amortization of intangible assets created upon the acquisition of
        the operations at the sum of approximately NIS 12 million, and wage and
        wage-related expenses at the sum of approximately NIS 5 million. During
        this period, the expenses of the cost of sales and the provision of services
        were split among the operating segments as follows: the cellular
        operators segment – NIS 136 million; the end-customer segment – NIS
        11 million.

1.3.5   Selling expenses
        The selling expenses during the report period totalled approximately NIS
        121 million. During the report period, the selling expenses were split
        among the Company’s operating segments as follows: the cellular
        operators segment – approximately NIS 25 million; the end-customer
        segment – approximately NIS 35 million; the Partner segment –
        approximately NIS 61 million. The cost of sales and the provision of
        services from the Partner segment is for the period of two months ended
        December 31, 2009.

        The selling expenses during the report period included mainly wage and
        wage-related expenses at the sum of approximately NIS 56 million,
        advertising, marketing and commission expenses, net, at the sum of
        approximately NIS 38 million, and store rental and maintenance expenses
        at the sum of approximately NIS 11 million. It should be noted that, in the
        cellular operators segment, there has been an increase in the advertising
        and marketing expenses relating to the Company’s extensive activities for
        the purposes of launching advanced telephones, which also received
        expression in the Company’s revenue from this segment.




                                   5
        The selling expenses during the corresponding period last year; i.e., the
        selling expenses that accumulated during the fourth quarter of 2008 only,
        the quarter as of which the Company has been operating and including
        the cellular operators segment and the end-customer segment in its
        Financial Statements, totalled approximately NIS 15 million, and included
        wage expenses of approximately NIS 6 million, advertising, marketing
        and commission expenses of approximately NIS 5 million, and other
        expenses at the sum of approximately NIS 4 million. The above expenses
        were split among the Company’s operating segments as follows: the
        cellular operators segment – approximately NIS 7 million; the end-
        customer segment – approximately NIS 8 million.

1.3.6   Administrative and general expenses
        During the report period, the administrative and general expenses totalled
        approximately NIS 128 million, compared with approximately NIS 20
        million during the corresponding period last year. During the report period,
        the administrative and general expenses were split among the
        Company’s operating segments as follows: management of the
        Company’s assets – approximately NIS 49 million; the cellular operators
        segment – approximately NIS 17 million; the end-customer segment –
        approximately NIS 7 million and the Partner segment – approximately NIS
        55 million. The administrative and general expenses from the Partner
        segment are for the period of two months ended December 31, 2009.

        Administrative and general expenses during the report period included
        mainly wage and wage-related expenses at the sum of NIS 37 million,
        costs in respect of the acquisition of Partner at the sum of NIS 27 million,
        a provision for doubtful debts at the sum of NIS 11 million, costs of
        professional services at the sum of NIS 18 million, donations at the sum
        of 3 million.

        Administrative and general expenses during the corresponding period last
        year totalled approximately NIS 19 million, and included mainly wage and
        wage-related expenses at the sum of NIS 6 million, costs of professional
        services at the sum of NIS 4 million, and directors’ remuneration and
        insurance at the sum of NIS 5 million.

        The increase in the administrative and general expenses during the report
        period, compared with the corresponding period last year, derived from



                                   6
                     an increase in the administrative and general expenses added in respect
                     of the Partner segment at the sum of approximately NIS 55 million, in
                     respect of transaction costs incurred by the Company due to the
                     acquisition of the control of Partner and in respect of expenses to external
                     consultants. Furthermore, expenses from the cellular operators segment
                     and the end-customer segment were included only as of the fourth
                     quarter of 2008.

             1.3.7   Financing expenses
                     During the report period, the financing expenses totalled approximately
                     NIS 129 million, compared with approximately NIS 1 million during the
                     corresponding period last year. During the report period, the financing
                     expenses were split among the Company’s operating segments as
                     follows: management of the Company’s assets – approximately NIS 36
                     million; financing expenses that derived from a bond issue at the sum of
                     approximately NIS 53 million; the Partner segment – approximately NIS
                     40 million. The financing expenses from the Partner segment are for the
                     period of two months ended December 31, 2009.

                     The increase in the financing expenses during the report period,
                     compared with the corresponding period last year, derived mainly from
                     financing expenses in respect of bonds that the Company issued and a
                     seller’s loan1 at the sum of approximately NIS 53 million. It should be
                     noted that the financing expenses in respect of the bonds and the seller’s
                     loan accrued since the date of the recruitment; i.e., since September and
                     October 2009, and include interest and discounting expenses, expenses
                     in respect of linkage to the CPI and expenses in respect of USD-linkage
                     differentials. The increase in the financial expenses also derived from
                     interest expenses in respect of short-term loans from banks2 at the sum of
                     NIS 20 million, a loss from financial derivatives intended to protect the
                     Company’s holding of securities in relation to which the protection is
                     being carried out at the sum of NIS 32 million, and hedging expenses in
                     respect of derivatives on the consumer price index at the sum of NIS 12
                     million.

1
    In respect of a loan from Advent at the sum of USD 300 million, which was used to acquire the
    control of Partner.
2
    In respect of bank loans at the sum of NIS 800 million, which were used to acquire the control of
    Partner, as well as a loan at the sum of NIS 200 million, which was provided to finance the
    Company’s current operations.


                                                  7
             1.3.8   Taxes on income
                     During the report period, the Company’s net tax expenditure totalled
                     approximately NIS 31 million. This expenditure derived from tax expenses
                     in the Partner segment at the sum of NIS 57 million, against which a tax
                     benefit was recorded at the sum of approximately NIS 26 million in
                     respect of the Company’s asset management segment and cellular
                     operators segment. The tax expenditure in respect of the Partner
                     segment includes mainly expenses in respect of current taxes at the sum
                     of NIS 41 million. As stated, a tax benefit was recorded at the sum of
                     approximately NIS 26 million, as a result of the recording of a tax asset in
                     respect of losses from previous years at the sum of approximately NIS 13
                     million,3 and as a result of the amortization of a tax reserve allocated in
                     respect of the intangible assets created in respect of the Partner
                     acquisition, at the sum of approximately NIS 13 million.

                     During the corresponding period last year, the Company’s tax benefit
                     totalled the sum of approximately NIS 31 million. This benefit derived from
                     the creation of a tax asset in respect of business losses for which
                     deferred taxes had not been previously recorded, at the sum of
                     approximately NIS 36 million. The recording of the tax asset became
                     possible following the acquisition of the operations from Suny Electronics,
                     and, following it, the Company’s assessment that it shall be able to utilize
                     these losses for tax purposes. Opposite this, tax expenses of
                     approximately NIS 4 million were recorded in respect of the profits of the
                     operations acquired during the fourth quarter of 2008 (the cellular
                     operators segment and the end-customer segment), as well as tax
                     expenses at the sum of approximately NIS 1 million in the subsidiary,
                     Scailex Vision, resulting from tax assessment agreements signed with the
                     Tax Authorities.

             1.3.9   Net profit for the period from continuing operations
                     The net profit for the report period from continuing operations totalled
                     approximately NIS 210 million. This profit derived from profits in respect
                     of the activities of the cellular operators segment, the end-customer
                     segment and the Partner segment at the inclusive sum of approximately


3
    In light of the assessment of the Company’s Management, according to counseling that it received,
    that it shall be able to utilize a portion of its accrued losses for tax purposes following the
    acquisition of the operational activities during the fourth quarter of 2008.


                                                  8
       NIS 176 million, from financing income, net, at the sum of approximately
       NIS 65 million, which derived mainly from profits from investments in
       securities, from dividends and from interest income, which were offset by
       financing expenses, which derived mainly from financing expenses in
       respect of bonds issued by the Company, from bank financing, as well as
       from a seller’s loan that the Company received for the purpose of
       acquiring Partner. The Company also recorded tax expenses totalling NIS
       31 million.

       The net profit from continuing operations during the corresponding period
       last year totalled approximately NIS 370 million. This net profit derived
       mainly from profit from the sale of the subsidiary PCH at the sum of
       approximately NIS 247 million, from a dividend from ORL at the sum of
       approximately NIS 37 million, from net financing income of approximately
       NIS 29 million and from a net tax benefit of approximately NIS 31 million,
       as stated above, as well as from operating profit of the operations
       acquired during the fourth quarter of 2008 (the cellular operators segment
       and the end-customer segment) at the inclusive total of approximately
       NIS 16 million.

1.3.10 Profit from discontinued operations
       The profit from discontinued operations during the report period totalled
       approximately NIS 1 million.

       During the corresponding period last year, the profit from discontinued
       operations totalled approximately NIS 42 million. This profit derived
       mainly from a tax benefit at the sum of approximately NIS 32 million, and
       profit from the discontinued operations of Scailex Vision, at the sum of
       approximately 11 million, as a result of the agreement achieved with HP
       in relation to the sum retained by a trustee subsequent to the sale
       transaction of the assets of this subsidiary to HP. These sums were offset
       mainly by financing expenses of approximately NIS 1 million.

1.3.11 Net profit
       During the report period, the net profit totalled approximately NIS 211
       million, compared with a net profit of approximately NIS 412 million during
       the corresponding period last year. The net profit to the Company’s
       shareholders totalled approximately NIS 183 million, compared with net
       profit of approximately NIS 409 million during the corresponding period



                                  9
              last year. The decrease in the net profit during the report period
              compared with the corresponding period last year was mainly due to the
              fact that a capital gain had been recorded during the previous year in
              respect of the sale of the subsidiary PCH, for the sum of approximately
              NIS 247 million, and in respect of a dividend from ORL at the sum of
              approximately NIS 37 million.

              In 2009, the Company recorded operating profits from the Partner
              operating segment, from the cellular operators operating segment and
              from the end-customer operating segment at the sum of approximately
              NIS 170 million, after amortizations of intangible assets in respect of the
              acquisition of the operations at the end of the third quarter of 2008, and in
              respect of the acquisition of Partner during the fourth quarter of 2009, and
              after amortization of transaction costs, which were used to acquire
              Partner. In the Company’s asset management segment, the Company
              recorded financing income at the sum of NIS 169 million, as well as
              financing income from amortization of excess costs attributed to bonds of
              Partner at the sum of NIS 19 million. Against this, the Company recorded
              financing expenses in respect of bonds and credit that it received to
              finance the acquisition of Partner and financing expenses in respect of
              credit in the Partner segment at the sum of NIS 129 million. The
              Company also recorded tax expenses at the sum of NIS 31 million.

1.4   RESULTS OF OPERATIONS DURING THE FOURTH QUARTER ENDED ON
      DECEMBER 31, 2009:

      1.4.1   Net profit from continuing operations
              The net profit from continuing operations during the period of three
              months ended on December 31, 2009 totalled approximately NIS 17
              million, compared with net profit from continuing operations of
              approximately NIS 30 million during the corresponding period last year.

              The profit from continuing operations during the fourth quarter of 2009
              included mainly net profits that derived from the Partner segment at the
              sum of approximately NIS 179 million, net profit from the cellular
              operators segment and from the end-customer segment at the sum of
              NIS 23 million, and opposite this, financing expenses at the sum of
              approximately NIS 46 million in respect of bonds issued by the Company
              and bank credit that the Company received, as well as amortizations in



                                         10
        respect of excess costs created following the acquisition of Partner at the
        sum of approximately NIS 139 million.

        The net profit during the fourth quarter of 2008 included operating profit
        from the operations acquiring during that quarter (the cellular operators
        segment and the end-customer segment) at the sum of approximately
        NIS 16 million, net financing income of approximately NIS 10 million and
        a net tax benefit of approximately NIS 6 million. These sums were offset
        mainly by administrative and general expenses of approximately NIS 2
        million (not including administrative and general expenses attributed to
        the acquired operations).

1.4.2   Profit from discontinued operations
        During the fourth quarter of 2009 no profit or loss from discontinued
        operations was recorded. The profit from discontinued operations during
        the fourth quarter of 2008 totalled approximately NIS 31 million, and
        derived mainly from a tax benefit at the sum of approximately NIS 32
        million, which was offset by financing expenses of approximately NIS 1
        million.

1.4.3   Operating profit in the operating segments
        Following are the results of the quarter ended December 31, 2009 in the
        cellular operators segment, in the end-customer segment and in the
        Partner operating segment, as defined above in clauses 4.4, 4.5 and 4.6
        in Part A of this Report:

        1.4.3.1    Cellular operators segment: the operating profit in this
                   operating segment during the fourth quarter of 2009 totalled
                   approximately NIS 15 million. This profit included revenue from
                   sales and services at the sum of approximately NIS 127 million
                   (including intersegmental sales of approximately NIS 34
                   million), which generated a gross profit of approximately NIS 22
                   million. Selling, administrative and general expenses totalled
                   approximately NIS 7 million.

                   The operating profit in this operating segment during the fourth
                   quarter of 2008 totalled approximately NIS 15 million. This profit
                   included revenue from sales and services at the sum of
                   approximately NIS 162 million (including intersegmental sales
                   of approximately NIS 10 million), which generated a gross profit



                                    11
                              of approximately NIS 26 million. Selling, administrative and
                              general expenses totalled approximately NIS 11 million. The
                              said profit is after amortization expenses of intangible assets
                              created following the acquisition of the operating segment at the
                              sum of approximately NIS 11 million.

                    1.4.3.2   End-customer segment: the operating profit in this operating
                              segment       during     the   fourth   quarter   of    2009   totalled
                              approximately NIS 2 million. This profit included revenue from
                              sales and services at the sum of approximately NIS 36 million,
                              which generated a gross profit of approximately NIS 14 million.
                              Selling,   administrative      and      general   expenses     totalled
                              approximately NIS 12 million. The operating profit in this
                              operating segment during the fourth quarter of 2008 totalled
                              approximately NIS 1 million. This profit included revenue from
                              sales and services at the sum of approximately NIS 32 million,
                              which generated a gross profit of approximately NIS 11 million.
                              Selling,   administrative      and      general   expenses     totalled
                              approximately NIS 10 million. The said profit is after
                              amortization expenses of intangible assets created following the
                              acquisition    of   the    operating    segment    at   the    sum   of
                              approximately NIS 1 million.

                    1.4.3.3   Partner segment: the operating profit in this operating segment
                              during the fourth quarter of 20094 totalled approximately NIS
                              141 million. This profit included revenue from sales and
                              services at the sum of approximately NIS 1,052 million, which
                              generated a gross profit of approximately NIS 380 million, and
                              selling, administrative and general expenses, which totalled
                              approximately NIS 117 million. Also recorded were amortization
                              expenses of intangible assets created following the acquisition
                              of   the operating segment, which totalled the sum of
                              approximately NIS 131 million.




4
    For the period of two months ended December 31, 2009.


                                                  12
       1.5   FINANCIAL POSITION

             1.5.1   Total balance sheet
                     On the balance-sheet date, the assets in the balance sheet totalled the
                     sum of approximately NIS 15,070 million, compared with the sum of
                     approximately NIS 1,375 million as on December 31, 2008. The increase
                     in total assets in the balance sheet on the balance-sheet date, compared
                     with December 31, 2008, derived mainly from the acquisition of Partner,
                     which was consolidated for the first time as of October 31, 2009.

                     It should be noted that, according to the provisions of IFRS 3 (amended –
                     2008 version) “Business Combinations,” the minority rights not vesting
                     control of Partner are measured for the first time on the date of the
                     business combination, at the height of their share of the fair value of the
                     assets, including their share of the goodwill, the liabilities and the
                     contingent liabilities of Partner. In light of that stated, the minority rights to
                     the equity are presented at the fair value of the minority holdings of
                     Partner shares,5 as traded on the Tel-Aviv Stock Exchange Ltd. on the
                     transaction date, and at the inclusive sum of approximately NIS 5,529
                     million on the said date.

             1.5.2   Current assets
                     On the balance-sheet date, the current assets totalled approximately NIS
                     2,180 million, compared with approximately NIS 1,168 million as on
                     December 31, 2008. The Company’s principal assets presented under
                     the current assets as on the balance-sheet date are trade receivables, at
                     the sum of approximately NIS 1,410 million, and cash and cash
                     equivalents at the sum of approximately NIS 418 million. The increase in
                     the current assets as on the balance-sheet date compared with
                     December 31, 2008 derived mainly from the balance of trade receivables
                     and cash, which were consolidated following the acquisition of a
                     consolidated company, Partner.

             1.5.3   Noncurrent assets

                     1.5.3.1   The balances of the investments and the long-term debit
                               balances totalled approximately NIS 521 million on the balance-
                               sheet date, compared with approximately NIS 33 million as on

5
    Weighted value of the minority’s share reflected in the options to employees issued by Partner,
    which had matured by the transaction date.


                                                  13
                                 December 31, 2008. The balance of the investments and the
                                 long-term debit balances as on the balance-sheet sheet include
                                 trade receivables at the sum of approximately NIS 474 million, a
                                 deferred tax asset at the sum of approximately NIS 45 million,
                                 prepaid expenses at the sum of approximately NIS 1 million and
                                 deposits at the sum of approximately NIS 1 million. Correct as
                                 on December 31, 2008, the balance of the investments and the
                                 long-term debit balances included prepaid expenses at the sum
                                 of approximately NIS 1 million and a deferred tax asset at the
                                 sum of approximately NIS 32 million.

                                 The rise in the balance of the investments and the long-term
                                 debit balances as on the balance-sheet date compared with
                                 December 31, 2008 derived mainly from the balance of trade
                                 receivables deriving from the acquisition of a consolidated
                                 company, Partner.

                      1.5.3.2    The balance of the fixed assets as on the balance-sheet date is
                                 approximately NIS 2,072 million, compared with approximately
                                 NIS 6 million as on December 31, 2008. The increase derives
                                 from the balance of fixed assets in Partner.

                      1.5.3.3    On the balance-sheet date, the Company recognized goodwill
                                 at the sum of approximately NIS 5,505 million.6 NIS 5,483
                                 million derives from the acquisition of the control of Partner,
                                 while the balance of the goodwill, at the sum of NIS 22 million,
                                 derives from the acquisition of the cellular operators segment
                                 and the end-customer segment.

                                 On December 31, 2008, the Company recognized goodwill at
                                 the sum of approximately NIS 22 million, which represented the
                                 difference between the consideration that the Company had
                                 paid for the acquisition of the operations of the cellular
                                 operators segment and the end-customer segment from Suny
                                 Electronics, at the sum of approximately NIS 244 million, and
                                 the fair value of the acquired assets and liabilities, including
                                 intangible assets. The sum of the said goodwill was split, so
                                 that the sum of approximately NIS 21 million was attributed to

6
    Including the minority’s share.


                                                 14
                   the end-customer segment, while the sum of approximately NIS
                   1 million was attributed to the cellular operators segment.

        1.5.3.4    The balance of the other intangible assets on the balance-sheet
                   date was approximately NIS 4,788 million, and included
                   intangible assets acquired within the scope of the acquisition of
                   the operations from Suny Electronics, at the sum of
                   approximately NIS 129 million, the balance of the intangible
                   assets from Partner, at the sum of approximately NIS 1,260
                   million, and the balance of intangible assets (mainly customer
                   relations), which derived from the acquisition of Partner, at the
                   sum of approximately NIS 3,399 million. On December 31,
                   2008, the balance of the other intangible assets was
                   approximately NIS 146 million, and included intangible assets
                   acquired within the scope of the acquisition of the operations
                   from Suny Electronics, including a franchise for the distribution
                   of Samsung products, at the sum of approximately NIS 121
                   million (after an adjustment for a change in the exchange rate of
                   the USD), a customer base – approximately NIS 12 million, and
                   a   commercial    agreement     with   a   cellular   operator   –
                   approximately NIS 13 million.

1.5.4   Current liabilities
        On the balance-sheet date, the Company’s current liabilities totalled
        approximately NIS 2,960 million, which derived mainly from an overdraft
        and short-term loans from banking corporations, at the sum of
        approximately NIS 891 million, from current maturities and interest
        payable at the sum of approximately NIS 848 million, from suppliers and
        service-providers at the sum of approximately NIS 854 million, and from
        payables and credit balances at the sum of approximately NIS 282
        million.

        The balance of the current liabilities on December 31, 2008 totalled
        approximately NIS 98 million, which derived mainly from liabilities to
        suppliers and service-providers at the inclusive sum of approximately NIS
        74 million and other payables at the sum of approximately NIS 17 million.

        The increase in the Company’s current liabilities, correct to the balance-
        sheet date, compared with December 31, 2008, derived from short-term



                                    15
                    loans obtained from banking corporations for the purposes of financing
                    the acquisition of Partner at the sum of approximately NIS 891 million,
                    from balances of suppliers and service-providers and current maturities
                    and interest payable of Partner, which were added following the
                    consolidation of Partner.

            1.5.5   Noncurrent liabilities
                    The long-term liabilities as on the balance-sheet date totalled
                    approximately NIS 4,950 million, and included mainly bonds at the sum of
                    approximately NIS 3,283 million issued by the Company and issued by
                    Partner, as well as a long-term loan from others7 at the sum of
                    approximately NIS 1,006 million. The long-term liabilities as on December
                    31, 2008 totalled approximately NIS 2 million, and included only liabilities
                    in respect of employee benefits. The increase in noncurrent liabilities
                    derived mainly from the receipt of a long-term loan from others and from a
                    bond issuance for the purposes of financing the acquisition of Partner, as
                    well as in respect of a long-term loan and bonds in Partner. The increase
                    also derives from the recording of a reserve for deferred taxes at the sum
                    of NIS 294 million, which derived mainly from a tax reserve created upon
                    the allocation of excess costs in respect of intangible assets upon the
                    acquisition of Partner.

            1.5.6   Equity
                    The total equity as on the balance-sheet date totalled approximately NIS
                    7,160 million, compared with the sum of approximately NIS 1,275 million
                    on December 31, 2008. The increase in the equity, correct to the balance-
                    sheet date, compared with December 31, 2008, derived mainly from an
                    increase in the minority interests in respect of the acquisition of Partner,
                    such that the balance of the minority interests on December 31, 2009 is
                    NIS 6,046 million, compared with NIS 1 million last year.

                    The balance of the equity attributed to the Company’s shareholders as on
                    the balance-sheet date totalled the sum of approximately NIS 1,114
                    million, compared with NIS 1,274 million on December 31, 2008. The
                    decrease in the equity attributed to the Company’s shareholders derived


7
    Pursuant to the agreements between Advent and the Company within the scope of the acquisition
    agreement, the financing agreements were signed between the Company and Advent. By virtue
    thereof, Advent granted a loan to the Company on the transaction consummation date at the sum
    of USD 300 million.


                                                16
              mainly from a buy-back of shares of the Company, at the sum of
              approximately NIS 284 million, and from a dividend distributed to the
              shareholders at the sum of approximately NIS 100 million. These sums
              were offset mainly by the net profit attributed to the Company’s
              shareholders at the sum of approximately NIS 183 million.

1.6   LIQUIDITY AND SOURCES OF FINANCING

      1.6.1   Flow from current activities
              The positive flow from current operations during the report period totalled
              the sum of approximately NIS 452 million, and derived mainly from the
              Company’s operating profit during the report period, less a gain from
              marketable securities not yet realized, and with the addition of
              depreciation and amortization expenses, as well as from a change in
              operating assets and liabilities. The positive flow from current operations
              for the corresponding period last year totalled the sum of approximately
              NIS 80 million, and derived mainly from a dividend received from ORL at
              the sum of approximately NIS 38 million, and from cash that derived from
              discontinued operations (mainly the receipt of the balance of the funds
              held in escrow in respect of the sale of the operations of Scailex Vision,
              and following a settlement agreement with HP) at the sum of
              approximately NIS 36 million.

      1.6.2   Flow from investment activities
              During the report period a negative flow was recorded of approximately
              NIS 3,528 million from investment activities. The said sum included
              mainly an investment in a consolidated company (Partner) at the sum of
              approximately NIS 4,149 million. This sum was offset mainly by the
              proceeds from the sale of shares of a consolidated company (Partner) to
              a minority at the sum of approximately NIS 652 million. The positive flow
              from investment activities for the corresponding period last year totalled
              approximately NIS 642 million. The said sum included mainly proceeds
              from the sale of PCH at the sum of approximately NIS 1,105 million. This
              sum was offset mainly by sums invested in the acquisition of the
              operations from Suny Electronics at the sum of approximately NIS 244
              million, and by the acquisition of the minority share of PCH, at the sum of
              approximately NIS 200 million.




                                        17
1.6.3   Flow from financing activities
        The positive cash flow from financing activities during the report period
        totalled approximately NIS 2,595 million, and derived mainly from a bond
        issuance at the sum of approximately NIS 2,328 million, from the receipt
        of short-term credit from banking corporations at the sum of NIS 891
        million, and from the receipt of long-term credit from banking corporations
        in a consolidated company at the sum of NIS 300 million. Opposite this,
        the Company distributed a dividend at the sum of NIS 100 million, and a
        consolidated company (Partner) distributed a dividend to the minority
        shareholders at the sum of NIS 165 million, and the Company and a
        consolidated company executed a payment of principal and interest in
        respect of loans and bonds at the inclusive sum of approximately NIS 386
        million. In addition, the Company executed a buy-back of its shares at the
        volume of NIS 284 million.

        The negative cash flow from financing activities during the corresponding
        period last year totalled approximately NIS 198 million, and derived from
        the distribution of a dividend to the shareholders at the sum of
        approximately NIS 150 million, from a buy-back of shares of the Company
        at the sum of approximately NIS 25 million, and from the distribution of a
        dividend to the minority shareholders in Scailex Vision at the sum of
        approximately NIS 24 million.

1.6.4   Balances of cash, cash equivalents and marketable securities
        The Company has balances of cash, cash equivalents and marketable
        securities   (not   including    shorts   and   derivatives),   which   totalled
        approximately NIS 512 million on the balance-sheet date, this compared
        with the sum of approximately NIS 967 million as on December 31, 2008.
        The decrease in the balances of cash, cash equivalents and marketable
        securities (not including shorts and derivatives) correct to the balance-
        sheet date, compared with December 31, 2008, derived from the
        acquisition of Partner.




                                    18
            1.6.5   Bank liabilities and nonbank liabilities
                    Following are details of the balance of the credit provided to the
                    Company, correct to the balance-sheet date:
                              USD-linked balances        CPI-linked balances         Unlinked balances
                                NIS     Weighted           NIS     Weighted           NIS     Weighted
                              millions interest %        millions interest %        millions interest %
Short-term liabilities
To banking corporations(*)         -            -            -            -           891          4.35
Long-term liabilities                                                                  -
Marketable securities             -            -          1,004         4.96          913          5.51
To a third-party(**)            1,137        2.027          -             -            -             -


                    (*)   The sum of approximately NIS 722 million, out of the total short-term
                          liabilities to banking corporations is unlinked shekel credit for a period of
                          one month, which is renewed at the end of each month for an additional
                          one-month period, bearing interest at Prime + 1.8%. The Company used
                          this credit to finance the acquisition of the control of Partner. A portion of the
                          Partner shares held by the Company were pledged to secure this credit,
                          according to the value of the purchase price of Partner shares by the
                          Company.
                          The sum of approximately NIS 169 million, out of the total short-term
                          liabilities to banking corporations is an unlinked shekel credit framework,
                          bearing interest at Prime + 0.75%. Balances of trade receivables and
                          inventories are pledged to secure this credit, at the height of the utilized
                          credit framework.

                    (**) Dollar credit, for a period of four and a half years, bearing interest at 2.027%
                         per annum, which was granted to the Company by Advent, as a seller’s
                         loan, within the scope of the Partner control acquisition agreement.

                          In addition, the Company provided bank guarantees, as on December 31,
                          2009, in respect of current operations, as follows: guarantees at the sum of
                          NIS 3.5 million in favor of owners of stores and points-of-sale to secure rent
                          payments, as well as a guarantee at the sum of NIS 3.6 million, in favor of
                          the Customs Division, to secure the payments of the Company’s obligatory
                          import taxes.


                    Following are details of the balance of the credit provided to the
                    Company, correct to the date of this report:
                              USD-linked balances        CPI-linked balances         Unlinked balances
                                NIS     Weighted           NIS     Weighted           NIS     Weighted
                              millions interest %        millions interest %        millions interest %
Short-term liabilities
To banking corporations            -            -            -            -           175           3.5
Long-term liabilities                                                                  -
Marketable securities             -            -          1,016         4.96          924          5.51
To a third-party                1,125        2.027          -             -            -             -



                                                    19
1.7   PRO FORMA DATA INCLUDED IN THE PRO FORMA STATEMENTS
      The pro forma data reflect the consolidated results of operations if the acquisition
      of Partner had been executed on January 1, 2008. The pro forma data include
      amortizations resulting from the purchase price allocation to Partner’s various
      assets and liabilities (deferred income, customer relations, brand and
      undertakings), this pursuant to the PPA document performed by Ernst & Young
      (Israel) Ltd., which is attached to the Company’s Periodic Report for 2009.
      According to data from the Pro Forma Statements for the year ended December
      31, 2009, income from sales and services totalled NIS 6,641 million, the cost of
      sales and services totalled NIS 4,849 million and the gross profit totalled NIS
      1,792 million. Selling expenses and administrative and general expenses totalled
      approximately NIS 786 million, net financing income totalled NIS 216 million, and
      the pre-tax profit totalled NIS 856 million. Taxes on income totalled NIS 240
      million and the profit for the period is a total of NIS 617 million. The profit to the
      Company’s shareholders is the sum of NIS 277 million.

1.8   EXPOSURE TO MARKET RISKS AND RISK MANAGEMENT METHODS

      1.8.1   Market risk sensitivity tests

              Market risk sensitivity analysis
              Following are details of the Company’s financial instruments as on
              December 31, 2009, which are sensitive to the risks of the relevant
              markets. The instruments that are sensitive to various market risks shall
              be presented a number of times according to the sensitivity analysis for
              each of the risks.

              Pursuant to a clarification published by the Securities Authority on
              February 28, 2010, two additional extreme scenarios are required in the
              interest sensitivity tests. The absolute change checked in the extreme
              scenarios is 2%.




                                         20
                Sensitivity to changes in the exchange rate of the shekel/dollar
                (NIS millions)
                The sensitivity analysis was based on the exchange rate for December
                31, 2009. The exchange rate on this date was NIS 3.775 per USD 1.
                                      Profit (loss)                                     Profit (loss)
                                  due to the change                                 due to the change
                                 10% rise       5% rise              Fair       5% decline       10% decline
   Sensitive instrument
                                  in the         in the             value          in the           in the
                                exchange       exchange                          exchange         exchange
                                   rate           rate                              rate             rate
Cash and cash equivalents           3.6             1.8             36.0              (1.8)               (3.6)
Trade receivables                   9.2             4.6             92.0              (4.6)               (9.2)
Current maturity                   (0.4)           (0.2)            (4.0)              0.2                 0.4
Seller’s loan                    (100.6)          (50.3)        (1,005.6)             50.3               100.6
Trade payables                    (28.9)          (14.5)          (289)               14.5                28.9
Other payables                     (0.4)           (0.2)            (4.0)              0.2                 0.4
Total                            (117.5)          (58.7)        (1,174.6)             58.7               117.5


                Sensitivity to changes in the consumer price index (NIS millions)
                The sensitivity analysis was performed at the rates of 0.1% and 0.2% in
                respect of a change in the consumer price index.
                                      Profit (loss)                                     Profit (loss)
                                   due to the change                 Fair            due to the change
   Sensitive instrument
                                 0.2% rise     0.1% rise            value     0.1% decline 0.2% decline
                                 in the CPI in the CPI                          in the CPI        in the CPI
Short-term investments                  0.03            0.01        13               (0.01)             (0.03)
CPI-linked bonds                       (7.49)          (3.74)   (3,744)               3.74               7.49
Short sale of concern bonds*           (0.01)          (0.01)       (6)               0.01               0.01
Payables                               (0.04)          (0.02)      (20)               0.02               0.04
Others                                 (0.01)          (0.01)       (6)               0.01               0.01
Total                                  (7.52)          (3.76)   (3,763)               3.76               7.52
                * The Company has a short position (short sale) of an index-linked concern bond.


                Sensitivity to changes in the dollar interest rates (NIS millions)

                  Profit (loss) due to the change                           Profit (loss) due to the change
                           10% rise in
  Sensitive                             5% rise in           Fair       5% decline       10% decline
                Extreme     the USD                                                                        Extreme
 instrument                              the USD            value       in the USD        in the USD
                scenario    interest                                                                       scenario
                                       interest rate                   interest rate     interest rate
                              rate
Seller’s loan    75.62         19.62            9.87       (1,006)          (9.99)            (20.11)       (83.59)




                                                  21
                 1. Sensitivity to changes in the value of the securities portfolio
                 (NIS millions)
                 The total value of the Company’s securities portfolio as on December 31,
                 2009 was approximately NIS 87.64 million, and included an investment in
                 shares and in concern bonds. The sensitivity test was performed
                 separately on Maof options and on the USD.

                 Marketable securities:
               Profit (loss) due to the change                     Profit (loss) due to the change
Sensitive
             15% rise in 10% rise in 5% rise in       Fair    5% decline 10% decline 15% decline
instrument –
               market       market       market      value     in market       in market     in market
shares
               value         value        value                  value           value         value
Tel-Aviv 25       9.46         6.30        3.15      63.05      (3.15)         (6.30)         (9.46)

                  Profit (loss) due to the change                 Profit (loss) due to the change
  Sensitive
               20% rise in 10% rise in 5% rise in     Fair    5% decline    10% decline 20% decline
instrument –
                 market      market     market       value     in market     in market   in market
   shares
                 value       value       value                   value         value       value
Tel-Aviv 75       0.87         0.43        0.22       4.33      (0.22)         (0.43)         (0.87)

                  Profit (loss) due to the change                 Profit (loss) due to the change
  Sensitive
               20% rise in 10% rise in 5% rise in     Fair    5% decline    10% decline 20% decline
instrument –
                 market      market     market       value     in market     in market   in market
   shares
                 value       value       value                   value         value       value
Tel-Aviv 100      0.04         0.02        0.01       0.20      (0.01)         (0.02)         (0.04)

                 Profit (loss) due to the change                   Profit (loss) due to the change
 Sensitive
               20% rise in 10% rise in 5% rise in     Fair    5% decline 10% decline 20% decline
instrument
                 market        market      market    value     in market       in market     in market
 – shares
                 value         value        value                value           value         value
   Yeter          0.11         0.06        0.03       0.56      (0.03)         (0.06)         (0.11)


                 Marketable bonds:

                 Sensitivity to changes in the real interest rates (NIS millions)

                 Profit (loss) due to the change                   Profit (loss) due to the change
                                                                                                Daily
                Daily rise
 Sensitive                   10% rise     5% rise     Fair    5% decline 10% decline           decline
               exceeding
instrument                    in real      in real   value      in real         in real      exceeding
               10% in real
                             interest     interest             interest        interest      10% in real
                 interest
                                                                                              interest
  Bond 2             –        (0.15)      (0.08)      4.85       0.08           0.16             –
  Bond 3             –        (0.01)      (0.00)      0.48       0.00           0.01             –
                        1
  Bond 4         (0.22)       (0.11)      (0.05)      4.03       0.06           0.11           0.24
  Bond 5             –         0.12        0.06      (6.09)     (0.06)         (0.13)            –
   Total          (0.22)      (0.14)      (0.07)      3.27       0.07           0.15           0.24




                                               22
                1   The daily rise/decline exceeding 10% reflects a change of approximately
                    21.07% in the real interest (which expresses a change of approximately
                    16.42% in the bond price, which occurred on November 24, 2008).

                * Bond 5 – short sale of the bond


                Sensitivity to changes in the shekel interest rates (NIS millions)

                 Profit (loss) due to the change                            Profit (loss) due to the change
               Daily rise                                                                 10%       Daily decline
 Sensitive                   10% rise in 5% rise in          Fair      5% decline
              exceeding                                                                 decline       exceeding
instrument                       NIS         NIS            value        in NIS
              10% in NIS                                                                 in NIS      10% in NIS
                               interest    interest                     interest
                interest                                                                interest       interest
                          1
 Bond 6          (0.54)         (0.35)         (0.18)       11.75           0.18           0.36          0.58
 Bond 7           –             (0.01)         (0.01)        0.55           0.01           0.01            –
  Total          (0.54)         (0.36)         (0.18)       12.30           0.19           0.37          0.58

                1   The daily rise/decline exceeding 10% reflects a change of approximately
                    15.83% in the real shekel interest (which expresses a change of
                    approximately 8.88% in the bond price, which occurred on September 21,
                    2008).


                Sensitivity to changes in the market value (NIS millions)

                       Profit (loss) due to the change                           Profit (loss) due to the change
    Sensitive                                                        Fair
                        10% rise              5% rise                             5% decline         10% decline
   instrument                                                       value
                     in market value in market value                           in market value in market value
     Bond 1                   0.39                0.20              3.93             (0.20)            (0.39)
                Bond 1 – convertible bond.


                2. Sensitivity test for options
                Sensitivity to changes in the underlying asset – Maof options
                (NIS millions)
                                Profit (loss) due to the change                    Profit (loss) due to the change
                                   10% rise           5% rise          Fair         5% decline       10% decline
  Sensitive instrument
                                in underlying      in underlying      value        in underlying    in underlying
                                    asset              asset                           asset            asset
Maof – call option written           (12.31)             (5.73)       (6.31)           3.95             5.78


                Sensitivity to changes in the standard deviation – Maof options
                (NIS millions)

                                Profit (loss) due to the change                    Profit (loss) due to the change
                                   10% rise           5% rise          Fair        5% decline       10% decline
  Sensitive instrument
                                 in standard        in standard       value        in standard      In standard
                                  deviation          deviation                      deviation        deviation
Maof – call option written           (0.29)              (0.14)       (6.31)           0.14             0.28




                                                   23
                     Sensitivity to changes in the underlying asset in options on the
                     dollar (NIS millions)
                                    Profit (loss) due to the change                  Profit (loss) due to the change
                                        10% rise          5% rise            Fair     5% decline           10% decline
   Sensitive instrument
                                     in underlying     in underlying        value    in underlying        In underlying
                                         asset             asset                         asset                asset
   Call option on USD –
          written                        (24.96)            (10.13)     (1.61)             1.60                1.61
   Put option on USD –
          written                          4.17               3.95      (4.17)           (19.80)             (42.34)
           Total                         (20.79)             (6.18)     (5.78)           (18.20)             (40.73)


                     Sensitivity to changes in the standard deviation in options on the
                     dollar (NIS millions)
                                    Profit (loss) due to the change                  Profit (loss) due to the change
                                        10% rise           5% rise           Fair     5% decline        10% decline
   Sensitive instrument
                                      in standard       in standard         value     in standard       In standard
                                       deviation          deviation                    deviation         deviation
   Call option on USD –
          written                       (0.28)              (0.14)          (1.61)        0.14                0.27
   Put option on USD –
          written                       (0.46)              (0.23)          (4.17)        0.23                0.46
           Total                        (0.74)              (0.37)          (5.78)        0.37                0.73


                     3. Analysis of bonds issued by the Company

                     Sensitivity to changes in the real interest rates (NIS millions)

                         Profit (loss) due to the change                          Profit (loss) due to the change
                                                                                                              Daily
                          Daily rise
    Sensitive                        10% rise 5% rise                         5% decline 10% decline         decline
                         exceeding                            Fair value
   instrument                         in real  in real                          in real        in real     exceeding
                         10% in real
                                     interest interest                         interest       interest     10% in real
                           interest
                                                                                                            interest
Scailex C bond             –              7.04       3.53       (751.54)        (3.56)           (7.14)          –
Scailex D bond             –              4.77       2.40        (293.10)       (2.43)           (4.89)          –
                                1
Partner A bond             1.84           1.40       0.70      (2,247.38)       (0.70)           (1.40)         (1.85)
Partner
institutional bond         1.74           0.27       0.13       (452.06)        (0.13)           (0.25)         (1.36)
Total                      3.58         13.48        6.77      (3,744.07)       (6.82)        (13.69)           (3.20)

                     1    The daily rise/decline exceeding 10% reflects a change of approximately
                          13.17% in the real interest (which expresses a change of approximately
                          1.55% in the bond price [Partner Series A], which occurred on September 18,
                          2008).




                                                       24
                 Sensitivity to changes in the shekel interest rates (NIS millions)

                       Profit (loss) due to the change                          Profit (loss) due to the change
   Sensitive                                                       Fair
                         10% rise               5% rise                          5% decline       10% decline
  instrument                                                      value
                      in NIS interest       in NIS interest                    in NIS interest   in NIS interest
Scailex A bond             4.72                  2.37            (368.24)          (2.40)            (4.82)

                 Sensitivity to changes in market value (NIS millions)

                      Profit (loss) due to the change                           Profit (loss) due to the change
   Sensitive                                                       Fair
                       10% rise              5% rise                             5% decline         10% decline
  instrument                                                      value
                    in market value in market value                           in market value in market value
   Scailex 1
convertible bond           (22)                  (11)             (221)              11                22

                 The Company has another bond (Scailex B) bearing variable interest.
                 Therefore, a sensitivity analysis was not performed (NIS 365 million).

                 4. Forward transactions and embedded derivatives

                 Sensitivity to changes in the shekel/dollar exchange rate
                 (NIS millions)

                              Profit (loss) due to the change                    Profit (loss) due to the change
                                 10% rise           5% rise            Fair        5% decline        10% decline
       Instrument
                               in exchange       in exchange          value       in exchange        in exchange
                                    rate             rate                              rate              rate
    Scailex forward
     transactions                   35.85               17.92         (1.12)         (17.92)          (35.85)
    Partner forward
     transactions                   11.32                5.66         (2.44)          (5.66)          (11.32)
         Total                      47.17               23.58         (3.56)         (23.58)          (47.17)

                              Profit (loss) due to the change                    Profit (loss) due to the change
                                    10% rise           5% rise         Fair         5% decline      10% decline
       Instrument
                                  in exchange       in exchange       value        in exchange      in exchange
                                      rate              rate                           rate             rate
Embedded derivative, net            (14.82)             (7.32)         1.76            7.13            14.07


                 Sensitivity to changes in shekel interest rates (NIS millions)

                              Profit (loss) due to the change                    Profit (loss) due to the change
                                                                       Fair       5% decline        10% decline
       Instrument                 10% rise           5% rise in
                                                                      value          in NIS             in NIS
                               in NIS interest      NIS interest
                                                                                    interest           interest
    Scailex forward
     transactions                    0.04               0.02          (1.12)         (0.02)           (0.04)
    Partner forward
     transactions                    0.02               0.01          (2.44)         (0.01)           (0.02)
         Total                       0.06               0.03          (3.56)         (0.03)           (0.06)



                                                  25
              Sensitivity to changes in dollar interest rates (NIS millions)
                        Profit (loss) due to the change              Profit (loss) due to the change
                          10% rise          5% rise         Fair      5% decline      10% decline
    Instrument
                           in USD            in USD        value        in USD           in USD
                          interest          interest                   interest         interest
 USD/NIS forward
   transactions           (0.0136)         (0.0068)       (1.1209)      0.0068           0.0136
  Partner forward
   transactions           (0.0047)         (0.0024)       (2.4430)      0.0024           0.0047
       Total              (0.0183)         (0.0092)       (3.5639)      0.0092           0.0184


              Sensitivity to changes in the consumer price index (NIS millions)
                        Profit (loss) due to the change              Profit (loss) due to the change
                                                            Fair
Sensitive instrument       0.2% rise         0.1% rise               0.1% decline       0.2% decline
                                                           value
                          in the CPI        in the CPI                 in the CPI        in the CPI
 CPI/NIS forward             0.86            0.43          14.74        (0.43)           (0.86)
  transactions


     1.8.2    The Board of Directors’ explanations

              1.8.2.1   At   the beginning       of    2009,   the Company’s Investment
                        Committee prescribed an investment policy according to which
                        the Company is managing its investments, which include, inter
                        alia, and as the case may be, the volumes of distribution to
                        various investment channels, the maximum volume for
                        investment, rating,         duration and more. The Investment
                        Committee issues specific approvals In relation to new
                        significant investments, prior to entering the investment.

              1.8.2.2   During daily trading, the investment activity is carried out by the
                        V.P. Investments and Finances, and the external investment
                        consultants (under the supervision of the V.P. Investments and
                        Finances). The V.P. Investments and Finances oversees and
                        verifies on a daily basis that the investment activity is being
                        carried out in compliance with the policy prescribed by the
                        Investment Committee.

              1.8.2.3   Since, up until the acquisition of the control core of Partner, the
                        investment activity had been carried out frequently and daily
                        and at a significant volume, the Company constructed a model
                        of daily reporting of the results of this activity. The Company
                        has been continuing its daily report of the results of the activity



                                           26
                        also since its acquisition of the control core of Partner. The
                        report is discussed and audited once a week by an internal
                        forum, which includes the Chairman of the Board of Directors,
                        the C.E.O., the C.F.O., the V.P. Investments and Finances, and
                        the external investment counselors. Furthermore, up until the
                        acquisition of the control core of Partner, a report had been
                        submitted periodically to the Investment Committee, which
                        convened, in addition to its periodic meetings (as a rule,
                        quarterly), to the extent necessary whenever a need had arisen
                        to revise and adjust the investment policy according to
                        developments in the macro and micro-economic data and
                        volatility in the capital market. Since the acquisition of the
                        control core of Partner, the reporting to the Investment
                        Committee has been mainly during its periodic meetings. The
                        Company’s currency exposure is discussed during the quarter
                        and subsequently, as well as the exposure in respect of
                        financial instruments it holds, during meetings of the Company’s
                        Investment   Committee,      Audit   Committee   and        Board of
                        Directors.

              1.8.2.4   The    Company’s      risk   management     policy     is    actually
                        implemented only in relation to the Company itself. The
                        Company does not determine such policies for the investee
                        companies, and, correct to the report period, no action has
                        been taken to hedge market risks deriving from activities of its
                        investee companies.

1.9   MATERIAL ENGAGEMENTS AND EVENTS DURING THE REPORT PERIOD

      1.9.1   On January 1, 2009, Mr. Shachar Landau was appointed the manager of
              the operating segment selling cellular telephones to end customers (Mr.
              Shachar Landau also holds office as the C.E.O. of the parent company,
              Suny Electronics). For additional details, see the Immediate Report
              published by the Company on February 2, 2009 (reference no.: 2009-01-
              026964). This reference constitutes inclusion by way of referral).

      1.9.2   On February 5, 2009, a general and extraordinary general meeting of the
              Company’s shareholders was convened, during which, the following
              resolutions were passed:



                                         27
        1.9.2.1   to approve the reappointments of the directors (who are not
                  outside directors) as members of the Company’s Board of
                  Directors: Mr. Ilan Ben Dov, Mr. Yossi Arad, Ms. Iris Beck, Mr.
                  Shalom Singer, Mr. Yehiel Feingold and Dr. Arie Ovadia;

        1.9.2.2   to approve the reappointment of Mr. Yoav Biran for an
                  additional term of office (of three years, as of February 5, 2009)
                  as an outside director of the Company;

        1.9.2.3   to approve the issuance of a release and indemnification to Mr.
                  Ilan Ben Dov, the Chairman of the Company’s Board of
                  Directors, who is considered the indirect controlling shareholder
                  of the Company;

        1.9.2.4   to approve the Company’s engagement in an agreement for a
                  buy-back of its shares owned by Tao Tsuot Ltd., an interested
                  party in the Company, which is a company controlled by the
                  indirect controlling shareholder of the Company (“Transaction
                  for the Acquisition Tao’s Shares”). For additional details, see
                  Regulation 22, clause B, in Part D of this report;

        1.9.2.5   to approve the appointment of the incumbent auditor of the
                  Company, the accounting firm of Brightman Almagor Zohar &
                  Co., as the Company’s auditor for the year ended December
                  31, 2009, and to authorize the Company’s Board of Directors to
                  affix the terms of remuneration of the auditor according to the
                  volume and nature of the services being provided by it in this
                  regard.

        For additional details regarding the resolutions passed during the said
        shareholders’ meeting, including about the Transaction for the Acquisition
        Tao’s Shares, see the Immediate Reports published by the Company on
        January 18, 2009 (reference no.: 2009-01-015798) and on February 5,
        2009 (reference no.: 2009-01-031020). These references constitute
        inclusion by way of referral).

1.9.3   On February 5, 2009, the Transaction for the Acquisition Tao’s Shares
        was executed and consummated, so that the Company acquired all of
        Tao’s holdings of Scailex shares on the execution date – 9,175,896
        ordinary shares of NIS 0.12 par value each of the Company, for the
        consideration of the sum of NIS 30 per share; i.e., for the inclusive total of


                                   28
        NIS 275,276,880. For additional details, see the Immediate Report
        published by the Company on February 8, 2009 (reference no.: 2009-01-
        031413). This reference constitutes inclusion by way of referral).

1.9.4   Pursuant to the resolution of the Company’s Board of Directors, of
        November 17, 2008, to take action for the deregistration of the
        Company’s securities in the United States, on February 11, 2009, the
        Company applied to the U.S. Securities Exchange Commission (the SEC)
        for deregistration. On May 12, 2009, this application came into full and
        permanent effect. For details, see clause 2.1.4(c) in Part A of this report.
        For additional details, see the Immediate Report published by the
        Company on February 11, 2009 (reference no.: 2009-01-034929). This
        reference constitutes inclusion by way of referral. Correct to the date of
        this report, and pursuant to the directives prescribed by the SEC,
        deregistration of the Company has been completed.

1.9.5   On March 17, 2009, after having received the prior approval of the
        Company’s Audit Committee on March 16, 2009, the Company’s Board of
        Directors resolved to include Mr. Ilan Ben Dov, the Chairman of the
        Company’s Board of Directors and the indirect controlling shareholder
        therein, in the officeholders’ liability insurance policy purchased by the
        Company for its officeholders (as of the date of Mr. Ben Dov’s
        appointment on July 1, 2008), in the same version and under identical
        terms as those customary in the Company for all of its other officeholders,
        and to include him from time to time in any renewal of the said policy. For
        additional details, see the Immediate Report published by the Company
        on March 17, 2009 (reference no.: 2009-01-060336). This reference
        constitutes inclusion by way of referral.

1.9.6   On April 7, 2009, Director Yossi Arad gave notice of his resignation from
        the Company’s Board of Directors. Mr. Arad gave notice of his resignation
        from his office as a director following the sale of all of Tao’s holdings of
        the Company. It should also be noted that, on May 18, 2009, the
        Company’s Board of Directors approved the Company’s engagement in
        an agreement for the provision of financial consulting services with a
        company owned and controlled by Mr. Arad.

1.9.7   On May 12, 2009, the application that the Company had submitted on
        February 11, 2009 to the U.S. Securities Exchange Commission (the



                                   29
        SEC) for deregistration of the Company’s securities in the United States
        came into full and permanent effect. For additional details, see clause
        2.1.4(c) in Part A of this report.

1.9.8   On May 18, 2009, the Company’s Board of Directors resolved to adopt a
        plan for the buy-back of ordinary shares of the Company, at the volume of
        up to 1 million ordinary shares, for a sum of up to NIS 30 million, during a
        period of up to 12 months as of the date of the resolution (this plan
        replaced the previous buy-back plan). For additional details, see clause
        2.3.1(e) in Part A of this report.

1.9.9   On June 4, 2009, after having received the approval of the Company’s
        Audit Committee and Board of Directors, it was resolved to adopt an
        employee remuneration plan, under which up to 1,029,000 unlisted
        options shall be granted to directors, to the senior management, to
        employees of the Company, to consultants of the Company and to two
        employees of the controlling shareholder of the Company, Suny.

        On August 16, 2009, an extraordinary general meeting of the Company
        approved the granting of 117,000 options, out of the aforesaid inclusive
        quantity, to directors of the Company and to two employees of the
        controlling shareholder of the Company (see clause 1.9.14 hereunder).
        On July 6, 2009, pursuant to the said plan, 912,000 such options were
        allotted to employees of the Company, to the senior management and to
        consultants of the Company. The additional 117,000 options were allotted
        on August 18, 2009. For additional details, see clause 4.3.2(g)b. in Part A
        of this report.

1.9.10 On June 8, 2009, a senior officeholder exercised 16,000 options for the
        purchase of NIS 16,000 par value of ordinary shares of the Company.
        The Company received the sum of approximately NIS 162 thousand in
        consideration for the said share allotment.

1.9.11 On July 1, 2009, the Company’s Board of Directors resolved that the
        Company’s donations budget in 2009 would be the sum of NIS 3 million,
        compared with the budget of NIS 1 million in 2008.

1.9.12 On July 8, 2009, the Company submitted an indicative, general and
        nonbinding offer for the acquisition of the control core of Partner. On
        August 5, 2009, the Company submitted a binding offer for the acquisition
        of the control core of Partner.


                                    30
      On August 12, 2009, an agreement was signed between the Company
      and Advent, a Singapore corporation controlled by Hutchison, for the
      purchase of 78,940,104 ordinary shares of NIS 0.01 par value each of
      Partner, which constituted, correct to the signing date of the agreement,
      approximately 51.31% of Partner's issued and paid-up share capital
      (approximately     49.35%    fully   diluted),   for   the   consideration   of
      approximately NIS 67.025 (about USD 17.5) per share of Partner, for the
      inclusive total consideration of approximately NIS 5.29 billion (about USD
      1.38 billion). For additional details, see the Immediate Report published
      by the Company on August 13, 2009, which provides a detailed and
      elaborate description of the Advent agreement and other matters relating
      to this agreement (reference no.: 2009-01-195681). This reference
      constitutes inclusion by way of referral.

      On October 28, 2009, the Advent agreement was executed and
      consummated pursuant to the conditions thereof – see clause 1.9.38
      hereunder.

1.9.13 On August 10, 2009, the consent between the Company and Samsung to
      extend the validity of the agreement under which the Company distributes
      Samsung cellular telephones operating on the GSM system (“the GSM
      Agreement”) by one year, until August 31, 2010, came into effect. For
      additional details regarding the GSM Agreement, see clause 4.4.17(b) in
      Part A of this report.

1.9.14 On August 16, 2009, after having received the prior approvals of the
      Company’s Audit Committee and/or Board of Directors, respectively, on
      July 1 and 2, 2009, an extraordinary general meeting of the Company
      approved the following resolutions:

      1.9.14.1 the granting of 40,000 unlisted options, for no consideration,
                which mature over four years and are exercisable into up to
                40,000 registered ordinary shares of NIS 0.12 par value each of
                the Company, for the consideration of an exercise price
                equivalent to NIS 35 per share, to Mr. Shachar Landau, the
                manager of the Company’s end-customer segment and the
                C.E.O. of Suny Electronics Ltd., the controlling shareholder of
                the Company;




                                  31
1.9.14.2 the granting of 5,000 unlisted options, for no consideration,
         which mature over four years and are exercisable into up to
         5,000 registered ordinary shares of NIS 0.12 par value each of
         the Company, for the consideration of an exercise price
         equivalent to NIS 35 per share, to Ms. Smadar Levy, an
         employee of the controlling shareholder of the Company, Suny
         Electronics, who serves as the office manager of the Chairman
         of the Company’s Board of Directors and the Chairman of Suny
         Electronics’ Board of Directors, Mr. Ilan Ben Dov;

1.9.14.3 a donation of up to NIS 3 million to bodies related to Derech
         HaLotus Ltd. (“Lotus”), a public benefit company in which the
         Chairman of the Company’s Board of Directors and indirect
         controlling shareholder therein, Mr. Ilan Ben Dov, is the sole
         shareholder, director, founder and donator;

1.9.14.4 the granting of 18,000 unlisted options, for no consideration,
         which mature over four years and are exercisable into up to
         18,000 registered ordinary shares of NIS 0.12 par value each of
         the Company, for the consideration of an exercise price
         equivalent to NIS 35 per share, to each of the following
         offerees, who hold office as directors of the Company (other
         than outside directors): Ms. Iris Beck (who gave notice of her
         stepping down from office as a director of the Company; see
         clause 1.9.23 hereunder), Mr. Shalom Singer, Mr. Arie Ovadia
         and Mr. Yehiel Feingold (total: 72,000 options); the 18,000
         options granted to Ms. Iris Beck expired when she stepped
         down from office;

1.9.14.5 the Company’s engagement in a liability insurance policy for the
         directors and officeholders who are and shall be holding office
         from time to time in the Company and in its subsidiaries, with
         the exception of Mr. Ilan Ben Dov, the Chairman of the Board of
         Directors and the indirect controlling shareholder of the
         Company, for 12 months commencing July 1, 2009, for a total
         cover of up to USD 15 million and for a premium that shall not
         exceed USD 25 thousand, plus legal expenses, in Israel only, at
         the rate of 20% of the said total cover. It should be noted in this
         context that, after having received the approval of the general


                          32
                meeting for the said engagement, the Company purchased
                such an insurance policy, which is valid until June 30, 2010;

      1.9.14.6 the purchase of a run-off officeholders’ liability insurance policy,
                which shall cover the liability of the directors and officeholders
                in Scailex and in its subsidiaries during the period from June 30,
                2008 until June 30, 2009 (with the exception of the Chairman of
                the Company’s Board of Directors and the indirect controlling
                shareholder therein, Mr. Ilan Ben Dov), for a period of three
                years commencing June 30, 2009. It should be noted in this
                context that, after having received the approval of the general
                meeting for the purchase of the said policy, the Company
                purchased a policy, which shall be in effect for three years
                commencing June 30, 2009, for a total cover of USD 10 million,
                and for a premium of approximately USD 50 thousand;

      1.9.14.7 an increase in the Company’s registered share capital by
                190,000,000 ordinary shares of NIS 0.12 par value each, so
                that the Company’s registered share capital shall reach a total
                of NIS 30,000,000, divided into 250,000,000 ordinary shares of
                NIS 0.12 par value each of the Company, as well as an
                amendment to the Company’s Memorandum of Association and
                Articles of Association in accordance with this resolution.

      For additional details about the subjects on the agenda of the
      extraordinary general meeting of the Company that convened on August
      16, 2009, and about the results of that general meeting, see the
      Immediate Report regarding the summoning of a general meeting
      published by the Company on July 2, 2009 (reference no.: 2009-01-
      160248), the Amended Immediate Report regarding the summoning of a
      general meeting published by the Company on July 12, 2009 (reference
      no.: 2009-01-167037), as well as the Immediate Report of the results of a
      meeting to approve a transaction with a controlling shareholder and/or to
      approve a private offer, which was published by the Company on August
      16, 2009 (reference no.: 2009-01-198612). These references constitute
      inclusion by way of referral.

1.9.15 On August 20, 2009, the Company published a Supplementary Report,
      which   included   clarifications,   supplements   and   addenda        to   the



                                 33
       Company’s Periodic Report for 2008 and to the Quarterly Report for the
       first quarter of 2009. For additional details, see the Immediate Report
       dated August 20, 2009 (reference no.: 2009-01-203601). This reference
       constitutes inclusion by way of referral.

1.9.16 On August 21, 2009, after having received clearance from the Securities
       Authority and approval in principle from the Tel-Aviv Stock Exchange Ltd.,
       the Company published a shelf prospectus for securities of the Company.
       Prior to publishing the shelf prospectus, the Company published a
       Supplementary Report to the Periodic Report of the Company for 2008,
       as stated above in clause 1.9.15.

1.9.17 On August 21, 2009, the Company engaged in an agreement with Bank
       Leumi Le-Israel (“Leumi Agreement”), under which Leumi Bank shall
       purchase 7,677,037 Partner shares from the Company, which constituted,
       correct to the signing date of the agreement, approximately 4.99% of
       Partner’s issued and paid-up share capital (not fully diluted and after
       neutralizing treasury shares), immediately subsequent to the purchase of
       the shares from Advent, as specified above in clause 1.9.12, and at the
       same price per share.

       Within the scope of the agreement, the Company granted an option to
       Leumi Bank to purchase convertible bonds of the Company (see clause
       1.9.33 hereunder regarding the exercise of this option). For additional
       details about the said agreement, see the Immediate Report published by
       the Company on August 23, 2009 (reference no.: 2009-01-204756). This
       reference constitutes inclusion by way of referral. The said agreement
       was executed and consummated on October 28, 2009 – see clause
       1.9.38 hereunder.

1.9.18 On August 26, 2009, the Company reported in an Immediate Report that
       Tapuz People Ltd. (“Tapuz”), a company controlled by Suny Electronics
       Ltd., the Company’s controlling shareholder, had returned the sum of
       approximately NIS 1,152 thousand to the Company. For additional
       details, see the Immediate Report dated August 26, 2009 (reference no.:
       2009-01-210192; this reference constitutes inclusion by way of referral).
       In addition, see clause 1.9.25 hereunder regarding the approval of the
       engagement with Tapuz.




                                  34
1.9.19 On September 3, 2009, the Company published an Immediate Report
      containing the results of the preliminary tender to classified investors for
      the purpose of receiving advance commitments prior to the public offering
      of securities pursuant to a shelf offering report pursuant to the Company’s
      shelf prospectus dated August 21, 2009 (reference no.: 2009-01-221964).
      This reference constitutes inclusion by way of referral.

1.9.20 On September 6, 2009, the Company published a shelf offering report
      (“the Initial Shelf Offering Report”) pursuant to the shelf prospectus
      dated August 21, 2009, under which the public was offered four series of
      bonds of the Company – Series A bonds, Series B bonds, Series C bonds
      and Series 1 bonds. For particulars about the conditions of the offered
      bonds, see the Initial Shelf Offering Report (reference no. 2009-01-
      223746). This reference constitutes inclusion by way of referral. On
      September 8, 2009, the Company published an Immediate Report
      containing the results of the offering pursuant to the Initial Shelf Offering
      Report. For additional particulars, see the Immediate Report published by
      the Company on September 8 (reference no.: 2009-01-226443). This
      reference constitutes inclusion by way of referral.

1.9.21 On September 21, 2009, the Company published an Immediate Report in
      which it reported that a portion of the suspending conditions had been
      fulfilled for the execution of the Advent Agreement – the receipt of the
      conditional consent of the Antitrust Commissioner and approval of the
      transaction by the shareholders of the indirect parent company of the
      seller. For additional details, see the Immediate Report published by the
      Company on September 21, 2009 (reference no.: 2009-01-236556). This
      reference constitutes inclusion by way of referral.

1.9.22 On September 30, 2009, the Company’s Board of Directors passed a
      resolution regarding the payment of a dividend at the volume of
      approximately NIS 100 million to the Company’s shareholders. The
      distribution was carried out on October 25, 2009 (the payment date). For
      additional details, see the Immediate Report published by the Company
      on September 30, 2009 (reference no.: 2009-01-244872), and the
      Immediate Report published by the Company on October 1, 2009
      (reference no.: 2009-01-244977). These references constitute inclusion
      by way of referral.




                                 35
1.9.23 On September 30, 2009, Ms. Iris Beck ceased to hold office as a director
       of the Company. For additional details, see the Immediate Report
       published by the Company on September 30, 2009 (reference no.: 2009-
       01-244851).

1.9.24 On September 30, 2009, the Company’s Audit Committee and Board of
       Directors approved the inclusion of the Chairman of the Company’s Board
       of Directors and its indirect controlling shareholder, Mr. Ilan Ben Dov, in a
       periodic officeholders’ liability insurance policy and in a run-off
       officeholders’ liability insurance policy, having the same wording and the
       same conditions as those appearing in the said policies relative to all of
       the other officeholders to whom they apply. For additional details, see the
       Immediate Report published by the Company on September 30, 2009
       (reference no.: 2009-01-244869). This reference constitutes inclusion by
       way of referral.

1.9.25 On September 30, 2009, the Company’s Board of Directors approved the
       Company’s engagement in two agreements with Tapuz, a company
       indirectly controlled by the Company’s controlling shareholder, Suny
       Electronics Ltd.: an agreement for the receipt of website advertising and
       storage services and an agreement for the provision of maintenance
       services. On that same date, the Company’s Board of Directors also
       approved the payment of an advance commitment commission to a
       company controlled by the Chairman of the Company’s Board of Directors
       and the indirect controlling shareholder therein – Mr. Ilan Ben Dov, in
       accordance with the conditions appearing in the Initial Offering Report.
       For additional details, see the Immediate Report dated September 30,
       2009 (reference no.: 2009-01-244875). This reference constitutes
       inclusion by way of referral.

1.9.26 On October 4, 2009, an agreement was signed between the Company
       and   Migdal       Insurance    Company   Ltd.   (“Migdal”)   (“the   Migdal
       Agreement”), under which Migdal shall purchase 1,044,387 ordinary
       shares of NIS 0.01 par value each of Partner from the Company (in this
       clause: “the Shares Being Sold”), which constituted, correct to the
       signing date of the agreement, approximately 0.68% of Partner’s issued
       and paid-up share capital (not fully diluted and after neutralizing treasury
       shares). The Shares Being Sold are part of the 78,940,104 ordinary
       shares of Partner in respect whereof the Company had engaged in the


                                      36
       Advent Agreement. For additional details, see the Immediate Report
       published by the Company on October 4, 2009 (reference no.: 2009-01-
       247641). This reference constitutes inclusion by way of referral. The
       Migdal Agreement was executed and consummated on October 28, 2009
       – see clause 1.9.38 hereunder.

1.9.27 On October 4, 2009, Midroog Ltd. (“Midroog”) published a rating report in
       which it assigned an A3 rating with a stable outlook to the Series 1 bonds,
       the Series A bonds, the Series B bonds and the Series C bonds of the
       Company, which were issued pursuant to the Initial Shelf Offering Report.
       For additional details, see the Immediate Report published by the
       Company on October 4, 2009 (reference no.: 2009-01-247470). This
       reference constitutes inclusion by way of referral.

1.9.28 On October 5, 2009, Maalot, the Israeli Securities Rating Company Ltd.
       (“Maalot”) published a rating report in which it assigned an A– rating with
       a stable outlook to the Series 1 bonds, the Series A bonds, the Series B
       bonds and the Series C bonds of the Company, which were issued
       pursuant to the Initial Shelf Offering Report. For additional details, see the
       Immediate Report published by the Company on October 5, 2009
       (reference no.: 2009-01-247938). This reference constitutes inclusion by
       way of referral.

1.9.29 On October 8, 2009, Maalot announced that it had assigned an A– rating
       (with a stable rating outlook) on that day to the expansion of the Series A
       and Series C bonds of the Company and/or to a new series of bonds at
       the inclusive volume of up to NIS 400 million. For additional details, see
       the Immediate Report published by the Company on October 8, 2009
       (reference no.: 2009-01-249960). This reference constitutes inclusion by
       way of referral).

1.9.30 On October 13, 2009, an agreement was signed between the Company
       and Excellence Nessuah Brokerage Services Ltd. (“Excellence”) (“the
       Excellence Agreement”) under which Excellence shall purchase
       980,000 ordinary shares of NIS 0.01 par value each of Partner from the
       Company (in this clause “the Shares Being Sold”), which constituted,
       correct to the signing date of the agreement, approximately 0.64% of
       Partner’s issued and paid-up share capital (not fully diluted and after
       neutralizing treasury shares). The Shares Being Sold are part of the



                                  37
       78,940,104 ordinary shares of Partner in respect whereof the Company
       had engaged in the Advent Agreement. The shares were acquired by
       Excellence with the intention of selling them to a foreign institutional body.
       For additional details, see the Immediate Report published by the
       Company on October 13, 2009 (reference no.: 2009-01-253761). This
       reference constitutes inclusion by way of referral. The Excellence
       Agreement was executed and consummated on October 28, 2009 – see
       clause 1.9.38 hereunder.

1.9.31 On October 13, 2009, the Company published a presentation to investors
       prior to the planned offering pursuant to the shelf prospectus dated
       August 21, 2009. For additional details, see the Immediate Report
       published by the Company on October 13, 2009 (reference no.: 2009-01-
       254127). This reference constitutes inclusion by way of referral.

1.9.32 On October 14, 2009, the Company published a shelf offering report (“the
       Second Shelf Offering Report”) pursuant to the shelf prospectus dated
       August 21, 2009, under which the public was offered a new series of
       bonds – Series D bonds. For details about the conditions of the offered
       Series D bonds, see the Second Shelf Offering Report dated October 14,
       2009 (reference no.: 2009-01-254415), as well as the Supplementary
       Report to the Shelf Offering Report (which was subsequently amended)
       and which was published on October 25, 2009 (reference no.: 2009-01-
       264342). On October 15, 2009, the Company published an Immediate
       Report of the Results of the Offering pursuant to the Second Shelf
       Offering Report – for additional details, see the Immediate Report dated
       October 15, 2009 (reference no.: 2009-01-256965). These references
       constitute inclusion by way of referral.

1.9.33 On October 18, 2009, Leumi Bank delivered notice to the Company
       requesting to exercise the option granted it in the Leumi Agreement for
       the purchase of convertible bonds of the Company. Accordingly, Leumi
       Bank requested that a par value of NIS 102,705,270 of Series 1 Bonds of
       the Company be allotted to Leumi Partners Ltd. (“Leumi Partners”), a
       wholly owned subsidiary of Leumi Bank. For additional details, see the
       Immediate Report published by the Company on October 18, 2009
       (reference no.: 2009-01-258492). This reference constitutes inclusion by
       way of referral.




                                  38
1.9.34 On October 20, 2009, Maalot announced that it had assigned an A–
       rating (with a stable rating outlook) to the expansion of the Series 1 bonds
       in circulation, at the inclusive volume of approximately NIS 103 million.
       For additional details, see the Immediate Report published by the
       Company on October 20, 2009 (reference no.: 2009-01-260403). This
       reference constitutes inclusion by way of referral.

1.9.35 On October 21, 2009, the Company published a private offering report, in
       which a par value of NIS 102,705,270 of Series 1 bonds of the Company
       were offered to Leumi Partners by way of an expansion of the Series 1
       bonds, and at the price of NIS 1.002 for each NIS 1 par value. For
       additional details, see the Private Offering Report (in its amended
       version) published by the Company on October 22, 2009 (reference no.:
       2009-01-263160). This reference constitutes inclusion by way of referral.

1.9.36 On October 28, 2009, the approvals of the Minister of Communications
       and the Director-General of the Ministry of Communications were
       received for the transfer of the means of control of Partner to Scailex,
       under conditions specified in the said approvals. For additional details,
       see the Amended Immediate Report published by the Company on
       October 28, 2009 (reference no.: 2009-01-267972). This reference
       constitutes inclusion by way of referral.

1.9.37 On October 28, 2009, the Company and Clal Finance Trust 2007 Ltd.
       (“the Trustee”) signed amendments to the trust deeds of the Series A
       bonds, the Series B bonds, the Series C bonds and the Series D bonds of
       the Company, which derived mainly from the approvals of the Ministry of
       Communications specified above in clause 1.9.36. For details, see the
       Immediate Report published by the Company on October 28, 2009
       (reference no.: 2009-01-267387). This reference constitutes inclusion by
       way of referral.

1.9.38 On October 28, 2009, the Advent Agreement was executed and
       consummated in accordance with its conditions. In consideration of the
       Partner shares being acquired, the Company paid Advent the inclusive
       sum of NIS 5,294,395,921. Simultaneously with the consummation of the
       Advent Agreement, the agreements under which the Company sold
       Partner shares to third parties – the Leumi Agreement, the Migdal
       Agreement     and    the   Excellence       Agreement   (jointly:   “the   Sale



                                  39
      Agreements”) were also consummated in accordance with their
      conditions.

      Subsequent to the consummation of the Advent Agreement, the Sale
      Agreements and the share swap (as defined in clause 4.1.1.11
      hereunder), Scailex is holding, correct to the date of this report,
      69,325,593 Partner shares, which constitute approximately 44.8% of
      Partner’s issued and paid-up share capital and voting rights, not fully
      diluted (disregarding treasury shares held by Partner itself), and 43.3% of
      Partner’s issued and paid-up share capital on a fully diluted basis
      (disregarding treasury shares held by Partner itself).

      According to data furnished to the Company by the Company’s controlling
      shareholder, Suny Electronics, Suny is holding, correct to the date of this
      report, approximately 1.4% of Partner’s issued and paid-up share capital
      (not fully diluted and disregarding treasury shares held by Partner), so
      that, together with an interested party therein, Suny, the Company is
      holding approximately 46.2% of Partner’s issued and paid-up share
      capital (not fully diluted and disregarding treasury shares held by Partner)
      and 44.7% on a fully diluted basis, of which, 33,551,560 shares,
      constituting 21% of Partner’s issued share capital on a fully diluted basis,
      are control core shares of Partner.

      For additional details about the consummation of the Advent Agreement,
      including the method of financing of the acquisition of the shares being
      acquired, the sureties and pledges that the Company provided within the
      scope of the financing agreements, as well as about the consummation of
      the Sale Agreements, see the Immediate Report published by the
      Company on October 29, 2009 (reference no.: 2009-01-268353). This
      reference constitutes inclusion by way of referral.

1.9.39 Prior to the consummation of the Advent Agreement, and in conformity
      with the instructions in the Antitrust Commissioner’s approval (mentioned
      above in clause 1.9.21), on October 28, 2009, the Company issued a
      termination notice to Cellcom Israel Ltd., in which it irrevocably notified of
      the termination of the agreements between Cellcom and the Company’s
      end-customer segment (“Dynamica”) as of July 1, 2010, unless an earlier
      date shall be agreed upon. Subsequent to the said date, no services
      whatsoever shall be provided by the Company that relate to the activity of



                                 40
       this segment as a distributor, marketer or vendor on behalf of Cellcom.
       The Company clarified that that notice in no way terminates sales of
       Samsung devices, accessories and laboratory services to Cellcom.

1.9.40 On November 16, 2009, Midroog published a rating report in which it
       assigned an initial rating of A3 with a stable outlook to the Series D bonds
       of the Company, which were offered pursuant to the Second Shelf
       Offering Report. In the above rating report, Midroog confirmed the initial
       rating of A3 with a stable outlook that it had assigned on October 4, 2009
       to the Series 1 bonds, to the Series A bonds, to the Series B bonds and
       to the Series C bonds of the Company, which were offered pursuant to
       the Initial Shelf Offering Report. For additional details, see the Immediate
       Report published by the Company on November 16, 2009 (reference no.:
       2009-01-285921). This reference constitutes inclusion by way of referral.

1.9.41 On November 17, 2009, Partner notified that the rating company,
       Moody’s Investors Services (“Moody’s”), is considering whether to
       downgrade the international rating “Baa3” assigned to Partner. For
       additional details, see the Immediate Report published by the Company
       on November 17, 2009 (reference no.: 2009-01-286452). This reference
       constitutes inclusion by way of referral.

1.9.42 On November 19, 2009, Partner notified that it intends to offer bonds in a
       private offering in Israel. For additional details, see the Immediate Report
       published by the Company on November 19, 2009 (reference no.: 2009-
       01-290298). This reference constitutes inclusion by way of referral.

1.9.43 On November 19, 2009, Partner notified that the rating company, Maalot,
       had assigned an “ilAA-/Stable’ rating to new bonds at the volume of up to
       NIS 1 billion, to be offered by Partner, and that the rating outlook is
       stable. For additional details, see the Immediate Report published by the
       Company on November 19, 2009 (reference no.: 2009-01-290370). This
       reference constitutes inclusion by way of referral.

1.9.44 On November 25, 2009, Partner notified that it had been served a
       statement of claim and an application for its approval as a class action,
       which had been lodged against it, against Pelephone Communications
       Ltd. and against Cellcom Israel Ltd. (in this clause: “the Operators”) and
       against the Minister of Communications, for alleged price discrimination.
       In the event that the claim shall be approved as a class action, the total



                                  41
       sum demanded from all of the Operators jointly shall reach approximately
       NIS 900 million. For additional details, see the Immediate Report
       published by the Company on November 25, 2009 (reference no.: 2009-
       01-297240). This reference constitutes inclusion by way of referral.

1.9.45 On November 25, 2009, Partner notified that it had reached an
       agreement with institutional investors in Israel about a recruitment of NIS
       448 million, by way of a private offering of bonds in Israel. For additional
       details, see the Immediate Report published by the Company on
       November 26, 2009 (reference no.: 2009-01-298113). This reference
       constitutes inclusion by way of referral.

1.9.46 On November 30, 2009, Mr. Shachar Rachim ceased to hold office as the
       Company’s C.F.O. and as the C.F.O. of the controlling shareholder of the
       Company, Suny Electronics. As of December 1, 2009, Ms. Galit Alkalay
       David has been holding office as the Company’s C.F.O. and as the
       C.F.O. of Suny Electronics. Up until November 30, 2009, for a period of
       about three years, Ms. Galit Alkalay David had held office as the C.F.O.
       of Tao, a company controlled by the indirect controlling shareholder of the
       Company, Mr. Ilan Ben Dov.

1.9.47 On December 2, 2009, Partner notified that it had been served a
       statement of claim and an application for its approval as a class action,
       which had been lodged against it, alleging overcharging of its subscribers.
       In the event that the claim shall be approved as a class action, the sum of
       the claim by the claimant is assessed at approximately NIS 50 million. For
       additional details, see the Immediate Report published by the Company
       on December 2, 2009 (reference no.: 2009-01-307659). This reference
       constitutes inclusion by way of referral.

1.9.48 On December 27, 2009, the Audit Committee and Board of Directors of
       Scailex approved and ratified the engagement in a comprehensive
       agreement with Partner for the sale of Samsung cellular telephones,
       accessories and replacement parts. The agreement adopts previous
       agreements that had existed between the parties in relation to the
       purchase of products and repair services of defective products, and
       includes amendments and addenda. For additional details, see the
       Immediate Report published by the Company on December 28, 2009




                                  42
       (reference no.: 2009-01-333324). This reference constitutes inclusion by
       way of referral.

1.9.49 On December 27, 2009, Partner’s Board of Directors approved the
       distribution of a dividend to Partner’s shareholders at the inclusive sum of
       NIS 1.4 billion, a distribution that does not meet the profit test prescribed
       in the Companies Law, 5759 – 1999. For additional details, see the
       Immediate Report published by the Company on December 28, 2009
       (reference no.: 2009-01-334167). This reference constitutes inclusion by
       way of referral.

1.9.50 On December 29, 2009, Partner notified of its engagement in a
       transaction with IBC Industrial Buildings Ltd., under which the conditions
       of the existing lease agreements between the parties in relation to
       Partner’s head offices in Rosh Ha’Ayin would be extended and updated.
       For additional details, see the Immediate Report published by the
       Company on December 29, 2009 (reference no.: 2009-01-335964). This
       reference constitutes inclusion by way of referral.

1.9.51 On December 31, 2009, Mr. Dror Barzilay ceased to hold office as an
       outside director of the Company.

1.9.52 On December 31, 2009, the Company notified that it is conducting
       negotiations with Cellcom Israel Ltd. (“Cellcom”) for the sale of Dynamica
       Cellular, Cellcom’s nonexclusive authorized marketing chain. For
       additional details, see the Immediate Report published by the Company
       on December 31, 2009 (reference no.: 2009-01-338598). This reference
       constitutes inclusion by way of referral.

1.9.53 On December 31, 2009, Partner filed an application with the Tel-Aviv –
       Jaffa District Court for the approval of the distribution of a dividend to
       Partner’s shareholders at the inclusive sum of NIS 1.4 billion, a
       distribution that does not meet the profit test prescribed in the Companies
       Law, 5759 – 1999. For additional details, see the Immediate Report
       published by the Company on January 7, 2010 (reference no.: 2010-01-
       347814). This reference constitutes inclusion by way of referral. To
       complete the picture, it should be noted that, on January 13, 2010,
       Partner published the appendices to the aforesaid application for the
       dividend distribution. For additional details, see the Immediate Report




                                  43
           published by the Company on January 14, 2010 (reference no.: 2010-01-
           354324). This reference constitutes inclusion by way of referral.

1.10 MATERIAL CHANGES THAT OCCURRED IN THE CORPORATION’S
    ACTIVITY AND BUSINESSES AND IN ITS FINANCIAL STATEMENTS DATA
    DURING THE REPORT PERIOD
    Up until October 28, the Company had operated in three segments: financial
    asset management and the identification of business opportunities, the cellular
    operators segment and the end-customer segment. On October 28, 2009,
    Scailex consummated the acquisition of the control of Partner. Subsequent to this
    acquisition, a fourth operating segment was added to the Company – the Partner
    segment. Accordingly, the results of the Partner operating segment have been
    included in the Company’s Financial Statements as of the fourth quarter of 2009
    and for the period of two months ended December 31, 2009, which include, inter
    alia, sales, the cost of sales and selling expenses, and balance-sheet data
    relating to the operations, and including inventory, trade receivables, fixed assets,
    intangible assets and long-term and short-term liabilities.

1.11 REMUNERATIONS
    The Board of Directors determined that the remunerations given pursuant to
    Regulation 21 of the Securities Regulations (Immediate and Periodic Reports),
    5730 – 1970 (see Regulation 21 in Part D of this report) are fair and reasonable
    relative to the contribution of the recipients of the remunerations to the
    corporation within the scope of their position.

    To complete the picture, it should be noted that the Company’s Board of
    Directors deliberates and decides, usually once a year, to grant a bonus to senior
    officeholders in the Company, considering, inter alia, the Company’s performance
    during the past year. When determining the height of the bonuses to be paid to
    senior officeholders, the Board of Directors takes into account the degree of
    complexity of the officeholder’s position, the responsibility imposed on him/her,
    the special efforts exerted during the relevant period, the need to retain him/her
    as a human resource, the volume and complexity of the Company’s businesses
    and the personal contribution of each of the senior officeholders to the success of
    the Company’s businesses.




                                       44
2.   QUALITATIVE REPORT ON THE EXPOSURE TO MARKET RISKS AND METHODS
     OF RISK MANAGEMENT

     2.1   GENERAL
           During the report period, the Company expanded its investment portfolio, this up
           until the date of its acquisition of the control of Partner. Since the acquisition date
           of the control of Partner, the volume of the Company’s liquid assets has
           significantly diminished, including cash and marketable securities. As on the
           balance-sheet date, the Company’s investment portfolio includes investments in
           securities, including shares, concern bonds in new shekels and positions in
           derivatives, which are intended mainly to hedge against economic risk. Up until
           the acquisition of the control, the Company’s investment portfolio had included
           investments in securities, including shares, government and concern bonds in
           new shekels and in dollars, and positions in derivatives, intended mainly to hedge
           against economic risk.

           Following the acquisition of the control of Partner, the reduction in the Company’s
           securities portfolio and the increase in the Company’s credit frameworks, the
           Company’s Investment Committee convened to reexamine how to invest the
           cash balances held by the Company, to evaluate the market risks to which the
           Company is exposed since acquiring the control of Partner, and to discuss the
           need to implement protections in relation to the Company’s exposures to interest
           in Israel, to the consumer price index and to the USD exchange rate.

           The Company’s Investment Committee passed a resolution to implement partial
           hedging against the USD exchange rate in order to minimize the Company’s
           exposure to fluctuations in the USD exchange rate, in relation to the dollar loan
           that it received from Advent within the scope of the acquisition of the control of
           Partner, this by way of forward transactions and options.

           The Company is active in the capital market according to a framework which was
           and is frequently approved by the Company’s Investment Committee, and
           accordingly, oversight and control mechanisms have also been put into place.

     2.2   THE OFFICER RESPONSIBLE FOR MARKET RISK MANAGEMENT IN THE
           COMPANY
           The officer responsible for risk management in the Company is Ms. Galit Alkalay
           David, the C.F.O. of the Company.




                                               45
2.3   THE MARKET RISKS TO WHICH THE CORPORATION IS EXPOSED

      2.3.1   As on the date of this report, the Company operates in four operating
              segments, as specified in Part A of this report:

              2.3.1.1   For details about the market risks relevant to the headquarters
                        and asset management operating segment, see clause 4.3.4 in
                        Part A of this report.

              2.3.1.2   For details about the market risks relevant to the cellular
                        operators operating segment, see clause 4.4.21 in Part A of this
                        report.

              2.3.1.3   For details about the market risks relevant to the end-customers
                        operating segment, see clause 4.5.19 in Part A of this report.

              2.3.1.4   For details about the market risks relevant to the Partner
                        operating segment, see clause 4.6.23 in Part A of this report.

      2.3.2   It should be noted in this context that, upon acquiring the control of
              Partner, and due to the subsequent increase in the volume of credit
              provided to the Company, a change has occurred in the risks to which the
              Company is exposed, due to its becoming a borrowing company.
              Depending upon the Company’s various types of credit, it is exposed to
              fluctuations in interest rates in Israel, to changes in the consumer price
              index and to fluctuations in the dollar exchange rate. The Company
              resolved to implement partial hedging against exposures to the dollar
              exchange rate by options and futures contracts. During the Company’s
              hedging activities using options and futures contracts, the Company is
              exposed to effects that might impact the Company’s cash flows.

2.4   THE COMPANY’S MARKET RISK MANAGEMENT POLICY

      2.4.1   General
              The Company performs periodic assessments of the existing economic
              and accounting exposures and of ways to minimize them, including, and
              by   resolution     of   the        Company's   Investment   Committee,    the
              implementation of the following policies regarding the market risks to
              which it is exposed.




                                             46
2.4.2   Financial asset management segment and the identification of
        business opportunities
        The Company, through the Investment Committee and the V.P.
        Investments and Finances, and in consultation with capital market
        experts, formulates an investment plan for itself from time to time by
        defining the ratio of investment in every financial instrument out of the
        Company's available balances, and determines the risk levels with
        respect to every financial instrument in which an investment has been
        proposed. Furthermore, the Investment Committee determines the range
        of average durations in relation to bonds, and defines maximum sums for
        investment in shares according to various indices or according to specific
        shares.

        The Company periodically reports its investments and the results of these
        investments to the Investment Committee.

        Since this sphere of activity has expanded recently, in February 2009, the
        Company resolved to appoint an investment manager subordinate to the
        C.F.O., who coordinates and supervises the entire capital market sphere,
        and who is responsible for ensuring strict compliance with procedures
        and with the instructions of the Investment Committee. On March 28,
        2010, Mr. Tomer Pomerantz, who had served up until that time as the
        investment manager, was appointed the V.P. Investments and Finances.

        Furthermore, the Company's Risk Management Officer also receives
        assistance, in relation to matters pertaining to investments and cash
        management, from those managers in the Company who are experts in
        their respective fields, from the Company's V.P. Investments and
        Finances, and from two external consultants specializing in this field, who
        are employed under a monthly retainer, inter alia, in order to minimize the
        Company's     exposures    specified   above.    Additionally,   the   Risk
        Management Officer reports to and consults with the Company's
        Management and with the Company's Investment Committee, which is
        comprised of members of the Board of Directors and convenes on a
        quarterly basis, and whenever an event occurs that necessitates
        immediate decision-making relevant to the Committee.

        The expansion of the Company’s activity in the capital market during the
        report period necessitated the setting of investment definitions by the



                                  47
        Company’s Investment Committee, as well as the performance of
        frequent monitoring and supervision for the purposes of hedging the
        Company’s exposures and efficiently managing the market risks, inter
        alia, by daily management of the investments through designated
        systems, the performance of internal controls and assignments pursuant
        to procedures, as well as the performance of periodic analyses and
        reports.

        Upon acquiring the control of Partner, the Company became a company
        with large credit balances, and a significant decline in its available cash
        balances occurred. Accordingly, the Company examines how to invest its
        available cash balances in order to maximize the yield on them without
        taking significant risks, and hedges against the Company’s exposures to
        interest rates in Israel, to the Maof Index and to the dollar exchange rate.
        As on the report date, the Company is hedging against the dollar
        exchange rate at the inclusive sum of USD 148 million.

2.4.3   Cellular operators segment and end-customer segment
        Exposures in the said segments are managed mainly by the managers of
        the various segments, who handle exposures on a current basis within
        the scope of work meetings with the segments' managements. Risks
        exceeding current risks, if any, are deliberated by the Company's general
        management and by the Company's Board committees.

2.4.4   Partner operating segment
        The Company’s investment in Partner poses an exposure, in light of the
        existence of liabilities generated during the acquisition of the control of
        Partner, and in light of possible volatility in the Partner share price, which
        is liable to affect the pledges that the Company shall be required to
        provide to banks. The exposures in this segment are managed by the
        Company Management on a current basis. Risks exceeding current risks,
        if any, are deliberated by the Company's Management and by the
        Company's Board committees.

        The Company’s risk management policy is actually implemented only in
        relation to the Company itself. The Company does not determine such
        policies for the investee companies, and, correct to the report period, no
        action has been taken to hedge market risks deriving from Partner’s
        operations.



                                   48
2.5   SUPERVISION AND IMPLEMENTATION OF MARKET RISK MANAGEMENT
      POLICY

      2.5.1   The supervision of the market risk management policy and the policy
              implementation    methods      is   delegated   to   the   Company's   Risk
              Management Officer, and is also supervised and managed by the
              Investment Committee, which convenes quarterly and whenever a
              significant event occurs that must be addressed, and/or whenever a
              strategic decision needs to be made. Furthermore, the Company
              formulated an investments procedure for itself and operates accordingly.
              The V.P. Investments and Finances is responsible for ensuring
              compliance with the procedure instituted, according to the directives of
              the Investment Committee, while the Company's Risk Management
              Officer supervises and controls the activities of the V.P. Investments and
              Finances. The Company's V.P. Investments and Finances documents all
              operations that the Company performs in the capital market, including the
              hedging operations being performed in relation to the underlying assets in
              which the Company invests for the sake of protection.

      2.5.2   Additional channels through which the Company supervises compliance
              with the market risk management policy and policy implementation
              methods include a quarterly report by the Risk Management Officer to the
              Investment Committee, to the Audit Committee and to the Board of
              Directors of the Company (in the Directors' Report). Additionally, the Risk
              Management Officer also delivers such a report to the Investment
              Committee whenever a material investment or operation is to be executed
              that requires the Investment Committee's approval or that must be
              reported to the Committee. In light of the expansion of the Company’s
              activity in the capital market during the report period, frequent reporting
              was issued to the Company’s Investment Committee, the Company’s
              Management performed analyses and audits of the investment portfolio,
              defined procedures and monitored compliance therewith, and proper
              documentation was kept, enabling detailed, internal monitoring of the
              investments and the financial protection mechanisms. In light of the
              Company’s large credit balance correct to the date of this report (which
              the Company used to finance the acquisition of the control of Partner), the
              Company resolved to implement certain hedging operations relating to its
              dollar exposures and to frequently update them according to fluctuations



                                        49
               and the position of the dollar and the expectations about its behavior. The
               Company’s Risk Management Officer, in collaboration with the V.P.
               Investments and Finances, shall monitor the said hedging operations and
               their effectiveness and shall periodically submit reports to the Investment
               Committee. In the event of an exceptional event in the foreign currency
               market, the Investment Committee shall convene immediately in order to
               reach decisions in that regard. Regarding additional exposures reviewed
               above, no decisions have been reached at this stage regarding the
               implementation of operative measures, since the exposure in respect
               thereof has been assessed as being relatively low.

2.6   REPORT ON LINKAGE BASES
      See Note 26.F. of the Financial Statements.

2.7   SENSITIVITY TESTS
      See Note 26.C. of the Financial Statements.

2.8   DERIVATIVE POSITIONS
      On the date of this report, the Company held positions in derivatives.
      The Company executes sales transactions of futures contracts against the Tel-
      Aviv 25 Index, and short sales of shares included in the Tel-Aviv 25 Index, mainly
      with the objective of reducing the exposure of the Company’s shareholdings to
      market volatility. Furthermore, the Company sells futures contracts on foreign
      currency balances it is holding, mainly for hedging purposes. Additionally, due to
      considerations of marketability, the Company chose to use option instruments,
      through the selling of a call option, a put option and the purchase of a put option.

      Derivatives analysis as on December 31, 2009 (NIS thousands):
                                                                   As on December 31, 2009
                                                 Transaction       Par value       Fair value
      Derivative                                                          NIS millions

      Options on the Tel-Aviv 25 Index              Call             (101)             (6)
      Options on the USD                            Call             (302)             (2)
      Options on the USD                            Put              (453)             (5)
      Forward contract on the USD                 Forward             472              (4)
      Forward contract on the CPI                 Forward             430              15
      Embedded derivatives, net                   Forward             163               3
                                                                                         1

      *   The par value of the various derivatives on the Tel-Aviv 25 Index is calculated
          according to the daily delta of the derivative, correct to December 31, 2009. The delta
          may change according to the market conditions over the time axis.


                                            50
           *   On December 31, 2009, the total inclusive fair value of the positions in derivatives is a
               liability of approximately NIS 209 million.


3.   CORPORATE GOVERNANCE ASPECTS

     3.1   DONATIONS
           On July 1, 2009, the Company’s Board of Directors resolved that the Company’s
           donations budget in 2009 would be the sum of NIS 3 million, compared with the
           NIS 1 million budget in 2008.

           For the resolution regarding a donation of up to NIS 3 million to Lotus, see clause
           1.9.14.3 above.

           During the report period, the Company donated the inclusive sum of
           approximately NIS 3 million.

     3.2   DIRECTORS POSSESSING ACCOUNTING AND FINANCIAL EXPERTISE
           Pursuant to the Company Regulations (Requirements and Criteria for Directors
           Possessing Accounting and Financial Expertise and for Directors Possessing
           Professional Qualifications), 5766 – 2005, the Company’s Board of Directors
           decided that the appropriate minimum number of directors possessing accounting
           and financial expertise would be two directors.

           According to the Board of Directors’ assessment, a director possessing
           accounting and financial expertise is a director with an academic education in an
           economic/ accounting discipline, as well as management experience in economic
           and/or accounting businesses, which attests to his/her                    knowledge and
           understanding of accounting and financial matters relevant to the Company’s
           operations.

           Following is the list of directors whom the Company deems to possess
           accounting and financial expertise (for details of the education and experience of
           these directors, see Part D, Regulation 26): Ms. Regina Ungar, Mr. Shalom
           Singer, Dr. Arie Ovadia and Mr. Yehiel Feingold.

     3.3   INDEPENDENT DIRECTORS
           Correct to the date of this report, the provision prescribed in Section 219(E) of the
           Companies Law regarding independent directors has not yet been adopted by
           the Company in its Articles of Association.




                                                   51
3.4   DISCLOSURE REGARDING THE INTERNAL AUDITOR

      3.4.1   Particulars of the Internal Auditor:
              Name:                Moshe Cohen
              Term of office
              began:               20.11.2006
              Qualifications for
              the position:        Certified public accountant since 1982. BA in
                                   economics and accounting, from Tel-Aviv University.
                                   Partner in the accounting firm of Chaikin, Cohen,
                                   Rubin and Co. – CPA. The Internal Auditor has been
                                   serving as a director in a number of companies for
                                   more than five years, and as the internal auditor of a
                                   number of private and public companies for more
                                   than five years.
                                   To the best of the Company's knowledge, the
                                   Internal Auditor complies with the criteria specified in
                                   Section 146(B) of the Companies Law, 5759 – 1999,
                                   and with the provisions of Section 8 of the Internal
                                   Audit Law, 5752 – 1992.
                                   The Internal Auditor of the Company is not an
                                   interested party in the Company, and/or a relative of
                                   an interested party, and is not an auditor or any party
                                   on its behalf. Furthermore, the Internal Auditor does
                                   not fulfill any function in the Company in addition to
                                   internal auditing, and does not fulfill any function
                                   outside of the Company that creates, or that is liable
                                   to create, a conflict of interest with his function as the
                                   Company's Internal Auditor. The Internal Auditor
                                   does not hold securities of the Company or of
                                   entities related thereto, respectively.
                                   The accounting firm of Chaikin, Cohen, Rubin and
                                   Co. – CPA, in which Moshe Cohen is a partner,
                                   previously served as the external accountants of the
                                   subsidiary, Scailex Vision (Tel-Aviv) Ltd. (formerly
                                   Scailex Vision).
                                   It should also be noted that the Internal Auditor was
                                   appointed the Internal Auditor of Suny Electronics on
                                   September 3, 2008.




                                          52
        Status and terms
        of employ in the
        Company:             Moshe Cohen is an outside Internal Auditor of the
                             Company and is not an employee of the Company.
                             Moshe Cohen provides internal auditing services as
                             an outside service-provider.
        Company officer
        in charge of the
        Internal Auditor:    The Company's C.E.O., Mr. Yahel Shachar.

3.4.2   Mode of appointment
        The Company's Audit Committee and Board of Directors approved the
        appointment of Mr. Moshe Cohen as the Internal Auditor on November
        20, 2006, after considering his education, qualifications and experience in
        internal auditing, and taking into account the type, scope and complexity
        of the Company's operations.

3.4.3   The work plan
        The Internal Auditor's work plan is an annual plan.

        Upon acquiring the cellular operators segment and the end-customer
        segment (in September 2008), the Company's Audit Committee decided
        that the Internal Auditor shall perform a risk assessment survey for both
        of the aforesaid operating segments for the purposes of a multiyear work
        plan. In light of the findings of the Internal Auditor as expressed in the
        aforesaid risk assessment survey, in light of the deliberation conducted by
        the   Audit    Committee,        and   according   to   the   Management's
        recommendations, the Internal Auditor’s 2009 Annual Work Plan was
        formulated by the Audit Committee. Involved in the drafting of the said
        work plan were the managers of the cellular operators segment and the
        end-customer segment, the Company's C.E.O. and the Company's
        C.F.O., and discussions and consultations were held with the Company’s
        Audit Committee.

        The Internal Auditor has discretion to deviate from the work plan, subject
        to his findings, and to the extent that, within the scope of his work,
        findings are discovered that justify this.

        The Internal Auditor is summoned to all meetings of the Company’s Audit
        Committee and Board of Directors, and indeed participates in most of
        these meetings. Accordingly, the Internal Auditor is exposed to all


                                    53
        material operations and transactions that the Company carries out during
        the ordinary course of business and outside of its ordinary course of
        business.

        It should be noted that, correct to the date of this report, the audit plan
        does not relate to a material investee corporation of the Company. In this
        context it should be noted that the internal audit at Partner is being
        carried out by C.P.A. Yehuda Motro. It should be noted that, prior to the
        approval of the Financial Statements for 2009, the Company’s Internal
        Auditor conducted clarifications with Partner’s Internal Auditor, which
        included, inter alia, the receipt of a risk survey conducted at Partner, a
        review of its Work Plan for 2010, including the scope of the audit and the
        subjects of the audit.

3.4.4   Mode of performance of the audit
        The Internal Auditor performs his audit pursuant to the generally accepted
        professional standards in Israel and internationally, and as prescribed in
        Section 4(B) of the Internal Audit Law, 5752 – 1992. In light of reviews
        and recommendations that the Board of Directors received, and after
        these recommendations were examined by the Company's Audit
        Committee and Board of Directors, the Board of Directors was satisfied
        that the Internal Auditor fulfilled all requirements prescribed in the above-
        mentioned generally accepted professional standards in Israel and
        internationally.

3.4.5   Access to information
        The Internal Auditor is given free access, as specified in Section 9 of the
        Internal Audit Law, 5752 – 1992, including direct, continuous access to
        the information systems in the Company, including the Company's
        financial data. The Internal Auditor does not fulfill any other function in the
        Company, as stated in Section 146(B) of the Companies Law, and in
        Section 8 of the Internal Audit Law.

3.4.6   The Internal Auditor's report

        3.4.6.1     The Internal Auditor's reports are submitted in writing.

        3.4.6.2     During the first three quarters of 2009, and in light of the
                    recommendations adopted by the Company pursuant to the
                    performance of an internal audits survey in the Company, the
                    Internal Auditor performed an internal audit on the subject of the


                                     54
                  management and reserves of replacement parts inventories in
                  the cellular operators segment. The conclusions of the audit
                  were submitted to the Company managers involved in the said
                  segment, and to members of the Company’s Audit Committee.
                  The conclusions of the audit were discussed internally by the
                  Company managers involved in the said segment, and during
                  the meeting of the Company’s Audit Committee that took place
                  on October 10, 2009.

        3.4.6.3   During the fourth quarter of 2009, the Internal Auditor
                  performed an audit of the Company’s cash management.
                  Additionally, during the said quarter, the Internal Auditor
                  examined      the       method    of     implementation      of    the
                  recommendations of the internal audit reports of recent years
                  regarding the Company’s various activities. The audit report on
                  the subject of cash management was discussed during
                  meetings of the Company’s Audit Committee of March 21, 2010
                  and March 28, 2010. No aberrant findings were found in the
                  said report and it was resolved to accept all of the Internal
                  Auditor’s recommendations.

3.4.7   The Board of Directors' evaluation of the auditor's activities
        According to the evaluation of the Company's Board of Directors, the
        scope, nature and continuity of the activities and work plan of the Internal
        Auditor are reasonable, under the circumstances, and suffice to fulfill the
        objectives of internal auditing in the Company.

3.4.8   Scope of employment and remuneration

        3.4.8.1   Scope of employment: the scope of the Internal Auditor's work
                  is in accordance with the work plan prescribed from time to time
                  and re-examined according to the changes occurring in the
                  Company. During the report period, the Internal Auditor devoted
                  810 hours to internal auditing in the Company, compared with
                  400   hours   of    the    Internal    Auditor’s   work   during   the
                  corresponding period last year. The increase in the Internal
                  Auditor’s scope of work derived from the addition of the cellular
                  operators segment and the end-customer segment to the
                  Company.



                                     55
                         Scope of employment of an internal auditor in Partner: the
                         scope of work of the Internal Auditor at Partner is 6,000 hours.
                         The majority of the work is carried out by him and by a staff of
                         three employees on his behalf, all of whom are employees of
                         Partner. A small portion of the work is performed by designated
                         service-providers as needed.

              3.4.8.2    Remuneration: the Internal Auditor is compensated according to
                         his actual hours of work. During the report period, the
                         remuneration paid to the Internal Auditor totaled the sum of
                         approximately NIS 182 thousand, this compared with the
                         remuneration   of    about   NIS   82.5     thousand   during   the
                         corresponding period last year. The Company's Board of
                         Directors believes that the remuneration of the Internal Auditor
                         is commensurate with the scope of the Internal Auditor's
                         activities and functions, and is not excessive compared with
                         companies similar to the Company relative to size, type, the
                         volume of the Company’s operations, and the degree of
                         responsibility of the Internal Auditor, and the Board believes
                         that the said remuneration is not such as could influence the
                         Internal Auditor's professional judgment.

3.5   DISCLOSURE REGARDING THE AUDITOR

      3.5.1   Name of the auditor
              The accounting firm of Brightman Almagor Zohar and Co. is the
              accounting firm that served as the Company's auditor during the report
              period, and the firm is continuing to fulfill this role correct to the date of
              this report.




                                         56
      3.5.2   Auditor's hours of work and fees

                                     For the one-year        For the one-year period
                                      period ended            ended December 31,
                                    December 31, 2008                 2009
                                   Hours     Inclusive fee   Hours of   Inclusive fee
                                  of work       (in NIS       work         (in NIS
                                              thousands)                 thousands)
              Auditing services     1,700            384        2,435            528
              Tax services            106            135            -                 6
              Prospectus                -            -           499             107
              Consulting              590            277         163              40
              Total                 2,396            796        3,097            681


              The consulting services provided to the Company by the external auditor
              during the report period are economic (Due Diligence) examinations of
              investments that the Company contemplated during the report period,
              professional opinions regarding economic and tax issues, and ongoing
              handling of tax matters. The Auditor also handed the preparation of the
              shelf prospectus published by the Company in August 2009.

              The Auditor’s fee during the report period was determined according to
              the recommendation of the Company's Management, in light of an
              evaluation of the auditing work required, which was performed by the
              Company's external auditor, and pursuant to a comparison of external
              auditors' fees in public companies similar to the Company, in relation to
              all matters pertaining to the scope of their activities. The auditors' fee
              during the report period was approved by the Company's Board of
              Directors (pursuant to the resolution passed by the General Meeting).

3.6   DISCLOSURE REGARDING THE APPROVAL PROCESS OF THE FINANCIAL
      STATEMENTS IN THE REPORTING CORPORATION

      Pursuant to the Audit Committee's regulations, which were adopted by the
      Company's Board of Directors, the Company’s Audit Committee is the organ
      responsible for oversight in the Company (as this term is defined in
      Pronouncement 76 of the Institute of Certified Public Accountants in Israel).

      For every financial reporting period, like for the current reporting period, the
      Consolidated Financial Statements, the report on the corporation’s businesses,
      the directors' reports to the shareholders, and material valuations accompanying
      the directors’ report to the shareholders, as well as documents pertaining to risk



                                        57
management in the Company, and the Internal Auditor's reports, are forwarded
for scrutiny by the members of the Audit Committee a few days before the date of
the meeting scheduled for discussing the Financial Statements and for reaching a
recommendation for the Company's Board of Directors regarding approval of the
statements. It should be noted that, upon the consolidation of Partner’s Financial
Statements, the relevant financial statements are forwarded for the scrutiny of
members of Partner’s Audit Committee.

The Audit Committee is comprised of four members, including the two outside
directors of the Company, Mr. Yoav Biran and Ms. Regina Ungar, and two
additional directors, Mr. Shalom Singer (the Committee Chairman) and Mr. Yehiel
Feingold. Three of the members of the committee have been defined as directors
possessing accounting and financial expertise.

The role of the Audit Committee is to examine the detailed presentation made by
the Company’s Management of the material issues in the financial reporting,
including material transactions outside the ordinary course of business, the
material assessments and critical estimates applied in the Financial Statements,
the accounting policy and changes that occurred therein. The Audit Committee is
also responsible for examining aspects of risk management and control.

During the Audit Committee meeting for approval of these Financial Statements,
the Committee members reviewed the financial results, the financial position,
material valuations and every principal activity or change that occurred during the
period under report. In addition, the Company's risk factors were discussed, as
defined by the Investment Committee, as well as the risk management and
control methods.

The Company's Management participated in a discussion during the Audit
Committee meeting, during which the Committee members raised questions and
the Management provided answers. Also present during the meeting were the
external auditor of the Company, who provided his professional opinion in relation
to accounting issues raised in relation to the Financial Statements, and the
Internal Auditor of the Company. The Company’s lawyers also attended the
meeting.

After the deliberations, the Audit Committee recommended to the Board of
Directors to approve the Financial Statements. During the Board meeting, the
members reviewed the financial results, the financial position, material valuations,
the accounting handling of material issues, the possible impact of significant risks



                                  58
      and exposures on the Financial Statements, the accounting policy applied and
      every principal activity or change that occurred during the period under report.
      Furthermore, a discussion was held during which questions were raised and
      answers were provided to the Board members’ questions. After the discussion,
      the Chairman of the Board asks the members of the Board whether any
      questions or issues remain for which they did not receive answers, and then calls
      for a vote on the approval of the Financial Statements.

3.7   THE COMPANY’S EVALUATIONS OF THE EFFECTIVENESS OF THE
      INTERNAL CONTROLS OVER FINANCIAL REPORTING AND DISCLOSURE
      PROCEDURES

      Pursuant to the amendment to the Securities Regulations (Immediate and
      Periodic Reports), 5730 – 1970, dated December 24, 2009, the Company is
      required to attach a report to its Periodic Report and to its Quarterly Financial
      Statements, about the Board and Management’s evaluation of the effectiveness
      of the Company’s internal controls over financial reporting and disclosures, the
      personal declarations of the chief executive officer and of the chief financial
      officer regarding the effectiveness of the internal controls over financial reporting
      and disclosures, as well as the auditor’s report regarding the effectiveness of the
      internal controls over financial reporting, as of the Periodic Report as on
      December 31, 2010. Following is a description of the Company’s preparatory
      stages and progress up until the date of the report, in conformity with the
      requirements of the transitional instructions in the above-mentioned regulations.

      a. The Company made a preparatory plan for implementing the regulations. This
         plan is based on an evaluation of the risks relevant to the financial reporting
         and disclosures, an evaluation that the Company performed on the balances
         and disclosures in the Financial Statements based on qualitative and
         quantitative criteria, such as:
             the materiality of the balance in quantitative terms;
             the scope of the activity;
             the complexity of the accounting principles applicable to the balance or the
             disclosure;
             the necessary degree of discretion;
             the complexity of the business process;
             the quality of the information systems affecting the balance;
             the professional qualifications required when determining the balance or
             issuing the disclosure;


                                           59
       the exposure to incidents of fraud and embezzlement;
       the history of errors;
       and other considerations.

   The Company’s preparatory plan, which was documented in the project
   planning document, includes the list of consolidated companies in which the
   preparations are to be performed, details of the considerations applied by the
   Management, the conclusions, the preparatory stages, including detailed
   timetables and names of the functionaries involved in the project. The
   preparatory plan was presented to and discussed by the Company’s Board of
   Directors.

b. The officer in charge of implementing the project in the Company is Mr.
   Tomer Ben Shalom, the controller of the Company’s headquarters division,
   who is subordinate to the Company’s C.F.O. Furthermore, the Company’s
   Management established a steering committee to supervise implementation
   of the project in the Company, including compliance with the milestones
   affixed by the Securities Authority and with the project’s timetables, and to
   supervise the control gaps found and the plans to rectify them.

c. Within the scope of the project preparing for implementation of the regulations
   in the Company, an evaluation of the effectiveness of the internal controls
   shall be performed in relation to the following spheres of control:

       Controls at the organizational level – controls likely to have a
       comprehensive impact on the organization, since they constitute the
       infrastructure underlying the character and nature of the activities being
       carried out in the Company, which include, inter alia:
       ○ controls relating to the control environment;
       ○ controls relating to the management override;
       ○ the risk evaluation process;
       ○ the process for evaluating and controlling the organization’s results of
          operations;
       ○ monitoring and oversight of the controls in the organization by the
          Board of Directors and the board committees;

       The closing and reporting process defined as the last stage in the financial
       reporting process, which includes, inter alia, the following operations:




                                   60
       ○ collecting data for the trial balances, and performing the established
           tests of the adequacy of the data obtained (for example, using
           reasonability tests);
       ○ determining and implementing the accounting policies;
       ○ performing adjustments for the purpose of preparing the Annual or
           Quarterly Financial Statements;
       ○ preparing and drawing up the Financial Statements, including the
           relevant disclosures;
       ○ deliberating and approving the Financial Statements by the relevant
           institutions.

       General controls in the information systems (IT GC) – the information
       systems constitute a material and integral part of the Company’s reporting
       process. In light of this, for the purpose of evaluating any information
       collected, processed, summarized and reported by the date and in the
       format prescribed by law, information that the Company is required to
       disclose in reports that it publishes in conformity with the provisions of law,
       it is necessary to examine, across the board, the Company’s ability to
       preserve, store and retrieve information, to block access according to
       function in the organization, etc. The information systems to be examined
       within this framework are solely information systems concerning the
       financial reporting.

       In addition to the three spheres of control mentioned above, the following
       processes were identified as being very material to the financial reporting
       and disclosures in the Company:
       ○ income;
       ○ investments
       ○ finances.

It should be noted that the Company shall perform a re-evaluation subsequent to
the publication of this report.

Furthermore, according to information provided to the Company, Partner is
implementing the SOX processes in conformity with the relevant statutory
requirements, and Partner’s accountants are performing an audit of the process
in conformity with the requirements and rules of the PCAOB (Public Company
Accounting Oversight Board), since Partner is traded on the stock exchange in
the United States.



                                   61
4.   DISCLOSURE REQUIREMENTS RELATING TO THE COMPANY’S FINANCIAL
     REPORTING

     4.1   EVENTS SUBSEQUENT TO THE BALANCE-SHEET DATE

           4.1.1   On January 6, 2010, Scailex reported that, if and to the extent that it shall
                   receive the court’s approval for the dividend distribution by Partner, and it
                   shall actually be distributed by Partner, Scailex shall make use of the
                   majority of the sum of the dividend that it shall receive for repaying its
                   debts to banks. For additional details, see the Immediate Report
                   published by the Company on January 6, 2010 (reference no.: 2010-01-
                   346362). This reference constitutes inclusion by way of referral.

           4.1.2   On January 6, 2010, Partner reported about recent developments that
                   occurred during the third and fourth quarter of 2009 concerning the
                   licensing of sites, regulations and financing. For additional details, see the
                   Immediate Report published by the Company on January 6, 2010
                   (reference no.: 2010-01-346356). This reference constitutes inclusion by
                   way of referral.

           4.1.3   On January 7, 2010, an adjourned extraordinary and annual general
                   meeting of the Company’s shareholders was convened, during which the
                   following resolutions were passed:

                   4.1.3.1   to approve the reappointments of the directors (other than
                             outside directors) as members of the Company’s Board of
                             Directors: Messrs. Ilan Ben Dov, Shalom Singer, Yehiel
                             Feingold and Dr. Arie Ovadia;

                   4.1.3.2   to approve the appointment of Ms. Regina Ungar to the office of
                             outside director of the Company for a three-year term of office
                             commencing on the date of the general meeting;

                   4.1.3.3   to approve the issuance of a letter of release and indemnity, in
                             the version customary in the Company in relation to all
                             officeholders, to Ms. Regina Ungar, effective as of the date of
                             her appointment;

                   4.1.3.4   not to approve the granting of 18,000 options of the Company
                             to each of the outside directors of the Company – to Ms. Regina
                             Ungar and to Mr. Yoav Biran.




                                              62
        4.1.3.5    to approve the decision, in conformity with Article 38 of the
                   Company’s Articles of Association, whereby the Company’s
                   Board of Directors shall be comprised of nine members.

        4.1.3.6    to approve the reappointment of the incumbent auditor of the
                   Company, the accounting firm of Brightman Almagar Zohar and
                   Co. as the Company’s auditor, and to authorize the Company’s
                   Board of Directors to affix the remuneration of the auditor
                   according to the volume and nature of the services it provides.

        4.1.3.7    Furthermore, the general meeting received the Financial
                   Statements and the directors’ report to the shareholders for the
                   year ended December 31, 2009.

4.1.4   On January 7, 2010, Ms. Regina Ungar began holding office as an
        outside director of the Company and as a member of the Company’s
        Audit Committee.

4.1.5   On January 17, 2010, the Company and Cellcom engaged in an
        agreement for the sale of the operations of the end-customer segment of
        the Company to Cellcom, this in light of the demand by the Antitrust
        Commissioner, and as the Commissioner’s precondition to approving the
        transaction for the acquisition of the control of Partner. Correct to the date
        of this report, the Company is still managing and operating the end-
        customer segment, with the consummation of the sale thereof as stated
        expected to take place, at the very latest, during the second quarter of
        2010. The Company assesses that the transaction shall be consummated
        on April 1, 2010. For additional details, see clause 4.5.16(b) in Part A of
        this report.

4.1.6   On January 25, 2010, the Company published the Pro Forma Financial
        Statements as on September 30, 2009 in relation to the acquisition of the
        control of Partner (reference no.: 2010-01-365535). This reference
        constitutes inclusion by way of referral.

4.1.7   Further to Partner’s application for approval of a distribution, which it filed
        with the Tel-Aviv – Jaffa District Court on December 31, 2009, as
        specified above in clause 1.9.53, and further to various applications and
        an objection filed with the court on behalf of a number of holders of Series
        A bonds of Partner, on February 7, 2010, a notice regarding the
        withdrawal of the objection and the applications and regarding an agreed


                                   63
        settlement (“the Settlement”) was filed with the court. According to the
        Settlement, the validity of which was subject to and contingent upon the
        court’s approval of the application for the distribution, the opponents
        withdrew their objection to the application for the distribution and to the
        approval thereof by the court, provided that, in the event of a downgrade
        of the current rating of Partner’s Series A bonds by the rating company,
        Maalot, the annual linked interest rate on Partner’s Series A bonds shall
        be raised by 1% in 2010 in respect of each reduction of one rating
        category in the rating scale, effective as of the date of publication of the
        rating downgrade and for as long as the rating downgrade is in effect. The
        increase in the interest rate as stated shall terminate pursuant to the
        Settlement, upon an upgrade of the rating or by the end of 2010,
        whichever occurs first, provided that the increased interest rate shall
        apply for at least three months.

        On February 18, Partner notified that, following negotiations it conducted
        with another holder of Partner’s Series A bonds, Partner resolved to
        improve the Settlement, so that the increase of the linked interest rate to
        be borne by Partner’s Series A bonds in the event of a rating downgrade,
        as stated in the Settlement, shall also apply in relation to 2011, at the rate
        of 0.5% for each reduction of one rating category compared with the
        rating at that time (AA-), upon the fulfillment of the conditions for this and
        as of the date that they shall be fulfilled. All other conditions of the
        Settlement remained without change, including the validity of the
        Settlement (including the amended version thereof) being contingent
        upon the approval of the distribution application by the court.

4.1.8   On February 9, 2010, Partner reported its results for the year and for the
        quarter ended December 31, 2009. For additional details, see the
        Immediate Report published by the Company on February 9, 2010
        (reference no.: 2010-01-379353). This reference constitutes inclusion by
        way of referral.

4.1.9   On February 18, 2010, Partner reported about its new organizational
        structure and about changes in the management team, the purpose being
        to support the strategy of an all-inclusive communications company. For
        additional details, see the Immediate Report published by the Company
        on February 18, 2010 (reference no.: 2010-01-388047). This reference
        constitutes inclusion by way of referral.


                                   64
4.1.10 On February 22, 2010, the District Court approved Partner’s application
       for approval for the distribution of a dividend at the inclusive sum of NIS
       1.4 billion. For additional details, see the Immediate Report published by
       the Company on February 22, 2010 (reference no.: 2010-01-392061).
       This reference constitutes inclusion by way of referral.

       On March 18, 2010, the payment of the dividend was executed. The
       Company’s share of the dividend totalled the sum of approximately NIS
       626 million.

4.1.11 On March 8, 2010, a share swap transaction was consummated, under
       which the Company purchased 869,129 ordinary shares of Partner from
       third parties unrelated to the Company and/or to the controlling
       shareholders therein, which constituted, correct to that date, 0.56% of
       Partner’s issued and paid-up share capital (not fully diluted and after
       neutralizing treasury shares). The shares acquired constitute a portion of
       the minimal holdings of “Israeli parties,” as stated in clause 22.A of
       Partner’s General License for the Provision of Mobile Radio Telephone
       (MRT) Services by the Cellular Method, pursuant whereto they may be
       sold solely to Israeli parties, and subject to the approval of the Minister of
       Communications. In consideration for the shares acquired by the
       Company, the Company transferred 782,216 ordinary shares of Partner
       (which are not subject to the said selling restrictions) to the aforesaid
       sellers, which constituted, correct to that date, 0.51% of Partner’s issued
       and paid-up share capital (not fully diluted and after neutralizing treasury
       shares). For additional details, see the Immediate Report published by
       the Company on February 2, 2010 (reference no.: 2010-01-373278) and
       the Immediate Report published by the Company on March 8, 2010
       (reference no.: 2010-01-407865). These references constitute inclusion
       by way of referral.

4.1.12 On March 9, 2010, the rating company, Maalot, announced that the
       ratings and outlooks of Partner (ilAA-/stable) and of Scailex (ilA-/stable),
       remained without change, also after the District Court approved Partner’s
       application for the dividend distribution at the inclusive sum of NIS 1.4
       billion. For additional details, see the Immediate Report published by the
       Company on March 9, 2010 (reference no.: 2010-01-409125). This
       reference constitutes inclusion by way of referral.




                                  65
4.1.13 On March 15, 2010, Partner reported that the rating company, Moody’s,
       downgraded Partner’s rating by one category; i.e., from a rating of Baa3
       to a rating of Ba1; stable outlook. For additional details, see the
       Immediate Report published by the Company on March 15, 2010
       (reference no.: 2010-01-415830). This reference constitutes inclusion by
       way of referral.

4.1.14 On March 16, 2010, Partner declared the distribution of a dividend at the
       sum of approximately NIS 293 million (NIS 1.89 per share). The
       Company’s share of the dividend is approximately NIS 131 million. The
       dividend is expected to be paid on April 22, 2010. For additional details,
       see the Immediate Report published by the Company on March 16, 2010
       (reference no.: 2010-01-417642). This reference constitutes inclusion by
       way of referral.

4.1.15 On March 16, Partner reported the resignation of Mr. David Avner from
       his office as Partner’s C.E.O., which shall take effect on October 1, 2010.
       For additional details, see the Immediate Report published by the
       Company on March 16, 2010 (reference no.: 2010-01-417627). This
       reference constitutes inclusion by way of referral.

4.1.16 On March 18, 2010, the Company repaid a sum of approximately NIS 720
       million of the balance of the bank financing provided to the Company in
       relation to the acquisition of the control of Partner. Accordingly, on March
       21, 2010, Partner shares that had been pledged in favor of the banks, as
       specified in the aforesaid Immediate Report, were released. For
       additional details, see the Immediate Report published by the Company
       on March 23, 2010 (reference no.: 2010-01-426726). This reference
       constitutes inclusion by way of referral.

4.1.17 On March 18, 2010, Partner reported about the Tax Authority's
       confirmation regarding withholding tax on cash in respect of a distribution
       totaling NIS 1.4 billion. Since the Company has a certificate of exemption
       from withholding tax, the entire sum shall be transferred to the Company.
       Concurrently, and further to the Tax Authority's confirmation issued to
       Partner, the Company is examining the tax implications deriving from the
       said distribution. At this stage, according to the Company's tax structure,
       and subject to the completion of the examinations, the Company
       assesses that it shall not, in fact, be taxed in respect of the said



                                  66
       distribution. For additional details, see the Immediate Report published by
       the Company on March 18, 2010 (reference no.: 2010-01-420024). This
       reference constitutes inclusion by way of referral.

       That stated above concerning the expectation regarding the actual
       tax liability is forward-looking information, as this term is defined in
       the Securities Law, 5728 – 1968, and may change depending upon
       the results of the Company’s examinations.

4.1.18 On March 18, 2010, Partner reported that on that date it had been served
       a statement of claim and an application for the approval of the claim as a
       class action, which was lodged against it with the District Court. Within
       the scope of the claim it was alleged that Partner is charging its
       subscribers in respect of certain packages of content services without
       their consent. In the event that the claim shall be approved as a class
       action, the sum of the claim by the claimant is assessed at approximately
       NIS 175 million. Partner is examining the claim, and, at this early stage,
       cannot assess, with any degree of certainty, the chances of the claim’s
       success or the extent of the potential exposure in respect thereof, if any.

4.1.19 On March 23, Series E bonds of the Company were listed for continuous
       institutional trading on the Tel-Aviv Stock Exchange. For additional details
       about the said bonds, see clause 4.10.2(c) in Part A of this report.

4.1.20 On March 25, 2010, Partner reported that Partner’s Management was
       authorized to make initial contacts to examine the possibility of acquiring
       the operations of the company, Tapuz People Ltd., a public company
       controlled by the controlling shareholder of the Company. Correct to the
       date of this report, there is no certainty that these contacts shall
       materialize into any agreement, and, in any case, such agreement shall
       be subject to approval by Partner’s organs as required by law.

       The information included in this clause in relation to the acquisition
       of the operations of Tapuz People Ltd. is forward-looking
       information, as this term is defined in the Securities Law, since the
       materialization thereof depends, inter alia, upon parties external to
       Partner. There is no certainty that the acquisition of the operations
       of Tapuz People Ltd. shall actually transpire, or that the results
       thereof shall be according to Partner’s assessment.




                                  67
      4.1.21 On March 28, 2010, Mr. Tomer Pomerantz, who had been employed up
             until that time as an investment manager of the Company, was appointed
             the V.P. Investment and Finances of the Company.

      4.1.22 On March 28, 2010, Mr. Shachar Landau notified the Company’s C.E.O.
             that he shall be resigning from his office as the manager of the
             Company’s end-customer segment on April 10, 2010.

      4.1.23 On March 28, 2010, after having received the approval of the Company’s
             Remunerations Committee, the Company’s Board of Directors resolved to
             grant an annual bonus to the Company’s C.E.O., Mr. Yahel Shachar, at
             the sum of NIS 1 million, in light of his contribution to the Company’s
             advancement and success in 2009, and especially, in light of his
             tremendous contribution to the transaction acquiring the control of Partner
             Communications Ltd. and the Company’s preparations for the capital
             recruitments preceding that transaction. Also on that date, after having
             received the approvals of the Company’s Remunerations Committee and
             Audit Committee, the Company’s Board of Directors resolved to grant a
             special bonus to Mr. David Piamenta at the additional sum of
             approximately NIS 1 million, in light of the extraordinary achievements of
             the operating segment under his leadership during 2009. For additional
             details regarding the aforesaid bonuses, see Regulation 21 in Part D of
             this report.

      4.1.24 On March 28, 2010, after having received the prior approval of the
             Company’s Remuneration Committee on March 21, 2010, the Company’s
             Board of Directors approved an allotment of 24,000 options convertible
             into up to 24,000 ordinary shares of the Company to the Company’s
             C.F.O., Ms. Galit Alkalay David, in accordance with the 2009 option plan.
             Correct to the date of this Report, the said options have not yet been
             actually allotted.

4.2   CRITICAL ACCOUNTING ESTIMATES
      Generally accepted accounting principles require the Management to use
      estimates and assumptions that affect the sums presented in the Financial
      Statements. The Company bases its judgments and determinations of these
      estimates on past experience, on various facts, on external factors and on
      reasonable assumptions according to the circumstances relevant to each
      estimate. The Company uses estimates and assumptions regarding the future



                                       68
           which, by their very nature, are rarely identical to the actual results. The
           estimates and assumptions that reflect the highest exposure to material changes
           in the sum of its assets and liabilities in the following financial year are presented
           below:

           4.2.1    Deferred tax assets
                    The Company records deferred taxes due to carry-forward losses and
                    deductions for tax purposes when there is a reasonable expectation that
                    they will be realized against future taxable income. The deferred taxes
                    are calculated according to the tax rates that are expected to apply at the
                    time they are realized.

           4.2.2    Impairment of goodwill
                    For the purpose of determining whether there has been an impairment of
                    goodwill, the Company's Management performs an estimate of the usage
                    value of the cash-generating units to which the goodwill has been
                    allocated. For the purpose of calculating the usage value, the Company
                    calculates an estimate of the anticipated future cash flows deriving from
                    each of the cash-generating units, and the appropriate discount rate for
                    calculating the present value.

           4.2.3    Employee benefits
                    The present value of the group’s liabilities for severance pay and for the
                    pension plan for its employees is based on a great deal of data, which are
                    determined on the basis of an actuarial assessment, using a large
                    number of assumptions, including the capitalization rate. Changes in
                    these actuarial assessments might affect the book value of the group’s
                    liabilities for the payment of severance pay and pension payments. The
                    Group estimates the capitalization rate once a year, based on the
                    capitalization rate of the return on government bonds denominated in the
                    currency in which the benefits shall be paid (NIS). Other key assumptions
                    are determined based on the data prevailing in the market and on the
                    basis of the Group's accumulated experience.

5.   BUY-BACKS

     5.1   On February 5, 2008, the transaction for the acquisition Tao’s Shares was
           consummated, whereby the Company acquired all of Tao’s holdings of Scailex
           shares on the execution date – 9,175,896 ordinary shares of NIS 0.12 par value
           each of the Company, for the consideration of the sum of NIS 30 per share; i.e.,


                                              69
      for the inclusive total of NIS 275,276,880. For additional details, see Regulation
      22(1)(B) in Part D of this report.

5.2   For details about the buy-back plan of ordinary shares of the Company, which
      was adopted in May 2009, and for details about how the plan is actually
      executed, see Regulation 29(B)(1)(b) in Part D of this report.




                                           70
         6.       DISCLOSURE FOR BONDHOLDERS

                  6.1        Details about the corporation’s bonds
                             Correct to the date of this report, the Company has five series of bonds held by the public: Series A bonds, Series B bonds, Series
                             C bonds, Series D bonds and Series 1 bonds. Following are particulars, as required in the Eighth Addendum to the Securities
                             Regulations (Periodic and Immediate Reports), 5730 – 1970 (“the Regulations”) regarding each of the said series of bonds:
                                                                                                                                                                                         The
                                                             Par value
                                                                                         Fair value                                                                                corporation’s
                                                            after being
                                                                                            of the                                                                                 right to effect
                                                            revaluated
                                                                              Total      series as                                                                                    an early
                                                             according                                   Stock                                                        Are the
                                                                            accrued     included in                                                                               redemption or       Description
                                                               to the                                  exchange                Payment      Payment                    bonds
                                 Total par                                interest as         the                                                        Linkage                       forced        of the assets
              Series issue                    Current par     linkage                                 value as on   Type of    dates of     dates of                  conver-
Series                         value on the                                    on         financial                                                     basis and                 conversion of       pledged to
                  date                          value       conditions                                31.12.2009    interest      the           the                  tible into
                                issue date                                31.12.200     statements                                                      conditions                 the bonds to       secure the
                                                               on the                                     (NIS                 principal     interest                 another
                                                                             9 (NIS         as on                                                                                       other             bond
                                                            date of the                                 millions)                                                     security
                                                                           millions)    31.12.2009                                                                                securities and
                                                              Report
                                                                                             (NIS                                                                                 the conditions
                                                                (NIS
                                                                                          millions)                                                                               for exercising
                                                              millions)
                                                                                                                                                                                      the right

Series        07/09/2009       346.644.000    346,644,000      347            7            351           368          7.0%     Six equal     Biannual       –            –               –            Sole, fixed,
A                                                                                                                     fixed     biannual     payment                                                  first-ranking
          Pursuant to
Bonds                                                                                                                annual    payments       on 31/3                                                  lien (with a
             a shelf
                                                                                                                    interest        of       and 30/9                                                restriction on
             offering
                                                                                                                                principal   from 2010                                                    creating
          report dated
                                                                                                                                  as of       to 2014                                                   additional
          6/9/2009 and
                                                                                                                                  Sept.                                                                  liens) on
            the shelf
                                                                                                                               2011 until                                                               shares of
           prospectus
                                                                                                                                 March                                                                    Partner
              dated
                                                                                                                                  2014                                                               Communica-
           21/08/2009
                                                                                                                                                                                                      tions Ltd. at
                                                                                                                                                                                                      100% of the
                                                                                                                                                                                                      par value of
                                                                                                                                                                                                        the bonds
                                                                                                                                                                                                       (calculated
                                                                                                                                                                                                     according to
                                                                                                                                                                                                      NIS 73.528
                                                                                                                                                                                                      per Partner
                                                                                                                                                                                                         share)**




                                                                                                       71
                                                                                                                                                                                   The
                                                      Par value
                                                                                  Fair value                                                                                 corporation’s
                                                     after being
                                                                                     of the                                                                                  right to effect
                                                     revaluated
                                                                       Total      series as                                                                                     an early
                                                      according                                   Stock                                                         Are the
                                                                     accrued     included in                                                                                redemption or       Description
                                                        to the                                  exchange                Payment      Payment                     bonds
                          Total par                                interest as         the                                                         Linkage                       forced        of the assets
         Series issue                  Current par     linkage                                 value as on   Type of    dates of     dates of                   conver-
Series                  value on the                                    on         financial                                                      basis and                 conversion of       pledged to
             date                        value       conditions                                31.12.2009    interest      the           the                   tible into
                         issue date                                31.12.200     statements                                                       conditions                 the bonds to       secure the
                                                        on the                                     (NIS                 principal     interest                  another
                                                                      9 (NIS         as on                                                                                        other             bond
                                                     date of the                                 millions)                                                      security
                                                                    millions)    31.12.2009                                                                                 securities and
                                                       Report
                                                                                      (NIS                                                                                  the conditions
                                                         (NIS
                                                                                   millions)                                                                                for exercising
                                                       millions)
                                                                                                                                                                                the right

Series   07/09/2009     350,577,000    350,577,000      351             -           347           368        Variable   Six equal    Quarterly        –            –                            Sole, fixed,
B                                                                                                             annual     biannual     payment                                                   first-ranking
         Pursuant to
Bonds                                                                                                        interest   payments     on 31/12,                                                   lien (with a
            a shelf
                                                                                                             of 3.0%         of      31/3, 30/6                                                restriction on
            offering
                                                                                                              above      principal   and 30/9                                                      creating
         report dated
                                                                                                                the        as of        from                                                      additional
         6/9/2009 and
                                                                                                             interest     June.       12/2009                                                      liens) on
           the shelf
                                                                                                               on a     2011 until   until 2013                                                   shares of
          prospectus
                                                                                                              short-       Dec.                                                                     Partner
             dated
                                                                                                               term        2014                                                                Communica-
          21/08/2009
                                                                                                               gov’t.                                                                           tions Ltd. at
                                                                                                               bond                                                                             100% of the
                                                                                                                                                                                                par value of
                                                                                                                                                                                                  the bonds
                                                                                                                                                                                                 (calculated
                                                                                                                                                                                               according to
                                                                                                                                                                                                NIS 73.528
                                                                                                                                                                                                per Partner
                                                                                                                                                                                                   share)**




                                                                                                72
                                                                                                                                                                                   The
                                                      Par value
                                                                                  Fair value                                                                                 corporation’s
                                                     after being
                                                                                     of the                                                                                  right to effect
                                                     revaluated
                                                                       Total      series as                                                                                     an early
                                                      according                                   Stock                                                         Are the
                                                                     accrued     included in                                                                                redemption or       Description
                                                        to the                                  exchange                 Payment      Payment                    bonds
                          Total par                                interest as         the                                                         Linkage                       forced        of the assets
         Series issue                  Current par     linkage                                 value as on   Type of     dates of     dates of                  conver-
Series                  value on the                                    on         financial                                                      basis and                 conversion of       pledged to
             date                        value       conditions                                31.12.2009    interest       the           the                  tible into
                         issue date                                31.12.200     statements                                                       conditions                 the bonds to       secure the
                                                        on the                                     (NIS                  principal     interest                 another
                                                                      9 (NIS         as on                                                                                        other             bond
                                                     date of the                                 millions)                                                      security
                                                                    millions)    31.12.2009                                                                                 securities and
                                                       Report
                                                                                      (NIS                                                                                  the conditions
                                                         (NIS
                                                                                   millions)                                                                                for exercising
                                                       millions)
                                                                                                                                                                                the right

Series   07/09/2009     709,332,000    709,332,000      714            11           718           752           4.9%     Six equal     Biannual   Linked to        –               –            Sole, fixed,
C                                                                                                               fixed     biannual     payment     the CPI                                      first-ranking
         Pursuant to
Bonds                                                                                                          annual    payments       on 30/6     (base                                        lien (with a
            a shelf
                                                                                                              interest        of      and 31/12     index                                      restriction on
            offering
                                                                                                             linked to    principal   from 2010     07/09)                                         creating
         report dated
                                                                                                              the CPI       as of       to 2014                                                   additional
         6/9/2009 and
                                                                                                                            June                                                                   liens) on
           the shelf
                                                                                                                         2011 until                                                               shares of
          prospectus
                                                                                                                            Dec.                                                                    Partner
             dated
                                                                                                                            2014                                                               Communica-
          21/08/2009
                                                                                                                                                                                                tions Ltd. at
                                                                                                                                                                                                100% of the
                                                                                                                                                                                                par value of
                                                                                                                                                                                                  the bonds
                                                                                                                                                                                                 (calculated
                                                                                                                                                                                               according to
                                                                                                                                                                                                NIS 73.528
                                                                                                                                                                                                per Partner
                                                                                                                                                                                                   share)**




                                                                                                73
                                                                                                                                                                                     The
                                                       Par value
                                                                                   Fair value                                                                                  corporation’s
                                                      after being
                                                                                      of the                                                                                   right to effect
                                                      revaluated
                                                                        Total      series as                                                                                      an early
                                                       according                                   Stock                                                          Are the
                                                                      accrued     included in                                                                                 redemption or       Description
                                                         to the                                  exchange                 Payment      Payment                     bonds
                           Total par                                interest as         the                                                          Linkage                       forced        of the assets
         Series issue                   Current par     linkage                                 value as on   Type of     dates of     dates of                   conver-
Series                   value on the                                    on         financial                                                       basis and                 conversion of       pledged to
             date                         value       conditions                                31.12.2009    interest       the           the                   tible into
                          issue date                                31.12.200     statements                                                        conditions                 the bonds to       secure the
                                                         on the                                     (NIS                  principal     interest                  another
                                                                       9 (NIS         as on                                                                                         other             bond
                                                      date of the                                 millions)                                                       security
                                                                     millions)    31.12.2009                                                                                  securities and
                                                        Report
                                                                                       (NIS                                                                                   the conditions
                                                          (NIS
                                                                                    millions)                                                                                 for exercising
                                                        millions)
                                                                                                                                                                                  the right

Series    15/10/2009     280,859,000    280,859,000      281            3            283           293           5.1%        Four       Biannual    Linked to        –               –            Sole, fixed,
D                                                                                                                fixed       equal     payments      the CPI                                      first-ranking
          Pursuant to
Bonds                                                                                                           annual      annual       on 30/4      (base                                        lien (with a
            a shelf
                                                                                                               interest   payments     and 30/10      index                                      restriction on
            offering
                                                                                                              linked to        of      from 2010      08/09)                                         creating
         report dated
                                                                                                               the CPI     principal   until 2015                                                   additional
          14/10/2009
                                                                                                                           on 30/10                                                                  liens) on
         and the shelf
                                                                                                                          from 2010                                                                 shares of
          prospectus
                                                                                                                              until                                                                   Partner
             dated
                                                                                                                             2015                                                                Communica-
          21/08/2009
                                                                                                                                                                                                  tions Ltd. at
                                                                                                                                                                                                  100% of the
                                                                                                                                                                                                  par value of
                                                                                                                                                                                                    the bonds
                                                                                                                                                                                                   (calculated
                                                                                                                                                                                                 according to
                                                                                                                                                                                                  NIS 73.818
                                                                                                                                                                                                  per Partner
                                                                                                                                                                                                     share)**




                                                                                                 74
                                                                                                                                                                                      The
                                                           Par value
                                                                                       Fair value                                                                               corporation’s
                                                          after being
                                                                                          of the                                                                                right to effect
                                                          revaluated
                                                                            Total      series as                                                                                   an early
                                                           according                                   Stock                                                       Are the
                                                                          accrued     included in                                                                              redemption or       Description
                                                             to the                                  exchange                Payment     Payment                    bonds
                               Total par                                interest as         the                                                       Linkage                       forced        of the assets
              Series issue                  Current par     linkage                                 value as on   Type of    dates of    dates of                  conver-
Series                       value on the                                    on         financial                                                    basis and                 conversion of       pledged to
                  date                        value       conditions                                31.12.2009    interest      the          the                  tible into
                              issue date                                31.12.200     statements                                                     conditions                 the bonds to       secure the
                                                             on the                                     (NIS                 principal    interest                 another
                                                                           9 (NIS         as on                                                                                      other             bond
                                                          date of the                                 millions)                                                    security
                                                                         millions)    31.12.2009                                                                               securities and
                                                            Report
                                                                                           (NIS                                                                                the conditions
                                                              (NIS
                                                                                        millions)                                                                              for exercising
                                                            millions)
                                                                                                                                                                                   the right

Series        07/09/2009     205,311,270    205,311,270      205            3            185           221          7.0%      31/12/      Biannual       –        Conver-      The Company             –
                                  9
1                                                                                                                   fixed                payments                 tible into         may
              Pursuant to                                                                                                     2024
Bonds                                                                                                              annual                  on 30/6                 shares       announce a
8                a shelf
                                                                                                                  interest               and 31/12                  of the       full forced
                 offering
                                                                                                                                         from 2010                Compan            early
              report dated
                                                                                                                                           to 2014                    y10      redemption in
              6/9/2009 and
                                                                                                                                                                                   201411
                the shelf
               prospectus
                  dated
               21/08/2009




         8
              On October 26, 2009, the series was expanded through a private offering of a par value of NIS 102,705,270 of Series 1 Bonds to Leumi Partners Ltd. See
              above clause 1.9.33 of this report.
         9
              The total par value includes the par value from the date of the initial offering plus the par value of the Series 1 Bonds issued within the scope of the
              expansion of the series on October 26, 2009.
         10
              Until September 5, 2014, the Bonds are convertible into ordinary shares of NIS 0.12 par value each of the Company, according to the rate of NIS 77.12 par
              value of Series 1 Bonds per ordinary share of NIS 0.12 par value of the Company, and, as of September 6, 2014 and until December 15, 2024, according to
              the rate of NIS 197.12 par value of Series 1 Bonds per ordinary share of NIS 0.12 par value of the Company. The said conversion price is subject to
              adjustments in respect of dividend distributions, bonus shares and in respect of an issue of rights, as specified in the Shelf Offering Report published by the
              Company on September 6, 2009.
         11
              The Company is entitled to execute a full forced early redemption of all Series 1 Bonds on September 7, 2014 if it shall publish an Immediate Report by
              August 6, 2014 notifying of this resolution. On the early redemption date, if and to the extent executed, the Company shall pay the sum of the principal of
              the Bonds, plus the accrued interest in respect of the outstanding balance of the Series 1 Bonds up until the early redemption date as stated.


                                                                                                     75
                                                                                                                                                                                            The
                                                           Par value
                                                                                       Fair value                                                                                     corporation’s
                                                          after being
                                                                                          of the                                                                                      right to effect
                                                          revaluated
                                                                            Total      series as                                                                                         an early
                                                           according                                   Stock                                                             Are the
                                                                          accrued     included in                                                                                    redemption or       Description
                                                             to the                                  exchange                     Payment     Payment                     bonds
                               Total par                                interest as         the                                                            Linkage                        forced        of the assets
              Series issue                  Current par     linkage                                 value as on      Type of      dates of    dates of                   conver-
Series                       value on the                                    on         financial                                                         basis and                  conversion of       pledged to
                  date                        value       conditions                                31.12.2009       interest        the          the                   tible into
                              issue date                                31.12.200     statements                                                          conditions                  the bonds to       secure the
                                                             on the                                     (NIS                      principal    interest                  another
                                                                           9 (NIS         as on                                                                                            other             bond
                                                          date of the                                 millions)                                                          security
                                                                         millions)    31.12.2009                                                                                     securities and
                                                            Report
                                                                                           (NIS                                                                                      the conditions
                                                              (NIS
                                                                                        millions)                                                                                    for exercising
                                                            millions)
                                                                                                                                                                                         the right

Series        28/10/200912   300,000,000    300,000,000     1,133           4           1,006        No trading      2.0278%      27.4.2014    Biannual   Exchange          –               –           First-ranking
E                                                                                                       as on           fixed                 payments.   rate of the                                       lien on
Bonds                                                                                               31/12/2009.        annual                    First       USD                                         17,142,858
                                                                                                        As of         interest                 payment                                                     ordinary
                                                                                                     22/3/2010,      linked to                    on                                                      shares of
                                                                                                      traded in          the                  28/4/2010                                                 NIS 0.01 par
                                                                                                    continuous      exchange                   and last                                                 value each of
                                                                                                    institutional   rate of the                payment                                                     Partner
                                                                                                       trading          USD                       on
                                                                                                                                              27/4/2014




         12
              The Company has a dollar loan that it received from the previous controlling shareholder of Partner, Advent, for the purpose of financing the acquisition of
              the control of Partner. The financing transaction of the above seller’s loan was executed by way of an issue of marketable bonds of the Company (“the
              Marketable Bonds”) to buyers of the marketable bonds (“Holders of the Marketable Bonds”) at the inclusive total principal equivalent to the total
              financing; i.e. for a total of USD 300 million. On the transaction consummation date, the sole buyer of the Marketable Bonds was Advent. The Company
              undertook, pursuant to the financing agreements, to list the Marketable Bonds for continuous institutional trading on the Tel-Aviv Stock Exchange Ltd. within
              30 days of the transaction consummation date, and they shall be marketable solely to the institutional investors listed in the First Addendum to the
              Securities Law, 5728 – 1968. The listing for trading was executed on March 22, 2010.


                                                                                                      76
** The said pledges are valid pursuant to all laws and pursuant to the Company’s incorporation
   documents. Provisions were prescribed in the trust deeds of the said series of bonds for a
   partial release of Partner shares from the lien in the event of buy-backs of bonds of the same
   series by the Company (the value of the shares to be released shall be equal to the par value
   of the bonds purchased as stated), as well as provisions regarding the Company’s obligation
   to pledge additional shares in the event of an expansion of a series of the bonds (shares the
   value of which shall be equal to the par value of the bonds issued within the scope of the
   expansion of the series).

      6.2   PARTICULARS REGARDING THE TRUSTEE FOR THE BONDS

            Series A, B, C and D Bonds

            (a) Name of the trust company –           Clal Finance Trust 2007 Ltd.

            (b) Person responsible for the bond
                series at the trust company –         Adv. Michal Avtalion

            (c) Contact details –                     Telephone: 03-6274848
                                                      Fax: 03-6274849
                                                      E-mail: trustees@clal-fin.co.il

            (d) Address for sending documents –       37 Menachem Begin Road, Beit
                                                                   th
                                                      Rubenstein, 7 floor, Tel-Aviv 65220

            Series 1 Bonds

            (a) Name of the trust company –           Ziv Haft Trust Company Ltd.

            (b) Person responsible for the bond
                series at the trust company –         Mr. Rami Sabati
            (c) Contact details –                     Telephone: 03-6374352
                                                      Fax: 03-6374344
                                                      E-mail: trusts@bdo.co.il
            (d) Address for sending documents –       46-48 Menachem Begin Road, Beit Amot
                                                      Bituach, 18th floor, Tel-Aviv


      6.3   RATING OF THE BONDS IN CIRCULATION
            Following are details about the rating of the bonds in circulation on the date
            of this Report:

                           Rating on                                         Date and reference
                                                              Rating
              Series      the offering     Latest rating                      no. of the rating
                                                             Company
                              date                                            announcement

            Series A            –           A– / stable       Maalot           October 5, 2009
            Bonds                            outlook                           2009-01-247938

                                                                              and March 9, 2010
                                                                               2010-01-409125

                                            A3 / stable       Midroog          October 4, 2009
                                             outlook                           2009-01-247470

                                                                          and November 16, 2009
                                                                               2009-01-285921

                                               77
                   Rating on                                  Date and reference
                                                   Rating
        Series    the offering   Latest rating                 no. of the rating
                                                  Company
                      date                                     announcement

      Series B         –          A– / stable      Maalot       October 5, 2009
      Bonds                        outlook                      2009-01-247938

                                                               and March 9, 2010
                                                                2010-01-409125

                                  A3 / stable     Midroog       October 4, 2009
                                   outlook                      2009-01-247470

                                                             and November 16, 2009
                                                                2009-01-285921

      Series C         –          A– / stable      Maalot       October 5, 2009
      Bonds                        outlook                      2009-01-247938

                                                               and March 9, 2010
                                                                2010-01-409125

                                  A3 / stable     Midroog       October 4, 2009
                                   outlook                      2009-01-247470

                                                             and November 16, 2009
                                                                2009-01-285921

      Series D        A– /        A– / stable      Maalot       October 8, 2009
      Bonds          stable        outlook                      2009-01-249960
                    outlook
                                                               and March 9, 2010
                                                                2010-01-409125

                       –          A3 / stable     Midroog      November 16, 2009
                                   outlook                      2009-01-285921


      Series 1         –              A– /         Maalot       October 5, 2009
      Bonds                      stable outlook                 2009-01-247938
                                                                      and
                                                                October 20, 2009
                                                                2009-01-260403
                                                                      and
                                                                 March 9, 2010
                                                                2010-01-409125

                                      A3          Midroog       October 4, 2009
                                                                2009-01-247470

6.4   COMPLIANCE WITH CONDITIONS AND OBLIGATIONS TOWARDS THE
      BONDHOLDERS

      Correct to the date of the report and during the report period, the Company
      complied with all of the conditions and obligations pursuant to the trust
      deeds, and no circumstances transpired that give rise to a cause for calling



                                     78
      for the immediate payment of the bonds or for exercising sureties provided
      to secure the payment to the bondholders.

6.5   AMENDMENT TO THE BOND CONDITIONS

      6.5.1   On September 21, 2009, the Company and the trustee for the
              bonds (Series A – C), Clal Finance Trust 2007 Ltd. (“Clal Trust”)
              signed an addendum, that was the same, mutatis mutandis, as
              each of the three trust deeds pertaining to the bonds (Series A – C)
              of the Company. This addendum vested Clal Trust the possibility of
              opening another trust account in addition to the first trust account, to
              which Clal Finance shall be able to transfer all or a portion of the
              proceeds of the issue, whereby the money, the securities deposited
              in the additional account and all of the Company’s rights in the
              additional account shall also be pledged in favor of Clal Trust for the
              holders of the bonds (Series A – C) of the Company under a fixed,
              first-ranking lien. For additional details, see the Immediate Report
              published by the Company on October 7, 2009 (reference no.:
              2009-01-249471). This reference constitutes inclusion by way of
              referral.

      6.5.2   On October 13, 2009, the Company and the trustee for the Series 1
              bonds of the Company, Ziv Haft Trust Company Ltd., signed an
              amendment to the trust deed for the Series 1 bonds of the
              Company, whereby, in the event of a dividend distribution, the
              conversion rate of the said bonds shall be adjusted, as specified in
              the shelf prospectus of the Company. Up until the date of this
              amendment, due to a clerical error, the mechanism for adjusting the
              conversion rate of the Series 1 bonds of the Company in the event
              of a dividend distribution by the Company had been inadvertently
              omitted from the aforesaid trust deed. For additional details, see the
              Immediate Report published by the Company on October 13, 2009
              (reference   no.:   2009-01-253899).     This   reference   constitutes
              inclusion by way of referral.

      6.5.3   On October 28, 2009, the Company and the trustee for the bonds
              (Series A – D) of the Company, Clal Trust, signed amendments to
              each of the four trust deeds for the bonds (Series A – D) of the
              Company. According to the conditions prescribed in the approval
              granted by the Minister of Communications for the consummation of
              the transaction for the acquisition of the control of Partner, the trust
                                      79
                    deeds for the bonds (Series A – C) of the Company were amended,
                    so that exercise of the lien on Partner shares used as surety to
                    secure the Company’s liability pursuant to the bonds (Series A – C)
                    of the Company shall be subject to the prior written consent of the
                    Minister of Communications (in addition to any other approval
                    required by law). At the same time, additional amendments and
                    adjustments were made in the trust deeds for the bonds (Series A –
                    D) of the Company, which in no way prejudice the rights of the
                    bondholders (Series A – D) of the Company.

      6.6   ABSENCE OF WARNING SIGNS IN THE CORPORATION
            Correct to the date of this Report, no warning signs, as this term is defined
            in Regulation 10(b)(14) of the Regulations, have arisen in the corporation.



        Ilan Ben Dov                                               Yahel Shachar

   Chairman of the Board                                               C.E.O.



Signing date: March 28, 2010




                                           80
                       SCAILEX CORPORATION LTD.
                          FINANCIAL STATEMENTS
                         AS ON DECEMBER 31, 2009




10979/1502/1747014/1
                                      SCAILEX CORPORATION LTD.
                                             FINANCIAL STATEMENTS
                                            AS ON DECEMBER 31, 2009




                                                Table of Contents




                                                                              Page
               Auditors’ Report to the Shareholders                             2
               The Consolidated Financial Statements:
                 Consolidated Statements of Financial Position                 3-4
                 Consolidated Statements of Operations                          5
                 Consolidated Statements of Comprehensive Income                6
                 Consolidated Statements of Changes in Shareholders’ Equity    7-9
                 Consolidated Statements of Cash Flows                        10-12
                 Notes to the Consolidated Statements                         13-149
                 Appendix to the Consolidated Statements




10979/1502/1747014/1
 Brightman Almagor Zohar

                                                  Auditors' report to the shareholders of

                                                        Scailex Corporation Ltd.

   We have audited the accompanying consolidated statements of financial position of Scailex Corporation Ltd.
   (hereinafter - “the Company”) as on December 31, 2009 and 2008, and the consolidated statements of operations,
   comprehensive income, changes in shareholders’ equity and cash flows for each of the three years during the
   period ended December 31, 2009. These statements are the responsibility of the Company’s Board of Directors
   and Management. Our responsibility is to express an opinion on these financial statements based on our audit.
   We did not audit the financial statements of subsidiaries whose assets included in the consolidation constitute
   approximately 37% of all consolidated assets as on December 31, 2009, and whose income included in the
   consolidation constitute approximately 60% of the consolidated income for the year ended December 31, 2009.

   We conducted our audit in conformity with generally accepted auditing standards in Israel, including those
   prescribed by the Auditors’ Regulations (Mode of Performance), 5733 – 1973. Those standards require us to plan
   and perform the audit to obtain reasonable assurance that the financial statements are free of material
   misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
   the financial statements. An audit also includes assessing the accounting principles used and significant estimates
   made by the Board of Directors and the Management of the Company, as well as evaluating the adequacy of the
   overall presentation in the financial statements. We believe that our audit provides a reasonable basis for our
   opinion.

   In our opinion, based on our audit, the aforementioned financial statements present fairly, in all material respects,
   the financial position of the Company and its subsidiaries as on December 31, 2009 and 2008, and the results of
   operations, changes in shareholders’ equity and cash flows for each of the three years during the period ended
   December 31, 2009 in conformity with the International Financial Reporting Standards (IFRS) and the provisions of
   the Securities Regulations (Immediate and Periodic Reports), 5770 – 2010.




   Brightman Almagor Zohar & Co.
   Certified Public Accountants




   Tel Aviv, Israel, March 28, 2010




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SCAILEX CORPORATION LTD.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION


                                                                                       On December 31
                                                                     Note            2009         2008
                                                                                  NIS millions NIS millions
ASSETS
Current assets
Cash and cash equivalents                                            6.a.                   368           903
Deposits                                                             6.a.                    50             -
Financial assets at fair value through profit and loss               6.b.                    94            52
Investments being held to maturity                                   6.d.                     -            12
Trade receivables                                                    6.e.                 1,410           143
Other receivables and debit balances                                 6.f.                    40            11
Inventory                                                            6.g.                   204            46
Derivative financial instruments                                     6.c.                    14             -
Current assets pertaining to discontinued operations                 7.b.                     -             1
Total current assets                                                                      2,180         1,168




Noncurrent assets
Trade receivables                                                    6.e.                 474               -
Derivative financial instruments                                     6.c.                    4              -
Deferred tax assets                                                  17.d.                 45             32
Fixed assets, net                                                    9                  2,072              6
Goodwill                                                             11                 5,505             22
Other intangible assets, net                                         10                 4,788            146
Long-term debit balances                                                                    2              1
Total noncurrent assets                                                                12,890             207




TOTAL ASSETS                                                                           15,070           1,375




               Ilan Ben Dov                        Yahel Shachar                Galit Alkalay-David
          Chairman of the Board                       C.E.O.                           C.F.O.


Date these financial statements were approved by the Board of Directors: March 28, 2010




            The accompanying notes constitute an integral part of the condensed financial statements.

                                                         3
SCAILEX CORPORATION LTD.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

                                                                                          As on December 31
                                                                          Note            2009         2008
                                                                                       NIS millions NIS millions
LIABILITIES AND EQUITY
Current liabilities
Overdraft and short-term loans from banking corporations                  12                   891               -
Current maturities and interest payable                                   12                   848               -
Derivative financial instruments                                          6.c.                  17               -
Payables in respect of a short sale of negotiable securities                                     6               -
Trade payables                                                            14.a.                854              74
Prepaid income                                                            15                    22              *3
Other payables and credit balances                                        14.b.                282            * 14
Provisions                                                                15                    37              *3
Current liabilities pertaining to discontinued operations                 7                      3               4
Total current liabilities                                                                    2,960              98


Noncurrent liabilities
Long-term loans from banks                                                12                   300              -
Long-term loan from others                                                12                 1,006              -
Bonds                                                                     12                 3,283              -
Liabilities in respect of employee benefits, net                          16.b.                 38              2
Liabilities in respect of dismantling and restoration of sites            15                    23              -
Reserve for deferred expenses                                             17.d.                294              -
Other liabilities                                                                                6              -
Total noncurrent liabilities                                                                 4,950              2


EQUITY                                                                    19
Share capital                                                                                   27              27
Capital reserves                                                                             1,251           1,224
Treasury shares                                                                              (448)           (164)
Translation differentials fund                                                               (311)           (305)
Retained earnings                                                                              595             492
                                                                                             1,114           1,274
Minority interest                                                                            6,046               1
Total equity                                                                                 7,160           1,275



TOTAL LIABILITIES AND EQUITY                                                                15,070           1,375

* reclassified




                 The accompanying notes constitute an integral part of the condensed financial statements.


                                                             4
SCAILEX CORPORATION LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS


                                                                           For the year ended December 31
                                                              Note         2009          2008       2007
                                                                        NIS millions   NIS millions   NIS millions



Revenue from sales and the provision of services              21.a.          1,744            184                -
Cost of sales and services                                    21.b.          1,325            147                -
Gross profit                                                                   419             37                -

Costs and expenses
Selling and marketing expenses                                21.c.            121              15              -
Administrative and general expenses                           21.d.            128              20             15
Other income, net                                             21.e.             (6)          (308)           (44)
Total expenses (income)                                                        243           (273)           (29)



Financing income                                              22.a.            194             30              39
Financing expenses                                            22.b.            129              1              28
Financing income, net                                                           65             29              11

Income before taxes on income                                                  241            339              40
Tax benefit (income taxes)                                    17.e.            (31)            31               -
Net income for the period from continuing operations                           210            370              40
Net income for the period from discontinued operations                            1            42               6
Net income for the period                                                      211            412              46

Attribution of net income (loss) for the period:
To shareholders of the Company                                                 183            409              62
To the minority interest                                                        28              3            (16)
Total                                                                          211            412              46

Net earnings per ordinary share of NIS 0.12 par value
attributed to shareholders of the Company (in NIS):

Base earnings per share:
From continuing operations                                                    6.35            9.8             1.5
From discontinued operations                                                  0.03            1.0             0.1
Base earnings per share                                                       6.38           10.8             1.6


Average quantity of shares (in thousands)                                   28,681         37,883         38,164

Diluted earnings per share:
From continuing operations                                                    6.17            9.8             1.5
From discontinued operations                                                  0.03            1.0             0.1
Diluted earnings per share                                                    6.20           10.8             1.6


Average quantity of shares (in thousands)                                   29,039         37,926         38,207




            The accompanying notes constitute an integral part of the condensed financial statements.


                                                        5
SCAILEX CORPORATION LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                                                                                For the year ended December 31
                                                                               2009           2008        2007
                                                                            NIS millions NIS millions NIS millions

Income for the period                                                             211            412            46

Other comprehensive income (loss)

Loss from fair-value adjustments of available-for-sale financial assets,
 net of tax                                                                             -       (215)         219
Realized losses from available-for-sale financial assets reflected in the
 statement of operations                                                              -           40             1
Cash flow hedge, net of tax                                                           -          (20)            -
Translation differentials                                                          (6)          (137)         (119)
Other comprehensive income (loss) for the period, net of tax                       (6)          (332)          101



Total comprehensive income for the period                                         205             80          147



Total comprehensive income for the period attributed to:
Shareholders of the Company                                                       177            107          125
Minority interest                                                                  28            (27)          22
                                                                                  205             80          147




               The accompanying notes constitute an integral part of the consolidated financial statements.

                                                           -6-
SCAILEX CORPORATION LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED DECEMBER 31, 2009


                                                                Share capital
                                                                                                                 Fund from       Balances of
                                                           Quantity of                 Capital       Treasury   translation     nonattributed              Minority        Total
                                                            shares         Sum        reserves        shares    differentials      income        Total     interest       equity
                                                                                                                        NIS millions


Balance on January 1, 2009                                 37,247,622            27       1,224         (164)          (305)             492     1,274                1      1,275
Changes during 2009
Net income                                                           -            -              -          -              -             183       183           28           211
Fund from translation differentials                                  -            -              -          -            (6 )              -        (6 )          -            (6 )
Minority’s share in net assets, including goodwill, of a
 Consolidated Company                                                -            -              -          -              -                -         -        5,529         5,529
Share-based payment                                                  -            -              -          -              -                3         3            -             3
Share-based payment in a Consolidated Company                        -            -              -          -              -                -         -            6             6
Capital reserve created in respect of a capital
 component of the Series 1 bonds                                     -            -            27           -              -                -        27               -         27
Sale of shares of a Consolidated Company to a
 minority                                                            -            -              -          -              -              20         20               -         20
Minority’s share in net assets, including goodwill, of a
 Consolidated Company, in respect of a sale of
 shares of the Consolidated Company                                  -            -              -          -              -                -         -         647            647
Decrease in holding ratio of a Consolidated Company                  -            -              -          -              -              (3 )      (3 )          -             (3 )
Purchase of treasury shares                                (9,439,857)            -              -      (284)              -                -     (284)           -          (284)
Exercise of options by an officeholder                          16,000            *              *          -              -                -         *           -               *
Dividend distributed to minority shareholders of a
 Consolidated Company                                                -            -              -          -              -                -         -        (165)         (165)
Dividend distributed to shareholders of the Company                  -            -              -          -              -            (100)     (100)            -         (100)

Balance on December 31, 2009                               27,823,765            27       1,251         (448)          (311)             595     1,114         6,046         7,160



* Less than NIS 1 million.




                                              The accompanying notes constitute an integral part of the condensed financial statements.


                                                                                         -7-
SCAILEX CORPORATION LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED DECEMBER 31, 2008


                                               Share capital
                                                                                                                 Other
                                                                                             Fund from      comprehensive      Balances of
                                           Quantity of               Capital   Treasury     translation     accrued income    nonattributed           Minority        Total
                                            shares        Sum       reserves    shares      differentials        (loss)          income       Total   interest       equity
                                                                                                               NIS millions

Balance on January 1, 2008                 38,178,363          27      1,213      (139)             (175)              172             233    1,331         63          1,394
Changes during 2008
Net income                                           -          -         -          -                  -                -             409     409               3       412
Other comprehensive income (loss),
 net
Loss from available-for-sale financial
 assets                                              -          -         -          -                  -             (212)              -    (